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Friday, May 20, 2005

Analysis: Positive view on World Wrestling Entertainment (WWE)

CNN Money published a positive analysis on World Wrestling Entertainment (WWE). Analysts have lowered their earning expectations from $0.61 to $0.44 in the last 90 days. The stock chart shows how the shares have been hammered:
Stock Chart: World Wrestling Entertainment (WWE)
Chart Courtesy of StockCharts.com.

WWE: Get in the ring!
CNN Money
By Katie Benner
May 20, 2005: 12:46 PM EDT

WWE has practically no debt, a big pile of cash, a stranglehold on a niche market and an annual dividend yield of about 4.5 percent. "It's a conservative investment, despite the flamboyant nature of the business," said Robert Routh, an analyst with Jefferies & Co.

"When WWE gets its star, the stock will start to rise again. And they've never had a problem finding a star."

It trades at a relatively high P/E ratio of 24 times WWE's estimated earnings for fiscal 2006. But if you take out the company's pile of cash, the P/E falls to about 15.4. Analysts said this is more than reasonable given that the company pretty much has a monopoly. "It would be too capital intensive for anyone to recreate what WWE has," said Routh.
Read further:
CNN Money: WWE: Get in the ring!

Interview: James Stack sees signs of a bear market

James Stack tells that there are no classical bear market warning signs yet, but the bull market is going to make a turn soon, being currently in the latter third of its lifetime. He says that bull markets typically come around every three to five years. If you look at the chart, you will see that the bull market is close to its third birthday:

Chart: Nasdaq 100 Shares (QQQQ)
Chart Courtesy of StockCharts.com

He's idea is simple – even if we have not entered to bear market, you have to start thinking about safety of stock portfolio. Bear-market funds are one possibility to secure your positions.

Going on the Defensive
SmartMoney.com
The Pro Shop
By Lisa Scherzer
Published: May 19, 2005

With interest rates rising and energy prices remaining stubbornly high, market watcher James Stack expects to see signs of a bear market by year's end. What's more, cautions the president of Whitefish, Mont.-based InvesTech Research, long-term economic trends could very well be pointing to a recession in 2006.

In terms of sector allocation, it's important for investors to build defense into their portfolios, to make it bear-market proof. We like energy, health care and materials stocks. These either benefit from rising pricing pressures or are immune to rising interest rates.

Rydex Ursa, which tracks the inverse of the S&P 500, has proven its ability in bear markets. If you're trying to build defense into your portfolio, this is one of the best
S&P bear-market funds.

The average [price/earnings] ratio for the Nasdaq 100 stocks is around 26. From a historical perspective it's still a high valuation level. I'm afraid it's going to take another bear market to take these tech stocks down to truly attractive levels.

Read further:
SmartMoney: Going on the Defensive

Thursday, May 19, 2005

Interview: Linda Raschke, An Active Trader

Linda RaschkeI found an interview with Linda Raschke, a short term trader, the president of LBRGroup. The journalist spent a whole trading day in Raschke's trading office. There is also a shorter follow-up in the next issue of the magazine, the two parts cover 12 pages, but it really is worth reading. You can read about her strategies and methods of stock picking, entry, and exit points. She talks a lot about mechanical trading systems. The interviews were made more than a year ago, but the hints are still relevant. (Photo from LBRGroup web site.)

Linda Raschke began her professional trading career in 1981 as a market maker in equity options. After 7 years on the trading floor, she left the exchange to expand her trading program in the futures markets. She was recognized in Jack Schwager's critically acclaimed book, The New Market Wizards.

Linda Raschke keeps up the pace
Active Trader Magazine

By Mark Etzkorn

“Everything I do is based on actual chart points,” she says. “I’m always looking at the swing highs or the swing lows. I never calculate Fibonacci numbers, Gann retracements, artificial pivot points or other things like that because I’ve never found any edge or any statistical significance from testing them. You have to put indicators in context. They’re background information — never the primary reason for a trade.

What I’ve found with the majority of mechanical systems is they only test out well if you use a very wide stop. Let’s say this system has a win-loss ratio of 60 percent. You think, “Hmm, not bad.” But that’s horrible, because the odds of getting five consecutive losers at some point out of a sample size of 200 or so is around 90 percent. So I know if I trade this system religiously I run an incredibly high risk of having five losers in a row — with a large per-trade risk.

On the other hand, consider a little scalping pattern that has a 92-percent win ratio and shoots for a 75-cent profit in the S&Ps. The odds of getting five losers in a row are much more remote. I can trade 10 times more leverage on that system than I could the first one.

Experience counts for a lot in this business. It’s a survival game. If you can persevere and endure for that first two or three years, then you’re there. If you do it for a year and get frustrated and quit because you’re not profitable — well, that happens to a lot of people. If you don’t know the rules of the game, you don’t know what to look for.

Raschke offers suggestions as to what traders can do to get and keep themselves on a profitable track. “You have to add things, explore everything and find what works for you,” she says. “Start out by doing one thing and one thing only — trading a bull flag, for example — and do it well.

“Forget about making money, just get proficient at execution,” she says. “Because when you start, you can be nervous and you can freeze up. And with practice, the emotions that accompany trading subside.”
Trader Toolbox
Active Trader Magazine

By Mark Etzkorn

In a follow-up to our February interview with trader Linda Raschke, we discuss more of the indicators and strategies she uses each day.

Raschke says she racked up 45 successive profitable weeks, in part because the technology was so conducive to the tape reading skills she had honed on the exchange floor. But when she got her first analysis software in 1987, she lost money for three months.

Linda Raschke’s office setup:
Computers: The office includes 23 networked CPUs (plus one laptop PC).
Monitors: 15 ViewSonic flat-panel monitors.
Internet connection: T1 line, plus satellite Internet.
Backup power: An independent generator that can keep the office up and running for five days in the event of a power outage.
“It is also essential that we have three different data feeds coming into our office for backup purposes, since we are managing money.”
Read further:
Active Trader Magazine: Linda Raschke keeps up the pace (PDF, pages 42-49)
LBRGroup (Active Trader Magazine): Linda Raschke Active Trader Interview, pt 2 (PDF)

Analysis: Nordstrom (JWN)

Briefing analyzes Nordstrom (JWN) in their Story Stocks™ section.

Nordstrom Inc. (JWN)
by Briefing.com
18-May-05 12:45 ET
Considering its strong showing in the first quarter, Nordstrom raised expectations for the full year.

We continue to like the name and feel there is further upside ahead for Nordstroms due to its positive earnings momentum and strong same-store trends. The company continues to surpass expectations now topping estimates for the tenth consecutive quarter.
Analysts estimate Nordstrom's next year revenue of $7.91B and earnings of $3.79. The forward P/E is $15.61.
Stock Chart: Nordstrom (JWN)
Chart courtesy of StockCharts.com

Read further:
Briefing: Story Stocks

Wednesday, May 18, 2005

Interview with Bill Miller, Legg Mason's Fund Manager

Bill Miller: Legg Mason's Fund ManagerSmartMoney has published an interview with legendary Bill Miller, whose fund has beaten the S&P500 every year for the past 14 years, no other funds have accomplished that. This story a really good reading, I suggest you to go to SmartMoney web site and read the full interview. Bob Miller reveals his basic stock picking criterias and even mentions some, in his mind, underpriced stocks. He also talks about real estate and dollar. (Photo from Legg Mason Capital Management web site.)

Meet Mr. Market
SmartMoney Magazine Q & A
By Jack Otter

Published: May 5, 2005

"Well, most people — for instance, Jim Cramer, who's successful — say, if the stock's going up, then it's good. And if it's not going up, then it's bad. But I tend to think that the more it goes up, the less attractive it is."

"A study 10 or 15 years ago on technical trading indicators found a few that did appear to work. And as soon as that was published, they stopped working. So those were anomalies that, as long as people were unaware of them, could be exploited. But as soon as they became generally known, then they disappeared."

"The key thing would be — as Warren Buffett says — you need to be fearful when others are greedy, and greedy when others are fearful. So when the market's been down for a while, and it looks bad, then you should be more aggressive, and when it's been up for a while, then you should be less aggressive."

"Well, if you do what other people do, you get the results that other people get.So by diversifying your sources of information, you get insights, analogies and metaphors, and you see connections that other people might not see."

Read further:
SmartMoney: Meet Mr. Market

Update 9: Live Action: HPQ calls

I sold HPQ calls with $2.20 when the HPQ was trading around $22.20.

The whole position is basically closed now. I still have some puts left from yesterday, but these are worhtless and expire the day after tomorrow.

I was able to get 54.4% profit from the second part of the options position. Together with yesterday's transactions (26.3% profit from the first half of the position) I got a total of 40.4% profit with HPQ options.

Not a bad trade, I would say. I'll leave the market for some hours now.

See also:
Update 8: Live Action: HPQ calls
Live Action: HPQ calls

Update 8: Live Action: HPQ calls

HPQ: new day high at $22.25.
Calls: $2.25/$2.30.

See also:
Update 7: Live Action: HPQ calls
Live Action: HPQ calls

Setting Stop Levels

A few days ago I made two paper trades with CCJ and ONXX. I inteded to hold the positions for a short time, so I set very close stops. As both of the stops realized just twenty to fifty minutes later, I had to take a slight loss from both positions, -0.2% and -1.2% accordingly. A little later, both shares headed upwards above buying price.

The question is, whether I set the stops to the right level.

Here are the intraday charts:
Stock Chart: Cameco (CCJ)
Chart Courtesy of Bigcharts

Stock Chart: ONYX Pharmaceuticals (ONXX)
Chart Courtesy of Bigcharts

This is actually totally normal situation that you have to use stops from time to time, but sometimes it makes me still thinking and searching for stop setting strategies.

Recently, I found an article about stops strategy at StreetAuthority web site, I'll give you the link below.

See also:
StreetAuthority: Setting Stop Loss Orders
Live Action: Long CCJ
Live Action: Long ONXX

Tuesday, May 17, 2005

Update 7: Live Action: HPQ calls

Hewlett-Packard (HPQ) issued Q2 2005 earnings release.

Quarterly revenue of $21.6 billion, analyst estimates $21.35B ($20.61B – $21.56B).
Non-GAAP operating profit of $1.3 billion, $0.37 earnings per share, analyst estimates $0.36 ($0.34 – $0.37).

Business outlook:

HP estimates Q3 FY05 revenue will be in the range of $20.3 billion to $20.7 billion, with non-GAAP earnings per share in the range of $0.29 to $0.31. This excludes after-tax costs of approximately $0.03 per share from amortization of purchased intangible assets and approximately $100 million, or $0.03 per share, in workforce reductions.

Analyst estimates were $20.39B ($19.80B – $21.07B) for revenue and $0.32
($0.28 – $0.39) for earnings.

HPQ is trading at $22.55 at the moment in after hours.

About my position:
I sold half of it a minute before closing with $1.65 for calls and $0.15 for puts. That made the total cost for the straddle $1.80. I got 26.32% profit for the first half of the position.

I will sell the other 50% of my position tomorrow. If HPQ should stay at the current level, the calls would cost about $2.55 and puts would be worthless. That would make about 80% of profit for the second part of the options position. Nevertheless, this is imaginary profit until I can make the transaction tomorrow. Right now, there is nothing I can do, but wait.

See also:
Yahoo: HP Reports Second Quarter 2005 Results
Update 6: Live Action: HPQ calls
Live Action: HPQ calls

Update 6: Live Action: HPQ calls

3:58 PM
Sold 50% of the straddle at $1.65+$0.15.

See also:
Update 5: Live Action: HPQ calls
Live Action: HPQ calls

Update 5: Live Action: HPQ calls

HPQ started to make a sharp move upwards. Calls trading at $1.55/$1.60 (+37.78% if sold with bid price at the moment). Puts $0.15/$0.20.

See also:
Update 4: Live Action: HPQ calls
Live Action: HPQ calls

Update 4: Live Action: HPQ calls

Actually there is nothing important to say about my HPQ option strategy. Everything is going well right now, HPQ is trading at $21.12 (+0.52% today, +1.44% starting from the time of purchase of HPQ calls), May 05 $20 calls $1.30/$1.35 and May 05 $20 puts $0.20/$0.25.

We will probably see some buying pressure for the options in an hour or so just before the earnings release tonight.

I am going to close a portion of my position before closing bell, but I have not decided jet, how much and how exactly, it depens how HPQ shares move before closing.

See also:
Update 3: Live Action: HPQ calls
Live Action: HPQ calls

Alert: Dermisonics Inc (DMSI)

I received a typical "buy now and get rich" e-mail alert for an OTC share Dermisonics Inc (DMSI.OB) from FreeRealTime. I'll copy some paragraphs from this very long e-mail:

Potentially improving the lives of millions of diabetics worldwide who currently have to suffer by injecting themselves up to 10 times a day.

Possibly the drug delivery discovery of the decade - applicableto hundreds of "large molecule" drugs currently only available to people via injection or orally. "The company behind this discovery, Dermisonics, could return a 1,000% gain to early-stage investors who get in now."

Alexander Holtermann, financial journalist and editor of Bull-and-Bear.tv, on:
Why DMSI could easily go to $10 a share
Dear reader - in today's issue let's talk about my pick of the month.

COMPANY: Dermisonics Inc.
Stock Symbol: OTCBB: DMSI
Recommendation: Buy DMSI today up to $2.50

Since this is a highly speculative trade, limit yourDermisonics
position to a small percentage of your overallportfolio.

Would I buy DMSI myself? No way, I don't buy low volume junk on e-mails. But the fact is, that DMSI shares today surged 12.24% and are trading at $1.10.

Here is the 1 year chart for DMSI:

Chart Courtesy of Bigcharts

Live Action: Long CMX

9:39 AM
I would go long with Caremark Rx (CMX) at $44.30.

This trade is not with real money, I am just checking my trading strategy.

See also:
Technical Analysis: Caremark Rx (CMX) Brakeout

Technical Analysis: Caremark Rx (CMX) Brakeout

Caremark Rx (CMX) made a nice brakeout yesterday, closing at a new all time high ($44.19), with a good outlook for continuous raise. CMX may be a good choise for a swing trader.

Stock Chart: Caremartk Rx (CMX)
Chart Courtesy of Bigcharts

Monday, May 16, 2005

Update 3: Live Action: HPQ calls

I added the same number of HPQ May $20 puts as I had calls. The puts cost $0.30 each.
This transaction turned the HPQ options position into straddle. The total average cost of the straddle is $1.425.

See also:
Update 2: Live Action: HPQ calls
Live Action: HPQ calls

Update 2: Live Action: HPQ calls

Some thoughts about my position in HPQ.

As HPQ rose above $21, the calls are trading at $1.30/$1.35 (bid/ask). It is possible to take +15.56% to +20% profit at the moment, but I am holding the position over night. I am still thinking about buying some May $20 puts also to prevent big loss if HPQ should gap down tomorrow morning. If I had the same number of calls and puts (basically, the straddle), I would be secured against HPQ movement (the implied volatility almost surely rises tomorrow).

See also:
Update: Live Action: HPQ calls
Live Action: HPQ calls

Update: Live Action: HPQ calls

1:14 PM
The calls expire this friday (HPQ May $20 calls), making this position extremely risky (with the possibility to lose 100% of the position!). Therefore it's not good idea to buy in a greater amount.
Hewlett-Packard will issue its Q2 2005 earnings release tomorrow. I see HPQ in positive light, but probably buy also some puts to secure the position.

See also:
Live Action: HPQ calls

Live Action: HPQ calls

12:48 PM
I bought Hewlett-Packard (HPQ) calls (strike $20) at $1.15, while HPQ itself is currently trading at $20.82.

1:09 PM
I bought some more calls at $1.10 (HPQ at $20.77). The average cost for the calls is $1.125.

Note that this is not a recommendation, but my own trading diary!

Live Action: Long CCJ

11:10
Long with CCJ at $37.30.

11:25
Stop: $37.20

11:56
Closed the position in CCJ at $37.21 (-0.24%).

This trade is not with real money, I am just checking my trading strategy.

Live Action: Long ONXX

10:59
Background information:

Onyx Pharmaceuticals (ONXX) plunged after FDA related news and downgrade from Wachovia. I missed trying to catch the bottom, anyway I had a close stop because of the big risk. The trade was purely speculative, so I don't bother that the shares actually surged to $26.90 right after closing the position and it would be possible to take some profit at the moment.

Read further:
TheStreet: Onyx Hit Despite Sorafenib Data

10:23
Closed the position at $26.31 (-1.16%).

10:13
ONXX fell a little below stop. No further dip, therefore waiting a little before closing. If it stays below $26.40, then I'll close the position.

10:04
Long with ONXX at $26.62.
Stop: $26.40
Target: $27.60

This trade is not with real money, I am just checking my trading strategy.

UPS acquires Overnite (OVNT)

AP
UPS Inc. to Buy Overnite for $1.25B

Monday May 16, 8:01 am ET

ATLANTA (AP) -- Package-delivery company UPS Inc. on Monday said it is acquiring trucking firm Overnite Corp. for about $1.25 billion in cash, expanding its portfolio of ground-transportation services.

Under the deal, Overnite stockholders will receive $43.25 for each Overnite share.
Online Trading Comment
UPS will pay 46% premium for Overnite (OVNT) shares. Zacks' analysts brought out OVNT as the "bull of the day" stock exactly one week ago (May 9, 2005), saying:
We expect OVNT to continue to gain market share and generate higher operating margins over the next couple of years.

I would say, a very good call from Zacks. Although, the latest "bull of the day", Exelon (EXC), did not perform so well on friday.

Read further:
Yahoo (AP): UPS Inc. to Buy Overnite for $1.25B
See also:
Zacks: Bull of the Day for 09-MAY-05 - Overnite Corp (OVNT)
Zacks: Bull of the Day for 13-MAY-05 - Exelon Corp (EXC)