LINKEDIN MAY HAVE STRONGER LEGS THAN YOU THINK
This article also featured on TheStreet.com & Fidelity I was in the middle of writing the numerous reasons why LNKD was doomed from the outset of its NYSE listing. Visions of investors driving off a cliff in pursuit of the first big social networking play kept repeating in my mind. Then I started paying attention to my Twitter feed. One after another I saw bearish commentary with respects to LNKD. I had company. And not a little bit of company. Everybody on my Twitter feed agreed that LNKD is overvalued, overhyped. A bubble, a scam, a ploy to suck our money back into the market. I decided to begin looking into the headlines with respect to LNKD. One after another. Bearish. Mega-bearish. Nuclear-bearish. Then I saw one lone bullish article. It was like a small squirrel scurrying through the leaves amongst the heavy footsteps of the bears. That small squirrel was Henry Blodget. His article about LNKD's prospects was written before the stock ramped 100%. Nevertheless, it was the only piece of bullish commentary I could find. Earlier in the trading day I had written a brief thought about how LNKD was going to hurt investors. It still might. But I am beginning to think the timing of its pullback may be a lot longer than most suspect. The markets hate crowds. It doesn't matter what your numbers tell you about where a stock should be. How many times have you bought a stock based on an arbitrary valuation metric and it did nothing for months? Years? A decade? Those numbers only mean something when they mean something. That means if there is no catalyst that allows the juice to flow out of the orange, it will simply remain in the bowl untouched. The same thing goes for overvaluation in a stock. By every metric available -- based on current estimates -- LNKD looks extraordinarily overvalued. The market works in funny ways when it comes to mass realization of overvaluation. Two types of investors tend to be active in stocks that experience mass realization of overvaluation: 1. Nervous longs - buyers who believe the stock may be good for a short period of time but are quick to hit the panic button and eject once it drops 5 or 10 percent. These same nervous longs end up chasing the stock higher on every spike. This creates a support dynamic for the stock. They essentially want to own the company while avoiding the pain of the investment falling to Earth once gravity catches up. 2. Short sellers - by nature, short sellers are active in the marketplace. They will take...
QUICK THOUGHTS
- The IPO of LNKD - Linkedin is going to hurt some investors. There are lots of comparisons to Google taking place. Not so much on a fundamental or corporate level, but rather on the basis of potential for profit and opportunity. The fact of the matter is that Google's IPO came against a psychological and sentiment backdrop that despised anything having to do with the internet. LNKD is coming into an environment where people can't wait to get their hands on the first big social networking IPO. You can assume then that the market is doing everything possible to fully realize the value of LNKD as soon as possible. GOOG was the complete opposite. I will have more on this later. - Not seeing anything that is giving me an overwhelming desire to become involved with the market on a short-term basis either long or short. Avoidance is often times the most profitable strategy. This time is no exception. - The long-term portfolio is nearly fully invested. I have taken on some new investments over the past couple of weeks. All micro-cap names, all restructurings, and all have some really distorted values taking place. Crickets are everywhere. Meaning that the investments are completely vacant of investors. This does not mean they are vacant of catalysts, however. Catalysts are taking shape that will create value in the names over the long-term. - Muddled market. Make sure to check your shoes before walking into the...
OPTIONS EXPIRATION WEEK WILL MAKE AN OLD MAN OUT OF YOU
This is expiration week. Anytime you have an expiration week you have a myriad of interests converging upon the financial markets. Whenever a myriad of interests converge upon anything at once, be it a laundromat, a 7-11, a car wash or the financial markets, patterns of behavior are going to change. Volatility ensues. Here are a few of the customers who enjoy playing in the options expiration circus: - You have those traders who are short puts or calls and looking for their positions to expire worthless. When things begin unraveling during expiration they are forced to cover the position or hedge with underlying. - Then you have those who treat option expiration week as a time to take advantage of depleting time premiums in order to create some opportunity for extraordinary gains. On the other side of the trade, you have the market makers who are forced to cater to these aggressive types and must hedge their books with the underlying. - Let's not forget about those who are rolling positions over. A hedge, a speculative trade that needs more time, a spread or a straddle. Expiration brings with it the need to renew contracts. This equals increased volume which causes increased volatility. And let's not forget about the small fact that the QQQ and SPY are both flirting with important technical points here and now. With all of these facts, it should be no surprise to see the markets twist up and spiral down. Rinse and repeat. That will be the modus operandi during the entirety of this week....
TRADE UPDATE – SWSH
Took a .55 cent profit on SWSH long at 6.15-6.16. All out. Earnings after the close tonight. Trade taken two trading days ago http://www.zenpenny.com/?p=1733
TRADE UPDATE – PSTR
Adding to PSTR long position at 5.65 - 5.75. Final allocation. Largest position now. Long-term hold. Research report here http://www.zenpenny.com/?p=1104
6 CHARTS TO KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
click on chart below to enlarge
HOW YOU CAN PROFIT FROM REALIZING THAT THE MARKET HATES YOU
This article also featured on TheStreet.com & Yahoo Finance The market hates you. If investors made this profoundly simple premise the basis for every investment decision they made, it would vastly improve investment results. All of the organisms that make up the financial markets hate you. John Paulson hates you. Goldman Sachs loathes you. Morgan Stanley wants you to drop off the face of the Earth. Paul Tudor Jones like you a little bit, but still wouldn't mind seeing you blowup. Ok, he hates you too. Wall Street has a peculiar relationship with the individual investor, small to medium sized hedge funds and anybody else who doesn't make up the billion dollar club. Your capital is sorely needed in order to insure proper lubrication of the financial engine that runs the markets. At the same time, the feeding mechanism at the top (Goldman, large hedge funds etc.) relies on you being on the zero side of the zero sum trade. It's a constant battle to keep you interested while at the same time keeping you off balance. Recently I came across the survey results from the Chicago Booth Kellogg School Financial Trust Index. The survey describes itself as "quarterly look at Americans’ trust in the nation’s financial system". To summarize, despite the historic run of the past couple years in the popular market averages and revival of an economy that was near death, trust in the nation's financial system stinks. Individual investors feel that the markets can crash at a moments notice. Stock portfolios are unsafe regardless of the investment. Mutual fund portfolios are not that much better. Hedge fund managers, mutual fund managers, analysts and employees of Wall Street firms are loathsome swine for which the fires of hell are an overly-generous accommodation for the eternal suffering they deserve. You get the picture. Given this level of mistrust in the financial markets, it would be safe to assume that we are in an era of cautious allocation into the financial markets following a prolonged period of severe psychological and financial stress. The best way to describe it is to imagine a group of golden haired surfers who have been sitting on their couches for the past couple of years playing Xbox and smoking everything they can get their hands on. There is word of some big waves that have been coming in for some months now. They go to the beach once in awhile and dip their toe, maybe even catch one wave. But the sedentary lifestyle that they have become accustomed to has inhibited the desire of catching that big one. With all the stories of other...
TOP 3 MOST POPULAR POSTS FROM THIS PAST WEEK
1. 3 INVESTMENT OPPORTUNITIES WITH EXPLOSIVE CATALYSTS 2. RESPECT, EMOTION, CATALYSTS AND TOILET SERVICES 3. INFLATION TRADE: GOLD AT 3,500 AND THE NASDAQ AT 4,000. WHY...
HOW WONDERFULLY MEDIOCRE EARNINGS CAN MAKE YOUR KIDS HAPPYS, YOUR MIND HEALTHY AND YOUR PORTFOLIO FAT
PSTR is one of the larger holdings on the portfolios I manage. They released earnings yesterday after the close. Without getting into abundant detail about earnings (not my style anyways) they were wonderfully mediocre. To be wonderfully mediocre is a celebration of mediocrity. PSTR management I'm sure pulled out the streamers, party hats and red velvet cake in order to celebrate their mediocre quarter. How did the stock celebrate mediocrity? Not with a high volume, high velocity sell-off. It gapped down in the morning and sustained its losses throughout the day on what turned out to be average volume. Earnings don't matter to PSTR here. Earnings don't matter to any company that is in its bottoming process. The crowd that would sell into a negative earnings report left a long time ago. That doesn't mean that a company can completely miss whatever estimates are out there for top line, bottom line and future projections. The numbers have to be reasonable. But a mediocre report like what PSTR came out with yesterday is irrelevant. Put PSTR smack in the middle of a sustained uptrend that has seen the company appreciate over a 1-2 year time frame. Then you will see investors enter the stock who have expectations. You have nervous money who will sell mediocrity. Earnings matter when you are in the meat and potatoes portion of the uptrend. They don't matter when you are still having appetizers. With that said, you can put away the magnifying glass. Take the 10-Q you just printed out. Let your kids use it to draw pictures of airplanes. You're better of spending your time reading A Confession by Leo Tolstoy...one of my favorites. The Power of Now by Eckhart Toole is fantastic. If you must read a market related book, I like The Education of a Speculator by Victor Niederhoffer. It's a book that teaches you to look at the market and see a sky that's green when everybody else only sees blue. Never mind that some of the top-ranking fund managers over the past 10, 15 or 20 years have grown up under Niederhoffer's tutelage. PSTR has a long ways to go in terms of realizing its value. I've got a tiger by the tail and I ain't lettin'...