April 2005

I attended an Optionetics lecture yesterday, mainly to see how one top-tier marketer is selling the 'get-rich' theme to would-be traders in a very tough environment. Optionetics, founded by 'super trader George Fontanills,' maintains a high-profile in the seminars world, using infomercials, expo booths, print ads and direct mail to haul in thousands of prospects globally. The 90-minute sales pitch I sat through at the Westin Omni near Denver was conducted by a very intense fellow name Kurt, who, despite mentioning a graduate degree from Princeton, assumed the persona of the successful sweatsuit trader who had paid his dues in the school of hard knocks. The audience, by and large, looked pretty scruffy, and although some were well dressed and neat in appearance, at least half-a-dozen of the attendees looked like they could have arrived with shopping carts in tow, or astride BMX bikes. Now, I have no idea how many of the 60,000 students who supposedly have graduated from Optionetics have been making money trading puts and calls. However, I wax skeptical when I hear someone claim, as our lecturer did, that Optionetics can transform into succcessful traders even the Amway and NSA-filter burnouts who for all appearances comprised as much as half of last night's audience. And I become even more skeptical when the lecturer emphasizes how, using options, one can profit regardless of whether stocks are moving up, down or sideways. That's true in theory, of course. But as if to refute the point, the speaker homed in on a very atypical example that most of us wouldn't experience in three or four prayerful years of option trading. It involved Bristol Myers puts that were purchased for 0.75 after the stock ran up from $41 to $49 one day. As chance would have it, the stock collapsed the

Westchester residents can breathe a sigh of relief now that a judge has rejected Martha Stewart's request to shorten her confinement period. With Martha safely behind a picket fence until Labor Day or so, the locals will be able to go about their business without fear that the notoriously tempermental diva might be lurking in the ladies room of a local Starbucks, thirsting for bloody revenge. (Click to enlarge) Undoubtedly, prosecutor Michael Schachter would be the first to feel her wrath. In seeking to keep Martha confined to quarters, Schachter argued that the 'minor inconvenience to one's ability to star in a a television show' was insufficient grounds to set her loose early. This after Martha had made it known that she found her electronic monitoring anklet 'somewhat uncomfortable and irritating.' One wonders whether Schachter has ever slept in such a device, which reportedly can chafe the delicate ankle even when worn over triple-ply cashmere socks. We don't doubt that Ms. Stewart will find ways to cope. But hasn't she already received rough justice enough for a single lifetime?

Stray comments concerning the impending real estate crash perked up my e-mail on an otherwise dull Friday. I received from various sources, respectively, a CNBC report that 85% of the buyers in Miami's condo market are speculators (probably true, according to an old friend of mine, a mortgage buyer who lives in a luxury high-rise on Miami Beach. I can attest that whenever I've visited her, the swimming pool and patio have been nearly empty of human traffic, other than some kids from places like Argentina, Brazil and Venezuela.); also, there was an article by Robert Shiller suggesting that home prices will crash as spectacularly as they've risen, but that the trigger will not necessarily be higher interest rates and/or recession. (I agree about the crash but am not persuaded by his argument that neither higher rates nor recession will prove fatal. Shiller notes that L.A.-area home prices continued to rise for a year after mortgage rates peaked at 16% in the spring of 1980. These days, though, household debt is so absurdly high that, in my opinion, even 7% mortgages would trigger an economic avalanche). There was a second article concerning the South Florida boom, which Jim Grant sagely pointed out is not, as local realtors are wont to proclaim, 'a totally new economic model'; also, a dog-bites-man news story about still more bookkeeping shenanigans at Fannie Mae; and, finally, a direct-eMail promo from a guru who purports to know how we can all get rich from the coming real estate crash. Surviving the Crash Concerning the last item, even if said crash is the once-in-a-century disaster that a few of us expect, I seriously doubt it will produce commensurately spectacular opportunities. Of course, many valuable assets will go on the block for distress prices. But to be in

I put out an advisory yesterday morning when Citi was looking feisty enough to drag the entire market higher. Not that it actually could, given that the bull market for bank stocks peaked in 2000. But Citi nonetheless remains one of the key bellwethers for a go-go era that has yet to dance its last shing-a-ling. And when the company's shares are looking particularly strong, or particularly weak, it is statistically most unlikely that the broad averages will be headed in the opposite direction. Yesterday, the two moved more or less in tandem, although on a percentage basis Citi stock rose three times as much as the Dow. Even more impressive, though, was that the intraday high eclipsed the rabid-dog peak created by last Friday's Greenspan-induced short-squeeze (even if the PHL Bank Index did not). We held some May 45 calls at the time and had an order in before the opening to short a like number of April 45 calls against them (for 0.20 more than we paid for the Mays). Unfortunately, we missed the top in the April 45s by a nickel, so we scratched the May 45s the next day. I noted at the time that the Greenspan spike would very likely mark the April options' last hurrah. Now I'm not so sure. In fact, with April expiration still a week off, it's just possible that Citi, which closed yesterday at 45.50, could get squeezed up to the next important strike price over the next 4-5 days, 50. All it would take would be a little scrimmage slightly above 47 -- by, say, no later than Wednesday ' to put the fear of the Lord in those who have laid out April 50 shorts by the thousands with impunity. At that point, out-of-the-money Aprils would exert a

Having sidestepped considerable pain a while back by bailing out of some low-priced mining stocks that were bound even lower, we are obliged to reconsider them now that they've come to despond so close to the zero axis. Canyon Resources and Durban Roodeport have both fallen to levels where I'd said they'd become attractive. Not that they were such bad values before at twice the price. But as long as bullion stocks remain out of favor we've got to be careful about buying even the dirt-cheap ones, for at least two reasons: 1) undervalued stocks have a way of becoming ridiculously undervalued; and 2) our investment capital should always be working, not waiting; but certainly not shrinking, in any event. So what about Canyon and DROOY? We jettisoned half of our shares in the latter at 1.48 in early February, just days after having bought in at 1.21, a hidden pivot from which the stock trampolined. Applying the gain to the remainder of our position gave us a cost basis of 0.94, but when DROOY subsequently appeared in danger of falling to as low as 0.80, we took the money and ran. With some difficulty the stock has managed to stay above 0.78 since then but now looks to be staging for a dive to new multiyear lows. (Click on chart to enlarge) The good news is that, technically speaking, there is evidence to suggest DROOY is not on its way to the grave. There is in fact a promising hidden-pivot support not far below current levels, and you can take advantage of it by bidding as I've detailed in today's advisory, using a stop-loss as tight as four cents. This trade is ideal for anyone looking to leverage a possible turnaround in the mining stocks without risking the farm.

Yesterday was yet another grueling test of patience for those trying to squeeze off a shot in the index futures. My crosshairs were trained on the S&Ps, but the only trade I executed all day was a misfire. I had a limit bid in somewhat below the market but inadvertently turned it into a market order with an impatient keystroke. So much for picking one's opportunities. Naturally, I compounded the error in the usual way -- by attempting to turn a small profit on the way out. It was at this time of the morning that I received an e-mail from a market-savvy friend who has pulled back from trading recently. Below is his note, followed by my reply. The dialogue may be insightful for those of you, investors and traders alike, who have been frustrated by the stock market in recent months. '[Tim E.] told me he's in five chat/trading rooms and can't seem to find anybody or anything to make money. He asked me what I'm doing. I told him that I'd find it impossible and probably self-defeating to try and follow so many people/disciplines. There are three markets, as you know. In two of them, you can make good money, since there is a trend up or down. But then there are the sideways trends characterized by narrow ranges -- just right for stopping out the bullish and the bearish. For my part I feel I've profited simply by recognizing that this is not a market environment to take much risk -- yet. I did tell him that I would start following your newsletter and eschew any others. I'm occasionally playing a gap or bond trade and little else. Refuses to Roll Over 'Of course, I wasn't trading for a couple of travel months. But I did

Crude futures have been moving quite precisely to our pivots, as some of you have noticed. The last minor-cycle peak fell just a nickel shy of a well advertised 58.21 projection, and the subsequent low at 53.45 (basis the continuous contract) missed by just 12 cents. Now the futures are off and running again, bound in my estimation for at least 60.40 over the next few weeks. If this is cause for worry, you wouldn't know it from the blas� reaction yesterday of the stock market, which recouped moderate losses from earlier in the session to close slightly higher. Don't Worry, Be Happy Maybe Wall Street's equanimity derives from the Bobby McFerrin Theory of Economics, which states: 'Don't worry, be happy we are a service economy' (as Mr. Greenspan and his shills are only too happy, if not quite blithe, to remind us whenever necessary). Granted, the U.S. economy does skew rather heavily toward services, as he implies. There are all those banks. And Hollywood. But we still consume quite a bit of gas getting to the office and to the grocery store -- not to mention, to Chicago, New York, Washington, Seattle and L.A.. to 'service' our clients. Considering there is almost no new oil being discovered, though, at least by the majors, what do you make of this story, out Monday in the Wall Street Journal under the headline ChevronTexaco Strikes Black Gold: 'At a time when the price of oil is skyrocketing, ChevronTexaco just laid claim to a big puddle of the stuff. The No. 2 U.S. oil major will buy Unocal, the No. 9 oil company, for about $16.8 billion, or about $62 a share. ChevronTexaco beat competing bids by Italian oil company Eni and China National Offshore Oil Corp. The deal comes as oil prices have been

For those who follow the stock market closely, nothing stirs the imagination like a prolonged stretch of boredom. The less stocks do, it seems, the more vividly we come to expect dramatic change. In such times, investors dwell in a purgatory of angst, the psychological boundaries of which are described, literally, by Bollinger bands: Squeeze them too tightly or for too long and they eventually explode with the force of a stampede. This seems like just such a time, and it's been driving forecasters into a frenzy. Some of my colleagues think the stock market is in imminent jeopardy of collapse while others believe it is basing for a decisive push higher. I am in neither camp, although strongly inclined to bet with the bears at the moment. (Click on chart to enlarge) The long-term chart above shows why the burden of proof falls heavily on the bulls; for if they are to lift the stock market to new heights, they'll need to buy shares with confidence so unshakable as to overwhelm the doubters. The enormous weight of bearish skepticism is evident in the Himalayan peaks and valleys etched into the chart over a two year period beginning in 1999. This mountainous supply of stock will not be surmounted by ebullience that fails to match dot-com mania in its intensity, much less by mere hope and serendipity. Mustering that kind of energy will perforce take longer than the nearly 14 months the market has already spent languishing in mechanically driven moodlessness. When I look at the chart abstractedly, I sense neither impending calamity nor exuberance, only the pull of gravity on a stock index that could surrender 1500 points without changing the big picture one bit. How does it strike you?