What Facebook Really Cost You

facebook 300x225 What Facebook Really Cost You

I read an article a while back  where a guy said he was cashing in his kids college accounts to buy Facebook $FB. In his mind this was his shot at greatness, his time to shine. Can’t really blame him, it’s maddening to watch others get rich by dumb luck. This was the next $GOOG right? Odd though, when you consider that disasters like $ZNGA and $GRPN were in full implosion mode.

I blame the financial media for so much of this, as they relentlessly opined on the merits of Facebook. They showed countdowns to the IPO date, there were hour long “specials” galore and they made you fell like an imbecile if you didn’t subscribe for shares. After all, everyone has a $FB account, so it must be awesome. How could it fail.?

So while the masses fell to their knees and worshiped at the alter of Zuckerberg, and trusted (once again) the stand up guys at the big investment banks, here are some names that you could have owned instead over the same time period.

$MLNX -How about a 60 point move in Mellanox?

mlnx 300x204 What Facebook Really Cost You

$GOOG – How about a 75 point move in Google?

goog8 300x189 What Facebook Really Cost You

$PCYC -How about a 35 point move in Pharmacyclics?

pcyc1 300x198 What Facebook Really Cost You

$AAPL -How about a 120 point move in Apple?

aapl15 300x198 What Facebook Really Cost You

Bottom line? No IPO is worth the opportunity cost and when you get your allocation filled from your broker, there is something terribly wrong.

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COT-Commitment of Traders

mac 300x172 COT Commitment of Traders

This is a follow up the the commitment of traders piece I posted a couple of months ago on the “smart money/dumb money” view of the euro. At that time, the dumb money was short and the commercial traders “smart money” was getting long. The commercial traders always win. By the way, while everyone was walking around donned in Kevlar purchased from the Armageddon Party Shop, the DAX has quietly rallied about 18%.  As I always say, turn off the noise, as you’re only enabling the Ron Insana’s  of the world.

From McClellan:

Rumors of the collapse of the European Union have been around almost since the Maastricht Treaty was finalized in 1993.  They have become more persistent lately with Greece’s debt reorganization and with other countries seemingly on the brink.

In such an environment, one might think that the euro currency would be in danger as well.  But that is not the way that the “smart money” traders are betting.

This week’s chart looks at the net position of “commercial” traders of euro currency futures, as reported by the CFTC in the weekly Commitment of Traders (COT) Report.  The CFTC breaks down its reporting of traders’ positions into 3 groups: commercial, non-commercial, and non-reportable.  The commercial traders are the ones holding the biggest positions, and are generally assumed to be the big banks and investment firms.

Non-commercial traders are in the middle in terms of position size, and are generally assumed to be hedge funds and the like.  Non-reportable traders are ones whose positions in a given futures contract are so small that the CFTC figures they are not worth bothering to have their positions reported individually.

The general assumption when examining any COT data is that the big commercial traders are the “smart money”, and that is usually the way to bet.  But there are exceptions to that from time to time, as well as important nuances about how to understand what the data are telling us.

Earlier in 2012, commercial traders of euro futures moved to their biggest net long position in the history of the euro currency.  That is a big bet on the euro going up in value versus the dollar.  One important point to understand, though, is that while the commercial traders usually end up being proven right in the end, they often get to a big lopsided position early.  So just because they had moved to a big net long position earlier in 2012 was not enough by itself to make the euro turn up.

Now the euro appears to be turning up, and finally proving the commercials correct.  At the same time, the small traders counted in the “non-reportable” category are betting on the euro continuing its decline.

Euro COT non rep COT Commitment of Traders

As a group, the non-reportable traders actually turned out to have been right in getting short in a big way late in 2011.  But as a group, they tend to stay too long at the party, and then have to madly cover their positions when the market moves against them.  The euro currency has now broken its declining tops line, and history shows that these breaks tend to matter for marking changes in trend direction.

The COT Report comes out on Fridays, reflecting positions held as of the preceding Tuesday.  In our Daily Edition on Fridays, we cover the highlights of what the COT data are showing on selected futures contracts.  You can see a sample of our Daily Edition here.

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Got Coal? When “Less Bad” Starts To Work

coal3 Got Coal? When Less Bad Starts To Work

The sector that “The Street” hates, and the politicians detest, all traded like cancer curing biotech stocks on Thursday. There comes a point when there is no one left to sell, the shorts way overstay their welcome and “less bad” earnings get treated like a beat.

Thursday’s action:

  • Arch Coal $ACI was up 8 percent, 47 million shares are short
  • Peabody $BTU was up  6.8 percent higher, 18 million shares short
  • Chapter 11 protected Patriot Coal $PCXCQ was 7 percent higher
  • CONSOL  $CNX was 6.4 percent higher, 22 million shares short
  • Alpha Natural $ANR was 14% higher, 28 million shares short
  • James River $JRCC reported Friday and was up 5%, 8 million shares short
  • Walters Industries $WLW was up 4.5%, 3.4 million shares short

So what’s going on? Two weeks ago, Arch sparked a rally in the coal sector by confirming reports that coal stockpiles were falling, especially in the western states where the company produces most of its coal. Arch also demonstrated good unit cost control despite lower production. The market liked Arch’s earnings, considering them less bad than feared with signs of a tentative bottom in coal prices.

The market waited a couple of weeks for the report by $ANR which happened  Wednesday, it was bad, but again, less bad. The stock went down, but reversed on Thursday to the tune of + 14%.

Fridays was basically a consolidation day for the group as they shook of Thursday’s gains.

The charts are constructive, volumes are improving dramatically and weekly technicals are turning up.

I’ve been bullish and continue to be bullish on the black rock. This isn’t a quick “trade” for me. I’m looking for doubles, maybe triples.

Buy em’ when they’re dyin’.

For more trades and to see what we”re doing on coal with more specificity, you can subscribe here.


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Open Interest Gives a “Tell” For Treasuries

This is a very interesting piece from the folks at  McClellan

tbonds 300x167 Open Interest Gives a Tell For Treasuries

Open interest is the total number of contracts that are “open” for a futures contract.  Every futures contract is simultaneously both a short position and a long position, with two separate parties each holding the obligation to either accept delivery of the goods, or pay for them at the agreed price and specifications.

Open interest data for T-Bond futures is unique in a couple of ways that make it very useful to watch.  T-Bond futures differ from other types of futures contracts in that they can be created or closed at any time prior to the contract’s expiration date.  By contrast, stock index futures do not work that way, which is why you will see open interest in those contracts continuing to rise until just a few days before each quarterly expiration.  A chart of it looks like a cross-cut saw blade, and thus is not useful for interpretive information about price direction.

Because T-Bond open interest numbers can rise and fall at any time, there can be important information in the behavior of that data.  Here is the key insight: open interest numbers for T-Bonds will tend to rise during periods when prices are moving in the direction of the dominant trend.  T-Bond open interest will tend to fall as prices make corrective moves.

So the beauty of this is that if you see open interest rising, you can then infer that whichever direction prices are going right then is the dominant trend.  That can be very useful information, so that you can know if you are trading with the trend or against it.

As we can see in this week’s chart, open interest data can also give us some interesting divergences at important price tops for T-Bonds, like the one we just had recently.  We featured this chart in the July 25, 2012 issue of our twice monthly newsletter, making the point that the divergence in July was signaling trouble for T-Bond prices.  There had been a higher price high in July, but the open interest plot made a lower high which conveyed the message that “up” was no longer the direction of the dominant trend.

In the past, when there have been divergences this severe between prices and open interest, it has led to price declines that were more significant in magnitude than what we have seen thus far.  The implication is that T-Bond prices have more distance yet to go downward in order to fulfill the implications of this open interest divergence.



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