It’s time for my bi-annual fishing trip to Alaska to fish for “Kings on the Kenai”. Although late July is toward the tail end of the salmon run, I should still be able to make the mandatory haul of “kings” and “reds”.

Each year I purposely take a break from the market for at least one week. Every two years I head up north to a buddies cabin on the Kenai River to fish for some outlandish sized salmon. The accomodations are Spartan—just the way I like it. No kids, no cell phones, no computer, no internet.

This year we’re going with another couple. The guys fish while the wives kick back, and read stacks of books and novels, while sipping on expensive wine. It’s a very laid-back and relaxing time that is much welcomed.

As I think about the current situation with the stock market, I see that it maybe worth the time to go fishing. The past two sessions gave the bulls some hope and a decent bounce. Was Tuesday the bottom? I don’t know. My guess is that six months from now, we’ll probably be able to determine if it is (was).

My point is, that it’s time. Time to seriously start looking at candidates to establish long positions, if you haven’t already. I’m not saying, “go all in”. No, that strategy is for riverboat gamblers and fools. But, if I were a betting man (which I am), I would stay with the market leaders in the strongest sectors. Especially those stocks that have gotten the combo ice pick / hammer to the chest: energy, steel, fertilizers, and coal. I think traders will go right back to the same names, should this market start to show a broader based rally. Old profitable habits are hard to break.

I’m saying just be ready for some surprises.

Right now, there are some new fishing holes that continue to come to my attention:

Biotechs and Drugs.

Yeah. That’s right. Though I blew out of those “adventures in fuckery“, the biotechs still remain a sector to explore. The group has come off a bottom, where the bullish percent sentiment was 14%, to where it currently sits now at 32%. Typically stocks approach oversold territory at 70%. We still have a ways to go.

A few names here: (SVNT: 27.24 +1.00%), $26.36, (ILMN: 91.74 +9.08%), $84.62, (CPHD: 27.89 -1.66%), $28.81, and (ALNY: 31.21 -2.16%), $31.83. (CELG: 69.266 -4.13%), $71.43, looks a little overbought here, so I’d be careful about wading into it. Wait to buy it on a pullback. You might even get it at $66.

The other sector that is rising up in ranks is, surprisingly, the Drug stocks. Market sentiment was lowest in March, with only 18% of the stocks in an uptrend. Drugs have sort of been hanging around and have been sleepers. Quietly the sector as a whole has been improving to where 34% of the stocks in the sector are on buy signals.

Some interesting names include: (PMC: 22.75 -0.22%), $22.06, (RIGL: 24.53 -4.29%), $24.85, (DEPO: 3.78 -3.08%), $3.99 (for those that insist on penny stocks), and (BNT: 0.00 N/A), $14.80. The usual suspects like (ABT: 56.98 -1.23%), $57.50, certainly should be on the buy list for those more conservative.

One drug stock to avoid is (APPX: 23.45 +0.30%), $23.38, which looks overbought.

Notice the long tail up. This stock is vulnerable to a sell off. Look for the reversal back down to $20 if you’re looking to short it.

Well, there you have it. A starting list of candidates for some fishing fun.

Obviously, there are no guarantees that the biotechs and drugs will continue to show improvement, so trade at your own risk—-and exercise caution.

Enjoy your day and weekend. See you all after next week.

Off to catch the Kings and Reds ! 

Employee 8 made a comment earlier and I just want to expound and clarify my position on (CNX: 80.872 -0.58%), and why.

I didn’t sell CNX today. I’m still holding it.

CNX, being part of the group of focus stocks, aka “fuckus stocks”, has a 30% trailing stop loss. All the ten stocks do. As of yesterday’s close, I was breakeven on CNX. I won’t sell it until it closes down to $77.25 at some point—-a 30% drawdown from it’s recent high close on 06/20.

My thinking here is to hold highly “resilient” stocks in leading sectors that show high volatility, and let them run through the ups and downs. I did research awhile back on this strategy, and the results were astounding.

The first group of focus stocks, started last June, is up 94.30% as of yesterday. The current 10 focus stocks in that group are: AKS, ANR, SID, BAP, GTE, LSR, LNN, MTL, MOS, POT. Number of trades: 26.

POT is up 204% since 06/04/07; MOS 117% since 11/5/07; GTE 193% since 1/17/08 and ANR 147% since 3/4/08.

I wouldn’t have these kinds of returns if I was too quick on the trigger in selling everytime a stock got “hammered”. It does take some balls to hold stocks using this strategy. But the payoff can potentially be grande.
 
This tells me that a portion of my portfolio needs to be allocated to this kind of strategy. Picking the right stocks in the right sectors and holding is everything.

I’m either out with a target of a 1,000% return, or a 30% loss from the highwater mark. Otherwise, I hold.

I wouldn’t do this as a total portfolio strategy because the volatility can keep a person up at night.

The current one I started in May is up 7.62% as of yesterday for the 10 stocks.

I’m doing one of these a year (give or take) and the whole strategy is going to be no more than 20% of my investable assets. I’m only disclosing the activity on the current one from May on this blog.

I started a very small position in (AFK: 40.35 -1.66%) @ $41.89 (11:46 ET).

This is the new Market Vectors Africa Index Fund, the first ETF to focus on the African markets. It’s the next emerging market to take off, imo. I took a position in it, so now I have to follow it.

The political climate in Africa is improving, but remains fragile. The largest economies are South Africa, Egypt, Algeria and Libya, which account for 62% of economic activity on the continent. I’m hearing about more investments in the infrastructure in a number of the countries, which is a precursor to growth.

(AFK: 40.35 -1.66%) tracks an index of stocks from eleven African countries. Stocks related to  South Africa, Nigeria, Egypt and Morocco account for 81% of the fund. I say “related to” because many of the companies in the index aren’t actually based in those countries, but derive a significant portion of their revenues from the region.

Sector exposure is in banks, basic materials and resources and oil & gas.

Disclaimer: This is not intended to be investment advice. Due [sic] your own due diligence and trade at your own risk. Know that if you buy AFK without checking it out, baboons will invade your cornfield and you might be de-banked. 

Sold my remaining 1/2 of my (RKH: 107.20 +2.05%) position @ $90.98 (11:09 ET). All out with over 11 points on average cost basis.

Due to this pleasurable experience with the banks, I’m now honing in on (KRE: 30.76 +2.36%) as a potential buy to piggyback on the potential smaller regional bank rally. Just looking, mind you.

I just sold 1/2 of my (RKH: 107.20 +2.05%) position @ $93.91 (10:40 ET) based on a reversal from 97 back down to 94.

I’m keeping a vigilant eye on the remainder of RKH. The major components of this ETF are JPM, USB, WFC, WB and BAC, which account for about 61% of cap-wgt.

I’ll sell the remainder on a 91 stop.

As always, trade at your own risk, and be careful out there.

In a strange twist of fate, some of the big bank stocks are ripping. Much to the “bank bears” chagrin, (WFC: 31.03 +1.97%) started this whole fiasco yesterday by reporting better than expected earnings.

“Where there’s smoke, there’s fire”, my late grandpappy used to say, God rest his soul.

This morning, (JPM: 42.13 +3.11%) is ripping because they beat profit estimates. They said profit fell 53 percent, a smaller drop than analysts estimated, on mortgage-related writedowns and costs from the takeover of Bear Stearns Cos.

May we expect more of these kind of surprises?

In “sympathy” other names like (BAC: 33.37 +3.15%) and (WB: 17.75 +5.72%) are rallying. However, this run up isn’t getting a whole lot of endorsement by traders of (WFC: 31.03 +1.97%), (USB: 30.74 +1.18%), and (NTRS: 78.64 -2.42%), so be ready for some late day shenanigans by the bank bears.

As I had alluded to in a previous post, we could possibly see regional banks have a nice pop of 20% - 30% during the Q2 earnings reporting season. If they are so inclined to play with flaming balls of fun, contrarians may want to investigate some of the worst, tired and poor names that have been beaten and bombed, of late.

What to do with the (RKH: 107.20 +2.05%) that I bought yesterday at $80.92 ? That is the question. When I look at the “tic tac toe” chart, I see a possibility that it could sashay to over $100 based on continuing surprises by its components and banks, in general.

If it breaks $106, the downtrend will be reversed, as it will breakthrough the bearish resistance line (red). So I will continue to hold it for now, letting the profit build to a creszendo and then (hopefully) adeptly sell it and go out an eat a buffalo ribeye.

However, a one point this morning it was up over twenty-two handles since the close on Tuesday, so I may be inclined to sell it today—-very soon.

Keep your eye peeled to this development.

Finally, we may be seeing all the cluster-facking by the banks come to a head in the residential mortgage bidness, with the backstopping of (FNM: 14.96 +11.56%) and (FRE: 10.80 +11.34%). Is the worst behind us?

I still don’t think so.

Disclaimer: I don’t know your sitrep, so don’t take this as investment advice. Trade at your own risk.

Sun Microsystems (JAVA: 10.54 +9.68%)…oversold. Trade the bounce with a buy stop @ $10.50

—————————————————————–

DRS Technologies (DRS: 78.10 +0.19%)…overbought. Sell short @ $77.

Disclaimer:

Momo players, do not try this at home. These are contrarian plays. The idea here is to screen for stocks in favorable sectors that are oversold, and buy as they reverse up on a bounce. And conversely, screen for stocks in weak sectors that are overbought, and sell them short as they reverse down.

I don’t know your sitrep, so don’t take this as investment advice. Trade at your own risk.

I bought shares of (CFR: 53.37 -0.95%) @ 50.39 (15:30 ET)

I will buy more on a pullback.

I’m fucking kicking myself because I took a look at this last week on Friday, brushed it off, filed the research info in a stack of shit and forgot about it……until today.

CFR is the largest bank holding company in Texas, with over 80 offices in the state. They’ve been in existence for over 140 years, operating solely in the State of Texas.

If there’s one area of the country where bidness is goood, it’s Texas. Reason: an oil & gas based economy, among other things.

The knock on this stock in the past has been it’s slow loan growth due to conservative lending practices. This, for obvious reasons, has actually turned out in their favor.

Q1 earnings were $0.89. I think they will report $0.90 for Q2. Given the current environment for regional banks, this would be a favorable comp to Q2:2007, when they reported $0.89.

Even with the gain in price of almost 12% today, the dividend is still over 3%. They announced an increase in their quarterly dividend from $0.40 to $0.42 in April, and paid it 06/13.

CFR also has one of the highest net interest margins in the business. Non-interest bearing deposits totaled 34% and low interest bearing deposits were 53%.

They pay virtually nothing on their deposits, but people keep doing business with them. “Why?”, I have asked, repeatedly. No toasters, free check re-orders or shit like that. But I think I found their secret….. 

A friend living down there told me that they must have some kind of hiring policy like, “flat-chested women need not apply”. He says, like,  half the women in the bank are racked and stacked! The other half look like about a C-cup….. He says he almost busts up (no pun) laughing whenever he goes into the bank, because the “hiring policy” is so obvious! Where was I?  Oh, yeah….their high net interest margin relative to peers helps to insulate them should credit spreads narrow egregiously.

Loan portfolio: At the end of 2007 they reported a loan portfolio of $7.7 billion, with 47% commercial and industrial; 13% land and construction; 16% commercial mortgage; 9% residential mortgage, 5% consumer loans and 10% “other”. Don’t aks me what “other” is. I don’t know, B. However, if you care to venture a guess, just leave it in the comment section.

Credit quality is very high. Net charge-offs for 2008 are estimated at 0.30%. A pittance. However, expect higher loan loss provisions, due mainly to a rise in loan balances, as management looks to build reserves.

They also have been in acquisiton mode, buying smaller banks in Texas, even an insurance company in December

One final thought: CFR would be a nice takeover candidate.

Secondary final thought: The women in Texas are HOT. 

Disclaimer: This information is not intended to be used as the primary basis of investment decisions. Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. Trade at your own risk

Took a small profit in (IBB: 85.12 +0.02%), $82.94.

On a relative strength basis, the biotechs aren’t participating in this rally today. I take that as a bad sign. I bought IBB this morning thinking that it would rally considerably. I was wrong.

Since my original thesis is not happening, I’m also out of:

(CGRB: 29.16 +0.52%) @ $28.30…$28.94 basis

(EXAC: 30.36 -1.24%) @ $30.90…$30.36 basis

(GENZ: 75.90 -4.29%) @ $78.93….$76.73 basis

(OSIR: 14.78 -1.79%) @ 14.95….$14.94 basis

(NUVA: 48.02 +0.06%)  @ $46.68….$47.86 basis

These are positions I took last week on 07/08.

I hate biotechs.

Lower oil + bank earnings surprises + oversold market = Rally

The action today is signaling a good chance for a run back up to 12,000. With commodity prices, especially oil, backing off, and the potential for regional banks to report better than expected earnings, the stage is set for a decent rally from here.

Market sentiment, as measured by the NYSE Bullish Percent Index is clearly in oversold territory, currently sitting at 26%. A move back up to 30% would be a sign that the bulls are starting to gain control again.

It will be interesting to see how the numbers will end up at the end of today