The Calm Before the Storm

Nothing big in the headlines with Bernanke today. The street was actually looking for hints of any interest rate hikes or halts, but didn’t get any. So, I guess we’ll all have to wait for tomorrow.

If you haven’t noticed, I changed some things around in the blog. I changed the header with a temporary picture. I added some pages that hopefully will be easier to follow my stream of financial conscience (I explained this process in the About page)

Please note that everything is under construction! Some pages have different background colors, and different layouts. I’m just experimenting here and brushing up on my HTML. It took me hours to change the banner! Anyway, I decided to publish the new look while adapting a “tweak as you go” policy. For now, I’m busy with other stuff so I probably won’t get to smooth out the website until later.

Aloha!
Gio

Is Overstock really oversold? I belive so. But the way their CEO Patrick Byrne is handling things is really, well… sad. Byrne has dedicated his time to battling the current stock market process, with all types of theories of loopholes, corrupt practices, and such. He claims that OSTK has been a target for naked short selling (more shares short than float!) which is driving his stock down. It seems like many of the hedge funds are taking it personal and are attempting to drive OSTK down further. I can see why Byrne is angry. As the CEO, his source of pay is only through stock options, no salary. And as an insider who bought millions of worth at the highs, this is no doubt troubling him. His retaliation gives him the reputation of a “cry baby.” Well at least that’s what comes to my mind. Byrne was affected by this so much that he turned over most of his operations in the company to a friend. Dr. Byrne, you really need to get focused and start preparing for the next earnings report in July. I really hope this is not a desperate attack to turn the stock around. Like I said before, the best way to scare the shorts is to perform and beat expectations. I would cover immediately on a company with strong fundamentals.

Nevertheless, Byrne is doing a good deed for the overall market. His dedication to expose fraud and educate the public about corrupt practices in the market is a big plus for the small investor. I too believe their is manipulation in the stock market here and there by those who have the money to do it. And I am cheering hard for Byrne to get the SEC to do something about it. But then again, how do we know the SEC is not in on some of the capitalist loopholes? You can find Byrne’s work at the Sanity Check Blog which tracks naked short selling. There are great slideshow lectures that can teach you all you need to know about the market in about an hour.

Anyway, I hope Overstock can get things together. I must admit, I bought puts in the stock after hearing it was targeted for unusual naked short selling back in December. Now, I’m out. The strategy is too well known and too played out- everyone everywhere is shorting Overstock! All they need is one good report, and the bomb will explode. Tic toc tic toc.

BTW, tomorrow is the Senate hearing on naked short selling. Too bad it had to occur on the day Bernanke opens his dirty mouth. My guess is that attention will be shifted away from Byrne’s odyssey.

Today’s selloff before the Feds was a conservative move by investors. Expect huge market volatility. If positive, expect flood of buyers and massive short covering. If negative, expect more unloading.

Stocks on my radar tomorrow:

• Hexcel (HXL) – lowered guidance, negative comments on aerospace industry. Looking for a shorting entry point at beginning of day.
• Overstock (OSTK) – stock still suffering from short selling scandal. Tomorrow is big news as case for naked short selling goes to Senate hearings. Unfortunately, Brian McIntyre is becoming more of a trader than a manager.
• Xiao Xing Universal Telecom (XING) – reports today afterhours in China (around 7 pm ET). The stock has already run up on bullish reports before conference call. Looking for extended rally if numbers come out even bigger.
• Bodisen Biotech– stock is in full momentum past few days off news from a new contract. Most sell orders occur around $15. Looking to go long until big sell orders fill, then switch to short.

The story around Overstock.com is quite interesting. Last year I bought puts in this stock when it was a target for naked short selling. Since then, the stock has been battered, and heavily shorted. The CEO couldn’t take it, and has battled the short sellers all the way to the court. It’s always a bad idea to leave your company’s operations to go and attack what’s happening in the market. All that tells investors is that your CEO is weak, and can’t handle seeing his company’s stock take a correction. If Overstock’s CEO Patrick Byrne wants to scare away the short sellers, a better move would be to turn his company around and make it profitable.

… that turnaround seems to be a bit closer. Today, the stock bounced 16% off an analyst upgrade, who made favorable comments on the O’s operations. This comment scared some of the shorts which squeezed the stock up quite a bit today. There is still a lot of room above especially if the O does give numbers that beat the street, and trust me, there are a lot of shorts here! Overstock has a whopping short ratio of 10.5:

• Shares Outstanding: 20.5 Million
• Shares Short: 8.01 Million (that’s almost half!!)
• Shares Short last month: 9.09 Million (shorts are covering)
• Shares % of Float: 66.5%
• 52 week change: -36.50%

These numbers are from Yahoo Finance. A stock with these numbers can move fast on any news. Let’s see if the O can make its move in the right direction.

Next Stock Talk: VistaPrint Gets Dumped

Finally, the last week of June, the week ahead of the Fed’s report has come. Once again I cleared out most of my longs, and avoided shorting stocks that took a hit since May 10. I did, however, managed to make a few swing trades that have their own stories developing. Anyway, as I said before, I think majority of the negativity of a rate hike are already priced in the market. My best argument is the CPI data that occurred two weeks ago. The data basically guaranteed a rate hike, so why should the market still be guessing if we’re going to have a hike? Nevertheless, I still think the news will have an impact on the market, which would explain my seemingly hypocritical move of selling my long positions. The sad truth is that the market is too sensitive. Everyone can know that something is about to happen, but when someone actually says it, then everyone reacts as if they never knew. My guess is that that will happen this week with the Fedspeak.

Still, I’m more bullish on this turn, and adding back to the long position after the Fed’s announcement would be a great move on any signs of market optimism. There’s just too much support on the bull side this time- correction is over and I’m sure Bernanke doesn’t want to start his career in a bear market (ie, he’ll be careful with his choice of words), market indexes are bouncing off moving averages, oversold indicators, shorts are covering their positions instead of adding to it ahead of “the news”, the Dow is approaching my $11,150 sweet spot, and finally, inflation and interest rate news should not have brought the market down this low. Therefore, we should be moving up.