THE COLD HARD TRUTH
If I was all about generating hits to my website, I could easily publish trading setups, volumes of poorly based research reports, and chart analysis that simply doesn't matter. I would be publishing all of these useless tools just to create volume. I know from experience that those who frequent financial blogs love volume. They want the trading setups. They want new stock ideas. They want constant analysis. It matches very well with the attention deficit disorder type mentality that has developed in the trading world over the past several years. Unfortunately, traders and investors seem to think that jumping from idea to idea is the most efficient creating capital gains. They learn over time that this is far from the truth. The problem is I don't care about hits. My goal here is not to have advertising revenue. I don't want to be the most popular guy, I want to be the most effective guy. I want to be the one that changes the way you look at small-cap investing and technical analysis. That is why I go out of my way to provide analysis that you won't find elsewhere. Analysis that opens your mind to possibilities. The purpose of this experiment in communication and information is to demonstrate what I've learned through 18 years of experience. And perhaps to shorten your learning curve by a bit. While on the subject of length of experience, allow me to drop some hard, cold truth on those of you who haven't been doing this for very long. This game that we play is not to be learned overnight. I have come to realize, at the ripe old age of 37, that it takes a minimum of a 10-15 years just to BEGIN to get it right. The foundation that is built after 10-15 years of constant trial and error will allow you to be great in your 20th year and beyond. That is if you make the correct adjustments, modifications and possess the proper mindset. You don't really begin to learn about yourself in relation to trading/investing until after the ten year mark. Before that point, most are jumping around from strategy to strategy. Most are too short-term in focus. There isn't any substance or originality that allows the methodology to give a defined, necessary edge. Most importantly, even if it does, there isn't enough emotional and technical experience to even recognize an edge if it drops right on your lap, gift wrapped with a card saying "YOUR EDGE." You don't know yourself well enough to know where your edge lies. It takes time. It takes a lot of time. In...
THOUGHTS ON MEDIOCRITY IN EARNINGS, PORTFOLIO PERFORMANCE AND HOW TRACKING INSIDER BUYING CAN BE USELESS
We're getting our first look at what earnings season July 2012 is going to look like. It can be summed up as mediocrity, even disappointment, splashed with glimmers of sunshine and speckled with periods of darkness. Just like the market, there is little consistency. Most importantly, that lack of consistency is not at all a surprise. It was seen from a million miles away for months now by even the most optimistic market participants. In my June Month End Summary delivered on June 30th, I wrote: "There is a very strong perception of July earnings coming in weaker than expected rendering any rally from this point useless once the second week of July roles around and companies begin announcing the horror of the previous quarter. I don’t think the negativity with relation to earnings is as cut and dry as it seems. We either rally right through a negative earnings period based on a factored in, looking ahead type mentality OR earnings and forward projections will be nowhere near as bad as most are expecting." I continue to look for that "factored in" rally to take place. Although now I am also entertaining the possibility of a sideways market right through earnings, basically remaining in the 12,300-12,900 range for the Dow. The lack of participation, generally speaking, has been pronounced. Even more so than summers of recent memory. A wait and see approach seems to taking place among those who have the power to influence market movement. The rest of what is occurring is simply running through various technical levels to see who says "uncle" first. A game I am not interested in playing. I can't complain. I am up about 1% for the month and roughly 25% for the year mid-way through July. I'm sitting at 75% invested of capital, with a 25% cash position that I am eager to put to work once my intermediate term trend indicator turns. As of tonight, both my long-term and short-term trend indicators remain positive. I need all three to give me the buy signal before I fully commit to the market. On another note, one of the research pieces I track closely is insider buying as it relates to small-cap companies. I am seeing a severe drought in insider buying over the past few weeks, the likes of which is rarely seen. The volumes are basically nonexistent. There is a school of thought that exists on Wall Street that considers insiders "smart money" and considers an absence of buying, similar to what we are experiencing currently, an ominous sign for the months ahead. I have a problem with that school of...
LIVING IN A LAND OF NO OPPORTUNITY
In my mid-30s now, I have developed (or perhaps regressed?) to a point where all sense of uncertainty with respect to what I will be doing from one hour to the next has been removed. Yes, I live a very regimented life. With the exception of an occasional vacation or getaway, I can tell you what I will be doing at any given point two Sunday's from now. My time has been segmented into small windows that I devote to different things in my life that matter to me the most. Every single day a couple hours after the market closes, like clockwork, I perform my daily routine of looking through current positions and attempting to locate new candidates. I have a number of scans and filters that I use. I also look through about 80 different charts day in and day out. With the exception of when I took a three year break from the markets after closing my hedge fund in 2006, I have been doing this, without exception, since 1994. From 1995-2006 I would look through approximately 400-500 charts per day without missing a single day. I took that number down substantially when reentering the markets due to modifications in my methodology and focus. I decided to get more micro rather than being macro. Just because I am not mentioning my research doesn't mean that it is not being performed. It is one of those things where I feel like if I miss a single day, there is potential to miss the next SYNC or PTGI or SPRT or AUTH. Any number of the opportunities that have come along this year, leading to substantial profits for myself and hopefully some of you as well. And it literally comes down to a single day. If I don't follow my discipline in research then that filter that triggered SYNC back in March, as an example, won't trigger it the next day or even the next month. That opportunity is then missed. There goes a 100% gainer and a good percentage of my gains so far in 2012. There simply isn't any opportunity out there. I mean it is bone dry. Fairly typical for the summer trading months. Nevertheless, it is frustrating. Even my current positions, with the exception of SPRT, aren't performing well enough to consider adding to winners as I like to do. As far as my trend indicators go, my short-term indicator is close to turning negative, while my intermediate term trend indicator is close to turning positive. Meaning that even my mechanical, quantitative models have no idea what to make of the past few days...
IS THERE AN EXIT DOOR OUT OF THE TWILIGHT ZONE?
When it rains it pours. My SYNC road map fell apart in flying colors resembling what you find in an outhouse today, forcing me into full scale liquidation mode unexpectedly. And now it seems that my price mirrors in the Dow and Russell are beginning to experience some cracking. I have suddenly found myself in another dimension of market analysis, where the sights and sounds are not what they seem. Welcome to the stock market Twilight Zone. In order to experience a quick exit from this Twilight Zone, I need to see a green close tomorrow across all major indices. I DO NOT want to see the Dow or Russell close below today's lows. Should we continue to weaken throughout this week, then I will need to reassess. This doesn't mean I will be bailing out of my positions. Barring an enormous down day, my trend indicators are still firmly positive. But enough technical damage is beginning to occur that it needs to reversed in order to preserve the short-term bullish structure of the market. When the short-term structure falls, then the intermediate term is not too far behind. And so on and so forth. It can get ugly quickly. Especially in these thin summer months, with earnings season upon us. And that is exactly why I have little tolerance with moves in the greater indices that are against my expectations. Minor damage can turn into major damage in a hurry given the time period we are in and the crosscurrents we face. If there is an exit door out of the Twilight Zone, I hope I find it this week. Otherwise, I am afraid that what was once a bullish pasture filled with wonderful flowers and fairies will turn into a raging river of molten lava occupied by bear-demons with reptilian tails and serrated teeth. I prefer flowers and fairies. Let's see if we can spot any...
THE OUTLOOK ON SYNC FOLLOWING AN ACROBATIC, HIGH-FLYING WEEK
SYNC is and HAS BEEN an investment since March, when I first published this research report on the company when it was in the low 7s. It has grown into the largest portfolio position as a result of appreciation. In the March research report, I stated the following: SYNC is selling at 1.5 times revenues and 15 times projected 2012 earnings. If the projections are correct SYNC should be selling at a minimum of double the current market cap based on the the premium that should be assigned to a growth company in a hot sector that has created a niche for itself that is difficult to replicate. If the guidance is conservative, then the stock should be in the mid-20s by the end of the year. It seems as though my estimates may have been conservative, all things considered. I didn't know at that time that volume and interest in the stock would jump to such extraordinary levels. The onus is now on the company to justify this run by exceeding expectations and raising guidance when they report in a few weeks. Keep in mind, this was a company that was attempting to go public before 2012. It is also a company that was supposed to start trading publicly above $10 per share but saw its offering price lowered due to prevailing market conditions earlier this year. Point being that management obviously had an idea of what they considered to be fair value. At present value, the company is trading at a 50% premium to what management considered fair value at the beginning of this year, without all of the recent positive developments. Upside remains substantial. And here is an updated technical look at the company. As a side note, before getting to the chart, I am astounded by the number of individuals who find it so difficult to hold onto a profitable investment. I am also surprised at how many individuals honestly feel that they are adept enough to trade every swing in a stock. Both of these traits guarantee that you miss the bulk of the move in a stock like this. And all you need in order to have a good year is reasonable risk control and one or two of these names per year. Your trading and fear of a profit turning into a loss will kill you. click chart to...
JUNE MONTH END SUMMARY AND LOOKING AHEAD TO JULY
June Performance: +2.45% S&P 500 June Performance: +3.97% YTD Performance: +24.06% S&P 500 YTD Performance: +8.31% Portfolio highlights for June: - Went from a 70% cash position during the first week of the month to a 25% cash position by the close of the month. - Took a profit of 37% on AUTH position after initiating the position in early May. - Initiated a position in SPRT during the middle of the month. Position showing a gain of over 20% in just two weeks. - The largest portfolio position SYNC finished the month more or less flat. It is consolidating near all-time highs and looks poised for a strong month of July. - ATNY posted a gain of 15% for the month of June, mitigating a substantial portion of the current unrealized loss. Portfolio lowlights for June: - Once again managed to get whipsawed within what has turned into a frustrating range for GSIG. Initiated a position in the stock on June 19th with the hopes that the value in the name will be realized in the months ahead. If poor performance continues this would be the first position to be liquidated. A strong market backdrop in July should, at a minimum, allow GSIG to remain above 12, which is roughly the current cost basis. - A new research report was released on SPNS. The opportunity here is substantial based on the strong potential for increased spending on the IT needs in the insurance sector. There is also a value component and a restructuring component. All of this is detailed in the research report. Disappointingly, the position has suffered, showing a loss of roughly 8% currently. It is a very illiquid stock that is subject to excess volatility given the low float and tendency towards low volume/participation. SPNS is not a position that I would consider making into anything other than mid-sized given the liquidity constraints. Looking Ahead Going into July the current portfolio is roughly 75% invested, with a 25% cash allocation. A strong beginning to the month would turn my intermediate-term trend indicator bullish, taking equity allocation up to the maximum 100% allocation. I wouldn't mind and am, in fact, looking forward to increasing my equity allocation to 100%. I base this on a number of bullish drivers I see in the current market environment: 1. Seasonality/cycles - Since 1964, the 8 times an incumbent has run for re-election, the S&P has gained an average of 9.7% from Jun to Dec. We happen to be in a very bullish period for the markets from an election cycle standpoint. 2. QE/Liquidity - Fighting central bank intervention, whether European...
WELCOME TO THE FIRST DAY OF THE REST OF YOUR LIFE IN THE MARKETS
I'm right on the razor's edge here. Caught between the my technical framework that clearly states an important low took place in early June and a mechanical system which I have sworn the utmost loyalty to the point of servitude. The mechanical trend following/reversal system I have in place to determine my asset allocation points is about to switch back to bearish should tomorrow be extraordinarily weak. It will also switch to bearish if the remainder of this week simply drifts lower. I was afraid of this outcome when I moved from a 50% invested to 75% invested position last week. What this means for me - if it does manage to flip back to short-term bearish - is a move back to 50% invested and 50% cash. The more daunting matter at hand, however, is the fact that my long-term indicator could flip next week, taking me to 100% cash. It's a gut wrenching place to be for a hardened bull that is sitting on well researched positions that I know will be higher given time. But my asset allocation model comes first. It comes ahead of any technical analysis, trajectory points, price mirrors or correlation studies that I post here. It comes ahead of my feelings for a company. It comes ahead of earnings models. It comes ahead of companies with innovative products, a potential groundbreaking technological breakthrough, the cure for a small penis or the midnight munchies. The asset allocation model is my discipline and I stick to it. This hardened attitude comes from lessons learned in the past. I reference 2004-2005 often on this website, as it was those difficult years for my former hedge fund that made me into the trader/investor/money manager I am today. I can't put the blame for the back to back down years that caused the closure of my fund on any one thing in particular. It was a combination of things, ranging from hubris to a lack of respect for risk. One of the factors I consistently think of when that period comes to mind is a correlation study that I became obsessed with. And why I shouldn't I have been obsessed? That correlation study allowed me to nail the 2003 bottom and propelled my fund to #1 status later that year. I had that correlation study posted on my wall with different variations and outcomes. It literally took up an entire wall of my office marked in various colors to indicate potential scenarios. The correlation study became my go to backdrop when any scenario went against expectations. I didn't have a bail out switch. There was no mechanical...
SEASONED ANTENNAE HAVE PERKED UP FOLLOWING A SINGEING OF MY NETHER REGION
During a bullish Twitter rant on Wednesday afternoon, I stated that the "pinning" action of the Dow Jones Industrial Average to the yellow generational trajectory had bullish ramifications into next week. I was expecting the pinning to continue, with the markets closing at the high end of my estimated range of 12,550 and 12,850 for the week. Little did I know at that time that I would be humbled at the feet of a fireball emanating from the anus of a monster that can only be described as half dragon and half bear. I will give a full detailed illustration of the technical ramifications, based on trajectory points, during my weekend review. However, I will say that there are two things in particular that have perked up the seasoned antennae that lie on my head: 1. There was an acceleration that took place today off of the generational trajectory in yellow. It was also a rather substantial expansion in the normal daily range. That is not something you want to see occur off a generational trajectory. More often than not it is a precursor to more weakness over the intermediate term. 2. Crude oil is using what should be generational support, via an extremely significant generational trajectory, as resistance instead of support. It has now accelerated off of what was supposed to be support in a very heavy and determined manner. In recent memory, a crude oil market that stinks has generally equaled an equity market that stinks, as it ushers in emerging market worries. The one positive I did see came from the VIX. It closed right at the trajectory from the 2008 highs. A further acceleration to the upside off of that trajectory will become another negative event for the market. Tomorrow will be then be important. I am not at all happy about this singeing of hairs in my nether region. Especially given the fact that I recently took my positioning up to 75% long. Although I am flat for the month performance wise, I have never been a fan of getting whipsawed as it wreaks havoc on mental equilibrium, requiring extra hours in the gym with a ferocious scowl on my face in order to balance myself mentally. I hope it doesn't come to that point, but I am fully prepared for appropriate action if need be. Individual portfolio names held up relatively well with the exception of one SYNC. I believe that SYNC is making a second counterfeit move below its primary trajectory. This will be outlined over the weekend. What I don't want to see is a low volume drift down in SYNC tomorrow. I would...
THE CULMINATION OF FEAR INVOLVING BOTH BULLS AND BEARS LIES BEFORE US
This is bottoming action. There is nothing pretty about it. There is nothing about it that is meant to give you a sense of peace and understanding. The intention is to make you doubt yourself, whether you are long or short. It is the culmination of fear involving both bulls and bears. Bears are in fear of mass government intervention causing them to wake up one morning to find the grim reaper standing over them sporting a beard and wearing a kippah. Bulls are in fear of a lack of coordination causing contagion to spill over into the financial system, causing the dominoes to wobble, eventually toppling over. I've learned over the years to simply stay out of the fight, choosing to simply watch from the sidelines. There are some traders who love this action. The only problem is that I don't know of many traders who thrive off of trading this type of environment that have made it through any single decade ahead of where they started. It's an action junkies game. And you will get exactly what you want out of the markets. I find myself in a favorable position should my analysis with respect to the June lows being as low as we go for 2012 turning out to be correct. The advantage is that the current portfolios I manage are near the highs for the year while the market has erased nearly all of its gains. These results were born out of the belly of thorough analysis, attention to risk and good fortune. A powerful combination when all three come together as they have. I've received a number of questions regarding the comments I made with respect to the new small-cap opportunity I have uncovered. It is a legitimate opportunity with the potential for a 300-400 percent gain over 12 to 18 months. I will not begin accumulating shares, however, until my trend indicators turn. Accumulating shares in this new opportunity will be a challenge, as it is not a very liquid stock. I want to be absolutely sure my long-term indicator doesn't switch to sell, forcing me into a 100% cash position right after spending the time trying to weave my way through buying this new name without causing waves. Last thing I want to be is stuck as the market falls through its recent lows. As for my trend indicators, the short and intermediate term is currently on sell, while the long-term is still on buy but getting close to a sell. It puts me in a precarious position really. My greatest fear is that the long-term indicator switches to sell while the short-term indicator moves...
ON LOCKDOWN
I've locked myself in sound proof room tonight with no distractions in order to research a new potential investment that I will be communicating to you, my faithful readers, over the coming week. This is, of course, barring a market catastrophe of some magnitude that has me moving into 100% cash. I despise being a buzzkill, but unfortunately this is a necessary disclaimer given the era of debt-driven fear we live in. I am too busy to go into further details, other than to say that the identical amount of effort and due diligence will go into uncovering every nook and cranny so that profits on par with established expectations may be met. In 2012 thus far the research on this site has led to the following profit opportunities: PRGS +27% over 2.5 months http://www.zenpenny.com/?p=3394 PTGI +36% over 3 months http://www.zenpenny.com/?p=3412 GSIG +6% over 3 months http://www.zenpenny.com/?p=3412 SPRT +21% over 2 months http://www.zenpenny.com/?p=3451 SYNC +90% over 2.5 months http://www.zenpenny.com/?p=3794 AUTH +37% over 1 month http://www.zenpenny.com/?p=4042 Is there another in the audience who has documented, time stamped research that has provided such gains in 2012? If so, please stand up and show yourself. Of course, there have been losers as well. The markets are not a consistent trip down a gold paved road lined with roses and scantily clad South American women. YELP, CIS and my current holding in ATNY have not turned out as well as planned. However, they have been managed well. I have either cut them out, avoiding deeper losses in the case of YELP and CIS or I have kept the position small so that the loss can be managed appropriately in the case of ATNY. I have spent enough time on this. Back to my laser sighted focus on the next opportunity that lies in...