Saturday, April 28, 2012

Meta-Trader - Birthday Candles

Welcome back Meta-Traders.

Happy Birthday to me, as your humble narrator turns 50 years old today.

The markets gave us something to celebrate this past week with my equity portfolio getting out to a new multi-year high.  At this point, I have exceeded the highs set last spring, but still have not bested the old high set back in 2008 prior to the meltdown and financial crisis.  But I'm not too far off that level based on what I can remember.

More important than money, I have my health, a great family, a good job and much to be thankful for.  People faced with their sudden, impending death have an experience of "your life flashing before your eyes." In those few seconds, you size up your entire life in an instant.  Looking back, I don't think I would do anything different. I may have under-acheived compared to some of my peers, but nobody likes a whiner. Now I'll step down from my meta physical soap box ..

AAPL was the one that got away this past week.  The skeptics are out in force on this stock and it traded down to the 560 area on Tuesday prior to release of earnings. On Tuesday, I was eying the 540 calls for about $32, or the 550 calls for about $26 or the $580 calls for about $10.  But my regular job took my attention and I did nothing. 

Earnings came out and they completely blew away even their own estimates by 20%!  Net income for the quarter was 11 Billion on on revenue of 39 Billion, up 94% from the same quarter last year!  Plus they added about 10 Billion in cash to the balance sheet with now $110 Billion in cash on the books.  Of course the shares rallied back up to the 610 level and any of those option positions would have doubled or better.

What's interesting to note is that while Revenues and Earnings are out to new all-time highs, but the shares price is not.  Clearly the skeptics don't believe the story and are betting they can't keep up the torrid growth rate.   From a trading perspective, I think we are almost certainly going to see a re-test of the $560 level before eventually moving higher.  There are opportunities to double your money in options trades on this stock nearly every week so take heed and profit!

As for what worked this week, I added to positions in 2 of my 3 favorites this past week. 

First, Medical Device company ICUI came out with good earnings and broke the $50 mark for the first time ever.  And the chart is flashing a mighty breakout, take a look above

Second I added to discount retailer Family Dollar (FDO) which is a bit farther along and is soon to join the 80-to-120 club discussed last week.

Finally, Forex continues to disappoint with every one of my Forex Accounts now in the red for the year.  Governments in Europe continue to topple one-by-one as voters express their discontent with the declining economic situation.  Plus also Spain and the UK economies are now back in recession.  Meanwhile, by comparison things are looking better in the US.  If only the EU could print money as effectively as our US Fed.  Sigh. The EU has become an economic and political morass and I suspect that's at least partially responsible for the poor showing in Forex.  

That's all for now.  Get out and enjoy your day and the coming week.

Sunday, April 22, 2012

Meta-Trader - The 80-to-120 rule

Welcome back Meta-Traders.

When it comes to trading and investing, price is the ultimate indicator.  Since it determines whether or make or lose money,  you can make the case that its the only indicator that really matters.

One of the observations made by investing guru Jim Cramer of CNBC's Mad Money TV show is that once a stock makes it to $80, there's a good chance they will go to $120 before they split 2 for 1 and do it all over again.   I had this rule in mind when I added to my position in pharmacy benefit manager SXCI Health Solutions last Monday 4/16 when the price was about $79.50.  This price action was particularly telling since the broad market was actually down that day!

Anyway, the price action on Monday 4/16 was important since it took out the high of a "Bull Elephant Bar" put in back on 4/2/2012 which pushed the price solidly into the mid 70's.  And that move took out the high of a prior bull elephant bar put in back on 3/9/2012.  So the price action was showing higher prices ahead and that's all I need to know and to add to my position.

On Tuesday came the news that SXCI was taking over Catalyst Health Solutions for a cash and stock deal for a 30% premium to Catalyst's closing price.  Usually in a takeover situation to acquiring company's shares go down due to dilution.  In this case, the shares of both companies popped signaling that the market clearly viewed the consolidated company as a case where the whole is greater than the sum of the parts. 

Anyway, my timing was good since it was all upside in the shares which touched $100.5 later in the week before pulling back.  Clearly the stock made half of the 80 to 120 move in only 4 trading days!  I look off the shares added on Monday for about $97 on Friday bringing in 18 points in a few short days!   This move added about 1.5% to my portfolio on the week and added to my lead over the S&P 500.

Of course it doesn't always work out that way, but it shows there's a method to my madness.  Of course its easy to point to past success since hindsight is 20/20 right?  So who are the future winners according to my methods?   Here are some potential 80-to-120 movers showing promise right now:

FDO - Discount Retailer Family Dollar
ICUI - Emergency Room equiment maker ICU Medical
YUM - Restaurant company YUM brands

I have some others, but these are the ones looking most promising right now, and I have open long positions in all three.

As for Automated Forex Trading,  it was another miserable week with all of my accounts now clearly in the red for the year.  We have some sizeable unrealized profits in the Atinalla No 3 and Atipaq Full Portfolio, but I don't beleive either of these moves will bring the accounts back into the black for the year.

Speaking of Forex, I have a very curious situation where my MyFxbook accounts are showing no open trades, yet my MetaTrader platforms show a number of open trades.  At the same time, the MyFxbook page appears to be completely up to date.  If I get that figured out, I will leave a comment later today.

Enjoy the rest of the weekend and coming week.

Saturday, April 14, 2012

Meta-Trader - College Bound

Welcome back Meta-Traders.

My regular readers may have noticed some subtle changes in my posting habits lately.  I'm spending less time developing Forex systems and instead looking at the markets, trading and business in general. 

And there is more to the story since I'm now starting a new phase in my life as I search for colleges for my son to attend.  This is relevant because the sheer financial pressure this will create could spell the end of my forex portfolio.  Its also relevant because instead of day-trading AAPL weekly options this past week, I was visiting colleges and what I found out is pretty shocking.

Shocker #1 - The private schools I looked at cost between 40 and 50 thousand dollars a year to attend!  That means over 4 years I could end up shelling out over $200,000 to send my kid to college.  And that's just one, and have another one coming up after that!

What about scholarships and financial aid, that's going to help, right?

Financial Aid falls into 2 categories, "Need Based" and "Non Need Based" Financial Aid.  Need Based Financial Aid looks like this:

[College Cost] - [Expected Family Contribution] = [Financial Aid Award]

Expected Family Contribution (EFC) is how much they think you can afford to pay.  The EFC is based on Federal Standards and is calculated as a result of you completing the FAFSA (Free Application for Federal Student Aid) form.  On the form you reveal your income and assets and they determine how they think you should be able to pay.

Shocker #2 - My Expected Family Contribution is actually more than the cost of attending college!  In other words, they consider me to be rich and that I can afford to pay the entire cost!   Therefore I am going to qualify for Zero, Nana, Ninguo, Goose-Egg need-based financial aid.  That's the price I pay for years of being financially responsible!

There's another category called Non-Need based or Merit-based Financial Aid.  That applies if your kid has some special talent such as incredibly good grades, or extraordinary musical or athletic ability.  No such luck there since - while my son is  good kid - he is average in many respects.

What about public or state schools?  They cost a lot less, right?

Shocker #3 - Public colleges are much more competitive than private schools, and the degree of competitiveness is inversely proportional to the cost!   Case in point is your typical SUNY (State University of New York) school which costs about $20,000 per year and selects about 40% of its applicants!  At the same time your typical private school costs $50,000 and accepts about 70% of its applicants!   No wonder since there are fewer people out there who can swing the 50 grand a year cost of admission.

Somewhat more depressing is the fact that for 20 grand a year, some of the state schools resemble State Prisons with dull-concrete block type construction and standard florescent lights.   On the other hand, side, the Private Schools have student and common areas that resemble high-priced coffee shops.  And some of the private school facilities I saw were amazing - resembling the city of Oz with gleaming spires and indoor Olympic-sized swimming pools.

College has become a competitive arms race, where colleges need ever more expensive faculty and facilities to attract the best students.  All that comes at a cost and it goes directly to those who can afford to pay.

A quick note about fairness. Democratic President Barak Obama has made the "Buffet Rule" the centerpiece of his re-election campaign where he believes that millionaires should pay tax at the same rate and policemen, fireman and otherwise normal people.  Some of my conservative friends call this "redistributionist" and they see it as a form of the government taking the resources of the productive in society and doling it out to the less productive or to those who are unwilling or unable to work.

Anyway, I bring it up because the college financial aid process is completely redistributionist.  Those who have the money pay full price and those who are poor but otherwise worth get a free ride!  What could be more fair than that?  I should mention that I too have benefited from this arrangement in the sense that my father who grew up in challenging circumstances got a full scholarship to Yale University!

What other alternatives exist?   

On-line colleges are becoming increasingly popular.  While they cost a lot less, you don't get the full college experience.   At least half of what you learn is to manage your time, do your own laundry and otherwise transition from being a teenager to a young adult.

Another alternative is community college.  Nearly every county or region has a local community college which accepts everyone with a High School education and are pretty reasonably priced at about 5 grand a year.  This alternative doesn't give the full college experience since students still live at home and commute to the campus daily or as needed.  Plus they typically don't have organized sports which my son is very interested in playing.

So community college seems to be a worst-case scenario since my child would be associated with the "leftover" students who could not get accepted into more competitive schools.  And part of the college experience is for my child to have an opportunity to associate and socialize with people of similar  backgrounds.  Also is the opportunty to meet a future spouse.  Of my own brothers and sisters, 3 our of 4 of us met our spouse at college or graduate school.

So the low-down of all that college is going to cost me and cost me dearly.  But I really can't complain since I have been fortunate.   And one thing I found out about being a parent is that nobody wants to hear you whine about your own kids - since you have no one but yourself to blame for whatever they are or are not!

All this bears on my Forex trading since my Forex Accounts may not survive the 4 years of my first child's college education.

This is starting to appear more likely due to there recent non-performance.  Based on some nasty drawdown, my Forex accounts are now well into the red for this year.  And it has also become more likely that the entire Automated Forex trading experiment could fail due to non-performance.  It never occurred to me at the start that this could occur, but it is starting to play out that way. 

In the short term, I'm going to stay the course and let all of my systems run as they are.  But I'm not going to add any new funds unless and until we get some decent performance.  I treat forex just like every other investment, its either perform or you are out.   Add to the winners and cut the losers.  Its that simple.

Another possibility is that Automated Trading is not the path to riches.  That is looking increasingly likely since I am hard pressed to find a single individual who has makes a living based on the profits from automated trading yet I can find dozens of people who make a living trading manually.  Its anecdotal evidence of course hard to ignore

Have a nice weekend.

Saturday, April 7, 2012

Meta-Trader - New Leaders of Tech

Welcome back Meta-Traders.

Everything goes in cycles and nowhere more so than in the world of trading and investing.  Many great tech companies are started up by their founders and have a period of success.  But eventually, the leaders grow old, retire, or cash out early on their stock and go on to do something else with their millions.  Other times, the company just falls out of a competitive position

Once that happens, the company faces a moment of crisis.  The founders have moved on and the company faces a challenge to either survive or die.  And its the natural tendency of every business to either expand or contract.   The process is very well described in a book called The E-Myth Revisited by Michael Gerber which is an excellent beach read when you get the chance.

Two such companies that face that moment of crisis now are Blackberry Maker Research in Motion (RIMM) and Yahoo (YHOO).  Their futures remain uncertain and new management has been brought in to turn things around.  Do I want to invest in these stocks?  Not on your life!

Occasionally, these companies survive this challenge and go on to a new type of prosperity where the culture of the company has developed such that they retain their greatness even with an entirely new set of players.

Above is my list of the re-emerged new leaders of tech.  These companies all share these same properties:
  • The were once in crisis and have once again emerged to be market leaders in their field
  • They all have positive 5-year earnings growth rate exceeds their PE ratio
  • They all have dividend yields (AAPL does - its just not yet reflected in TC2000)
These stocks all share these great characteristic and they are relatively cheap compared to their earnings growth.  2 particular standouts are Intel and Microsoft.  I'll bet you use their products every day.  These companies have well established markets with proven histories of innovation.  Even better, they have survived the departure of their founders and are now being run by a new generation of leaders.

Its companies like this that will make the stock market continue to go higher.  So whenever you hear someone talking about had bad things are, and how were all in so much debt, turn your attention to companies like this.   They are institutions in and of themselves and have survived the crisis to become long terms winners.

On a slightly different note, given the choice between investing in a new, fast-growing company at an all-time high or a former tech giant, I will take the stock at the new, all-time high.    Recent portfolio additions that meet this criteria are Metropolitan Health Networks (MDF), ICU Medical (ICUI), Family Dollar (FDO) and a speculative play Tucows (TCX).  I link the symbol on that last one since I used to run a company called TCX Systems.

That's all I have for you for now.  Live Long and Prosper!