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Redstorm
Prince of Bugs




Registered: 10/08/02
Posts: 44,175
Last seen: 3 months, 10 days
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Re: Stock Update for January 6, 2009 - TBT, PWR, MRO [Re: geokills]
#9558373 - 01/06/09 03:43 PM (15 years, 25 days ago) |
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I jumped on HLX once it got around $4 (down 90% in less than a year!) and it closed at $9.09 today. It's so tempting to dump it, but I think I'm going to go long on it since the money isn't essential cash I need currently and I feel both that the company has strength and that oil will rise again in the not too distant future.
Good decision, bad decision, or just a decision?
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geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 2 hours, 52 minutes
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Re: Stock Update for January 6, 2009 - TBT, PWR, MRO [Re: Redstorm]
#9559024 - 01/06/09 05:26 PM (15 years, 25 days ago) |
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I believe oil could be stuck in a trading range between $40 - $60 for the coming year. Since commodity prices have fallen so much, it seems likely that oil and gas exploration and production (E&P) companies will not be doing as much business since demand has fallen in conjunction with the price of the commodity. Less E&P business means less business for Helix... but with the large stimulus package that China has committed in conjunction with the expected large package from the Obama administration and who knows who else, we could see demand come back in the not so distant future. I haven't gone and read through HLX's quarterly or listened to any conference call, so I am not really qualified to give a die hard opinion on this issue. That given, so long as you don't have all your money in that one name (or in a bunch of oil names lacking diversification), it probably won't kill ya to hold out and may even pay off quite handsomely.
I wish you luck.. 'cause in this game it can be a lot nicer to be lucky than to be smart!
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Liquidkick
H2O
Registered: 05/03/02
Posts: 2,635
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Re: Stock Update for November 28, 2008 [Re: LunarEclipse]
#9562290 - 01/07/09 02:21 AM (15 years, 24 days ago) |
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Quote:
LunarEclipse said: Bought 100 shares QID at $55, 100 more at $77, 200 more at $80, wrote 4 call options at 90 strike price two (2) at $1.85/share and two (2) at $4.30/share. All 400 shares sold (assigned) at $90 strike price 11/23 option expiration. Profit after commissions = $ 7,980.
Bought 100 shares QID at $74.53 and 200 more at $73.13 this Weds. 11/28. Not looking to sell calls, the spreads are too big for one thing, and more importantly the premiums will spike if (when?) this market tanks again. If the market continues up will wait till QID hits support around $60 and buy 200 shares more. Otherwise, when the market tanks again (it will) I will sell in the $95-100 range.
I am long a couple hundred shares Alcoa Aluminum (AA) and a couple hundred shares Valero (VLO). Bought AA recently at $9.66 sold two Jan 10 calls at $1.45 and bought VLO at $30 a while back (OK it seemed cheap at the time) and sold two Dec 17 1/2 calls at $1.84 a week ago. 10+% return in less than a month with downside protection to 15 3/4.
You are buying puts for your downside protection?
How are you calculating implied volatility?
Are you using the black scholes merton model or some other model to price your options?
Edited by Liquidkick (01/07/09 02:35 AM)
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Liquidkick
H2O
Registered: 05/03/02
Posts: 2,635
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Re: Stock Update for December 22, 2008 - [Re: LunarEclipse]
#9562356 - 01/07/09 02:46 AM (15 years, 24 days ago) |
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Quote:
LunarEclipse said: Hey Geokills looks like that distribution money you and I will be receiving today from ProShares will be treated as ordinary taxable income and NOT short term capital gains. Ridiculous and unfair. What it means is that ProShare can treat what should have been a short term capital loss as an ordinary loss which means they can write off these losses against their own income. In other words, it's to their benefit and at the expense of their bagholders. They probably negotiated with the IRS to get this done. What a bunch of scammers.
http://seekingalpha.com/article/112499-proshares-rydex-cap-gains-payouts-completely-unfair
ProShares, Rydex Cap Gains Payouts Completely Unfair by: Index Universe December 29, 2008 Index Universe
By Matthew Hougan
The huge distributions at ProShares and Rydex are a reminder that the old rules on cap-gains distributions must change.
(If you haven't read my articles on the distributions at ProShares and Rydex, they are available here and here.)
Capital gains distributions from mutual funds are inherently unfair. Fund companies pay out a full year's gains on a single day, and the impact on shareholders is almost arbitrary:
If you happen to sell a fund one day before it pays a distribution, you avoid that distribution altogether; If you happen to buy a fund one day before it pays a distribution, you get hit with the distribution in full. With traditional mutual funds, this situation is unfortunate but tolerable. The majority of investors hold their mutual funds for many years. Therefore, the majority of shareholders receiving a distribution will have held the fund in question during the period in which the gains accrued.
With the ProShares and Rydex inverse ETFs, however, the situation is completely different. Industry discussions suggest that the average holding period for these ETFs is somewhere around two weeks. Therefore, we can assume that the vast majority of shareholders who got hit with distributions did not hold those ETFs when the gains accrued. That's inherently unfair. The trading-oriented nature of these ETFs means the once-per-year distribution system doesn't work.
The situation is made worse by the fact that short-term capital gains distributions are treated as regular income—and not as short-term capital gains—on tax returns. It sounds like a technical distinction, yet it's anything but. If distributions were treated instead as short-term gains, there wouldn't be a problem: after all, when ETFs make distributions, their share price drops by the amount of the distribution. An investor could therefore sell their ETF, realize the capital loss and offset any distribution that way.
But under current tax law, they cannot offset the distribution in full this way. Investors are allowed to offset $3,000 of regular income with short-term capital losses, but that's the limit. If an investor receives a distribution worth more than $3,000, they will be (unfairly) stuck paying the tax man.
This should be changed. I'm not sure why the Internal Revenue Service decided that short-term capital gains distributions should count as income, and not as what they are: short-term capital gains. Either the rule should be abandoned altogether or some sort of exemption should be made for trading-oriented ETFs.
Immediately.
Short Term Cap Gain/Loss: Capital asset was held 1 yr. or less.
Capital assets held for one year or less are taxed the same as ordinary income. This is not net capital gain.
Reference Sections 1201, 1211 & 1212 of the internal revenue code.
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geokills
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Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 2 hours, 52 minutes
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Stock Update for January 8, 2009 - APOL, DV, WMT [Re: geokills]
#9575107 - 01/09/09 12:59 AM (15 years, 22 days ago) |
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Ugh, got my ass handed to me after the bell today on my Apollo (APOL) short.  DeVry (DV) (of which I'm also short) went up in sympathy to Apollo's good quarter - whoops! 
I also took a li'l beating with WalMart (WMT) today, after they reported a weaker than expected same store sales number for December (though it was still a 1.7% gain). Relative to most retailers they are doing quite well, and seem to be the best positioned to take share in this economic climate given their superior buying power and discount oriented sales structure. The stock is trading at 14 times newly revised (seemingly conservative) estimates, well below its historical average... So I added 25 shares @ $51, and will buy more if shares fall below $50.
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geokills
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Registered: 05/08/01
Posts: 23,417
Loc: city of angels
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Stock Update for January 9, 2009 - APOL, DV, MRO, FXI, SDS [Re: geokills]
#9579100 - 01/09/09 07:27 PM (15 years, 22 days ago) |
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Interesting week, the market took a slide and is likely to continue floundering about in a trading range so I am maintaining high levels of cash on the sidelines. One important thing to note is that we are currently sitting at a key support level on the S&P500, which closed today smack upon its 50 day moving average. This is causing the 50 day moving average - which had juuuust started to trend upwards - to flatten out again. If we don't hold 889 on the S&P and the 50 day turns steeper to the downside, we may be back down to 850 or even 825 on the S&P before we know it.
The fact that we showed 524,000 jobs lost today (which was roughly in line with expectations) is a "good" thing - even though the 7.2% unemployment rate is the highest in 16 years. The job loss number is a lagging indicator; adding more concern however, is that the hours worked declined this month, suggesting that we will be in for more nasty job losses since employers tend to reduce work hours before they actually start laying people off.
- Apollo (APOL) & Devry (DV) - Burned and singed
I am now underwater 15% on my Apollo short, after the educational company reported an upside surprise to their quarterly report after the bell yesterday, the stock closing up nearly 11%. I am not covering yet, because frankly I think this one will cool off again. Likewise, DeVry being in the same industry was up 7% on sympathy to Apollo's positive quarter, and though I am still up 5% on the short position, I am also going to wait at least until next week to buy back the shares (or "cover" the short).
- Marathon Oil (MRO) - Sold 30 shares $29.20
You heard me hemmin' and hawin' about this one earlier in the week. I didn't take profits then because I liked the high dividend yield I locked in with my timely purchase @ $21. Thinking about it with a clearer head however, I realize that oil stocks have seen a HUGE bounce and it would be stupid not to lock in more of these gains... especially with the market as treacherous as it is. Afterall, I can always buy these shares back again if they fall lower - and there is no harm in holding a little more cash during these hard times. Therefore, I trimmed one third of my remaining position in this name, for a 39% gain. Ah the sweet taste of victory!
- iShares Trust FTSE/Xinhua China 25 Fund (FXI) - Bought 60 shares @ $27.75
Given China's huge economic stimulus plan, tax cuts and rate decreases (with much more room to continue cutting), odds are that they will be the major driver of global growth going forward. I have been watching this ETF of major Chinese stocks for a while and decided to initiate a small position today, which I will add to on further weakness. I am buying an ETF instead of individual companies because China will do everything they can in order to maintain economic growth and prevent unrest amongst their huge population; but on the same token, they don't necessarily care which companies their growth comes from, so shady shit could go down with any given company. This ETF will reduce my risk while still giving me solid exposure to their growing economy.
- UltraShort S&P500 ProShares (SDS) - Sold 20 shares @ 70
As we have seen some weakness this week and were nearing the 50 day moving average support level, I wanted to reduce my exposure to this downside hedge. Technical patterns are still marginally positive for the overall market and I don't want to be so heavily short just in case we do bounce off of the current support level. The fact that we got the terrible job loss number out of the way today may help ease the market a bit. If we break support, I will be likely to buy these shares back for a quick trade into the 825 - 850 level on the S&P.
Discretionary Portfolio as of 1/9/2009:- 32.2% Cash
- 17.8% UltraShort 20-year Treasury (TBT)
- 16.1% Altria (MO)
- 12.5% WalMart (WMT)
- 9.2% Kinder Morgan Energy Partners (KMP)
- 9.1% Proctor & Gamble (PG)
- 5.8% UltraShort S&P500 ProShares (SDS)
- 5.1% Gilead Sciences (GILD)
- 4.3% Marathon Oil (MRO)
- 4.3% Celgene (CELG)
- 4.1% JPMorgan (JPM)
- 3.5% iShares FTSE/Xinhua 25 China Fund (FXI)
- 7.2% margined short equivalent DeVry (DV)
- 7.8% margined short equivalent Henry Schien (HSIC)
- 9.1% margined short equivalent Apollo Group (APOL)
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geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 2 hours, 52 minutes
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Stock Update for January 14, 2009 - APOL, DV, FXI, CELG, PWR [Re: geokills]
#9609973 - 01/14/09 06:04 PM (15 years, 17 days ago) |
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As we near the 825 support level on the S&P500, I am doing some house cleaning.
- Apollo (APOL) & DeVry (DV) - Closed short positions
My thesis on these two educational providers was derailed by Apollo's good quarter last week. The stocks have succumbed to a bit of weakness since then, so I am covering these short positions. Apollo for a loss and DeVry for a gain, which have balanced out to a minimal overall loss since Apollo really shot up on the heels of its quarterly beat. I may reload if these stocks jump higher, but I am in one of those moods where I want to simplify and consolidate my portfolio and I'm tired of waiting on these now. However, I may want to reload sooner than I had anticipated (see Random Thoughts below).
- iShares FTSE/Xinhua China 25 Fund (FXI) - Bought 40 shares @ $25
The Chinese government is doing a lot to ensure that their economy continues to chug along. They are implementing a $600 billion stimulus program, $40 billion telecom spending plan, lower interest rates (with much more room to cut), tax cuts, and incentives on real estate. The Baltic Dry Index (which tracks shipping rates) is up again, which may be on account of China's increased economic activity. I will continue to build this position on weakness, with the expectation that the Chinese economy will be the strongest over the next several years.
- Celgene (CELG) - Bought 25 shares @ $48.50
Celgene issued conservative earnings guidance on Monday, with 2008 numbers in line with the consensus and 2009 coming in a little weak. Currency concerns (a strong dollar) have also caused analysts to lower their estimates. However, the company remains one of the fastest growing biotech stocks with projected growth greater than 20% over the next several years. It dominates the cancer market with Revlimid, which has shown strong efficacy in multiple myeloma (MM) and myelodysplastic syndrome (MDS). This class of drug has shown to have a wide range of biological activities and could have additional applications for other diseases such as non-hodgkin's lymphoma. If testing proves positive, the patient population that uses Revlimid for MM could also double. On top of that, the company is expanding overseas which should continue to add growth (but which has also resulted in the currency related concerns that have recently pressured the stock).
- Quanta Services (PWR) - Bought 115 shares @ $18
I closed my position in this primarily electrical infrastructure related play 16% higher. Now that shares have come back down, I am back in and buying more. Quanta should be a huge beneficiary to clean power programs in wind energy as they build the transmission systems necessary to connect these new systems to the electric grid. Obama has recently spoken about his intention to promote wind energy programs - which is one of the reasons the stock spiked up recently - and is also one of the reasons I am still interested in this name. I will load up the boat if this stock finds its way to $15.
- Random Thoughts...
Bank of America (BAC) seems to be in serious trouble after it appears that they will need even more TARP funds, and that Obama's new economic guru Larry Summers has stated that the American people will no longer tolerate tax payer funds helping to support executive pay or dividends - in essence, that if you need access to TARP funding, your will have to sacrifice the common stock of the company. Earnings coming up on the 20th, may make a good short opportunity.
News relating to litigation against Apollo Group (APOL) that could result in a loss of Title IV accreditation, which is where Apollo derives 77% of their revenue. In fact, Apollo is the largest single recipient of student loan funds in the country. I may indeed be reloading this short position sooner than I had anticipated - and in fact, should probably not have brought it in at all.
ConocoPhillips (COP) has been building a nice base, showing a series of higher lows since the November trough. It may be that this company - the largest of the integrated oil stocks - is staging a breakout. Volume has been tending to increase on the advances and decrease on the pullbacks and the descending trendline has been broken.
Still lookin' for Nordic American Tanker Shipping (NAT) to come in below $30. The yield is impressive and they recently took a hit after issuing a public offering of new stock in order to complete the acquisition of a new tanker. This is preferable to having issued debt, and I wouldn't mind owning this one, especially if I could get it in the mid $20s.
Trying to lighten up on my Proctor & Gamble (PG) position, but I missed the recent opportunity around $62 - 63 because I was being greedy. P&G has implemented hedges (locking in specific rates for various input costs) which are probably working against them, since they are still active at a higher price, even as various input costs have rapidly declined in the recent months. This may result in a weak upcoming quarter, and if I can find a pocket of strength, I would like to lighten up on this position if not close it entirely.
Discretionary Portfolio as of 1/14/2009:- 19.3% Cash
- 14.9% Altria
- 14.4% UltraShort 20-year Treasury Bonds (TBT)
- 10.8% WalMart (WMT)
- 8.0% Kinder Morgan Energy Partners (KMP)
- 7.6% Proctor & Gamble (PG)
- 5.8% Celgene (CELG)
- 5.6% UltraShort S&P500 ProShares (SDS)
- 4.7% iShares FTSE/Xinhua China 25 Fund (FXI)
- 4.4% Gilead Sciences (GILD)
- 3.9% Quanta Services (PWR)
- 3.6% JPMorgan (JPM)
- 3.6% Marathon Oil (MRO)
- 6.7% margined equivalent Henry Shein (HSIC)
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geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 2 hours, 52 minutes
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Stock Update for January 15, 2009 - SDS [Re: geokills]
#9614992 - 01/15/09 02:28 PM (15 years, 16 days ago) |
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Good day for me, despite being sick!
My moves yesterday and earlier today have proven to be prescient. Quanta Services (PWR) is up 11% from my purchase yesterday, Celgene (CELG) has also shown strength and even the FXI has remained stable (though this one I intend to build slowly as the Chinese market can be very volatile).
Furthermore, closing my educational shorts in APOL and DV weren't such a bad idea afterall, with Apollo jumping nearly 8% today. If it weren't for the fact that the markets staged a nice reversal during the middle of the day today and have rebounded off of key support levels, I would have put my Apollo short back in play. As it stands, I think the strong close for the markets today can lead to further upside tomorrow, so I will wait patiently before putting back on any short positions as we have been getting increasingly oversold over the last few days and could experience a short upside bounce here. With that in mind...
- UltraShort S&P500 ProShares - Closed position @ $84.25
Given that this ultrashort position has run some 30% since January 6th, with particularly violent upside moves over the last two days, I am closing it off and booking the gains. The S&P500 bounced off of its ~825 support level from December 1st, 2nd, and 5th today. Given the strong close, I think we could be in for a little bit more upside tomorrow - and since it is options expiration this week, the moves could be exaggerated. Given all of that, I think the smart thing to do is reduce my short exposure in accordance with my previous intention to cover between the 850 and 825 level on the S&P.
Discretionary Portfolio as of 1/15/2009:- 25.3% Cash
- 15.0% Altria (MO)
- 14.2% UltraShort 20-year Treasury Bonds (TBT)
- 10.7% WalMart (WMT)
- 7.9% Kinder Morgan Energy Partners (KMP)
- 7.5% Proctor & Gamble (PG)
- 5.9% Celgene (CELG)
- 4.7% iShares FTSE/Xinhua China 25 Fund (FXI)
- 4.4% Gilead Sciences (GILD)
- 4.2% Quanta Services (PWR)
- 3.6% Marathon Oil (MRO)
- 3.3% JPMorgan (JPM)
- 6.7% margined SHORT equivalent Henry Schein (HSIC)
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Silversoul
Rhizome


Registered: 01/01/05
Posts: 23,576
Loc: The Barricades
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Re: Stock Update for January 15, 2009 - SDS [Re: geokills]
#9616845 - 01/15/09 07:11 PM (15 years, 16 days ago) |
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Question: How much disposable income should one have before investing in the stock market?
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AroundtheSon
Learning to See



Registered: 01/11/07
Posts: 4,427
Loc: Midwest.
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Re: Stock Update for January 15, 2009 - SDS [Re: Silversoul]
#9619382 - 01/16/09 05:39 AM (15 years, 15 days ago) |
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6 months of your needs or more.
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geokills
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Registered: 05/08/01
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Re: Stock Update for January 15, 2009 - SDS [Re: Silversoul]
#9621454 - 01/16/09 02:09 PM (15 years, 15 days ago) |
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Given the distressed state of global markets at this time, I would suggest that any money you place within, should not be needed for at least 3 to 5 years.
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Luddite
I watch Fox News


Registered: 03/23/06
Posts: 2,946
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Re: Stock Update for January 15, 2009 - SDS [Re: geokills]
#9639989 - 01/19/09 05:37 PM (15 years, 12 days ago) |
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geokills
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Registered: 05/08/01
Posts: 23,417
Loc: city of angels
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Stock Update for January 20, 2009 - JPM, BP, WMT [Re: geokills]
#9651272 - 01/21/09 10:31 AM (15 years, 10 days ago) |
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Yesterday was a waterfall of a day, down right from the get go and continuing to fall all day long. While I believe that we are likely to revisit our November lows, I did some nibblin' at some high yielding stocks at the close. Didn't get a chance to post an update yesterday because I was busy throughout the afternoon and evening, but here's what went down:
- JPMorgan (JPM) - Bought 55 shares @ $18.15 / Sold 50 @ $20.15
With the shares marking a new 52-week low yesterday, I was happy that JPM has been my smallest position in the portfolio for some time. Nevertheless, I do believe that they can emerge from this crisis as a financial leader, and though their dividend could very well be at risk, it is still going to offer some support in the meanwhile (at over 8%). Additionally, the BKX (bank index) is sitting at a strong support trend level from which it has bounced three times over the past year. We should also bear in mind (though there is certainly no guarantee), that with the arrival of a new SEC chairman, there is the potential for Mark-to-Market rules to be repealed, which would likely cause the financials to rip violently to the upside. Even so, I flipped these shares today for the quick 11% gain.

- BP Inc (BP) - Bought 30 shares @ $41.50
I closed a position in BP at $71.77 last May, and am now reinitiating the position (albeit a very small one), given that the stock is now some 42% lower. Granted for good reason, but oil has not been able to breach the $30 level, as it seems that China is buying again all the while the Middle East is tightening up their production. Furthermore, BP has an aggressive cost-cutting program underway and their problems with the Russian government seem to be less of a concern. With the stock now yielding over 8%, and with a mind to believe that oil may be making a "W" shaped bottom here, I am going to increase my exposure to the sector (given that I already own a small position in Marathon Oil (MRO) which I have been scaling out of for a profit, and which is still 30% above my cost basis.

- WalMart (WMT) - Bought 20 shares @ $49.76
Should've waited instead of buying at the open this morning as the stock is still under pressure thanks to a downgrade due to December's sales falling below expectations in addition to expected competition from Target. Remember however that December sales were still UP, even as practically every other retail was showing declines. Retail is certainly not a strong sector to be in, but WalMart should remain able to take share. Thanks to Target's weaker balance sheet, they shouldn't be so much of a threat to Walmart. The trade down thesis is still in effect, as unemployment rises and confidence deteriorates, consumers are likely to look for better bargains. WalMart offers low prices, large selection, and nearly 50% of its products are food/consumables. I'm stickin' with it.
Discretionary Portfolio as of 1/21/2009:- 21.0% Cash
- 15.4% UltraShort 20-Year Treasury (TBT)
- 15.3% Altria (MO)
- 12.1% WalMart (WMT)
- 7.9% Kinder Morgan Energy Partners (KMP)
- 7.5% Proctor & Gamble (PG)
- 5.8% Celgene (CELG)
- 4.5% Gilead Sciences (GILD)
- 4.5% iShares FTSE/Xinhua China 25 Fund (FXI)
- 4.0% Quanta Services (PWR)
- 3.6% Maraton Oil (MRO)
- 3.0% JPMorgan (JPM)
- 2.2% BP (BP)
- 6.7% margined short equivalent Henry Schein (HSIC)
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-------------------- ┼ ··∙ long live the shroomery ∙·· ┼ ...╬π╥ ╥π╬...
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geokills
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Registered: 05/08/01
Posts: 23,417
Loc: city of angels
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Re: Stock Update for January 20, 2009 - JPM, BP, WMT [Re: geokills]
#9652634 - 01/21/09 02:32 PM (15 years, 10 days ago) |
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Ack, I sold out of my JPM trade from yesterday just a few hours too early.  The stock saw another 12% jump on top of the 11% that I booked. Of course, I'm not one to begrudge a profit & will take this lesson to heart as a learning experience.
Edit: Hah, news out after the bell that Diamond (JPM's CEO) has been buying shares and the stock is almost up to $24 after hours. That's 19% above where I sold 50 shares this morning, and 32% above where I purchased 55 shares yesterday.
I also happened upon this excellent article by Daniel Dicker of TheStreet.com. Anyone wondering about the fluctuations in the oil and gasoline markets should take a moment to wade through this one. It's a little wordy at first, but carries an informative message for those interested.
Quote:
For the Future of Oil, Look to the Past By Daniel Dicker 1/21/2009 3:31 pm EST
The same patterns that emerged in the oil markets during their historic move upward last summer are now just as apparent -- only in reverse. We can make almost-certain predictions on oil and some related equities, particularly the refiners, if only by remembering what happened last year and then looking for perfectly mirrored and opposite actions now. Let me tell you what I mean.
A Brief History
Through the run-up in oil through 2007 and into July 2008, a premium or backwardation of the oil curve was the norm. Oil on the futures markets is traded in monthly delivery units, and the prices for those months are not set collectively. Each month will trade separately and generate its own price. The differentials between those prices are called spreads.
When the months closer to delivery -- the front months -- are trading at a premium to the months further out on the curve (the back months), the market is said to be trading at a premium. The market is then backwardated. This was almost consistently the case during the bull-market bubble of oil leading to the high price of $147 we saw in July 2008.
The spot month consistently ran at a premium of a few dollars to the next month into the curve, and often that premium would continue through the curve. Front months during the run-up could often carry $6, $7 or even $10 of premium to the next month forward. What was even more telling was the relative acceleration of the market at any one time. In other words, the faster that oil was moving upward during the run up, the greater the premium one saw in the front months. This is a commonly recognized phenomenon to traders -- it is known as a squeeze.
Squeezes are historically caused by fundamental demand increases, often because of short-term supply disruptions. In the case of oil in 2007 and the first half of 2008, this was not, in my view, fundamentally the case. While there existed an enormous demand increase for spot market oil contracts, that demand wasn't driven primarily by supply problems. As people who read the columns I wrote on this subject in 2008 know, I believe it was caused by investment demand more than anything else.
The mechanism for traders and how this demand increase would affect trading is even more interesting. As increased demand for spot month contracts came in, liquidity providers would have to try to find arbitrage or spread hedges to be able to sell these contracts to ravenous investors. Invariably, they would buy back-month contracts to try to offset shorts they were accumulating in the front contracts. As continued demand for front-month contracts emerged as oil raced higher, arb traders were forced to cover front months, a condition that worsened as these months approached expiration, when the "spot squeeze" would force premiums to ratchet up quickly and without apparent reason. This also had the side effect of putting unnecessary pressure downward on the month about to become spot -- it would leave a "rally zone" of a few dollars that would almost always be made up soon after becoming spot, as traders put self- imposed floors and tried to cover shorts they created from the spread rolling they had just completed.
So here's the pattern we saw on the upside -- premium markets as long-term investor money flows into front months while short-term traders establish long positions further out on the curve. This would often cause last-minute spot squeezes and inordinate premiums as contracts expired.
Mirror Image
Let's look at the oil markets today. The perfect opposite is occurring. We now have huge discount markets, known as a contango condition. As much as the premium market was fueled by investor appetite, the contango market is being bullied by investor retreat of capital and an ever-increasing deleveraging of speculative accounts that were engaged in commodity investment.
As if looking in a mirror, discounts become more and more pronounced as spot months near expiration, and the month that soon becomes spot is artificially made strong from spread-rolling. It now leaves a vacuum to sell down to immediately after becoming spot on the board and creates barriers to a sustained rally, because the short-term trader is almost invariably long these front months and stands waiting and hoping for a rally to sell. It is as difficult to break this cycle on the downside as it was difficult to break the opposite cycle as the market moved upward.
A Fire for the Refiners
The beneficiaries of this cycle further prove how much oil has become a capital market, driven more by money flow and trade and less by demand and supply issues. Crack spreads, a measure of the price of refined products when compared to the raw crude from which they are manufactured, are proving this disconnect between fundamentals and price.
During the run-up last year, cracks were continually under pressure as the crude barrel price outraced the price of refined products. It was hard for consumers to believe that domestic refiners were going broke with gas at $4.50 a gallon, but it was absolutely true. Cracks during peak summer periods ran at single digits and often went negative, meaning that the price of gasoline was trading for less than the price of the crude barrel that was used to create it.
Now that crude prices are under continued pressure from deleveraging, cracks have shown remarkable recovery from those levels. Cracks for January and February are now running at around $8.50, a terrific margin for gasoline in the offseason. In essence, the fundamental relationship between gasoline and crude oil has been restored with the removal of investor crude appetite. The winter cracks in 2009 now represent historical "norms" for winter margins. This is a disconnect we cannot explain otherwise -- it is incredible to see $9 cracks in the winter while seeing negative summer cracks -- but this is what we have seen in this tremendous unwinding.
Refiners have been helping this along, taking some advantage of this situation, and probably not unreasonably so -- they suffered so miserably throughout the run-up of the last year. In other years, they were able to see $25, $30, sometimes $40 crack premiums in the summer, but they had to labor with loss premiums last year. Now seeing an opportunity to recoup some of these summer losses, they have "helped" the process by slowly decreasing utilization of refining capacity for the last few months.
Utilization figures have come in from EIA reports in the low to mid-80% range -- the lowest level this country has seen since the early 1990s. And from a retail level, it is a lot more palatable for the consumer for refiners to "help" along the "reverse squeeze" the crude market is now experiencing for the benefit of refinery margins: A $10 dollar margin increase for gasoline translates to another 25 cents a gallon at the pump, much less noticeable or distasteful when gas is selling for $1.75 a gallon.
Looking Forward
What might change and break this cycle of downward pressure? Much like the bubble bursting last year in the summer, we'd need a renewed appetite for oil exposure to go with an improved fundamental picture -- a difficult scenario to imagine in the near future. However, the huge capital injections from the Fed will at some point trump the deflationary spiral we're in and add an inflation wild card to our mix. We'll see the discounts start to come out of the oil market and give us an indication of a turnaround back up. Until that happens, the economy will have to "suffer" with lower oil prices. And the domestic refiners will certainly be better investments than they were with oil prices on the rise.
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Know what you own: Companies that may be affected by the price of crude include ExxonMobil (XOM) , ConocoPhillips (COP) , BP (BP) , Marathon Oil (MRO) , Valero (VLO) and Hess (HES) .
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-------------------- ┼ ··∙ long live the shroomery ∙·· ┼ ...╬π╥ ╥π╬...
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LunarEclipse
Enlil's Official Story


Registered: 10/31/04
Posts: 21,407
Loc: Building 7
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Re: Stock Update for December 22, 2008 - [Re: Liquidkick]
#9664899 - 01/23/09 12:01 PM (15 years, 8 days ago) |
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Capital gains/losses are reported to the IRS in a Schedule D and this is treated separately from ordinary income. Let's assume you don't have any long term capital gains or losses to keep things simple. If the ETFs are giving you a distribution that the IRS treats as ordinary income rather than capital gain, then you can NOT offset that income against short term capital loss. Assume you have net $5,000 in short term capital losses for 2008. Your ETF distributes to your account $2000 in 2008 a distribution that the IRS considers to be ordinary income and NOT a short term capital gain. You can NOT offset that $2000 of income against the $5000 short term capital loss. You will then be liable for tax on the $2000 of income from the ETF and will only be able to write off $3000 of the $5000 of short term loss because $3000 is the maximum loss declarable in any given year (you can rollover additional losses to future years). If the IRS considered the distribution to be a short term capital gain (which seems logical but NOT what the posted article says you should reread it) then you COULD offset $2000 of your $5000 loss with that gain leaving you with no additional $2000 of income to pay taxes on for 2008.
-------------------- Anxiety is what you make it.
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LunarEclipse
Enlil's Official Story


Registered: 10/31/04
Posts: 21,407
Loc: Building 7
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Re: Stock Update for November 28, 2008 *DELETED* *DELETED* [Re: Liquidkick]
#9664975 - 01/23/09 12:20 PM (15 years, 8 days ago) |
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Post deleted by LunarEclipseReason for deletion: nunya
-------------------- Anxiety is what you make it.
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AroundtheSon
Learning to See



Registered: 01/11/07
Posts: 4,427
Loc: Midwest.
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Re: Stock Update for November 28, 2008 [Re: LunarEclipse]
#9665179 - 01/23/09 01:02 PM (15 years, 8 days ago) |
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gold run.
did you see STEM pop? good god.
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LunarEclipse
Enlil's Official Story


Registered: 10/31/04
Posts: 21,407
Loc: Building 7
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Re: Stock Update for November 28, 2008 [Re: AroundtheSon]
#9665285 - 01/23/09 01:24 PM (15 years, 8 days ago) |
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Quote:
AroundtheSon said: gold run.
did you see STEM pop? good god.
I would cell STEM.
-------------------- Anxiety is what you make it.
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AroundtheSon
Learning to See



Registered: 01/11/07
Posts: 4,427
Loc: Midwest.
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Re: Stock Update for November 28, 2008 [Re: LunarEclipse]
#9665536 - 01/23/09 02:04 PM (15 years, 8 days ago) |
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i see what you did there
just a nice pop for those that had waited patiently. Kind of cool for the underdogs you know. I am all up in the gold miners right now. Swinging them bitches when I can.
Up 11% today. but my portfolio still hurts overall due to the "recession".
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LunarEclipse
Enlil's Official Story


Registered: 10/31/04
Posts: 21,407
Loc: Building 7
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Re: Stock Update for November 28, 2008 [Re: AroundtheSon]
#9665789 - 01/23/09 02:50 PM (15 years, 8 days ago) |
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Quote:
AroundtheSon said: i see what you did there
just a nice pop for those that had waited patiently. Kind of cool for the underdogs you know. I am all up in the gold miners right now. Swinging them bitches when I can.
Up 11% today. but my portfolio still hurts overall due to the "recession". [/quote
You long NEM?
-------------------- Anxiety is what you make it.
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