Stock Duel!

I decided to add another feature to the site called “Stock Duel.” This should be pretty interesting! Every Sunday I will post two possible trades. Your job is to vote on the trade you think is better. I’ll try my best to make both trades good ones, but if you want, please feel free to post your own scenario on the message board. This will be a great opportunity to learn, have fun, and possibly earn money. I’ll keep a tally to see how we do (I got this idea from Sports Center, you know, all those guys who take a side on a prediction of the better team). Here is this week’s Stock Duel!!!…….

Which is the better trade- short sell Game Stop, or buy long Blockbuster Video?
(which stock has a better chance of a successful reversal?)

ARGUMENTS
Choice 1: “Short Sell Game Stop”

It is time for Game Stop to stop! This video game retail store has had a nice run, doubling in one year, and significantly rising since the beginning of 2006 thanks to spoiled little kids having their parents buy them Play Stations, XBox 360s, and Game Cubes for Christmas. But have you been to a GameStop lately? Christmas is longover, buying of games has really slowed down… this stock is seasonal and it is now entering a slow season. I’m not sure if there are enough “strong holders” in this stock, what I perceive is a bunch of traders who will gladly exit the stock after doubling their money. Sell off! Hey, I’m not the only one who thinks shorting GME is a good idea… check out their short interest ratio, it is huge, 10.6!! You got 73.21M shares outstanding, and 11.7M shares short! That’s crazy. But it gets worse… insiders have sold millions of shares in April. The supply is clearly overtaking demand, and competition is getting stiff. This stock has had its run, it is due for a reversal. Those $40 July puts look real good.

Choice 2: Buy Long BBI

Blockbuster got majorly beat down the past few months, dropping as much as 60%. Can we say “value investing” please? This stock is cheap! The market overreacted. Blockbuster Video has promised to turn around and after their lasting earnings report they showed signs they are heading in the right direction: narrowed quarter loss, expanding into online video rentals (Netflix hurt them here, but Blockbuster still has a strong brand name). Even Cramer thinks BBI is a buy, as he pointed out that the closing of Movie Gallery, a significant competitor, will bring BBI back on their feet. Everything that hurt Blockbuster is now out of the way, and the market seems to have picked up on this as we have just witnessed a reversal in the stock breaking support, heading back over $5. Going long BBI is a value play, which makes those $7.50 leaps very attractive for quick in and out double digit gains.

REBUTTALS
Choice 1: Sell short Game Stop
How can you call the top on this stock? It keeps going and going. Besides, a sell off does not guarantee that the stock will drop that far. If you are long Game Stop, why would you want to sell before the release of the Play Station 3, which is projected to be way better in sales than the XBox 360? So far, the technicals are strong.

Choice 2: Buy long Blockbuster Video
Blockbuster’s turnaround story may not have the happy ending investors are looking for. In addition to fixing a battered balance sheet, BBI is up against major industry changes! How much longer will we see people going to Blockbuster to rent movies, when you can get them in the mail through NetFlix. Probably even worse, what happens to BBI’s rental business when people start downloading movies from Google or Itunes at cheaper prices? Maybe BBI will visit chapter 11 once again.

Vote now!

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CHINA- BUYING OPPORTUNITY OR MELT DOWN?

Hey guys, justed wanted to point out that the news on the China interest rate hike seems to have hurt Chinese stocks listed in the U.S. markets more than we think. Majority of these stocks were bought because of China’s huge growth. The interest hike serves to curb that growth. At the same time however, I do notice that when the U.S. economy and market are doing well, many investors seem to ignore the play on China. I already see breakdowns in the following stocks:

• Chinese Medical (CMED)- gave back what it made after reaffirming impressive guidance. Lower bottoms in past three months.
• Aluminum Corp of China (ACH)- after an impressive run that seemed to follow ERS, ACH has been consolidating through a huge range. Just refuses to breakout.
• Suntech Power Holdings (STP)- this popular Chinese alternative energy stock has been consolidating in a down trend. Too bad… I thought this company could have been big.
• China South Air (CNH)- airplane company has been consolidating for a while, but just broke through support at $14.00 big time.

I’ll be squinting my eyes on these ADR stocks for the first week of May.

Predictions-Practice

I will be adding two new stocks to my predictions table: Netgear (NTGR), and U.S. Global Investors (GROW). These two stocks are attracting buyers, and I think I may be able to get on before the market realizes how strong these two are. Currently they are overbought so please take note of the buy entry point I set for these two on My Trader Notes.

Props to Stuck-Trader for buying call options in Gold Corp (GG)! Buying gold before the United Nations met with Iran was an intuitive move. We like that here on Intuitive Traders!

So there you go! The market has been very hard to read lately! For the beginning of May I need you all to watch the following industries or categorical stocks:

• Oil- tensions in Iran isn’t helping. Gas prices are ridiculous.
• Alternative energy- if we talk oil, we automatically talk alternative energy- ethanol, coal, etc. Read Jubak’s article as a start.
• Chinese listed stocks/ADRs- trading volume has been very low for these stocks throughout April (except for the more popular ones like SOHU), and the interest hike triggered a mild sell-off.
• Silver- after taking a hit earlier in the week, Gold and especially Silver made a swift comeback.

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Hey guys, just as promised, I wanted to outline how I made a play on Intuitive Surgical. There was so much uncertainty surrounding the company heading into earnings. I knew there was going to be a huge move, but I didn’t know which way. So, instead of guessing if it will go up or go down, why not do both! That’s right, I bought both calls and puts on this move, which is called a “strangle.” This trade gave me a net gain over 100%!

The key to this trade is a huge move in stock price. If you trade options, you know that you pay a premium on the strike price. If the stock rises well above that call strike price or well below that put strike price, you then can turn around and sell the option at a much much larger premium. So the strategy of this strangle is to find the a put and call strike that will at the very least double if the stock moves in that direction. So the risk here is that the stock MUST, I repeat, MUST move a huge amount… If it doesn’t you will take a hit on both the call and the strike. Ouch. So the worst case scenario here is that the stock doesn’t move at all.

Now let’s get specific. The first question we must ask is does ISRG have the potential to move a lot in stock price? The answer to me was a definite yes. Take a look at the 6-month chart:

Finding a range for where the stock price would go was a little easier than usual. If ISRG had blow out quarters, I estimated that the stock price would have a good chance of topping $115.00, which appeared to be the most likely support (see chart). If ISRG had a bad quarter my guess would that the stock would sink even lower than the last support at $90.00 which happened last quarter. That’s a $25.00 spread in price! So the answer is “yes this stock will move after earnings.” So now we have to find two optimal strike prices that will give us a huge return on the move. We buy put options out of the money far enough to at least double, and we buy call options out of the money far enough to at least double. This part was a little more difficult since it required more math. Click here for my calculations.

There are a few things to know about my calculations. First I needed to calculate BE, which is break even point. The BE is how far the stock must go to reach the strike price + premium paid. Notice how I chose $115 strike price, but I calculated the target move of stock price (a.k.a. “delta”) to actually be $119.00. This is a very important step that many option-traders overlook! You should always factor in the premium when predicting price move. So, when I picked the $115 strike price, I was really thinking “the stock will move to $119.00.” (Please use this Break-Even conservative approach when trading options! Do not rely soley on the “Strike Delta” column, which does not take into account “premium”)

I then converted this move into percentages, which is a little easier to see. Next, do everything all over again, but this time with put options.

So, as you can see, the two optimal strike prices I chose was a $115.00 call and a $95.00 put. Finally, a strangle was made!! The stock price had to move either 15% up or 15% down for me to lock in a gain. Actually, the stock moved 23% the next day, so there was a nice gain. Click here to see the change in option premiums…. wow!!

Now you see how the strangle works? Basically I had a -100% loss on my put option, but I don’t care! I had a 200% gain on my call option! That leaves me with a net gain of 100%!! Monkey time.

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Intuitive Surgical (ISRG), my my. I only brought up this company a few times to you guys. I asked Gary if they have “robotic doctors” down at Queens, but I guess Hawaii is behind the curve in medical technology. I’m not sure if you remember them but they are the guys who do robotic surgeory. Their Da Vinci is one impressive surgical machine, so impressive that hospitals don’t care about the $1+ million price tag. This is THE future for invasive surgery. Anyway, if you haven’t guessed it yet, I got the name of this website “Intuitive Traders” from this company. Hehe. And now, thanks to a huge blow out earnings surprise (beat analyst by over 100%!! Boy were they wrong), I think I have to go ahead and bring on the monkey! Just how impressive was their quarter? Read the figures here, but let me just say, the 2006 year earnings estimate was $1.20 per share, in this quarter alone they did $.38 per share. That’s bananas crazy!

Marketwatch/Articles I’m Reading

• Thanks to tensions in Iran, silver (wow!) and gold futures up…. way up! Hopefully the spot prices will follow.
• Microsoft takes the Nasdaq down with them.
• The new Silver ETF has a good debut, but this guy brings out a hidden flaw in the gold(GLD) and silver(SLV) ETFs: declining physical assets.
• Everyone knew Iran wouldn’t cooperate, so why didn’t we buy oil stocks yesterday? Grrrrr.

Well I’ll see you all tonight. I’ll be posting an options trade analysis on Intuitive Surgical on My Trader Notes, and I’ll do an update on the “predictions-practice” on that site too. What will I be blogging about this weekend? I will be working on a Trade Cramer Program. So far it’s a really neat system! I don’t really care if Cramer says buy or sell (you might as well flip a quarter), but this system entails the effect Cramer has on the market. I think I’ll be amazed after I run all the statistics.

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Today I present you with a hand full of stocks that just keep going and going. You can ride the momentum, but set your stop losses because when stocks get heavily accumulated in a short period of time, valuation gets crushed, and a huge correction can bite you. I call this the momentum screen. The criteria is:

1. Must be close to 52-week high, the ultimate resistance
2. Must have no significant pullbacks or corrections in the past two months
3. Must have Y-O-Y growth in revenue
4. Must have high volume
5. Trade over $5

If you want, you can check out Business Week Online’s momentum picks made back in January. They didn’t do such a good job, with the exception of AAR Corp…. notice the 6 month chart and trace these stocks from January. Anyway, as you can see, my screen is very simple! Just find what’s making money and what is being heavily accumulated, with nice looking technicals. I call it piggy-backing: company does well and stock goes up fast, cautious people wait for price to go more up then they give in and jump on, more cautious people give in too then they jump on. It’s the law of demand in a very ugly way.

Anyway here’s the my top 5:

1. GigaMedia Ltd. (GIGM)- Gigamedia is a little monster! They are Taiwan’s leading provider of broadband and internet content on the internet. They provide video games and now they are taking advantage of online poker. Those Koreans must love to gamble because that seems to be one of their fastest growing customer base. It wasn’t too long ago that Gig signed some partnerships with Yahoo, back when GIGM was trading at about $2. I caught on at $3, but have since kicked myself since I felt $9 was the magic number. By the way, revenue has been consistently doubling Y-O-Y.

2. Empire Resources Inc. (ERS)- why? why? Why didn’t I buy this?!! If you thought titanium was a hot metal, check out the performance on this aluminum producing company! Don’t believe me? Try 1000% in one year!!!

3. Amkor Technology (AMKR)- Bam! Just like that, up another 12%! This company has a lot of sales, so much that its amazing that it only trades at $12. With over $2 billion in revenue the stock trades at .93 of sales. The only thing about this company is that they have almost $2 billion in debt on the balance sheet. I think Wall Street seems to be ignoring that figure, but I guess you can’t fight ’em, just ride!

4. Illumni Inc. (ILMN)- Now this is a unique pick. Illumni is a biotech company, and as we all know biotechs have been one of the worst performing industries this year! But Illumni is an outlier! While the industry is down 10%, Ilumni has doubled since January. Just recently the stock broke free from 52-week high which happened to be its last strong resistance! It’ll be interesting to watch this stock when biotechs make a comeback.

5. Lehman Brothers (LEH)- I wanted to add this because of it made a 5-year high, that’s right I said “year.” But I’m not to sure if LEH is a momentum play because it looks more like a great company. A true leader in a strong strong sector… I guess there is momentum.

5. Hansen Natural (HANS)- Okay, so this is more like #6, but I’ll say it’s a tie since I couldn’t make up my mind. HANS is just in its own world. I always thought their stuff tasted nasty, but you can’t argue with this Canadian company. Coke? Pepsi? Bwa ha ha! No one thought this stock would hit triple digits. A slap in the face for every dollar above $100 for not believing HANS? That’ll be 45 slaps to you. Ouch!

Runner-ups (stocks that didn’t fit the criteria, but have stunning charts!!!):

• FJC– less than $5, but up 300% in less than a month! Why the rise? Heavy institutional buying!
• BDCO– the best performing oil/energy stock, but it had a major correction.
• AE– very light volume, but my o my, look at that chart! Beautiful!
• NXG– a play on gold. Northgate is very popular lately. Should break $5.
• RACK– a fortunate company that does Google’s servers. I didn’t want to add them to the list because Google brought them up, Google can take them down. But until then, enjoy the ride!

Stop trading these momentum stocks! These stocks seem to be consolidating, or a strong battle between the long and shorts have emerged, or the technicals are beginning to break down. Look out below! Timberrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr!!!!

1. TravelZoo (TZOO)
2. Zoltek (ZOLT)
3. Ballard Power (BLDP)
4. … this list can get pretty long, I’ll just stop here.

A link to all stock prices mentioned in this post. Shows 1-year performance.

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Today was a choppy day as everyone waited to hear Bernanke talk about rate hikes. Next thing you know it was China who said they’ll be increasing rates. Bwa! That was totally bad news for metals and building/construction/materials stocks because China is a huge consumer of these products. It’s kind of ironic that I invested in China & metals as a hedge against the U.S. market. Oooops.

ECONOMICS 101
Here is a generic correlation you should know…

U.S. interest rates higher —> borrowing is lower –> economy slows down –> stock market goes down —> dollar goes up —> gold goes up

[vice-versa if interest rates stop or go down]

China interest rates higher —> (same as U.S. scenario except… —-> gold goes down.

Timet’s First Down Day In 2 Weeks

It’s been a while now for TIE to close in the red, but I guess we knew it was coming. Of course, the rate hikes in China did not help. There appeared to be a breakdown in intraday trading when the news hit:

So the thousand dollar question is: “A speed bump? Or a melt down?” Well, that’s a very tough question for high flying momentum stocks like TIE. I just can’t figure out where to go pricewise… Unfortunately, looking at TIE’s 2 month chart, we see that there is no support or resistance, so it’s impossible to find an exit point at the time.

So, I guess what it comes down to is your expectations for TIE the “stock price”, not TIE the company (which is solid). I’m “selling” TIE from the Intuitive Traders portfolio just because it triggered a one-day 5% stop loss that I’ve been keeping in my head. I’m pretty sure a lot of others are taking some profits off the table. I guess we’ll only know tomorrow if today was a buying opportunity.

Marketwatch/Articles I’m Reading

• Bernanke says rate hike may slow down. I thought otherwise. Oh well, stocks go up.
• Get ready to trade drugs! The big guns showed a lot of ammo.
• China raises rates.
• Metals down… because of China.
• Intel talks about turnaround. Repeat after me: “Leaps!”
• I played a “stranggle” on Intuitive Surgical (ISRG). Hopefully it worked. An analysis will be made on my TradeNotes.
• Gold cools off.
• A silver ETF is coming!

Intuitive Traders ScoreCard- April 25, 2006
Link to today’s quotes.

• Titanium Metals (TIE)
  Call: 3/16/06
  Cost: 42.36
  Last: 67.61
  Change: 59.61%
  
• Andersons (ANDE)
  Call: 3/28/06
  Cost: 71.82
  Last: 110.94
  Change: 54.47 %
  
• Pacific Ethanol (PEIX)
  Call: 3/28/06
  Cost: 20.11
  Last: 33.00 (April 24)
  Change: 64.09%
  
• Fronteer Development Group (FRG)
  Call: 4/3/06
  Cost: 4.45
  Last: 5.99
  Change: 34.61%
  
• Biodisen (BBC)
  Call: 4/13/06
  Cost: 17.75
  Last: 15.00
  Change: -15.49%
  
• Eldorado Corp (EGO)
  Call: 4/25/06
  Cost: 5.16
  Last: 5.06
  Change: -1.94%

  TOTAL: 26.25% (w/o “sold items”, current holdings only)
  ……….32.55% (ALL)
  
  

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