Running on Empty? Who Cares? (Updated with KO Chart)

My call last November before Ben Bernank announced QE2 that Dow would reach 16,000 someday may not be far-fetched, and my target for S&P500 of 1,340 is just around the corner. My left-for-dead AMZN March call is coming back to life (AMZN is jumping over $6 today). All thanks to Ben Bernank, who only has our welfare in mind.

My latest purchase today is KO. Has a very peculiar chart formation, but I'm just looking at the buy signal in Slow Stochastic set at 60. MACD histogram shows positive divergence. Oh uh, tomorrow is their earnings report. Will it matter? Maybe. Maybe not. Here's the chart of KO, 9-month daily.



I also set up a call backspread on MTL, using April calls. It may be ready for a bounce here, after steadily losing all the gain from Feb 1, but it is at the support around $32.50. If I'm wrong, then I will lose out-of-pocket cost, which is about 30 cents (x100).

Do your own DD, but for me, I've sort of given up. If S&P500 can remain above 1,320, it could go up to 1,380 or so, then 1,440 (May 2008 top).

And of course I may be the perfect contrarian. If I am, I still have VXX....

Rally No One Believes Enters 11th Month

The rally no one has really believed in all along since March 2009 has now entered the 11th month, and it is showing the sign of further upside. I said here, here, and here on this blog that the rally might last longer than most people were expecting, and it did.

I've been long pretty much all the way, though I've been shaken out here and there (I'm a chicken little). The only reason I would be selling some of the positions would be to raise money to buy stocks that would likely to move faster than what I have.

There are so many technical breakouts on individual stocks almost every day since late December that it is impossible to be in them all. My most recent purchase was today, call options on North American Palladium (PAL). JASO went lower than what I would have liked, but bounced right back, making 50% gain on my options. CENX that I bought almost on a whim on the breakout continues to go higher. All I do on this stock is to keep raising my stop limit every day. I've heard about a new industrial metal ETF, which should be good for both CENX and PAL, and probably MTL. UCO is up further since I sold my call options. I switched to more liquid options on USO, out of money April calls (strike at USO $50; currently USO is about $40) just as a crisis hedge (Middle East is volatile). Even those are making money.

I don't have enough funds to play, but just from TA, financials seems to be ready to break out. Individual names in financials have already started to break out. Among too-big-to-fail banks, I like Morgan Stanley (MS) setup.

Since I cannot be in all and I don't have enough funds, I might as well throw out some names that I've been watching. Many of them have already broken out to the upside, but you could wait for backtesting. Just for your entertainment, and none of them is recommendation. Please do your own due diligence.

JLL
MS
GBG
IVN
AFFX
SQM (just about to break the resistance at $40)
BLL (right at $51-52 resistance)
TUP (resistance $50)
URE
Canadian oil/gas trusts (I have PVX that I've had for long time for dividend, it spiked 6% today)

Good luck and good trade. For now, buying the breakout has been working, which I tend to take it as a sign of a bull market in stocks. Many people these days say that strategy is outdated, that it doesn't work when the market is this manipulated (whether by the Fed or Vampire Squid). I'm just saying it's been working, particularly these past 3 weeks or so. But remember, the stock market IS NOT the economy.

Baltic Dry Index Worst Since October Meltdown

So says the headline of the article in Telegraph U.K.

Baltic Dry Index has worst week since October meltdown as Chinese demand slows (8/8/09 Telegraph U.K.) [emphasis is mine]

"The Baltic Dry Index, which tracks shipping costs and is viewed as leading indicator for commodity prices, has had its worst week since the peak of the financial crisis last October, as Chinese demand slowed.

"The index fell from 3,350 to 2,772 this week – a fall of 17.2pc - as imports of iron ore and coal slowed down. The index is now 35pc lower than its 2009 high, hit on June 3.

"Earlier this week Ian Ashby, head of iron ore at miner BHP Billiton, said at the Diggers & Dealers conference in Australia that Chinese restocking of iron ore was at an end.

"Mr Ashby said that supplies at the country's ports were enough to sustain a month of consumption.

"However, some believe that imports have slowed down as Chinese steel mills are still locked in talks over the pricing of iron ore imports over the next 12 months."

Hmmm.. I still have MTL, a Russian iron ore company, which seems to be stalling at $12. It passed that point in June, only to head back down, and back up again and headed back again in early August. I still don't see anything technical wrong with the stock, but with the macro information like Baltic Dry Index and Chinese hoarding to end, I'd better be careful, and not be too greedy.

Silver Correlates Better With Yield Rise Than Gold

But copper and iron are outpacing the yield rise. For now.

The stock market is responding favorably to today's auction of 30-year Treasury bond, although it has come off the high of the day. (It is possible it will end up flat, yet again, like the past 4 trading days.)

But yields have been rising on long dated Treasuries, most notably 10-year note and 30-year bond. Treasury/Fed/Government spin is that the economy is recovering. Maybe. Maybe not. I also hear a lot of inflation talk, even hyperinflation talk. Jim Rogers has said that Dow could go to 100,000 (or some outrageous number like that), and a quart of milk could cost $10.

Even the staid broker like Fidelity (I use them) puts out an article about how to profit from falling US dollar and rising inflation. Their recommendation: gold, silver, commodities. (They also recommend REITs and TIPS, but never mind them for now.)

So I plotted gold (via gold ETF GLD), silver (SLV), 10-year note yield (TNX) and 30-year bond yield (TYX) on a 6 month daily chart. (I threw in Apple (AAPL) just for fun, and surprisingly it correlates to silver pretty well.) First to note is silver's outperformance over gold in the past 6 months. Second, notice how well silver correlates with the Treasury yields. SLV is a thin blue line buried among TNX, TYX, and AAPL.

So the better inflation trade is silver?

Maybe. Maybe not. This second chart adds a few more names - companies that deal in other metals: Freeport McMoran (FCX, copper), Rio Tinto (RTP, aluminum, copper, gold), Mechel (MTL, iron ore, coal, steel), and AK Steel (AKS, steel). They are all outpacing the Treasury yields.

MTL, for a change

I'm having a burnout, exhaustion from all these financial "stress test" result leaks and the actual anticlimactic results themselves, so I decided to take a look at my most successful holding of past 2 months. It's a commodity stock, a Russian iron ore/coal/steel company Mechel Steel Group OAO (MTL).

Look at the weekly chart. This stock had a great run from October 06 to June 08. I had this stock from $45 to $55, sold it, and watched the spectacular crash from the sideline as far as this stock was concerned. It was not just commodity crash; there were allegations of price fixing, and after Mr. Putin wished the MTL president "well" after the president couldn't attend the government meeting for "health reasons", the stock really crashed.

I kept watching. Then in the miserable market I started to notice positive divergence popping up one after another. They are all noted on the weekly chart. And when the March market low didn't affect MTL and other Russian stocks I was watching (RSX, VIP), I decided to wade in. It was part of the hedge against inflation (commodity play), and a contrarian play. Among BRIC countries, investors and traders seemed to have turned away from Russia, ignored India while they still favored China and Brazil. I have no feel for India, so Russia would be my play.

It has turned out great, so far. Up over 80% from my first purchase, with average price of $4. This stock is very unpredictable if you look at it daily. A strong volume sell or buy appears seemingly out of nowhere, on no news. But if I look at the longer-term weekly chart, I do like what I see. 13-EMA may be on its way to crossing 34-EMA, a sign that the stock may be entering the bullish phase again. So I'm letting it run, nervously. From the daily chart, it could come back down to $5.50 to $6.

Easy trade - how can I find them?

Every day, there are easy trades out there, even for a slow, bumbling trader like me. Not fixating in one sector seems to be the key. Even within the sector, not fixating on one company is a very good idea that I have failed to learn so far. (My excuse is that I seem to have the Asperger Syndrome and I'm easily fixated on a very limited number of things and don't trust my intuitions...)

Case in point: C (Citigroup). I did have some sort of gut feel that it was a buy when the big investors and hedge funds shorted it to below $1. I even called up the order screen and put in the order to buy C at market for 10,000 shares. Would have cost me $10,000. Worst it could do was to go to zero, which I thought was highly unlikely. It could go to 50 cents or so, like FNM, FRE, and AIG (companies effectively taken over by the government). Upside, I thought, at least up to the conversion price ($3 plus) so as not to piss off the Saudi prince and the Singapore government. That would have been the easy trade, in hindsight.

Instead, I waited until C's share price went up to $2.70 to get in. Upward movement is stalled for now, and it may indeed come DOWN to the conversion price.

When I bought C, I actually had more attractive candidates, under the radar and far less manipulated by the big boys: FITB and RF. They are regional banks which have had their share prices decimated in the past 6 months. I could have gotten the equal amount of shares of FITB as I got C, or 2/3 the amount for RF. Either purchase would have resulted in much greater gain with less stress (although FITB would probably have triggered stop loss on a massive decline on Tuesday).

But since I had spent time studying C, I got totally fixated and ended up buying it instead of other choices. Hindsight is 20/20, they say. It is, so I'd better learn something from it quick.

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Right now, I'm looking for a less crowded trade, place where just about everyone is negative and predict worse things to come. One such recent trade has been successful: MTL. It's a commodity play (iron ore, coal and steel) and emerging market play (Russia). Analysts and economists are still saying commodities markets will not recover anytime soon, and that emerging markets will be hit even harder. The stock is up 70% since my purchase 3 weeks ago. My thinking was that it would be an inflation play long term (I think it is impossible not to have inflation with all the money that Fed is pumping into the economy), and Russia was one of the net creditor nations and its national debt was only 6% of GDP.

One of the less crowded, or much despised, market is commercial real estate. Unlike the Russian stock, I haven't come up with the justification for getting into it yet... I have several stocks (mostly closed-end funds) I've been looking at, but again, I'd better not get fixated...