Monday, March 29, 2010

Breaking News: The Gov Is Selling Its Citi Shares This Year

How is this new news? They've told us this numerous times over the past month so why the knee jerk reaction today. Yes, yes, they're selling sometime this year, don't panic. I for one will be glad when it's done, so everyone can stop obsessing, stressing, and lying about it.

This morning I read a headline that said 6.5 billion shares had traded because the government was selling. That was with about 4 hours left to go in the trading day. In fact fewer than 1 billion shares traded all day which is rare.

Anyway, I'm beginning to think maybe a 1 for 2 reverse split wouldn't be too bad after Citi buys back 5 billion or so shares. That would bring the outstanding shares down to about 12 billion shares and the stock price up to about 8 and the market cap below 100 billion.

April should be an interesting month. Maybe they'll throw back the covers and show us what's under there. That is, what they have planned to address their capital structure.

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Friday, March 26, 2010

Let's Pay Attention To The Next 3 Weeks

It troubles me when we get days like Thursday and Friday. We start out up big, then give it all back in 30 minutes. Fundamentally, nothing has changed. The economy is on the mend and corporate profits are going to be good or better than most think. That doesn't change the fact that what we saw on Thursday was what we call a signal. Look at the chart and you see the market falling off a cliff on those days. Big computers selling and momentum traders joining in on Friday.

Most professionals know this usually signals it's safe to get short. You can hear a change in the tone of some of the tv personalities who trade. They all think it's safe for the shorts to come out of hiding. It'll be worth while to pay close attention, and maybe put some tight stops in.

One thing is certain, if they can't beat the market up over the next few weeks, then some who tend to be short only might be having a going out of business sale soon.

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Sunday, March 21, 2010

A New Strategy For A New Market

Here's something we believe works and most savvy investors could use to generated cash each month and boost portfolio returns. It involves options and we see it similar in risk to writing covered, short term calls on stocks you're willing to sell.

In case you haven't been paying attention, the pros are making a ton of $$ selling out of the money calls to retail investors. They push a stock up and then sell a load of calls, then when the time draws near, they short the stock and ensure the options expire worthless. Why not take advantage of this. It's so predictable.

Consider this, Freeport (NYSE: FCX) is a high beta name and favorite of traders/hedgies. The March options expired on the 19th and on the 16th the stock traded above 82. On the 16th the 80 puts traded as low as 17 cents (that's actually $17 for beginners, as you have to buy on 100 shares). With just over 3 days to go, most novices believed the stock had no chance to close below 80 because all the momentum had been to the upside and 80 looked like a long ways away. Wrong.

Of course the stock closed at 78 and change on the 19th and those options could have been sold for 10x as much, as they traded above $1.80 in just 3 days time. More importantly, those options gave buyers numerous chances to sell over the three days at much higher prices.

Think about it. Retail tends to be long only, which makes you predictable. Change your habits or continue to be taken advantage of.

This strategy requires a high beta (high risk) stock, and there are plenty, you must be willing to wait until the last minute to buy and sell (within days of expiration), and you must be willing to lose it all (so don't bet the house just money you're willing to let go). We ran hypotheticals for a few months before committing capital.

By the way, we prefer to invest here, not trade, but occasionally we engage in short term strategies we feel offer exceptional risk adjust returns.

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Wednesday, March 17, 2010

Another Interesting Day

This market just wants to keep going up. We just wrote about Cliffs (NYSE: CLF), GE (NYSE: GE), and Hartford (NYSE: HIG) and there was plenty to see, hear and read today. CLF was up about $3, GE said the future looks great and the dividend is back in sight, and HIG is paying back the TARP.

We like all three of these stocks, but the prudent thing to do is put on a hedge or two. We like buying a few short term puts, not a lot, but a little. For example, if I had $10k at risk on the long side, I might spend $500 on puts on names like HIG, CLF or FCX. 10% out of the money and a month to expiration. That way, we don't eat in to our profits on the long side, but if anything crazy happens we'll limit our losses.

That's not a lot to pay for insurance.

disclosure: long HIG, CLF, GE FCX

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Tuesday, March 16, 2010

Stocks Of Note

So here's what I'm watching right now. First let me say what I said last quarter, this quarter is going to be good and guidance will beat. I'm watching Dow Chemical (NYSE:DOW), GE (NYSE:GE), Hartford (NYSE:HIG), Cliffs (NYSE:CLF), and of course Citi (NYSE:C).

DOW has tried 30 a few times and I think it'll stick this month. I'm also betting the dividend will be increased within 6 months. GE has been quite impressive late in the day the past week and it's just about at its 52 week high. I think it's ready to take it out and make new highs. The economy is on the mend and there are few better places than GE when that happens.

HIG is volatile as usual and I think we're one more good announcement from the short side giving up. If this gets over 30 look out, next stop book value. Be advised, there seems to be a lot of short timers trading this stock, including a ton of options activity. CLF has been one of the most impressive stocks on any exchange. Given where we are in the business cycle and the iron ore price outlook, this looks like it's going to 90.

Finally, Citi is the subject of more rumors and guess work than I've ever seen. PaperGains readers were alerted about the opportunity here when the stock was at $3.25 a month ago. Now everyone wants a piece. Citi is going higher, no doubt, we're just waiting to learn exactly what they're going to do with their capital structure.

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Wednesday, March 10, 2010

Our Two Favorite High Drama Names, C & DNDN

Wow, look at Citi (NYSE: C) go. Who would have thought 30 days ago C would trade over 4 bucks? Well we did actually and we told our readers we liked the stock. C traded over 1 billion shares today and there were monstrous bids out there again. Everyone suspects C has a plan to repair their balance sheet (i.e. buyback and cancel shares). Currently the options market is pricing in a 25% probability of the March 4 calls expiring in the money.

Everyone is talking about the stock and those who are still on the sidelines will eventually buy in at higher prices. We like it as a long term buy and not a trade. The franchise is strong and they generate a ton of cash. We just have the one issue to resolve - all those shares. Maybe C ought to think about issuing more callable, long term debt and using the proceeds to buyback common stock. Swap out one form of long term capital for another.

And how about Dendreon (NASDAQ: DNDN). What a strong move up over the past 2 weeks. I think the shorts finally see the light. Provenge is going to be approved and this thing is going higher when that happens. Also, regulators are finally doing something about the manipulation in that stock. In case you haven't heard, a special investigator is not only investigating the highly suspicious drop and then rise in the stock last Apr, but they're investigating the regulator who was suppose to investigate this last year!

Turn on the lights, so that we might all see what's going on.

disclosure: long C, DNDN

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Monday, March 8, 2010

So Called Analyst/Talking Head Looked Foolish

One of the few times I actually watched "Fast Money" today and had to watch a so called technical analyst on the show make a fool of himself and the show. Those of you who saw know what I'm talking about, but for those who didn't, here it is.

They were at the segment where they bring in their technical analyst and he talks about trades he's putting on or thinking about putting on. He actually said he was looking at trading Genentech, former symbol "DNA". Here's a news flash; they were bought out and the stock doesn't trade anymore. What a joke!

You can still see the symbol, but it doesn't trade. He actually talked about the stock "...breaking out..." from its trading range. This is absurd. How do people stand it. I believe the company was purchased over a year ago!

By the way, I watch that show about once a week just to remind myself how bad people like that are.

Do your own research and/or speak to an adviser who knows what he/she is doing.

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Poll 1 Mar-7 Mar

This was a very predictable poll. When asked whether or not the new short sale uptick rule would be effective, 100% said no.

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Wednesday, March 3, 2010

New Poll And Request For Names

Take part in the new 'Uptick' poll. Information can be very powerful and we share information here, so we have another call out. Send us the names of stocks you feel very strongly are manipulated and/or in the clutches of hedge funds and other unscrupulous traders. We will share this information with our readers and track them for you here.

Likely candidates aren't stocks where you just don't like the behavior, but stocks with very high short interest, high volume relative to the float, in the news often, very active message boards, and high volatility.

Post a comment here with the ticker or email PaperGains
.

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Ignore Takeover Rumors

Takeover speculation is usually a negative for investors, as it draws in more traders and the stock becomes detached from fundamentals. I would much rather see a stock I own trade on its on good prospects rather than on some rumor.

Take for example Hartford (NYSE: HIG). Every so often traders float take over rumors about the company and the stock trades round and round. It eventually falls after people realize it isn't going to be taken over anytime soon. I believe if these rumors didn't exist, stocks like HIG would move up on its on and stay up.

Looks like just another way for short timers to make money on the way up and the way down.

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Tuesday, March 2, 2010

Yet Another Attempt To Raid Dendreon!

These people are relentless. Instead of just moving on, there's a sinister group of short sellers and manipulators out there that won't give up on Dendreon (NASDAQ: DNDN). The tactics they use are now known to everyone, including the SEC, although the SEC seems helpless to do anything.

For those that didn't catch the action, some clown put out a bogus report about DNDN having to jump through an extra hoop that could cause delays. The stock was down about $2 before the FDA denied this. The stock then turned around and was up more than $2.

The only reason the stock didn't get hammered is because investors know we're getting close to May day and had to be and have to be expecting the bashers to come at DNDN with everything.

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Monday, March 1, 2010

Headed Back Up?

We think the market is poised to move back up and in a big way. Investors may just be waking up to the fact that they have no place else to put their money. We've recovered from our holiday spending, tax refunds are in the mail or bank, and those saving accounts aren't doing anything. March and April are typically good months and earnings are still on the rise and the economy is on the mend.

Stocks like Cliffs Natural Resources(NYSE: CLF) and Intel (NASDAQ: INTC) are at or near 52 week highs. Both are stocks we've talked about here. Stocks like these are leaders in the markets and tend to signal where we go.

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The Vix

About This Blog

Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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