Wednesday, September 30, 2009

YHOO- Is it a good trading opportunity today?

YHOO- Yahoo stock.
A nice Flag pattern. Can be traded with a proper stoploss. Looks stock is also making a new recent High. A gap on Monday can be expected. If that happens, target would be $20.74

Tuesday, September 29, 2009

DAL (Delta Airlines) -FLAG/Pennant pattern: On its way to $12?

DAL: Delta Airlines stock is forming a Pennant/Flag pattern.
The DAL stock jumped from around 6.xx to 9.xx in a sudden move with high volume. Since then it is trading in a narrow range which is getting narrower on a declining volume.

Nice Call options play or a trading opportunity with a stop loss around 8.79/8.49 level.

The stock is in an accelerated upward move so I would keep an eye on any Open with a gap.

Thursday, September 24, 2009

SIRI- Another big move is coming

SIRI- Sirius XM Satellite Radio- After a nice upward move from from 37 cents to 78 cents, the stock is trading in narrower and narrower band. Most recently it seems to be stuck in 65 to70 cents band. The volume is also slowing down- so the tough battle between sellers and buyers in this field (band of 65 to 70 cents) is becoming group is going to emerge as a winner shortly. Bias is towards an up-move.

The best trading strategy in such situation where we know- a move is coming but the chart is not decisive about the direction- is buying options- call options at 70 and buying put options at 65. However there are no options for SIRI at this moment.

The safer trading strategy is watch out for a breakout (which most probably will happen with a gap in prices) and jump on.

The aggressive strategy is to trade now but never lose sight of the stoploss (Duh, not only here but every time, a trader who is trading for a short-term movement can not afford to ignore stop-loss)

I am watching for 2 things- breakout above 70 or below 65 WITH jump in volume.

Thursday, August 20, 2009

MESA: Mesa Air Group (NASDAQ: MESA): Watch this stock

MESA Air Group (Stock: MESA):

Nice patterns. The resistance line broken on high volume. A flag pattern on high volume. Volume going down now. To complete the Flag pattern, it might give another jump of 15 cents (similar to it going up from 16 cents to 30 cents.

Current price 24 cents. Stoploss at 2o or 22 cents.

Wednesday, August 12, 2009

SIRI: Sirius XM Satellite:

On the daily stock price chart, there is a Head and Shoulders inverted pattern with a small Flag recently. With a 3 cents risk, it can be traded for a quick move from current level of 50 cents to 68 cents or so.
SIRI on a Weekly price chart:
Cup and Saucer is a technical pattern and good trading opportunitiy. This usually takes place after some tiring (read as boring) period for the stock. Sirius XM Radio as shown below has the pattern in making with a nice saucer and a handle formation. At the current rate of $0.50, this can be traded with a 5 cents risk (stoploss @45 cents)

As always, a stoploss is strongly recommended.

Thursday, June 25, 2009

MGM: A strong trend reversal/resumption signal

MGM: fundamentally a risky stock in current economic environment. MGM Mirage is a company with significant debt and most of its properties are in Las Vegas which is feeling the pinch of economic downturn. So there is no surprise that the stock is tanking. From a high of around $100 in Oct-07, it touched a low of less than $2 few months ago. Then they got some new funds, had a secondary offering and offering to some Korean company. This can reduce some imminent risk for bankruptcy.

Anyway, we do not talk fundamentals on this blog but just wanted to highlight that this is a high risk stock so keep a stoploss if someone decides to jump on it.

Now technically, todays ago, there was a strong JUMP START signal. The stock climbed from less than $2 to $14 over March to early May-09 and then got into a downtrend which resulted in give-back of 72% of the gain. Now the JUMP START can be used as a trading opportunity with a strict stoploss at the low of $5.51. Critical will be to see if the stock is able to make a new recent high and goes above $14.

For PFP students, the stock did have a JUMP START as shown in blue which failed. However this time, the stock has managed to close higher on the next day (I mean today) so this is a good confirmation for our signal.

Do not forget to keep a stoploss if someone decides to get in.

Friday, April 24, 2009

Analysis of Bear Markets

This is reproduced from my personal website. For full details, click here:Analysis of Bear Markets

There was an interesting article in Wall Street Journal on 24th of March,2001 or so. It attempted to analyse a bear market from sentimental point of view. I agree with them and thought you all might like it too. So keeping the original idea, I am adding most of the thoughts of my own. So please read on:

There are usually three phases, with more or less intensity, in any bear market: Denial, Reality and Surrender.

Denial: When a bear market starts, people deny it. They really don't believe (or at least don't want to believe) that market has turned down. They relate it to previous minor reactions that market had over past couple of years and how market bounced from there every time to make new highs later on. So they are sure that there is no bear market in sight. They keep on buying more and more. They even make fun of anyone who mentions a possibility of a long bear market.
This is the time during which they spend disproportionately more time with CNBC, stock-market related publications like Investor's Business Daily, or on Internet sites doing investment 'research'.
, this phase is of somewhat arrogance, overconfidence and adventure. They still think of profit, maybe much more profit than they initially hoped for because of the opportunity to buy at lower prices. In light sense, they are still under the world's smartest man syndrome, with just little doubt building up on the horizon. (Ask yourself: Were you in that kind of mind-frame most of year 2000?)

Reality: However, the long sustained downtrend in stock prices and bear market confirmations by analysts and media (and the value of their own portfolio) forces them for a very hard acceptance of reality. Now they accept the painful reality. But the pain is not that severe; they still have hope for making up the losses (profit is now so distant they have to abandon even a thought of it). Losses are accumulating so fast, so the thought of break-even is more dominant than an idea about any profit. The pain keeps on getting severe. CNBC and Nightly Business Report on TV start getting on the sideline, time being spent researching on yahoo or reading publications like Investor's Business Daily is cut down.
So psychologically, this is a stage of piling up frustration, tension, stress but deep buried inside, there is still some hope. Now most of the investors kind of decide that they would quit the market once they break-even. They accept the ‘reality’ that markets are crazy and they are not for them. (Ask yourself: are you in that mind frame currently when NASDAQ is hovering around 1800s?)

Surrender: Now a days, you rarely watch CNBC or go to Yahoo! Finance or read Investor's Business Daily for research. The growing pain of reality starts becoming unbearable. The prices are dropping very rapidly and have reduced your portfolio value to levels you never imagined. You have little liquidity left. If you are not balanced by nature and if ambitions and confidence have been your biggest assets so far, you are in more danger. Your very base is shaken. You are angry with yourself; but you want to blame someone else (Rajanish once said, ”It is human to err; but it is even more human to pass on the blame of your errors on someone else”.). Not only money, but also your relationship with your near and dear ones is at risk. Your spouse and your children hopelessly see a different you- irritated, getting mad for no obvious reason, ‘leave me alone’ type of person.
There is no hope for any recovery; you abandon all thoughts of stock prices going up in near to long future (if not, ever). Market downtrend seems as much a sure thing as the up-trend sounded when the bull market was at its peak. Then the ‘prudence’ strikes us: save whatever you can when the whole ship is sinking. So guess what? We sell all those stocks we have been holding on during all that painful period. We feel relived and we are out of the game (with a serious mind not to reenter again in life time). This is called the distress selling and usually a bottom of the bear market.

(Even though how determined you are to quit the game, sooner or later, the rising stock prices of the next bull market would let those emotions take hold of yourself once more and the addiction of the stock market (which had been such a integral part of your life and even your personality during those years of last bull market and very painful bear market thereafter) will bring you back in the game. This is true for 95% people. If so, then why not play it like a game, raising ourselves above those misleading emotions? Only request: keep learning. Keep a diary of your thoughts periodically and watch yourself at each step. )

Take my words: This is the story of not only yourself; it is mine, your friends’ and even those 95% of people who work on wall street, including analysts.

Please drop a comment on this post.

Chrysler, GM- Will they go bankrupt?

These are some factors that strongly favor a bankruptcy outcome-
* Some bond holders/lenders may have bought CDS(Credit Default Swap) or bond insurance from some companies like AIG, etc. These lenders are totally protected even if these companies go bankrupt so they are less likely to get involved in pre-bankruptcy restructuring negotiations, making it a difficult job for US Government and company management. (Weird, right? US Government bailed-out AIG and others, so their CDS are still active for lenders and this can be an obstacle in negotiating with lenders of GM, Chrysler.)
*Sorry but other big problem for GM may be the unions and high labor costs (including retires' pensions and healthcare). I have no details to provide but this is the impression I have. Unless they are brought down, there are little chances for GM to emerge again as a competitive company. High labor cost is a drag on GM IMO.
* The bankruptcy court proceedings could also help the company cut the costs of closing some of its 3,200 Chrysler, Jeep and Dodge dealerships. Because some state franchise laws prevent automakers from forcing dealers to close, it can be expensive to buy them out. In bankruptcy, however, a judge could eliminate dealerships.

On a sidetrack, this recession may seem to be ending soon just because of the enormous fiscal and monetary stimulus by government. However every recession is supposed to make industries, economy stronger by curing some of its weaknesses.
Sorry got to go..

If you are interested, take a look at my another blog: Best Market Articles blog

Best Market Articles blog

There is another blog where I maintain links to articles I find interesting.
Best Market Articles blog

Monday, March 2, 2009

Government should ban short selling

The US Economy and the stock markets look scary these days. There is a panic among investors. Stock prices have come to a level un-imaginable by most.
On one hand Government is doing all it can. Billions of dollars are being loaned, invested in troubled companies, bad loans, bad securities. New legislation is being passed to jump start the economy. There are tax rebates and relief checks are being given to millions of taxpayers. However nothing seems to work. (I know ultimately it will work; it is just a matter of time). The prices are still continuing to go down. Nobody seems to have a handle on current situation. I don't pretend to know the root cause of the issue. However here are certain things I believe should be done asap.

1. Ban Short Selling: Does the economy drive the stock market or is it the stock market that drives the economy? So far I believed that it is the economy that drives the stock market but now I tend to believe that there are **times** when the stock market actually drives the economy. When a market (stock, real estate, bonds or any market as such) goes up, it pushes the economy artificially higher and the same things happens when these markets go down, they cause economy to suffer too. Any excess move by prices in any one direction can cause economy to move out of its sustainable long-term range. It is not true to say it is only the economy that causes the stock prices to go up or down; I believe stock prices can also cause the economy to expand or contract. In current scenario of panic in the market, let us say a stock is falling. That scares not only its investors but also its lenders. If the stock falls below the comfort level of some lenders, they become vigil. Then, some smart lenders to try to be ahead of the race and if they can, they withdraw their credit from the company. What was a fear so far starts turning into a reality. This creates another scare among market participants. That causes remaining lenders to panic. Nobody is willing to lend more money to the troubled company so bankruptcy becomes in-evitable. Company lays-off workers and cuts down on its spending (current or capital) which in turn affects the economy.
My point is: if the price of a company's stock falls below some level, it can really push the company into a bankruptcy. I am not trying to tell you that nobody should sell a stock. Every investor has right to sell his holdings if they lose confidence in the company they are invested in. I do not mind short sellers to go short the stock too but I like to see short selling of a stock allowed only in normal economic conditions. When markets are in panic, any small trigger, can become a snow-ball of problems. In such fluid market conditions, in my opinion, short selling should not be allowed.
When the Government is pouring billions of taxpayer dollars in stabilizing the economy and prices in the markets, short-selling defeats the purpose. I am surprised to see that short-sellers are still able to push companies into bankruptcies in such a bad economic environment. I was reading somewhere (I think it was LA Times) that for the last few months, the return on S&P was -12% or so but average return on hedge funds that primarily engage in short-selling was positive! This just proves that they are still people and institutions trying to profit by acting contrary to what Government is trying to accomplish with our billions of dollars.
Remember that the fundamental basis for an efficient market is dynamics of demand and supply. In my opinion, short selling is an artificial addition to the supply. If you have something, you can sell it but if you do not have it, how can you sell it? I want to short-sell (not in the real-estate short-sell terms but in the stock market short-sell meaning) my neighbour's house but I can not do it because it is not mine. I can not short sell air-line tickets, vacation packages, NBA game tickets, computers, monitors, memory modules, gold etc. I know you will come back and tell me that I can short sell Gold Futures. I am not talking about Gold Futures; I am talking about Gold as a commodity. If we have Futures on individual stocks, that is fine for one to sell the Futures. Remember that Future contracts are created at will by an agreement between a buyer and a seller. However short-selling a stock is a weird concept because stocks are usually created by the issuing company- you or I are not allowed to create them at our will. Here a short seller just creates some supply of the stock out of the thin air and pushes the price of the stock down.

How Short Selling works in reality? In my previous statement, I said that short sellers create new supply of stocks; I am not saying that they create new stocks. A short seller actually borrows stock from some current holder and uses it to sell. Over the years, the stock lending systems have become so perfect that most of us have lost control over it. They are transparent to us. Probably the Apple stock you are holding in your account may be used by some short seller to actually bring the price of AAPL down. You are hoping for the Apple stock to go up but somebody, without your direct consent, has used your stocks to push down its price!!! If most stockholders are aware of this, they would stop their brokers from lending their holding to short sellers. They would not want someone to use their stocks to cause the damage to own interests. Any way, it is hard to change the system and let every brokerage account holder decide if they want to lend their stock holding to some short sellers. The point I am trying to make is: It should be government's objective to bring stability to markets. In normal stable markets, it is okay to allow short selling but when the markets are in panic, short-selling can prove suicidal to economy. Government needs to look at the share of short-selling volume to total trading volumes in the market. The volumes have currently dried up and in such thin markets, any short selling can be more suicidal to the company the short sellers are shorting, and to the company's employees, vendors, customers and the whole economy in the end. Some companies which can probably survive the current down-trend are being pushed in to bankruptcies by the money-minded actions of short sellers. I am just surprised to see that nobody is talking about ban on short selling in current market conditions.

(The article is work-in-progress. If you like it, please circulate it- not because I want to be famous but because I want to see a ban in short-selling in current market.)
Updates: Read here what Soros has to say: "..the underlying reality is that the markets not only passively reflect, but also affect reality, .."