Saturday, January 30, 2010

Stock Flyers

From time to time, we talk about individual stocks as "flyers." These are relatively high-risk stocks that have good potential, but correspondingly high risk. We've discussed Rambus in some of our "stock flyer" posts.

We still think that RMBS has good potential. Their deal with Samsung should put a floor under the share price. In addition, it is likely that new licenses and/or agreements will be signed over the next few months. The risk/return part of the RMBS equation has changed so that it is slightly safer now -- but the upside is also not as outrageously high at these levels.

Some new flyers that we like include CYCC and NNVC. These are both biopharm-researchers that are high risk/high potential. Use only very risky capital.

Wednesday, January 27, 2010

Market Update: Stocks and Futures

The stock market saw its first big drop in months, with stocks dropping about -5.5% from their recent peak. We avoided part of the early decline in stocks, but our stock market models went long as "some of the air was let out of the recent balloon." Both Long-term and Intermediate-Term (overbought/oversold) models are currently long.

Futures Markets
After a nice run early in January for our futures portfolio, the dollar's recent strength and weakness in commodities caused whipsaw losses. As a result, we currently have small positions in the currency markets. We are still long several commodities markets, including metals and energy -- as well as several softs.

Traders need to monitor these positions because a deeper decline means positions should be closed out. Traders have to manage that risk...

Friday, January 15, 2010

RMBS (probabilities)

The good news is that RMBS's share price is holding up relatively well given yet another (slight) delay. RMBS's antitrust case against the "cartel" was set to start earlier in the week -- and surprise (!!) -- at the last second, we learn that one of the cartel lawyers is very sick. Here's Bloomberg's blurb on Rambus.

Note that this isn't much of a surprise because the same thing happened just a few months ago! Back then, Rambus' case was delayed due to the health of a cartel lawyer -- which pushed the trial closer to the holidays -- so the court decided to postpone the case until early January. This time, the judge delayed things for eight days to decide what to do next...

A few notes on Rambus:
  • Based on the reaction of the share price, we feel that Rambus is holding up fairly well.
  • Overall, we believe the price hanging tight at 20-21 is "good news" because on a "contrarian" level, the level of negativity by longer-term RMBS shareholders seems to be on the high end. That is, with all of the negativity, for RMBS to go from 23-24 down to 20-21 is a good sign.
  • On the other hand, some RMBS investors and regular message board "posters" have said that "not much has changed" -- and that people need to hang tight and await the "reward."
  • We are overall happy that the share price is hanging tough with the slight delay and negativity. In fact, this level in the 20-21 range will hopefully develop into long-term support in the future.
What does the market say? We used a "back of the envelope" method to value/price a few scenarios that include the range of possibilities (including solid business solution, and bad conclusions for Rambus). We wanted to estimate the probabilities that the market is pricing in -- for various scenarios in RMBS's future. What do the numbers say?
  • Several months ago, Rambus was hovering in the mid-teens. At this stock price, the market was signaling about a 20% chance of a good conclusion/business solution for RMBS.
  • When the stock was hovering at about 24, just below resistance in the 24.5 to 26 range, this percentage was more like 40%
  • Since the mini-delay -- as we await the judge's decision next Thursday, the stock has dropped to the 21 range -- and the percentage has dropped correspondingly to about 35%.
The price action seems to make some sense -- and we hope that justice will be served -- sooner rather than later. We continue to believe that Rambus has good potential as a "flyer" for aggressive investors -- and most "longs" will agree that they are happier at 21 than they were at 16.

Monday, January 11, 2010

So Goes January?

There are a number of "theories" that say things like:
  • If the stock market is up during the first five days of the year, it should be a good year for the stock market.
  • Others look at the entire month of January as an indicator for the year.
Indeed, some people have studied this -- and the numbers DO show that this is true around 85% of the time. As you might imagine, we don't give these "systems" very much credence -- but we DO believe that the market currently has a healthy balance between both bulls and bears. In fact, with the market rallying early in 2010, we're surprised that we haven't seen more press, analysts, or blogs screaming about this "indicator."

We think the reason that more people aren't screaming about this indicator -- is because inside, they are bearish. The stock market scared a lot of people -- and that fear still exists. The stock market continues to climb the "Wall of Worry" that we talk about regularly. The existence of fear -- and bears -- gives the "contrarian" inside of us reason to believe that this market has more room to rise.

Our long-term stock market indicators remain bullish. Our overbought/oversold indicators are currently mildly bearish -- so we have a neutral to slightly long outlook on stocks.