It’s Alot Simpler Than I Thought

I am still destined to partake in extreme ETF winshippery; but you know I couldn’t just let the market climb without having a look under the hood. The formula for moderate stock market success appears to be so simple, almost too simple.

Find a company trading below 15x earnings, with a low p/s ratio, better than 5% revenue growth, and accelerating earnings, and I will show you a stock that is trading higher. I have a whole list of names that seem poised and primed to edge higher. As the rebels try to time bottoms in WDAY, older men with tootsie rolls in their pockets continue to increase their net worth–by picking value stocks and holding them. For their troubles, they even get a dividend  to boot.

April is over and it was my worst month since I lost a bundle during the Tulip craze of 1637. I’d like, very much so, to start back on the road to recovery. We appear to be in a very sweet spot for low multiple stocks. I realize these stocks have risen, but not all of them. There are companies out there worth exploring and I might just try my hand at one or two, as I wait for an oversold signal.

More on this tomorrow.

Another up day, yet all of the high growth names are diverging again. They’re off their lows and people are buying them again; but you can’t trust a stock that opens down 8% on no news and expect to make money in it. The earnings are coming in better than expected, and selling off for it.

Edgeless market. Downdraft is coming.

But I think May can be constructive, even though seasonality is working against us. In 2012, the NASDAQ dropped 7% in May.

Back in 2000, at the beginning of the dot com rollover, the NASDAQ dropped by more than 25% from April through May. It bounced 12% in June, dropped another 4% in July, then peaked out +13% in August before falling in earnest. If these new tech stocks are going to follow a similar pattern, they will rally hard in May, base out in June, rally again in July, then collapse in August.

Don’t play the earnings. There’s too much reality in that trade. Buy the fantasy, the cow eyed hype and great expectations, the narrative set by stupid brokerage firm analysts, then sell into it.

Today’s GDP numbers is a giant egg cracked onto the olde face of Janet Yellen. The whole premise behind her tapering ideas is based upon economic recovery. Maybe it was the snow. Maybe it was a “one off event.” Whatever the reason, this economy isn’t growing.

I am not advocating to continue QE for the sake of QE–quite the contrary. I couldn’t care less about QE; but I care a great deal about my business and QE equals higher stock prices. QE reduces the volatility. It turns the stock market into a god damned ATM machine. Whoever doesn’t like QE is simply bitter and too stubborn to enjoy a good thing. Needless to say, Grandma Yellen will have to reevaluate her position on tapering and ignore any person who might reside in the stupid state of Missouri.

Twitter is a catastrophe. I don’t even have an opinion on it any longer.

I am itching to get back into the markets, anxious to make up lost ground.  Without a doubt, this isn’t the time to reenter the market, following some BIG ASS LOSSES. My plan is to play the market via ETF and snatch back 10% before entertaining individual stocks again. If I had a “sure thing” or “high conviction” play, I would take it. But I don’t and I still need a little time to better understand this market.

While it might’ve felt good to be long some of my former girlfriends today, the simple fact that they are all whores emboldens my relief of being free from them. “The Fly” doesn’t care about today’s action, whether it be something based on substance or fantasy is completely and entirely immaterial to me. I wish all of you the very best inside of stocks like WDAY, YELP and SPLK, regular rocket ships in a space aged generation.

I do not forget the scars that I’ve received from holding those toy bombs. I learned a life lesson from the experience, which is far more valuable than any monetary loss I might’ve sustained.

For those of you in the industry, I hope you keep your powder dry and place your hard fought income into safer pastures.  I haven’t had any great sum of my own money tied up in risky equities since late 2011. Double dipping is for the supremely greedy man. I am nothing but a mere soldier in this big war, trying to claw myself out from a ditch.

I will do so exercising extreme caution and placing my bets at the most opportune times. This isn’t one of those occasions.

Having said that, I am working on a momo trade signal inside of The PPT and have seen some encouraging data, early going. We all know how I love mean reversion; but most of the gains in any uptrending market is  had during maniac, cocaine infused, bull runs. I intend to capture the essence of that and translate it into a signal for the top hatted gentlemen inside of The PPT.

This is an interesting debate subject. Is the recent rout in high growth “momo” stocks cause for alarm? On one hand, these stocks have all gone up a great deal and are simply “coming down to reality”, as some might say. Then you have the fact that most stocks are doing just fine, as the tech bubble deflates. But I am looking at this deflation with a much more careful eye.

These aren’t just “momo” stocks getting taken to the woodshed. These are the fastest, brightest, most promising companies in the country. Ask anyone woking at a consulting firm about WDAY and they will tell you a story about a great company. The life is being sucked out of the market and just because your boring dividend stocks are insulated from this debacle, that doesn’t mean the market is a healthy place to be right now.

Please don’t point to the fact that XYZ is up 100% over the past year either. Wall Street only cares about the last trade. The fact of the matter is these stocks are now diseased and the money being lost in these stocks is astronomical.

About 600 companies are off more than 15% from their 52 week highs, with market caps above $1 billion. That doesn’t sound like a bull market to me. We can’t continue to bleed out these tech stocks, 5-10% per day, and expect the rest of the market to ignore this forever.

Eventually, if these stocks don’t stabilize, it will affect everything.

So, yes, be worried and tread carefully.

But just not yet.

The reason why the tech sector is in vapor lock mode is because they are reporting good numbers and their shares are trading off anyway. Everyone is scared to hold during earnings; therefore, we have a bid less market. I am almost 100% convinced that I was wrong about my “this time is different” assessment of the nature of the decline. I am very close to the Einhorn way of thinking now, that this is identical to the dot com blow up. Price to sales ratios should compress to 10x and under, while larger cap grandma stocks hold firm.

The bear market won’t happen until next year, if ever. But, one thing is for certain: this is no garden variety sell off, where we can simply brush it under the rug and make believe that a massive destruction of wealth had not occurred.

Therefore, until I get an edge, until I gather up some gains, I will remain in a 90% cash position, waiting for an extreme oversold condition. We will measure such a condition by analyzing the technical and fundamental data of over 4,000 companies and try to time an inflection point just right. Without a compass, you’re all just wandering around the wilderness, listening to fools teach other fools how to get lost.

I apologize for being so reckless, as it is never a habit of mine to ride things out because of an emotional whim.

I am feeling optimistic and look forward to capitalizing on said opportunity very soon.

Inside of The PPT, I’ve created a “Bubble Basket” of my own, one whose constituents are the most vulgar of stocks. There are companies who belong at the very bottom of the ocean, alongside the Titanic. God willing, they will be there soon.

I bet when you broke up with your girlfriend, or divorced your wife, deep down you hoped she’d get fat and ugly, age badly. You probably went to an old reunion and kitchen bitched about so and so being out of shape  and loose around the jowls. The truth is, when we sell our stocks, we want them to go down forever. The very idea of them doing well without our gracious endorsement is hateful to us, well at least that’s how I used to think about them.

“The Fly” no longer harbors deep resentment for the stocks who nearly destroyed and mangled his career to elephantine pieces, and may still do that–all dependent on my next moves. I forgive FEYE, SPLK, WDAY and YELP for making a fool out of me and I hope that they go on to marry other rich men and live happily ever after. I do not wish that they travel to Africa and have unprotected sex, catch aids, then die.  I’m a single man now and wish only to pleasure myself (no masterbation), through explicit stock market winshippery.

Ragin Cajun went through the oversold data for this year and last and it’s exactly what I expected: low beta, peace of mind, returns. After I give his work a second look, I might post it here, for all of you Original Don’s to peruse. The gist of the report says, had you bought QQQ upon The PPTs OVERSOLD signal and sold 5 days later, you would have made upwards of 15% last year and over 4% this year, so far. On the surface, it’s an unimpressive number, at least to the layman. You folks want cocaine shoved down your necks and into your noses, with 500% gains. “The Fly” can no longer offer you that sort of satisfaction. However, if you’re interested in having your money exposed for merely 100 days at most, in this God forsaken market, with a maximum drawdown of just 1.5%, I am your man.

There are ways to juice these returns, through other investment vehicles and of course leverage. But this is the recipe to the mother sauce and I do not intend to share it with the great many of you unwashed heathens just yet.

Let’s not mince words here: the high growth part of the market is crashing. More specifically, any company with operating losses is being hurried down as if a credit crunch loomed. Actually, that’s exactly what is transpiring.

Just like in March of 2000, stocks dropped for the sake of dropping. After the downtrend became obvious, panic set in and people ran for the exits. Hundreds of companies went bankrupt within a year because capital markets closed for them. All of these cool high growth companies that are operating with losses will need to raise capital somehow.

How will they do it?

Without collateral, a web company can’t issue bonds.

So, they will do dilutive secondaries.

But, could you even fathom FEYE doing another secondary now or YELP? Who in their right minds would invest, unless it was priced at a 20% discount.

THIS is what is happening now. Wall Street is making a prediction that the pain we are seeing in high growth money losers will be exacerabated by the fact that they will need to raise capital, at some point in the future.

On the other hand, this sort of pin less hand grenade action could also present opportunity, especially in names that have positive free cash flow or who are on the cusp of profitability, like YELP. But I wouldn’t dare venture off into the murky waters now, as it has the stench of blood in them. I will wait to buy the blood via broad index and sell it shortly thereafter, win or lose.

This is a renters market.

Like I said on Friday, whether or not I sold at the bottom is completely immaterial. I held on for as long as I could, too long, and it was time that I grabbed control of my fate, instead of allowing the caprices of the market winds direct my trajectory.

I see the futures are up and I am not upset, at least not yet. My sales came before the final dump out, as many of the stocks that I sold fell another $2 or so after I sold.

I had a very refreshing weekend, doing the things that I love, not focusing on the past, but planning for my future. I change my mind so often, it’s hard to pin me down to anything. But I am pretty sure Friday marked an end of an era for me. I bet many of you wonder why I mess around with individual stocks when my “sold called” PPT is supposed to be so reliable. Why not just buy the signals and drink martinis? I have this kinetic energy, the energy of an artist, which is the reason why I love to blog. I need to express myself in the most grandest of ways. Nothing says “my balls swing low” like taking a monster position in XYZ and seeing it work. It’s not even about the money.

But I do have systems that work and I’ve developed them over many years. I am going to give it the old college try, and resist the temptation to jump back into individual stock investing–because I have a problem.

Do you know Hugh Hendry, the bearish lad from the UK who’s always warning the world about deflation? Well, back during the height of the financial crisis, his fund made a staggering 30% in one month on bearish bets. Do you know what happened the very next month? Record redemptions. He said that the +30% month scared people out of his fund and it was the single worst outflow of money that he ever endured–because he showed too much beta.

That’s my problem. Career wise, I’ve hurt myself in many ways by expressing my “artistic talents”, attempting to demonstrate how largess my testicles truly are, indeed. It’s time to reduce the beta, do what I do best, execute macro-market moves with precision, guided by the algorithms that I’ve developed.

Having said that, I wish you all the best in recovering your losses and hope we go +1,000 from here. I am not a bitter man, at least not yet.

I just got back from a long day with the family. We actually headed over to Brooklyn to Jim Cramer’s Mexican restaurant. It was quite good and he was incredibly gracious to each and every person in attendance. As I was looking at him, I was reading some of the horrible comments in the previous threads here– then I remembered all of the times I poked fun at Cramer on twitter and this site. It’s a bit hypocritical of me to talk smack about a guy, fight all of you miscreants in the comments section for talking about me, then going to eat at his restaurant–shaking his hand and exchanging pleasantries.

The truth is, when trolling about the internet in search of entertainment, we all sort of lose ourselves from time to time, say stupid things and behave in ways that are unthinkable in real life. Believe you me, I rarely kick old men down idle sewer pipes and have never killed a person who didn’t already have it coming.

What I am trying to say is, you people taught me something this week. Seeing how awful some of you behaved here, really digging into my character, trying to ruin my reputation, has reminded me that these words we type onto the screen mean something to some people. This is the last bit of beta-male jargon from “The Fly”–but I’m done taking shots at guys like Cramer because it’s easy.

As for the market: I am reverting back to trading ETFs for awhile, until I get back in a groove. I cannot risk an earnings blow up and do not have the luxury of building positions. So, I am going to use The PPT‘s oversold and overbought algos to think for me, until I get a few singles and doubles under my belt.

The fact of the matter is, this market has me confused. I do not want to bet against it and do not feel like buying mega-cap, slow growth, retard companies. So, instead, when we get a PPT reading that suggests the market is oversold, I will allocate 33% of my assets into QQQ. If we get another OS signal, I will allocate another 33%, until fully invested. The hold period will be a strict 5 trading days, win or loss. And that’s that. I did this back in 2010 and made a King’s fortune using 3x ETFs.

I’ve decided to do this until I make 10%. The PPT‘s oversold rating has a success ratio of 84% since 2008. The overbought rating is less reliable, so I may opt to ignore it. I might only execute 1 trade per month, or maybe zero. Also, because of this new strategy, I will not be sharing the scores here on the free blog any longer, out of respect for current members.

I am heading to the tranches, with 3 shots at winning.

Wish me luck.