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Dr. Fly

18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.

On Short Selling

Since the SEC rule was announced naked short sells without a locate are to be banned on 19 stocks.

A recent article in the NY Times, suggests that his will help the financials from getting unfairly crushed.

According to everything thing I have read a move was lobbied by a trillion dollar fund to exclude market makers from the process.

More importantly, as shorts are covered we are seeing buying as well in the sector. This allows for firms and market makers to have positions in house where a locate is not necessarily needed since the shares are on hand.

The 19 stocks selected were never deemed to be hard to borrow in the first place, so in effect this is really a net capitalization rule. If not implemented it would put the 19 stocks into a position to raise more capital. Raising capital has become harder as of late as the liquidity crunch unfolds new layers of losses.

IMO this new rule only provides more breathing room for the financials, but also new opportunity to go short the correct way. By having naked shorts cover we have gotten an incredible squeeze along with pundits on the idiot box stating once again a bottom has been reached.

Effectively, as the naked shorts get covered along with early speculative buyers firms and market makers get to rebuild long positions and have the position to short against with out a locate. What happens when those speculative longs and value positions get trimmed for profits? Well it would seem that you arise in a naked short once again.

So has anything really changed other than an opportunity to re short a troubled sector within the market place?

Also investors seeking to buy on the cheap may not get their dream price since this move is “clearing the field” of short positions. Short positions are a self regulating effect of the market place. So with less short positions out there pressure has been relieved robbing investors of prices they deem to good to pass up.

No matter what rule is put in place garbage will always find its way into the bin. As well the blame game continues siting mortgage lenders as the problem, but the banks were also involved. Uncle Sam himself should look to his behavior in this debacle instead of placing blame elsewhere. Rumor is not creating instability, fundamentals are creating instability.

http://online.wsj.com/public/article/SB121641296022866029.html?mod=2_1569_leftbox    *Must Read*

[youtube:http://www.youtube.com/watch?v=umj6nUyfZAg&feature=related 450 300]

 

by GW

 

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Take the Money and Run

Profits in a bear trap rally can disappear quick. I could sell some EME for 10%, but I will hedge EME buys with SRS. Pair trade~ market neutral.

GW buys SRS @ $85.64

GW buys EME @ $27.85

Potentially buying into HK & CHK…I missed the low prints, but I feel the opportunity will arise again.

Just as a side note HOC is valued at $45-50 per share by a good friend of mine who is a graduate of Columbia with an MBA and 22 years in the biz for analysis and running $….

I’m still holding off on new or adds to the refining sector.

Still looking for S&P to hold 1281 today. Let us see what the Beige Book brings later today.

[youtube:http://www.youtube.com/watch?v=E8OpCEqUV6o 450 300]

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Interconnectivity

 

So yesterday was a lesson for those who are perma x.

Despite all the negativity bears had their asses handed to them like a jerk with beer muscles.

We opened with prospects of the dollar getting crushed along with any hopes for decent earnings getting extinguished like a moth to the flame.

Then suddenly the dollar corrects. It does not matter that it closed flat on its index, but rather that it did not get crushed.

Keep your eye on the dollar as your guide. How many times do I have to tell you this?

This sent oil down from its morning pop and then Dolly Dagger lost the energy to blow anything important away.

This really smacked oil down along with equities going higher on oils demise. Well not a demise, but continued correction. 

This gives hopes that the FED will have more room to wiggle and perhaps increase the chance of rate hikes. This implies help to credit spreads getting better and perhaps improving our over all liquidity crunch and economic outlook. As usual, this is a nice attempt of applying logic where it should not be for the moment.

At any rate, today is a new story to be written. The dollar is at a one month high and oil is down over 1%.

We have oil and gasoline inventories today. Some how I feel the numbers will be bearish. Secondly and most importantly we have the Beige book. But one can argue we already know the problems in the economy.

As for earnings: Well there was a lot of beats after the close and this morning~ [[ISRG]] [[RJF]] [[TESS]] [[AKS]] [[UMB]] [[BKR]] [[VOCS]] [[MRH]] [[NSC]] [[PFE]] [[WYE]] [[PEP]] [[CBBO]] [[PM]] [[MCD]] [[EMC]] [[COP]]

As for misses the most interesting was~ [[WM]] [[WTNY]] [[FTBK]] [[LLTC]] [[MBHI]] [[TRMK]] [[SEAB]] [[ETFC]] [[NVR]] [[COST]] [[GSK]]

So far on the S&P 140 companies have reported with 90 beating the street and 50 either in line or missing.

The futures are indicating a higher open. Europe and Asia are rallying off of the dollar oil issue.

I currently have no shorts on, but I will become more market neutral as we see the S&P get closer to 1300-1325. Today’s hurtle is 1281 S&P.

While earnings are getting some excited about the future, companies like [[COST]] remind us of input costs in regards to high energy prices. Over the longer term if oil does not get smacked below and stay below $100 p/b then almost every company will have EPS pressure. Somehow I do not believe this will happen.

I will begin to get short over the next couple of days to weeks by getting long SRS and shorting  COF, NLY, HRB, & RF. While I think the absolute short term top is 1325 S&P, this market has surprised everyone many times.

As always I will build into the positions.

GLT

by GW

[youtube:http://www.youtube.com/watch?v=nGqPzrNypzw 450 300]

 

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Bernanke & Co. Told Us So

Wow! What an impressive rally today. I still do not know what stocks really took us higher.

Bernanke’s testimony told us last week that “dollar intervention should be done rarely” but that it “may be justified in disorderly times.”

Despite, major earnings pressure and bad guidance the bulls have turned in a win today. With Wachovia’s horrible q and the American Express guidance, it is clear that the financials have poor prospects for earnings growth.

These two companies sent the dollar reeling this morning with fears of another meltdown. By early morning trade for no reason the dollar reversed course and oil and gold went down south.

I’m not calling a bottom with the myriad of problems abound, but today’s action does suggest either more strength in the markets than investors anticipate or that The PPT has serious power. I would like to believe the former rather than the latter.

Everything aside arguments can be made for value or destruction. I would rather look towards value and protect against destruction. This means forget about the financials until you have seen a death warmed over flat line in the charts.

Buy value plays over time and hedge your bets with shorts when you feel the market tops out. Today I refrained from GLD and SRS as hedges and so far so good. For me the top is 1280 S&P…If we manage to get above this then 1300-1325 would be tops and I will definitely take on massive shorts.

http://www.marketoracle.co.uk/Article5500.html

by GW

[youtube:http://www.youtube.com/watch?v=hO2wA0Te0wM 450 300]

 

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Idiot Box

On the idiot box today, someone mentioned that if oil continues its slide that alternative energy companies may fall by the way side too.

This is exactly the behavior that got us here in the first place!

I know there are a lot of people who read everything on this site as well as others. It is your job after reading stories to keep the stories or ideas alive.

You must pay attention and consistently get yourselves and others to constantly e-mail and write your constituents about the importance of keeping alternative energy alive.

Someone on the idiot box has been reading “GW’s” stories since there has been numerous references to themes and at times even direct quotes. The latest was regarding “frozen seniors.”

More importantly, it was said that during Nixon’s times and the oil embargo that we could become energy independent within 4 years or so.

Today, with drilling people are saying 10 years. I still do not understand this since we went to the moon in 9 years after JFK’s speech.

So, to reiterate; no matter how low oil goes we need to consistently remind our government that energy independence is of vital importance to our long term economic survival.

While currency debasement is a cuase for higher energy prices, global growth and a up and coming middle class will continue to put upward pressure on energy and other commodity prices in the future.

Lets try to get this one right, preventative medicine never hurt anyone. Arguing and bickering about which way to go will only hurt us.

T-Bone Pickens seems to be leading a charge that we all should get behind.

[youtube:http://www.youtube.com/watch?v=6vAqekT-GuA 450 300]

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Pay Attention to Strange Moves

Despite all the negativity there are often stocks that do the opposite of the market.

For instance, all the market negativity got to me this morning and I scaled out of some [[SNHY]].

While I still hold, my last piece here I am amazed at this companies movement.

I have also noticed the same thing with EME and SY…something I have been accumulating.

If you have the time to watch every tick you will realize that the Dark Pools are accumulating the refiners here. With oil down huge refiners should be racing higher, yet they are not. Also I have seen 15k share buys go buy on the tape with hardly an uptick in TSO and VLO. HOC and FTO are doing better since they have smaller floats.

 A small amount of shares drive the stocks down and true accumulation seems to move them incrementally higher. A sign to me that positions have not been fully aquired.

Of course there is no magical answer to finding ideas, but strange activity can alert you to good and bad plays.

I bought more EME today @ $26.82 and SY @ $30.61….I held off so far on GLD and SRS….still looking for my oil and gas plays for cheaper than we have offered today.

GLT

by GW

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