Friday, October 23, 2009

The hidden Decline in the Stock Market

Below I have created a very interesting (and I think very telling) chart. I have taken the S&P500 index and adjusted it for inflation by using the price of Gold. The green line graph is the $SPX as typically measured, in US Dollars (at $1092 as of the time of the chart). The candlestick graph is that of the S&P500 divided by Gold which takes out the $USD part of the equation.

This chart is very telling from the standpoint of an American investor. The Rally of the past few months is what I am coining, "the rogue rally". Since July the market has risen significantly, but this chart shows only a portion of that was for reasons other than the $USD decline. In fact, this chart peaked in August suggesting that since then the primary driver of the rally has been the decline in the $USD (increase in Gold's price).

If this is true then in fact the market peaked in real dollars in August and has been making lower lows ever since. Another way of thinking about this is that Gold (inflation) has been rising faster than the market and that an investor is actually losing ground from a purchasing power perspective since August.

A theory resulting from this is if the dollar is in a bottoming process (Gold Topping) then I expect the market to also be in a topping process. Also, the spread between the two indices is pretty wide. I expect them to converge over time as they did during the decline.

The same divergences I am seeing in the cash index are also showing up in inflation adjusted charts as well. Just another tool supporting a topping process may be playing out.

Sunday, October 18, 2009

Another version of the options index

I read an article today that got me thinking about this index. The theory is that most speculators buy call options near the tops and buy put options near the bottoms. Therefore, you can use an options index as a contrarian indicator. Even better since 2004, the CBOE has given us data that allows us to split equity options and index options. Simplistically the big boys use the options index and the speculators use the equity index more. The speculators help us to pick euphoric highs and lows since they are usually wrong at the tops and bottoms.

Looking at the chart and the history there is some pretty favorable data that may help us confirm the next top. The way to use this chart is not to look for a peak or trough in the index and call a bottom or a top, but to use the chart to help confirm a top or bottom and tell you when things are getting a little out of hand. I have also added moving averages to help smooth out the data.

Right now the index and 30 day MA are below .60. This has only occurred a few times in the past few years and not once since the 2007 top. Those times have also in all 4 instances called decent few months tops.

This is just another indicator that is helping me get comfort that the market's top will soon be upon us.

Friday, October 16, 2009

Market Update 10-16-09; Still think top is soon.

I continue to think the top is very close. There are now numerous technical signals that lead me to this. For one, there is a possible 5 wave move in its final gasp. Also, volume continues to be weak. Divergences are all still very strong. And, all the markets are still in typical retrace area. See the chart below and compare to the former post Market Update 8-31-2009. Not much has changed as far as technical signals when looking at the two charts.

It will be interesting to see if the Dow closes above 10K today, my guess is yes. I may put a small put on the market at the close just for fun.

On another note Gold and the US Dollar also look to be at potential turning points. I heard on CNBC today that Tiffanies is going to be selling gold bricks, and Pisani said "looks to be the top in gold", which I agree with. There are other reasons to think gold is close to topping as well. The reason I mention the Dollar and Gold is that all these markets are interconnected and should all turn around the same time.

Good Luck

Monday, September 28, 2009

5 waves down last week; Expecting another similar move tomorrow

2:30pm 9-30-09 Link updated. Updated Count...3 leg down instead of 5 says something else is going on.


I was out last week, but noticed that the moves over the last 3 days last week seem to trace out an impulsive wave. Similar to my post back in June, this setup is looking comparable. I see a five wave move down off of a new high price of $1080. Initial five wave moves always have another five wave move to follow after a correction. So far it looks like today is that correction and thus I expect another five wave move south in the days to come. Pretty crazy to call a big down move after a hefty move up like today, but we are still in retrace territory and the waves say it so. A safe short would be right now with a stop very close above.

Wednesday, September 23, 2009

Options Index indicator topping point?

Quick post but this index is looking toppy. It has been pretty reliable confirming tops and bottoms previously. Something to watch out for...

Monday, August 31, 2009

Market Update 8-31-2009 Summer Almost over and so Might be the Rally?

It has been a month since I last updated and expected a 10%+ rally in the markets to the retrace zone. So far that has played out quite nicely. The corrective moves I expected in between haven't been the cleanest, but overall the continuation of the summer rally has not disappointed and has satisfied my expectations. Compare the attached chart to the one from last month.

Right now, though, there are reasons to be cautious. It looks like the market may be playing out a 4th wave triangle the last few days which would be a warning sign that the top could be coming soon.

There are also other reasons to be cautious such as the negative divergence showing between a few key indicators and price (see chart). Also, bullishness is at a peak as the Bullish %s are higher than they have been since 2006 and anytime since the rally began. Another item I continue to watch is the weak volume. It is expected over the summer and in particular August, but it has to raise a caution flag as the rally continues on less and less volume.

I have also attached a longer term chart of the markets below. Notice how miniscule the rally of 40-50% looks compared to where we were in 2007 as well as 2000. This rally is following very closely to what occurred in 1931 after the crash but before another huge brutal move down to the ultimate 1933 bottom which is another reason to be cautious.

Summary: I will be looking to get short before I get long, but will wait for more confirmation before I make that trade. Now is a good time to take any profits on longs as the risk reward is now high for those positions.



Monday, August 10, 2009

GMR June 2009 Quarterly Update - Warning Signs?

Blog links to transcript of earnings call...

GMR reported earnings July 30 for the quarter ended June 2009. Overall it was a little surprising...not necesarilly negative (yet), just a little surprising and cause for caution.

The one thing I had been banking on for at least another half year has ceased...GMR will drop its dividend policy significantly down to $0.50/year from $0.50/quarter. Or, from a 20%+ Yield down to a 6% or so yield. The CEO gave multiple reasons including 1) using that cash for other opportunities (acquisitions), 2) the market being terrible (spot rate market), 3) the yield being too high ("paying $2.00 divy on $8.00 share price is stupid" was his quote).

Here are my thoughts on this...

When I saw the earnings report the night before and read that they were dropping the dividend I expected a big sell off in the stock. After hours the stock peaked down 10%, but at the end of the next day (July 30) finished down around 7%, which honestly is not that bad considering its volatility. Also, the sell off was pretty much all after hours, not much happened during the day or while the conf. call was going on as far as price goes. More so, over the weekend and by the end of the day Monday, the 1st, the stock gained all of it back. It seems as though people updated their cash flow models and realized the fundamentals are still coming out positive and the only thing that has really changed is the dividend policy...which is all pretty much true.

That is exactly what should happen when you change just your payout ratio. In fact, many models will give credit for plowing back that cash into the business versus paying out (depending on discount rate used).

At the end of the day and if you read my investment philosophy, price speaks loudest and price has not said anything negative about their plowback decision, so the street obviously is not that upset about it and/or already had the news in their models.

But, here is the meat of my thoughts...

GMR has a history of buying back shares and doing acquisitions. The CEO also said it is "stupid" to pay a $2 divy on an $8 stock...which is debatable. BUT, just 3 to 6 months ago, the market, stock price, and divy policy were all the same and they chose to pay out cash in dividends versus keep the cash. So, why the change of heart so soon, when nothing has really changed at all since 6 months ago. My thoughts are they are going to try a different route with the cash such as buying back shares and/or they already are working on some target acquistions and would much rather use cash than equity to pay for it (especially with the stock price this low). It was comforting to hear the CEO say equity is the most expensive way to pay on the call. If one of these 2 routes is taken, I will be fine with it.

Buying back shares for a lot of people is the smarter thing to do because of the double taxation on dividends...again debatable (primarily true, but there is value in getting income streams versus relying on the markets for price). So, hopefully they will start buying back shares again. I will be able to tell thru the quarterly filings.

If next quarter they are not buying back shares and not hoarding cash and only paying down their cheap 5% debt, then I will have a red flag on my plate. It would tell me that they are more worried about their debt load than other uses for their cash...especially at their such low interest costs.

SUMMARY: I continue to hold, hoping that they will be buying back shares which should thoeretically lift the share price, but I am now cautious because of the surprise change of heart with seemingly little change in any of the 3 factors named by the CEO. Quick math: currently with 54MM shares, each $54MM of EBITDA should be worth $1 in share price...we shall see by October.

Let me know if any questions.

Thursday, July 23, 2009

Market Update - The Bigger Picture

It's been awhile since I updated the current market status and after 3 months, it's finally doing something. The market looks to be making its final move up after a sideways correction. The sideways correction from May thru June can be considered "the pullback" I was waiting for. Now it is time for the final leg up.

An easy target would be to say A=C which would be about 33% or from $870, quick math around $1100. Another target is the fibo retrace zone between $1000 and $1200. I am waiting for a pullback then going to get slightly long. As with anything dealing with the markets, nothing is certain, and this initial leg up (when it completes), satisfies a minimum requirement. I am not saying that it is the top, just that the possibility is there. I will be able to tell based on the ensuing pullback.

Something else to notice is that all the markets are in a similar spot and we can look for clues based on them. As always the nasdaq is leading the way. Also, the bullish percent should show a topping point above 70, but look for possible divergence. One final indicator that is giving a clue is the RSI which is showing the first point since the bear above 70.

Getting ready to get long for a 10% or so move...

Good Luck.

Tuesday, July 14, 2009

Possible Head and Shoulders Top Forming Part 2

Two weeks later and the pattern continues to play out. We dipped down to test the neckline again, which was expected, at which point the media and everyone else jumped on the head and shoulders play (usually a sign that it won't pan out). I think it still has an outside chance to, though.

Here's what would need to happen...the market would need to stay below $930 (the previous right shoulder high), and once again it would need to dip below $880. With the neckline now changed, the target is actually lower in the $810 range.

The other option is that the market topped today as the former neckline's retest and we continue down to play out the original head and shoulders pattern I posted on the previous post 2 weeks ago (Absolute Strategies: Possible Head and Shoulders Top Forming)


Tuesday, June 30, 2009

Possible Head and Shoulders Top Forming

I have put most of the explanations on the attached chart, but the market may be trying to form a head and shoulders topping pattern. It is still too early to tell, but wanted to get it on the radar. It should take a few more weeks before confirmation.

If we fall below $880 again, where there is significant support dating back 6 months+, then this chart may be very valid. I have put in blue dotted lines showing the possible path the market could take to validate this pattern.

Ideally the market will fall below $880 and come back to retest the "neckline" trendline at which point would be a very high risk reward short around $890 with a stop above $900 and a target of $830.

Stay Tuned. You can click on the title link to see how the pattern progresses in real time.

Tuesday, June 23, 2009

Market Update 6-23; A turn for the worse update

Update 6-26: Bounce was larger than expected and any move above $927 will kill scenario 3 bear market.

Quick update and chart on my post last week. The move down has satisfied its initial requirements with two 5 wave moves down very similar to what I posted should happen on the 16th (see chart then and now). Therefore, I am taking some money off the short table and moving to wait and see mode.

Now comes the hard and sometimes frustrating part...how the ensuing correction looks will give me an idea if 1) this down move is over and we get another big move north, 2) just the initial decline before a bounce and then another similar move down, or 3) the start of the huge decline. So basically 3 possibilities 2 with near term upside, one with long term upside, and one with long and short term downside...so no clue at this point, which is why I am in wait and see mode.

But, last and this week is how you make money trading the waves!

Friday, June 19, 2009

Put Call Ratio - Fear creeping back into market?

The put call ratio has been one of my favorite indicators. It started to fail toward the end of the bear this year and not giving as reliable signals, but it looks like it may be coming back into play.

As you can see in the chart, the put/call ratio had bottomed out below its long term lower support of around .85 puts for every 1 call bought on the options market. The indicator is now in an uptrend and is quickly climbing back into its 2008 average range of around 1 to 1 puts to calls. This could be telling us that the market is becoming more fearful. On the chart I have also drawn vertical lines at market tops and bottoms. Historically this ratio has helped call these tops and bottoms as you can also see on the chart. Also, you can see that the indicator shows where ultimate fear occurred, which was in the October decline. It is rare for the market to be so complacent as it was the last 3 months, which could be a sign that the rally wasn't going to have the kind of fear it needed to continue indefinitely.

If this market is about to fall again, I expect this ratio's moving averages to approach the 1.25 puts to calls resistance as it did at previous bottoms.

Market Correlations - An essay on Oil Prices

In my Investment Philosophy (right side of the blog) I lay out a few examples of why markets are never fairly valued. In this blog post I will show another blatant example of this and explain what is the driving factor behind the rising price of oil.

In the chart below I have laid out the price of Oil ($WTIC) in black, the price of Gold ($GOLD) in gold color, and the price of the inverted US Dollar ($USD) in Red. The chart is over the last 3 month basis with daily closing prices. The first thing you should notice and the main point of this post is that since about April 20th these 3 markets have been eerily tied at the hip. As the US Dollar has fallen (inverted on the chart to show more clearly), the price of Gold and Oil have gone up.

As you can see oil, gold, and the decline in the dollar are all related somehow. The common denominator in the group is the $USD (since oil and gold are priced in US Dollars). Therefore, the move higher in both oil and gold prices is directly and this chart shows almost 100% related to the decline in the US Dollar's value. If you would have bought gold or oil in the past 2 months on supply and demand projections, peak oil concerns, China, or any other so called fundamental reason, you would have been wrong. The only fundamental reason to have bought those two assets is a play on the decline in the US Dollar; Any other reason and your gains are based less on a correct forecast, and more out of luck. This chart shows, at least lately, that if you want to know where the price of Gold and Oil will be, don't look to the fundamentals of those markets, look the the US Dollar market.

Tuesday, June 16, 2009

Market Update 6-16-09; A turn for the worse

Just a week and a half ago I was more bullish than bearish. And now I am more bearish than bullish! I will explain why below, but first some quotes from my June 4th market update post. I will follow that with a detailed explanation of why I have switched back into the bear camp giving you some insight into how I come up with some of my forecasts and why it seems I may flip flop so much. (I know some of you may not understand all my technical jargon, but hopefully it will give you some insight into how and why I make the decisions I do). I have a chart to help explain as well.

Quotes from 2 weeks ago...
"There is not really a reason to necessarily expect as large a rally as I previously laid out. The markets seem to have completed their first pattern up early this week with a good correction on Wednesday, possibly still playing out thru tomorrow (or completed Wednesday afternoon). What this could mean is that the first wave up is complete and the 2nd correction down is nearing completion (out of a total of 5) awaiting a 3rd wave up tomorrow or Monday."

"I will need to be nimble the next few weeks though, as this thing could turn on a dime, and when it does, that is all she wrote.

"The safest bet is to buy with a breach of $950 which if I am correct could come tomorrow or Monday/early Tuesday (I went ahead and bought because of personal reasons and because I know at which point to sell if I am proven wrong--right now $900). If $950 is overtaken then all liklihood we are in the powerful 3rd move up and price should not intrude below $950 until this summer rally is over."

So, looking back at these comments, they were pretty spot on with Thursday, the 4th a big up day and Friday a pull back just breaching $950 briefly. Some choppiness ensued Mon/Tues/Wed which I suspected was a 2nd wave correction, and then Wed midday and Thurs took off in my suspected wave 3 up above $950 (the move had a clean 5 waves up). All is well, so I thought. A correction after that move up was expcted, which occured Friday, the 12th, with a move back up by the end of the day. So far 3 waves up, two nice impulsive ones with one corrective choppy one in between--what I expected. But something happened over the weekend...the markets gapped down Monday morning with a continuation of the correction instead of up in a continuation of the 3rd wave up, and quickly made new lows below $927 which is possibly a major breaking point of the bull. At that point I became more bearish than bullish. With the bust of $927, the count is sufficient to call a top at Thursday, June 11th's $956.

The next question is will it be the ultimate top of the summer rally or just the end of the first major move up...that is still too early to call, but after today's completed 5 waves (see chart attached - a beautiful 3 day move down, actually), it is very likely the next few weeks will have at least a downward bias.

I have attached 2 charts, one is my normal wave count and expectation chart and the 2nd is a zoomed in view of the last week with what looks like a very clean 5 wave move down from a new high of $956. This implies the start of something larger to the downside. I will know more once the correction of the 5 wave move completes later this week.

Summary: Some major damage was done to the bull case over the weekend with prices not continuing their trend up from $927. If today's low was just put in at $912, then this first 5 wave move was $45 points which would put the initial target somewhere south of $890. I will know more as this down move plays out.



Wednesday, June 10, 2009

Volume Analysis and 2009 top warning?

Update July 29 2009: Volume is now at a level that previous tops have occurred. This may be a warning that going long right now is a risky endeavor. Click on blog post to see updated chart.

Attached is a volume chart I created to spot tops and bottoms during the 2008 bear. I decided to update it thru today to see what it shows...

As you can see since late March the volume of the total market has been declining as price went up. This is not a good sign for the market. Sustainable rallies occur when prices rise on increased volume, not on lower volume. What this is showing is that more people are losing interest as this market climbs and that any decent sized wave of selling can take the market lower pretty easy.

During the 2008 bear previous tops were confirmed when the 10,12, and 15 day moving average of volume approached the 1200 level on this chart. Unless volume picks up in the next few days as the market rises, we may be in a topping process right now.

On a positive note, in Early March the rally produced volume that was consistent with all the major down legs of 2008 (hitting 1900) showing that the rally was for real.


Watch the 1200 level on this chart. If prices start to fall as this volume curls up below the 1200 level, the rally may be confirmed over.

The title of this blog links to the live chart...

Learning from old charts; Hindsight Analysis

I have attached a chart of the Dow Jones Utility Average. This chart I created a few years ago to track the relationship between Utility stocks and Bonds. The old saying goes that the two move in tandem with the thought being that Utilities are highly levered and their prices move in tandem with bond prices. However, the chart evolved into more than that once the credit crisis hit in 2007.

You can see where I have drawn the vertical black line my original chart and annotations in blue and black on the left from early 2009 and prior. Everything to the right of the black line and in pink and green are the annotations I added today.

There are a lot of things we can learn from this chart that may also help us find the top of the current rally and retracement expectations for the Utility Average.

I will first speak of the original annotations and what they foretold...
1) Probably the most important thing on the chart is the very bottom text box that stated "Divergence will show bottom". Markets are notorious for showing momentum divergence from price at turning points. This is supplemented by the fact that third waves in elliott wave theory are almost always more powerful and faster than fifth waves; essentially thirds have more momentum. So, when I labeled that a divergence would show the bottom earlier this year, I was expecting the MACD to fall again but not make new lows even though the market should make new lows. Without a MACD divergence, it is usually not a good idea to call for a major bottom (or top), and even though the market was down almost 50%, there had yet to be a divergence and thus an ultimate bottom. This led me to believe there would be another fall in prices, before downside momentum had been worked out.

2) The Head and Shoulders top I saw back in June of 2008 was spot on. The target was hit 2 months after the breakdown and continued on to a parabolic fall. Head and shoulders are pretty mainstream now, but they still can work if all the correct rules are followed. This one worked wonderfully.

3) The triangle over the 2008 winter on the Utilities helped to count the waves of the overall market and also point to another decline in stock prices. Triangles are consolidation patterns and when prices break out of them, they are often in the direction of the original trend (which in this case was down). In early February when prices broke down, that was a sign the market was on its way to new lows.

I just pointed out three prime examples of a sub market within the larger market helping forecast the next move in the market's prices. Now, I will try to use what the chart is saying to project where this next rally could potentially end.

1) After bottoming in March, the Utilities have bounced in a countertrend rally up over 20%. That is significantly lower than the markets in general which are up over 40%. So, right there we have underperformance of the Utilities which means they may not be a very good sector to put money in to catch this bounce. However, they also did not fall as much during the bear, so they could be considered a safer, less volatile sector.

2) I have counted 3 complete moves in Pink from the March bottom to A. at $358. Typically countrend rallies will retrace to the fibonacci zone of 38-62% which right now is still 15% higher in the $390 zone. From an Elliott Wave perspective the 3 part move up to A. is satisfactory for the countertrend move. We will have to wait to see how prices pan out before we can tell if that A. is part of a larger A., B., C. (which the fibonacci retrace zone tells us should be true). If the utilities trade above $358 then that would be strong support for a move to $390.

3) Typically countrend rallies following a move with a triangle in the previous 4th wave will retrace back to that triangle. So this move should theoretically retrace back to the triangle (in black) region. At $358 it has sufficiently done that. However, the triangle also has territory in the $390 price area, so there is more room to go, if needs be.

Overall, this chart was a big help during the crash of 2008. It forecasted the initial fall with the head and shoulders top and breakdown, it showed no divergence at the October lows forecasting another move lower (which occured in Feb/Mar), and it now shows the potential for a move up to $380-$390. A move below $325 may mean this rally is complete, but right now all signs point to another move higher.

Sunday, June 7, 2009

BMC Software

This is a request I received from a friend over the weekend...

I have a good amount of BMC Stock via my ESPP and I was wondering what I should use as an indicator to sell the stock. My concerns are:

1) The stock price is up near its 5 year high
2) I have netted about a 30-35% return over the past year, should i take some of my profit
3) Taxes for the ESPP, short-term cap gains, long-term cap gains, or the 2 year ESPP holding period taxes
4) Or should I just mirror what the corp officers are doing with their stock?

Thanks for the question. I have attached two charts at the bottom of BMC stock with my thoughts below and answer, but first I will comment on your 4 questions.

1) See charts below
2) The amount of profit you have in a stock honestly should never be a factor in your decision to buy more or sell more of a stock. Your return is a sunk cost; You have already committed and nothing you can do can change what has happened. A good rule of thumb is to remind yourself that everyday you own a stock you are also remaking a buy decision because every day you own a stock you have capital tied up in a security that could be used to buy something else. It is all about opportunity cost. So, although almost everyone makes their profit/loss a factor in their buy/sell decision, it really is a bad practice and should be avoided because it doesn't matter.
3) Taxes can and will play a role in profits and losses, but they should rarely play a role in buy or sell decisions. When you buy a stock you should always have a sell target predetermined. If a stock makes it to that target, it should be sold, regardless of the tax implications. I am not sure exactly what your question was speicifcally asking, but a sell decision should be made most of the time without taxes coming into play. Regardless, it sounds like you have owned the stock long enough that it would be in the lowest possible tax bracket anyway. My philosophy is if you are paying taxes then you are making money, and that is good.
4) I wrote about this in my investment philosophy. There are plenty reasons why an insider may be buying or selling a stock. Often the reasons have absolutely nothing to do with the company's expectations or performance. Another problem with following officers and directors is that the information becomes public later than when the purchases/sells actually happen...could be weeks later and in that time you could miss out on a valuable move. Many times officers are also required to make purchases on certain dates, for certain other perks such as options, or one of many other reasons. To understand potential pitfalls in following your officers you would have to do a lot of research on the public filings (10k, Def 14a, others) to try to sleuth through what reasons may be behind share purchases. Some people make money following this strategy, but there are a lot of caveats that could steer you in the wrong direction.

One other thing I would like to add is I am not a huge fan of owning a lot of (if any of) your own company's stock. If you are able to buy it at a discount or are given options or shares as reward, that is one thing, but generally speaking buying shares of your company with your own savings most likely will cause you to violate the important financial guideline of diversification. Your income, job security, livlihood, friendships, resume, and multiple other important things already depend on that job. If something were to happen to your company like a major lawsuit or economic downturn then you may be overexposed to that specific company risk (think Enron, Worldcom, etc). I would think about how much of your investments and assets are already tied up with your company before you make a decision to invest more of your future into it.

Now to your ultimate question...

I have attached two charts, one of the last 3 years and the other of the last 10 years. From a technical standpoint and on the first chart, the price is getting very close to a pretty good long term resistance zone of $37. From that perspective alone the risk/reward just isn't there since the stock is currently sitting at $35. Also the entire uptrend from October's lows will be in jeaopardy with a breach of $34 (lower support trendline). There are also a few other signs that tell me the stock is sitting at a pretty weak spot. One is it hasn't made new highs even though the markets have over the past few weeks. Also, its volume has kind of died off and the largest volume day in its history last month was a fairly big down day at a similar price point as Friday. And finally, at the bottom of the chart, the negative momentum is a pretty big sign that interest in the stock is waning.
From a longer term perspective (2nd chart), I would want to see prices breach and maintain above $37 before I look into buying again. The long term trend is intact, but the momentum has stalled out, so I would want to see that breakout as well. For now the shorter term chart trumps the longer term.

I would think about selling the stock, especially if it breaks down thru the trendline currently sitting at $34. Regardless, I do not think this stock has much chance of making and staying over $37. Another option as long as transcation costs are not too steep is to sell half now and then half if any of the other scenarios play out. That way you have peace of mind that you have at least locked in some good profits near the top. The stock is up over 50% from its lows and there will be a quick run for the exits if anything disappoints in the near future.

Let me know if you have any other questions. I hope this helps.





Friday, June 5, 2009

2009 Market Top - a chart to help know when to say when

Thanks to my friends at stocktock for giving me this idea.

I have attached a ratio chart of the Options Index put/call ratio over the Options Equity put/call ratio. I am not entirely sure of the reasons why it works, but looking at the chart you can see that it has helped confirm the downtrend of the last 2 years as well as the big rally we have had over the past few months.

Basically when this ratio is moving down, the index put call ratio is moving down quicker than the equities put call. The put call ratio is a contrarian indicator so I imagine this indicator is also a contrarian indicator. When it is moving lower you have less Index puts and more calls versus Equities which hav more puts and less calls. Exactly, very confusing.

The great thing about indicators is sometimes we don't even need to know why they work. Backtesting tells us that the indicator was valid and did work for the time frame analyzed, so it seems reasonable to add it to the arsenal as it may give a valid signal going forward as well.

I will be adding this to my watch list for the next major move. Notice the shorter term MA may be topping out as the market continues up currently.

LEN Triangle Breakdown?

Yesterday and Today Lennar has been showing relative weakness to the markets. On top of that it looks to have broken down from a long 6 month triangle. I want to get a little more confirmation because it still may be a little too early to tell if this is a true breakdown or not. A triangle pattern is typically a consolidation pattern (which this looks like) that eventually continues in the same direction as the previous trend (down).

The price action supports it, but the volume did not pick up on the breakdown as expected, and the general market is still in an uptrend which could act as a sort of buoy for the stock, at least temporarily. Also, on a linear scale (almost all my charts are done on a log scale) the price is sitting right on the lower ascending triangle trendline support; so it hasn't broken thru it yet. So maybe give LEN a few more days.

On the positive side, the RSI and MACD both have negative patterns suggesting a short may be a decent play here. I also really like that longer term trendline that came into play in May.

A stop should be placed above the upper triangle trend line for conservative players. A tighter stop may be placed above the lower ascending triangle (inside the triangle) as price should not intrude back into that zone. Also, a good stop guide could be that longer term trendline acting as resistance thruout all of May.

The link is to the live annotated chart (you may have to have a stockcharts.com account to see all my markings).


Head and Shoulders and Elliott Wave Target 1-24-08

- The link at the bottom of this email links to a realtime annotated chart. It is the original link from the email, but then obviously only had data thru the 24th of Jan 2008, which I have captured in the chart below. It will work indefinitely with updated prices.

Email sent to a friend Jan 24 2008

Looks like 5 waves down from December completed (unless my count is wrong or this wave will extend) and the head and shoulders top minimum target has been met this week (see chart). The move down from the early Dec top has taken ~28 trading days and I suspect either a 38.2, 50, or 61.8% time retrace on that (10, 14, or 17 days). The move up today was big...and if I am right about the 2+ weeks of bull ahead, then this market could easily see $1400 again. But...

A typical rule of a correction leg is that a retracement will retrace to the 4th wave of one lesser degree, which happens to sit right in Fibo territory right below the neckline of the head and shoulders (the jumbled mess between the fibos labeled as 4.). Also, a rule of elliott is the IV. wave (started yesterday) cannot impede on the first leg of the same degree (which is at $1406). So, 4 really good reasons for resistance by $1400. Unless things change, this is where I am going to lay on THICK puts in a 3 phased approach to catch wave 5 down...First trying to pick close to the top to "anchor" (most likely around the first Fibo), Second once the market rolls over and I get confirmation of a short term trend change and/or a move south below the fibos, and three once the market starts falling hard again and/or when the low of $1280 is taken out. My stop loss will be above the neckline above the $1425 61.8% fibo which is ~4% risk with big time reward.


http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=2&mn=0&dy=0&id=p68242532351&a=128703199

Peace!

Beginning of the Bear: Email Update 1-6-08

This is the email that started it all. I sent this out to friends and family on Jan 6th, 2008 after the markets confirmed a breakdown of the 20 month moving average. The links in the email should still work and will give you an updated chart, but I have attached the original chart as seen by the links in Jan 2008

To: Friends and Family

Subject: Long term S&P500 analysis: 2000 top versus 2007 top

I have attached a chart I built comparing the similarities between the year 2000 and the year 2007 market tops.

It is important to note that Friday's sell off penetrated a very key long term support of the S&P500. The 20 month (400 day) moving average has held as support for the entire bull run since the 2002 bottom (see both charts). That support was breached on Friday and is a sign of trouble. If the market does not rebound quickly (by the end of the month) above it, then we are in official bear market watch mode.

In the 80s and 90s, the 30 and 40 month moving averages were the primary long term supports (see first chart). You should watch them closely because once they break we are technically in an official bear market in stocks just like we were in the beginning of 2001.

What this means: If I were your advisor and by the end of January the S&P was not back above the 20 month moving average (currently at $1426), I would tell you to take ~33% of your long positions and switch them to short, safer (dividend paying), or cash positions until we are back above the 20 month MA.

Other key points to the chart:

-The long term support line (blue uptrend) is currently at the 40 month MA level and quickly approaching current price levels.

-There is negative divergence from an overbought position on the relative strength (RSI) of the move in 2007 just as there was in 1987 and 2000.

-The Long term MACD just had a bearish cross, the first one since the 2000 top.

2000 versus 2007 tops:


Zoomed in view of 20 month moving avereage penetration:http://stockcharts.com/h-sc/ui?s=$SPX&p=M&yr=10&mn=0&dy=0&id=p53660378548

Let me know if you have any questions.





I followed up the above email one week later with the following email and chart on the 17th of Jan 2008...

Figured we got thru four days of charts, might as well do one final one for the week. This one, I feel is the most important and is support to the one I sent last week (copied below).

All the info you need is on the chart. Remember the one I sent last week had the 20 month support propping up the long term market. Now after a continued selloff the 20 and 30 month have been taken out and the 40 month is only 11 points away. I said if they get taken out it is goodbye market.

The attached chart is a little more short term in nature but ideally supports the long term view. Having the two on the same page gives me more confidence that what I am concluding is correct. Anyways, enjoy and let me know if you have any questions.

Chad


Dow Theory

In technical analysis there is a lot of confusion as to when a proper Dow Theory trend change is confirmed. I have attached a chart and email I sent on Jan 14, 2008 to a few friends and family showing the true Dow Theory Bear Market confirmation. Enjoy.


Dow Theory states that a trend change occurs when both the Dow Industrials and Dow Transports either BOTH make higher highs or BOTH make lower lows. Both indicies made lower lows the first week in 2008 for a confirmed bear market trend change. There was an important negative divergence that occcured in the transports at the October highs, which was a warning sign, but the confirmation of the Bear using Dow Theory did not occur until January 2008

Email sent Jan 14, 2008

Subject:Tuesday morning relevance


"Dow Theory says end to bull market! Confirmation by the Industrials occured last week for the first time since the bear market of 2002."


Thursday, June 4, 2009

Market Update 6-4-09 - more bull than bear

Not much to say except that I bought some longs yesterday and am now a lot more bullish than bearish for the short term.

Attached is the latest chart. Nothing has changed on the chart from the one I sent out May 14th except the market's updated track. Notice that scenario 2 is playing out very closely ("very shallow correction possibly making new highs"). There was a double top the week of the 18th on an intraday basis followed by a low on an intraday basis later that week. Scenario 2 had such a scenario playing out. The only thing I would like to change from that chart of May 14th is the expected length of Blue 2.

There is not really a reason to necessarily expect as large a rally as I previously laid out. The markets seem to have completed their first pattern up early this week with a good correction on Wednesday, possibly still playing out thru tomorrow (or completed Wednesday afternoon). What this could mean is that the first wave up is complete and the 2nd correction down is nearing completion (out of a total of 5) awaiting a 3rd wave up tomorrow or Monday.

The correction of the last 2 weeks was very weak and seems to have taken the shape of a flat or triangle (debatable) which also supports the market's strength. There is a pretty low chance now that the market is still in corrective pattern off of the May 7th- 11th highs, which leaves the bullish position as the most likely.

I will need to be nimble the next few weeks though, as this thing could turn on a dime, and when it does, that is all she wrote.

I will know more as the weeks progress and the market reveals more.

The safest bet is to buy with a breach of $950 which if I am correct could come tomorrow or Monday/early Tuesday (I went ahead and bought because of personal reasons and because I know at which point to sell if I am proven wrong--right now $900). If $950 is overtaken then all liklihood we are in the powerful 3rd move up and price should not intrude below $950 until this summer rally is over.

I hope you all like this blog better than the email. Hopefully it will allow for better interaction and understanding of my position. Also, be sure to check out my disclaimer at the end of the blog. As always I am doing this more for fun than anything and none of my comments are meant for advice. It is strictly a statement of what my opinions are.

Good Luck!

Chad

200 Day Moving Averages are very interesting right now

The 200 Day Moving Average has been playing a game with the markets this last week.
On the Nasdaq, it is long blown thru on the upside, so no games there, but on the Dow and S&P500 is a different story.

Attached are the Dow and S&P500 5 min charts with the 200 day Moving Average in pink.

Notice on the Dow, it has yet to break thru the 200 day as it rejects price as resistance, but on the $SPX the 200 day is already acting as support having bounced along it yesterday.

Once the Dow breaks thru then we can get more comfort that this rally has legs.





Wednesday, June 3, 2009

Starting June 4th all Posts will be to this blog versus in email form

Every post before this one has been of emails I sent out concerning the markets and stocks. I thought it necessary to add the audit trail and history to this blog in order to facilitate future posts and give easy access to historical updates.

Each post prior to June 4th is copied from my email account.

Going forward each post on this site will correspond with the date it is archived and written.

This blog should be a much smoother way for me update, track , and interact in a more productive way.

I hope this works for everyone.

Looking forward to updating.

$SPX trendlines Email 5-27-2009

To: Friends
Subject: thought you all might find this interesting

rule # 1 in technical analysis is support becomes resistance and vice versa. I drew this chart in early April (dont remember if sent it out before or not), but it's updated with the latest price. The trendlines I have not touched since creation.

I find it very interesting where the latest rally has stopped (right on trendline). That would be the 8th touch of the trendline which makes it a very valid and important trendline. What I will look forward to is this trendline to reject the next (and final) rally once this correction completes. The trendline is currently at 965. Also, the blue trendline could be a good target for this correction (currently at $800). If nothing else they should provide some resistance/support.

http://stockcharts.com/h-sc/ui?s=$SPX&p=60&st=2008-09-30&id=p45390708552&a=161886663

later.

HD Email 5-18-09

To: Friends
Subject: who is buying this stock

Saw a good post tonight on Home Depot...
http://stockcharts.com/h-sc/ui?s=HD&p=D&yr=3&mn=0&dy=0&id=p90711668046

Does RayJay have an analyst that follows HD? What are their thoughts? It is literally only 20% lower than it was before the bottom fell out of the property market 2 years ago... I was at Lowes today and there wasn't a single car/truck at the loading dock...not even any parked down there. I remember in 1999 when I was the loading dock guy at Home Depot in Mandeville...I barely had time to gather carts they were so busy down at that end...anyways... Looks to me like a great short candidate once this summer rally is over...prolly same for all consumer discretionaries.

Market Update Email 5-14-09

To: Friends and Family
Subject: Market Update May 13 2009

Welcome my new additions to the newsletter I have been sending out to my friends and family for about 2 years now. Let me know if you have trouble viewing the attachment.

Ill keep it short tonight. I left my last update with the comment "I may be turning slightly bullish but not until a good pullback". It looks like that pullback has finally started. This has been like the rally that never ends! It also proves why picking tops or bottoms is a fools game unless you have tight stops in place.
1) The primary expectation is for this pullback to go pretty deep (most likely back down to S&P500 $800) as I have shown first on the chart. It is in this area (the green zone) that I will look to be a buyer with the expectation that the market has another 15%+rise at least back to $925 again (most likely will get over $1000 though). I expect this summer rally to last 6-7 months and so far it is 3 months into it.

2) But, I also have reason to believe that this decline could be short lived which is why I have picked my next scenario as a close second. If the pullback ends tomorrow or Friday and we have a decent bounce up either double topping or making a slightly new high at $925, then I will have reason to believe that this correction may indeed by pretty shallow. I have drawn that scenario in the 2nd section. The risk/reward play there is to be a buyer at the 2nd time the market makes a new high (above $950).

3) The 3rd count is pretty far fetched at this point and doesn't add much value that the other two haven't already, but it still is a valid scenario and something to keep in mind if this correction turns out to be more than just a correction.

4) The other scenario not on this chart is that the entire "summer rally" is over as of last week, but that is highly doubtful and it will be awhile before I can make that claim. Believe me, if it is over, then there will be plenty of time to make money on the short side.

Summary: After this pullback there should be another big move up which will end with everyone claiming the bear market is over, there is no more recession, Obama has saved the world, no one will foreclose anymore, and the word depression isn't stricken from the dictionaries. At the end of the next move up is precisely the time to get short and head for the hills because this market just had a killer 1.5 year 5 leg move down and initial five wave moves always are eventually followed by another five wave move in the same direction. This implies another killer 5 wave move for 2010 starting roughly where I have my blue 2. labeled. At this point cash will be king once again. At that bottom you will be able to buy assets (those that survive) below book value. And, at that bottom you will be able get that vacation property in Florida for under $50k!

Let's see how it all plays out in the short term before focusing on the long, though--still a long way to go. And remember, markets evolve and are always changing, so the only certainty is that my views and scenarios will certainly change in the near future!

By the way I read somewhere that the unemployment rate on an apple to apples basis to the 1930s is 17% today; the primary difference being that in the 30s the US didn't have the welfare system we have now that supports many lower income families who live off of welfare and also the 30s unemployment rate included those disgruntled workers who were forced to work reduced hours which is excluded in today's numbers. So if you believe that January 17% number then we are getting close to the 1930s 25-30% unemployment rate. Also, the 1929-1933 period was 4 years from peak to trough. We are only in year 2 of this downturn.

Good luck and let me know if you want to discuss at all. Also, remember that you know your own financial situation best and you should not speculate with money that you can't afford to lose.

LaterChad


GMR Email 5-1-09 1Q 2009 Earnings Update

To: Friends and Family
Subject: GMR 1Q 2009 earnings Update

A few new friends I have added to the chain. Please see the email from last month (below) and then today's to gain some perspective. I can speak with you all individually if you have any questions, but GMR is a stock I have followed for 3 years now that I own in my retirement fund. It is an oil tanker stock that pays a huge dividend. I would suggest looking it up on yahoo finance. I send updates on it when needed. Let me know if you are not interested in receiving this update and I can take your name off.

1Q 2009 Earnings Summary...

What a great few months for GMR. The stock is above $10/share now after Wednesday's great earnings and dividend announcement (Last update it was below $7/share). Some key notes about the stock...

1) This is the first full quarter with the Arlington acquisition
2) EBITDA of ~$48MM for the quarter
3) Normalized Working Capital Free Cash Flow of ~$39MM for the quarter
4) Both of these numbers easily cover the $0.50 quarterly dividend target of 50 cents on 58MM shares (requires $29MM of Free Cash Flow)
5) Company paid down $50MM in debt
6) Company announced continuation of share repurchases and 50 cent dividend
7) I got a response from investor relations concerning the S3 filing...supposedly it was just a requirement that they do it for the Arlington Acquisition with no other implications
8) At $10.30/share the stock is trading right at gross tanker value, still a very positive fundamental value

One of the reasons this company is doing so well right now is because it locked into 3 year time charters at basically the peak of the bubble in 2007. This is proving to be very lucrative during this downturn (EBITDA margins over 50%!!!) But, one potential negative in the future is that these time charter contracts expire around mid 2010. Unless they lock into some new contracts, starting mid 2010 the company's contracts will be at significantly lower spot rates assuming current market conditions. But at this time I am not too worried about the dividend because of the $10MM or so of cushion per quarter currently in their free cash flow and their diversification of fleet (and spot rate) offerings (Suzemax, Aframax, VLCCs, etc).

I am a little upset at myself that I let the S3 filing scare me from buying a lot more shares below $7.00, but that's the way it goes sometimes. This stock is still around a 20% dividend and I will continue to roll my dividend into purchasing new shares, but I personally will not be adding any more shares at this point for a few reasons. 1) The stock is already a decent size of my portfolio. 2) I am not very positive about the long term aspects of the stock market in general, but that is why I am focused entirely on dividend paying stocks, because cash in my pocket is way more real than a future earnings stream expectation or implied value. It is the only thing truly measurable and right now I will take that over any high flying no dividend tech stock.

My goal with this stock is to get a good base in now as a youngin, roll the 20% dividend payment into acquiring new shares (dollar cost averaging), and wake up one day when I am 50 with a very nice size of GMR or some derivative form and flip the switch from rolling the divy to keeping the divy payment as income to live off of.

The stock's valuation varies greatly with the vast array of valuation models available. From a book value perspective $10-$12/share is about right, but book value is a pretty conservative valuation metric and implies no growth or goodwill. From a low EBITDA multiple the stock should still be in the single digits, but I do not like this valuation, because of the companies great cash flow and payout (At 20% yield, you get a 100% return in 4 years!). Therefore a higher multiple should be used which puts its price range in at least the teens. I like free cash flow models better for this stock because it not only provides excellent free cash flow, but, given its large amount of tangible assets it should get some credit for a terminal value at some point in time as well. The dividend discount models (free cash flow models) put the price in the low $20s.

All in all, I would be a long term buyer of this stock anywhere below $12.00 right now which would still put a dividend in your pocket of 17%/year.

Market Update Email 4-12-09

To: Friends and Family
Subject: Market Update 4-12-2009

It has been awhile since I have sent out an update. I apologize I have been busy moving and wrapping up my current job. This summer I will be focusing entirely on the markets, which I eagerly look forward to. I am also working on a market neutral trading strategy which I intend to take to B school with me and use as my focus for my entreprenuership concentration and see where that takes me. Still very early in that process though. I am living with my parents until July at which point I will move downtown to start Ga Tech.

Another reason I haven't sent out an update lately is because frankly I am not sure what to do next. The market hasn't exactly behaved as I expected. This rally up has gone farther and longer than I anticipated and a lot of the traditional indicators I use are not helping. I currently have some trapped April puts that I will no doubt lose some money on, but I am not too worried as that was the house's money I was playing with. That is what I get for trying to pick a top, though. The smart money management thing to do is to wait until a trend has formed, know at what price you will be proven wrong so you have your stop loss, and then get on board to ride that trend and get out if proven wrong. The key is to know at what point you are wrong and currently for me that point is $875 which we have not hit yet. The moves that we are currently dealing with are huge by historical standards at 20%+ each, so there will be plenty of time to jump on board something for the ride rather than trying to pick a top or bottom. I have spoken over the last month of the bounce I expected and then the sell off that will occur afterward. Currently we are still in that bounce and still awaiting the sell off. That expectation remains albeit now with a different outcome until the market takes out $875...I will show you why in the chart.

This continues to be a traders market and I don't expect that to change anytime soon. There is nothing wrong with holding cash and waiting this thing out. Most people wish they'd done that over the past 10 years; it would have returned you more! You don't have to be in stocks and Im not convinced the risk is worth being in stocks.

Now to the charts. You may have to tweak the zoom or sizing of the chart. I apologize-I added some other indicators to the bottom. I mentioned that I am going to take a hit on my April puts, but the reason will most likely be because they are options instead of stocks, and they have an expiry. This market will fall again, and most likely to the mid 700s at least, but when? I do not know at this point. Everytime I think this thing is getting long in the tooth, something happens. A good wave analyst I follow has coined this rally, the "upside surprise" rally. It sure appears that way. There are some counts that have this thing just about topped out though, but I will not try to pick this top.

The last chart I sent out expected a bounce, which we got. The bounce I expected was supposed to be a lot smaller though and end in the "red zone". Attached is what the primary count now looks like it wants to be. That 5 wave decline I had in Green on the last update, was correct. Only it seems it might be of one degree higher, and the triangle I had on a previous chart topped out in February as I now have updated again on the attached chart instead of January. That satisfies the wave structure. What this implies is that if that five wave move down in February was of one degree higher, then we currently COULD be in that "Big Summer" rally I have spoken of before (Our primary Wave 2 up).

I emphasize COULD because until $875 is taken out no rules have been broken and we could also still be in wave 2 of a 5 wave move down still. If you scroll down on the chart you will see this scenario in the 2nd section. That is why I cannot get long yet. It is looking more and more unlikely, but nevertheless, cannot be ruled out. Most likely we have started that big summer rally, and if so, we should still get a very good opportunity to get long on this next move down to below $800 (whenever it occurs). The way I will be playing this is if we break north of $875 soon then I will put a few slugs north knowing that a correction will be due sometime soon at which point I will add more longs for the next leg up knowing that when that is complete I will be shorting again for another huge move down to new lows (at Blue 2.). That next move north should reach at least $950.

Other thoughts: Remember we are in a bear market until proven otherwise. Even with this 25%+ rally we still have not made higher highs and lower lows. I do not think chasing this rally is the right thing to do, not yet anyways. On the contrary the VIX has finally confirmed the move up. It finally broke down on Thursday which typically means the market will rally, but I wouldn't be surprised to see this as a false move sucking in the bulls one last time since this indicator has been screwy for the last 6 months. I will need to wait a few days to see if it holds. The put call ratio also continues to give no signal, which is disappointing, as it was one of the great indicators of the last 2 years. The nasdaq continues to lead which is bullish.

And, finally, weekly volume has been slowly declining over the last 4 weeks which is bearish. And finally of interesting note, Goldman Sachs has announced they will be making a multi-billion $ share offering in the next few weeks. This will dilute the heck out of their shares. In theory companies should issue shares at price highs and buy back shares at price lows, so this could be a way that Goldman is kind of "calling the top" in the market. Conspiracy theorists are suggesting the banks have built this false rally in order to prop up their prices so they can get the maximum amount of $s for their offering (ripping off the share holders and retail investors). It wouldn't surprise me, and it will be interesting to see how this is spun in the news. Is it positive because GS wants to get out of bed with the govt and pay off its cheap govt. loan or is it negative because it will dilute the heck out of their shares and cost way more than the govt. debt? Who knows but it will move the market.

Good luck to everyone and shoot me any questions you may have. Remember, you know best about your current financial situation and I only use money I can lose to trade with. This is not advice, just letting you all know what I am up to since you have expressed an interest in the past.

I may be turning slightly bullish but not until a good pullback.
Chad


Market Update Email 3-16-09

To: Friends and Family
Subject: Re: Market Update March 11 2009

One sentence tonight...I bought puts this morning and expect to only add to the position. One chart tonight...the COT (Commitment of Traders) chart continues to show the only ones buying this market are the little guys and in fact the commercial hedgers and large investors (hedge funds/institutions) are increasing their shorts and have been since the January bounce. I want to be on the side of the big boys. Keep listening to that CNBC and you will go broke.

I will remain short unless $775 is taken out, then I will have to reevaluate. The key will be what happens in the fibo area of $735 to $711. Good Luck things could get bloody again.

Market Update Email 3-11-09

To: Friends and Family
Subject: Market Update March 11 2009

This is a quick update tonight as I am traveling in Baton Rouge this and next week for work. The bounce is finally here!!! I expect at least one more push higher and then it may be complete. This bounce will be similar in nature to the January bounce in size and power.

I have updated the chart and attached it. We are currently in the red zone I had laid out, so that means I will start buying some more puts for this final push lower. This will be an aggressive trade that I wouldn't necessarily recommend as this final move down will be really open ended...meaning it could be a very small move not making new lows, a large move to new lows (expected), or something very puzzling and erratic...who knows. All I know is right now the count is incomplete and we need another leg down to complete the big move down from Oct 2007. I will know more once it starts to show itself. I would use this next move to close out shorts as the next move should be a BIG multimonth summer rally.

What I do know is this rally CANNOT get above $800 on the $SPX or my count is wrong and I will have to close all my shorts and get long. That is a really long ways away, though, and I dont expect it to get close. Notice on the chart that even though Tuesday was a huge day, we still aren't even in the fibonacci retracement zone of 38-62% of this latest move down.

Heres what Im doing: Adding shorts awaiting final move lower, most likely to the low 600s, but nothing is definite and we will have to stay nimble in this volatile last leg.

Good luck.




GMR Email 3-8-09 4Q 2008 Earnings Update

To: Friends and Family

I am still a believer, especially with the stock below $7.00/share. GMR's earnings on the surface were bad because of some one time severance charges as part of the merger which I think may be part of the reason for the selloffs of late, but the ongoing expectations are for an even lower base of SG&A costs which should push EBITDA margins north of 50% permanently. Looking at the 4Q alone, adjusted EBITDA was 53% of revenues or $47MM. This number only includes a few days of Arlington results as well. So on a pro forma basis EBITDA is going to be more like $55-60MM with about $10MM of capex (conservative) and $8MM of interest per quarter. So, quarterly free cash flow will be in the range of $37-$42MM which should more than cover the $28.9MM required to meet the $0.50 dividend payment/quarter on the post acquisition 57.9MM shares. There is also over $100MM of cash on the books now too to cover any short falls. Also, very important I think, is the company paid its full dividend for the quarter last week, even though most of its competitors have cut theirs. If GMR were to cut the divy the time to do that was last week as almost all the other divy paying companies have done. This is uplifting news. A few other points...

gross PP&E is now on the books at $1.5Billion and net PP&E at $1.3Billion. With the stock currently at $6.86 ($400MM market cap) and net debt outstanding of $886MM the enterprise value of the company is $1.28Billion. That means the stock is currently trading under its gross and net pp&e book values as well. Another positive fundamental metric.

The one thing that has me not all out loading up on shares is the latest S3 filing by the company up to $500MM. I suspect the company is going to issue more debt to either make another acquisition, buy back shares, buy more tankers or a combo of a few. The company is already levered over 4x EBITDA, so that may be spooking investors as well, especially in the current times of deleveraging. The filing is just the start of the process, so who knows if it will ever get done and for how much, but nevertheless it is interesting they have filed to take some sort of cash raising. The existing debt doesnt start to become due until 2011. The difference between GMR's debt and most other companies is it is backed by their tankers, so they get ridiculously low interest rates. Current average rate on existing debt is below 5%. So, more debt isn't necessarily bad, it's just something that I need to follow...especially to find out its usage.

Overall I am happy with the results and am looking to lock in some good shares at these low prices. My valuation models have the stock worth anywhere from $4 to $22 depending on future growth rates. But, my conservative average price is $10.63/share. With the current $2.00 dividend yield over 25% and expected payment continuation, I see no reason to not start buying shares. A 25% annual return over the long run should be well worth any short term downside in price, if that should continue. The risk/reward is now skewed heavily to the upside, unless something happens with the oil market or international shipping laws.

Good Luck. Next update when any major news comes out.

Market Update Email 3-6-09

To: Friends and Family
Subject: Current Chart

All, it's been awhile since I sent out an updated chart, so here it is. As I mentioned I took some profits today and am frankly unsure of whats going to happen next. I still am waiting for that bounce and we have a possible wave count completion (see chart), but my indicators say we could have a lot more downside before that bounce.

Im just not sure. I will do some more research this weekend. For some reason I am not trusting my indicators. What I am sure of is we will get a multiday bounce when this down leg is over followed by another big selloff which should complete our market bottom at new lows.

The 2nd chart is one of the VIX (the implied volatility on options contracts). This is one of my indicators and it should be peaking as the market falls. The chart I built has the VIX inverted so that it tracks the market (which means it should be spiking down as the market falls). As you can see there is some crazy divergence going on now that hasn't happened this entire bear market. Why is the VIX not tanking? That is what I need to study more.

Good luck. Nothing wrong with staying out of the market when you are unsure of things.




Market Update Email 3-5-09

To: Friends and Family
Subject: Quick Market Update - Taking some profits

Just wanted to let you all know that I am taking some profits on my shorts. I still think we will see lower lows, but I am also expecting that decent bounce I have been talking about, therefore I am going to a more cash stance for now until I am able to do some more research. Currently that bounce can run as high as $775 when it does occur, but I doubt it will have that much steam. Theres a few things I must figure our first including the VIX, put/call, and relative strength of the nasdaq 100.

Im still bearish, but being the aggressive trader that I am, taking some money off the table seems like the smart money management thing to do. So, wait and see mode it is for me. I am still holding some shorts, but have closed all of my put options on the market. The one regret I may have is if this market crashes, which the VIX and Put/Call are certainly supporting right now, but I would rather miss out on that than risk my profits of the last 2 months. Besides, I am banking on that next opportunity in a week or two.

Just trying to do some money mangement for now. Send me individual questions if you have any.
Good luck.

$VIX Blog entry on Stocktock

This blog links to a blog I posted on stocktock.com...

The VIX has yet to confirm this move even though we are down 20% from the nearest high...im still trying to figure it out. either this is a gift from the put buying gods or something is up. Maybe some comments will help figure it out.

Bear market until proven otherwise!

Market Update Email 3-1-09

All, no charts tonight, but nothing has really changed. We are heading down and continue to head down hard. The bounces have been very weak and my embedded scenario is playing out (mentioned in last week's letter). The big double bottom bounce was very weak, if not nonexistent, and makes me think the bounce I am waiting for (which corresponds with the 4th wave bounce of the final 5 down) has still not happened yet. This is how I am playing it, anyways. The fact we just blew by the 2002 and November 2008 lows without a whimper is scary, frankly. There should have been some conviction of buyers there, but wasn't.

The Volatility index (VIX), put call ratios, and volume all say this decline is far from over. In fact, on the committment of traders chart, which is a chart that tracks the small speculators, large speculators, and large institutions actions, the only group of people who are net long are the small speculators. This group is always wrong about the market as a whole! This group represents the general investing public. This is also the first time since the March 2008 bounce that the only bulls have been the small speculators. This is scary, too. The VIX also has barely moved since the early January top, even though we have fallen over 20% since then! Complacency is way too high. Too many people think the bear is just about done. This is also supported by the amount of call buying versus put buying which continues to be a great indicator.

Bottomline is the wave 1 I have labeled on the Feb 20 chart last week is still applicable for all intents and purposes. We just haven't gotten that double bottom bounce with the suckers rally to the red zone. The red zone is fully below $800 now, by the way. Once that bounce occurs there will be one more ample opportunity to get short before the final sell off at least into the $600s, and most likely low $600s (at least that's how it looks today).

Tomorrow looks like it could be a bloody day.
Good Luck. Chad

Market Update Email 2-20-09

To: Friends and Family
Subject: Put/Call ratio today once again set a very bearish mark

Down to one of the lowest levels of the bear market at .69. I imagine this will change as the market falls the rest of the day today, but should still be a bearish number.



GMR Emails 2-25-09 2 parts

To: Friends and Family
Subject: GMR earnings tonight; Price below $10 again

Email 1

GMR announces its 4Q 2008 results which will have a few days worth of the Arlington acquisition too, tonight...should be interesting. I have heard a few of the other oil tankers have dropped their dividends, but those ones have been also been a lot more overvalued from a share price perspective and the announcements came months ago. No such announcement yet on GMR. From a Free cash flow perspective this thing is still spitting out over $150MM of EBITDA/year with interest expenses of $27MM; so over $100MM of pure cash a year to do as it pleases on 31MM shares ($3.00+/share/year). The stock is currently tanking hard today on very light volume (giving up all of its gains yesterday) which makes me happy because I am going to put in a little slug of shares sometime today before the earnings call. These numbers are all pre acquisition, but should be similar in nature pro forma for Arlington.

If they don't cut their dividend today, then I don't see them doing it anytime. Now is the time to cut since everyone else is. So today is D-Day so to speak.

I expected a final move down, and am getting it. I think it could still fall farther as oil falls below $35 again and the market makes a new low, but I don't want to miss out in case they do have a great quarter. Being a long term investor we have the luxury of being early. With that, I am adding a little whip cream to my existing slice of pie.

I will try to send out the updated model thursday/this weekend. Good Luck,

Email 2
One other thing I just noticed too is that the company has recently registered to file $500MM in a secondary share offering. At first thought, this is not a good thing. Why would they be willing to sell $500MM worth of shares while the stock price is at a multi year low? Sounds like GE when they were buying back shares at $30 and then recently issued shares at $15...losing $15/share in cash

I am going to assume the purpose is to pay down debt, which is arguably a decent thing to do in these times, but I would counter argue that when their debt is at a very low rate of like 5% doing so may not be prudent. Also, they could easily pay down $50-$100MM/year using free cash flow. Just doesn't make sense. Notice too that the offering never hit the news wires. I found it on the SEC website. Perhaps they are going to continue to be acquisitive as well...who knows. Tomorrow we find out.

I am on guard though and may reverse the purchase I just made to wait and see.

This call tomorrow will be interesting. It is at 10am central.