How Traders Make 28% Returns In A Day

Posted on September 29, 2007 by Nirav

Friday’s stock market had a distinct sense of deja vu about it. Even though it was down overal, I was reminded of the crazy dotcom days in late 1999 when any tech stock could rally 25-50% in a single day!

One of my friend’s subscribes to a stock newsletter. Periodically he gets an email alert informing him when a stock is about to make a significant jump. He often sends them to me and I usually look at them and then ignore them. Yesterday he sent me an email about a China Clean Energy Inc (CCGY.OB).

By the time I got the email, it had already jumped 30% that day, but I really liked the chart. It had retreated about 15% from the highs of the day and looked like it was ready to make a move back up to the $2 range.

This is what the chart that I follow looks like.

The image is bit hard to understand since they’re aren’t any notations on it. The first chart is the intra-day stock price of CCGY.OB for September 28th 2007 using Candlesticks. It also has the bollinger bands and exponential moving average lines.

The 2nd chart with red and blue vertical lines denotes the volumne. The 3rd chart is the Relative Strength Index (or RSI) with oversold and overbought indicators.

The 4th chart is the Moving Average Convergence/Divergence indicator orMACD.

The last chart is the Slow Stochastic.

From these charts I felt that there was sufficient momentum in the stock to carry it higher, despite it having already jumped 30%. I was able to buy in at $1.73 around 12 pm EST (which was 9 am for me) and sure enough it continued higher throughout the day.

It closed the day at the highest price of $2.23, for a stunning 28.9% one day gain! Although the stock was up ~60% for the entire day, I was very happy with my 28%. Made me feel like I was reliving the good old dotcom (or dotbomb) days.

Here’s a much better daily chart.

Very rarely do I buy stocks based on tips and without looking at any underlying fundamentals. Usually, the newsletters that I subscribe to, will recommend a stock based on good, solid fundamentals and I will use the charts to determine the market sentiment for that stock and a good entry point. Recently, Freight Car America (RAIL) was recommended, but the chart looked terrible and I didn’t buy it. Sure enough it dropped from it’s recommended price of $48 and is now trading at $38. Here what the chart looks like. I’ll wait until the technicals improve before I jump in on that one.

Sometimes this strategy will backfire because some breaking news will come out that will send the stock shooting the opposite direction than expected, but it doesn’t happen often enough. And unexpected news can make value investors look like fools too!

Most traders use some form of technical analysis. Many investors believe that technical analysis is rubbish and doesn’t work, but they probably feel that way because they don’t understand it. Its basically a representation of the current market sentiment based on price and volume action.

Most traders use some from of it and it can get fairly complex. Studies have shown that currency traders use it a lot (or atleast the successful ones!). I’ve attended several currency traders meetup sessions and they all use some sort of technical analysis to trade in and out of their positions. That and proper money management is the key to succesful trading.

I strongly recommend at least learning the basics and deciding for yourself whether to use it or not. Getting Started In Technical Analysis is a really good book that’s fairly easy to read.

If you’re interested in learning about trading, I strongly, strongly recommend Trading for a Living: Psychology, Trading Tactics, Money Management. By far one of the best introductory books on the subjects. You’ll get more out of it than a $5,000 seminar!

If you like to day (or swing) trade, you’ll also enjoy An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund. A fascinating story about Timothy Sykes, a college student who made a million dollars day trading and started his own hedge fund.

PetroChina & BHP Rock

Posted on September 25, 2007 by Nirav

PetroChina (PTR) has been on a tear recently. Since bottoming around $125 a month ago, its risen exponentially to $175 today. That’s a 40% in about 30 days! And thats despite the news that the 2nd largest shareholder Warren Buffett has been busy liquidating small amounts of his holdings. Its up solely on the news of its IPO in China.

BHP Billiton (BHP) has also jumped recently on news that its Olympic Dam site is the world’s largest resource for uranium, the fourth-largest deposit for copper, and ranks among top-producing Australian mines in gold and silver production. Its currently at 27 year highs. Its also up 45% in the past month and nearly 100% in the past year.

While I didn’t panic and sell liquidate my holdings during the sell off in July, I did use that opportunity to buy more of my favorite Canroys. Most of them are flat to barely up since then. But they’re still paying dividends so I expect them to continue to chugg along.

Most of my porfolio is heavily wieghted towards oil/gas and commodity stocks. One of the few exceptions is SRS which I been trading in and out of and FXA which is an Australian currency ETF that also yields just over 5%.

I’m thinking of buying some Berskhire Hathway B shares (BRK-B) since they’re looking a bit week technically right now. I’ve been watching them for a while. The last time I was going to pull the trigger they shot up 10% so I’m waiting for a slight pullback.

Did any of you make a killing in a stock you’ve purchased in the past month? Let me know.

What Would Your Last Words Be?

Posted on September 24, 2007 by Nirav

Here’s an inspiring story about Prof. Randy Pausch. At 46, Dr Pausch has pancreatic cancer and only a few months left to live. He gave a speech about achieving his childhood dreams.

Why are we all concerned with making money? So that we can get out of the rat race and achieve all the dreams we had as kids.

I believe its not the quantity of life but the quality that matters. Dr Pausch has definitely lived a great life, fulfilling all of his childhood fantasies.

Make sure you achieve yours!

Here’s the full article at WSJ.com

Greenspan On Comedy Central

Posted on September 24, 2007 by Nirav

Jon Stewart interviews Alan Greenspan on The Daily Show. Greenspan has been busy promoting his new book, The Age of Turbulence, and has been talking to anyone willing to listen.

Here’s an excerpt from the interview:

Stewart: So they’ve made a choice, we would like to favor those who invest in the stock market and not those who invest in the bank; that helps us.

Greenspan: That’s the way it comes out but that’s not the way to think about it.

Stewart: It seems to me that we favor investment but we don’t favor work. The vast majority of people work and they pay payroll taxes and they use banks. And then there’s this whole other world of hedge funds and short betting and…it seems like craps. And they keep saying, “No no no, don’t worry about it, it’s free market, that’s why we live in much bigger houses. But it really isn’t, it’s the fed, or some other thing, no?”

Greenspan also goes on to admit that quality of forecasting hasn’t improved in the past 50 years and that basically they’re clueless about preventing economic bubbles and human nature is to blame for that!

Anyway, check out the video. It’s pretty good.

Also check out Minyanville’s opinion on the rate cut.

Investing In Oil

Posted on September 22, 2007 by Nirav

I spent most of Saturday listening to an investment presentation by some oil guys from Texas and Oklahoma. I come in contact with them on a previous deal. At that time I had shown their investment presentation to my CPA (who usually turns down every investment I show him) and he was so impressed, he decided to fly out and meet them. He’s become their accountant and is investing heavily in their current deal.

Incidentally, in the previous deal where I came across the oil guys, they were also investors like me in a gas pipeline deal in Texas. It was a pretty sweet deal and we should’ve gotten cashed out with a 30% profit after a year. Unfortunately our partner, Grant Wilson III, decided to swindle us out of the profits. After spending over a year with this jackass, subsidizing his travel and living expenses he just decided that he deserved all the profits and he’s disappeared. Luckily we got all our principle back.

We talked to a lawyer about our legal options. Apparently it’ll cost $25,000 to get a judgment against this crook and if he’s spent the profits, we won’t be able to collect anything. Spending $25,000 to maybe get around $60,000 doesn’t sound very appealing. Anyway, if you come across anyone called Grant Wilson III in Houston, who’s lived in Southern California and is originally from Boston, you should definitely keep your hand on your wallet at all times! The only positive thing in the whole deal is that I learnt a very important lesson about trust in business, and luckily it didn’t cost me much money.

But back to the original discussion about the oil men. Unlike Grant, who’s background is swindling people, oops, I meant to he was a lobbyist in Washington, these people actually have worked for decades in the oil industry. One of the principals has several patents and they all are extremely knowledgeable in various aspects of off-shore and on-land drilling and exploration.

They’ve basically put together a partnership deal where they find under-valued oil & gas producing properties with at least 10-12 years of production left. Usually its a distressed situation like an estate sale, lawsuit or defect in the title where the production has been stopped.

In the current “fund” (its called a fund but its really a partnership), they have 19 producing wells and will drill 2 more infill wells.

In normal deals that are “securitized” (sold as a security and governed by the SEC), dealer-brokers are involved and usually 30% of your investment goes to overheads like commissions, fees and marketing. Since only 70% of your investment actually gets invested you typically get low returns – in the range of 7-10%.

However, if you get an opportunity to invest directly with in a fund like this, where they aren’t paying any broker commissions, you can get a much better return. Assuming oil stays at $65 and gas stays at $6, my CPA thinks we can get a 24% annual return. If oil goes up, our returns go up too! And since about 40% of the return is considered return of principle, its not taxable. (Although it does lower your basis in the investment).

Unlike my other investments which have taken quite a while to start producing, this is supposed to start generating income with 60 days. Of course, I’m not holding my breath. But the fact that my CPA is investing alongside me and I felt I could definitely trust them gives me a lot of confidence.

I let you know how it goes.

Canadian Dollar Hits Parity With US Dollar

Posted on September 20, 2007 by Nirav

Today the Loonie achieved parity with the US dollar for the first time in 30 years. Five years ago, 65 cents could buy you 1 Canadian Dollar. Since then the Dollar has devalued 50% against the CAD and nearly 100% against Gold. This has been partly due to a massive increase in the number of Dollars floating around, and partly because of the low interest rates which no longer attract much foreign interest.

The 50 basis point cut in the Federal Funds rate isn’t going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.

How are you going to Hedge against a weakening dollar?

I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.

I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.

As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?

Can’t Stop Global Warming!

Posted on September 18, 2007 by Nirav

From the Yahoo message boards for James River Coal Company (JRCC), which I had sold some naked puts on a few months ago, by some poster named Ross_Perot4President

I just farted a real loud wet one…..I just contributed to global warming….

Whoops, I just barbecued some ribs…..more global warming…

I just opened up a beer (i.e. a carbonated beverage), I just contributed to global warming.

I just let out a big friggin belch (methane gas — holy @#$%, I just killed a tribe of pygmies tied to global warming)

I turned on the faucet to run water, the water treatment plant runs a generator which emits carbon fumes…..

I just turned on the lights which in turn comes from the electricity plants which spew carbon stuff

I just watched that Fat Bitch Rosie ODonnell on TV, her Fat mouth just spews greenhouse emmissions as well as rancid spew

I just watched Hillary Clinton on TV, the clothes she wears come from farm animals which intoxicate the atmosphere with methane gas and toxic emmissions, and her face comes from Satan’s bunghole.

I guess its safe to say anything you do in American life spews some form of carbon dioxide. Maybe if we stop killing the rain forest and stop ugly people from breeding we can stop carbon from spewing onto the planetary surface

Until then, I will burp, fart, barbecue, run my water, heat my house, use electricity, and hate stupid liberals who think they know what’s best for me — they can shove it up their methane spewing asses.

Of course, if you’re Al Gore, you might think you can solve the problem by taxing various businesses. Of course, Al Gore doesn’t want to solve the issue, he only wants to profit from it.

Japanese Housewives Burned By Forex Trading

Posted on September 17, 2007 by Nirav

The New York Times has an interesting article, Japanese Housewives Sweat in Secret as Markets Reel about housewives losing a lot of money in trading forex.

Since the credit crisis started shaking the world financial markets this summer, many professional traders have taken big losses. Another, less likely group of investors has, too: middle-class Japanese homemakers who moonlight as amateur currency speculators.

Ms. Itoh is one of them. Ms. Itoh, a homemaker in the central city of Nagoya, did not want her full name used because her husband still does not know. After cleaning the dinner dishes, she would spend her evenings buying and selling British pounds and Australian dollars.

When the turmoil struck the currency markets last month, Ms. Itoh spent a sleepless week as market losses wiped out her holdings. She lost nearly all her family’s $100,000 in savings.

While a lot of people have made fortunes trading forex (like George Soros), when a large number of housewives enter the market, its a sure signal that the market top is in. The lay people are always the last people to enter any bull market and like we saw in the internet bubble in 2000, mark the last phase of speculators to rush to profit from quick, easy money.

Apparently this greed-driven mania manifests itself regularly, prompting Alan Greenspan to observe that humans might never be able to protect themselves from bubbles. The history of manias has been well documented going back hundreds of years in Extraordinary Popular Delusions & the Madness of Crowds. If you haven’t read it I strongly recommend you pick up a copy at your local library. Another new book on the subject is Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, which is on my long and never-ending list of books to read and has come highly recommended.

Related Readings:
1. How the carry trade really works.
2. Turning Japanese.

The Rich Are The New Disenfranchised Segment Of America!

Posted on September 16, 2007 by Nirav

The New York Times had an article about the working class millionaires living in San Francisco. According to WSJ, “you know a media-generated controversy has reached it’s peak when it lampooned by The Onion”.

Here’s a spoof segment from the Onion News Network. Apparently the gap between the rich and the super-rich is widening and they’re feeling disenfranchised.

“The average investment banker is only able to afford one boat. But the super-rich family will have upwards of five, six, seven boats. You have to have a decent yacht.”

“If the rich were just a little bit more motivated,” one says, “they wouldn’t be such a drain on society.”

The 17 Year Old Adsense Millionaire!

Posted on September 15, 2007 by Nirav

Here’s another depressing story of some 17 year old millionaire who makes $70,000 per month selling myspace templates. Did I say depressing? I meant inspiring!

Ashley Qualls, founder/CEO of Whateverlife.com doesn’t actually make money from the templates, but rather from adsense ads! Apparently her first adsense check from Google was for $2800, which is more money than Google EVER sent me. Of course, I haven’t filled a need (which she obviously did extremely well) but atleast I’m getting some remuneration (if you consider minimum wage to be any form of remuneration) for voicing my irreverent & often irrelevant opinions.

You can read the entire article online at Fast Company. She’s a pretty amazing teenager.

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Monthly Archives: September 2007