Week 7 LiveRocket Turbo Performance - Up 18%

First, some basic housecleaning. Unlike the conservative LiveRocket portfolio weekly reporting, Turbo will get a b-weekly report. The inherent volatility makes me more inclined to longer periods between updates.

Second, buying the puts was the right move. We went on margin $21,925.

Two weeks ago, we were as low as ~$84K. The gross value today is $120,308 or $98,383 after margin.

Here is a review of the stocks and options in the portfolio:

AMX: 250 shares bought @ $34.51 We are down 2.8%
DO: 100 shares @ $86.43. We are down 20%
GRP: 175 shares @ $47.87. We are down 21%
NUAN: 900 shares @ $9.13 We are down 4.7%
STX: 350 shares @ $23.33. We are down 2.3%
TTI: 275 shares @ $30.6. We are down 19.6%
ZOLT 275 shares @ $32.03. We are down 24.8%
ZRAN 305 shares @ $25.56. We are down 24.6%
In this model, I am expecting greater volatility up and down. A 25% shift in value is within the allowable range.
I look forward to the earnings of these companies.

Notes:
1 - an option contract equals 100 shares and the listed prices are per share
2 - Current option price is the bid price (the price you would get, which is lower than the price you would pay)
TIE Calls (Dec 50) 21 contracts @ $4. Almost valueless. Anything is possible with this stock, so I am willing to wait.
TRID Calls (Jan 22.50) 20 contracts @ $4.1 I am no longer of the confirmed belief that TRID is as immune to inventory & pricing pressure. However, I do find it remarkable that the company is as valuable as it was last year, same time, despite a 4X growth in revenue and a 660% growth in earnings. Anything is possible over the next 6 months, and the damage has been done. So I will wait on these as well.

BMHC Puts (Dec $25) 40 contracts @ $2.2. Current value: 4.9. The stock is now ~$21, so we are $4 in the money. With such strongly negative housing news and company earnings releases, it is hard to imagine BMHC bucking the trend. I see a $15~$18 potential range in the next few months. With every dollar drop in stock price, the option value increases 45%.
JNPR Puts (Oct $14) 109 contracts @ $0.55. Current value $1.25. The stock is now $13.63, so we are in the money $0.37. There is possibility of the stock dropping to $12. The company released preliminary earnings and said that they missed expectations by a penny.
CFFN Oct $30 puts 100 contracts @ $0.3. This was a massive mistake and I am looking at how to get out. The mistake I made was not factoring in how thinly traded this stock is. That is, the underlying stock is so darn overvalued because only insiders own and sell. I will try to unwind this or just write off as a loss.
ETH - Nov $30 Puts 50 contracts @ $0.8. Current value is $0.95. Underlying stock price is $34.5. Furniture Brands is a major competitor and their CEO resigned this week, one week before earnings. I think it is a sign of the times among furniture makers. ETH gave guidance 2 weeks ago that they expect to hit target for this quarter, but I think the market is expecting negativity about the future.
WHR -Dec $70 puts 15 contracts @ $3.5. Current value is $3.8. Underlying stock price is $75.8. This one is tricky. The US heatwave will only help sales of WHR air conditioners.
CPWM - Nov $12.50 Puts 50 contracts @ $0.6. Current value is $1. Underlying stock price is $13.46. Target and the slowing housing market is crushing them. Williams-Sonoma (also owner of Pottery Barn, a supposedly more upscale store and therefore immune to these trends), just lowered revenue forecasts. Instead of growing 8%, they are expected to grow 6%.
NVL - Dec $20 Puts 20 contracts @ $1.9. Current value is $1.95. Underlying stock is $19.6. We are $0.40 in the money. this is a slow time for aluminum and I think they will be hurt by energy prices. I am hoping for $2.50 and then out.
RSH - Jan $15 Puts 25 contracts @ 1.15. Current value is $1.45. Underlying stock price is $15.24. The CFO just resigned the week before a new CEO took over. Radioshack is embarking on a massive restructuring - closing 480 stores and so forth. That will help margins over the long term, but the core problem is that Radioshack. In any event, RSH's quarterly earnings were released and instead of the drop from $0.17 per share to $0.12, they fell further to -$0.02. Next quarter's earnings have yet to be revised down. At the same time, the CEO is no longer holding analyst meetings.

As I said last time, it's all about the options. The options we purchased in the last 2 weeks added $11,680 while the BMHC options added another ~$8,000.

Week 37 LiveRocket Performance - Down 0.36%

Week 37
Dow 1.18%
S&P 0.32%
NASDAQ -0.83%
LiveRocket -0.36%

YTD
Dow 1.39%
S&P -0.64%
NASDAQ -8.39%
LiveRocket 19.24%

Since Inception (Nov 4, 2005)
Dow 3.3%
S&P 1.7%
NASDAQ -6.9%
LiveRocket 30.59%

We were stopped out of the rest of our stocks except for EMT.
I will be doing a complete stock review in a separate post.

I advised sticking with cash because I do not want to do options trading in this portfolio. Options are risky and LiveRocket Turbo is where we take risky steps.

Next week a lot of my favorite companies are releasing earnings. I expect really good things (again - I'll comment in a separate post).

From the standpoint of next steps, I do see myself getting back into the market towards the end of the week - I am waiting for more Housing Market Madness to run its course.

I will be looking at LEAPs mainly. For anyone unfamiliar, a LEAP is a long term option. Like all options, it provides more leverage. LEAPs offer the other option (no pun intended) of dodging short term fluctuations. For benefits of explanation, lets say 1 year or longer.

As an example, I'll use ESV. ESV is worth looking at because of the enormous earnings growth, upside potential and the strong margin elements.
It was upgraded to a STRONG BUY this week and 25 analysts think it is worth ~$65.
It is trading at $37. P/E is 14 and forward P/E is 5. PEG is 0.19

The Jan 08 $40 LEAPS are $7.70

If you believe (as I do) that ESV is going to be a massive hit then you invest in it. I currently own both shares and Call options.
$10K will buy 2,700 shares or 13,000 LEAPs (130 contracts).
If ESV goes to $50 in the next 6 months, the net gain is:
Shares: $1300 or 13%
LEAPs: At least $10 per LEAP (probably more). That's a 30% gain. And the sooner it hits $50, th emore likely the LEAP is worth much more (as mush as $15).
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Was it smart to tighten STOPs?
Here's a comparison of the STOP price and the current price for stocks in the portfolio of recent weeks followed by a calculation of the impact on performance (rough numbers btw):
AMX $32 vs $33.5 Loss of ($375)
DIS $29 vs 28.47 Gain of $180
ET $20.8 vs $21.95 Loss of ($480)
ESV $42 vs $37.57 Gain of $997
GRP $43 vs $37.74 Gain of $1184
ISIL $22.5 vs $20.44 Gain of $785
JBLU $11.5 vs $11.3 Gain of $130
JLG $20 vs $17.3 Gain of $1350
TIE $28 vs $24.77 Gain of $969
MDR $43 vs $41.07 gain of $386
VOL $44 vs $45.28 Loss of ($256)
ZRAN $21 vs $19.27 Gain of $692
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Tighter STOPs saved us $5,562.

Cash is still King

Last week I said that this week would probably not be pretty and that it made no sense going long.

I said:
Housing - My Prediction: not good. Verdict: not good. We had new starts drop 5.3%. This was a triple whammy: a large drop, slightly larger than expected, and June is prime building time. As if to underline the point, D R Horton came out and said: we are really facing tough times in the housing market.

Tech - My prediction: mixed. Verdict: mixed. I said PCs and Cell phones were particularly vulnerable. Apple missed sales. Dell missed sales and earnings. BRCM said cell phone product inventories are up. Chip companies got nailed.

Oil - My prediction: strong earnings. Verdict: strong earnings.

The reason I am staying on the sidelines is that I am distinguishing between market sentiment and company performance. It absolutely does not matter how well a company is doing. Google doubled earnings. ISIL doubled earnings. The market doesn't care.

The market is not looking for signs to be positive. They are looking for signs to be negative.

Consider DO and ESV. Drilling for oil is massively profitable right now. And it will continue to be profitable as long as oil is valuable. So it is axiomatic that when oil prices surge, these companies benefit. Instead, they dropped like a rock when oil went up. Then they dropped when oil went down. The market is not in the mood to buy stocks. I also don't think that it is buying bonds. The money is drying up.

I do not think that these are symptoms of a recession.
The cell phone slowdown, for example, is a sign of a mature device that hasn't had new features in over a year. Cell phone companies should have rolled out strong mp3 capabilities and strong mobile entertainment capabilities. The slowdown in sales will turnaround as soon as new features are added.

I will continue to wait on the sidelines. I am convinced that we are in the middle of over-selling, but until it turns, why buy?

Cash is King

The market gave back all of NASDAQ's gains from yesterday and almost half of the DOWs.

The market is discounting almost all positive earnings releases.
ISIL doubled earnings Y/Y and increased 10% sequentially QoQ. Doesn't matter - they were hit down 10% and given a P/E of 20.
ESV has shown that its contractual prices are doubling in the last 6 months. Doesn't matter - they are down.

Earnings don't matter. Something else is needed to bring money into this market. And there are 18 more days of headwinds. We have options expiration tomorrow - shorts will easily cover. We have housing sales news next Tuesday and Thursday - and that will be only bad news. Then August 8th is the next Fed meeting. For those who missed it - inflation is perking up.

To say the market is oversold is an overstatement. When it is time to get back into this market, consider buying LEAPs.

Behind the AAPL results - not much good news

Apple announced earnings as follows:
Sales: $4.37B vs expectations of $4.4B
Earnings: $0.54 vs expectations of $0.44
Margins increased slightly
iPods sold: 8.1M units vs expectations of 8.6M and 6.1M units same quarter last year (a 33% Y/Y increase in iPod units sold - the lowest growth in years)
Macs sold: 1.3M units vs expectations of 1.32M and 1.18M units last year (a 12% Y/Y unit growth)

As I predicted, it was basically a sales wash: the drop in iPods balanced the uptick in Macs. (Actually, they had a slight sales miss).

The earnings win is key: $85M in upside on higher margin. I'm much less impressed. I think it comes from a reduction in FLASH memory prices. FLASH COGs dropped ~$10+ over the quarter - that's a generous $50M in extra earnings. And it won't happen again.

Bottom line - this is mixed at best.
* Missed sales in $ and in units
* iPod unit sales are dropping, dropping faster than expected, and Y/Y sales growth is slowing
* Mac sales grew but less than expected

I think AAPL should be incredibly pleased with finding a way to boost Mac sales. They are keeping above 1M units per quarter and have pushed it up a few 100K units. I think the back-to-school market will give them a solid morale boost.

But Apple unit sales growth is not that special: it's inline with global sales growth of 11%.

IN SUMMARY - APPLE IS NOT SITTING PRETTY
As I predicted, iPod sales growth is falling faster than expected. This will continue.
The Mac is keeping APPL in contention because it really does stand out. But it continues to be a niche product. Meanwhile, global PC sales are slowing down just as AAPL is getting back into the game.

THINGS TO CONSIDER
Apple's suppliers did not get good news today IMHO. These companies depend on unit sales growth and Apple delivered decelerating sales growth. The moderate iPod sales growth is not good for STX and SNDK. It's less of a hit on STX because 1M units in the face of 100M annual unit sales is not a make-or-break scenario.
The mild Mac sales don't give anyone cause for celebration.

AAPL - I sold my Puts

Someone asked me about AAPL puts. I owned them personally but never put (pardon the pun) LiveRocket into them.

My puts stopped out Friday at $5.

I think the AAPL damage is done for now.

Bernanke and the market

We have seen quite a lot of news lately. Most of it positive (mining, infrastructure, construction) and some negative (housing). Many earnings releases were incredibly positive. Nevertheless, the market didn't budge.

Today, Bernanke commented that the economy is cooling. This was taken as a directional commentary. The market has been more worried about a lack of clarity over the economy and less about actual interest rate hikes or other elements.

The market has shot up some 170 points.

Almsot all of the stocks we got stopped out of have come raging back. ET & JBLU especially. I am still waiting. I need to see the strength continue through the week. I am primarily concerned about tomorrow's housing price report.

Also, AAPL earnings release today will have a strong impact on tech.

Still on the sidelines

Sure, reports are coming in that the economy is doing well. We knew that. And IBM announced strong results. Great. And housing is slowing rapidly (new construction is down 5.3%).
None of this is surprising and all consistent with what I've said.

But we've been here before and seen the market turn weak again. The market is not behaving rationally (or as rationally as it should). When oil is surging, oil services companies are flush with cash but their stocks don't show it. ESV releases reports that show a doubling of prices, but no reaction. Mining reports are released that show strong markets, but mining stocks slip.

Today is a nice day, but I want to see continued strength before I get in.

E Trade and Disney

Putting aside stock price performance for a moment, I seem to be dead on with these two companies

With Disney, I predicted stellar results for Pirates, and I have been correct. Ok, that was probably an easy call, but it does lead to great bottom line results.

E Trade is also poised for great results. Ameritrade reported 67% increase in earnings. ET is in the same boat. Merril Lynch also reported strong results from the trading desk revenue.

Portfolio details

I keep a simple spreadsheet that tracks each trade. I don't replicate it here (maybe I should) because a blog is not the easiest to navigate to begin with. Obviously, all buy/sell prices are in the past blogs, but that's less convenient.

In any event, these are the net proceeds of the stocks we bought and sold last week:

AMX 267.5
DIS -402.5
et -204
grp 294.75
isil -605.79
jblu -578.5
jlg 970
TIE -300
TTI 1180.3

Just over $700 profit
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I am scoping out a website design to enable easier navigating, which will include a stock matrix with dates, buy prices, shares, STOPs for current and historical Shares

Playing the negativity - part 2

Last week I suggested some stocks that were overpriced
Here's how they look now

WMAR - down -5%
SKS - down 2.5%
CFFN - down 2.5%
LBY - down 5%
ETH - down 5%
LZB - down 4%
WHR - Down 6%
CPWM - down 3%
NVL - down 4%
TWMC - down 4%
RSH - down 2%

I am going to buy the following puts for LR Turbo based on expectations that sales are falling. My basic premise is to target strike prices ~10% lower than current and to go out a few months. We are going on margin
WMAR Oct $10 $0.30 100 contracts - they don't have much in them to fall but I think they will give a dollar or two
CFFN Oct $30 $0.30 100 contracts
ETH - Nov 30 $0.80 50 contracts
WHR -Dec $70 $3.50 15 contracts
CPWM - Nov $12.50 $0.6 50 contracts
NVL - Dec $20 $1.90 20 contracts
RSH - Jan $15 $1.15 25 contracts

My final thoughts for the upcoming week

If you are looking to be greedy and try and buy in even lower, I suggest that you stay out for a bit and watch the market get rattled this week.

If you are ok buying today and waiting, I would take a mixed strategy
1. Buy the oil related stocks we've looked at
2. Buy TRID, TIE, and ISIL, ZOLT, ZRAN - these are longer term holdings of oversold stocks
3. Buy stocks that move in 5% cycles - DIS, ET, AMX, etc. Sell to lock in 5%.

If you are feeling aggressive, buy puts and calls.
TRID calls look like a slam dunk to me. (I own some)
Same with ESV, JLG, GRP and TIE - I see oversold stock prices for companies that will likely have strong upside results.
Puts as I mentioned earlier this week - luxury stocks, marine stocks, housing stocks, consumer durables

I do not think the market in its current state will give many stocks very much love until we approach the Fall. The buildup to the next Fed meeting August 8th will add tension - because the Fed has to raise rates again.

TRID

Up 10% on Friday. Because yet another company announced amazing record sales of flat panel TVs.
Samsung announced that flat panel TV sales were up 90%.
"Unit sales of TVs grew 30 percent overall, Chu said, while sales of 40-inch and larger versions jumped about 90 percent quarter on quarter.

Sales of flat screen TVs have boosted Samsung's profits the past two quarters as more and more consumers moved to replace their old, bulky cathode-ray tube types with the thinner, sleeker versions.

Analysts say that sales of TVs have been weak in the seasonally down second quarter and due to disappointing sales in the industry ahead of the World Cup soccer tournament."With the success of our Bordeaux LCD TVs, we have become the biggest name in flat panel TVs in the U.S. and Europe," Chu said."

TRID dominates the Samsung large screen TV market, and that market share has increased.....

I own TRID

TIE

TIE is down, down down - it even briefly fell to the $23 range last week.

And yet - the news is up, up ,up.
Boeing announced that record sales of the 787 are great, but that the plane is too heavy. Hmmm, sounds like more Titanium is needed. Boeing announced that sales expectations ove rthe next 20 years are unbelievably high. Almost 10X today's sales.

Even discounting these kind of predictions bodes well for TIE.

Most of all, I notice the return of hype for TIE. The competitors (ATI & RTI) are caught in raw material supply problems that do not affect TIE. TIE price gauging, anyone?

Moves for next week - Cash is King

We are sitting on $94,008 in cash. I don't see a reason to invest it yet.

I see too many negatives this week
OIL
Iran is causing trouble in several ways this week (Israel/Lebanon & UN Security Council). I discount Iran's conciliatory moves today that they are finally ready to talk. They will play tough brinksmanship on down the line. I expect the Israel/Lebanon conflict to escalate - Hizbullah will be backed like a rat into a corner and will start to lash out with some bigger toys.

Frankly, I suspect that this is all part of the run-up to dealing with Iran. The Iranian threat to unleash the dogs of war has been realized - Hamas and Hizbollah are unleashed. Israel upped the ante (they went all in, to use Poker parlance) and Hizbollah, Iran and Syria have blinked. Israel has the backing of the West and even of many Arab states (and that only happens if there is something important at stake - like defanging Iran's nuclear capability). The end game is that Hizbollah will end up defanged, and Hamas really doesn't matter. This makes Iran more isolated and vulnerable. After playing defense against Iran, I expect some offense to start picking up. I wouldn't be surprised to see some sudden and mysterious accidents happen in Iran sometime near the end of the year.

But, beyond this conspiracy theorizing, it boils down to a very rattled market this week.

I also note that high oil prices are not dampening consumer oil usage in the US. That and tight supplies make oil prices tend to stay high.

This is absolutely fabulous for drilling related companies (GRP, DO, ESV, TTI). For example, last quarter, prices for oil rigs were ~$100K per day. As of May, prices are up to $200K per day. That is because of serious shortages in oil rig availability, massive profitability of oil, and utilization rates. ESV is 99% utilized and is able to sign contracts that lock them in for 2 year deals at 2X last quarter's prices. The market is hysterical, but it may not be done being hysterical. I would love to pick up many of these stocks cheaper.

HOUSING
This is a big week for housing - the Q2 numbers get released. I expect terrible news. This is bad for more than housing and related stocks.
I thin that the broader market will see deeper price drops than they expected to see. This will fuel the fears that consumer spending will drop. Nevermind that falling housing prices can benefit everyone by relaxing inflationary pressures and by letting even more people buy houses.

HIGH TECH EARNINGS (DELL, CSCO, MOT, QCOM, IBM, APPLE and BROADCOM)
There are 3 markets here: telecoms, PC and Cell phones.
Telecoms I can't comment on due to my role at Cisco. Obviously Lucent is having a tough time. The PC market is slowing. It's very likely that Apple may buck this trend, but expectations are low for the iPod.
Cell phones are not new and improved. Back in January I was very excited about mobile entertainment shifting to the cell phone. Still nothing after 7 months. At this point, only form and not features is driving folks to buy new phones.
None of this sounds good for semiconductors.

I am excited by the Fall - new gadgets, new gametoys, Microsoft's Vista buzz. But for now, sad news.

INFLATION NEWS
CPI/PPI releases, and it will show more inflation. I suspect some employment easing in the construction areas (many homebuilders are firing thousands of construction workers).

In essence, a lot of negative news is coming out this week that will push healthy stocks down. I want to wait for even more panic selling to buy in.

We know the stocks to buy - it's just timing. I am also loading up on Puts as I outlined earlier this week.

Week 36 LiveRocket Performance - Down 3.08%

Week 36
Dow -3.17%
S&P -2.29%
NASDAQ -4.37%
LiveRocket -3.08%

YTD
Dow 0.21%
S&P -0.96%
NASDAQ -7.62%
LiveRocket 19.67%

Since Inception (Nov 4, 2005)
Dow 2.1%
S&P 1.4%
NASDAQ -6.1%
LiveRocket 31.06%

Let me start by saying that I will post a comments article separately. I'll stick to a review of the stocks. And an update on the portfolio.

The performance is actually really amazing.
Since inception, we are beating the broader markets by an average of 3.5%~4.5% per month.
From a YTD perspective, we are beating the broader market by an average 3.3%~4% per month.
We are up 31% during a massive Bear market.

We were stopped out of quite a lot. The results of buying back into the market was generally positive - we netted ~1.5% on the stocks that were stopped out. As I will discuss in my separate comments article, I did not jump back in after our stops were hit because I am not positive this week. Long term positive, short term negative.

My tactic was to keep very tight stops. This was the right approach last week, when we compare our STOP prices to Friday's closing prices:
AMX $32 vs 31.29
DIS 29 vs 28.49
ET 20.8 vs 20.53
GRP 43 vs 42.9
ISIL 22.5 vs 22.64
JBLU 11.5 vs 10.65
JLG 20 vs 18.51
TIE 31 vs 26.65
TTI 28 vs 28.66

I wanted to lock in gains and, with two exceptions (ISIL & TTI), we can get back into all stocks and own more shares. I am disappointed that we hit some STOPs, but getting out gives us the flexibility to jump back in or not, and to do so at lower prices.

EMT Down 1%. Just a victim of US market blowback
ESV - Down 3.5%. I read a great article that ESV doubled its prices from Q1 (~$100K per day per rig) to to Q2 ($200K).
MDR - Down 2%. Another victim of US market blowback.
VOL - Down 2.5%

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editted for the following
1. This is week 36 not 26 as stated
2. Added monthly performance review
3. Added TTI to list of stocks that ended higher than STOP price