My Birthday Wish: A Bull Market

Well, I'm 19 years old today... and it's probably the least monumental birthday ever. Other than a few small monetary gifts, it's life as usual. [If anyone is feeling especially generous - stevof@gmail.com is my PayPal account. :)]


So what else is new - oh yeah, the market is tanking.

Thankfully, I sold a third of my Thornberg shares yesterday near $3/share to lock in neutrality for the trade... now, even if the rest of my TMA falls to zero, I'll break even.

I bought some Bear Stearns (BSC) today as a trade, but my lower stop loss was just touched and I was forced out. It has now moved up a couple dollars, so I don't know if I'll get back in (its in my Ameritrade account, where commissions are $10 each way... I should be using my Tradeking account, with $5 commissions). BSC is attractive because it is down like 70% in the past year, but it is clearly having problems operating, so there may be more attractive beaten-up financials.

I also bought some Etrade a few days ago as a speculative play; it's also priced for bankruptcy, while I expect the company to survive and recover.

I also have an order in for American Eagle (AEO) LEAP calls right now - as a teenager (I can only call myself that for another year), I'm familiar with their business. The stock has fallen 50% over the past year, and valuations are at a historic low.






"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.

Fed Saves the Day; Market Establishes Bottom; Financials Pop

If you're a regular reader, you'll know that I'm more into fundimental analysis than trading on technicals. However, at this point, I'll take any excuse to say that the market is turning around.

After the Fed announced today to accept Mortgage-Backed Securities as collateral on Treasuries (essentially allowing banks to NOT have to sell/write down the MBS while being able to get needed capital), markets exploded upwards. Above is a three-month chart of the S&P 500 ETF.

Looking at the chart, three very important things happened today.

• The RSI touched the "oversold" line (30) yesterday and bounced today, as buyers entered an oversold market.
• Yesterday's close tested the January lows/resistance levels, and the market popped off of those, suggesting strong support at that level. When the market rallied late January, many analysts said that the market had to move sideways and test lows before it could move up for good; after a month and a half of volatile movement, we've retested lows, and apparently, bounced off of them.
  
• Lastly, on the MACD lower indicator, the gap is closing, and a cross will suggest a bigger change-of-trend.

Combined with the great fiscal-policy news (now maybe JPMorgan and others can stop bothering my Thornberg, demanding their margin calls), my basic chart/technical analysis suggests that this may be a major turning point for the market.

However, keep in mind that, after a day of 3-4% gains, some sideways or downward action is reasonable, if not necessary. I'd love to see the market up another few percent tomorrow, but such an outstanding day (the best in five years) may prove itself a hard day to follow.


Just a reminder - this weekend I sent out my first edition of the StudentStocksLetter; email me (studentstocks@gmail.com) if you'd like to be added to the email list. Starting this week, I'll also be detailing trades from the previous week.



"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.

Roses or Thorns?

I just took a chance and bought a tiny position in Thornberg Mortagage (TMA). I don't have the time to write a full analysis now, but I think that the company is too good fundimentally to be trading this cheap. One kind of debt is killing them, and it's causing margin calls to completely disable them from operating. But the vast majority of their portfolio is made up of prime and super-prime debt, and I think that, if nothing else, a bigger company will be willing to snatch that up at this price.

Bought in @ $1.35.


"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Investors: Read Before You Vote for Obama

Unless you want to impoverish yourself, consider voting for someone besides Barack Obama.

I'm not going to get too political on this blog (yet), but I felt that there was one bit of information that deserved to be made known at this point:

Obama plans to hike capital gains taxes.

Due to his tax-break initiatives, which aim at lowering taxes for lower-income, middle-income, and elderly taxpayers (which I do not necessarily impose), he plans to raise the capital gains tax to pay for the decreases elsewhere.

How much? It's not clear yet. I can't find an official stated policy on his website, but here are some excerpts I've picked up from other press sources.



The USA Today reports:

"When Obama announced his health care plan in May, his campaign said he could pay for it by rolling back several Bush tax cuts that benefit the wealthy. That included restoring the top rate on investments to pre-Bush levels: 20% for capital gains and 39.6% for dividends.

...However, they could not say how much that would raise or exactly how high Obama would raise them except that the top rate for both would be between 20% and 28% — the rate President Reagan set in 1986.

(source)


The New York Times reports:

"While Mr. Obama said he had not settled on how high to raise the capital gains rates, he added that he would “adjust the top dividends and capital gains rate to something closer to — but no greater than — the rates Ronald Reagan set in 1986.” Later, aides said the top rates would be 20 percent to 28 percent. Most people now pay 15 percent on capital gains, with lower-income people eligible for a 5 percent rate."

(source)



So it's not clear exactly how high Obama plans to raise capital gains taxes, but it does seem likely that they will be increased. From what I can tell, based on articles and his website, he does not specify if taxes will be raised for every taxpayer, or if only "wealthy" investors will have an increased burden.

This tax increase will be a terrible blow to the stock market and the fiscal health of America. First, if Barack is elected, the stock market will likely tank, if investors think that a tax increase is probable or imminent. A hike just to 20% represents a 33% increase - a HUGE number - while a raise to the highest stated possibility, 28%, is a 90% increase.

The markets sell off on news lesof their value os scary than that. How eager to would you be to hold onto gains that would lose up to a quarter overnight?

Plus, at a time when most Americans have little net worth, why does it make sense to make it less desirable to save money? The government should be doing everything it can to promote investing and savings; instead of sending rebate checks this summer, they could be sending everyone some stock certificates with C, MBI, ABK, CFC, or BAC printed on them. (That wasn't a wholly serious statement, but it would be much better for the stock market and the American economy for families to spend their $1,000 checks on stocks instead of iPhones.)


Of course, many people aren't in a position to have the capital gains tax really effect their lifestyle; to them, the tax cuts Obama proposes would probably put more money into their checking account. However, everyone from the 50-year-old couple saving for retirement to multi-million-dollar investors should be wary of this possible disaster.

Obama enjoys romanticizing people with words like hope, change, and believe... I think that his focus on lofty ideas has removed him from reality.



"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Introducing the StudentStocksLetter

I'm going to start writing a weekly letter, uncleverly called the StudentStocksLetter (SSL), that I will gladly email for free to any willing reader.

Simply click to email me, and I'll add you to the mailing list. I won't spam or sell or anything like that; I'll just deliver (great) investing ideas once a week, into your inbox.

As of now, I plan to email the letters every weekend, recapping the previous week and presenting analysis or trading ideas for the coming week.

If the link above doesn't work, just send me an email at studentstocks@gmail.com and I'll put you on the list. Look for the first email this weekend.





"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Commodities Bubble Needs to Burst

....and the government can help this process.

The only good long investment in this current market is an investment in a commodity. Take your pick out of the bunch; whether mined, grown, or pumped, the price is skyrocketing.

I'm not sure that I have earned the credibility to call out professional analysts, but I can't believe that anyone who is still pumping commodities is a prudent investor. Below is the chart of wheat; I think it exemplifies how the current prices can't be justified as a normal movement.

Not too many tangible goods can increase in price fourfold in three years (or double in one). However, any agricultural product (or byproduct) has done this recently; corn, soybeans, soy oil, and other products have doubled or tripled in this same time frame.

Precious metals aren't too different; gold is setting new (non-inflation-adjusted) highs, while silver and platinum have enjoyed similar run-ups. Oil is also at historic highs, which is in turn increasing prices of natural gas, heating oil, and gasoline. Coal, the one non-renewable resource with hundreds of years of proven reserves, has also ballooned in price recently.

I can discern a few reasons for these increases:

• Devaluation of the dollar
• Mass-exodus from US equities
• The ethanol hoax
• Speculation

The dollar's sinking value simply makes globally-available goods more expensive. The cheapening of money by the Federal Reserve isn't happening; hopefully economic fears will pass over soon so that monetary policy can change.

The stock market performance is also leading to a search for alternative investments; many people think commodities are the answer. The only stocks currently performing are commodity stocks, as the underlying prices rise themselves.

The promotion of ethanol as a next-generation, better-than-oil fuel is a massive policy blunder. OK, it's a great PR opportunity to take a picture next to a pitchfork-holding farmer in the heartland; however, the same farmer will be cursing that politician in a decade when we're importing grain from Brazil. Someone made a great quote to this affect - "something is surely wrong with society when we burn our food as fuel." As the cost of dinner is increasing, how can anyone support the massive subsidies that allow a negligible amount of ethanol to enter the US energy system? I think if ethanol subsidies ended tomorrow, sure, some plants may shut down, and a few companies may go bust, but corn would return to a normal price, simultaneously decreasing inflation.

Lastly, speculation is clearly responsible for a big part of price appreciation. These people will get killed when the inevitable bust happens.

I'm not betting on an immediate burst; the analysts talking about support for oil at $100/barrel and $1500 gold have succeeded in establishing an acceptance of high prices. But eventually, rationality will return, and people shorting commodities (or stocks/ETFs) will be the winners.

I'm long DUG (Ultrashort Oil & Gas) right now; the energy price swings are a little more short-term than the grains and metals. It's a small position, because it's not worth it to bet against the fear, speculation, and madness driving prices. If key policy (Fed, ethanol, etc) is changed, prices could change soon - otherwise, prices may stay high in the immediate... but wheat won't be above $10 forever.



"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."

Introducing Two New Paper Pprtfolios

First, my apologies for the delay between new posts. This week featured 3 midterm exams, so I had to tend to the responsibilities of being a student.


I've created two new paper portfolios on UpDown.com - the StudentStocks Fund and the StudentStocks Commodities Account.

The Fund will feature short-, mid- and long-term plays on valuations and fundamentals. I'm assembling the portfolio as I write this, so when an initial makeup is structured, I'll post the components.

The commodities account is a trading account, as I try to exploit (gamble/guess) the movement of commodities. Right now, I own DUG (ultrashort oil and gas), and have shorted ConocoPhillips, KOL (Coal ETF), CNX (a coal producer), GDX (Gold Producers) and GLD (a gold ETF).

So i'm currently betting on a pop/deflation of the current energy bubble. As prices swing from high to low, I'll change sides of positions.

I plan to update performance from both accounts approximately weekly; hopefully, I'll produce some good, tradeable ideas for readers.

UpDown.com is a free paper-trading site where you can earn real money. If you're interested in opening an account, email me!



"I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more."