XLE - Energy sector

With the large drop in oil today (down 2.5%-4% depending on whether you are looking at Brent crude or WTI crude), I decided to take a look at an energy sector long.  The XLE has been beaten up almost as much, currently down about 2.4%.  However, it bottomed today about 68, and as you can see on the hourly chart below, that's become a recent support level.

However, if you notice, the bollinger bands have gotten very wide the last few days (higher volatility), so I didn't want to just buy a call.  Considered a put credit spread, but I only want to hold that a couple weeks (to May expiration), and I'd like to stay in this trade a while longer to catch some upside.  So I bought the June 70 call and sold the May weekly 70 call (expiring next week), and I will continue to sell weeklies as long as I'm not assigned (or XLE drops considerably).  My target is about 72, near the recent hourly high above, and more importantly, the resistance level on the daily chart below.

I'll try to do better with my updates and keep you updated on this trade.

Another Disappointing Jobs Number

The market is down hard today after this morning's disappointing jobs report.  Currently the S&P500 seems to be holding at 1370, but it also paused earlier this morning at 1375, moved back up, and then reversed right back lower to its current 1370 level.  I am considering putting long money to work here (SPY vertical spreads), but will wait to see if this is another fakeout like what happened between 10:30 - 11AM.

Update On Sectors

So here's an update and comparison to my last post on sector weightings.

By market value:

3/23 post			Today
Tech	17.7%		Tech	16.0%
Gold	6.2%		Gold	6.4%
Telecom	10.1%		Telecom	9.8%
Consumer Staples	16.2%		Consumer Staples	16.6%
Energy	6.2%		Energy	5.4%
Industrials	5.1%		Industrials	3.8%
Materials	6.8%		Materials	7.0%
Health Care	0.5%		Health Care	0.6%
Financials	6.7%		Financials	6.7%
Trading	0.6%		Trading	1.9%
Cash	24.0%		Cash	25.7%

No major changes there.  Now by "risk" as outlined in prior post:

3/23 post			Today
Tech	5.2%		Tech	3.6%
Gold	-0.4%		Gold	-0.4%
Telecom	15.1%		Telecom	15.5%
Consumer Staples	29.3%		Consumer Staples	29.9%
Energy	15.2%		Energy	16.7%
Industrials	16.1%		Industrials	6.0%
Materials	5.9%		Materials	6.0%
Health Care	1.1%		Health Care	0.3%
Financials	8.9%		Financials	8.6%
Trading	3.7%		Trading	13.8%
Cash	0.0%		Cash	0.0%

2 items stick out.  The large jump in trading "risk" I will explain in another post.  The other item is industrials - I dumped my long calls in Boeing (BA).  BA has not been trading well and I was stopped out.  My rule is 50% loss in premium on long options that are designated as investment (time frame is weeks and/or months).  Perhaps what I mean by "investment" should be explained in another post also.

Here We Go Again

Well, I've fallen flat on my commitment to post more often this year.  All I can do now is try to improve going forward.

So where do I stand right now?  By sector:

Tech 17.7%
Gold 6.2% (been taking a beating here, but staying put)
Telecom 10.1%
Consumer Staples 16.2% (higher than I'd like)
Energy 6.2% (would like to get longer as oil has dropped somewhat)
Industrials 5.1%
Materials 6.8%
Health Care 0.5%
Financials 6.7%
Trading 0.6% (very short-term plays and hedges)
Cash 24%

However, I consider that somewhat misleading.  My positions are made up of a combination of common stock, calls, and spreads.  So in reality what looks like a very small weighting may be much higher relative to the risk I'm taking in that position.  I haven't figured out the best way to measure that yet, but what I'm trying is looking at the risk as the current market price relative to my stops.  Pictured that way, I get this:

Tech 5.2% (most of this is AAPL, and at this point my stops are above entry point)
Gold -0.4% (all stops above entry point)
Telecom 15.1%
Consumer Staples 29.3% (this concerns me when I view it this way)
Energy 15.2%
Industrials 16.1%
Materials 5.9%
Health Care 1.1%
Financials 8.9%
Trading 3.7%
Cash 0% (no risk of loss, but yes there is an opportunity cost)

Still not perfect, but at least it gives me another way to view my weightings.  For example, it makes me think twice about adding to energy and industrials when I view the risk, and then compare that to a larger weighting in financials but a much smaller relative risk.  It's a work in progress.

Verizon

Added to VZ long this morning after a few down days.  The purchase now makes it my largest position ahead of AAPL.

What I'm Holding

These are my current longs, in order of largest to smallest size (based on Tuesday close):
AAPL, VZ, COP, MCHP, DD, ESV, IAU, DE, WY, BGS, SLB, MWE, CLX, HAL

That's more positions than I'd like to have.  Most likely candidates to get out of are DE into continued strength, and CLX and HAL as both are January options close to expiration.  I'm also likely to trim some WY and AAPL exposure as both have had a nice run recently.

Back For The New Year

Long time no post.  Just didn't make it a priority to keep up with this last year, but since it's time for everyone to make their resolutions, trying to be a regular blogger will be one of mine.

Quick recap of where my view was at the end of the year.  Slightly bullish with a variety of long positions, but hedged with XLF puts and QQQ and SPY put spreads.  Not a lot of capital was committed to the hedges, only about 1-2% of my total account.  Got washed out of the QQQ and SPY spreads on the big up day on Tuesday and have not put any back on yet.  Both ETF's are holding above their 200-day moving averages, so I'm not ready to go short on them yet.  Also got washed out of some of the XLF puts on Tuesday.

Stopped out of DISCA

I still like DISCA, but was stopped out of my long position this morning.  So I imagine the logical question is, why did I let myself get stopped out?  Sure, I could have canceled or moved the stop, but I could be wrong about the stock.  Stops are there to protect the downside and limit risk in case I've made a mistake on DISCA.

I still have my Feb 35 call on DISCA, and expect to keep that for now.

Re-visiting Priceline (PCLN)

Time to check back in on Priceline - to recap last week, I liked it and was ready to buy (Priceline (PCLN)), but held off because of the chart (PCLN Again).  I wanted to wait and see where it went short term within its 2+ month trading range (hoping it would drop to the bottom of the range for a better entry point).  Here is today's chart:

You will notice that it did finally break out of the range the very day I decided not to go long (and has stayed above since), but the volume (see yellow above) has been lackluster.  To me that's not a solid breakout and should be eyed with caution.  While I still like the stock, I think it's just as likely to drop back below what I view as weak support around $426 in the short term.  Holding off again for now.

Back To Gold Again (IAU)

As mentioned in a post from last week, My Current Gold Position, I'm looking to add to my ETF holding in IAU, but was waiting for some price stabilization after it dropped after the first of the year.  That's happened now, as IAU has closed in an 0.11 cent range since Jan 4th, and it's currently trading only .03 cents above my last buy.  I'm going to buy IAU before the close today.

DISCA Again

DISCA has continued to drop since my last post and is now down over 5% since last Monday and more than 1.5% below from where I bought more on Thursday morning.  Since this is currently my largest position I decided more research was in order (and some of this I should have done already).

To recap, DISCA is trading at a multiple more or less equal to the growth rate, very cheap.  I listened to the 3rd quarter conference call today (from Nov 2nd) and heard didn't hear anything to change my bullish view on the company.  Also took a closer look at the 3rd quarter financials:

• Current ratio is 2.7 vs. a 2.1 ratio at 3rd quarter 2009
• Long tern debt is up only slightly (4% from 3rd quarter 2009)
• 3Q net income was $186 million with only $49 million in interest expense for the quarter - And interest expense was actually down over 24% from 3Q 2009
• Margins were up over 3Q 2009 - 45% vs 43% last year

The decline seems to coincide with a Citigroup conference they participated at last Tuesday, 1/4.  So thinking there must have been bad news I listened to the presentation today, which was a 30+ minute Q&A session.  It was sort of bland, but I didn't hear anything to drive the stock down - on the other hand nothing was said you'd consider "exciting" for the company, and maybe that's what the street was looking for.

We should also look at the chart since I did note last week that it was approaching support at $40, which it has broken through - that $40 is now resistance.  However, I see the next level of support relatively close, around $39, which is also just slightly above the 200 day ema.

My bottom line opinion - I see nothing to change my positive view on the company.  This is yet another buying opportunity, but I do recognize that the stock could have some difficulty trading above the $40 resistance in the short-term.  Also, if you look at the chart above, we're not that far from my stop which I placed a little below the 200 day ema.  Maybe I'll leave my common position alone and go with a call for my next by...?

Discovery Communications (DISCA)

Discovery Communications is a current position that I made 2 buys back in November at $40.28 and $41.59.  It was profitable for awhile but has taken a 3% dip this week on higher volume.  It's also starting to approach support at $40 (see chart below) so I thought I should take a second look.

• DISCA is currently trading ($40.55 close) at 19.1 times 2011 earnings which is more or less even with its 2011 estimated earnings growth of 19.8%.  (Estimated 2011 EPS has actually been revised $0.02 higher than when I first looked at it back In November)  One times earnings growth is cheap.
• Median analyst price target is $45 - 11.1% from today's close.
• To get only a 10% upside, DISCA only needs to trade at 1.06 times the 2011 growth rate.

Bottom line - I still like it and will take this as another buying opportunity at tomorrow's open.  Look for tomorrow's How I'm Doing to show another purchase or I'll post an explanation if something changes.

Natural Gas (UNG)

Mentioned a couple days ago my trade in natural gas, UNG (ETF), had finally moved in my favor, but I stayed away because it had a huge 5%+ day.  Today it pulled back to about 2% above my initial purchase and I went back in for my second buy.  You can see the update on the How I'm Doing page.

I'll discuss stops in more detail in a later post, but on UNG, I had set my stop prior to today at 5.24, slightly below a long term low of 5.27.  Well, now I have more exposure and that's a 14% drop from today's close which is more than I'm willing to risk.  I don't set my stops the same way on each position, but I'll rarely have more than a 10% stop.  There's a recent low (mid-December) at 5.53 so I'm going to move the stop up toward that, which will put me just under 10%.

My Current Gold Position (IAU)

If you've looked at the How I'm Doing page, you'll see that I have a current position in gold using the iShares ETF, IAU.  I've made 2 purchases, the second about 2% above the first.  As stated in an earlier post, I'd like my first "addition" to any position in favor of the trade, and preferably about a 2% move.  So, done and done on that one.

Now, I still like gold and would like to add to my IAU holdings.  However, I'm OK with any further additions not being above the last purchase.  Take a look at the chart below - notice if I used the same guideline as above, I would be buying at about $13.80.

Purchase 1	13.27
Purchase 2	13.53	2.0% up from 1st buy
Purchase 3??	13.80	2.0% up from 2nd buy
Stop	12.38

In theory, my next purchase ("Purchase 3") could be anywhere between my 12.38 stop and approx 13.80.  In reality, I will probably never add to a position below the initial purchase price, in this case 13.27.  And I will probably never buy more than 2% above the last buy.  So that puts me between 13.27 and 13.80.  As gold has been taking a little beating the first few days of the year, I'm going to wait for it to stabilize a bit.  Most likely I will purchase more somewhere in the neighborhood of purchase 2 (13.53) after the price settles down.

PCLN Again

Priceline 1/4/11

I was ready to go long on Priceline at the open this morning but have decided to hold off based on this chart.  PCLN has been in the range shown above since it gapped up in early November.  Currently it's in the middle of the range, which is not a terrible entry point, but I'd like to wait and see if it goes closer to the range bottom.  Of course a few things could happen:

• It could trade up to the top of the range, at which point I will likely wait and see if it breaks out on strong volume, which would be a good entry point
• It could just mark time where it is, and then I'll likely just go long around this level
• It could drop to the bottom of the range, which is my ideal entry point - yes, I know it could then break below, but I'll have a tight stop so if I'm wrong I can cut my loss quickly

Priceline (PCLN)

Priceline looks promising:

• Another high earnings grower like OPEN and NFLX - as expected, growth is declining. It's just tough to maintain such a high flying-growth rate - 55% for year-end Dec 2010 vs 33.6% for year-end Dec 2011.
• This is just plain cheap on earnings (using yesterday's close of $415.99) - trading at 31.5 times the 2010 EPS estimate which is a dirt cheap 0.57 times 2010 growth
• To give only a 10% upside from these levels, Priceline only needs to trade at 0.63 times the 2010 growth rate.

The 2010 earnings report is not far off, 2/4/11, so we should also take a closer look at how this stacks up against the 2011 estimates.

• PCLN is currently trading at 23.6 times 2011 estimates, which is still much less than 2011 growth, only 0.7 times the 33.6% rate.
• Looking at a 10% upside, Priceline only needs to trade up to 0.77 times the 2011 growth rate.

Of the 3 high growers, PCLN looks much cheaper than either OPEN or NFLX. I'm likely to go long on this one and will let you know when it happens.

Netflix (NFLX)

Not thrilled about Netflix:

• Growth is declining - 40.9% for year-end Dec 2010 vs 37.6% for year end Dec 2011. But not a huge issue with that, 37% is still pretty darn good
• Somewhat expensive at yesterday's close of $178.41 - trading at 63.9 times 2010 EPS estimate, but my bigger concern is that 63.9 is 1.56 times the 2010 growth
• Netflix would need to trade up to about 1.7 times the 2010 growth to offer a 10% upside - getting too close to the double growth rate multiple I want to avoid

No go for NFLX. If I'm looking at high-growth stocks, I still like OPEN better which I wrote about yesterday.

Yes, I'm A Jim Cramer Fan

I don't take everything Jim Cramer says as gospel, but I would consider myself a "follower". Is he right all the time? Of course not. Is he going to make wrong calls? Absolutely, everyone will. So, yes, there will be references to Cramer here occasionally as I do get some of my ideas from him.

With that said, Jim has set his Dow target for 2011 at 13,365. His top 3 Dow Stocks for the year:

3) AXP, American Express - $60 target

2) INTC, Intel - $30 target

1) AA, Aloca - $22 target

I'll provide some of my own analysis on these names soon.

Positions Updated for 1/3/11

How I'm Doing has been updated for Jan 3rd. I don't expect to write an update each day, but today's 5%+ increase in UNG deserves a comment.

Normally I would look to make a first addition to a long position when it first moves approx 2% in my favor. Nothing magical about 2%, I just want to see a positive move to confirm the trade is working. BUT, when a position blows past my 2% mark, I'm going to take a wait and see approach.

Open Table (OPEN)

Open Table is interesting:

• The growth rate is declining - 106% for Dec 2010 vs 54.4% for Dec 2011. But c'mon man, it was growing over 100%! Tough to hold that against it.
• Not expensive at all at current price of $70.65 - yes, it's trading at 103.9 times the 2010 EPS estimate, but that's 106% growth, so it's still trading at slightly under 1 times the 2010 growth rate.
• Open Table only needs to trade at 1.07 times 2010 growth to give a 10% upside from here - still cheap. If it could trade 1.25 times growth, we're looking at a near 19% upside.

As I'm looking for opportunities as far away from double the growth rate as possible, this fits. Some other things I'm considering before jumping in:

• 2010 earnings report on Feb 7th - not that far away and I typically like to stay out (or be out) of trades when the report hits.
• Since 2010 earnings is so close, the 2011 earnings outlook may be more relevant - to get the same 10% upside referenced above, OPEN needs to trade at 1.36 times 2011 growth. Yes, that still looks cheap, but still higher than the 1.07 above.
• Also want to analyze a couple other high-growth stocks, Netflix and Priceline.

Definite maybe to go long on OPEN - I'll keep you updated.