Nasdaq Distribution Count

The Nasdaq picked up another distribution day today. That makes 5 in 5 weeks. Time to be careful on the long side. The NYSE also has 5 in 5 weeks.

Market Breadth

I've been learning more of what the Warden Brothers have to offer with their charting software. They put together some great tools and I highly recommend them. The above chart (1988-1995) shows the S&P 500 along with the percentage of stocks in the index that are making new 52 week highs (green), new 52-week lows (red), and the Advance-decline line (yellow). Check out the quick analysis. Without looking at the date, would you buy this index?

The chart below should answer that question. It just goes to show that market indicators can be very tricky. I do think that the red plot has some use though. It looks like big spikes down tend to indicate a bounce up is just around the corner. It is also interesting to note the advance-decline drop before the top in 2000.

Mitcham Industries (MIND)

Although slightly bearish, I'm looking for some low-risk trades to the long side. Well today I jumped back into MIND. This is a company that leases seismic measurement equipment for the exploration of oil.

Remember, I traded this a while back for a nice little gain. Since then, MIND has bounced off a rising trendline and looks to be doing the same thing again. I would like to hold MIND until it gets back up to the $16.50 area. I will not give this much room to the downside because I believe that I just picked this up at the local bottom.

Atomic Force Microscopy

First off, this has nothing to do with the market. I recently learned how to prepare surfaces of small silver pyramids, as well as image them with atomic force microscopy (AFM). Check out the cool image I acquired today.

The little triangles are made of silver and are deposited on glass. They are about 25 nanometers in height.

Genentech (DNA) has its back up against the wall

Did you notice that IBD is now tracking the distribution day in all of the major indices now? I guess I wasn't the only one complaining about the Feb selloff. On that note, the NYSE picked up another distribution day today.

Also, it looks like DNA has tested the recent lows on lighter volume. I picked up some September out of the money calls. This will be another small trade, as it looks like there will be plenty of resistance at 85.

Fear Buying

I was reading Rev Shark on Real Money today (He is the only one worth reading) and he is in the same boat as I am. We are defensively postured while the market keeps moving higher. I'm not extremely short, but I'm certainly not fully invested either.

Rev Shark mentioned that he feels that today was all about fear driven buying. People are chasing the big caps out of pure fear of missing more of the upside. Looking at the VIX today it seems that his argument has some validity. Now I'm no market veteran (Did you see the blog title?), but this is the first time I've seen the VIX rise along with the market indicies.

One thing is for sure. These moves are shrinking the record short interest on the NYSE. That is the only way we can finally get a meaningful pullback that is worth buying. I'm just worried that we are going to go so high that its going to cause another bear market and not just a 10% correction.

Distribution Days 4-24-07

Wow, I haven't been paying attention to the distribution days (as measured by IBD). Here is the current count.

4 for the Nasdaq
3 for the NYSE
2 for the S&P 500
2 for the Dow

Remember, 4 or 5 distribution days in under 4 weeks is very often a warning that institutional investors are selling.

Previous Post

Metabolix (MBLX)

As a chemist, I am well aware of the true costs of high crude oil products. Sure, we rely on oil and natural gas for energy, but did you know that the chemicals found in crude oil are the building blocks for which the entire chemical industry is based? These building blocks are linked together in chains to form all types of platics.

Just take a look around and see how much of the modern world is made from plastic. When crude oil prices go up, so do the costs of making those plastic products. Obviously, there needs to be an alternative, and one such alternative just showed up on my stock screen.

I don't have the time to fully explain the company right now, but read this little story on Metabolix (MBLX). It is very interesting and could be a HUGE winner, especially if the price of oil remains high.

Extended Market

I don't have much time for a post, but look at this chart. It is a percentage of stocks two standard deviations below their 200 day moving average. Look at the previous corrections since the 2003 lows. All of them were much boader, with each hitting the 15% mark.

This chart is telling me that we have the "real" correction coming up soon.

Just sold Anooraq (ANO)

I bailed on ANO today at 2.56. I was feeling a bit greedy here. Overall, a nice trade and my first double.

ICICI Bank (IBN): The time has come

I've been watching IBN for a while now. I wrote about it and it's broadening top a few weeks back. Today it failed a retest of the down day of 2/23/07. It will now head south.

Keep an eye on LFL also. That also failed a retest on much lighter volume.

MTLK Buy Coming Up

Hittite Microwave (HITT) Trade Update

Commodities

I have to admit that I've been very interested in commodity trading lately. So much so that I set up a simulated trading account with Lind Walcot a few weeks ago to get a feel for it. The thing about commodity trading is the massive leverage involved. One typically only has to put up a fraction of the money it costs to control a contract for the commodity of interest. Such trades offer huge fortunes in a very short time, but also offer huge losses. In my simulated trade account I bought 50 Copper contracts. In a matter of 1 week my account went from $50,000 to over $280,000! I obviously don't have a trading stake that would allow me to take those kinds of risks, but it was a real eye opener. It isn't hard to imagine the trading going the other way and being $260,000 in the hole. That is scary! (Commodity trading is how Jesse Livermore lost all of his money. )


So in order to appease my commodity bug (gold has been doing very well for me lately), I purchased the DBA etf 3 days after the report stating that record amounts of corn have been planted. DBA is the a Powershares ETF that tracks the price of corn, wheat, soy beans and sugar. I'm not buying the DBA because I think corn is going up, but because I think that wheat and soy beans are going to skyrocket, mostly because of the record corn planted. If one adds any weather related issues, like drought or severe cold, all of the soft commodities will rise. That is my plan.

Housing Market--Crisis and Complexity

I'm reading "My Life as a Quant", by Emanuel Derman. It is an autobiography of a relatively successful physicist who joined Goldman Sachs and became a relatively successful quantitative analyst. Emanuel worked with Fischer Black to modify the famous Black-Scholes options pricing model to work for treasury bond options.

In the book, Emanuel is hired away from Goldman to work at Salomon Bros. to help model adjustable rate mortgage investments. While reading today (Derman was explaining the complexity of mortgages), the current uncertainty in the housing market hit me like a ton of bricks. I never understood what a house of cards the market really was. Here is an excerpt.

"Banks who lend to homeowners own the mortgage, the claim the the homeowner's future monthly repayments. Periodically, the banks turn around and sell the mortgages they have acquired to GNMA, FNMA, and FHLMC, government agencies that act as financial intermediaries by pooling together vast quantities of similar but not identical mortgages into more standardized securities. They then resell these pools to large investors--mutual funds, pension funds, insurance companies, hedge funds, and the like--in search of interest-bearing investments. This process of asset acquisition, pooling, standardization, and subsequent sale provides a liquidity that frees the savings bank to make more loans. As a result, the percentage of residents who own their own homes is greater in the US than anywhere else in the world.

Mortgages are messy, though it takes only a little careful high-school math to work out the monthly mortgage payment that will draw the loan down to zero over 15 years. But that's just the start. Everything about an adjustable rate mortgage pool--the interest payments, the principle repayments, and so on--varies with the future level of interest rates, so an adjustable rate mortgage (ARM) is really a complex option whose payments are contingent on interest rates."

I never appreciated how interconnected the housing market was. When all of these lender companies start going under the losses are really going to mount. The first dominoes have already started to fall. Who's next?

Finally...a winner

I mentioned that I've been having a hard time with this choppy market and that the only thing that has been doing well for me are the gold stocks.

I own a small stake in ANO, which has been gang-busters recently. But other than that, my other gold stocks have been hovering around their lows. That changed today when US Gold Corp (UXG) announced a favorable exploration result. The stock is up 23% right now. I also own Great Basin (GBN), which is up a nice 5% today. I was getting worried because it seemed like most of the gold stocks had already taken off.

Now if Tanzanian Royalty Expl. (TRE) can wake up, I'll really be happy.

On another note, I'm still waiting for the pullback in MTLK so I can buy. No luck so far.

Microvision Inc. (MVIS)

You may have noticed that I've changed the chart style of my posts. This is because I've recently started using Telechart 2007. While the charts on Stockcharts.com are more aesthetically pleasing, the screening power and speed of Telechart are amazing. Today I'm presenting a chart that I recently came across during one of my screens.

Today's chart is less about technical analysis and more about the fundamentals. Microvision Inc. (MVIS) is a company that I have recently come across using the screening power of Telechart 2007. Here are the daily and monthly charts. It looks like the downtrend has been broken, but MVIS isn't about the charts, its about the fundies.

What does MVIS do? They are basically a micro-electrical mechanical system (MEMS) device maker. Ok, what is that? MEMS are silicon based integrated circuits that also have micro-scale mechanical devices on them, sometimes referred to as systems-on-a-chip. The mechanical devices expand the possible capabilities and uses of these chips.

MVIS use these MEMS devices to make extremely small color projectors, so small in fact that they can fit on pda's or cell phones. Take a look at this picture.

This technology was demonstrated recently at the Consumer Electronics Show in Vegas and it created quite a buzz. I don't know about you, but I would love to have a full color projector on my cell phone. MVIS has other applications, like having color heads-up-displays for car windshields and personal projection devices for soldiers, but the cell phone projector could be huge.

This is a very risky bet though. MVIS doesn't make money and is quickly running out of cash. They just announced a deal with an undisclosed car company, but if they don't start making money soon, they will be gonzo.

Interestingly, MVIS does some collaboration work with Lumera (LMRA), a company that was recently brought to my attention.

Here is a little bit of hope

I'm beginning to despair about my Chinese stock market trade. I know the bubble will burst eventually, but did I get in too early?

Here is a nice plot of the Nasdaq bubble and the current Chinese market that gives me some hope. This can be found on "The Big Picture".

Very busy

I haven't been posting because I've been very busy lately. Just a quick update.

I was stopped out of my QID trade. My FXI trade is looking like crap. The only thing working for me are my gold holdings.

I have a small stake in Anooraq Resources Corp (ANO), which I got in at around 1.23.

The market is punishing me big-time right now and I think it is time to take a break. I do have some interesting speculative companies that I'm researching right now that look pretty good. I'll write about them this weekend.

The market is nervous and so am I

Bearish? Why yes I am.