S&P 500
1324.80
-5.86 -0.44%
Dow Indu
12598.55
-33.45 -0.26%
Nasdaq
2874.40
-19.36 -0.67%
Crude Oil
93.49
+0.30 +0.32%
Gold
1544.54
+11.46 +0.75%
CRB Index
289.35
+0.21 +0.06%
US Dollar
81.292
-0.050 -0.06%
Weak

Traders Toolbox: Money Management – Part 1 of 4

November 21, 2008 By

Crucial but often overlooked, money management practices can mean the difference between winning and losing in the markets.
Plenty of books, manuals, and software packages will help you form and opinion of a market, but not many will tell you how to trade once you have decided to get long or short. The goal of money management is to increase the odds of high quality trades. And as we’ll see, leaving the money management variable out of your trading equation can lead to ruin, even if you’re correct about the market direction.


In a broad sense, money management can encompass those elements of trading outside the initial decision to get long or short in a given market or markets – that is, how many positions to put on, when to get out, where to place protective stops. More specifically, it refers to the strategic allocation of capital to limit risk and optimize trading performance in the long run. Allocation of capital can refer to how much money to put into any one market or how much money to risk on any one trade. These decision directly affect how many positions to put on and where to place stop orders.
Given the negative odds inherent in trading (a successful trader can expect to lose money on 60% of his trades), how do you go about maximizing the profit potential of the few winning trades you can expect to have? The answers vary with the disposition and trading style of the individual trader. There exist, however, basic concepts that can be successfully adapted and modified to individual needs, and when the followed in spirit, can boost the promise of long-term trading profits and take some of the stress and uncertainty out of trading.
-Establish A Goal- Having a clear idea of what you want to accomplish by trading, whether it is a short-term profit on a single trade or the desire for a long-term trading career, can go a long way toward building successful trading habits. Regardless of whether or not the goals are set on a per trade, daily or long-term basis, establishing from the outset basic levels of acceptable risk and financial reward will help curtail avoidable risk and extreme losses. Also, determine a specific time frame in which to trade: Will a position have to be liquidated by a certain time for tax purposes or for same other reason?

-Diversification- Just as in the stock market, a portfolio of different instruments can be one of the best hedges against several and unsustainable losses; a loss in one market will hopefully be offset by gains in others. Traders must take caution, though, to truly diversify their portfolios with contracts that are price independent. Spreading your trading among three or four different interest rate contracts that move in a similar fashion is not a good example of diversification, because a loss in one contract is likely to be mirrored by losses in the others. But over-diversification is dangerous, too. A trader can spread his money over too many markets, and not have enough capital in any one of them to weather even small adverse price swings.
A good rule of thumb is to stick with what you are comfortable; do not venture blindly into unknown markets just for the sake of diversification. A balance must be stuck between available resources and a manageable trading scenario. Capital constraints will, of course limit the choices traders can make, forcing those with smaller trading accounts to bypass or minimize diversification.

Filed Under: MarketClub Techniques, Tips & Talk Tagged With: , , , ,

The Art of Contrarian Investing: Going Against the Crowd for Profit

November 20, 2008 By

I think with all the shorting going on, and the group that says “Ford can’t possibly go much lower…I’m buying some”, we all need to think about the contrarian point of view. For some of us that might be finally biting the bullet and saying “YES the economy is in trouble…I’m shorting!” Yet for others they think, “no chance the Dow continues to bomb like this, Obama will change the economy.” Whatever your position, you need to understand exactly what goes into the contrarian mindset and I’ve asked Jon Lee from WeeklyTA.com to come and enlighten us a bit!

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A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains. Conversely, widespread optimism can result in unjustifiably high valuations that will eventually lead to drops, when those high expectations don’t pan out. Avoiding investments in over-hyped investments reduces the risk of such drops. – Wikipedia

Professionals vs. Non-professionals

“Whenever you find yourself on the side of the majority, it’s time to pause and reflect.”
– Mark Twain

What is the “Crowd”? They are the group of non-performing institutions, individual investors, traders, speculators, and other players in any market that form a collective opinion that is expressed in the terms of a degree of optimism or pessimism. We will call them the non-professionals.

The professionals are the “smart money”. These are the very few  that are aware of crowd behavior and are able to adjust their strategies (long and short) to profit from extreme sentiment. Note: professional does not mean institution by definition. Most institutions are part of the crowd.

The key point to make is that when non-professionals display an excessive amount of optimism or pessimism, the professionals enter into the market and drive prices in the opposite position. Any truly non-professional, one-sided opinion or expectation of a market will be unable to anticipate a movement created by the professionals in the opposite direction that is anticipated by the group of non-professionals. This is contrarian investing, going against the masses that believe in only one direction of a market and taking advantage of their unanimous opinion by crushing them on the other side.

Here’s a diagram I created to illustrate the above point:

How does this work? Some might argue that if everyone’s buying and extremely positive, then why would the market crash? The answer: as more and more investors buy, the market will become fully invested. The last ones buying are the ones that bought into the market when the professionals were selling and will be stuck because of this overhead limit. After everyone’s bought, there won’t be anyone left to sustain the buying. Therefore, a fearful panic ensues and the masses start to sell, most of the times much later than they should have done.

A recent example of massive cash inflow (totaling hundreds of billions of dollars) is shown below. Note that the peak of the NASDAQ was on March 10, 2000 at 5,132.52 at nearly the same time when the largest monthly in flow occurred. Clearly, everyone was invested at the full limit.

The Media’s Portrayal of “Professionals”: An Observation in Barron’s April 28th Issue

This is the “Back in the Pool” issue with the funny-looking bull cartoon testing out the pool’s temperature. Barron’s surveyed “professional” investors and here were some “crowd-like” results:

1) Describe your investment outlook through December 2008:
•    Very Bullish: 7%
•    Bullish: 43%
•    Neutral: 38%
•    Bearish: 12%
•    Very Bearish: 0%!!!

2) Is the U.S. stock market overvalued, undervalued, or fairly valued at current levels?
•    Overvalued: 10%
•    Undervalued: 55%!!!
•    Fairly valued: 35%

These questions were the biggest eye-poppers:

3) Are you beating the S&P this year professionally?
•    Yes: 74%!!!
•    No: 22%

4) Personally?
•    Yes: 72%!!!
•    No: 19%

Here’s the most recent chart of the S&P 500:

The media’s definition of “professional” is not always correct so please be aware of the difference. The market is down over 40% year-to-date, so obviously the results have now changed dramatically.

Contrarian Strategies

“The fastest way to succeed is to look as if you’re playing by somebody else’s rules, while quietly playing by your own.” – Michael Konda

•    Buy when media headlines read the absolute worst and there is no sentiment divide among investors. Once sentiment becomes entirely pessimistic, buy. Also look out for a bottoming of new capital in flows into stocks. Historically, the good time to buy was when capital in flows were between 10 -15%.
•    Sell when everyone is overly bullish and capital in flows into common stock & mutual funds reach a high. (In 1960 the market declined 18%, in 1962 -29%, in 1966 -27%, and in 1968 -37%, while stock ownership levels were between 32- 34%, the highest ever. In 1999-2000, stock ownership levels were at 31-33%, near an all time-high)
•    Don’t fight the trend. If the primary trend is down, go short. If the primary trend is up, go long. Why fight the long-term direction of the market?
•    Watch financial networks and read newspapers and magazines to get an idea of where sentiment levels are. Magazine covers are my favorite.

Conclusion

“Follow the path of the unsafe, independent thinker. Expose your ideas to the dangers of controversy. Speak your mind and fear less the label of ‘crackpot’ than the stigma of conformity. And on issues that seem important to you, stand up and be counted at any cost.” – Thomas Watson

It’s safe to say that following the real professionals is the way to go. In order to do that, you have to know how they play. There are three points that I stress: 1) there is tremendous pressure and influence to join the crowd and gain easy acceptance, 2) the crowd is wrong the majority of the time, 3) under duress, psychologically, our emotions and objectivity can become distorted and cause us to rationalize (a dominant coping mechanism) or deny (a dominant defensive mechanism) even the basic realities of truth.

Investors will be able to join the crowd when appropriate, but remain flexible to leave the crowd at times when the market warns us. I encourage each investor to respect the nature of human weakness and to become a free-spirited independent thinker.

Jon Lee

WeeklyTA.com

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Investing Legends Buying Up Stocks

November 19, 2008 By

For today’s guest blog post I decided to contact Christopher Hill from Investorazzi.com. I emailed him and asked him his opinion on stocks, and what the experts are doing. Christopher has been running Investorazzi.com for quite a while now and to say I’m a fan is an understatement. Check out his blog post below and check out his site…it’s worth the visit!

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Investing Legends Buying Up Stocks

To say U.S. equities have been beaten up lately is an understatement.  As I write this post Monday evening:

* The Dow Jones Industrial Average is off almost 38 percent for 2008 (See CHART here)
* The Standard & Poor’s 500 Index is down 42 percent for the year (See CHART here)
* The Nasdaq Composite Index is now at a five-year low (See CHART here)

Turn on the news and you’d think investors couldn’t get out of the stock market fast enough.  Remember that old story about someone’s cousin losing their shirt from investing in commodities?  I suppose some are saying that about equities these days.

Yet, in times like these I remember a certain saying.  “Buy when there’s blood in the streets.”  Or, as legendary investors Jeremy Grantham and Warren Buffett might say, on the Street.  For those of you who aren’t familiar with Jeremy Grantham, he is the Chairman of Boston-based GMO, a privately-held global investment firm with $152 billion under management as of the end of 2007.  The British money manager, whose clients have included U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, has made some terrific calls in the past quarter century:

* In 1982, said the U.S. stock market was ripe for a “major rally.” That year was the beginning of the longest bull run ever.
* In 1989, called the top of the Japanese bubble economy.
* In 1991, predicted the resurgence of U.S. large cap stocks.
* In 2000, correctly called the rallies in U.S. small cap and value stocks.
* In January 2000, warned of an impending crash in technology stocks, which took place two months later.
* In April 2007, nailing the current crisis, he wrote to shareholders, “From Indian antiquities to modern Chinese art, from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!”

As for Warren Buffett?  Well, who hasn’t heard of the “Oracle of Omaha?”  Buffett, the richest person in the world with more than $62 billion (according to the 2008 Forbes list), amassed his multibillion dollar fortune mainly through investing in stocks and buying companies through Berkshire Hathaway, where he serves as Chairman.

These days, Grantham and Buffett both sense blood on the Street— and are acting accordingly.  Paul J. Lim of the New York Times wrote this past Sunday:

“Mr. Grantham said in an interview that even though his firm began buying stocks in early October, after prices fell to attractive levels, the market had a tendency to “overshoot” during sell-offs… Mr. Grantham noted that GMO began buying only after its portfolios had fallen below some key thresholds. For example, in GMO’s global balanced portfolio of stocks and bonds, the firm’s minimum allocation to equities is usually 45 percent. But after the market sell-off, that equity allocation dipped to around 38 percent. So once stock prices began to look attractive, GMO started rebalancing back into what it regards as the most undervalued types of equities: emerging markets stocks and high-quality domestic blue chip shares. After a few rounds of purchases, stocks now make up around 55 percent of GMO’s global balanced portfolio.

Mr. Grantham says that although he doesn’t know how well he timed his purchases, ‘we do know that seven years out, these will be good purchases for us.’”

Even if stock prices continue to decline, Grantham told Douglas Appell of Pensions & Investments back on October 27, he still plans on buying more equities.  Appell wrote:

“Going forward, Mr. Grantham said GMO will be ‘steady buyers as the market goes down.’ The firm risks being too early, but will be in position ‘to make a ton of dough’ when the inevitable recovery comes, he said.”

Like Grantham, Buffett has also been actively acquiring shares of companies.  And like the British investor, he hasn’t made a secret of his intentions.  In fact, back on October 17 he wrote in the New York Times:

“The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.”

And what was it that triggered Buffett’s latest spending spree?  The man some call “The World’s Greatest Investor” explained:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

Blood on the Street, perhaps?  Morgan Housel of the financial website Motley Fool wrote Monday:

“What’s the Oracle been up to lately? In the past quarter, Berkshire purchased about 24 million shares of ConocoPhillips (NYSE: COP), upping its existing stake to 84 million shares — currently worth just less than $4 billion. As of the filing date of Sept. 30, ConocoPhillips stood as Berkshire’s fourth-largest common stock holding, behind Wells Fargo (NYSE: WFC), Coca-Cola (NYSE: KO), and Procter & Gamble (NYSE: PG).

That’s a pretty serious vote of confidence. Conoco shares have crashed more than 40% in the past three months, as global economies screech to a halt. In the short term, that pullback is probably justified — energy was getting ahead of itself for a while. So did Buffett buy at the peak? Nah. For long-term investors who want to make the bold assumption that energy isn’t just a passing fad, there are some serious, serious bargains being made right now.

Berkshire’s other purchases in the quarter included a new 2.9 million-share investment in electrical goods manufacturer Eaton, as well as a 1.8 million-share increase in its existing stake in NRG Energy (NYSE: NRG).”

Should stock prices continue to fall, I have a feeling we’ll hear a lot more about these two investing legends— especially regarding their latest acquisitions.

Christopher Hill

Editor Investorazzi.com

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Filed Under: Guest Bloggers Tagged With: , , , , , , , ,

What’s ahead for Apple (New Video)

November 18, 2008 By

I was looking over several charts this past weekend and I was shocked to recognize a chart formation playing out before my very eyes. I’ve seen this same formation a million times before, but I just didn’t want to believe it could be happening to my favorite stock, Apple (NASDAQ_AAPL). Some would call this denial.

In the past I’ve written extensively about Apple products on this blog. If you have read any of these postings, you’d know how crazy I am about their products.

Several months ago I discovered a major technical formation that spelled trouble for Apple. I have to admit that I was saddened by this. This formation was also picked up by our “Trade Triangle” technology. Our algorithm triggered a sell signal and has continued to suggest a short position for Apple all this time.

Watch my new video on Apple.

I was surprised that we’ve seen this market come down so easily. It seems like every time I visit an Apple store they are always busy and their products always seem to be selling well.

The question is, are we at the end of the iPod era?

Given the chart formation, the double top and pivot point, it seems we are headed lower. The Pivot Point measures down to the $40-$50 range and Apple at $90 still has a long way to go on the downside.

What caught my eye this weekend was a weekly continuation pattern to the downside and the fact that Apple closed at a new weekly low for the year. This is not a bullish sign by any stretch of the imagination.

For this coming week, I expect to see further downside pressure on Apple. I believe that we are going to be looking at the $50-60 dollar range as our target zone. Of course everything within will be tempered by our “Trade Triangle” technology. When our short-term “Trade Triangle” turns positive, we will close out short positions and take to the sidelines. In my opinion, it’s going to take some time for this market to improve and turn around. The technicals are just too weak at the moment.

Every success in trading,

Adam Hewison
President, INO.com
Co-creator, MarketClub

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Filed Under: MarketClub Techniques, Tips & Talk, Trading Videos Tagged With: , , , , ,

Traders Toolbox: Learning Options Part 4 of 4

November 17, 2008 By

In real estate, they say that the three most important things are location, location, and location. In options, the three most important things are volatility, volatility, and volatility. Often neglected by option rookies, volatility is the cornerstone of an option professional’s trading strategy.
In its simplest form, expressed as the annualized percentage of the standard deviation, volatility measures how far a contract can be expected to swing from a mean price. A contract trading at 50 would have a volatility of 10% if it traded between 45 and 55 over a given period of time.

Historical volatility is just that: the volatility calculated (using closing prices) over a given period – 20 days, 20 weeks, one year, etc. Implied volatility is the volatility using current market prices. For example, using four primary option pricing inputs – futures price, settlement price, time until expiration and volatility – would result in a theoretical price.
By plugging in the current option price in place of the theoretical price and working backward, it would be possible to determine the volatility the current market is implying. (It is not mathematically possible to work backward and solve for implied volatility using an equation like the Black-Scholes model, but an approximation can be derived.)

Options on quick-moving, highly volatility contracts will demand a higher premium because of the increased possibility of such options being in-the-money. For example, an out-of-the-money option on a slow, non-volatile contract will have a lower premium than a comparable option on a volatile contact because there is a greater chance the volatile contract will shirt in price enough to put the currently out-of-the-money option in-the-money.

Astute options traders look at volatility figures to evaluate the potential of a trade, buying or selling options when volatility is exceptionally high or low. If a market is trading at historically low volatility levels, options premiums could be expected to rise as market volatility increases, presenting a buy opportunity. The revers is true for high volatility situations.

Filed Under: MarketClub Techniques, Tips & Talk Tagged With: , , , ,

“Saturday Seminars” – How to Create & Manage a Profitable Trading Business

November 15, 2008 By

This discussion focuses on the strategies necessary to become a successful futures trader. It includes techniques for the development and evaluation of a suitable trading methodology for each person’s own trading style. Ted demonstrates how to use effective business management strategies in increasing profitability.

He shows traders how to further increase their bottom line through tax reduction. Ted explains in some detail how taxpayers can claim “trader” status that can offer them substantial financial benefits. Ted also reveals a system called the Great Full Spread for methodically grinding out a small but consistent profit using OEX option credit spreads. This strategy provides a highly accurate, limited-risk vehicle for trading the futures market. Ted also shows how to use the McClellan Oscillator to time the market for mutual fund switching as well as for use with NYFE contracts.

PDF Workbook

Ted TesserTed Tesser is a CPA who has been trading the markets successfully for the last thirteen years. A member of the New York State Society of Public Accountants, Ted is also a respected author. His books include The Serious Investors’ Tax Survival Guide, The Trader’s Survival Guide and $5 a Day to Financial Freedom.

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Saturday Seminars are just a taste of the power of INO TV. The web’s only online video and audio library for trading education. So watch four videos in our free version of INO TV click here.

INO TV

Filed Under: MarketClub Techniques, Tips & Talk Tagged With: , , , , ,

Traders Toolbox: Learning Options Part 3 of 4

November 14, 2008 By

Two of the more common option strategies are horizontal spreads (identical strike prices, different expiration days) and vertical spreads (different strike prices, same expiration day). Other spread types are combinations or variations of these categories: Diagonal spreads are a mixture of horizontal and vertical spreads; butterfly spreads combine two different vertical spreads.

Selling a March 450 S&P call and buying a June 450 S&P call is an example of a horizontal spread, also known as a time, or calendar spread. The object is to profit from the quicker decay of time value of the nearby short option compared to the more distant long option. The trader is, in effect, selling time value. Most time decay occurs in the last three months, and especially the last month, of the contract. This strategy is generally most profitable with equity options than with future options.

If you sell the March option at 7.75 and buy the June option at 11.75, you establish the calendar spread at a 4.00 debit. (Debit spreads are spreads that the trader pays to establish, while in credit spreads the trader collects premium). The March contract then drops to 1.25, while the June option drops to only 10.50. You could then “lift” (offset) the spread, buying the March back at a 6.50 profit and selling the June for a 1.25 loss, for a total profit of 1.25 (5.25 minus the 4.00 paid to establish the spread).

In a vertical spread, the options share the same expiration date but have different strike prices. An example would be buying a March 445 S&P call at 6.50 and selling a March 455 S&P call at 3.00 with the futures at 450.00, for a 3.50 debit on the spread.
In the market rallies, the deeper in-the-money long option would gain more than the short option would lose. If the futures are unchanged at expiration, the 445 call will be worth 5.00 (its intrinsic value) and the 455 call will expire worthless, for a 1.50 profit on the trade. Once the futures price rises above the higher strike, against on the lower strike are offset by losses on the higher strike, so profit is limited. If the market falls, loss is limited to the amount paid for the spread.
Option spreads are characterized as bear or bull strategies depending on whether they will profit in up or down markets. The previous example is a bull call spread, because it would make more money in a rising market. A bear call spread would consist of selling the lower strike option and buying the higher strike option.
Bull and bear spreads also can be established using put options. For example, a bull put spread would consist of buying a December 445 S&P put and selling a December 445 put. Selling the 445 put and buying the 445 put would be a bear put spread. Generally, you should use calls for bull spreads and puts for bear spreads.
You can alter spreads by modifying the number of options, for instance establishing a vertical bull call spread with two short calls for every long call, also known as a ratio spread. Whether all or some of the options in a spread are in-, at- or out-of-the-money also will affect the risk/reward profile of a spread.
Other strategies focus on the magnitude of price movement rather than direction. Straddles and strangles are two strategies traders use to take advantage of volatility swings. A straddle consists of buying at-the-money puts and calls with the same strike price and expiration day, for example, buying a June 100 bond call and a June 100 bond put. The straddle buyer expects a futures price move large enough (in either direction) that they profit on the in-the-money option will be more than the cost of putting on the spread. If you thought the market would remain virtually unchanged, you could sell the straddle (at a credit) and reap the profits as time eroded its value.

A strangle consists of combining out-of-the-money call and puts. With June bonds at 102, a strangle buyer might purchase a June 104 call and a June 100 put, again expecting a sizable move in either direction. (An advantage to this strategy is it is cheaper than a straddle, but the market also has to move more to make it profitable.) For a trader who expects bond prices to stay between 100 and 104, however, selling this straddle offers an excellent opportunity to “sell volatility.” If the market does stay between these prices, the seller will keep his premium.
Traders should be away that because of higher commissions and increase slippage, a marginally profitable options trade can actually be a loser when all is said and done. Understanding volatility and time decay concepts will help identify strategies with the highest probability of success.

Part 4 Will Be Posted On November 17th, 2008. So come back soon!

Filed Under: MarketClub Techniques, Tips & Talk Tagged With: , , , , , , , , , , ,

Free access to INO TV

November 14, 2008 By

Dear Trader,

Learning by experience can be costly, especially in the financial markets. Fortunately, there are shortcuts. “I’ve changed from losing money to consistently making a profit,” says Paul, a trader from Illinois. “I’ve learned techniques that really have made a big difference in my trading.” He credits INO TV’s streaming educational seminars for his success.

Traders of all levels will appreciate 4 FREE INO TV’s videos from the largest and most comprehensive collection of trader and investor seminars available on the web.

A special message from Adam

Even though I caught some lucky breaks early in my financial career and went on to become a successful forex trader, I still look back with 20/20 hindsight and realize that I could have been more successful, sooner, if I had been a more educated trader. That’s why I’m so excited about what we have to offer at INO TV: proven trading techniques – practical tools for consistent success – step by step trading methods that will empower you to build wealth and create the life you want. And all straight from the lips of the masters themselves. If you do nothing else today, visit FREE INO TV and find out if the service is right for you
Adam Hewison
Co-Creator, INO TV

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This is what I think will happen to the dollar, stocks and crude oil in the next two months.

November 13, 2008 By

A plan to save the world — part two, or is it three?

When Paulson came out today and stated that his earlier plan to save the western world was not working, he offered up a plan “C” (or is it “D”)  to relieve pressure on consumer credit, scrapping his earlier effort to buy the value mortgage assets.

No matter what happens or what the next plan is here, are the 3 reasons I believe stocks are headed lower.

* Number one: The trend in most all stocks is down. This trend is likely to persist and last longer than most people imagine.

* Number two: There is no plan. The government is floundering and does not have a plan that is going to work anytime soon.

* Number three:  We have a lame-duck president, and nothing is going to happen of any consequence until President-elect Obama is sworn in.

Okay, so let’s look at the first problem. Most people trading the market today have had no experience in a prolonged bear market like the one we had in the ’70s. That bear market was brutal as it did not let anyone out. Over the course of the early ’70s, the bear market basically wore people out to the extent they eventually just threw in the towel. We believe the market is going to make another new low and take out the recent lows that were put in place in early October. Unlike a bull market that constantly needs positive news to drive it higher, a bear market just falls under its own weight.

NEW VIDEO: This is what I think will happen to the dollar, stocks and crude oil in the next two months.

The second problem we have is that there is no concrete plan in place to rescue the economy. In fact, the domestic and global economic issues are so great that they are overwhelming in scope. The Paulson plan, which is being changed and will continue to change, is a major concern and creates significant uncertainty in the marketplace. Only when we see the new regime take office this coming January will we see any meaningful changes.

The third problem we have is a lame-duck president. This is a major problem for the markets as President-elect Obama can not make any sweeping changes until he is sworn into office. Yes, he may hit the ground running, but the reality is, it’s not for over two months from now and a lot can happen to the market in two months. The key levels that everyone is going to be watching for are the recent lows we saw in early October. If these lows are taken out, and I expect they will be, it’s going to push this market and everything else down to new lows. It will exacerbate the housing situation, the unemployment situation and most of all, the morale of the country.

Having lived through the bear market of the ’70s, I know firsthand how difficult the journey we face is going to be. Now this may seem like a very pessimistic outlook and in some ways it is, however there are always opportunities to make money in the marketplace. These opportunities may not be in stocks, it may be in forex or the commodity markets. Our goal on this blog and with the markets is to point you in the direction of where we believe those opportunities are.

So buckle your seatbelt. I think we are in for a bumpy ride.

Adam Hewison,
President, INO.com
Co-Creator, MarketClub

Filed Under: MarketClub Techniques, Tips & Talk Tagged With: , , ,

Short Intel on 9/02 at $22.65 find out more

November 13, 2008 By

MarketClub’s Trade Triangle technology short INTEL from $22.65 on 9/02

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INTEL news from our media partner Associated Press

By JORDAN ROBERTSON
AP Technology Writer

(AP:SAN FRANCISCO) Intel Corp.’s deep cuts to its fourth-quarter guidance offers further evidence that technology companies are in for a beating because of the economy.

The Santa Clara-based company slashed more than $1 billion from its sales forecast and dialed its profit expectations way back. Intel, the world’s biggest maker of PC microprocessors with 80 percent of the global market, blamed a clampdown on spending for reducing demand for its chips.

The announcement Wednesday after the market closed illuminates how the economic crisis is rippling across industries. As consumers and businesses cut back on buying all kinds of things, their reduced purchases of PCs are harming computer makers and their suppliers.

Wall Street got an early glimpse of the severity of damage to the technology sector last week.

Cisco Systems Inc., the world’s largest maker of computer networking gear, reported that orders fell off abruptly in October. The grim forecast suggested that other tech companies will have to absorb major damage to their sales as well. Cisco was the first major technology company to report results that included October.

More specific warning signs for the PC sector emerged last week when Lenovo Group Ltd., the world’s fourth-largest PC maker, reported that profits plunged 78 percent.

Intel doesn’t report its fourth-quarter results until January. Its early acknowledgment is a sign that business conditions are so bad the company needed to make major revisions to its financial models.

Intel now expects sales of $9 billion in the last three months of the year, plus or minus $300 million. It previously expected sales between $10.1 billion and $10.9 billion, and analysts polled by Thomson Reuters were looking for $10.3 billion.

Intel blamed “significantly weaker than expected demand in all geographies and market segments” and PC makers buying fewer new chips as they burn through existing inventory to save money.

Intel’s profit is being hurt badly. The company’s closely watched gross profit margin will now come in around 55 percent of revenue, plus or minus a couple of percentage points. The previous guidance was for roughly 59 percent.

Gross margin measures profit on each dollar of revenue once manufacturing costs are stripped out. It’s an especially important measurement for chip makers because upgrading and maintaining their factories is hugely expensive.

Intel shares fell 97 cents, or 7.2 percent, to $12.55 in extended trading after the warning was announced. The stock had fallen 41 cents, or 2.9 percent, to $13.52 during the regular trading session.

The shares have lost about half their value since a 52-week high of $27.99, reached last Dec. 6.

Intel had been performing well before the downturn struck. A new manufacturing process that shrinks the size of its chips’ circuitry has allowed it to wring healthy profits despite pressure on prices for those chips. One of those pressures has been the rise of so-called “netbooks,” which are pint-sized PCs that are cheaper than regular laptops and are used primarily for surfing the Internet.

Intel’s $2.01 billion in profit for the third quarter beat Wall Street’s expectations. At the time of the earnings release, the company was optimistic about what lay ahead, if fuzzy on details. Intel warned that it would be tough to predict fourth-quarter results but predicted steady profits.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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