EDGE TRADER

Tuesday, March 14, 2006

IIIN

Insteel industries is a very strange security. This type of accumulation has got to be unsustainable. Every day it seems as if it should break down due to the steepness of its advance. But, trying to short it would have looked sensible any day for the past 2 weeks. The funny thing is that the effect of doing so would be like trying to step in front of Amtrak's ACELA train and get it to stop.

Something is going on with this stock. I am not sure what. Accumulation by a mutual fund, hedge fund, etc. or possibly a quiet buyout by a private equity firm? Or just trader mania? No SEC filings to indicate someone has bought 10%. With only a 10 million float, that wouldn't be hard to do.

Regardless of the why's, the action seems to be to continue to enjoy the upwards rise, and modify stops on a daily basis.

A true technician would be concerned with the steepness of the advance, but simple charting is missing the key to this stock; the low float. Trend charts look different based on volume of shares traded. If someone bought 5% of Apple computer today, it would go up. That has been happening approximately 8 out of the past 10 days in IIIN.

Wednesday, March 08, 2006

RECAP

How to begin? A meeting kept me away from the trading screen until 11:00. When I opened, I nearly hurled my breakfast (waffles - would have been pretty ugly) thanks to the red I was seeing everywhere.

The one bright spot which in my opinion turned the day around was the trade I turned in NYX today. The heavy public interest and sales restrictions on the float contributed to a big time up day for NYX. In terms of valuation, all kinds of pundits were going crazy. I can visualize several downgrades occurring tonight, and probably a negative piece on Mad Money as well. Maybe I'm wrong about that, but no sense taking a chance - it was money lying on the floor and I just went over and picked it up. My close was +7% from my entry midday, with various partial exits. NYX closed strong until the last 10 minutes of trading which is when I sold my last NYX share.

The markets managed a nice closing snap-back rally, so all that nausea was for nothing. Of course a bad number on Friday could bring back visions of those waffles again, but that's another story.

Tuesday, March 07, 2006

Panic or opportunity

That's what makes investing difficult. I think I'm going to choose to sleep a little fitfully tonight. Maybe I'll spend the first few hours worrying that I'm too invested in this market (cash might be good... ). The next few hours I might spend wondering whether I should be 100% in to capitalize on yet another bear-provided opportunity. I hear people talking about bond yields, shakeups in equities and all kinds of generally fear producing things.

Listening to a bunch of traders talk about the upcoming doomsday thanks to the demise of the yen carry trade, non farms payrolls, or bond yields or some other indicator has got me nervous. But I could wake up to a fine open tomorrow and this little post will be long forgotten.

A Discovery Being Digested



This stock caught my eye and I think I found a really interesting trading story. Whenever I look at a stock, I try to digest it from 3 angles: technical, fundamental, and what I call the trading situation.

At first glance, the technical analysis of this graph clearly identifies a stock in a huge uptrend, probably an unsustainable one at that. Today's trading it was down roughly 3%, which is either a nice entry point or prelude to disaster. I could lie to you and tell you that I knew which one, but I don't. The striking thing about it is how unnatural this rapid rise looks - normally stocks don't behave in this manner. On the volume side, we see a stock that had very, very little volume in the 4th quarter last year go to a stock that is trading almost 1/2 a million shares a day.

My earlier post about the fundamentals of this company seem to crystalize it, from a numbers standpont we have a small, well run company with earnings growth and little debt. This past quarter, they used the strong cash flow to pay down debt. This seems a little strange, since a small growing company would probably best be served investing cash flow into new plants, equipment, employees, etc. to grow future earnings.

The trading situation of this stock is a little more interesting. Fidelity is about a 10% owner of IIIN (or was as of 12/31). This stock was clearly off the trading radar until this past month. Even now little is known about it. It doesn't do press releases. If you look at the tight trading range each day and the steady daily increase in price, it looks as if someone (probably an institution) is quietly buying this stock up. More interesting is the extremely low float - 10M shares, which means for the last week or so, 3-5% of the float has been trading each day.

I could come up with a justification for shorting this on technical grounds. I also happen to think that this stock is still pretty cheap with a forward PE of 9. Another part of me thinks that a potential reason for the buy down of debt might have been to clean up the books as a prelude to marketing the company as a takeover target. Alternatively, our takeover could already be quietly in process right now from either a bigger player in the industry or a private equity firm.

I visited the dregs (translation: message boards) and heard an interesting rumor that brokers can't find IIIN shares to short. This would seem to gybe with a potential takeover since a private equity firm would probably not allow its shares to be sold short, but in reality I trust the people that dwell in those pits less than I would a trust a kleptomainiac in a room full of baubles.

No recommendations, other than to check this out for yourself. I welcome comments if anyone has them.

IIIN Insteel Products



Insteel has been blasting off in the past 30 days. This is an intreesting stock - the fundamentals look very good - this appears to be a well run company, with good financials and nearly no debt. They make steel reinforced concrete products. They gapped up in early February and have moved up 20 points since that day.

With the steepness of the increase one could be concerned that this might collapse. On the other hand, it could also start to make its way into the mainstream a little more....

It's hard not to think about this as a momentum play right now.

Monday, March 06, 2006

An interesting day to open a new week


What an interesting day to start out this week. Interesting as long as you weren't long US equities, that is. Pre open looked relatively positive, but things went down hill from there, prompting some nice waterfall action around 1:30 pm. This chart is the 5 minute bars in SPY - Notice the abrupt spike in volume as the market starts unloading everything in sight.

Just when you thought it was time to breathe and maybe buy, you would gotten skewered by the falling knife. Equities managed a somewhat steadier march to close from there, but this was pretty ugly action for the bulls. True to form, I tried to make the best of it and entered a long position near the close. If you've ever read here before, you know I consider -100 dow a big time signal to buy at the close, and we got pretty close to that for a while.

My convictions aren't strong about where this market is going next, but that is not my bag. I never know where the overall market is going next, and I would humbly submit that those who say they do are probably just fooling themselves. Regardless, I wouldn't be surprised to see some bounce back at the open tomorrow.

Thursday, March 02, 2006

COGT

Here comes the covering rally I expected in COGT. I've backed up my positions with stops and will wait to see how high it goes. It was a bit harrowing earlier in the day as it chose to drop first before rallying, but that isn't unusual.

The set up works like this - a stock gaps down on heavy volume. There is no retracement later in the day from its opening range bottom. Translation: the market makers were forced to buy stock yesterday in the face of the sell off. The price was flat yesterday, so the MM's couldn't thin out their inventory at a profit at all. Naturally they'll want to prop this up today so they can sell out of their temporarily heavy long position. On the flip side, the heavy short interest as of 2/15 in the stock turned out to be dead on right. It will be natural for them (them being hedge funds) to buy to cover today to lock in a portion of their profits before seeing where this goes next. There's a lot of mutual fund and institutional money in COGT , so there is the risk that an analyst at one of the big firms (who coincidentally runs a mutual fund that holds the stock or has the institution as a a client) issues an "upgrade" based on valuation, sending the stock higher.

To sum it up, in this not too unusual scenario, hedge funds make money, the market makers make money, savvy traders make money, and the poor buy and hold and mutual fund investors get screwed. Probably not fair, but everyone has a choice, and I choose to be on the side making money.

Wednesday, March 01, 2006

COGT

Bought COGT at the close for an overnight swing trade. I hope to sell my shares tomorrow morning to a covering short for a little profit.

Trades this morning

Yesterday during the regular trading session, I opened trades in DRIV, VPHM, and AFFX. This morning I closed AFFX for a break even waste. I closed DRIV for a small profit (roughly +.8%) - I may buy this one back later depending on the tape. VPHM - I closed half in the first few minutes of trading and have backed the rest up with a stop.

After hours yesterday, I bought ADSK. It seems the market is rewarding those companies who deliver good numbers and upbeat guidance; the psychology is that the market is pricing in dissapointment in tech earnings. So I felt it a relatively safe bet entering after hours at 38.40. I am still holding ADSK as it makes its run towards 41 this morning.