THE DAILY TRADING RISK: August 2015

Monday, August 31, 2015

Positions

XOM

May sell tomorrow. Moved my stop up from breakeven at $69 to $72.

AAPL

May sell tomorrow. Moved my stop up from breakeven to $104.

I believe this almost 10 point rally in crude is just short covering. Testing the $30 level seems magnetic. Opposites attract you know.

Happy trading.

So far the pullback is in play. I expect 195-192.50 or so then a turnaround back to 205. Not today of course, but things don't just continue skyward after a move like last week. A pullback and then further upside if the pullback stops and holds.

TOP STORIES

31 senators support Iran nuclear deal

Senate Budget Cmte Democrats Hold News Conference On Jobs And Minimum Wage

Merkley (Mark Wilson/Getty Images)

President Barack Obama needs 34 Senate votes to prevent opponents from blocking a nuclear deal with Iran. He has 31 senators in favor, after Sen. Jeff Merkley announced support. "I believe the agreement ... is the best available strategy to block Iran from acquiring a nuclear weapon," Merkley said.
The Hill (30 Aug.)

Caretaker government takes office in Greece
A caretaker government has been sworn in in Greece, tasked with running the country until next month's election. Supreme Court President Vasiliki Thanou-Christofilou has become interim prime minister. The Finance Ministry has much to do to keep the nation in operation, Deputy Finance Minister Trifon Alexiadis says.

EuroNews (28 Aug.)

Phillips 66 gets $4.48B investment from Berkshire
A Securities and Exchange Commission filing says Warren Buffett's Berkshire Hathaway has bought a 10.8% stake worth $4.48 billion in Phillips 66. The oil company's stock price has declined less than 1% during a period in which oil prices have dropped more than half. Reuters (29 Aug.)

Recession hits Brazil

Obama Holds News Conference With Brazil's President Rousseff

Rousseff (Chip Somodevilla/Getty Images)

Brazil has fallen into recession after years of declining revenue from exports because of lower commodity prices. The economy contracted 1.9% in the second quarter, after shrinking 0.7% in Q1, according to government statistics. President Dilma Rousseff is facing public anger in response to austerity measures being implemented. Deutsche Welle (28 Aug)

Concern about China leaves Asian-Pacific markets down
Worries that the Chinese government will shut down intervention in the stock market sent most Asian-Pacific markets falling Monday. China's Shanghai Composite lost 0.8%. Japan's Nikkei 225 dropped 1.3%. Hong Kong's Hang Seng Index added 0.3%. Australia's S&P/ASX 200 fell 1.1%. South Korea's Kospi edged up 0.2%. India's Sensex was down 0.5%. CNBC.com

Fed's Fischer optimistic inflation will rise toward target

Israel's Central Bank Govenor Stanley Fi

Fischer (Ed Jones/Getty Images)

Federal Reserve Vice Chairman Stanley Fischer told participants at the Federal Reserve Bank of Kansas City's annual economic symposium in Jackson Hole, Wyo., that inflation likely will rise to the central bank's annual target of 2%. "Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding inflation down -- oil prices and import prices, particularly -- dissipate further," Fischer said. NYTimes.com (29 Aug)

Saturday, August 29, 2015

This week was one of the wildist rides ever. If you could stomach the volatility you could have made a lot of money trading just about anything.

I expect next week to be a little less volatile, but not without its mood swings, at least until we get past the next Fed day.

Use stops and good luck trading.

Books

Debt of Honor by Tom Clancy
Den of Thieves by James B. Stewart
Fundamentals of Investing in Oil by Chris Termeer
How We Got Here by Andy Kessler
How the Stock Market Works by Dalton NYIF
How to Day Trade Stocks by Harvey Walsh
Liars Poker by Michael Lewis
Manias, Panics and Crashes by Kindleberger and Aliber
Market Wizards by Jack Schwager
One Good Trade by Mike Bellafiore
Options as a Strategic Investment by Lawrence G. MacMillan
Reminiscinces of a Stock Operator
Secrets of a Pivot Boss by Frank Ochoa
Steidlmayer on Markets
Street Smarts by Linda Raschke
Team of Rivals by Doris Kearns Goodwin
Technical Analysis of the Financial Markets by John Murphy
Thank You for Arguing by Jay Heinrichs
The Ascent of Money by Niall Ferguson
The Big Short by Michael Lewis
The Forgotten Man by Amity Shlaes
The Intelligent Investor by Benjamin Graham
The Logical Trader by Mark Fisher
The Playbook by Mike Bellafiore
The Power Game by Hedrick Smith
The Shack by Wm. Paul Young
The Smartest Guys in the Room by Bethany McLean and Peter Elkind
The Taylor Trading Technique by George Taylor
The Traders Bible by Richard Wyckoff
Unconventional Success by David Swensen
When Genius Failed by Roger Lowenstein
Women & Money by Suze Orman

SHORTING STOCK

Lets say you think GE is headed down in price. You would borrow 100 GE shares from A at say, $10, then sell them to B for $10, and when the price goes down to say $5, you would go into the market and buy them at $5 and give back the shares to A, pocketing the difference.

The Mechanics of a Short-Sale
by Andrew Tobin
When you sell stock short, you are selling shares you don’t own, hoping they will go down. Your broker just borrows someone else’s shares for you to sell. Eventually, you have to buy them back and return them (unless you’re really lucky and the stock goes all the way to zero and disappears, in which case there’s nothing to return). If you can buy the shares back for less then you got for them, you make a profit; if you have to pay more, you suffer a loss.

But where do brokers get shares to lend short-sellers? The first thing they do is look to see whether one of their other customers holds the same stock in a margin account. Anyone with a margin account has signed an agreement authorizing the broker to lend his shares. He will not know they’ve been loaned, and he needn’t worry about it either way. He’ll still get his dividend (it will come out of the short-seller’s account); he will still be able to sell at a moment’s notice. (The broker will just replace the shares by borrowing someone else’s shares. Or, if that proves impossible, he’ll "buy in" the short-seller, forcing him to cover his short — typically at a loss — and return the shares. This doesn’t often happen, but it definitely can. It’s one more risk of the hazardous short-selling game.)

Brokers love short sales, because although you take all the risk, they typically get the interest on the proceeds of the stock you’ve sold. That’s right: you shorted 1,000 shares of some stock at $50; well, that means the broker got $50,000 in cash money in return . . . but you won’t find that money in your account. It’s earning interest in his account, whether he be a deep discounter or the most expensive full-service firm on the block.
(Active, pushy customers can sometimes twist arms and, if they do enough short-selling, persuade their brokers to share some of that interest. But few even know to ask and fewer still will be told yes. If you do $20,000 a year in commissions, say, well, that might be a different story.)

If your own broker doesn’t have shares of stock in one of his other client’s margin accounts to lend you, he will call around to find a broker or institution that does have shares to lend. Harvard, with its $10 billion endowment, makes some good money this way.

When a broker or institution lends stock, the "rent" it charges is interest on the value of the shares. In other words, your own broker has to split some of the largess with the lender (making him all the less eager to share any of his share with you).

*to give you an indication of how crooked the market is lately, Fidelity has put out word that they will not lend out shares of IWM.

If you have more questions feel free to email me at tradebum@gmail.com.

THE DAILY TRADING RISK

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Monday, August 31, 2015

Positions

Saturday, August 29, 2015

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