Smokin like a Vulcan

Earlier this week we highlighted Tobacco. If you were an on the ball you may already be in this trade. Altria (MO) formerly known as Phillip Morris just broke out of some sideways action. I have outlined another swing trade here.

MO

Using the break of resistance here for another flag we can outline our risk and reward. Implementing an ancient Japanese trading system of candlesticks we know that the half way point of “large” candles act as an area of support or resistance. So I have a fairly tight stop.

Anyone can trade the trend on these bullish trends by implementing an 8% trailing stop loss.

Intercepted Fed Communications

Ferengi Traders have recently intercepted a communication to the Federal Reserve. The author of the letter has yet to be ascertained but the content is very relevant.

Dear the Fed,
You suck. You don't have a backbone and as a result you are slowly and
very surely making our country and our currency irrelevant. Usually the
masses rebel and bring down great empires but luckily for us democracy
fixed that problem. Unfortunately, democracy can't fix how lame and
fickle you are and so you will be our ruin.
A few things to tell you:
1) Inflation isn't 2% like your pathetic CPI ex-Food & Energy says it
is.
First of all, as far as I can tell food and energy are the only two
items you should NEVER exclude from an inflation index. Tell your wife
and kids they can have everything in the consumer basket except food and
energy and you will quickly see that they are actually the two MOST
important and indispensable factors in the CPI. You can find substitutes
for, or go without, everything in the basket EXCEPT those two.
Secondly, stop using "Seasonally Adjusted Intervention Analysis" it's as
sketchy as the Seldom-Accepted-Accounting-Principles (SAAP) we use to
cook the books here at LoS. I mean writing a computer program to
automatically remove any items in the basket which deviate meaningfully
from the previous year? Isn't the point of the data to SHOW the change
versus the previous year not hide it? Oh, I found the list of items that
you've adjusted for and it's embarrassing.
The majority of adjustments remove price increases with much less
frequent adjustments for price declines. You've basically left dairy
products out of the index for the last 5 years citing outrageous
one-offs like "a generally tight cheese market" as justification for
this. And as if reporting a separate ex-energy index wasn't enough
you've statistically intervened to remove the effect of higher energy
prices even in the index that's supposed to INCLUDE energy. In one
outrageous case you removed the effect of fuel oil for three months in
March 03 and the reason you cited for the "abnormal"
move was the "end of winter," yeah I was surprised as sh-t when winter
ended in Spring 03, it was wild! For a real measure go back to the old
method, you'll see inflation is at least double what you're reporting.
2) Grow a spine you slimy invertebrate
The market has a memory. Over the past 15 years you trained us to
believe that no matter how much risk we take, and how much we lever that
risk, if anything really scary comes down the pike then you will bail us
out. Now we all run around like reckless, spoiled 16 year olds bidding
up the price of anything we can get our hands on and not worrying about
consequences because daddy (Greenspan) and mommy (Bernanke - that's
right you're spineless AND a girl) will get us out of any trouble we get in.
Well you're only making the problem worse and we aren't learning anything so
we'll continue taking stupid leveraged bets creating bubble after bubble so
you can tip-toe around trying not to pop any of them.
3) You're lying to yourself if you think we still have real GDP growth
in this country.
I challenge you to find one measure of wealth OTHER THAN THE DOLLAR
which shows the US economy as worth more now than in 2001. If I wanted
to buy our country it would cost me 30% fewer euros today than it did in
2001, it would cost me less bars of gold, less barrels of oil, less ounces of copper,
less btu's of natural gas, less cubic feet of lumber, less of almost anything that has
intrinsic value. Yet you keep reporting GDP growth, why? Because your quick fix
is to effectively print more money so that in dollar units everything is getting more
"valuable". But guess what, to the 95% of the world that doesn't use dollars the true
value of the US economy has been shrinking, rapidly.
It's like a company doing a 5 for 4 reverse stock split every year and
claiming to have 20% eps growth, you haven't changed the earnings just
the units those earnings are measured in. The rest of the world is
telling you our country is worth less by massively selling our currency
and you still naively think we're growing value - I feel like I'm at a
gathering of the flat earth society or in Zimbabwenomics 101.
This will come back to bite you but not nearly as much as it bites us.
The cheaper the dollar gets the more expensive all our imports get,
inflation will rise faster than you can statistically manipulate it and
when that happens expected inflation goes through the roof (which as you
yourself have pointed out many times is by far the most serious threat
to economic existence). Then the only way out will be interest rate
increases as swift and severe as all the cuts have been. All the bubbles
will pop at once and then we're really in for it. Maybe it's 10 years
away but there's a toll collector at the end of every free ride.
When will you learn that recession is ok? It's actually healthy, it's
the cycle, it's how things have worked for a 1,000 years. Trying to
prevent every small recession is going to end in one huge recession (ie.
depression) and no one will trust you anymore which is a much bigger
problem. No economy in history has ever been able to successfully
inflate its way to health, this won't be any different.
Benny, I know you had to trade in your hypothalamus and spine to be fed
chairman and now you biologically over-react to everything and are
incapable of standing up straight when confronted by bully-morons like
Kramer. But I'm hoping you at least still have your brain. Before you
had this job all your published research showed that central banks
should strictly target inflation and should be ignorant of asset prices.
You had good reasons for this conclusion, don't forget them.

Subprimely,

Long or Short Capital Management

I Want a New Drug

In my earlier post on Finding Stocks the Ferengi Way one of the first industry groups I highlighted was the Major Drug companies. Here is a look at a few that have tickled my lobes.

Johnson and Johnson JNJ

I’ve set JNJ up as short-term swing trade but it can certainly be traded as trend trade as well. Here we see a classic flag break out. According the Encyclopedia of Price Patterns, flags have a probability of success around 70% correct in meeting the price target. The price target is the equivalent move of the flag pole as I have designated. I would exit at the target or a cross below the 8 day moving average whichever comes first.

Merck MRK

MRK is giving us a classic Ascending Triangle pattern. Here we see a good break on strong volume. The base of the triangle will once again give us a price target. I would look at exiting at $63 or a break below the 8 day moving average, whichever comes first.

Pfizer PFE

Pfizer I am showing as a much different trade then those above. This one is much longer in nature. The long-term chart is showing us support bounce along with a recent channel break.

The shorter-term chart is confirming out long tern outlook. We see a bullish divergence on the MACD as it creates higher lows. The Stochastic oscillator is giving us a triangle pattern and a break of resistance would be a great confirmation. Since I am bottom fishing here on this stock I am going to go in with a very small position. You can see two more resistance lines where if I see breaks take place I will continue to scale in. Currently I have my stop set at $23.25 but once the stock breaks the next resistance line I would begin to use 3% below the 30-day moving average.

Bernake: The Dollar Destoyer!

So the word on the street today is the Fed may once again reduce rates. Earthlings have become so scared of a recession that they are willing to destroy the value of the dollar to just delay the inevitable. Look, like it or not we are going into a recession. Short sited Earth bankers and borrowers were willing to lend money to any homo-sapien that could fog a mirror and they are just afraid to let banks pay the consequences. Where are the Milton Friedman lasse faire economists? Why are they so afraid to let the foolish businessmen take their lumps (Ferengi are not responsible for the stupidity of other races)? New financial leaders will rise out of the ashes and they will be all the wiser because of it.

The Ferengi watched in admiration of President Ronald Regan and his understanding of a strong dollar policy, "The Dollar will be as good as gold" was the cry then. Aren't all these FOMC people suppose to be your so called Regan Republicans? Why are they so willing to let the dollar die on the vine?

Money in the currency market flows to the country that is usually paying the best savings rates. The US was the envy of the world and the dollar was strong all through the 80-90s, the strong dollar policy helped the US lead the world in development and strength. Every time Bernake seeks to lower the interest rate to cave to Wall Street traders he further weakens the dollar. Interest Rates are still at very historical lows, maintaining the current rate will at least help to stabilize the dollar. There is no cure for the housing market just give it up already. Let the market shake out and run its course.

In 1929 where we faced similar economic issues and the Fed increase the interest rates in order to strengthen the dollar and combat inflation but then sparked the worst sell off in the stock market. In 1998 the Fed had a similar liquidity crisis thanks to the "genius" of Long-Term Capital Management and all the banks that lent them money. The Fed increased liquidity by lower interest rates at the time to bail the banks out, but the dropping commodity market and deflation made the economic situation favorable for the time and the cuts didn't hurt. This time we are in a harder situation because earth has a liquidity issue created once again by the ridiculous bankers lending for any reason, but the cutting of the interest rates is perpetuating inflation and an already bullish commodity market. Raising interest rates to combat the inflation may put us into 1929 decline but lowering the rates puts into 1970s type inflation. The only logical course from my point of view is to just leave the rates alone. Quit tinkering with it. Allow this economy to play its way out.

Bernake believes that the rest of the world is going to eventually fall into recession just like the US so the rate cuts will eventually be countered by the cuts in other countries. The world is bigger than it used to be. New large consumers like China and India may not bring the kind of slow down we expect. Countries like Canada, Mexico, Australia, and Russia who are profiting from the skyrocketing commodity prices and may make up much of the consumption the US will slack off on because wealth is increasing in those areas. Bernake may very well be right but it seems to me he is spinning the revolver with a few extra rounds.

Honeywell bounce

Just wanted to point out a play on Honeywell (HON) this morning. Remember the Ferengi Rule of Acquisition to be aware of which direction the wind is blowing. When the Dow 30 bounces, start looking at the Dow components. If you enter today look to sell half your position when the stock moves up to 57 and the second half if the stock moves up to 61. I like to use the 8 day moving average as my stop. If the stock closes below the 8 day moving average then close the entire position. This keeps a a very tight rein on the stock helping us to control our losses.

Honeywell (HON)

Finding Stocks The Ferengi Way

Here are a few key Ferengi Rules of Acquisition that can helps us find stocks in which we would want to trade. These rules are significant because they lead us into a top down approach. A wise man can hear profit in the wind because he is looking for the next opportunity. He understands that in a bull market everyone looks like a trading guru but a bear weeds out the chaff. The crowd jumps on at the end when the wise and prudent are selling and those who have become educated will reap the rewards.

Rule 22 – A wise man can hear profit in the wind
Rule 44 – Never confuse wisdom with luck
Rule 69 – Ferengi are not responsible for the stupidity of other races
Rule 74 – Knowledge equals profit
Rule 162 – Even in the worst of times someone turns a profit
Rule 217 – You can’t free a fish from water

Below you will find relative strength charts of four different industry groups versus the S&P 500. If the chart is uptrending then the industry group is outperforming the S&P 500 whereas the opposite is true if we were searching for bearish stocks. The recent decline in the markets makes the wise trader prove his mettle. As I mentioned before the prudent investor is looking for the next opportunity. Since stocks tend to move with their industry groups we can find good stocks by finding industry groups with strength.

Relative Strength Charts

Major Drugs

I particularly like this chart because it has recently broken out of a down trend. Although we didn’t get the very bottom (and rarely will we ever) we may be getting in on a fresh new uptrend.

Insurance Accident & Health

Insurance gives me similar excitement because we see it was in a sideways basing pattern for some time. Now we see it has broken out of its consolidation and a new uptrend may be on the way.

Tobacco

Tobacco has been showing strength for some time so we aren’t necessarily finding a bottom but we are seeing a break out of a “resting period”. These companies do a lot of exporting so they are benefiting from a weak American dollar. Also, any Ferengi investor understands what a good investment addictive products are!

Oil & Gas Operations

We have all seen gas and oil companies profiting from the rise in oil prices. Once again the weak dollar along with higher world demand for crude has driven oil prices higher and higher. A break out of this consolidation is also evident on the chart.

Here we have identified four possible groups of opportunity. Look for my next postings where I will identify stocks and ETF stocks that will allow us to begin out profiteering.

On a side note, these are all industry groups that perform well when the economy is about to go into recession.

Ponzi Schemes are Great (When you're Ponzi)

Unless you have been living in the delta quadrant you should know that the housing market on Earth has been in a slump. Although greed is good whether you are Ferengi or Gordon Gecko the prudent investor is always cautious of those who try to guarantee returns. Look at these poor saps in Utah who were messing with the housing bull market and got the horn. Utah Housing Bust

Trading tip, when you are dealing with a market that is hard to unload assets in then you need to make sure you are not the last one out. Ponzi schemes like this show up in every bull market. If you are with a group who promises some kind of return get out.

Ferengi Culture

This is why we started this blog. It fits with the Ferengi/Human understanding and psyche of the markets and trade. Therefore, this is a good forum to talk about trades in the Ferengi style and culture. As a human capitalist, I find that we have very similar traits with the Ferengi and feel that we can learn from their manner of commerce.

"Ferengi culture is so devoted to unregulated capitalism that concepts such as labor unions, sick leave, vacations, or paid overtime for workers are considered abhorrent, because they would interfere with exploitation of workers. In addition to the Rules, the Ferengi also recognize the five Stages of Acquisition: infatuation, justification, appropriation, obsession, and resale. They value similar traits in other species as well — Earth's Wall Street is regarded with religious reverence by Ferengi, who routinely visit Earth to make pilgrimages to the "holy site" of commerce and business."(Wikipedia)

As a respectful trader, let us pay homege to Wall Street and let the capitalist in you escape and be free and profit from it all.

Why Star Trek First Contact is the Best

Many trekkers and trekkies will ask me why I believe First Contact to be the best of all Star Trek movies, and while I must concede that picking a favorite Star Trek is about like picking your favorite note in a Mozart concerto, I must say knowing that Zephram Cochrane was just out to make a buck pleases me.

Oh yeah true believers, he was out in true Ferengi fashion hoping to make some money and hook up with a few ladies to get his oo-mox on. They didn't put that on his statue in Montana did they?

If only a Ferengi ship came by when he made his successful flight then the ultra-capitalists of earth would reign supreme. Ayn Rand would have been the educational format for the Star Fleet Academy and the Klingon Empire would have been been overthrown by hostile take over.

Stupid, sexy, self-righteous Vulcans!

Ferengi Hedge Fund Under Investigation

Here is an interesting article on a Government investigation into a Ferengi Hedge Fund deal. Watch out, the man could be coming after you next!!!

Government Investigates Ferengi Hedge Fund

Welcome to Trading the Ferengi Way

We are a couple of traders that want to have some great discussions and give our thoughts on trading in the markets. We have many, many insights and need a place to put it all. We needed a venue to discuss everything that we have in our big Ferengi heads. We want to show real life examples and insights with a Ferengi twist. We will be using the Ferengi Rules of Acquisition as a kind of play book and model.

I guess the only thing to say now is Hang On And Enjoy The Ride.