EDGE TRADER

Sunday, July 31, 2005

The "chain" gang weekend

Lets count the chains: Americans these days are chained to the chains. So here's the recap from my family's use of publicly traded chains this weekend.

Chain # 1: Dinner. Friday night. We are generally too beat to fire up the barbecue or oven on Friday nights. When we can tear our kids from their neighborhood play gang on Friday we go out. If not it is pizza on the deck. No kids in sight so the trip out was a go. Panera Bread (PNRA) bills itself as the "fastest growing" something in America. Sounds interesting... Food is always good, but it's carb heavy thanks to that slab of bread they give you. In the northeast, this stuff is comfort food, I love this stuff in February. Looks like the masses agreed because it was empty. The staff is well trained and super friendly (translation: my order taker was hot), but I am sure that our local branch won't be doing much to increase same unit sales this quarter. Everyone is on vacation!

Chain #2 Netflix. This was the after kids went to bed. A stock I owned in June and made me tons of money the day that Wal-Mart announced its exit from this line of business. I wish I waited for the subsequent drop and repurchased so I could sell at the last earnings announcement. We are on the verge of cancelling. We have been subscribers since February or March and have seen virtually every DVD we ever want to see. So we will enter a cooling out period until at least November before re-subscribing. As a former customer of Blockbuster's DVD by mail service, I can tell you firsthand, Netflix dominates this industry. I would never go back.

Chain #3 Friday's. My kids love going to places where the menu has cartoon drawings instead of words on the kids menu. That, in essence is why we went. I for one noticed an empty restaurant and ate soggy fajitas. This is not a glowing review.

Chain #4 Cabela's. The world's premiere outdoor outfitter. We visited the Hamburg, PA store. We had never been - as former New Englanders we were hoping that this would be comparable to our trips to LLBean in Freeport, Maine. I was impressed with the collection of taxidermy (we're talking elephant, alligator bears, deer, wildebeest, zebras, even a deer being eaten by an alligator...). A fully stocked trout pond. The kind that I put on my mental notes of places to stop should all grocery stores be annihilated by AlQaeda - I could easily feed my family by wading in and grabbing a lifetime of trout almondine with my bare hands. No - we didn't use the free dog kennel or horse corral outside. The merchandise was not my cup of tea - you need to enjoy spending time chasing and killing wild animals on your weekends for this to be a place you regularly spend money at. But I can see this being a solid retail concept that could be expanded. Plenty of people in America love shooting animals, hence the possibility for continued double digit growth? So I did some DD. It's funny how all this time spent got me to the same words I uttered when first walking inside: "man, it must have been expensive to build this place" - yes, the company is struggling with the capital investment to expand and build new outlets. The stock had an interesting chart - cup and handle + bearish engulfing following earnings. If this stock gets hammered I may pick some up on the cheap, but too rich and risky for me at this price point. I'll bet short interest is high, but I don't care enough to check now. I think eventually they will get through this and have a bull run, but right now choppy waters for them. Q1 2006 it may be a good one to own if you can enter in the mid teens.

Back to business: plan for this week coming up:

Swing trade in XEC, Remington or CHK if we should be presented with (as expected) a day with crude in the $57 range, followed by exit once crude crosses into the $60+ range. If and when opportunity presents itself. Choose security that offers best possible entry. No chance of Cramer hitting the bear button on any of these securities so they are relatively downside safe. Preferred entry will be at lunchtime on Monday or Tuesday. Let's hope crude co-operates.

Earnings play on REM? Reports Tuesday ATB.

Sell 50% AAPL, YHOO, LGF, 50% INTC on strength if possible to book gains.

Exit EFJI prior to Tuesday's earnings.

Gap trade purchase Monday, Tuesday, Wednesday. Sale at open following day. Avoid earnings.

Goal to be 50% cash by Friday.

All business today - Recap and Plan!

Saturday and not sleeping right now, but soon I will be. The end of the month is all about review of the previous month and planning out a new month.

Month recap for July:

+5.4%. I was over 6% but a bad earnings week set me back a little. This includes long holdings as well as short.

Ebay went from a negative to a resounding positive. I exited the majority of the position on the upside news, and spread exit points. 1/4 in the after hours of the announcement, 1/4 at the open the next day, and 1/4 at about 2:30. As it worked out the 2:30 exit was most profitable, but I am really happy with the discipline in my exit. The remaining long position I will hold, since this is the house's money.

Had a good entry point on INTC and YHOO following downgrades. Profiting from this will be my job next week.

Bought GKIS as my stock of the week. That night Cramer announced it as his "Stock of the Week". Sold at the open the next day for a healthy profit - thank you Jim!

LSI turned out to be a failed trade. I panicked in the exit and sold 100%. I stand firmly behind selling at the open, but should have went 50% - 50% between open and next day or held a portion long. This would have preserved capital.

SYNA - a disaster that turned a phenomenal month into only a great month. My technical problem cost me my 50% pre earnings exit which would have saved 5 points. I could monday morning QB this one, but nothing would have prevented me from making the mistake of holding at least half into the announcement. Some lessons you have to learn the hard way. The worst part is I researched the reaction to their last conference call (stock also got slammed) and knew I should be selling.

Plan for next month:

At least 3% for the month. 6% or more deserves a special celebration!

At least 25% in cash during each intraday session.

Preservation of capital will be important, since this is August and could be a doldrums month.

Safety will be a concern surrounding the Fed meeting the 2nd week. 50% cash or more for that day.

No more earnings fiascos.

At least 1 crude oil swing trade. I see some money lying on the floor over in the corner. I think I'll walk over and pick it up.

Possibly 1 oil earnings play if there is still one left - this is my homework tomorrow.

Set up and enter at least 1 XMAS season play late in the month. The idea is already brewing.

Blogged weekly goals on Sunday, and recap on Saturday.

Bedtime for bonzo!

Friday, July 29, 2005

My cards should say "Reclamation Engineer"

This morning I enjoyed a brief moment of peace as I compose the plan for the day. GLW gapped up slightly and CHK gapped up considerably thanks to higher crude (again over $60) and a favorable mention on CNBC last night. I've been watching NGPS with interest lately. This stock must be day trader heaven - the spreads are immense and it bounces up and down like a superball. It looks tempting to get involved but somewhere in the back of my mind a wiser voice is telling me that putting my hand in a running meat grinder might be safer.

Slow Friday and lots of work to do - too much weakness to sell today, Tuesday at 9:30 is looking good to convert some paper back to cash.

So a little about one of my investment strategies. I like to think of myself as a "garbage picker". I look for the stocks that people threw away today to see if there is anything worth salvaging for a short swing trade. Today in the trash I found SYNA (too bad I already had some), SYMC, IVGN, KCL, and AAPL. There were others there that I would be all too happy to leave in the trash. Among them, HANS, TUNE, and GOOG.

Another trash can resident that has captured my attention is SYNX (-8%). The only spam I don't block is the pumper and dumper stuff emailed to my account. SYNX showed up in my email and my fax, so for kicks I put it on my watch list a few days ago just to observe the carnage. I have been amused to watch my unseen pumper have a lot of success (go to cbsmarketwatch.com and look at the chart!), although the clock may be ticking on the poor souls owning this one. I am watching this one in the same way your eyes are unfortunately attracted to the dead deer on the side of the road.

Anyway, back to the game plan. It's really simple - review gap downs for the day, choose wisely, buy between 3:50 and 4:00. Sleep fitfully. Wake up, dress, shower, shave, take kids to camp, return, sell stock, go to work. I'm not going to trade the lights out with this approach, but in most cases I bring a few extra bucks home each Tuesday, Wednesday, Thursday, and sometimes Friday.

Today I reached into the trash and pulled out a slice of an Apple! Yesterday's GLW was not really a garbage picking expedition, but so far I am happy with it. Monday or Tuesday we may say goodbye to it - next week is the week to clear out all questionable inventory in the warehouse so we can calmly listen to AG speak.

Book of the day: Nicholas Darvas - How I made $1,000,000 in the stock market. I ended with a sideways week, and was thinking about this book as I was ordering my lunch at Moe's (ah I wish there was an IPO). Very 60's and all Technical Analysis. That book always reminds me that good things can happen to people who are playing the game.

PS - I wish Wendy's would spin off Baja Fresh - now there would be a reason to own WEN!

Thursday, July 28, 2005

Earnings Pain

Ok today is the midst of earnings season and today was not a good day for me. I unloaded LSI Logic for a loss. Bought 9.89, sold 9.59. Ouch. Then after the bell, SYNA announces a blowout quarter, but guides down the next quarter. I had already sold half of my original position at a solid profit, but it hurts to give back some profits, especially since it closed at 21.02 and will likely open tomorrow in the area of 16.50. At 16.50 it might be too attractive to unload, but what's the opportunity cost? I actually wanted to sell half of my remaining position to further minimize downside risk, but Mr. Murphy intervened with a long day at work, a clock that said 3:57 and was 4 minutes slow, and a computer that needed to be rebooted. These are the things that Law and Order guy won't tell you about in his ads for TD Waterhouse.

I don't know what others think, but this year especially it seems very difficult to survive earnings unscathed. The CFO's are really being squeezed. Talk about a tough job. On the one hand, if you issue conservative guidance in your conference call, your stock gets hammered by the market the next day. Oops! There goes the value of your unexercised options and your kid's braces. On the other hand, if you issue agressive guidance and miss, months later you end up getting served with a class action suit for misleading investors. Your kid will have braces but you might have to look at that great smile from the other side of the visitor's lobby of SingSing one day. Thanks to the rise in class action litigation, I am sure we will see the trend of conservative guidance continue. There might be a shorting strategy to be found here, but that might be a little risky to try (of course when I hear risk I also hear "reward").

Bought 500 GLW at18.83 on a decline today I've been waiting for a return to the 17's to enter but it isn't looking like it will happen. Hope it opens up higher tomorrow. See you then.