Tuesday, November 23, 2010

Nov 23: Let's not forget that Santa Claus rally

As markets tap -- alright, hit -- the brakes in today's pre-market (v/v the NY behemoth) trade, consider this a public service: check the calendar; it's late November; tryptophan, Black Friday, Starbucks Egg Nog lattes (ick, I know...!), suddenly crowded airports, and of course, "All I Want for Christmas Is You" cruelly playing on perpetual repeat all suggest one fact: Santa Claus rally season is here!

Yes, this is that special time of year when markets become positively biased towards the upside. Volumes dry up, investors become even more delusional than ever, and markets tend to tip-toe higher, .4% here, .1% there. It's a suboptimal time to be aggressively short; options bets on volatility (e.g. long straddles) can also go awry.

And so, with the /ES contract down 13 in overnight trade, testing anew the support channel reached during last week's sell-off, now might be an opportune time to don those contrarian thinking caps and crack open a can of cranberry relish.

Here's the /ES:

Additionally, let's quickly consider the technical picture on the 180-day of BRCM. Here's a position where the chart supports a robust (S&R levels are tested repeatedly) and elegant (limited S&R areas define much of the price action) technical analysis picture.

As the reader can herself see, price is currently nestled against an upward sloping price channel, suggesting a potential near-term pull-back, and not inconsistent with the slumping morning futures trade. Over the time frame of one to three weeks, however, the chart strongly suggests further price appreciation, at the very least to the top-most price channel, i.e. the $45-46 level.

To summarize in brief, then, it's not every NYSE issue whose trade maps such a robust and elegant, v/v technicals, chart. I might have to print this one and mount it on my wall and gaze lovingly at it. Alright, maybe not the last part.

Thursday, November 18, 2010

The $400 that slipped away

A warning to all those crazies for whom the phrases "overbooked flight", "looking for volunteers", and "alternate routing via Spokane, El Paso and Halifax" might spontaneously release a flood of endorphins: the airlines don't always play fair.

Case in point: a few days ago I found myself awaiting the boarding of an overbooked flight, and the experience ended with a distinctly disappointing outcome -- though not for the reasons a casual reader might expect. To illustrate the event and provide a valuable take-away, indulge, fair reader, into the (privileged and confidential -- no, not really) communique that I dispatched to the senior tranches of United management (no, actually just to outsourced henchmen on the subcontinent):


To Whom It May Concern:

I am disappointed with a recent experience of volunteering my seat on an overbooked flight. The experience occurred yesterday, November **, 2010, at San Francisco airport and concerned UA ***, SFO-IAD.

While waiting at the gate for boarding to commence, I learned from a gate agent that UA *** was overbooked, and I asked for my name to be added to the list of potential volunteers. In conversation with another agent, I learned that I was at the top of the list. Then, as boarding commenced, the agents indicated that they*d need my seat and those of several other volunteers. The agents proceeded to process some of the other volunteers, off-loading them from UA *** and re-booking them on subsequent flights. Finally, as boarding was finishing, an agent indicated that my seat would not be needed after all, and that I could board UA ***.

My disappointment stems from the fact that I don't believe gate agents followed the proper order in processing volunteers. The belief is based on the information from one of the agents that I was at the top of the list of volunteers and, furthermore, on the improbability that all the volunteers processed before me held 1K or Global Service status.

In closing, I hesitate with submitting this claim, as the issue is not particularly serious. Furthermore, one of the agents was apologetic about the turn of events and personally escorted me to the aircraft to ensure that I found space in the overhead bins for my carry-on luggage. Yet, I have chosen to write after all because I felt let down by the whole experience, and the experience might highlight an area in which United could better manage its relations with its frequent fliers.



What is, in brief, a salient take-away from this experience? For one, the utility of being a "nice guy" does have its limits. On the one hand, maintaining a sociable and unhurried demeanor is surely appropriate when interacting with stressed agents contorting to dispatch an overbooked aircraft without sacrificing punctuality. And not only is such sentiment socially appropriate, it is also economically efficient, as it increases the chances of karma returning once the agents process volunteers' re-booking and issue compensation. But on the other hand, being too detached and amicable can invite fulfillment of the aphorism: "Nice guys finish last."

Indeed, that's exactly what happened to me. Despite being at the head of the volunteer list (and of this I'm certain), I did not push for priority processing; instead, I gave the agents some space, watching as they processed several other volunteers. Then, when they unexpectedly found themselves with an extra seat, I was the odd man out. Going forward, the savvy traveller (er, the selfish crazy!) would do well to tweak his relationship strategy with gate agents to avoid the risk becoming a push-over.

Nov 18: Markets poised for advance

As for markets prepare for an advance from the short-term oversold level that has resulted from the last fortnight's shedding of risk, I'd like to briefly point out a firm with a strong story: Textron.

The maker of Cessna aircraft and Bell helicopters has received a boost to its business from Chinese lifting of restrictions on civilian aircraft. (For instance, see "China to open airspace to civilian aircraft", FT, 11/15). Yet, the stock has barely registered any upside from this news, and furthermore, closed yesterday at a quite attractive price level v/v technical analysis considerations. The chart follows:

Tuesday, November 16, 2010

Nov 16: A sharp reversal

Markets contracted sharply in today's trade, with some securities coming into significant support areas. Contrarian bulls are whetting their appetites. But the broad outlook is more uncertain than bullish, as evidenced by, for instance, /ES.

In brief, /ES exhibited an unambiguous break through the price channel support of the post-summer rally. Such a movement portends further value deterioration in the weeks ahead, although not necessarily immediately. Indeed, the index looks oversold at the moment, and challenging 1225 is not out of the question, perhaps in a head-and-shoulders pattern, which is a classic topping formation. Here's the latest chart:

In the realm of individual securities, MRK and BIDU are two of many that standout. The drug maker is plowing quickly into what promises to be significant support; let's keep it on our radar screens as a potentially strong contrarian buy, should price hit the top line of the downward-sloping price channel. As the price channel is sloping in the same direction as price movement, the touch would be a "kiss of death", which has higher probability of repelling the movement.

The Chinese tech firm BIDU, meanwhile, is pulling back from a particularly strong advance in recent weeks. Indeed, while many leading stocks and whole market sectors have been stuck in the mud over the past few years, BIDU continues to advance in seemingly unstoppable fashion. A two-year chart of the security speaks volumes. But, to refer again to the 180-day panorama reproduced below, the current $103.5 support does not seem particularly durable. Additionally, the sharpness of today's 5% markdown -- a definite distribution day, in IBD parlance -- does not bode well for BIDU bulls over the upcoming weeks.

To end on some broad-market summary statistics, here is their representation: S&P500, 1178, down 1.6%. DJIA, 11024, down 1.6%. NASDAQ, 2470, down 1.8%.

Monday, November 15, 2010

In recent travels, a notable coincidence

On Friday, November 12, an American Airlines B737-800 took off from Washington's Reagan airport bound for DFW, experienced a cargo hold fire indication while climbing through FL260 (i.e. 26000 feet) some 60 nautical miles west of Dulles airport, and performed a diversion to Dulles, landing safely 26 minutes after wheels-up. The flight departed DCA at 8:43am.

And with apologies about the self-centeredness of this post, here is its meat: I, too, departed Washington at 8:43a on Friday, November 12, albeit from Dulles airport, aboard a United B757-200 bound for Los Angeles. Incidentally, I was listening to Channel 9, the live feed of air traffic control communications; however, I heard nothing about the AA diversion, possibly as I may have tuned to a music channel soon after take-off.

The bottom line: it's a small world. And I might do well to occasionally consider that transcontinental transportation, while very, very safe, is nonetheless inherently risky.

Thursday, November 11, 2010

Nov 11: Veterans' Day trade

With apologies to the discerning reader about the vague, content-less title of this post, I shall proceed into just as disjointed a data dump of some of the day's action.

First, a DJIA component had a veritable repeat of May 6th's Flash Crash in the final minutes of today's trade. Here are the smouldering remains:

I haven't yet seen any headline explaining the precipitous decline. [Addendum: Poor headline earnings numbers were the catalysts. The conf. call, which could either fortify the bears or spur on the bulls, is presently ongoing, as of 4:45p EST]. And vertiginous it certainly was: the $35.15 nadir marked a near-instant erasing of all gains since October 25. Put another way, the volatility of the last hour (i.e. the size of the hour's bar on a candlestick chart) exceeds that of any hour-long period in the past 180 sessions.

Second, take a look at XOM, no mere minnow given its status as largest market cap firm (per my possibly imperfect recollection) in the modest marketplace that is Wall Street. Dizzying, seemingly irrational, propelled by ask-questions-later fast fingers: the Exxon chart bears resemblance to that of DIS. Yet the direction is opposite. And how interesting that the curiously anthropomorphic psychology of markets can create a bipolar-eque bifurcation of emotion in two sister-stocks of the Dow Jones Industrial Average! (Granted, the time frame of the respective moves is dissimilar.) The chart follows:

I cannot omit the most important anomaly of today's trade: CSCO. A DJIA component too, the networking maker plunged 16 percent on a cut in its sales forecast; the chart follows:

As for the broad market, /ES printed 1211.5 at high noon in Anchorage, which corresponded to settlement of the S&P500 at approximately 1214, a change of -0.4%. The DJIA ended at 11283 (down 0.7%) -- and weighed down by CSCO and DIS -- while the NASDAQ closed at 2556 (down 0.9%).

Wednesday, November 10, 2010

Nov 10: An ascetic no more

After too long a hiatus, I have carefully recommenced formal re-engagement with that unforgiving but exhilarating world of relative value; I've entered a trade. The above chart depicts the security along with the analysis. And though the price channel is hardly rocket science -- indeed, it is remarkably simple -- the casual reader must bear in mind that uncovering such an elegant opportunity as this requires searching through countless charts. Further buttressing my decision to risk a long-side trade is that, at the approximate end-point of the above chart, /ES was approaching a test of the pivotal 1200 level from above, the first test of this level since breaking through last week. And, needless to say, the virgin test is usually repelled.

With regards to the above chart, violation of approximately $66.3 would trigger a stop, while $67.9 or $68.3 would make sound profitable-exit points.

Incidentally, this morning's strong sell-off in Boeing shares -- and this is news only to those readers on the planet Mars -- is chiefly caused by an emergency evacuation of a 787 test aircraft (ZA002) yesterday after eruption of a small on-board, in-flight fire.