All posts by jimmybob

The Bottom Part II

Last time we wrote about a bottom(In march),  folks focused more on the descriptive photos then the actual content and missed out on another 20% upside move from Priceline.com (PCLN). I guess we have Coco Austin and Nikki Minaj to thank for the clueless traders these days. When one thinks with the wrong brain, they are sure to make mistakes.

Might as well try and see if the trick works twice. The market is off it's 4 year highs from April, and the "Sell in May" mantra is starting to look like smart advice. Greece chaos? Spain 10 year yields through the roof? China growth slowing? U.S. unemployment numbers still a huge concern? Haven't we seen this before? Thats right, the time we pulled the carpet out from under the bulls, only to ramp the market up 35%+ from it's october lows.

This time it's different. All those events are somewhat factored in. If Greece defaults, it will not shock the system. Smart money is pretty much saying it's going to happen. Is the China slow down going to bring Australia and the other strong commodity economies to a screeching halt? Any smart trader knows China could only grow it's GDP so long on fake growth.

The only real factor that traders need to worry about, is the election. The market could remain somewhat skittish as the outcome is still far from clear. But how can you bet against the incumbent. His recent approval of gay marriage, only increased the odds of more intervention from the Fed via QE3. Folks dont care so much about that right now, they care about the economy.

So where are the markets headed this week? Only time will tell, but I think the JP Morgan fiasco last week signaled a short term bottom. Why? Well the market is all about confidence. I remember back to the flash crash of 2010, when i wondered how people could still trust the market. I figured the uncertainty would drive stocks down, when the markets actually rallied. Maybe they were oversold? What I do think is the crash signaled a bottom for traders and they took advantage of it. Just like we have now.

One of the short term signals is the US Dollar. Its been quite sometime since i have seen it rally like it has over the past 2 weeks. 10 consecutive green closes! I sure as heck don't feel any more rich...

 

So I figure a mixed day on monday, followed by a 1-2%+ move on Tues and/or Wednesday. Will put up another update by then:

 

And like we always say, nothing beats a nice bottom...

 

Sodastream (SODA) – pop pop fizz fizz…

 

Sodastream (SODA) is a company we have been high on for sometime and have wrote about her throughout 2012. This company has continued to produce huge results quarter after quarter, only to find the shorts holding larger and larger positions. This mornings earnings release and subsequent conference call was music to stockholders ears. Not only did they beat estimates and raise their outlook, but also announced they are finally headed into the worlds largest retailer... Walmart.

This is the news everyone was waiting for and should help keep Sodastream (SODA)'s growth story intact. We like this stock for the longer term, and think she tests $65 by the middle of the summer.

Here is what we were saying about SODA this week via our AM watchlist and chatroom:

 

SODA : old favorite that we have all played over the past few months. Thanks GMCR for scaring out some folks. SODA will beat like it has every Q, but there will be no kinks in the report this time, and stock will go $40+. Will be looking for $35/37.50s this morning for the ramp up.

 

We expect Sodastream (SODA) to be one of the stocks they will talk about at the end of 2012. Guess time will tell if we are right...

Where is the market headed tomorrow?

Most daytraders close out their positions before the close. Making a living trading stocks is all about controlling your risks, and obviously there is more risk when you hold an equity overnight. Who knows what type of news can come out before the market opens that may impact your holdings. Better to lock-in the gain or loss before the close, and wait for the next trading day. That is, unless you are an option trader. Why? Well some of the most Epic moves come from holding a position over a few days.

Lets use todays move on LinkedIn(LNKD) as an example.

Stocks like LinkedIn (LNKD) are susceptible to volatile moves which is caused by the varying opinions of the 'proper' valuation of the stock. There are those who think a stock with a P/E ratio of 800 is a bubble and then the ones with the foresight(like myself) who are more forward looking, and think LinkedIn (LNKD) is undervalued. Bulls and bears squared off today. With Greece grabbing the headlines again (puke) causing a market sell off, LinkedIn(LNKD) fell over 8% to $101.53.

Its at that moment when option traders start to salivate. Not more then 3 trading days ago, LinkedIn (LNKD) traded over $120, now it sat almost 20% off its highs. CALLS! Buying the calls today at that moment would have resulted in some huge returns. But it those who hold for another day or two that may reap the big rewards. Take a look at the possible return today on the LinkedIn (LNKD) $11o calls. $550 into $4,400 possible.

But if you have read our blog, your know we are extremely bullish on LinkedIn(LNKD). Todays action maybe a prelude to the stock trading firmly above $120, which would result in those calls being up substantially more. Time will tell.

 

Where is the market headed tomorrow? We have used the VIX the last few months as a forward looking indicator, along with some other signals.  The VIX pushed through the upper bollie, only to fall back through it. We think this is a key reversal signal. Take a look at the chart below:

 

The great thing about options is, you only need to be right a few times out of 10 to make some serious cash. Check back after tomorrow and let us know how we did.

This has to be good for the market…

With the employment numbers from last week still weighing on the market, people have overlooked the news piece that will be a catalyst for the rest of the summer. Obama and Romney are now in a virtual dead heat in the polls. 

 

As you read the press, there continues to be a glaring trend:

Two new polls find that although the candidates are tied for overall support, Obama remains the more well-liked candidate and Romney is considered the more apt at handling the economy.

 

Now if the economy was still on the mend with the unemployment numbers going down, Obama was a lock for re-election. But with the increased concern about the U.S. economic recovery, Romney's background makes this race a tight one.  Do I think Romney has a shot come October? No way. We still feel the same way we did in January and April... the market will be Obama's ticket to re-election.

Of course besides the countless tools and instruments this government can deploy to continue to inflate equities, they also have history on their side. Election years tend to be extremely bullish, unless your name is George W.

S&P 500 Stock Market Returns
During Election Years
Year Return Candidates
1928 43.6% Hoover vs. Smith
1932 -8.2% Roosevelt vs. Hoover
1936 33.9% Roosevelt vs. Landon
1940 -9.8% Roosevelt vs. Willkie
1944 19.7% Roosevelt vs. Dewey
1948 5.5% Truman vs. Dewey
1952 18.4% Eisenhower vs. Stevenson
1956 6.6% Eisenhower vs. Stevenson
1960 .50% Kennedy vs. Nixon
1964 16.5% Johnson vs. Goldwater
1968 11.1% Nixon vs. Humphrey
1972 19.0% Nixon vs. McGovern
1976 23.8% Carter vs. Ford
1980 32.4% Reagan vs. Carter
1984 6.3% Reagan vs. Mondale
1988 16.8% Bush vs. Dukakis
1992 7.6% Clinton vs. Bush
1996 23% Clinton vs. Dole
2000 -9.1% Bush vs. Gore
2004 10.9% Bush vs. Kerry
2008 -37% Obama vs. McCain
2012 ? Obama vs. ?

I will be playing any dip on the call side, as this market will not break into correction territory until the fall.

Par Pharmaceuticals (PRX) into earnings

I have been following Par Pharmaceuticals (PRX) for 4+ years now, and have watched it move from $8.57 in 2008 to $42.80 last week. I quite honestly think the stock is just starting to get traction. I wrote about Par Pharmaceuticals (PRX) on April 24th, when the stock was trading at $40.94, and gave quite a few reasons for my bullish sentiment. Earnings are out pre-market tomorrow. Here is what we were buying today:

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