I finally did something right

[desdawg]

Yesterday I decided to bail out of a couple of mutual funds that I have owned for a while. I actually got out without losing any of my original investment. As part of my process yesterday I kept an eye on the DJIA throughout the day, something I had never done before. Usually I give it a glance to see what it did at days end. What a ride that was. When I first checked it was up, a short time later it was negative. Later in the day it swapped ends a couple of times and wound up a loser by days end. But I bailed anyway and saved my investment, maybe even made a couple of dollars but not much. I looked at the DJIA again this AM and it was way down. Currently about 170 points. The reason given by the press this morning is another surge in oil.
http://biz.yahoo.com/ap/080611/wall_street.html
A few months ago I invested in some low budget energy related stocks. Three of them I have dumped as they weren't doing anything. I hung onto one, PDO which now today is up $1.58. The bad news is I don't own enough to even cover the gas I will use today. I can't imagine what it would be like to be a day trader in a market that is this volatile. My tolerance for risk isn't high enough to play that game. But it was interesting to watch. As things changed throughout the day I would wonder, gee what caused that in an hour and a half. 

[muldoon]

time will tell if your move was right or not. 

I can't imagine what it would be like to be a day trader in a market that is this volatile. My tolerance for risk isn't high enough to play that game. But it was interesting to watch. As things changed throughout the day I would wonder, gee what caused that in an hour and a half.

I'll give you my read on it, not sure if it's right.  I guess time will tell as well.  Lots of news out lately, but the bottom line is that Trichet (european central bank) fed the market talk of fighting inflation which forced the dollar down because Bernanke (us central bank) is not in a position to raise rates.  Raising interest rates in a recession may be very painful as it will force the slowing to occur quicker.  However raising rates strenghtens currency, and helps lower commodities as more people have faith in currency.  Now Ben is talking about fighting inflation, the IRX nears the 2% mark and nearly crossed over signalling a .25 raise of our target is very likely. 

So, as the cost of money goes up the banks lose big time.  On Monday the bond market exploded, with the treasury curve spread between the 2 and the 20 year flattening.  That means the spread between short borrowing and long lending is vanishing, this is the mythical printing press of the fed being shut off.  Banks make money on spreads, the bond market (indeed all of international credit) is taking the cues that rates will go up and moving fast.  Mondays treasury move was a 4 standard deviation event, it was in the top 0.5% of all daily moves since 1975. 

This tells me that money is about to start getting expensive over the coming months, especially for our government which is the largest consumer of debt on the planet.  If you have variable rate interest loans (credit cards or arm notes - be a good time to look at some other options if you wish to protect yourself.. )

The DOW is naturally reacting to this news as well and re-determining forward returns based on potential for change.  Some amount of the profits for companies next year are disapearing today and the market tends to go down as a whole when that happens. 

editing to add this chart from Credit Suisse.  Consider where we are now, consider the wave has not even began to hit yet, consider the effect of raising interest rates during this.  yeah, the dow has a ways to go still. 

[peternap]

few months ago I invested in some low budget energy related stocks. Three of them I have dumped as they weren't doing anything. I hung onto one, PDO which now today is up $1.58. The bad news is I don't own enough to even cover the gas I will use today. I can't imagine what it would be like to be a day trader in a market that is this volatile. My tolerance for risk isn't high enough to play that game. But it was interesting to watch. As things changed throughout the day I would wonder, gee what caused that in an hour and a half. 

Congratulations Des. I'll take what muldoon said. That end of the market isn't my cup of tea....

As to daytraders.....I've never met one that made any money. When the market is like this, I have to watch every tick (Something I never recommend) even though all my investments are long. I think solar is near the bottom now so I might add to ASTI before the shorts start covering. In a couple years this company will be worth a lot ( I hope).

Very few people can read the market as well as I can. Every morning, I look at the trends and know that it will go up or down or stay the same....and it always does!

[desdawg]

You guys have a much better insight than I do into the market and the forces that make it move. I get nervous when I watch money evaporate. Which is what was happening. I don't have enough to stand up to much of that. The way things have been going if I can get out with what I put in I am happy. Later I may say if I would have only hung in there.....but for right now LOL. I will say I was pretty amazed to see how things fluctuated in very short periods of time. And I am sitting here thinking what changed so dramatically so quickly? Nothing really, just a press release here or there containing a prediction or two I guess. Much too fickle for me. I like assets I can see, touch and feel which makes the market a pretty intimidating place.

[desdawg]

So you think ASTI will do well Peter?  I will have to do some reading about them.

[peternap]

So you think ASTI will do well Peter?  I will have to do some reading about them.

It is a spec stock Des.....so be careful!

They have a product no one else has. Thin film solar on a flexible substrate. There are other thin films but all on either metal or glass. They are producing them now and will be kicking into heavier production. So far, they they have done everything they said, when they said.

Norsk Hydro has invested heavily in them and they have them incorporated in their aluminum building products. They just did a secondary offering so cash in the immediate future isn't a problem.

They are also shorted more than any stock I've ever seen. The hedgefunds love it. So depending on how you play it, they are a good short term investment or IMHO a better long term that will rival FSLR.

I invested when they were just a couple dollars and then they shot up to the high 20's. I sold there and made 150,000.00. Then came the inevitable dump. Back to 6.00 and the z"s (warrants around 2 something. I pocketed the profit from the sale and reinvested at that point.

You can read the Hedgefunds like a book and all I have now is long except 3000 shares that I buy and sell depending on what the HF's are doing. I made about 1,600.00 this week shorting it. It pulled back up some today and I expect it will continue that trend for a couple of weeks to about 13.00 and then the HF's will take over again.

It is not a stock for people with weak hearts. It will make a lot of money over the next few years  I think. If you invest in it, do it because YOU have done your own research. I'm gambling with money that I can lose and didn't work for.

[desdawg]

On July 7th my PDO stock is supposed to do a 5-4 split so for every 4 stocks I have now I will be given a 5th one. Do any of you more savvy guys know how that typically goes. Will the share price drop when that happens?

[peternap]

I doubt I have more savvy Des, but more stock dilutes the stock so each share is worth less. If it's a good stock, the market generally factors in the dilution before it happens and shortly after, it will stabilize and your shares will total what you had in them before the split.

The only real advantage to the shareholder that I know of is when the stock starts going up.

[desdawg]

Thanks Peter, it would make sense that the additon of more stock would devalue the existing ones. The company should only be worth $X divided by the number of common stock out there. This stock has been climbing steadily lately being an petroleum stock. I have now become one of the people my mother warned me about. I don't have enough shares for it to be really significant.

[glenn kangiser]

I hope you profit with your co-conspirators, desdawg.  At least we know you.

[desdawg]

I bought in at a bit north of $2.00 a share it is now around $30 and gyrating daily. I don't know if the daily gyrations even cover my daily fuel costs with so few shares.

[desdawg]

These shares were bid up $8.34 yesterday. What the heck is going on? Today they have done nothing. Spooky.

[peternap]

Too much going on now Des. The only ones making any money right now are the very sharp professionals. It's like sailing in a hurricane. I'm just watching until the winds die down.

[desdawg]

It has all the makings of another bubble, Peter.  I just looked and this stock went up another $3.55 after I left the house this AM. I am anything but a very sharp professional. It is fun to watch but I don't know what it all means. Muldoon probably has some idea. I should bail while I am ahead but it keeps climbing and that makes it hard to do.  I have always heard that market timing is a fools game but it sure is tempting.

[muldoon]

That stocks in a rally for sure.  From March 31st to June 24th - its up 38.50 or 1146%.  Wow.  Your not going to get many trades like this in your life, couldn't hurt to sell a quarter of your holding and lock in the return (ensuring you cannot lose what you put in and still get a nice profit) and ride the other part of the holding to see where it goes.  Once you remove the part where you can lose the money you put into it, you dont have to stress the rest soo much.  If you follow that course, no matter what happens, you can still say you did good - likely better than many many other people in this market these days.  If you want, sell 50% if your uneasy about its current rise ~ but you get the idea, you figure out what portion makes sense for you. 

That being said, nothing ever goes up or down in a straight line.  Theres always ups and downs along the way.  This stock will have some down days, dont let them worry you to much.  Watch the trend, if the trend changes - then its time to change the plan.  Watching it tick by tick is not worth the effort unless you are buying and selling tick by tick, which if you bought at 2 - your not.   

For what it's worth, I have no holdings in any equity martkets since last November.  I also am not qualified to tell anyone what to do with their money and I have no idea what your risk tolerance is, nor your ability to recover from a potential loss.  You have to make your own decisions

[desdawg]

Thanks Muldoon. Pretty sound advise. I wonder what effect the 5/4 split will have when it takes place. Logic tells me that if you have a dollar, four quarters each is worth 25 cents. If suddenly you have five quarters and are calling it a dollar are they can't be worth 25 cents each anymore. I have been doing this  wondering what the point is to doing the split. Does someone think they will be worth more than 25 cents later. Or did the company just need to create more shares to sell to raise more investment funds. Country boys should stick with simple country things probably but I was hoping to learn something.

[muldoon]

I think your over thinking this.  In a split, the number of shares increases and the value of shares decreases, but the overall is not a gain or loss- its even.  If I have 100 shares of a company at 10 dollars, and the company does a 2:1 split I now have 200 shares at 5 dollars. No net gain or loss from the split. 

100 * 10 = $1000
200 * 5  = $1000

The same applies for any split, with whatever the ratio applied.  The company will have more shares outstanding in the market, but the market cap (amount of shares * share price) should remain flat.  Your not going to lose any money in the act of the split as your number of shares will go up to offset the reduced price of each individual share. 

What usually does happen, is that people see the company at a "cheaper" value and buy it up even further.  So, that stock that was at 10, now 5 looks cheap.   It also reduces the numbers to get a nice effect on the multiplier factor.  It is much easier for a 5 dollar stock to gain 5 dollars and double than a 500 dollar stock to gain 500 and double.  Reducing the stock price on a surging stock at new highs helps the stock continue to do well. 

[peternap]

Your not telling the flip side muldoon. The thing that's not supposed to happen. More shares on the market means more shares to short at the inflated price. The Hedgefunds love pushing the dips deeper.

[desdawg]

Interesting stuff, all this. This company is nearly 100 years old. Started in 1909 I believe. The founders are probably turning over in their graves.

[peternap]

BTW Des, the advice muldoon gave you is very good!

[muldoon]

Your not telling the flip side muldoon. The thing that's not supposed to happen. More shares on the market means more shares to short at the inflated price. The Hedgefunds love pushing the dips deeper.

You know, I really did not even consider this as a factor at play for this situation.  I figured the activity of naked short selling at the institutional level was so rampant it didnt matter if the shares were actually available much anymore at all.  Consider overstock's situation, http://www.overstock.com/11148/static.html then google naked shorting for more information. 

In any event, an equity that surged 1100% in 3 months has soo much momentum very few if any would get out in front on the short bus.  Need weakness for them to go for blood. 

[desdawg]

I just realized that in order to qualify for the 5/4 split you had to be the owner of record as of today, June 24, 2008. That would explain the last two days run up. Must mean a lot of investors think this will be worthwhile in the longer run. The price may drop like a brick tomorrow. Since I have had my shares for a while I wasn't thinking of a deadline. I guess I will see how it turns out.

[peternap]

Your not telling the flip side muldoon. The thing that's not supposed to happen. More shares on the market means more shares to short at the inflated price. The Hedgefunds love pushing the dips deeper.

You know, I really did not even consider this as a factor at play for this situation.  I figured the activity of naked short selling at the institutional level was so rampant it didnt matter if the shares were actually available much anymore at all.  Consider overstock's situation, http://www.overstock.com/11148/static.html then google naked shorting for more information. 

In any event, an equity that surged 1100% in 3 months has soo much momentum very few if any would get out in front on the short bus.  Need weakness for them to go for blood. 

I guess your right. I've been fooling with small Caps so long I expect the rollercoaster, which reminds me, The new Reg Sho should be out now. I need to check the float on a couple stocks.
My taxes are gonna be a nightmare this year considering what I've pulled out.

Des, what we're talking about goes a little like this.

A stock that is moving up starts getting bought by Momentum Movers that buy all the way up and sell when it gets to the top.
Institutions short stock they don't really have called a naked short and yes, generally it's illegal but the SEC doesn't do much about it...anyway...when the stock shows some natural weakness like sector slumps, or really anything, the institution's will start forcing the stock down.

This will trigger automatic stop loss sales and start a landslide. This causes a panic selloff and the price just dumps. When it hits bottom, the institution's will cover starting the price up again and the whole thing starts over.

That's a pretty simplified description but you get the idea.

[desdawg]

My inexperience is showing pretty well right now. Yesterday was the time to sell. I didn't understand the psychology of the market place and while I was trying to figure it out the opportunity passed. This was pure manipulation it would appear. What happens from here on out will be interesting to see. Not being dialed into that deadline date was quite a mistake on my part. I don't know the rules of the game.

[peternap]

My inexperience is showing pretty well right now. Yesterday was the time to sell. I didn't understand the psychology of the market place and while I was trying to figure it out the opportunity passed. This was pure manipulation it would appear. What happens from here on out will be interesting to see. Not being dialed into that deadline date was quite a mistake on my part. I don't know the rules of the game.

Don't worry about it Des. Just sit on it until it comes back up. muldoon has a lot better grasp of the market than I do. I get by by knowing how the stocks I buy react. It's like being a technician without a chart.

I'm watching solars again. The sector is down but ASTI's getting pushed down hard again. The annual meeting is on the 1st and good news is expected. They'll be some buying as soon as it hits the low 11's or high 10's.

The float is showing around 60 something percent so the HF's are alive and well.