The Trading Digest

Last week was what appeared to be the season finale of the 2nd season of Wall St. Warriors.  Many of you will remember the first season as launching Timothy Sykes into a media personality after the episode focusing on him trading in his bathrobe while his mother cleaned his NYC apartment.  Although not the image most people have of hedge fund managers, it was nevertheless a memorable character.

In Season 2, the most interesting characters were Lance and James who are brokers at an unnamed (but obviously not top tier) firm and appear to be straight out of The Boiler Room cast.   What I found most interesting about them (other than their obvious over the top sales strategy) was what they were doing with their clients money.  They appeared to be primarily using fundamentals to select their stocks and their #1 stock (they said they had 60-70% of all client money in it) was SNDK.  Sandisk has a great story and has had good growth in the past.  It is by no means a pump and dump penny stock (like those in Boiler Room) or one set to go to zero.

However, the one thing that Lance and James never paid attention to is the overall market tone.  In the time the show was filmed (appeared to be June/July -> Dec), the US stock market transitioned from a Bull market to a Bear one and experienced it’s worse decline since 2002.  In these types markets, the market will simply not pay the same multiples for stocks as it will in a Bull market.  With contracting PE multiples, even if a companies earnings growth stays constant (difficult to do in a recession), the price will still go down.  The opposite happens at the start of Bull markets.  Even companies with marginal growth go up because their earnings multiple are expanding.  Long story short, you can be right about the company and still lose large amounts of money because of market conditions.  Just something to remember when you’re allocating your portfolio.

- John

http://www.guardian.co.uk/world/2008/feb/28/iraq.afghanistan

Read it when you have some time.

Have a Great Night!

Dave Johnson

In this article by Ambrose Evans-Pritchard it is noted that

“The share of foreign buyers (”indirect bidders”) plummeted to 5.8pc, from an average 25pc over the last eight weeks.”

Having not followed the longer term statistics related to foreign purchases in the debt market it is hard for me to quantify the actual change this implies, but clearly there was a big move by foreign buyers away from our debt in the short term. I will be curious to see whether this snowballs or tends to plateau, if and when the credit issues level out because this is the linchpin that has allowed our crazy national spending spree.

Have a Great Day!

Dave Johnson

From the Big Picture.

- John

Thoughts on these leaked documents from JPM?

Have a Great Night!

Dave Johnson

Bear Stearns CEO

This was on Tuesday!

Have a Great Night!

Dave Johnson

The Bear deal is official and it’s at $2 per share.  The link in the post below links to the actual article.

$2 per share, $236 million, same as Audible.com

Thats the latest rumor, I expect we’ll have confirmation one way or the other in a matter of hours.  If $20 is the real number, that’s another 25% below the LOW that BSC traded at on Friday.  I don’t know if an uglier chart exits.

- John

Why? Why? Do these people never ever learn?

(click picture for full size photo)

Nicely done if I do say so myself (pat pat). System goes back to cash and waits for the next pop back below 20 on the T2108.

I also include a chart of interest for breakout players.

Those ETF’s I threw out yesterday that were part of the whole T2108 trade I designed, really popped up yesterday.

IAI was up from the open 2.3%. (profit target at 40.92)
PGJ hit the 3% profit target during the afternoon surge.

The t2108 indicator jumped all the way into the 30’s so we won’t be buying anything this morning based upon this system.

Have a Great Day!

Dave Johnson

The T2108 indicator has once again moved below the 20 level. This allows us to add up to 2 positions per day while below this level. I have a dentist appointment this morning so I will just add the symbols for you to do your own due diligence on. Seems the Fed has thrown more paper at the “crisis” and the futures are popped up which is not the best open to buy but the system is a system.

Ok the ETF buys are

IAI and PGJ —Broker/Dealers and China

Ok I am off now. If you wish to search for previous posts on this system use this link to search for “T2108″. You can find the full parameters of this excellent system.

Have a Great Day!

Dave Johnson

The T2108 indicator is below 20 today. Hopefully, Dave will have time to update his Ultimate Oscillator script as those trades were extremely profitable the last few times.

For another example of how we’ve traded from the T2108, here’s a post from last August

- John