WHAT THE LAW OF AVOIDANCE IS SAYING ABOUT THE MARKET RIGHT NOW
I have the portfolio's I manage up to nearly 100% invested between 8 different positions. I have made two of the positions public GSIG and PSTR. The remainder of the positions within the portfolio all have market caps under $100 million and are spread across industries as diverse as oil and gas to a restaurant play. All of them are distressed/restructuring plays. I added GSIG as a way of putting excess capital to work in a company that I am confident will outperform the general markets during any upward advance. I felt coming into this year that past January the general markets would get choppy at best and fall dramatically at worst. The worst case scenario was only going to be temporary in nature. However, that worst case has not come to pass and I don't think it will as we approach the middle of the year. There are simple philosophies in trading that can assist any market observer to better gauge the financial markets. One such philosophy, exercise, theory or whatever other name you would like to give it is what I like to call the law of avoidance. The law of avoidance is simple: If you have a worst case scenario laid out for a particular stock or the general market and it does not come to pass, then that stock or the market as a whole is stronger than indicated. For example: Let us say that we own a company that has reported terrible earnings. A miss on the top and bottom line estimates. Future guidance stinks. Pessimism reigns in the time span between the report and the stock opening for trading the next day. You are expecting the stock to sink at least 10% on the open. Lo and behold the stock opens down 3% and simply hovers around that area for the first hour of trading. By the end of the day it closes flat. This is the law of avoidance. The stock has avoided the worst case scenario. In doing so, it has exhibited behavior that would indicate that the price action in the company is a lot stronger than you think. It doesn't matter why. It's not supposed to make sense. Don't allow you brain combined with a good deal of arrogance to get in the way of listening to what the market has to say. In the case of the example listed above the stock avoided the worst case scenario, exhibiting behavior that indicated strength. That's all the information you need. The law of avoidance came into play over the past few months with the performance of the general market. My...
THE LONG-TERM VIEW: 4 MONTHLY CHARTS THAT CONFIRM A BULLISH SCENARIO FOR THE MARKETS
Last week I zoomed out of the muddled daily technical picture and looked at the weekly charts. Since this past week of trading was more or less nonsense in terms of technical developments, I decided to push out even further and look at the monthly charts to see if they are confirming the bullish picture that the weekly charts are painting. Below are the monthly charts going back 10+ years for QQQ, Nasdaq Comp, Dow Transports and Networking Index: click on charts below to...
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TRADE UPDATE – GSIG
I have reentered GSIG at an average price of 11.95. I have a long history with this company. I bought them when they were still in bankruptcy and court in an effort to preserve shareholder value. I originally got into the position at $2.55 during the first quarter of 2010. I sold it in the $12-$13 range during the first quarter of this year. I have mentioned the company quite a few times when it was trading under the symbol LASR and the current symbol GSIG. All the research you need is here for when it was symbol LASR and here under symbol GSIG. Cash flow positive. Trading at a very reasonable multiple to earnings and revenues. Still being valued as if the black cloud of their previous history is lingering over them despite a brand new management team. The stock is an easy double over the next 12...
WHAT I LEARNED ABOUT THE MARKETS FROM THE MILLIONAIRE MASSEUSE AND THOUSANDS OF RETAIL INVESTORS
I had just gotten my Series 7 license. It was 1995. I was 20 years old and had replaced going to class with trading equity options by day and mingling in currency trading at night. I wasn't going to get on the trading floor of Goldman Sachs at 20 without any experience. My Series 7 was a ticket into a retail brokerage firm placing orders for customers. Anything to be around the financial markets as much as possible. Internet trading was just beginning in the mid-90's. Most customers were still calling in to place their orders. I was the guy who would route the order for them. I was working in Downtown San Jose at Waterhouse Securities. Back then it was owned by a guy named Larry Waterhouse. He eventually sold out at what turned out to be an enormously undervalued selling price. It was right before the internet trading and .com boom of the late 90's. I was obsessed with trading. It was rare that I would find a customer who was profitable being an active trader. In fact, out of the thousands of customers I came across, I only found a few who were worth following. The rest were either losers or marginal winners without much ability. Whenever I would find a consistently profitable trader I would begin studying his trades. I came across the following characters: Old Man K-Mart - he would only trade spreads in Kmart option contracts. Back then the symbol was KM I think. He knew what he was doing. He made a consistent profit trading a variety of bull and bear spreads on K-Mart options. He was knowledgeable. Worked his account into the low 7 figure range. Breakout Billy - sly as a fox. Disciplined as a Navy Seal. Breakout Billy was by far one of the most consistent traders I have ever come across. To this day I don't know of many that matched his consistency. He would play very simple breakouts on companies that were making all-time highs. He would also trade companies that had a good deal of short-term momentum. Simply playing breakouts of short-term consolidations within the uptrend. He cut his losses extremely short. If a trade didn't move for him after a day or two, he was out. I witnessed him grow an account from $100,000 to over $600,000 in two years. And he made some significant withdrawals. In fact, one of the traits I noticed was that he would withdraw a portion of profits on a fairly frequent basis. Gut Check Charlie - he was a casino manager. A good trader. He relied on some system...
5 DISCIPLINARY MEASURES THAT WILL MAKE YOU THE KING KONG OF TRADING OR INVESTING
Nothing has changed. I came into this week thinking that the general market averages were in an extended consolidation phase within a healthy bull market. And I think I will be exiting this week feeling the same way. I get shocked at the number of people I see attempting to overthink the financial market on the daily basis. It's turns into such an ego game for some people. They get in the way of themselves. It's like the tennis player who attempts to think about the positioning of his feet, the rotation of his shoulders and the stiffness of his wrist while he's hitting a forehand. The mind gets in the way of innate ability. It's much the same in speculation. If you think too much, you die. It's so easy to mentally masturbate with all of the information that is at our fingertips nowadays. You can find one million different ways to slice and dice any piece of information. I feel terrible for anybody attempting to learn about trading or investing in this environment. While the abundance of information makes things easier in some respects. That same abundance of information can prove extremely detrimental. You can find varying opinions on every single method available for speculation. Unless you have a mentor to literally hold your hand as you walk down the house of informational horrors that the internet can become, the task of getting to that point where you are self-sufficient and confident can't be an easy road. I'm glad I came up during the time that you had to order ValueLine (came in the mail) for information on stocks and I got my real time quotes from a Quotrek with a 2 foot metal antenna that received radio signals. There are a few methods you can use to improve your trading or investment results right away. I would advocate the following disciplinary measures: 1. Know what you are going to do tomorrow tonight. This means that you should be doing extensive homework at night for the following day. No trade or investment should come as a surprise the next day. You should have all scenarios planned for the day ahead. 2. Becoming impatient, fearful or going against your discipline means you are done for the day. If you have positions that are hurting you cut them down to the point where they no longer hurt. Being in an impatient, fearful or undisciplined state opens the door to your EDS. And when your EDS is opened you have one foot in the grave already. If you feel any of these during the trading day, have the discipline to...
LINKEDIN: A DREAM FOR BULLS, CONTRARIANS AND ANYBODY WHO BELIEVES IN WALL STREET
This article also featured on TheStreet.com Opinions swirl. Information is exchanged at a lightening pace. Money is made. Money is lost. Somebody smiles. Somebody cries. Somebody quits trading. Somebody is having their first profitable day. Lessons are learned on a daily basis. If you have had enough days in the markets those lessons hopefully end up making you into a better trader or investor. Out of all the lessons I have learned in the financial markets, there has been one constant: the financial markets want you, me and anybody else who attempts to pick fruit from its bountiful tree to tumble from our ladder and break a leg, at a minimum. Death is preferable. It's one giant psychological mouse trap. Doubt fuels rallies. Fear makes solid bottoms. Greed creates long-term tops. What do doubt, fear and greed share in common? They all take place during periods of time when they are precisely the incorrect emotion at precisely the incorrect time. LNKD is the new poster boy for a demonstration of the psychological mouse trap in real time. It used to be that NFLX was my go to guy for a lesson in how and why the markets do what they do. LNKD has taken the dynamic to a whole new level. With LNKD we have the following set of circumstances: - I'm not a member of LNKD. Most of the guys who I didn't like from high school and college are on there. It seems like a gigantic job board to me when I look at it. Maybe with a social angle thrown in so it's not just another HotJobs. I'm assuming that most people that look at it from the outside see something similar. On the surface, it doesn't seem like anything special. - A nearly $10 billion market cap. NFLX is $13 billion by comparison. Only difference is that it took NFLX 10 years to get there in the public markets. LNKD did it in one day. Magical. - Astronomical valuations on price to earnings, sales, book value, cash flow. Whatever ratio you want to apply. It's extremely overvalued. - A very low float making for some extremely volatile trading conditions. - Skepticism galore. Just read the headlines. There are more articles about shorting LNKD than anything else. It is fair to assume that the underwriters knew precisely the type of skepticism that would ensue if Linkedin had even a mildly successful IPO. It is also fair to assume that they knew that short interest and put buying would become commonplace in the weeks following the IPO given the amount of skepticism the valuation would be greeted...
6 WEEKLY CHARTS THAT HAVE CONTINUED BULL RUN WRITTEN ALL OVER THEM
Sometimes it is good to zoom out and look at things on a longer-term perspective. That becomes especially true after confusing, choppy weeks like we experienced with this one that just passed. I decided to zoom out and look at the weekly charts. It clarified a lot of things: click on charts below to enlarge
WHY A SUPERCYCLE IN OIL PRICES MAKES LAND THE BEST INVESTMENT OF ALL
The easiest way to play the potential for a supercycle developing in crude oil prices is to take the no-brainer approach and buy stock in major oil players. The biggest no-brainer is to go the mega-cap route with XOM, CVX or BP perhaps. You can be confident that these stocks will continue receiving a steady bid for the majority of this decade, as energy prices, and the politics surrounding the entire sector become a major issue of our time. I've never been one to enjoy the no-brainer approach. Irrespective of the fact that names like XOM will be fantastic machines of wealth creation over the next 3, 5 or 10 years. The larger gains will be in the small-cap companies that are planting seeds today that could possibly sprout into literal money trees over the coming years. One of the greatest opportunities lies right here, within the borders of the United States. Advancement in the technology, namely hydraulic fracking, has allowed large areas that were previously inaccessible to suddenly become vast stores of dollar bills that are simply resting in the ground, awaiting their rescue. The most promising find has been in the Bakken Shale, primarily located in North Dakota. Oil companies both small and large have been converging upon the area for years now. As the technology improves so has their success rate in getting the oil and natural gas located in the shale and turning it into actual profits. Crude oil prices are in the beginning stages of experiencing a massive expansion in their historical trading range. What has been occurring since 2005 is a readjustment of prices. This readjustment will continue for a majority of this decade and completely redefine what we see as a normal in terms of oil prices, gasoline prices, natural gas prices etc. Just as the thought of gasoline being 20 cents a gallon in the 1950's seems unfathomable to us today. So will the thought of $60 crude oil and $3.00 gasoline in 2020. What if oil prices go to $250, $300 or even $400 per barrel? Oil companies and those countries with vast reserves will become the power players of the world. Drilling technology will experience such an advancement due to the potential for profit that every single barrel of oil the lies underneath the ground in the United States will be up for grab. What effect will this have on land values in those regions that have vast stores of oil such as Bakken? Does any logical person with a rudimentary grasp of economics believe that land values will appreciate commensurate to oil prices? I don't. Land values in...
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