Aaaand we’re back!

Managed to make it out alive of (South) Lake Tahoe despite an exciting & long weekend of drinking, debauchery, various arrests, and a couple of fights.  Oh, and an amazing football game to boot that made yours truly a fair bit richer as well.  A last minute strategy shift (from a multitude of prop bets to just a simple Saints money line) paid off handsomely.

Through the alcohol-induced haze, I barely even gave a thought to that amazing Friday turnaround and how I thought it would simply destroy all my holdings come Monday.  I did set a few protective stops, but mostly just let it all hang out – wildly trusting my mathematical tea leaves.

And, lo and behold, here are we are on Monday night actually a fair bit lower than where we ended on Friday!  I suppose this then fails to “confirm” that ginormous hammer candlestick (were looking for long white one, ideally with a gap up to start), for whatever that’s worth.

To “pile on” another bearish sign, we got a “Death Cross” on the SPY as the 20-day sma dipped below the 50-day for the first some since mid-July.  Granted, that July occurrence quickly gave way to renewed buying (the 20-day was back above water in just 8 days), but previous to that, this same Death Cross correctly identified several major selloffs.  Will this be a repeat of July (finally ending this extended “dip”) or are we headed for a triple digit S&P 500 once again?

Plus, Mr. Bilderberg’s orders are to short, The Fly is in fucking Romania, and even the classic BEAR CAVALRY motivational poster makes an appearance.  Run for your lives!!!

_________

Current portfolio:  100% short and ready to step further down the slope (except for the occasional SPY calls), this time with “full” long put positions (as mandated by the Death Cross – starting with AMZN @113.75; RIMM @65; VOD @21.38).  Did take profits in a couple names towards the end of the day:

As the Greek banking system goes anti-clockwise, I am here assisting Mr. Bilderberg in securing all of the ancient ruins, in exchange for his monetary assistance. Bog standard, just this evening we have taken control of The Temple of Olympian, Kariatids, Doric columns and The Parthenon.

Just today, while cloaking myself in the Estate de Athens shadows, I overheard Mr. Bilderberg chatting it up with a few blimey blokes from Germany, and I quote: “yes, your continent is like the white ash from the tip of my cigar. Go fetch me my ashtray, or I will see to your dissolution”.

From this, I deduce Mr. Bilderberg will transfeur over 100 billion euros wourth of gold bullion to the EU, for purposes of renewed bailout—in exchange for obedience and continental ancient ruins. Nevertheless, the bone-idle Anglo-Saxons are not included in this most generous of offers and will ultimately surrender, boiled sweet, to Moorish hordes, under the auspices of The Bilderberg Clan.

Listen to me very quietly, as if your favourite char wallah was just executed for putting 3 cubes of sugar in the King of Jordan’s tea, instead of 4: sell short all available shares of BCS, until it goes to $00.00.

Good Day

Rag

Visible Satellite Image showing Snowpack across the East from last weekend’s storm. Note how the northern edge of the snowcover bisects NYC.

Note: Whilst working on this post, the Fly mentioned CMP as well. Great minds, or something…

While many of my more frequently discussed winter-based stock picks take advantage of cold weather by investing in Natural Gas or Utilities, Compass Minerals is a direct play on snowfall.

In addition to potassium sulfate fertilizer, Compass Minerals’ primary products are highway de-icing salts, namely Calcium Chloride, or CaCl₂. De-Icing salts work by the principle of freezing point suppression, which states that when a salt is de-ionized (dissolves) in water, it will interfere with the formation of the crystal lattice structure of ice and lower the liquid’s freezing point (resulting in the appearance of melting). The degree of freezing point suppression is directly dependent on the number of ions produced, which is why Calcium Chloride, which ionizes into one Calcium ion and two Chloride ions is a better de-icing product than common table salt, sodium chloride, which only ionizes into one Sodium and one Chloride ion. Still, this only lowers the freezing point to about 10F, which is therefore the minimum functional temperature of common rock salt.

Along these lines, CMP has recently announced the development of a novel de-icing product, Thawrox (I suppose that the name is a creative play on “Thawing Rocks.” Not sure they pulled it off). Thawrox combines normal Calcium Chloride with exotic plant sugars to produce a product that not only works at colder temperatures (to -15F compared to 10F for normal highway salt), but also sticks to the road better and is less corrosive than Calcium Chloride alone.

In the third quarter of 2009 leading up to the winter season, the sale of highway de-icing products comprised $1.53 Billion of the Compass’ $2.13 Billion total sales, representing 72% of the company’s sales. Obviously, CMP is quite leveraged in the de-icing business, and its profitability will likely be determined by how snowy the winter is. Thus, it makes an ideal weather play. A few reasons to consider investing in Compass Minerals:

1) Compass Minerals Is The Only Game In Town: CMP’s primary competition in the industry is Cargill (privately held) and Rohm and Haas (owned by Dow Chemical). Either highway salt is only a very small portion of the company’s overall business and thus does not represent a good direct play (R&H) or the company is too small to challenge CMP (Cargill)

2) Location, Location, Location: By its very nature, highway de-icing products have a very low value/weight ratio. In other words, calcium chloride is very cheap, but it is also very heavy. Thus, transportation costs significantly factor into profitability. Fortunately for Compass Minerals, its largest mines are in southern Canada adjacent to (or even beneath) Lakes Huron and Erie. Thus, not only is costly ground transport minimized or even eliminated due to the proximity of waterways, but the product is relatively near its largest markets (the Northeast and Midwest).

3) Most importantly, Mother Nature is cooperating: As has been stated one way or another in nearly all my posts this season, the winter of 2009-2010 is to be The Year of the Blizzard. Already, several major cities have exceeded their annual snowfall averages and are approaching all-time single season records.

With a new storm on the way,  many major cities can expect to break these records over the next week. Washington, DC and Philadelphia, Pa, which were nailed with 32 and 29 inches of snow, respectively, last weekend, are in line for yet another major storm system Tuesday and Wednesday. Unlike the last storm which was just a very potent southern storm, this one will make the turn north and become a full-fledged Nor’easter. New York City and Boston, both of which missed out on last weekend’s blockbuster, can expect to get into the action this time with upwards of a foot of snow expected.

Projected Snowfall Accumulations:

Washington, DC: 8-14″

Baltimore, MD: 12-18″

Philadelphia, PA: 14-20″

New York, NY: 9-15″

Boston, MA: 6-12″

For the more visually inclined, Figure 1 below shows my projections for the upcoming storm.

Figure 1: Projected snowfall totals for February 8-10, 2010.

Across all of the major cities on the east coast, the cost of snow removal is roughly $1 Million/inch, which includes both the cost of de-icing salt product and labor. Also remember, this is ON TOP of the two-to-three feet of snow that is currently on the ground…and in some areas, the streets. These two storms, coupled with the blizzard back in mid-December that brought an additional two feet of snow to the region, have drained the salt reserves of many of these cities and have likely jacked up demand for CMP’s products. Three storms of this magnitude in a single winter season in this densely populated region of the country is unprecedented in recorded history.

CMP Stock Price

CMP reached a 2-year high of $88 in June of 2008 during the Energy/Materials Bubble and bottomed at $36 during the subsequent bust. Compass reached a 52-week high the first week of 2010 at $74 and has since pulled back about 12% to $66. The stock also features a 2% dividend and a P/E ratio of 12.1x for those looking at a long-term hold.

I do not yet have a position in CMP, although I plan to initiate one shortly. I am usually very wary of buying based on a single event (upcoming snowstorm), but right now I feel that this storm is just continuing a winter-long trend. That being said, I would not be surprised to see a quick pullback should the weather quiet down next week. We have seen this happen with frequently with hurricanes and this past winter with Frozen Concentrated Orange Juice following a Florida Freeze.

Regards,

Dr. Cane

While most sell-siders across all industries say investor sentiment is bullish on 2010, the recent stock market action says something completely different. Maybe they are not looking at the performance disparity between the basics and AMZN or AAPL or whatever other darling might be out there. True enough, while commodity and basic industries were shellacked over the past weeks, the stalwarts holding up the major indices and ETFs were OK (relatively). If investor sentiment is determined by the extent marginal selling affects AMZN or AAPL investor sentiment is indeed not that bad. When AMZN and AAPL hit the skids, look out below.

I don’t subscribe to this idea. Individual names are tanking. This season sell-siders are modeling the low end or below mgmt guidance. A dude I walk my dog with – he is in real estate and has an undergrad econ degree – says “year on year comps peak in 2Q or 3Q, so I think we have issues in the middle of this year.”

This is incredible to me. The argument is made with no regard to valuation and thus is a hat tip to momo as a sole determinant for an investment idea. On one hand I think the whole macro y/y comp bit is interesting but not a compelling investment thesis by itself – I always pick stocks and not these absurd ETF thingies, so what do I care about y/y macro comps when the economy is crawling out of the deepest hole in 100yrs? On the other, if everyone thinks this, I need to respect this. It only pays to be contrarian just before the tide shifts, not when the tide has just turned.

In the end, this year will be all about stock selection and not macro analysis. I understand this is not an original statement. Whatever, no one seems to be paying attention to it. It is a sobering thought to think of all the folks who lost jobs over the past few years and that maybe – maybe! – half will find jobs again. This country needs to get a good grip on the shaft that steady-state GDP growth will be closer to 2% than 4% going forward and that ~2% interest rates in America are better longer term models than 4%. It is all horrific indeed. blah blah blah. It does not mean some listed companies will not exhibit abnormally high growth rates.

My point is to keep in mind that right now all research shops and even the common man is focused on this whole y/y comp business. Go pick a company that will exhibit better y/y comps. Analyst estimates are very likely too low…once again.

Courtesy of Investopedia:

A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price.  This pattern forms a hammer-shaped candlestick.

A hammer occurs after a security has been declining, possibly suggesting the market is attempting to determine a bottom.

The signal does not mean bullish investors have taken full control of a security, it simply indicates that the bulls are strengthening.

Where’s that kid that used to post in the PG about the reliability of candlestick patterns?  Cause this shit can be seen from outer space!  And check out the accompanying volume…highest in 10 months!

Is this volume the much touted “last bit of sideline money” jumping in (timing the “dip” perfectly) or just a side-effect of the generous volatility of Friday?  Perhaps they got the hamsters running and once again powering the buy-robots in The PPT sub-basement.

And let’s not forget that the Fly’s Brain PPT also called this with its sub-2.30 reading.  So there, double-PPT hammer-age.  Eat your heart out, Thor.

_________

I picked up a boatload of half-position long puts (holding 20 names, all-in-all) in the morning that are sure to fuck me royally come Monday.  Oh well, it’s just money, right?

Off to drink to my impending doom.  In fact, better make that a weekend bender.  Harrah’s Lake Tahoe:  Vex; then the Super Bowl Party on Sunday.  I should be coherent again by Monday night.

That is all.  Fuck the Colts.

We have gotten many shots across the bow to warn investors to be careful.

First up was Dubai, then came China curbing lending, now the market is worried about the PIIGS.

Let’s face it, if one or more Sovereign Debt Defaults occur will the former creditors not come to their emotional rescue?

If they did not you have the IMF & the World Bank with some liquidity to step in and loan funds with some SAP’s or conditionality to impose….. I’m sure of it.

This is not to say everything is rosy and you should be reckless buying up equities.

I stopped out of a lot of stocks when we broke 1080 S&P & today I’m dipping my toe in the water on 1/5 positions in MOS, FCX, & VMW. I’m also looking very hard at trying to get TSL under $21 and MHS under $57 for earnings plays later this month.

If I was to take larger positions I might do a covered call strategy or when the market was flat lining and I was up a buck or more I could have wrote some puts.

While the mkt is retesting its lows of the day, it certainly does not feel like yesterday’s free fall where no matter what you owned you got the homo hammer.

While some of the burlap suited gents have come out and put the fear of God into investors we are not facing a situation that will create a halt in the economy and create another liquidity freeze…..yet

So man up on some positions and look for the S&P to hold 1050-1055. If we break look for 1035ish to be the next stop. A break of 1030 will open up 980 S&P as a possible floor.

I’m dip buying for some trades, but would be careful about longer term positions. The most important thing one can do is to buy over time and not price.

As a final note despite the recent downfall I have been able to buy PG, TSYS, and MMM into a close announcing great earnings and selling in AH for nice gains despite the debacle the following day. This strategy also got me liquid on QLGC @ $19.15 b4 it tumbled the next day for over a $1.50.

AH is for suckers unless your taking a profit!

Please note this post is not a recommendation for the companies mentioned. Please consult your oracles and see if they are suitable for you b4 listening to a avatar.

GLT

by GW

Introduction

For many of you, this is nothing new. I’ve been writing about a system which purchases a share of an equity when it dips beneath the 3-5-7 moving averages and sell the same share when it crosses any of the set of moving averages.

Mostly, I used to do this in spreadsheet form for the sake of you all to ’show and prove’ my work.

That was then, this is now.

After the Fall

I have to say yesterday was exciting no? Watching that straight line down brought back memories of 2008 when I was researching all night and pounding out posts before I jumped on the train and headed into work. Those were good days for some, and I was one.

But, after spending the last part of several months working on a new means of testing whatever thesis that comes into my addled brain, I thought I would take a couple of minutes in between my morning tea and commute to work and share with you the buy signals that yesterday triggered for the 3-5-7 system.

There are two columns below, first is a ticker and the second is the expectancy that the trading system would have generated between 2007-01-01 and 2010-02-04 for buying and selling one share. (commission and slippage not adjusted for. these are synthetic trades. your mileage may vary)

ticker	expectancy
goog	22.44
cme	21.04
isrg	14.55
ma	11.18
aapl	9.02
azo	7.63
spg	7.6
bxp	7.39
avb	6.79
cf	6.37
x	6.07
shld	5.88
ati	5.83
ice	5.69
wynn	5.67
ben	5.48
fcx	5.03
bni	4.97
apa	4.89
bdx	4.77
pcp	4.66
shw	4.6
amzn	4.55
mon	4.41
cnx	4.35

Theme Song

What did I tell you about that Perpetual Emotion Machine?  Because it was out there today in full effect for all to see:  Fear running rampant.  Dopers celebrating like it’s 1999.  Kicked puppies.  Death & destruction.  Women and kids crying in the streets.

Project Mayhem.

$VIX up 20% and putting in what looks to be the first significant “higher low” since the same time last year – and at the same time bouncing off previous strong support around 20.  Is a 30-handle $VIX, with the associated 100-point headlines on MarketWatch once again in our future?

Through it all, I sat in my fortress on Mt. Moron and just watched my account’s bottom line grow fatter by the minute…while you were over there in your corner having your Tourette’s attack about the economy or some such.

We will have none of that here on Mt. Moron, let me tell you.  We will only look at basic price action to determine what is the general mood of the market.

I’ve been cautiously bearish since the SPY 5-day sma dipped below the 20-day (2 weeks ago)…didn’t load up massively on puts, but I definitely wasn’t putting on new longs.  Slowly, I’ve acquired a few small positions and today, finally (and despite 2 stop-loss hits), I’ve been rewarded (I even had COF & NOK move big without me, never getting a fill on my conditional limit orders).  Perhaps I should’ve taken my profits and ran at the end of the day…we’ll see tomorrow and next week if that gamble pays off.

And keeping with the sma’s – now that the 20-day has almost crossed under the 50-day (the 5-day did that some time ago already), I’m almost ready to go “full retard” with my puts.  But not quite just yet.  For now, just continuing with the cautious/timid bearish half-positions.  And damn, there are a shit-ton of potential opportunities out there…

• Tech:  AAPL (@190.), AKAM (@25.), APA (@98.), CREE (@55.)
• Financials:  BAC (@14.50), GS (@147.75), STT (@42.42)
• Agro:  BUCY (@49.), MON (@75.), MOS (@53.), POT (98.26),
• Services:  CSX (@41.75), CRM (@61.), GME (@19.41), JWN (@34.)
• Materials:  CHK (@24.), CLF (@39.), FCX (@66.), GDX (@40.), NUE (@38.26), OIH (@116.)
• Solar:  FSLR (@109.75), YGE (@12.33)
• Others:  FLR (@44.), HON (@37.50),

Of course, whenever I line up this many trades, the market inevitably moves in the other direction.  So keep that in mind – as tomorrow it is just as likely that my headline will read something like “Market Gives DPz Big Veined Dick, Much to His Chagrin”

Indeud.

Superbowl Weekend is here, but conditions across the Mid-Atlantic and Northeast will not feel remotely like the 75 degree weather Saints and Colts fans can expect in Miami as their teams face off in Superbowl XLIV.

First off, I dare any member of the media to come up with a better nickname than “The Who Dat? Storm” for this upcoming blizzard. The guys who coined The Perfect Storm, The Storm of the Century, and the old fallback “Blizzard of 20##” don’t have anything on this name. Granted, the storm isn’t exactly going to impact Miami, where the Superbowl is being held and to where the Who Dat? Nation has migrated. And while the storm will certainly impact Superbowl Weekend plans, it will have largely exited the United States by Sunday afternoon. Whatever. Close enough. And as the saying goes, close only counts in horseshoes, hand grenades, and the naming of epic winter storms.

Anyways, the Mid-Atlantic and southern New England are in for a monster storm Friday-through-Sunday. This one really means business. While it may not have the scope of the infamous Blizzard of ’96 or the Superstorm/Storm Of The Century of 1993, the areas that  get pounded, will really get pounded. For those living in Washington and Baltimore, this will probably be one of the biggest, if not the biggest, storm you have seen, or will see, in your lifetime. My tardiness in posting about the storm is not due to uncertainty in the computer models, but rather due to personal busy-ness. On the contrary, the computer models have been displaying excellent temporal consistency over the past 3-4 days and decent model-to-model consistency. This storm is going to happen.

A strong, slow-moving area of low pressure will track northeast across the Gulf Coast States and emerge off of the East Coast by Friday Evening. Precipitation will spread out ahead of the Low Friday morning, reaching Washington and Baltimore by the early afternoon and Philadelphia by Rush Hour. Snowfall will be rather light initially, and with temperatures hovering around freezing, the snow will be slow to accumulate. However, overnight Friday, the low will wrap up and intensify, throwing extremely heavy bands of snow and strong winds from central Virginia through New Jersey. Blizzard Warnings have been hoisted for Delaware and coastal New Jersey, but will probably have to be expanded tomorrow. A map of my expected accumulations is shown below in Figure 1.

Figure 1: Forecast snowfall accumulations for February5-7.

Several cities have a chance to approach or exceed their all-time single storm snowfall records. For these cities, my projected totals are shown below, with the snowfall record in parenthesis.

• Washington, DC: 20-30” (28”—Knickerbocker Storm, 1922)
• Baltimore, Md: 20-30” (26.8”—Presidents Day II Storm, 2003)
• Wilmington: 15-25” (22.2″–Blizzard of ‘96, 1996)
• Philadelphia, Pa: 10-20” (30.7—Blizzard of ’96, 1996)

New York City will be interesting. Both the city itself and Long Island are under winter storm watches for 4-8 inches of snow. However, there will be a very sharp cutoff between those who receive substantial snow and those who receive no snow. This line looks to set up right across the city. The northern suburbs may receive just a dusting, while Staten Island and Newark get much more. Personally, I think New York City will get the short end of the stick on this one and will not see Warning-criteria snowfall. And, of course, even a small shift in the storm track will greatly change forecast totals. Boston looks to be missed by this storm.

Further south, heavy rains of 2-4″ will be the story, exacerbating the already saturated ground and leading to widespread stream and small river flooding in Georgia, South Carolina, and North Carolina. Most of these areas are under flood watches.

Once the snow exits Saturday evening and Sunday morning, an extensive arctic airmass will set up shop to ensure that whatever does fall will not be going anywhere anytime soon. With an extensive snowpack across the lower 48,  some of the coldest, most persistent arctic air of the season will grip the country from the Dakotas east to Maine through at least next weekend. The average daily departure from normal for the next seven days is shown below in Figure 2.

Figure 2: Projected average daily departure from average for the next 7 days (February 5-11)

Nearly the entire country east of the Rocky Mountains will see below average daily temperatures throughout the week, with a wide swath seeing these temperatures between 5 and 10 degrees cooler than average. That might not sound overwhelming, but when it occurs at least seven days straight across such a wide area, the change in energy demand can be enormous.

Based on both the upcoming storm and the subsequent cold air, today I increased my exposure to natural gas via a purchase of UNG near the day’s lows at $9.65. I also own a smaller position in Chesapeake (CHK), but with the market the way that it is, I have no desire to chase stocks right now. Regardless, I feel quite confident in NG’s prospects short-term.

Regards,

Dr. ‘Cane

Disclaimer: This storm means business. Please rely on official NWS forecast when making travel or safety decision.