It is difficult to judge whether the silver and gold manipulation and conspiracy theories proposed by the GATA gang is true or false.
GATA has been in existence for many years. While there are claims on manipulation, the price of gold has been going straight up since 2002.There is no mathematical correlation to the index to show that it is true.
Also, one have to admit that manipulation is part of the market reality. It is the big boys playing the small boys.
As to the claims of paper gold versus physical gold to the ratio of 100:1, I suspect that this is part of futures trading. It is a leveraged. Quite commonly, you see such ratios in future market and that's why they are extremely volatile. Look at prices of sugar, coffee, wheat, futures etc - you see big swings! A good trader can make a lot of money from futures.
The most credible claim in this saga is that of Ted Butler where he said there are concentrated positions of shorts by JP Morgan and HSBC. The figures are astounding and this could possible cause a short squeeze.
How do I deal with information or perhaps "rumors" or wild events happening like this?
Simply, I let the price actions verify itself. So far, the actions are good. So there could be some truths in all the allegations. I am sure not all are true but something is certainly cooking.
So if price of gold shoots up quick >1140 and then 1160, I should be pyramiding into my long positions.
Wednesday, April 7, 2010
Thursday, April 1, 2010
Conspiracy theory?
Do you think I am crazy to get out of gold and silver?
It is an April Fool’s joke. I hope none of you bail out of these precise metals! I am more bullish than ever. Short term, it may be trading in a range but there is no doubt it will be a lot higher by the end of the year.
I believe the market may continue bullish for a while but sooner or later a bigger crisis will hit.
I believe that inflation will catch up. US$ will fall drastically, interest rates will go up and commodities price will continue to rise. These are my investment themes for 2010.
What I had written are views thrown to the public by the media and the government. The government wants to claim credit and get elected again propagates these ideas.
I hate to believe in a theory of conspiracy but strangely the main stream medias especially CNNBC are infusing these ideas into the investment communities.
Following are some events that are very interesting.
Last week, CFTC held a hearing regarding position limits in the futures market. You can listen to the hearing. There has been a belief of manipulation notably by JP Morgan and Goldman Sachs for years. People like Ted Butler – precious metal analysts, Eric Sprott – multi billionaire and hedge fund giant focussed on gold in Canada, and GATA ( www.gata.org ) have been collecting evidence.
Gata’s founder, Bill Murphy was invited to testify at the hearing.
Something very intriguing happened. A metal trader from London, Andrew Maguire became the whistle blower giving detailed facts on how the manipulation at JP Morgan took price giving precious time and showed emails sent to CFTC on how and when it happened.
During the hearing, Jeffrey Christian of CPM Group told the group that the there are hundred times more gold paper trader deposits than actual physical gold. This is startling as it could mean the whole entire bullion market is a completed ponzi scheme and scandal of much greater multitude than Bernie Madoff. It also mean that all the ETFs like GLD and SLV are frauds as they do not have the backing of the physical metals of which JP Morgan are one of the custodians. If you ask for delivery, there would be a run on the bank and panic.
Spend time and listen to the following exciting interviews. It is worth your time.
http://www.gata.org/node/8478/
http://www.zerohedge.com/article/former-goldman-commodities-research-analyst-confirms-lmba-otc-gold-market-paper-gold-ponzi
http://www.kingworldnews.com/kingworldnews/Broadcast/Broadcast.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/31_GATA.html
A number of events during and after the event support further the case for conspiracy. I find it difficult to accept that this is happening to America. It is a country that I respect for upholding the baton of freedom of free speech and democracy. What happen?? Lets present the facts:
· There were not single mainstream media coverage despite the sensational nature and newsworthiness of these events.
· Bill Murphy was contacted by major media outlets for more interviews. Within 24 hours, ALL the interviews were cancelled.
· Immediately after Maguire testified, he was run over by a car while driving down the street with his wife. The driver sped away running away other pedestrians in his haste to escape! Coincidence?
· KingWorld News is one of the alternative websites that conducted the post interviews with GATA and Maguire. Internet servers of the website were attacked and disabled yesterday from 8 to 10 am ET by very sophisticated hackers. The servers are maintained by one of the largest Internet site hosting companies in the world and they “could not figure out why this cluster of servers is being attacked”.
There were more than a few strange goings on at the hearing, one of which was that the video feed went dead just as Bill Murphy was about to detail the Maguire story for the CFTC. Here’s the video which was not available at that time, see below:
It contains details on Maguire’s charges that massive short positions by HSBC (HBC) and JP Morgan aimed out flushing out longs occur regularly and predictably, in a coordinated fashion.
Even Dennis Gartman who is a sceptic on Bill Murphy and Gata’s activities is starting to acknowledge that there could be truth in the findings.
http://watch.bnn.ca/clip283224#clip283224
If these guys are right, we are in for some fireworks in the physical silver and gold market!
It is an April Fool’s joke. I hope none of you bail out of these precise metals! I am more bullish than ever. Short term, it may be trading in a range but there is no doubt it will be a lot higher by the end of the year.
I believe the market may continue bullish for a while but sooner or later a bigger crisis will hit.
I believe that inflation will catch up. US$ will fall drastically, interest rates will go up and commodities price will continue to rise. These are my investment themes for 2010.
What I had written are views thrown to the public by the media and the government. The government wants to claim credit and get elected again propagates these ideas.
I hate to believe in a theory of conspiracy but strangely the main stream medias especially CNNBC are infusing these ideas into the investment communities.
Following are some events that are very interesting.
Last week, CFTC held a hearing regarding position limits in the futures market. You can listen to the hearing. There has been a belief of manipulation notably by JP Morgan and Goldman Sachs for years. People like Ted Butler – precious metal analysts, Eric Sprott – multi billionaire and hedge fund giant focussed on gold in Canada, and GATA ( www.gata.org ) have been collecting evidence.
Gata’s founder, Bill Murphy was invited to testify at the hearing.
Something very intriguing happened. A metal trader from London, Andrew Maguire became the whistle blower giving detailed facts on how the manipulation at JP Morgan took price giving precious time and showed emails sent to CFTC on how and when it happened.
During the hearing, Jeffrey Christian of CPM Group told the group that the there are hundred times more gold paper trader deposits than actual physical gold. This is startling as it could mean the whole entire bullion market is a completed ponzi scheme and scandal of much greater multitude than Bernie Madoff. It also mean that all the ETFs like GLD and SLV are frauds as they do not have the backing of the physical metals of which JP Morgan are one of the custodians. If you ask for delivery, there would be a run on the bank and panic.
Spend time and listen to the following exciting interviews. It is worth your time.
http://www.gata.org/node/8478/
http://www.zerohedge.com/article/former-goldman-commodities-research-analyst-confirms-lmba-otc-gold-market-paper-gold-ponzi
http://www.kingworldnews.com/kingworldnews/Broadcast/Broadcast.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/31_GATA.html
A number of events during and after the event support further the case for conspiracy. I find it difficult to accept that this is happening to America. It is a country that I respect for upholding the baton of freedom of free speech and democracy. What happen?? Lets present the facts:
· There were not single mainstream media coverage despite the sensational nature and newsworthiness of these events.
· Bill Murphy was contacted by major media outlets for more interviews. Within 24 hours, ALL the interviews were cancelled.
· Immediately after Maguire testified, he was run over by a car while driving down the street with his wife. The driver sped away running away other pedestrians in his haste to escape! Coincidence?
· KingWorld News is one of the alternative websites that conducted the post interviews with GATA and Maguire. Internet servers of the website were attacked and disabled yesterday from 8 to 10 am ET by very sophisticated hackers. The servers are maintained by one of the largest Internet site hosting companies in the world and they “could not figure out why this cluster of servers is being attacked”.
There were more than a few strange goings on at the hearing, one of which was that the video feed went dead just as Bill Murphy was about to detail the Maguire story for the CFTC. Here’s the video which was not available at that time, see below:
It contains details on Maguire’s charges that massive short positions by HSBC (HBC) and JP Morgan aimed out flushing out longs occur regularly and predictably, in a coordinated fashion.
Even Dennis Gartman who is a sceptic on Bill Murphy and Gata’s activities is starting to acknowledge that there could be truth in the findings.
http://watch.bnn.ca/clip283224#clip283224
If these guys are right, we are in for some fireworks in the physical silver and gold market!
I am bearish on Gold and Silver – GET OUT!!
I have been bullish on gold/silver now for many years. Starting in early 2005, I started to buy gold and precious metal stocks including juniors.
I have remained consistently bullish on gold/silver and never wavered … until now. Today, I officially am a bear on gold/silver. I have to agree with Roubini that Gold is a barbaric relics and price will soon crash. He has good credibility as he correctly predicted the sub prime crisis and is a professor of the prestigious Stern School of Business at New York University.
There is nothing really special about gold and silver. You can’t eat it. You can’t even go to the store and buy anything with it. I cannot imagine why we go back in civilization and back to bartering with gold and silver. This is the era of paper currency where central banks can control crisis through monetary supply via the printing press. Central bankers are very well connected globally and thus a crisis like the Great Depression will never recur again. It is soundly based on the theory from a famous economist John Maynard Keynes who solved the problem of the Great Depression through interventionist economic policy to mitigate the adverse effects of a crisis.
We owe a lot to Bernanke, Greenspan, Paulson and Geithner did an amazing job at solving the financial crisis of 2008. We should be very thankful to these maestros who managed to get us out an economy spirally out of control and to the point of no return. We salute them. Bernanke deserves to be Times man of the year and Greenspan was rightly knighted by the British Empire in 2002.
They exhibited rare vision, brilliance and courage to take actions contrary to logic by solving a debt crisis with more debt or like giving heroin to a marijuana addicts. Actually it works! It took courage from Paulson and Geithner to bailout “too-big-to-fail” corporations like Citigroup, GE, GM, Bank of America, Fannie Mae, Freddie Mac, AIG and JP Morgan. Do not worry about the $1.4 Trillion deficit this year, $14 Trillion debt and >$53 Trillion total unfulfilled liability in the balance sheet. It will be paid when the recovery comes. After all, America still has the most creative people and best technology in the world. They will create a new era of productivity through technologies like what they did with the Internet. Look at the best of global businesses and fundamental research today. They are still dominated by all the best universities and companies like Wal-Mart, Microsoft, Disneyland, Boeing, Intel, IBM, Cisco, L-3, Caterpillar, Exxon, etc. The best of the best in businesses and ground breaking ideas are still in America. They lead the world by a big gap.
Do not worry about unemployment. It is about 9.7% now. If you take out part time waiting for a full time job, the figure is more like 16%. But this is a lagging indicator. Employment will catch up with the road to recovery.
The stock market has gone up >70% since March 2009. The largest 500 companies
( excluding financial companies ) hold almost $1.2 Trillion in cash or > 10% of assets – the largest since 1960s. These cash can be used for increased dividends or acquiring weaker competitors if the market pulls back. Interest rates are record low. Companies can borrow at next to nothing and invest in cheap assets. The government still have 2/3 of its $787 billion stimulus money to spend over the next 18 months. The employed are working hard than ever. People are scared of getting laid off. So they work more hours for no additional pay. These have resulted in higher output, fixed costs and increased productivity. Inventory levels are low. Since the overbuilding of inventory in 2007 and 2008, inventory levels fell by 70% for some companies. M & A activities are increasing. Companies are increasing their dividends.
We are on a road towards recovery!!
We think we are bad. But look at Portugal, Ireland, Italy, Greece, Spain and Britain. They are worst than us. If we think we are in a bubble, China looks worst. Jim Chanos commented that China bubble is 1000 times of what happened in Dubai! But China is still growing at 9-10% per year on GDP.
I am sure the Chinese will continue propping up the U.S. dollar forever because they need Americans to consume their goods. They cannot allow the US$ to collapse as they are holding a trillion dollar of our currency. If US$ defaults or devalue, they will suffer greatly. So they will continue to buy our treasury, sell us their cheaply manufactured goods and US will continue to spend and live in luxury. It is a win-win proposition. Where are the markets the Chinese can export their products except US. The whole world is in a mess. Japanese is in a deeper recession with debt to GDP far worst than US. European Union is breaking down with all the troubles in Greece spreading to Portugal, Spain, Italy and Ireland. Britain is a fallen great empire and the British pounds looks like collapsing soon. US consumers are the only willing to continue to spend despite unemployment and foreclosures. Our consumers are still spending healthily and happily. All consumers stocks are up especially those selling luxuries!
The U.S. dollar will always remain the world’s reserve currency. Forget about gold and silver.
Obama is taking steps to freeze government spending and debt will decline. Trust the government and they will get the job done or they will not be elected again. Bernanke will mop up the excess liquidity before inflation hits the economy. There are absolutely no signs of inflation and interest rate will remain low. If there is anything to fear, it is deflation and it will depress the price of gold especially junior just like the credit crisis in 2008.
With gold up $13, it is a perfect time to exit. Take profit and run.
I have remained consistently bullish on gold/silver and never wavered … until now. Today, I officially am a bear on gold/silver. I have to agree with Roubini that Gold is a barbaric relics and price will soon crash. He has good credibility as he correctly predicted the sub prime crisis and is a professor of the prestigious Stern School of Business at New York University.
There is nothing really special about gold and silver. You can’t eat it. You can’t even go to the store and buy anything with it. I cannot imagine why we go back in civilization and back to bartering with gold and silver. This is the era of paper currency where central banks can control crisis through monetary supply via the printing press. Central bankers are very well connected globally and thus a crisis like the Great Depression will never recur again. It is soundly based on the theory from a famous economist John Maynard Keynes who solved the problem of the Great Depression through interventionist economic policy to mitigate the adverse effects of a crisis.
We owe a lot to Bernanke, Greenspan, Paulson and Geithner did an amazing job at solving the financial crisis of 2008. We should be very thankful to these maestros who managed to get us out an economy spirally out of control and to the point of no return. We salute them. Bernanke deserves to be Times man of the year and Greenspan was rightly knighted by the British Empire in 2002.
They exhibited rare vision, brilliance and courage to take actions contrary to logic by solving a debt crisis with more debt or like giving heroin to a marijuana addicts. Actually it works! It took courage from Paulson and Geithner to bailout “too-big-to-fail” corporations like Citigroup, GE, GM, Bank of America, Fannie Mae, Freddie Mac, AIG and JP Morgan. Do not worry about the $1.4 Trillion deficit this year, $14 Trillion debt and >$53 Trillion total unfulfilled liability in the balance sheet. It will be paid when the recovery comes. After all, America still has the most creative people and best technology in the world. They will create a new era of productivity through technologies like what they did with the Internet. Look at the best of global businesses and fundamental research today. They are still dominated by all the best universities and companies like Wal-Mart, Microsoft, Disneyland, Boeing, Intel, IBM, Cisco, L-3, Caterpillar, Exxon, etc. The best of the best in businesses and ground breaking ideas are still in America. They lead the world by a big gap.
Do not worry about unemployment. It is about 9.7% now. If you take out part time waiting for a full time job, the figure is more like 16%. But this is a lagging indicator. Employment will catch up with the road to recovery.
The stock market has gone up >70% since March 2009. The largest 500 companies
( excluding financial companies ) hold almost $1.2 Trillion in cash or > 10% of assets – the largest since 1960s. These cash can be used for increased dividends or acquiring weaker competitors if the market pulls back. Interest rates are record low. Companies can borrow at next to nothing and invest in cheap assets. The government still have 2/3 of its $787 billion stimulus money to spend over the next 18 months. The employed are working hard than ever. People are scared of getting laid off. So they work more hours for no additional pay. These have resulted in higher output, fixed costs and increased productivity. Inventory levels are low. Since the overbuilding of inventory in 2007 and 2008, inventory levels fell by 70% for some companies. M & A activities are increasing. Companies are increasing their dividends.
We are on a road towards recovery!!
We think we are bad. But look at Portugal, Ireland, Italy, Greece, Spain and Britain. They are worst than us. If we think we are in a bubble, China looks worst. Jim Chanos commented that China bubble is 1000 times of what happened in Dubai! But China is still growing at 9-10% per year on GDP.
I am sure the Chinese will continue propping up the U.S. dollar forever because they need Americans to consume their goods. They cannot allow the US$ to collapse as they are holding a trillion dollar of our currency. If US$ defaults or devalue, they will suffer greatly. So they will continue to buy our treasury, sell us their cheaply manufactured goods and US will continue to spend and live in luxury. It is a win-win proposition. Where are the markets the Chinese can export their products except US. The whole world is in a mess. Japanese is in a deeper recession with debt to GDP far worst than US. European Union is breaking down with all the troubles in Greece spreading to Portugal, Spain, Italy and Ireland. Britain is a fallen great empire and the British pounds looks like collapsing soon. US consumers are the only willing to continue to spend despite unemployment and foreclosures. Our consumers are still spending healthily and happily. All consumers stocks are up especially those selling luxuries!
The U.S. dollar will always remain the world’s reserve currency. Forget about gold and silver.
Obama is taking steps to freeze government spending and debt will decline. Trust the government and they will get the job done or they will not be elected again. Bernanke will mop up the excess liquidity before inflation hits the economy. There are absolutely no signs of inflation and interest rate will remain low. If there is anything to fear, it is deflation and it will depress the price of gold especially junior just like the credit crisis in 2008.
With gold up $13, it is a perfect time to exit. Take profit and run.
Tuesday, March 30, 2010
Trading Junior stocks and small caps
I allocate about 20% of my portfolio to junior stocks and small caps ( below $5 ) .
Many of them do not have options available. If there are options, it is usually illiquid and has wide spreads.
But juniors can give you handsome rewards especially if you have some access to some good fundamentals on the company. For precious metal juniors, it could be deposits, strong management and a potential rise in the metal prices. I got most of my ideas for junior precious metal stocks by attending the Vancouver Gold conference which is held twice annually. Here I have the opportunities to hear presentations and talk to the companies on exhibition. The fundamentals could be a superior product, service, business models, confirmed contracts and rising from a very low base out of bankruptcy.
I have been trading juniors for more than 5 years. It is almost impossible to time the entry technically. It is a also difficult to use stop losses because the spreads are so wide.
So I use the following strategies.
First the stocks must be on a fundamental growth potential. It is very important that the companies must have cash to sustain for at least 2 years. Sound, prudent and experienced management is also key to their success. It is very similar to investing in a start-ups which was part of my business experience. The risks are high. Success rate could be 1 in 100. With due diligence you may be able to improve the ratio.
Next, I just buy a basket of stocks with the allocated 20% of my portfolio. These are companies I believe to have huge potentials. I re-balance it 2-3 times a year by selling the losers and add in more winners. For companies which have increased > 100%, I consider selling 50% and effectively you get a free trade for it to reach maximum potentials. If I believe the fundamentals have change for a particular company, I will sell the stock even though the losses could be high. Poor fundamentals could be product failures, market change, poor drilling results and management change.
These strategies have worked well for me. Roughly, 25% of the companies in this basket lose about 80% of its value after a few years. Some companies even go to zero. Usually, I am able to salvage some residual values. But, there are at least another 30% that gives me multi baggers. Some of biggest gains give me returns of 4-5X gains and I am still holding on to it. The rest seems to go nowhere and is stuck in a range.
Many times, even the multi baggers go through wild volatility .In 2008, some of the juniors went to <30% of its original price. But I kept the stocks because fundamentals were intact. I was not shaken because my exposure is <20% of my portfolio. For some stocks that I really like, I bought more stocks and average down my entry price. During 2009 boom, many of them went up 6-10X.
I have gone through 2 cycles of boom and bust for these stocks over the last 6-7 years. Overall, the portfolio make good average annual returns of >30% without the stress of managing it day by day.
Many of them do not have options available. If there are options, it is usually illiquid and has wide spreads.
But juniors can give you handsome rewards especially if you have some access to some good fundamentals on the company. For precious metal juniors, it could be deposits, strong management and a potential rise in the metal prices. I got most of my ideas for junior precious metal stocks by attending the Vancouver Gold conference which is held twice annually. Here I have the opportunities to hear presentations and talk to the companies on exhibition. The fundamentals could be a superior product, service, business models, confirmed contracts and rising from a very low base out of bankruptcy.
I have been trading juniors for more than 5 years. It is almost impossible to time the entry technically. It is a also difficult to use stop losses because the spreads are so wide.
So I use the following strategies.
First the stocks must be on a fundamental growth potential. It is very important that the companies must have cash to sustain for at least 2 years. Sound, prudent and experienced management is also key to their success. It is very similar to investing in a start-ups which was part of my business experience. The risks are high. Success rate could be 1 in 100. With due diligence you may be able to improve the ratio.
Next, I just buy a basket of stocks with the allocated 20% of my portfolio. These are companies I believe to have huge potentials. I re-balance it 2-3 times a year by selling the losers and add in more winners. For companies which have increased > 100%, I consider selling 50% and effectively you get a free trade for it to reach maximum potentials. If I believe the fundamentals have change for a particular company, I will sell the stock even though the losses could be high. Poor fundamentals could be product failures, market change, poor drilling results and management change.
These strategies have worked well for me. Roughly, 25% of the companies in this basket lose about 80% of its value after a few years. Some companies even go to zero. Usually, I am able to salvage some residual values. But, there are at least another 30% that gives me multi baggers. Some of biggest gains give me returns of 4-5X gains and I am still holding on to it. The rest seems to go nowhere and is stuck in a range.
Many times, even the multi baggers go through wild volatility .In 2008, some of the juniors went to <30% of its original price. But I kept the stocks because fundamentals were intact. I was not shaken because my exposure is <20% of my portfolio. For some stocks that I really like, I bought more stocks and average down my entry price. During 2009 boom, many of them went up 6-10X.
I have gone through 2 cycles of boom and bust for these stocks over the last 6-7 years. Overall, the portfolio make good average annual returns of >30% without the stress of managing it day by day.
Choosing stocks for trades
I have some questions posted to me on how do I choose my stocks? What are the resources I use and where do I get my research?
The good news is that most of the resources available to me are free. The bad news is that there is an information overload out there that I need to strictly prioritise the tons of info flowing into my computer every day!
Information can be classified into different categories – macroeconomics, specific fundamental information on stocks and technical analysis.
For macroeconomics, I like Business Week, Barron, The Economist, and Wall Street Journal. I subscribe to Business Week as it covers core current issues pretty well with an emphasis on information technology. I am a subscriber for Business Week probably for more than 15 years! I had been very involved in technology in my career and thus these articles in Business Week are of great interest to me. The rest I just read it from the local libraries which I visit occasionally.
For those who like a daily letter, I highly recommend you subscribe to John Mauldin’s letter issued out every week. ( www.johnmauldin.com). It contains a balanced insight into the economics situation worldwide. I also like Doug Casey although I may not agree with him all the time. Doug is a libertarian and a perma-bear on America. He is a big time speculator. He can be very extreme many times appear arrogant. But he has good contrarian arguments, which I find it brilliant and out of the box. I have been reading his thoughts for many years. In terms of timing, he could be totally wrong. Just search Doug Casey and you can subscribe to some of his newsletter daily. Most of these newsletter will try to sell you some services. You do not need to subscribe to the services.
For some radical radio interviews, I listen to KingWorld news regularly. Eric King brings an unique perspective on the economics front which is not normally covered by the main stream media.
An interesting site which I read regularly is http://www.madhedgefundtrader.com/. From here, I get some macroeconomics perspectives and many times specific ideas on individual sectors or stocks. He has a humorous style in presenting his thoughts in his writing and interviews.
I seldom watch CNBC although I have access to it on cable at home. It is too sensational seeking to drive emotions and gather points for their advertisements. Sometimes I watch Jim Cramer just for entertainment. It was very funny when I saw him torn apart by comedian Jon Steward last year. However, I do like BNN of Canada. It has a commodity bias and discuss many stocks listed in Canadian exchanges. You can watch most of the interviews on the web. www.bnn.ca
There are 3 websites that I use regularly for company fundamentals. I like Yahoo and Google finance. They provide most of the news, financial data, analysts views and even blogs ( in Google finance ) you need. You can get a rough feel on where the stock is going. Finviz.com is another great site. It provides a heat map and also technical synopsis of specific stock in a concise way using trend lines that I find useful.
I participate regularly on a website site which caters to options traders. ( www. optionsanimal.com ). I attend their market updates regularly. I have a paid membership. From here I get some good discussions of the market, option trading strategies and some specific ideas on stocks not just from the organizers from also from people in the community of which many are excellent traders themselves.
For technical analysis, I do not really follow anyone. I have my own system. But I find some cycle analysis, fibonacci, Gann ratios and angles fascinating. I do not take Elliot waves seriously because I find it very subjective and often based on hindsight. I want forward leading indicators not lagging indicators. Combined together, Fibonacci and Gann analysis can be very powerful for trading commodities. One website I like is Marketclub.com. Sign up for the periodic free video and Adam Hewlitt, the founder will show skilfully how he predicts directions for some key commodities and indices using his proprietary triangle technology together with fib. ratios and cycles. He is uncannily accurate in many of his predictions. It is also a good example on how to choose a system and stick to it and you will make money eventually. His triangle system is actually similar to some of the signals I use in my system.
A watch list of stocks is created based on the information gathered above. Every time a new idea comes to mind, I will add it to my watch list. At the same time, I revised my watch list every week and remove stocks that I do not want to follow. The watch list has a spread of companies in various sectors from commodities, pharmaceutical, consumer and technology.
I approach the market on 3 levels. First, fundamental data must show me the directions for the stock. It could be up or down. If I choose a stock that is bullish, the company’s fundamental data must support the bias in alignment with the macroeconomics directions.
After deciding on the stock, technical analysis is used to determine an entry. Normally, a reasonable technical system with some simple indicators will do. It is not a precise science. I use a mixture of price patterns, price actions via moving averages, slow stochastic, MACD, W % and Bollinger band. I had used these indicators for more than a decade and thus have a good feel of how they behave.
Price patterns are predominantly support and resistance plus varieties of patterns giving hints to market psychology. It is subjective but often it works. I believe you just need to choose the indicators that serve you well a period of time and stick to it. If you combine it with fundamental research and options, the technical system should serve you well.
Once I identify stocks that are ready for trades, I will put it into my hot list for actions on the next day. Before I trade, I usually wait for confirmation on the price actions on the trading day.
In the third phase, options strategies are used to hedge the trade to control volatility, fear and greed. It is described in more details on other posts on this blog.
Some final advice. Trade on a plan and not on emotions. Know the reasons why you are in the stock. Stick to your plan until with your targets clearly defined together with primary and secondary exits. Take full responsibilities for what you do. Keep a detail record of your trades. Over time it will help you tremendously.
The good news is that most of the resources available to me are free. The bad news is that there is an information overload out there that I need to strictly prioritise the tons of info flowing into my computer every day!
Information can be classified into different categories – macroeconomics, specific fundamental information on stocks and technical analysis.
For macroeconomics, I like Business Week, Barron, The Economist, and Wall Street Journal. I subscribe to Business Week as it covers core current issues pretty well with an emphasis on information technology. I am a subscriber for Business Week probably for more than 15 years! I had been very involved in technology in my career and thus these articles in Business Week are of great interest to me. The rest I just read it from the local libraries which I visit occasionally.
For those who like a daily letter, I highly recommend you subscribe to John Mauldin’s letter issued out every week. ( www.johnmauldin.com). It contains a balanced insight into the economics situation worldwide. I also like Doug Casey although I may not agree with him all the time. Doug is a libertarian and a perma-bear on America. He is a big time speculator. He can be very extreme many times appear arrogant. But he has good contrarian arguments, which I find it brilliant and out of the box. I have been reading his thoughts for many years. In terms of timing, he could be totally wrong. Just search Doug Casey and you can subscribe to some of his newsletter daily. Most of these newsletter will try to sell you some services. You do not need to subscribe to the services.
For some radical radio interviews, I listen to KingWorld news regularly. Eric King brings an unique perspective on the economics front which is not normally covered by the main stream media.
An interesting site which I read regularly is http://www.madhedgefundtrader.com/. From here, I get some macroeconomics perspectives and many times specific ideas on individual sectors or stocks. He has a humorous style in presenting his thoughts in his writing and interviews.
I seldom watch CNBC although I have access to it on cable at home. It is too sensational seeking to drive emotions and gather points for their advertisements. Sometimes I watch Jim Cramer just for entertainment. It was very funny when I saw him torn apart by comedian Jon Steward last year. However, I do like BNN of Canada. It has a commodity bias and discuss many stocks listed in Canadian exchanges. You can watch most of the interviews on the web. www.bnn.ca
There are 3 websites that I use regularly for company fundamentals. I like Yahoo and Google finance. They provide most of the news, financial data, analysts views and even blogs ( in Google finance ) you need. You can get a rough feel on where the stock is going. Finviz.com is another great site. It provides a heat map and also technical synopsis of specific stock in a concise way using trend lines that I find useful.
I participate regularly on a website site which caters to options traders. ( www. optionsanimal.com ). I attend their market updates regularly. I have a paid membership. From here I get some good discussions of the market, option trading strategies and some specific ideas on stocks not just from the organizers from also from people in the community of which many are excellent traders themselves.
For technical analysis, I do not really follow anyone. I have my own system. But I find some cycle analysis, fibonacci, Gann ratios and angles fascinating. I do not take Elliot waves seriously because I find it very subjective and often based on hindsight. I want forward leading indicators not lagging indicators. Combined together, Fibonacci and Gann analysis can be very powerful for trading commodities. One website I like is Marketclub.com. Sign up for the periodic free video and Adam Hewlitt, the founder will show skilfully how he predicts directions for some key commodities and indices using his proprietary triangle technology together with fib. ratios and cycles. He is uncannily accurate in many of his predictions. It is also a good example on how to choose a system and stick to it and you will make money eventually. His triangle system is actually similar to some of the signals I use in my system.
A watch list of stocks is created based on the information gathered above. Every time a new idea comes to mind, I will add it to my watch list. At the same time, I revised my watch list every week and remove stocks that I do not want to follow. The watch list has a spread of companies in various sectors from commodities, pharmaceutical, consumer and technology.
I approach the market on 3 levels. First, fundamental data must show me the directions for the stock. It could be up or down. If I choose a stock that is bullish, the company’s fundamental data must support the bias in alignment with the macroeconomics directions.
After deciding on the stock, technical analysis is used to determine an entry. Normally, a reasonable technical system with some simple indicators will do. It is not a precise science. I use a mixture of price patterns, price actions via moving averages, slow stochastic, MACD, W % and Bollinger band. I had used these indicators for more than a decade and thus have a good feel of how they behave.
Price patterns are predominantly support and resistance plus varieties of patterns giving hints to market psychology. It is subjective but often it works. I believe you just need to choose the indicators that serve you well a period of time and stick to it. If you combine it with fundamental research and options, the technical system should serve you well.
Once I identify stocks that are ready for trades, I will put it into my hot list for actions on the next day. Before I trade, I usually wait for confirmation on the price actions on the trading day.
In the third phase, options strategies are used to hedge the trade to control volatility, fear and greed. It is described in more details on other posts on this blog.
Some final advice. Trade on a plan and not on emotions. Know the reasons why you are in the stock. Stick to your plan until with your targets clearly defined together with primary and secondary exits. Take full responsibilities for what you do. Keep a detail record of your trades. Over time it will help you tremendously.
Sunday, March 28, 2010
My favourite precious metal stock - SLW
I am bullish on gold for the last 5 years. I have made a lot of money trading precious metal and related stocks.
Most of the stocks move directly with the metal. So you need only to find a few fundamental sound companies and trade accordingly.
But my favourite PM stock is Silver Wheaton ( SLW).
Silver is a lot more volatile that gold. If gold goes up, silver will outperform gold and vice versa.
Lets begin by stating the reason why I like silver more than gold. Based on historical ratio with price of gold >$1000, silver price was around $62. Today, silver is trading around $17 or about 60 times gold to silver ratio. This ratio will return to around 20 if there is a monetary crisis. In early 1970 when Nixon abandoned the gold standard and during the world war one, gold to silver ratio dropped to 17. As the dollar falls eventually, silver will return to around this ratio.
I use SLW as a proxy to trade silver. For juniors, I hold some stocks on SQI ( or Silver Quest ) traded on Canadian Venture exchange.
Silver Wheaton has a great business model. I bought tons of SLW at the peak of the credit crisis under $3 and today it is trading around $15. This is one stock that I hold long term. I use my “dynamic collar” strategy to manage the trades.
SLW is the largest silver streamer in the world. It is essentially the purchase of silver by product from base-metal miners who do not want the hassle of smelting and dealing with the silver from their mines. SLW has 12 long term agreements with companies like Gold Corp, Glencore Mining, Lundin mining etc which will produce 17 to 19 million ounces of silver equivalent ( the company gets some gold too ) in 2010. It is a win-win agreement. The miners get guaranteed income and SLW gets guaranteed supply of silver.
Some of the agreements are producing big profits. For example, SLW had an agreement with Luismin mine in Oct 2004 to get silver at $4.2 per ounce for 25 years. In the next few years, Luismin mine had produced 29.3 m of silver with a gross sales of $335m. Average price of silver over this time was $11.5 and thus SLW made $7.3 per ounce for 4 years during the agreement.
SLW fundamentals are more than what you can ask for. The $2.5 billion company has zero debt, almost 600 m ounces of silver reserves, a 63% operating profit and a secure cash flow from mines in seven countries.
A rise in silver price will give SLW more juice in operating profit and income. Today silver sells for more than $17 per ounce. A fair price of SLW should be around $16.00. The stock will fluctuates with silver prices. So as long as you believe silver price will rise, this is a good stock.
Again, stay hedged and manage it accordingly with a dynamic collar. It could drop drastically if silver price collapses.
Most of the stocks move directly with the metal. So you need only to find a few fundamental sound companies and trade accordingly.
But my favourite PM stock is Silver Wheaton ( SLW).
Silver is a lot more volatile that gold. If gold goes up, silver will outperform gold and vice versa.
Lets begin by stating the reason why I like silver more than gold. Based on historical ratio with price of gold >$1000, silver price was around $62. Today, silver is trading around $17 or about 60 times gold to silver ratio. This ratio will return to around 20 if there is a monetary crisis. In early 1970 when Nixon abandoned the gold standard and during the world war one, gold to silver ratio dropped to 17. As the dollar falls eventually, silver will return to around this ratio.
I use SLW as a proxy to trade silver. For juniors, I hold some stocks on SQI ( or Silver Quest ) traded on Canadian Venture exchange.
Silver Wheaton has a great business model. I bought tons of SLW at the peak of the credit crisis under $3 and today it is trading around $15. This is one stock that I hold long term. I use my “dynamic collar” strategy to manage the trades.
SLW is the largest silver streamer in the world. It is essentially the purchase of silver by product from base-metal miners who do not want the hassle of smelting and dealing with the silver from their mines. SLW has 12 long term agreements with companies like Gold Corp, Glencore Mining, Lundin mining etc which will produce 17 to 19 million ounces of silver equivalent ( the company gets some gold too ) in 2010. It is a win-win agreement. The miners get guaranteed income and SLW gets guaranteed supply of silver.
Some of the agreements are producing big profits. For example, SLW had an agreement with Luismin mine in Oct 2004 to get silver at $4.2 per ounce for 25 years. In the next few years, Luismin mine had produced 29.3 m of silver with a gross sales of $335m. Average price of silver over this time was $11.5 and thus SLW made $7.3 per ounce for 4 years during the agreement.
SLW fundamentals are more than what you can ask for. The $2.5 billion company has zero debt, almost 600 m ounces of silver reserves, a 63% operating profit and a secure cash flow from mines in seven countries.
A rise in silver price will give SLW more juice in operating profit and income. Today silver sells for more than $17 per ounce. A fair price of SLW should be around $16.00. The stock will fluctuates with silver prices. So as long as you believe silver price will rise, this is a good stock.
Again, stay hedged and manage it accordingly with a dynamic collar. It could drop drastically if silver price collapses.
WMT – A double diagonal - March 22nd
I did a double diagonal on Wal-Mart on Monday, 2010-03-22
BTO 2012 Jan 35 Call = 21
BTO 2012 Jan 70 Put = 16.35
Total = 37.35
Extrinsic value = 37.35 – (70-35) = 2.35
STO May 57.5 SC = .67
STO April 55 SC = .58
Total = 1.25
PE: Continue to sell short options until > 20% annual ROI. Roll up the shorts if ITM.
I have 22 months to sell short options to make money.
If WMT suddenly gaps up or down, the volatility will allow me to exit on my Jan 25 C and Jan 70 put as this is a long term strangle.
Note that within the first 2 months, I am already able to pay back more than 50% of my extrinsic. I expect to have a risk free trade by third or 4th month.
Thereafter, my target is to have about $0.9 per month. Assuming that I broke even on the 4th month, I should make 0.9 x 14 = 12.6 by the end of this trade or 22 % annual ROI.
If I can exceed 20% on my annual ROI at anytime, I will get out of this trade and search for a new one.
This trade is almost risk free. It takes a little bit of trade management but able to get 15-20% returns of your capital comfortably.
BTO 2012 Jan 35 Call = 21
BTO 2012 Jan 70 Put = 16.35
Total = 37.35
Extrinsic value = 37.35 – (70-35) = 2.35
STO May 57.5 SC = .67
STO April 55 SC = .58
Total = 1.25
PE: Continue to sell short options until > 20% annual ROI. Roll up the shorts if ITM.
I have 22 months to sell short options to make money.
If WMT suddenly gaps up or down, the volatility will allow me to exit on my Jan 25 C and Jan 70 put as this is a long term strangle.
Note that within the first 2 months, I am already able to pay back more than 50% of my extrinsic. I expect to have a risk free trade by third or 4th month.
Thereafter, my target is to have about $0.9 per month. Assuming that I broke even on the 4th month, I should make 0.9 x 14 = 12.6 by the end of this trade or 22 % annual ROI.
If I can exceed 20% on my annual ROI at anytime, I will get out of this trade and search for a new one.
This trade is almost risk free. It takes a little bit of trade management but able to get 15-20% returns of your capital comfortably.
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