1-6-13 Comments

I haven't had much to say lately. We have been in a confirmed rally since 11-23. It seems that Bill O'Neil's executive override follow-through day on a partial day trading has worked out okay. Given that it was made in a seasonally bullish season the call seemed reasonable to me. A few leaders are doing okay but not all. My holdings are currently: BCEI, DDD, TRGP, RYL, HLSS, RNF, NSM and I am all long. Bonanza Creek (BCEI) is an oil shale play. They have the best fundamentals in the group and I noticed in a recent IBD New America article that they hedge half of their oil production. This removes some of my worries on future crude oil downside price risk. The USA is about to be flooded with oil as the fracking wells come on line. Texas is already producing more than they did in 1987. Targa Rescources (TRGP) is a play on Natural Gas Liquids (Propane, Ethane, Butane). They are expanding an export facility in Louisianna, there is a very large differential price for these products between the US and every other country, this should boost their margins. Rentech Nitrogen (RNF, Fertilizer) is a round-about energy play. Natural Gas is one of the main input costs to making fertilizer (ammonia comes from Nat Gas).

Here are some other intresting energy sector plays (I am only showing companies with okay earnings): CLR (largest land owner in the Bakken field--North Dakota), EOG (largest horizontal drilling producer), WLK (Chemical Mfg, Ethane is primary input cost), MRC (provides pipe valves and fittings to the drilling companies), EPD (propane export facility to come on line this year). The first two have very positive LEV divergence.

As you can tell, I have been focussing on the energy sector and related industries for a while. This is because horizontal drilling is changing the landscape here. The greenies would like to shut this all down and I am sure there will be a shootout at the OK corral some day (Tombstone, Arizona famous gun fight site).

With the talk about the Fed stopping easing someday I am not sure the housing-finance plays will work out long term (HLSS, NSM). DDD, my one technology play seems to be driven by small players judging by SEV so this has me worried.

The Market School model has us at an exposure count of +3 (75% invested) and a distribution count of 2. The NASDAQ follow-through day was 12/17/2012. I will probaby attend the next Market School in San Francisco in April. The IBD team has been working on some changes. One change they say, if they can figure out how to present it is to turn the pyrmid upside down when coming out of the market on sell signals. We go into the market in steps on buy signals (30%, 55%, 75%, 90%, 100%) based on 1-5 exposure count. They find that as the exposure count is reducing that it works better to come out of the market using the same steps in reverse (5 count to 4 count, sell 30% for example).

I am seeing some indices making new highs: Russel, Dow Transports, NYSE Composite. This likely means that the rest will follow in time.

There are a lot of short setups. I guess this has me worried. Stocks that I might short if the market is to stall out: VMW, COH, DLTR, FFIV, PCLN, ALXN, CAB, TDC, SCSS, VRSN, UA, AAPL, CRUS. I don't like to short stocks that trade less than 1 million shares per day on average. I make some exceptions for high priced stocks, so if a stock is trading $40 million per day, it is okay. Shorting is difficult and thinly traded stocks are too volatile for me.