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Saturday, July 02, 2005

Interview with Amy Domini

SFO Magazine has published an interview with Amy Domini in their latest issue (July 2005). Amy Domini's firm manages more than $1.8 billion in assets and since its inception in 1990 has earned an average of 9.8 percent per year. She was named by Time magazine as one of the 100 most influential people in the world. Amy Domini has become the figurehead for socially responsible investing (SRI). I don't agree with all aspects in her story, but it's interesting to read that kind of contrarian view on investing.

Investing with a Conscience
SFO Magazine
by Russell Wasendorf, Sr.
July 2005
Interview with Amy Domini, Founder and CEO, Domini Social Investments.

RW: Let’s talk about the way you select investments.
AD: The field grew out of a faith-based approach to investing that held it was immoral to invest in alcohol, tobacco, weapons and gambling. So we embraced these standards. But on the other hand, in today’s context I can still argue that the miracle of capitalism is that it delivers goods and services to more people at a lower price in a more convenient fashion – things that we want and things that we need. The question for me is do we want our weapons, our alcohol, our tobacco and our gambling distributed as broadly and cheaply as possible?

Our fund is underinvested in oil because in this country our choices now are Exxon/Mobil and Chevron/Texaco, and I buy only U.S. companies. When you do an environmental and human rights analysis of on those two companies, you are not going to want to own them. I own other smaller oil companies but it has been tough to be out of oil.

RW: Many people will ask if they should be willing to pay a price in their investment return for social investing. Is it so important that we should be willing to accept a lower return?
AD: That opens the door to why we do the social investing. We need to ask ourselves, is the almighty dollar the only right thing in the world? Or do we want a future that is pleasant, clean and healthy? If we want that future, there is a cost involved. There is a point at which throwing your trash over the fence is cheaper than dealing with it.

RW: How many of the Domini 400 are in the S&P 500?
AD: There are 250, give or take two or three, by policy.
Read further:
SFO Magazine: Investing with a Conscience

Friday, July 01, 2005

Update: Live Action: Guidant Corp (GDT) puts

I just sold my Guidant Corp (GDT) puts with $1.70. The total profit from this trade +47.83%. Actually, I really believe that these puts will cost more later today, but I don't want to take too much risk, as my last trade didn't turn out so well. It is good habit to lower risks and take things more cautiously when it's not going so well.

See also:
Live Action: Guidant Corp (GDT) puts

Update: Live Action: Affymetrix Inc (AFFX) calls

I closed my Affymetrix Inc (AFFX) options position with $0.45. Total loss of -62.50%. Hopefully, I had truly tiny amount of calls (as I said some days ago, I am very careful with options that have low volume), therefore it didn't hurt me much. At least one good thing about this lousy trade.

See also:
Live Action: Affymetrix Inc (AFFX) calls

Thursday, June 30, 2005

Jim Cramer the coin-flipper?

CXO Advisory Group analyzed some Jim Cramer's trades and came to the conclusion that his stock market calls since May 2000 have low consistency and approximately coin-flip accuracy (I found the article via Seeking Alpha).
Mr. Cramer is right about 50% (25 out of 51) of the time with his stock market predictions, prone more to headline hyperbole than equivocation.

His predictions sometimes swing dramatically from optimistic to pessimistic, and back again, over short periods.

Not the best words to say about former hedge fund manager with excellent record. But facts are facts.
Read further:
Seeking Alpha: Jim Cramer the coin-flipper?
CXO Advisory Group: Deconstructing Cramer

Apprenticed Investor: Tracking Elephants, Part 2

Apprenticed Investor: Tracking Elephants, Part 2
By Barry Ritholtz
6/30/2005 7:23 AM EDT
But the charts have many other uses -- even for nontechnicians. Fundamentalists can use technicals to help with their risk management, as well as their decision-making process.

My biggest complaint about Wall Street's fundamental analysts is their disconcerting tendency to downgrade stocks after all the bad news is out. Hey, once the problems are publicized, it's too late for the investor to avoid the bloodshed and tears.

It's not just about avoiding disasters. Stocks give several loud and clear signals on charts when an uptrend is over. A new phase of sideways, range-bound trading may not be a debacle, but there are better places for you to put your money.

You can easily see how volatile a stock is with a quick glance. A chart showing wild intraday swings and sharp reversals might raise suitability issues for more conservative investors. A more measured, gradual chart might not fit the goals of short-term, more active traders. Either way, the chart provides some insight as to whether this stock is for you.
Read further: Apprenticed Investor: Tracking Elephants, Part 2

Stocks to Watch: VLCM

Today's IPO: VLCM. Priced at $19, currently trading at $29.50.

Live Action: Guidant Corp (GDT) puts

Is it time for reversal in Guidant Corp (GDT) shares? Well, I took some July $65 puts with $1.15.

See also:
Update: Live Action: Guidant Corp (GDT) calls

Wednesday, June 29, 2005

How to Make Decisions

Michael (Trader Mike) has found a great article from Fortune about trading. Barney Gimbel has interviewed a derivatives trader, Simon Yates (Managing Director, Equity Derivatives, Credit Suisse First Boston).
When you see a trader panic, you can be pretty sure that for the next few hours, he's going to lose money.

I supervise about 23 people, and we can trade $1 billion a day. My goal is to make money 52% of the time. I can make the right call half the time by flipping a coin; a good trader does a little better. Successful traders don't spend much time regretting decisions or going back over things. If a decision turned out to be wrong, so what? Move on. So when you have to make a quick decision and you know that there's a good chance it will be wrong—the worst thing you can possibly do is sit there and panic and hope. You have to be decisive—go on and do it.

You can't wait until you have absolute confirmation. You're looking to get enough information to think that you probably have detected something, and based on that, you make your trades.
Read further:
Trader Mike: Fortune Magazine on Decision Making
Fortune: How I Make Decisions

Update: Live Action: Guidant Corp (GDT) calls

I just sold my Guidant Corp (GDT) calls with $3.10 as GDT fell below $66.97. Total profit +10.71%.

See also:
Live Action: Guidant Corp (GDT) calls

The Last Major Up-leg

A post in Alchemy of Trading:
"Paul Desmond and Richard Dickson of Lowry's Reports Inc. had warned in recent market updates of the growing likelihood of a correction in the U.S. market, which calls for the "sales of weak and disappointing stocks." But the weakness isn't likely to last long, in their view. They recommend that investors "temporarily hold back on new buying in anticipation of a pullback in prices."

They don't think a bear market is imminent. In Monday's comment, they listed the conditions that are present as the bear first makes its presence known, such as increasing selling and weakening buying and found those conditions aren't present at the moment.

"The probabilities continue to suggest that we are in the last major up-leg -- the last hurrah -- of this bull market," the analysts said. This period "can be a very profitable period for patient, disciplined investors with carefully constructed portfolios," they added."
Read further:
Alchemy Of Trading: Guru Flash

Live Action: Affymetrix Inc (AFFX) calls

I just bought Affymetrix Inc (AFFX) July $55 calls with $1.20. AFFX made a nice break-out and is now back at support ($54). I think, it bounces. Currently, it is possible to buy it even with $1.15.

Stocks to Watch: AMHC, MATR, QMED

Leg Mason initiated Buy for:
American Healthways Inc (AMHC)
Matria Healthcare Inc (MATR)
Q-Med Inc (QMED)

We'll see strength in these 3 stocks today, so keep an eye on these.

Read more from for Leg Mason's outlook on these stocks: Legg Mason initiates AMHC, MATR and QMED with Buys

Some Morning Stars for Today

Today, 21st Century Alert pointed out the Morning Star candle formation on S&P 500 chart. Trader Mike did the same for Nasdaq Composite.

Go to StockCharts CandleGlance for indices to see it yourself. 21st Century Alert also included an intraday chart for S&P 500 saying that "After a brief decline off 1211, the SPX should shoot right back up through that level."

Major indices are slightly up in pre-market at the moment. One question remains: if everyone is bullish, may the market turn?

See also:
21st Century Alert: Morning Briefing June 29, 2005 (paid subscription required)
Trader Mike: Morning Star on the Nasdaq
StockChart: Charts of Major US Indices

Stocks to Watch: SIRI

Keep your eye on SIRI today. It may offer a good trading possibility. Currently, it's showing strength, trading at $6.52 (+1.40%) in pre-market. Next resistance levels $6.62-6.70, $6.95-7.03.

Trading Rule #1

The Big Picture has a good post about error trades:
The first rule of trading is simply this: When you make a mistake, when you buy or sell ANYTHING by accident, you immediately unwind the position.

There are no ifs or buts. There is no after the trade consideration. (There's no crying in baseball). Do not justify or attempt to rationalize the position. You reverse the trade the very second you discover it.

Why? Because you own something you never planned to. You did not do the due diligence, the research, the stop loss planning, the carful contemplation.

Read further:
The Big Picture: Trading Rule #1

Update: Is Google the next eBay?

The Internet Stock Blog has the following comment on my Google post where I speculated that Google might be the next eBay and have a sharp cut in the price of its shares:
Quick comment: eBay's stock decline was accompanied by a clear shift in sentiment: newspaper articles about eBay sellers setting up their own sites, claims of market share gains from, and slowing revenue growth in its core market. So far none of those things apply to Google.
This is pretty much what I wanted to say. While Google introduces new services and manages to be inline with earnings, it's OK, but the first mistake would bring upon a slump. I see the chart turning ugly if it happens. So far, Google has enjoyed only positive sentiment from investors (just look at the target risings from analysts). If this sentiment vanishes, there is no easy landing for Google. I am not saying that this happens on the next quarter's results, so the price may go much higher from current levels. But I would just be careful if buying before the earnings news. Securing your long position with a few puts before earnings release may not be a bad idea.

Read the comment:
The Internet Stock Blog: Internet news/anaysis in brief (EBAY, GOOG, IACI, INSP, NFLX, OSTK, TSG, TZOO)

See also the original post:
Is Google the next eBay?

Tuesday, June 28, 2005

Interview with Paul Mulvaney

Michael Covel has put a link to an interview with Paul Mulvaney, a trend follower, on his site. It is quite interesting reading, he describes his trading system a little and gives some general hints about trading.

Trend following and the MCM system – an interview with Paul Mulvaney
Trend Following
June 28, 2005
Technical trading, especially trend following, is about what is happening. It is a very pragmatic strategy. Never lose sight of the famous saying of J.M. Keynes: “Markets can remain irrational longer than you can remain solvent”.

I don’t think it is possible to define the perfect system. It’s a bit like trying to define the perfect game of golf or tennis. You can only really compare one person’s game against another’s.

There is no profit taking per se. We only exit on stop-losses, because profit taking would interfere with the unlimited upside potential we have, in theory, on every position.

What are the characteristics of a good trader?
Extreme attention to detail is critical, but objectivity, and the ability to remain objective under stress, is the most important character trait. I would surmise that more people have the ability to crunch the numbers than to remain objective about when to get in and out. That involves letting go of the ego, because if you’re concerned about being wrong or what other people think of you, you cannot maintain discipline.

Our system, for example, is profitable 54-55% of days but on only 25% of trades. Now, clearly an investor can be profitable on a small minority of trades and win overall, but research suggests that many have emotional difficulty coming to terms with that sort of win-loss distribution.
Read further:
Trend Following: Trend following and the MCM system – an interview with Paul Mulvaney (in PDF format)

Is Google the next eBay?

Seth Godin writes that Google is launching video hosting in connection with Google payments.

If Google (GOOG) is able to introduce new features to the market, then the rally can continue (this is how hypes work, isn't it? Yes, I agree, that Google is definitely not an usual hype, but the price is far away off the fundamentals). I think if Google missed earnings even slightly, it will stop the rally immediately.

Look at the eBay (EBAY) chart below, I think it's similar to Google story. eBay managed to rally more than 2 years from $13 to $59, but then crashed on earnings report and gapped down 16%, currently it's trading at $33, nearly 50% below all time high. on January 19, 2005:
Reports Q4 (Dec) earnings of $0.33 per share, $0.01 worse than the Reuters Estimates consensus of $0.34; revenues rose 44.3% year/year to $935.8 mln vs the $934.4 mln consensus. Company issues downside guidance for Q1 (Mar), sees EPS of $0.34-0.35 vs. Reuters Estimates consensus of $0.40 on revs of $1.01-1.03 bln, consensus $1.05 bln; for Q2 sees EPS of $0.34-0.35 vs. Reuters Estimates consensus of $0.38 on revs of $1.025-1.04 bln, consensus $1.047; for Q3 sees EPS of $0.35-0.36 vs. Reuters Estimates consensus of $0.38 on revs of $1.035-1.06 bln, consensus $1.07 bln; for Q4 sees EPS of $0.43-0.44 vs. Reuters Estimates consensus of $0.46 on revs of $1.18-1.22 bln, consensus $1.24 bln
Not too bad report actually, but eBay had a free fall after this.
Chart courtesy of

See also:
Seth Godin: Google, video and podcasting

Update 4: Live Action: CKE Restaurants Inc (CKR) straddle

I just sold CKR puts with $0.90 as the resistance at $14.17 didn't hold. The price for the straddle was $1.05, which means -16% loss.

What went wrong? Although, CKR made a nice gap and was trading about 7-8% below yesterday's close, the straddle was not profitable. One reason is the very low liquidity in CKR's options. Basically, you can only buy on ask and sell on bid and the spread is pretty wide (currently the bid for the straddle is $0.90 and ask $1.20, being 33.33% higher than bid). I should be more precautious when trading options with low volume.

See also:
Update 3: Live Action: CKE Restaurants Inc (CKR) straddle
Live Action: CKE Restaurants Inc (CKR) straddle

Update 3: Live Action: CKE Restaurants Inc (CKR) straddle

CKR missed by $0.06 and gapped down today, currently it's trading at $14.03 I sold CKR calles with $0.15 a little earlier, but I'm still waiting with puts. CKR is testing the day low and I believe it can break it.

See also:
Update 2: Live Action: CKE Restaurants Inc (CKR) straddle
Live Action: CKE Restaurants Inc (CKR) straddle

Timing is Everything

There's a short article about market timing on Zacks' by Ian Wyatt. He doesn't give any guidelines, but reminds that one thing is to find a good stock and another thing is correct timing. You can't win if one of these is missing.

Timing is Everything
by Ian Wyatt
Patience is a virtue. True. But patience can also be frustrating. Bullish investors in stocks with strong underlying fundamentals know this all too well. Contrarian investors in turnaround stories know it even better. At the end of the day, company fundamentals are one thing, share price moves are quite another.

For many market bulls, whether in these companies or others, figuring out the bullish fundamentals is only half the battle. The other half is waiting for the market and the Street to turn your way and embrace the same fundamentals you’ve known to be true all along. Having that patience without throwing in the towel is often the most difficult exercise of all.
Read further:
Zacks: Timing is Everything

Live Action: Guidant Corp (GDT) calls

I just bought Guidant Corp (GDT) July $65 calls with $2.80. Expect GDT to fill the gap. Even raising to $66 support area triggers the position profitable.

Best Trading Related Blogs

There is a thread called "Best Trading Related Blogs" in Elite Trader forum. Check it if you are interested to find some blogs written by traders, or maybe share and comment your favorites.

Elite Trader: Best Trading Related Blogs

Monday, June 27, 2005

Update 2: Live Action: CKE Restaurants Inc (CKR) straddle

CKR prelim $0.24 vs $0.30 Reuters consensus; revs $465.91 mln vs $466.93 mln Reuters consensus (

First Quarter Highlights (Yahoo Finance!):
Net income increased by $5.5 million to $16 million, or $0.24 per diluted share as compared to net income of $10.5 million or $0.17 per diluted share in the prior-year quarter.
See also:
Yahoo Finance: CKE Restaurants, Inc. Reports 52 Percent Increase in First Quarter Net Income
Update: Live Action: CKE Restaurants Inc (CKR) straddle
Live Action: CKE Restaurants Inc (CKR) straddle

Update: Live Action: CKE Restaurants Inc (CKR) straddle

16:50 * CKR trading halted Jun 27 16:50
CKR trading halted (via

See also:
Live Action: CKE Restaurants Inc (CKR) straddle

Live Action: CKE Restaurants Inc (CKR) straddle

I bought CKE Restaurants Inc (CKR) July $15 straddle just before the closing time. CKR announces earnings report after market close. I see some movement. I paid $1.25 for the straddle (implied volatility about 40..45%), I paid $0.75 for the calls and $0.50 for the puts. I noticed CKR too late and that's why I had to pay so much, I think I could have get it with $1.15-$1.20 if I had more time.

Update (June 27, 2005 4:41 PM):
I believe that CKR moves upwards on the earning results, but I bought straddle to lower risks. It is possible that the company sees something negative in the issue of mad-cow disease, but I think this possibility is pretty low. Maybe it would have been better to buy just the calls.

Update: Live Action: Google (GOOG) short

I would close the Google (GOOG) short position at $300.50. Loss from this trade -8.96%.

See also:
Live Action: Google (GOOG) short

Update: Live Action: Google (GOOG) puts

I sold my Google (GOOG) puts with $2.45 as Google jumped over $300. There is no reason to fight with market. Loss from this trade -31.94%. I just can't get some profit out of Google ;)

See also:
Live Action: Google (GOOG) puts

Does sentiment suggest a market top?

Todd Stein & Steven McIntyre from Texas Hedge (via Seeking Alpha) write:

Does sentiment suggest a market top?
Texas Hedge Report
Todd Stein & Steven McIntyre
June 23, 2005
If one were to look at nothing more than sentiment in real estate these days (gracing the cover of Time) and the widespread belief among the average Joe that property only appreciates - it sounds like a market top to us. Throw on the scary fundamentals beneath the real estate boom, namely shoddy lending standards, peak home ownership rates, and large percentages of 2nd home and “investment” (read: speculative) purchases and the top, if it hasn’t already happened, should be fairly close.
Read further:
Texas Hedge (Seeking Alpha): Does sentiment suggest a market top?

Avoid Overtrading By Pausing After Losses

Jonah Keri writes about overtrading when getting losses (I found the link on The Kirk Report). I have experienced this myself and can also affirm that it's good to trade with smaller amounts if there has been too many losses lately.

Avoid Overtrading By Pausing After Losses, Examining Market
Investor's Business Daily
Yahoo Finance!
Jonah Keri
Thursday June 23, 7:00 pm ET
There's an expectation that gains will follow, that your portfolio will grow in value. Score enough gains, and trading can start to become addictive.

There's nothing wrong with a healthy sense of optimism. But don't let that good feeling push you toward a trading spree. Overtrading can dilute your gains. It can even lead to serious losses.

As the losses pile up, the desperation to try and recoup your lost cash can mount. At this point, overtrading can start to hurt your state of mind. The gains you made during the market's rally have vanished, and losses are starting to grow. The more you try to dig out of the hole, the worse it gets.
Read further:
Investor's Business Daily (Yahoo Finance!): Avoid Overtrading By Pausing After Losses, Examining Market

Investment Lions

There's an interesting article in Bloomberg Money Magazine (June 2005, cover feature).

Investment Lions
Bloomberg Money Magazine
By Peter McCready
June 2005
Five years on from the biggest bear market in three decades, a handful of funds have still managed to double their investors’ money. We investigate how they have done so and look at the lessons that can be drawn to help identify similarly successful prospects for the next five years.

Juliet Schooling, head of research at Chelsea Financial Services, agrees with Cockerill’s appraisal of Stick. “A good stockpicker is vital and, as everyone knows, good fund management is as much about avoiding the losers as it is about picking the winners,” she says.
Read further:
Bloomberg Money Magazine: Investment Lions (in PDF format)

Update: Live Action: Lockheed Martin Corp (LMT) puts

I sold my Lockheed Martin Corp (LMT) puts with $1.75. No profit from this trade (I also paid $1.75).

Live Action: Lockheed Martin Corp (LMT) puts

Live Action: Google (GOOG) puts

I just bought Google (GOOG) July $290 $280 (correction, see below) puts with $3.60. Google didn't manage to break $300 and shows intraday weakness.

Update (June 27, 2005 10:15 AM):
I bought July $280 strike puts, not $290 as I wrote before. Sorry for the typo!

Arbitrage: LMT

It is currently possible to buy LMT July $65 puts with $1.85 and sell with $1.90 on another market.

Update (June 27, 2005 9:50 AM):
LMT continuosly traded at different levels: bid $2.05, ask $2.00.

Live Action: Lockheed Martin Corp (LMT) puts

I just purchased a few Lockheed Martin Corp (LMT) July 2005 $65 puts with $1.75 as LMT itself was trading at $63.47.

See also:
Stocks to Watch: Lockheed Martin Corp (LMT)

Stocks to Watch: Lockheed Martin Corp (LMT)

I'll keep an eye on Lockheed Martin Corp (LMT) today, it seems weak and may be suitable for shorting. Thanks to Knight Trader for pointing it out! It broke resistance with higher volume on Friday.

Read further:
Knight Trader: LMT Sell Short

Update 3: Live Action: Long NeuroMetrix Inc (NURO)

Some recent news about NeuroMetrix (NURO):

June 15: Punk, Ziegel & Co reiterated Buy, raised target from $16 to $20.
June 22: Jefferies initiated NeuroMetrix (NURO) with a Buy and $23 target:
Firm says the co's primary product, the NC-stat System, offers physicians and patients a fast, cost-effective, automated, and point-of-care alternative to traditional clinical nerve conduction studies (N.C.S.) (
June 23: WR Hambrecht reiterated Buy, raised target from $13 to $22.50.

NeuroMetrix has made a really nice move by closing at $19.01 on Friday (+16.41% in 2 weeks I have hold it). There is a possibility for correction due to the sharp rise, with a support area around $17.50. Currently, I am still holding the position and I am not probably selling while it stays above $17.50.

Chart courtesy of

Update (June 27, 2005 8:43 AM):
Notice the positive volume surge during the last 3 trading days!

See also:
Update 2: Live Action: Long NeuroMetrix Inc (NURO)
Live Action: Long NeuroMetrix Inc (NURO)
Update: Analysis: NeuroMetrix Inc (NURO)

Hedge Funds Are Growing: Is This Good or Bad?

Some reading about hedge funds in Commodity Trader blog.

Hedge Funds Are Growing: Is This Good or Bad?
One of the biggest differences between hedge funds and mutual funds: hedge funds are not required to publicly disclose their holdings. Hence, it's nearly impossible to know at any given time whether they are adding risk to the markets or reducing it.

In earlier decades, hedge funds used their freedom to hedge against risk. By holding both long and short positions, for example, they tried to make money regardless of whether the markets moved up or down. Hence, hedge funds were seen as relatively conservative investments, used to dampen the jarring ups and downs of the market. In the 1990s, however, many became more aggressive, using their freedom not to reduce risk but to embrace it in hopes of stellar gains, Marston says. That's what led to the Long-Term Capital Management collapse -- a leveraged bet, which was wrong, that historic relationships between various short- and long-term bond yields would reassert themselves.

Since hedge funds are essentially unregulated, there are no definitive statistics, but by some estimates there are about 8,000 hedge funds with combined assets of about $1 trillion, up from $400 billion in 2001. Because hedge funds can leverage, their impact on the markets is probably far larger. The mutual fund industry has about $8 trillion in assets, which cannot be leveraged.
Read further:
Commodity Trader: Hedge Funds Are Growing: Is This Good or Bad?