How about a Pairs Trade?

Anyone who reads this blog knows that I am currently short TIE and expecting them to miss Q3 earnings. However, I also believe that TIE will have an improved 2008 and I will eventually get long again. Well, today's conference call from RTI gave me the ability to make going long TIE happen in the next month. After Q3 earnings, I plan to get long TIE and short RTI. This "pairs trade" hedges everything else going on in the market and allows me to profit on TIE doing better than RTI over the next year.

SuperScenario is the most respected poster on the TIE Investor Village Message Board and today he gave a great synopsis of the RTI conference call (the bullets below) that I want to share:

• RTI’s average price per pound will decline about 8%-10% in 2008. Caveat: RTI’s contracts/prices are very different from ATI’s and TIE’s. RTI’s pricing tends to lag the spot market by about 14 months - - far more than ATIs (perhaps 3-6 months), and TIE’s (perhaps 6-7 months on spot, with LTA’s principally repricing once a year).
• Average 2008 gross margin will be about the same as 2007 YTD at 33%
• Bulk weldable scrap is presently $7-$8, unchanged from last Quarter.
• Spot business will be about 15%-20% of RTI’s total in 2008.
• CapEx will be huge in 2008 at about $260 Million (2007 will be $80 Million).
• Interest income of about $0.03/Quarter (Q3 actual) will swing to large additional interest expense, reducing Quarterly EPS by about $0.14/Quarter by the end of 2008, gradually as the Quarters roll forward (Super's estimates).
• Sponge (Japanese) cost will increase just under 10% (say, 8%-9%) in 2008, reflecting the end of RTI’s old, below-market, Japanese sponge contract at the end of this year. So next year’s increase is not reflective of market prices (which have plunged), but reflects the expiration of RTI’s old cheap contract. RTI will enjoy some cost offset with the lower 2008 costs of scrap.
• Nothing new here, but RTI mentioned/confirmed that its raw materials sourcing is roughly 1/3 Japanese sponge, 1/3 Kazakh sponge (to be provided by Airbus beginning in 2008), and 1/3 scrap.
• RTI expects a lower margin in Q4, with volume increasing to perhaps 4.2 Million pounds (up from 3.9 Million pounds in Q3 - - I’ll believe it when I see it), with a shift to billet product.
• RTI continues to say business is hurt by “inventory destocking” by titanium distributors. Still, after 15 months.
• Although capacity will increase by about 36% by Q2 of 2008 (to about 22.5 Million pounds, up from about 16.5 pounds at present), next year’s tonnage will only increase about 13%, from about 15.5 Million pounds in 2007, to about 17.5 Million pounds in 2008. The effective capacity for 2008 (reflecting the midyear increase) will be about 18.5 Million pounds, so 2008 sales will likely be about 95% of capacity.
• From all this I [Super] get 2008 EPS of about $3.90 - - virtually unchanged from this year’s analyst consensus of $4.09 - - but way below the anlaysts’ consensus of $5.19 for 2008.

Super's analysis above has led him to short RTI for 2008. On the surface, I tend to agree with him. I will be doing a little research in the meantime, but I expect to be joining him in an RTI short position with a twist - I plan to hedge this with a TIE long position.

Will they Make Up their Mind Already?

First traders were upset that Garmin may be left standing without a chair when Nokia made an offer to Navteq and the stock sold off more than 10% earlier this month. Now, while reporting great earnings, they announced an offer for Tele Atlas that is 15% more than Tom Tom's proposed price and the stock sells off again. Which do they want? They can't have it both ways (well, I guess the big money certainly can, but it is illogical).

Do they want a merger or not? It seems they want a merger, but they don't want to pay too much for it. Investors are afraid that a bidding war between Tom Tom and GRMN may result in a bad deal in which the winner pays too much and the loser is with out a chair.

I am firmly in the camp that Garmin doesn't need this deal, but I am also OK if the Tele Atlas deal goes through. GRMN will get the map data regardless of what happens. They have a long term agreement with Navteq that gives them access to their content for the number of years necessary for GRMN to build it's own content (estimated by some as a $700 million effort).

Last time I checked, $700 million was less than $3.3 billion, but I guess that is the mark-up you must pay to have the data now. Some say that having the content in-house will allow for better integration with Garmin's software, giving them a leg up in what is starting to become a cut throat marketplace. That is why I am OK with the deal.

The bid for Tele Atlas also doesn't give Tom Tom a free pass. GRMN has a little more available muscle than Tom Tom, so Tom Tom will really have to stretch to make a better offer. As far as I see it, GRMN wins with the deal (as it stands) and also wins by making Tom Tom pay up (if they lose due to a counter offer).

So what to do now? The stock took a beating today, but Garmin reported earnings of $193.5 million, or 88 cents per share, compared with $123 million, or 56 cents per share, a year ago. This was above the analyst estimate of $0.81 EPS. They also raised 2008 guidance. Investors should be dancing in the streets. Instead they are worried beyond belief.

I nibbled today (a very small nibble) and bought a few January calls (when the stock was trading around $110 this morning), but then quickly decided to wait for the Fed announcement and then wait for a bottom before buying more. This sell off may last a couple of days and there is no point being a hero and catching the knife. I expect investors to get comfortable with the deal over the next week and the outlook for GRMN is still very strong.

It reminds me of the story of the young bull and the old bull. Let's find a bottom and then, well, you know how the story with those bulls end....

Anybody Know this Guy?

Anybody know this guy? If you don't, then I would definitely recommend the book. It is the story about Harold Simmons, the Chairman of Contran, VHI, Kronos, NL, TIE and a few others and it tells you a lot about the man who is now worth $7.4 billion, became the richest man in Dallas, and is climbing up the Forbes list.

I follow him and his company, Titanium Metals (TIE) and it is a stock that has made me a lot of money over the last two years. However, there is one problem. I currently own puts with this stock? Why? Because I think they will miss Q3 earnings.

Harold Simmons is in it for the long term and his track record is excellent. I am currently betting against him, but only for a few more days. I am trying to take advantage of a short term issue with titanium tonnage (amount produced) that may move the stock down this month, but mean little for TIE and Harold Simmons in the long run.

Since I bought these puts, I have endured an announcement of TIE's admittance into the S&P, an announcement of TIE's partnership with CRS, and RTI 's earnings beat tonight and I still think that I will be up in trading profits in the morning.

Today's move down is a pre-Fed move to square positions, but I also think that the market is not as positive on the sector as they were a month ago.

When everyone is really fed up, Harold Simmons and I may be the only longs, but for now, I need a little short term negativity to succesfully close out the trade.

I was up fairly big in my portfolio today in a down tape day largely because of my "short" with TIE.

GRMN On Tap for Wednesday Morning

A lot of excitement with GRMN today as the company gets ready to report earnings on Wednesday Morning. A lot of traders were trying to get positions established

today ahead of the news. I expect more of the same tomorrow with a good chance that the stock hits a 52-week high.

So the question remains about how much upside is baked into the stock prior to earnings? I think that it is anybody's guess, but my guess is that "it depends". I am not trying to cop out of an answer, but it really depends on how much GRMN beats estimates.

The whisper number is considerably higher than the $0.81 EPS and the $683 million in revenue that are the analysts consensus. I think that anything short of $0.86 and the stock sells off on the news. Anything larger than $0.90 and the stock goes higher considerably.

One other factor to consider will be how the company responds to questions on the conference call about the Nokia/Navteq deal and what the company's plans are with respect to the map data content sector. It is conceivable that the stock gaps up and then falls based on comments, so I would not relax after the Press Release.

I lightened up with GRMN calls today again and own only a small token going into earnings at this point. I am just protecting some sizable profits from in-the-money calls purchased a while ago. I may look at out-of-money calls and puts to establish a strangle trade tomorrow. I need to run the valuation model before I commit.

In other news, I am a little depressed to see the weakness in ROCM. The stock needs a buyer. I also watched TIE again today, but held my fire on buying more puts at the moment. It should be interesting tomorrow.

No! The Other McClellan!

It's interesting how history gets written. The attached image shows President Lincoln meeting with General McClellan just before the Battle of Antietam (the bloodiest battle of the Civil War). This is the General that was eventually sacked by Lincoln for being too cautious. He eventually ran for President in 1864 on an anti-war platform and lost. Since then, history has not been kind on the good General (in high school, I remembered him as "a loser" and that was a northern school!).

Anyway, enough history. I wanted to talk about the other McClellans; the ones who built one heck of a technical indicator. That would be Sherman and Marian McClellan. They built the McClellan Oscillator which is a momentum indicator (similar to MACD) that is applied to advance/decline data for any major index you want to test. The McClellan Oscillator is formed by using an index's net advance data and subtracting the net advance 39-day ema from the net advance 19-day ema. It is available from most good TA services (such as SharpCharts) and has been pretty effective in giving warning signals on indexes.

I use the oscillator to track the Nasdaq and the NYSE Composite. In the chart below, I put the NYSE composite behind the oscillator to give everyone an idea about what the oscillator is predicting. When the oscillator crosses below zero (or strongly heads towards zero), the oscillator is signalling a sell. When the oscillator crosses above zero, it signals a buy. Again, I only use this indicator with a host of other technicals before I make a move in the market technically. This is just one more tool in the tool basket than will help with good trading.

Weekly Recap

It is time to hit the books and look for some new hot stocks to watch this weekend so I can be prepared to rotate some positions away from technology before Christmas. It is also time to review the week that was.

The Nasdaq rocked up 1.9% yesterday and 2.9% over a very volatile week. Earnings for Apple on Monday night and Microsoft on Thursday night kept the subprime mess from bringing everyone down.

This week started out with my portfolio a little overextended after getting aggressive and buying dips on AAPL, GRMN, and PCP. Monday's AAPL earnings allowed me to lighten up AAPL and GRMN calls on Tuesday and PCP's earnings allowed me to lighten up on PCP calls on Wednesday. Good earnings was expected from AAPL and PCP and they delivered. I now have GRMN on tap for this week. Analysts are expecting a 45% year over year increase in earnings and I think they will handily beat these expectations.

So by Wednesday night, I was back in a sizable cash position looking for opportunity again. That afternoon, I had nibbled at some TIE puts, expecting TIE to disappoint with earnings in the upcoming week. Thursday and Friday saw me adding more TIE puts. In hindsight, I placed a put position too early, but there was no way of knowing that TIE's new deal with CRS was going to be announced. I do hope that TIE announces with RTI (they have in the past), because I am not crazy about holding puts going into the FED meeting this upcoming Wednesday (but I have cash on hand for this possibility).

Thursday night gave me the opportunity to place a strangle options trade on WFR. This was a trade that worked out well and a trade that I plan to employ again on other stocks in the future. This week also had me buying an NVDA dip (Dec call options) which I also added to on Friday.

The week could have ended better (I should have been up more than I was for the week, especially considering the up tape on Friday), but some finality to the TIE trade and GRMN earnings should hopefully put some normalcy into my investments.

Time to find some new ideas.

NVDA Has Tough Ending to its Week

The stock benefited from AAPL's blow out earnings on Monday and hit a new 52 week high. Then, early yesterday, American Technology issued a sell warning. Analyst Doug Freedman cut his rating on the graphics chip maker to Sell from Neutral and set a $30 price target on the stock.

This analyst believes that the stock has had a huge run acquiring rival ATI (the other ATI - as in technology - and not the metals company I follow) by Advanced Micro Devices. Freedman predicts that ATI will become more competitive in the coming year as soon as they release their new chip (currently code named Fusion) and that the logic of the ATI/AMD combination “will begin to bear fruit” by 2009 when the chip hits the market.

I don't know about you, but I think the guy is a little ahead of himself here. We are basically 4.5 quarters away from this new chip's release and this is cutting edge technology where 18 months is a lifetime. NVDA ran circles around ATI when they were a stand-alone company and suddenly a second rate chip company (to Intel) is suddenly going to be a deal killer for NVDA? I don't think so.

The problem is that NVDA is priced pretty much for perfection and, at the margins, I think the analyst has a good point. However, my plan was to not hold NVDA anywhere near that long. This is a rotation seasonal play and I am probably going to be saying "so-long" to the stock in 5 weeks anyway. I am playing this for last quarter's earnings when they report on November 8th.

Therefore, on this dip, I have picked up NVDA DEC37.5 calls yesterday when the stock was around $35.30. I averaged down some today and I am currently underwater. My stock, however, was exercised at $28.33 after the August blow-up, so life is still good.

The analyst has a decent track record, but his downgrade shouldn't affect the stock from here over the next two weeks.

I would probably have bought more NVDA calls today, but I have been slightly distracted by my TIE puts trade and that company being added to the S&P. Lots of fun there and planning to add more TIE puts next week ahead of what I think will be an earnings miss.

Playing a Strangle on WFR

OK, I currently lack some discipline (I have too much cash on the sideline), but I wanted to test a trading strategy last night. I knew that WFR was going to report last night and I wanted to get in the action. This is a stock I follow and I believed that would report good earnings, but the stock got crushed this week so I was not willing to bet much.

So how do you play WFR without betting wrong? I hedged. I set up a strangle with out-of-the-money options to play that the stock would move significantly, but the direction was unknown.

Now, I didn't want to bet real money here while testing a strangle strategy that I don't employ often, but virtual trading is not the same as having a little skin in the game. In this case, the money I risked is so small that I will use real values. I bought 5 WFR NOV55 puts at $1.95 for a total cost of $975. The stock was trading about $59.20 when I bought these options. I also bought 8 WFR NOV 65 calls at $1.65 (2 trades) for a total cost of $1320. I bought more calls than puts because I went with my gut that WFR would beat estimates. This gave me a ratio of 1.35 to1.

This morning, soon after WFR opened, the stock was trading for $67.30 and I was able to sell my calls for $4.00 or $3200 while my puts could only be sold for $0.10 or $50. This netted me a profit of $955 on a total risk of $2295 or a 41% profit. I also did not sell my puts in case the stock falls back over the next 22 days (for $50, it was not worth selling).

Betting only with the calls would have made me more money, but the hedge let me sleep. Either way, the trade would have worked out as profitable as long as the move was significant. When earnings happen the implied volatility decreases dramatically, meaning that your options lose value. It would have been a bad trade if the stock price was flat.

Sometimes, the best trade is hedged.

The City of Steel at Night - Can ATI Improve from Here?

A lot has been said about the ATI earnings warning a few weeks ago (and recent earnings release), so I will try not to repeat it here, but this well run company just hit a speed bump. Their flat rolled commodity stainless segment had lower quarter over quarter sales and flat pricing. Demand is soft for this portion of their business.

Their High Performance Metals group continued to improve, but not enough to offset the weakness that ATI had elsewhere. Even within High Performance Metals, the pricing that the company was able to achieve for titanium mill products was a dismal $29.43 per pound. This is more than 7% lower than the previous quarter and says a lot about what is happening currently with titanium producers.

Demand has softened enough that prices are coming down just as sponge supply is starting to flood the market. While ATI sets up agreements to pass through most of the changes in materials costs, it's LIFO accounting helps to create a short term weak operating income environment. I expect ATI to begin to rebound in the 4th quarter and begin to take off again in early 2008 as demand for the Boeing 787 begins to hit full stride.

I was watching ATI primarily for the titanium pricing. It has set up a trade with TIE's earnings coming up. If TIE's titanium prices don't increase from Q2 , they will miss earnings estimates. If they are as bad as ATI's pricing, TIE will miss big time.

Yesterday, I bought TIE Nov35 puts and today I added more after the company's stock popped up after an announcement that they signed a new strategic agreement with CRS. A poster on the TIE InvestorVillage Message Board pointed out that another way to play this trade is through buy-writes, but I felt that this more conservative play tied up too much capital at the moment. Therefore, I bought puts and accept the risk with time decay. The trade would work better if we knew when TIE expects to announce, but they typically don't tell investors this information.

Now that TIE is a member of the S&P 500, I am concerned that they will report next week (when RTI reports), so the trade had to happen now. TIE has moved up with the S&P announcement and now the CRS deal, but I still believe that the stock will not penetrate $35.50. I am prepared to buy more puts past this resistance point using wide spacing.

The RTI earnings news (they report Tuesday) may also boast the stock (I expect them to make their estimate), so I have to expect that anything is possible with potential further pin action prior to TIE reporting. I have my seat belts fastened.

Glad to see that Bill is now Happy!

Mr. Softy hit the cover off the ball tonight! MFST is up 11% after hours after reporting great Halo, XBox, and Vista sales. This will completely affect the market open in the morning. Expect major pin action across the Board for all PC makers and component companies.

It is about damn time!

PCP has Another Year

We finally have some good clarity on the 787 program from PCP. After another good quarter, PCP was able to shed light on the 787 Program and their involvement in the current aerospace cycle. To cut to the chase, yesterday's conference call told me that I will be seeing long term capital gains on my stock - this uptrend in the cycle has at least a year or more to go for PCP.

I love listening to Mark Donegan. This is a guy that seems to talk straight. Not a lot of mumbo jumbo on the call, just the facts and PCP once again delivered a great quarter. As advertised going into Q2, the primary story was the overall continued growth and 31% increase in revenue. Margins expanded to 21.4% from 17.6% year over year and earnings were $1.67 (better than the expected $1.64) and better than last year’s $1.03 (a 62% change year over year).

Their Investment Cast Products group saw sales growth of 25% (year over year) with heightened OEM demand and growth in the replacement market. They expect no push out from 787 program schedule delays and that this will be an extremely solid contributor going into the future for the company. They are seeing an expanded customer base and are planning to add additional capacity which includes four airfoil furnaces installed over the next six months, and a new IGT facility for PCC airfoils in the next 12-15 months.

Their Forged Products group saw sales growth of 38.5% year over year with strong aerospace volumes and also strong volume in non-traditional customers (e.g. Chinese natural gas wells, etc.). They also continued to build in seamless pipe with a backlog that now exceeds $500 million (no signs of easing demand here). This group did, however, also have more than $600 million of negative impacts including a six week outage of their 50-ton press (this was planned) and production inefficiencies during the Houston Strike (unplanned).

Their Fastener Products Group had sales growth year over year of more than 25% with huge improvements in operating income (47%) and continued big increase in aerospace sales. Their fastener acquisitions have allowed PCP to gain market share by more than 2X with certain customers and they are still looking for more market share gains in the near future.

Other items of note is that their cash flow allowed the company to pay for the Caledonian Alloys acquisition entirely within the quarter. They are also expecting more than $30-34 million in Capex within the short term. Finally, they are expecting to have five less manufacturing days in Q3 than Q2 due to holidays, etc.

During the Q&A session, Mark Donegan was asked about whether the company saw any titanium cost of sales adjustments in Q3. He believed that materials have pretty much leveled out and they expect material pass through to come down year over year going into next year.

When asked about the possibility of tuck-in or game changing M&A, Mark stated that they are very active looking at tuck-ins. This is changing in that tuck-ins are getting bigger and could be as large $1 billion. PCP would be disappointed if they were not active in the tuck-in world over the next 6-8 months.

Some key facts that will be helpful for further analysis is that 787 shortage situations are something that PCP is trying to take advantage of and that PCP is doing about $5 million in business per 787 aircraft on average. They also expect the aerospace cycle to cause demand in the short haul to exceed their capacity during the next 12 months. In addition, what the customer is wanting tends to be a better mix than in the past.

Also the 787, from a design standpoint, did not seem to have any big re-tools and the company sees no changes in the planned ramp up. All the companies capacity is fully sold out in the next year and they expect organic growth in 2009 to be larger than 2008.

Finally, and most importantly, Donegan expects the peak of their cycle to be moving well past 2011. This tells me that I have some time yet continue to ride this horse. They also discussed LIFO improvements that may slightly juice EPS over the next year if materials stay under control as expected. This was a great quarter and still a long term hold.

I did sell PCP calls today (I still have some Dec calls) to move from overweight to proportional within my portfolio. Today's tape was a gift allowing me to sell into strength this afternoon. I am now in great cash position if the market goes south.

One other note is that I bought some puts for TIE. I also basically rolled over some AAPL calls when the intraday low allowed me to buy the dip and then sell existing calls later in the day at a higher price. Great trading day!

Will the Bear’s Tank Under Armour?

If UA is good enough for the Marines, it is good enough for me, however, with Under Armour set to report in a week (October 30th), the Bears have begun their dirty work. A “hit” piece appeared in the Wall Street Journal today that underscored the fact that big Hedge Fund money are short this stock. More than 17% of UA’s shares outstanding are currently short.

All the code words like “slowing economy” and the “consumer is dead” appeared to make bulls blink in what has undoubtedly become a battleground stock over the last six months. In fairness, the bear’s case is that the current forward P/E is unsustainable and that revenue growth is due to slow sooner rather than later. The bulls see that UA has just a small sliver of the US footwear market and only a small percentage of the worldwide sports apparel market.

So far, the bears have been wrong, but quarterly earnings may prove different if revenue is slowing as drastically as a Chief Retail Analyst at SportScanInfo was quoted as saying. The fact that the bears are paying for this analyst’s research was, of course, not revealed (this is something that I suspect, but don’t know for sure). UA posted 42% revenue growth in Q1 and 50% growth in Q2. It is my take that UA would have to miss badly with those first half numbers for the stock to crater given the pullback it has already had.

Regardless, my current plan with UA is to wait on the sidelines for earnings before potentially piling in again. That is what the big money managers do (keeping earnings uncertainty out of their portfolios). In this case, it may be the way to go.

I live in Maryland, the home of UA. My store checks don’t see what the bears see, but my checks have been limited to two malls in the local area over the last 90 days. This may not be reflective of the country.

The hit piece may work in the short term. It was enough to keep me on the sidelines. It may cause longs to sell their shares. If that happens, I may get shares cheaper which is not a bad thing.

PCP Still in the Race!

It was touch and go yesterday with my PCP call options. I was overweighted and a little nervous about earnings this morning given yesterday's poor price action with the stock. Well, it is better to be lucky than smart!

PCP finished that race to the finish line and overcame a huge hole they built for themselves with the labor strike at Wyman-Gordon. They beat EPS estimates by $0.03, earning $1.67 EPS vs. the consensus of $1.64. They also exceeded revenue targets by five million dollars, booking $1.73 billion in the quarter vs. the expected $1.68 billion.

I guess a few folks were disappointed at open (probably hoping for a blow-out and not getting it) as shares were initially lower, but the big money moved in during the conference call after Mark Donegan gave an optimistic outlook.

For me, the move up has been an opportunity to unload a lot of options. I may not sell them all today, but want to be down to just a few by tomorrow. It is not that I think PCP will not continue to do well, but I think a down market is still in the cards this week.

More on PCP's conference call tomorrow.

Why isn't This Guy Happy?

Poor Bill! He thought he buried Apple 10 years ago. Now, he has them to worry about them all over again in addition to Google. Well, not really (I just loved the photo). What is good for Apple is pretty good for all technology at the moment.

So tonight's story is that Apple once again hit the cover off the ball. Who said the consumer was dead? With revenue of $6.22 billion vs. the expected $6.06 billion; earnings of $1.01 vs. the expected $0.86; and 2.2 million Macs, 10.2 million ipods, and over 1.1+ million iphones sold in the latest quarter, you just have take you hat off and give a little bow.

Wow. The company is on-fire and the stock is up another $6 after hours. They will take the headlines and the Nasdaq should open well. This is the news the market needed to keep today's snap back action from being a dead cat bounce.

I must admit that I lightened up on my AAPL options after a good open this morning (kept my January calls). It is definitely not worth risking everything on earnings. I can always add at the next dip. I also lightened up on my GRMN calls a little to raise cash in case we go down again.

Raising Cash...How Much?

I have had a number of investors send me messages about how much cash should they have on-hand for buying equities during a downturn? While I am not sure that I am the expert here, I certainly have a strategy that has been successful for me.

First of all, everyone needs to be reminded that I have a huge appetite for risk. If you are near retirement, then I would suggest investing most of what you own into high paying dividend stocks and only looking at what I post for the speculative portion of your portfolio. Most of what I do is speculative and my diversification policy is appalling.

That said, I usually have at least 20% of my funds in cash when the market is in an upturn. That's right, at least 20%. When I was younger, I had maybe 5% (maybe zero and also on margin) and I could never get ahead. I mean really ahead. I would be confident of the stocks I selected and not worried about the downturns.

While I was often right about the market turning back up, I was missing the best opportunities of the year to make serious money. Buying near the bottom of a correction is how beating the S&P average consistently every year is done. Waiting for the buy signal is also important. There is no point in being a hero, but I buy throughout the downturn buying with wide spacing and adding call options (or selling puts - going long the puts) the farther it falls. Always "pick" at things, never buying a lot at one time. It is also a time to "get simple". That means dropping the stocks that are not works to invest that freed up cash in stocks that are.

Using the 20% cash cushion (and margin after that) can lead to big profits. It is also big risk! Find a strategy that works for you and exercise the discipline necessary to make it work.

Rochester's Technicals

It is my opinion that someone is acquiring ROCM quietly. I have no real data to back that up, but the stock is forming a very good bottom and is trading very tightly in its base. That's usually a sign of institutional investors trying to buy without pushing the price too high.

I have been standing by for a week now expecting Rochester Medical to leave its base from the Bull Flag it has formed. A flag is described as a short-term continuation pattern that mark a small consolidation before the previous move resumes. Flags are preceded by a sharp advance or decline with heavy volume and most often mark a mid-point of a trend.

On September 20th, ROCM spiked on heavy accumulation forming the "flagpole" of the move. It hit a higher high and a higher low the following day (also on above average volume) before settling into the current consolidation period. This period is reflected with lower volume and a tight trading range that get tighter.

Since then (and typical of a classic Bull Flag), the stock has moved into a small triangle pattern that slopes against the previous trend. Since the previous move was up, the flag slopes down. A flag is a short term pattern that last no more than 1 to 12 weeks and the tightness of the pattern is why I expected a move last week. It looked ready on Thursday and Friday, but I think that the overall market tape formed some pricing pressure.

When the stock leaves this pattern, I expect good volume (it did start to pick up on Friday) and the accumulation to continue. Chartists will tell you to judge the pattern by the flagpole to gauge the height of the next move up. A classic flag suggests that the move up with be $3.50 (the length of the flagpole) from the top of the flagpole. This places the possibility that we may see $22.50 in the near future. Whether that happens or not is yet to be seen.

I am just applying theory to a real life moment and hoping for the best. None of this chart stuff takes away from my belief that ROCM has something special fundamentally.

Here is the linkable version of the chart. I felt that seeing the chart in full view (without shrinking it to fit the page) does the pattern more justice.

http://stockcharts.com/h-sc/ui?s=ROCM&p=D&b=5&g=1&id=p94458160903&a=104211353

Cytec Technicals

Yesterday, I attempted to at least explain my reasoning for CYT's fundamentals. This is stock is not as sexy or poorly managed (or nearly as speculative) as ZOLT. It also has predictable earnings as opposed to HXL.

In fact, given the rest of my portfolio, this chemical stock may be slightly out of character. However, the stock does move. Last year demonstrated that just because the sector is boring doesn't mean the stock won't gyrate. It has been restructuring and shedding some low margin operations, while using its massive cash flow to push out its Carbon Fiber group into the big time.

Technically, it was set up perfectly for earnings, sitting right on support. The earnings event confirmed a bounce and the stock took off plowing through the 50-ma. It wasn't until the last two hours of the day that it started to fall back some under massive sell presure from the rest of the market. The volume was exactly what I wanted to see. While I would have liked to get in a little lower, there may still be a chance to add this week.

Weekly Recap

I really did have a great week going until the last 45 minutes of Friday. Too bad, but that is what happens when you are a little extended (like I was). When the shorts didn't cover, the market freaked out a little. The bulls, however, were able to protect key support levels, but just barely. I expect a further sell-off at open on Monday, followed by a snap back rally. After that, well, who really knows.

The retail sector has been getting killed (only the financials could arguably have been worse). That is why keeping UA in the portfolio this week didn't make sense (it also lost technical support). When some positive news in market happens and retailers can get out of the bunker, then I will probably buy it back.

The same goes for GS in the financial sector. I am looking to nibble there at around $215, but the market tape needs to also make sense.

The same goes for SIRO, which I sold on Friday. Baird gave SIRO a downgrade on Friday to add to the tough tape. It quickly blew through support and I wanted to lock-in profits (I also wanted to raise cash) instead of fighting the price pressure. The downgrade was basically bogus in my opinion. The analyst cited the potential for competition for their hot Galileos imaging system. Well, dah, that is why most investors have bought SIRO! The lack of current competition is why the company can sell these units for $180 K each. It takes years to develop this technology, so the analyst is worried about 2010? Give me a break; the technology will have changed by then. I will also buy back SIRO when it finds support.

I am now overweight PCP. I didn't mean to do that, but the fact that it held up really well on Friday suggests to me that investors expect good earnings. I am therefore planning to roll the dice on Tuesday with earnings unless Monday gives me a huge chance to reduce.

GRMN and AAPL also held up well and I expect AAPL's Monday evening earnings release to potentially turn around technology stocks and drive them still higher.

ROCM is still in its holding pattern, only down $0.01 during Friday's sell-off. This stock is still in a screaming Bull Flag pattern and any positive news will let this coil unwind.

During the next upcoming week, I am expecting to be able to lighten up AAPL and PCP and set up a short (put option) position on TIE. I will certainly be posting on conference calls from ATI, AAPL and PCP this week.

Don't Scratch the Paint...I mean Fiber

I have no idea which company created the carbon fiber for this this concept car, but this photo is way cool! Today, I bought some Cytec Industries (CYT). I have loved the ZOLT carbon fiber story, but couldn't stand the lack of management performance and I am hoping that CYT will help me take advantage of a play on carbon fiber without all the excitement of ZOLT.

CYT is a chemical company that also happens to be a world leader in producing carbon fiber. Where as ZOLT focuses on the industrial market for its carbon fiber sales, CYT focuses that portion of the business on aerospace and is a critical supplier for Boeing’s new 787.

Just two weeks ago, CYT announced that it was doubling its carbon fiber capacity at their North Carolina facility to support Boeing's 787 production. Cytec supplies the advanced composite materials used in carbon fiber to Boeing subcontractors, which indirectly makes the aircraft company one of its biggest customers. Aerospace makes up about 20% of Cytec revenue, and production of the Boeing 787 will help grow its top line in the next year by as much as 10%.

They reported blow-out numbers last night for Q3. Even though they cited the potential for slowness in Q4 and the increased costs for oil methanol and propylene and other raw materials, they have also been able to increase their pricing. They confirmed guidance towards the upper end of the yearly range and received an upgrade on today. I believe that blow-out numbers often come in groups and know that the Boeing 787 story is just beginning, so I am buying now.

This is not a rocket stock. It is a slow mover with some predictability. It is primarily a chemicals company with a successful carbon fiber market segment. I only plan to invest and own the stock because the options are thinly traded and I only nibbled today (on a day in which it was up big in a down tape), expecting the possibility that the price may come in further.

Cytec is a specialty chemicals and materials company that markets its products to the following markets: aerospace, adhesives, automotive and industrial coatings, chemical intermediates, inks, mining and plastics. They have four operating divisions: 1) Performance Chemicals; 2) Surface Specialties; 3) Engineered Materials and Building Block Chemicals; and 4) Performance Chemicals and Surface Specialties.

Performance Chemicals includes products such as mining chemicals, phosphines, polymer additives, specialty additives, specialty urethanes, and adhesives. This segment represents $865 million of the company’s $3.33 billion in revenue in 2006. This revenue is approximately flat year-over-year from 2005 and not an exciting part of the business. Earnings from operations for this segment were approximately 8%, up from 7% the previous year

Surface Specialties includes products such as Radcure resins, powder coating resins, and liquid coating resins. This segment represents $1.53billion of the company’s $3.33 billion in revenue in 2006, up 18% in revenue from the previous year. Earnings from operations for this segment were approximately 6%, up from 2% the previous year and I expect this segment to continue to improve results during 2008.

Engineered Materials is the rock star of the company. This division primarily manufactures and sells aerospace materials that are used mainly in commercial and military aviation, satellite and launch vehicles, aircraft brakes and certain high-performance applications such as Formula 1 racing cars and high-performance sports cars. They manufacture and sell advanced structural film adhesives and advanced composite materials to these markets and are dependent to a large degree on commercial and military aircraft build-rates. Advanced composites are exceptionally strong and lightweight materials manufactured by impregnating fabrics and tapes made from high performance fibers (such as carbon fiber) with epoxy, bismaleimide, phenolic, polyimide and other resins formulated or purchased by the company.

They are huge supplier of aerospace carbon fiber and are important suppliers for the F-35 Joint Strike Fighter, the F/A-22 and F/A-18 combat aircraft and the C-17 transport aircraft in addition to the 787 mentioned above. They manufacture and sell various high-performance grades of both polyacrylonitrile ("PAN") type and pitch type carbon fibers. Approximately 65% of their carbon fiber production is utilized internally (which represents 30% of their demand for carbon fiber) with the balance being sold to third parties.

They recently completed a project increasing their production of PAN carbon fiber by approximately 33%. They have announced their intention to build a new carbon fiber line. This project, if approved, is forecasted to cost approximately $150.0 million, take approximately three years to complete and increase their capacity of PAN carbon fiber by 100%. This segment represents $602 million of the company’s $3.33 billion in revenue in 2006, up 10% in revenue year-over-year. Earnings from operations for this segment were approximately 18%, down from 19% the previous year. This decrease in earnings was primarily due to lower production rates in one of their carbon fiber plants due to trial runs of new product and costs to startup a carbon fiber manufacturing line that was previously idled.

Building Block Chemicals produces product lines that includes acrylonitrile, hydrocyanic acid (a co-product of acrylonitrile), sulfuric acid and melamine which is produced both for use internally within their other segments and for merchant sale. This segment represents $339 million of the company’s $3.33 billion in revenue in 2006, up 16% year-over year in terms of revenue. Earnings from operations for this segment were approximately 5%, up from 2% the previous year.

They have huge cash flow which will allow them to take advantage of the boom in carbon fiber and the company pays a dividend each quarter (they pay about $0.10 per quarter). They have operations literally all over the world allowing them to take full advantage of the global economy. They are truly one of those multi-national companies that can take advantage of the falling dollar in that only 37% of their business is sold to North America.

They forecasted diluted earnings per share in the range of $3.60-$3.80 for 2007 and are on track to make $3.85 EPS (diluted) from my preliminary calculations after blowing out Q3 numbers on Friday. Their Gross Margin for 2006 was approximately 20% and increasing (the chemical segments dilute the GM achieved by the Engineered Materials group). They have been restructuring for the past couple of years, shedding low margin operations, shuttering money losing factories and redesigning others.

This is the fundamentals behind the company and is a more cyclical play than the technology basket I currently own, but I think that it plays on the global growth story and the company is well positioned to be a positive contributor to my portfolio.

I will take about their technicals in a later post.

Happy Anniversary!

I wonder if the fact that 20 years ago today when the DJI dropped 22% in one day (the largest one day percentage drop in history for the average) was weighing on traders minds today? I guess history has a habit of repeating itself, but then again, maybe not.

The big drop in 1987 was a disaster. Today's drop, on top of a bad week, seemed mostly controlled on manageable volume. The indexes fell back to some key support and the weak hands fled the field. This is healthy for a bigger run going forward, but unfortunately, it will now take a few weeks to work itself out.

Take a look at the Nasdaq Composite below. It closed right at resistance. I would have preferred 2750 (another resistance level), but the market did not display the level of fear we saw in August. It could still get as bad or worse, but I think that because we are in the earnings cycle, the number of daily events that could turn the indexes around may stop this from being a route.

My stocks, for the most part, held up really well until the last 45 minutes of the day. I ended up selling all my SIRO when it broke support and I added to PCP this afternoon. I also bought CYT after great earnings today (I will post separate on CYT over the weekend). Finally, I tried to daytrade TIE after it's S&P announcement, but the institutions had the stock bracketed, so I exited the position a couple of hours after I bought it with no damage done.

S&P Welcomes TIE

TIE (and the Dallas Skyline) was welcomed to the S&P 500 tonight, replacing Bausch & Lomb. The stock is up more than $2.50 after hours and I expect a very good day for TIE tomorrow. For TIE longs, this is great news.

Long term, it will lead to more research and better coverage and attention to the stock. It also may be harder for the company to completely blow off the Street for not having conference calls, etc.

In the short term (like tomorrow), we should expect some record volume to happen, as well as a pop tomorrow. However, my anecdotal research shows me that the stock is often unaffected a week from now. I will not be joining the buying party in the short term (unless the stock goes through the roof) as I am planning a short strategy about 10 days from now prior to earnings. If the stock moves to $35 or some unrealistic number on this news, then the short may happen earlier.

Stressed Out? Tomorrow May be Better

With the DJI down for the 4th day in a row, some of us may be a little stressed out. My stocks have actually fared well this week, but the overall market tape has me on the edge of my seat. Well tomorrow may be a little better.

First of all, this week is Options Expiration week. Rarely does a week go by without at least one up day (or one down day) during Options Expiration. As traders try to position their portfolios for the expiration, I expect some positives tomorrow.

Secondly, a number of earnings reports are on tap that may help the market. Tonight, Google reports to get tech rolling again (with Apple on Tap for Monday). There are also a number of consistent performers with overseas exposure that report tomorrow morning like MacDonald's, 3M, and CAT that will continue to set a more positive tone.

We need some relief. Hopefully, we can all hold it together a little longer.

I've Become a Trading Fool

Pundits called this afternoon's sell-off a "disappointment trade" in that investors were disappointed that the market couldn't hold gains after great earning's announcements this morning. Whatever. I just call it profit taking and I bought the dip.

First, I sold UA. It crossed that support line that I mentioned repeatedly and I needed to buck-up the discipline and follow my rules. It goes back on my watch list for as a buy when it bottoms. I sold it at $57.80 and used the cash to re-buy AAPL Nov calls. This time it was at a strike price of $175.00.

The DJI went negative more than 120 points (a swing of over 200 points) at one point and AAPL, PCP, and NVDA were still up for the day (good stocks swim against the tide). When AAPL reluctantly went negative for a moment, I pounced on those calls. At close, this looks like it was a good move. Time will tell.

The financials have been getting hammered, but investors are primarily focused on punishing only that sector.

Watching the Yen

A long time poster on the TIE InvestorVillage Message Board with the call sign of Aerocom21 (http://www.investorvillage.com/smbd.asp?mb=399&mn=28726&pt=msg&mid=3231675) called out a very interesting indicator that I thought was worth looking at. He is tracking the value of the Yen to the market and looking for occasions where an “up” Yen indicates a down US stock market.

We all know about the Yen Carry Trade which is part of a broader trading strategy where a trader sells a certain currency with a relatively low interest rate (in the case the BOJ has rates held at something like 0.50%) and uses the funds to purchase a different currency yielding a higher interest rate (the current US Fed Funds rate is $4.75%). A trader using this strategy attempts to capture the difference between the rates (which can often be substantial, depending on the amount of leverage the trader chooses to use).

The theory goes that when the market sells off, nervous investors flock to safe investments, such as the US Dollar, putting pressure on the Japanese Yen and the "Carry" traders, potentially causing them to unwind positions (like what happened in February and again in August). But which comes first; the chicken or the egg? Well, it is still unclear to me, but it is certain that there is good recent correlation between the market and the Yen with a rising yen reflecting a sliding stock market (with the 50-day MA marking important tops and bottoms).

Here is a recent chart against the SPX (note the 50-day inflection points):



On the two market tops identified with circles, note that this indicator was off by one day in either direction, suggesting to me that one may predict another (direct correlation), but Japan being on the other side of the world means that the news truly does take a day to follow through in multiple markets.

A rising yen is yet another chart worth watching. I am sure a lot of traders are also watching this one.

Nvidia Gaps Up

Intel's earnings last night has led to NVDA's breakout this morning. This was my initial stock play this summer when I saw the market start to rotate to the technology sector after some great earnings from firms like NVDA, APPL, RIMM, etc.

I have recently only held stock in NVDA and not call options because the stock was in the process of digesting a huge run over the summer. Now it looks ready to move higher and I may be adding calls if I can free up more cash.

In other news for my portfolio, I sold AAPL calls into strength this morning (the Nov165's), thereby halving by call position in AAPL in advance of earnings. I also added to UA by doubling my stock position as the stock "came in" again for a re-load.

Yahoo Rocks - Nasdaq will move Higher

Finally! A technology bell weather beats big. Yahoo pulled out a good quarter and is up almost 10% on huge volume After Hours. Just about every pundit in the world will have something to say about Yahoo's earnings and I am not about to join the chorus with blather, but this report should have major pin action for the Nasdaq.

NVDA should benefit in a big way and AAPL and GRMN may also be cheered-on by the news. Even though this is new "media", the Street still thinks "technology" and the computer buy programs may be working overtime during tomorrow's open. Heck, IBM met estimates, even though the whisper number may have been higher (they sold off slightly After Hours). Intel also met numbers and the stock is up 6%!

I will lighten-up a little if this good news moves my stocks higher. Need that cash for the rainy day.

PCP Is Cleared for Take off

I am definitely calling this move too soon, but PCP just went parabolic after 2 pm on up volume. Not huge volume, but enough to signal that the bears are covering and leaving the area. We shall see, but protecting that $140 area (where the uptrend line is) was critical and the bounce looks genuine at the moment. It is also positive, considering the negative tape and earnings are due out early next week.

I am betting that we go up from here. I will be selling into strength, if it happens however. I am overweight PCP and still need to raise cash.

Let's hope that tech earnings can move the tape positive for tomorrow.

SIRO at an Inflection Point

No, these are not my teeth and, yes, we are all a little too close! SIRO is technically at the edge of those gold molars. If I didn't have such high hopes for this company, I would have sold already (Ok, I actually lightened up a little yesterday to move more to NVDA and catch the NVDA move).

On my last SIRO post, I mentioned that the area just below $34.90 was an important technical level to me. We are right there now.

Any additional pricing pressure here and we can buy it back again at $30. Stay tuned.

Bottom Fishing

Time to fish or cut bait. The selling looks a little overdone as of 1:00 PM eastern. I decided to wade in and put down some stink bids. I added Nov145 PCP calls and Apple Nov165 calls.

I am watching PCP closely. It is nearing the uptrend line of approximately $140. If it closes below that, it could get ugly.

Jumped out of GS

I jumped out of Goldman Sachs (GS) this morning. I didn't like the GS price action, the XLF looked horrible, and the VIX was up after the first hour of trading which all made me not want to be in financial sector call options at the moment. I was also leery about all the earnings expected in the next 36 hours from the financials and decided that I will wait for a definite trend in GS before getting back on-board.

None of the above reasons would have been a reason to sell the stock (if I owned the stock), but I had GS call options, and the risk/reward wasn't there. I was just going to have to be happy with the scalp I was able to achieve with GS.

Finally, I also needed to raise some cash this week to protect against any pull back and this partly achieved it.

I also daytraded some SPY put options this morning for another scalp, riding the S&P from positive territory to down 6 points. A lot of nervousness out there. We need a couple of bellweathers to post good numbers for the bulls to continue to make their case.

Bull Flag for ROCM

A previous post about ROCM made the fundamental case for why ROCM may be a rocket stock. Tonight, it is just about technical analysis. For almost 4 weeks, Rochester Medical has been consolidating after a good move on high volume. Friday's move up may be the beginning of a move out of a fairly large Bull Flag. Look for an up move early this week on volume to confirm this chart pattern.

The base of the flag poll suggests a $2.50 move above the the downward trending resistance point that the stock closed just below. That places a price target easily above $22.00.

Shorting TIE?

I truly did not expect ATI to warn. This event caught me a little flat-footed and it happened right on top of the Boeing 787 schedule delay announced on Thursday when I was long calls for both ATI and TIE. I quickly sold this exposure for a loss and regrouped.

I originally planned to be long ATI and TIE into ATI's earnings expecting a slight run-up. I then planned to sell my positions and wait for earnings to be announced with both stocks before re-entering with a long position for the 2008 787 ramp up. When my thesis fell apart, it was time to re-think it.

I then thought that there may be an earnings play with RTI (the weak sister of TIE and ATI), but the lack of specificity in their 10-Q and the confusing details provided by management during last quarter's conference call will actually keep me from shorting that stock.

So the play is TIE. All my calculations over the last two years have me to believe that TIE will miss earnings this quarter. They typically do not announce when they plan to release earnings so I will have to guess when the announcement will occur, but the plan will probably be to buy short term November puts for the earnings announcement.

Analysts currently expect TIE to report $0.39 EPS this quarter. If you look at historical earnings data, Q3 is traditionally when staff within the company take a lot of vacation and machinery goes through overhaul, maintenance, and replacement. In addition, TIE has been selling less volume this year than last year to attempt to maintain pricing for its products.

Even if you assume that TIE's Gross Margin stays close to the record Gross Margin they achieved last quarter (I am assuming 39.2%, just slightly off from the 40% reported in Q2), I don't expect average pricing for melt or mill products to exceed the pricing they achieved in Q2. It is doubtful that prices will increase, with scrap and sponge prices decreasing, demand softening temporarily due to A380 delays, and the big ramp for the 787 not yet in play .

So that leaves volume. Will TIE produce the same volume of mill and melt product as last year? If they do, then the earnings are likely to look like this graphic below and earn $0.35.


If they produce slightly more volume (like 7% more), they will still miss the $0.39 EPS estimate by a penny. I believe that the chance that all these variables will line up well for TIE (including increased pricing in a weaker short term market) is unlikely and that is what I believe they have to do to meet or exceed the estimate.

So what to do? Well, I plan to wait. I believe that the ATI management warned and guided down to have their earnings hit the upper end of their range for the quarter (good managers would do that). Investors will be slightly grateful and the sector may pop a little after ATI earnings, helping the short. The ATI earnings announcement will also be a good time to calibrate average pricing for melt and mill product, before a put options buy is placed. Finally, the technicals will be looked at to maximize a good entry

The first rule with trading TIE is that this is a Harold Simmons company. He has a controlling stake and defends the stock price. He can make any short play very difficult whenever he wants by buying stock or by the company putting out a Press Release about something positive, so I want to stay "short" with my puts for as short a time as possible. Time decay is also a negative, so I want the puts to be in place for the event and covered immediately.

RTI declares on 10/31 and TIE usually reports around the same time. If ATI data confirms that titanium pricing is slipping, I plan to buy puts on TIE shortly after the ATI announcement and conference call and will hold them until TIE announces or the trade thesis changes.

Weekly Recap

I have a little homework to do this weekend after some sloppy trades. The Boeing schedule delay and then the ATI warning blew out what would have been a very good week. The triple play was the tech blow-out yesterday on BIDU.

Oh well, time for me to lick my wounds and stay in the game. I dropped TIE and ATI from my holdings and added UA and GS this week. Both new additions look good at the moment. AAPL gave me the chance to unwind and then buy back again at a lower strike price before moving up again.

The week was not a total loss, but I could do for a little less excitement.

Next week is the 1st wave of major earnings, but none of my stocks report. However, many of my stocks do report the following week so that next week is a set-up week for those brave enough to anticipate.

I need to raise cash. I will be looking to lighten up on any strength, especially if we get any bounce in PCP. The money flow for that stock since the Boeing announcement has been horrible as it heads towards it's 50-day ma once again. Holding $143 would be positive, given that this is a fib retracement area, however, the money flow does not indicate this as possible at the moment.

ATI Warns

Jumping out of a plane without knowing if the chute was packed correctly. That about sums up what happened after hours with ATI. The company warned that they will miss this quarter and they guided down for the rest of the year.

I didn't expect this warning. It is as simple as that. When Pat Hassey talks about the current environment being just the beginning of a 9-inning baseball game for a huge specialty metals up-cycle, and then they warn and guide down a few months later, well you can bet the Street will punish them.

While I felt that Q3 would be tough for the sector, I expected positive anticipation running up to earnings. That was my play and my thesis. I held ATI and TIE calls and they will be sold this morning. The thesis for this trade is gone. Time to move on.

I will be buying TIE again under $30, because I am expecting an upside in 2008. I can afford to be patient with this buy, however.

It's Baaaack!

Wow! Today seemed like a few months ago with the volatility, and unfortunately, it happened just when I was getting kind of comfortable with the profits that I had accumulated over the last seven weeks. Hey, when you ride AAPL, GRMN, NVDA, and PCP up from the bottom in mid-August to today, there is bound to be a little panic when the herd gets nervous.

While sitting at my desk this morning and checking the boards, I noticed that AAPL had just hit another 52-week high and I decided to take another 1/3 of my AAPL calls off the table. After feeling pretty smug about the profits I had and then going to lunch, I noticed when I returned that the VIX was actually positive (while the market was still up big), the put/call ratio ratio was a screaming imbalance, and SPY had just started to roll over. It looked like technology was leading a minor run to the exits, so I checked BIDU and that is when all the blood left my head.

I simply couldn't type fast enough to sell to close the remainder of my AAPL and GRMN calls in enough time. There is nothing worse than typing in the bid price for an option only to have the specialist move the mark down faster than you can sell. It was ugly. I think I was losing something like $25 K a minute in my trading account. It certainly reminded me what "fully leveraged" meant. I simply couldn't unwind fast enough.

I wasn't that worried about PCP, TIE and ATI options because they had already been taken out and shot the day before, but the tech stuff had a lot of air under them.

So I waited until I was sure that an intraday bottom was in, and bought everything back and then some. The move up was slower and I was able to get my bids. Besides buying AAPL and GRMN options, I also bought GS calls.

While I think that selling and tehn buying the same options back saved me money, I will need to slow things down and analyze it all fully this weekend. Liquid options, like AAPL, were easier to dump than GRMN. With those calls, the specialist just spread the bid/ask wide, making money on the fear and greed.

I will definitely be looking to lighten up if the tape lets me tomorrow. I need to raise cash if this technology sell off becomes a deeper trend. I am definitely exposed and this roller coaster is not for everyone.

The Bear won today, but the Bull has been very good to me.

What a Day!

I started the day feeling pretty good after coming off of margin and taking more profits from what has been an outstanding month. Even my stocks were fairing well against a down tape. Then the BA news hit.

TIE and PCP took nose dives (I had luckily sold all my PCP calls this morning before the dive) on the news that Boeing's 787 was now officially going to be six months behind schedule. After what I thought was the point where the initial selling had receded, I bought back into my PCP calls and added to my TIE calls.

Then after listening to the BA conference call, and finding a very credible presentation on the present situation for BA and their suppliers, I added more stock and calls for PCP and TIE and also added ATI calls. My reasoning was that BA specifically told analysts that they are not making any changes to their 787 supplier schedules or order amounts. They will proceed on the original time schedule and they described the challenges they are facing with respect to crucial parts for the first aircraft. I believe that the 787 delay, at this point, is not material to PCP or TIE's earnings in the future.

This doesn't seem like bad news for the suppliers. In fact, Boeing also came out and said that they will work with their suppliers to address any cash flow issues that may arise because of receivables on aircraft delivery clauses in their subcontracts. So, I am betting big that the stock will rebound on the news over the next week and continue to ramp towards earnings following my original thesis for TIE described in a previous post a few days ago..

BA Hammers Aero and Titanium

How is your poker these days? Sometimes, it is better to be lucky than smart. Selling those PCP calls this morning was a gift. Now the market is giving me an opportunity to play PCP again.

BA just announced a six month delay in the schedule for the 787. Nervous investors are running to the exits. Sorry, but much of this news was baked into the stocks of TIE, PCP, ATI, and BA. There will be some downside, but it will recover shortly.

I re-entered PCP and bought Nov150 calls. Unfortunately, TIE also took a hit and my calls from yesterday were at risk. I just averaged down and doubled up on my TIE calls by adding to Nov30's and also adding Nov35's.

We will see if greed gets the better of me here. I am placing my bets, because I think I have good cards!

I Forgot About Retail

When I discussed the economic calender for the week on Monday, I really forgot about retail sales numbers also due out on Friday morning. After some thought and after looking out the window at the weather, I suddenly realized that the numbers for last month will probably be horrible. Whether all this potential bad news is priced into retail stocks is unclear, but my bigger fear is that traders will try to read into consumer strength from retail (which I think may be overblown).

I know that the Mid-Atlantic has not received one Fall day this year yet with every day so far being sunny with temperatures in the 80's. With no rain to draw crowds to the mall and no colder weather to sell a sweater, most retail outlets in the region have to be suffering. The consumer is not dead, just distracted.

Yesterday, I talked with someone in Oklahoma that had the opposite going on (nothing but rain). Maybe things will even out more than I fear, but I keep thinking that there are a lot more consumers in the Mid-Atlantic than Oklahoma.

The only retail stock that I own is UA and I bought UA because I felt that the stock has been suffering from the sector's problems unfairly and that sports apparel may be the exception to the trend. Especially with UA being a hot brand. We shall certainly see at earnings, but I am optimistic and currently up on my UA holdings this week.

As for Retail Sales reports on Friday, they may cause the market to consolidate. I may hedge on Thursday night a little to protect what has been an outstanding run for me over the last 55 days.

Taking Some Profits

The market afforded the opportunity at the open to take some profits. I sold all my PCP calls this morning near the open. I also sold some more of my GRMN calls (40% now sold) immediately at open, sensing weakness today.

My stocks, however, are holding up pretty well considering that the DJI is down more than 60 points at the time of this posting. UA is moving higher, TIE is up, and PCP received an upgrade from Goldman Sachs this morning (initiated at a Buy). SIRO is powering along as well, but I am a little disappointed with ROCM (I was hoping for a little more interest).

AAPL, GRMN, and NVDA actually need a rest and this is what the doctor ordered.

I may be looking at GS for an entry later today and will be looking to add to TIE if the bulls put up a fight this afternoon.

How About Some Titanium?

I spend a lot of time following the US titanium companies (TIE, RTI, and ATI). Not only has TIE and ATI been some of my largest wins over the last 3-5 years, but access to some industry experts and a financial wizard on the TIE Message Board (that is IV and not Yahoo) has given me an appreciation for the true analysis of a stock.

These folks have patiently worked with each other to dig through Press Releases, technical papers, and tidbits of information from around the world to give each of us a sense of market supply and demand and pricing for the titanium products these three companies produce and allowed us to model the financials to have a sense of confidence in what the outcome of earnings may be. A lot of my profits from 2005-present I owe to them. While there is definitely not a consensus on the IV Board about what the future of the titanium cycle will be (e.g. when it ends, how it ends, etc.), we all know what the triggers will be that will dictate that the beginning of the end is near.

So when I nibbled at some TIE calls today, I did it with a strategy in mind. I bought Nov35 calls today, hoping that, once again, TIE can break through the resistance between $34 and $35.50. I think that titanium stocks (after today's Fed minutes) may run a little going into and up to ATI's earnings announcement, which I expect them to beat. ATI usually announces first and I expect the company to announce in a little more than two weeks from now.

I bought TIE instead of ATI because I believe that both stocks will run at about the same time (they tend to track each other), but TIE has more upside to run. ATI's chart actually looks better, but I believe that TIE is only a day or two behind them and that I may be catching their wave sooner.

However, this is a trade. I plan to hold through ATI's earnings or until the chart says sell. I am bullish on TIE for the mid term (next 6-9 months), but I do not want to be exposed to the stock when they report Q3 earnings in early November. Last year, Q3 was a disaster, which on paper makes for an easy comparison, but the analyst expectations make a "meet" doable but difficult. I expect the whisper number to be higher than the actual causing the potential for a sell-off. That is where I will be buying TIE again.

Frozen Out

OK, I admit it. I was frozen in place shortly after the Fed Minutes were released and not able to jump on GS the way that I planned. I didn't trust the trend and didn't follow the ball.

There was no way that I would get in first ahead of other traders, but I figured to follow the second move (after the initial reaction), but when the opportunity came up, I lacked the confidence to pull the trigger and GS moved another 400 basis points and is now in break out mode.

I may still ride GS later in the week, but for now it is opportunity lost.

By the way, I also eased up a little on PCP calls. I just had to take some profits. Great month thus far for all my stocks.

Time to Lighten Up

I really don't know what to say about AAPL that hasn't already been said by all the pundits and bloggers out there. So I will just say that taking something off the table is never a bad thing. Talking to another poster this morning, we kind of both agreed to sell our AAPL calls in thirds and I plan to take my 1st third off the table before 2 pm (not wanting to risk the tape after the FED minutes). I think AAPL still goes higher, but we are way beyond overbought with AAPL at this point.

In addition, I sold 20% of my GRMN calls this morning (just short of $112). I was so over weighted with GRMN, that I had to take some profits. GRMN will go higher still, but I definitely could not risk all the funds I put down on GRMN on last week’s pullback for what may be a "bird in the bush".

Watching GS

I know that some filks are still hiding in the bunker waiting until all the bad news is out. I have been out of any financials for a while, after getting burned in July for holding GS calls going into the Subprime credit crisis. Now, while making a lot of green in technology, I haven't had the inclination to re-enter the Investment Banking sector, thinking that I had missed most of the run back up.

Well, GS may give me another opportunity to make a little green. The daily chart is almost a perfect cup with handle and GS looks primed to clear the last resistance and break out. My hope is that the handle take another week because the stock has been hot lately. I would certainly like to see the stock not as overbought as it looks at the moment.

Anyway, I will be paying attention and hoping for a ride on volume after it clears $233.50.