OVTI ER play

I have already said many times, OVTI May 31st ER will be a critical one and the outcome will be bullish biased based on my previous research. And the key issues will be

1. How substantial is the "substantial recovery" they predicted in Mar 1st CC for the next quarter (May-July) revenue

2. Any positive surprise regarding the design win especially about TrueFocus and about new production process and WLO.

The downside risk is small, the upside potential can be big with small possiblity of short squeeze.

Fig 1 the probability distribution for possible price movement after ER (assuming OE day close) I use log-normal distribution.






4 different plays with June call option, suppose you use $5000 to buy call option at the last price. as you can see the max loss is $5000, the Y axis is the histogram # generated in the simulation. the X axis is the return in dollar values.

12.5 June call (last price $2.65)



15 June call (last price $1)


17.5 June call (last price 0.35)


20 June call (last price 0.05)



the expected return of the above strategy:
$2677.3
$3900.7
$1149.6
$421.6

the probability (in %) of losing half of your capital (here $2500)
6.9000
30.3700
72.0700
94.8600

which means using all your money buying 12.5c will give you expected return of $2677.3 with 6.9% proability of losing half of your capital

Given those number, if I want to bet ER, I will do a combination of 12.5c+15c to have the best risk/reward profile.

This is just for illustration purpose to show you why people lose so much buying OTM calls betting ER, even when it has bullish bias, the numbers are simply convincing. Therefore like I said before, for HCL ER play, play it before, play it after just don't bet on it.

What did we learn from this simulation:

1. Betting ER is never a "Sure Money" play.

2. Possible post-ER price volatility is largely priced in the short-term option price. Why should you bet it when you are essentially getting nothing (comparing with playing it AFTER you know the result) for taking a lot of risk.

3. If it is not for Hedge purpose, I see no reason buying(holding) short term options ahead of important news/earning report, long term leap option and vanilla stock shares are simply better choice.

The psychological pitfall here is people are afraid of MISSING out a major event such as a short squeeze on stock like OVTI(DNDN in the recent drama as well). However BEFORE knowing the news/ER, the real probability of such thing happening is small, it is never the focus in the probability distribution(see above Fig1). That's why I play post-ER/post-News momentum since at the first moment I get access to the data/news, I will know with very good certainty where will the price go, the above probability distribution is transformed immediated in my mind in the presence of new information, and then I see sure money lying in front of me. You will argue everyone else has seen the news, is market efficeient? Nope, I know things people don't know, simply because I know what to look for in the news/data according to previous FA research, and price movement takes time to reach its equilibrium. I play fool game with my informational and analytical advantages before most players on the market to react. TA people say, I wait for confirmation, I FOLLOW the trend, which is valid and safe move, however technical indications are always laggered, when you see them happening, you already missed most of the range.

So be a market leader not follower, however trade based on the fact you know not on what you believe, pure speculation or crapshot gambling.

Do you still worry about missing out GAP up/Gap down? Check PACT@May 24, it shooted up about 35% within one hour after I called, where is the gap you are worrying about? For my picks in this blog, this problem is the least you should worry about. Reason? I am not going to tell you, since I have already mentioned multiple times. Instead of worrying about missing out gap-up, you should focus exclusively on your downside risk. Hoping excessive return overnight without proper asset/risk management is the fastest way to wipe you out from the market.


Update:
before my post:
OVTI PPS (May 25 close): 15.05

Now 16.3 after a fantastic ER

June calls:
12.5c $2.65-->$3.85
15c $1-->$1.65
17.5c $0.35-->$0.2
20c $0.05-->$0.05

Did you see which calls are winners? Even if you can predict this would be a good ER like I did, it is still not good to bet OTM calls. If you like a company's fundamental and future, I will choose (in the order) Leap Calls(Jan 09 20c,25c etc), Stock shares, then short term option calls.

We are going to have a great week on OVTI.

Update on HNR

if you check SEC filling of HNR

Besides our very predictable and diligent buyer: Pabrai, the new impression is everyone in the company management is aquiring shares dated May 17th. Usually after getting such 0 cost shares, insiders will immediately dump them to the open market to enjoy the quick cash. Check Sec form 4 fillings from company like CRM.

What does this mean? Our party time is approaching, the management of HNR is making sure everyone on board to have a piece of pie to enjoy. Hopefully I still get time to play bigger fool game in China when the news is announced.

May Short Interest Out

OVTI up 6.13% to 20,198,856
ACUS up 22.09% to 2,263,566
JMBA up 17.57% to 5,196,318
SIGA down (6.31%) to 2,008,772
URGI up 25.74% to 164,765

OVTI Strong buy

Today's news is HUGE.


As an investor this is a strong buy, as a trader, you may want to confirm it after May 31st ER.

NYTimes article on Seth Klarman

This article is really interesting to read.

He is a very famous deep value investor. Very famous for his risk and asset management.

The most interesting part is:

"...then went on to Harvard Business School, where he graduated with an M.B.A. in 1982. Immediately afterward, four wealthy families, including those of two Harvard professors, put up $27 million for Mr. Klarman to manage..." (when he was 25)

Superb

Wisdom from Rogers and Livermore

So far the two most insightful quotes about investing and trading I have seen:

"I just wait until there is money lying on the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime." --- Jim Rogers

After I claimed that what Rogers said is the key to the success in the market, I got a lot of doubts: How can you know it is sure money? There is no sure money, everything has a probability. If there are, other people already picked it up long before your do? Market is efficient. Why do you think you have an edge, blah blah. Sounds reasonable, however they only discovered one side of the market, they only see the chaos, the unpredictibility, the change and move on the surface, what they fail to see is the the other side of the market perfectly described in Jesse Livermore's word:

"Wall street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes" -- Jesse Livermore

Human nature never changes, that is the sure thing, that is the ultimate source of sure money Rogers talked about, and it happens every minute every day in the market. The only difference is someone can see more of them, at the earlier stage than the other market participants. When the majority see it, sure money turns into crap shot, since starting from that moment market debut on the stage to shows its overrated, overclaimed efficiency.

我和疯猫(MCZ)间不得不说的故事

第一次听说MCZ是二月来自法师(zzpt@mitbbs)的站内邮件，他告诉我他读了报表，看了forum,了解到CEO开始谈论profit bonus，那时analyst预计亏损，开始谈profit bonus是个不寻常的现象，当时pps=0.61, 他估计自己0.62还是0.63买的，我等到ER当天，0.64买的，这个是完全基于对法师FA能力的信任，他自己很少喊赌ER,所以他喊你一定要听。

最后结果很好，eps=+0.07,最重要的是margin大涨，这里有关于那次ER和疯猫基本面的简单讨论。

最近学习TA,这个0.62-0.64的买点刚好能用trendline做出来，所以是个旁证,为什么我说FA,TA本是一家，为什么要分彼此.

之后MCZ沉寂了一段，我一直有利润，慢慢捂，最近的突然拉升是Halo3 news driven,这个你如果没跟上，也无所谓，我在MCZ快到1的时候喊了到$1搏傻。

各位TA高手如果熟悉Jesse Livermore,一定知道他的整百追高法，其实这个$1也是一样，是一个非常重要的心理关口.

但是我误算了一步，就是第一下冲过$1后有回来再确认的需求，所以致使一位忠实读者被stop out, my mistake, 今天再上$1，开始奔就是很明显的事情了，这个先回调一下再break out的道理就是TA教科书上说的"cup and handle"一个道理，虽然这个cup,handle形状都不标准，但是这个炒家心理是一样的，触类旁通而已，所以这个$1搏傻基本上是一个心理搏傻。

至于今天的1.12 buy on dip,就是纯TA了， 50% retracement,没什么好说的。MCZ trendline清晰可见，还是很好做的。

一句话，炒股不要钻牛角尖，各种方法都是相互贯通的。正所谓华山气剑二宗都是一个祖师爷传下来的，何苦非要分个彼此喃，充分发挥自己的长处也不要忽视了各种方法背后相通的道理，我写过的君子不器和处长胜人可以给这个疯猫故事做个注脚

谁会是成功者，谁会最成功

这个市场上有两类可能成功player，

一种是做功课的人(FA派)
一种是会看图的人(TA派)

第三类又不看图又不做功课的人还是别来炒股的好，菜板上的肉而已

会做功课的牛人能从其他各种信息渠道了解分析出自己应该干什么获利可能大，他们的行为反应在股市买卖中就是看图派的最初的input.

会看图的牛人能从图上看出市场主流在想干什么（其实想干什么都太复杂，就是二元选择，涨还是跌)，看图派的行动常常是一个自刺激的feedback control system，因为它们本身参与市场博弈的过程也是改变市场态势的核心力量

会看图而不精的弱人，正确率不高，看不清主流，容易迷失在各种指标中，输多赢少

做功课但是听信谣言，抓不住重点的弱人，很容易buy-and-hope,最后死抱垃圾水下争扎

所以真正最赚钱的是在大多数做功课的FA派place了他们的bet, 大多数看图的TA派开始步调一致自刺激的早中期发现这个态势，ride the trend，怎么找到这样的pick和timing就是成功的核心关键，大道理就这点。实际有效的操作方法远远不止一种。我都说到这个地步了，我想你应该能有所悟了。

最后归根到底就是一个sure money in front of you. 你要能看到，怎么捡就是小问题了

About the second buy holder portfolio

I changed my mind, instead of holding 25% in cash to wait for ASPV,
I will just use that to double my siga position, will use today open as tracking data.

update:
SIGA: open at 3.86, so my adjusted avg price is 3.85 and I have 50% of it in my second portfolio.

Update on Mohnish Pabrai

His new purchase

Now I kind of understand what he is up to. I just pumped RAIL twich, let along HNR

Update on HNR

Weekend Read, StokBlogs-HNR

I think he followed VIC article.

An overlooked conference call news

The most import message:

"
...
Even so, Harvest is moving ahead with development plans because, Edmiston said, "the government is behaving in a way that suggests they are 100% committed to what we've laid out. I think what we're doing, moving ahead with the business, reflects our own view reflecting certainty or uncertainty."

Harvest has put out bids for two drilling rigs, which it expects to receive over the summer, and has already secured two workover rigs, as well as increasing its technical staff, Edmiston said. PDVSA agreed to foot the bill for some equipment that Harvest has ordered for PetroDelta, Edmiston said.

Harvest expects the business plan to "build production rapidly" and increase reserves, he said.
...
"

I have listened the CC webcast twice, I know this is for real. :)

Update on ACUS

Zack's Report

Although I don't think he is an expert in this field, however I agree with most of what he thinks on ACUS.

"
...
So you’re seeing a buying opportunity here. You’ve got a Buy recommendation on the stock, I take it?

Absolutely. It was off over 30% after the data came out, and I think that was kind of a knee-jerk panic reaction. But if you actually see the differences between an Imagify ultrasound, a regular ultrasound and nuclear, I think you could lean towards feeling like Imagify ultrasound is the way to go. It seems to be the best tool for detecting disease.

What is your price target for the next six months or so?

It might be hard to get there is six months, but we see $5.00 as fair value, and we think the stock could go above $5.00 on FDA approval. They’re probably going to file in the next six months, and that could act as a catalyst. Then we’ll hear from the FDA sometime in 2008, and if the FDA approves, we see $5.00 or higher as where the stock is going.
...
"

PPS=$5 only gives market cap <200M, for a drug which can bring about $400-500M revenue annually (although CEO claims $2billion market I don't buy it), this is a very conservative estimation. However the assumption here, it will get FDA approval, and the possibility of failing so is really low IMHO.

Update on SIGA

Now we have a complete story to tell about the kid.

"...
“He looked like he was going to die,” Dr. Kahana recalled.

The doctors worked with the Food and Drug Administration to allow the use of an experimental drug for smallpox, ST-246, from Siga Technologies, which appeared to begin turning the case around.
..."

and He "has recovered", what a happy ending.

I really don't care about how long I have to wait to see the sizeable return from holding SIGA. I feel lucky to find this company and feel comfortable holding it. The price movement can be volatile, however I know the downside risk holding SIGA is really low.

I just love such stocks with seemingly high risk(due to high volatility) but actual low risk. It really creates a lot of great investing opportunities.

Update:
SIGA may actually go lower the next week. I just know it.

Two HCL to watch for the next week

JUPM and VIMC

Initial sign of uptrend from bottom, watch and trade accordingly

update:

google-finance said VIMC will have its delayed earning report tomorrow. watch it closely, DT the momentum

Two winners to watch for the next week.

I don't trade losers only. If I like a company, and I think it is fairly valued or undervalued, I won't hesitate to trade and invest it.

Two examples: ESV and TSRA

ESV is in new high making mode

TSRA today's rebounce from daily low, and breaking even at close is very bullish to me

Update on ASPV

in this seeking alpha article

"...
Right now ASPV is in the low $19s, which is approximately 10% above our cumulative discounted cash flow estimate for FY2007-2009; essentially, the market is pricing in almost no chance of Aspreva making another successful deal.
...
"

Sounds very familiar, right?

It is that simple, if you can see the value, someone else can see it, it is just a matter of time for the whole market to catch up. and the time delay really depends on how famous is the name, and how big is the uncertainty. Therefore I love underknown names with seemingly high uncertainty however actual low downside risk.

I think I should do more research on AMGN, since it is now clearly in the HCL wonderland.

Tessera Technology (TSRA) , OVTI and MU

At this point, my only concern about OVTI's future is this company, I have been following it since before last ER, and made nice profit after ER.
After listening today's shareholder conference, I would suggest any serious OVTI investors to have a close look at this company, and our main focus is not MU, Samsung or Toshiba. It is Tessera.

I have explained OVTI's turning around will be depending on TSRA's technology. So far I have been focusing on the manufacturing yield benefit from TSRA's WLCSP techonology

Let's take a further look into future. We all know that TrueFocus is going to be a blockbuster for OVTI's business in 2008 and beyond. What does this have anything to do with TSRA?

TrueFocus is a camera system, OVTI has the expertises to design (and already did)two of the three components: the image sensor, and the image processor(DSP), so what is the missing part? It is easy to find out.
The optical part, the counterpart to the traditional lens. Why is this an issue?
The point is you want to make it cheap,really really cheap, make it small, and really really small and slim. So It needs TSRA's wafer level optical(WLO).

That is why OVTI needs TSRA, the reasons above arenot very obvious, however very important. In my mind, TSRA and TSMC are the two legs of OVTI, without any of them.it cannot walk and run let along flying high.

So far in this analysis, TSRA is OVTI's friend. and OVTI will be the first in the industry to enjoy the full benefit of TSRA's so called Wafer Level Camera Ecosystem.

However it is not that simple, since TSRA actually wants a piece of pie in the market OVTI, MU are fiercely fighting now by acquiring a small company called EyeSquad who develops software autofocus and zoom similar as TrueFocus. By doing so, TSRA has got all the important pieces to compete in the incoming market.

My educated impression is EyeSquad is not as good as WFC(TrueFocus), their technology is based on Fresnel lens, image quality compromise will be the #1 concern , and they don't really have the track record as OVTI in image sensor business, the best they can show now is a VGA module, and at that resolution you don't really need digital autofocus.

I have seen signs of benign relationship between OVTI and TSRA, especially in the process of adapting TSRA's WLCSP and WLO. However we really cannot overlook the issue of EyeSquad. TSRA is strong in the system to module level know-how in every aspect of this type of camera, once EyeSquad makes good progress to catch up, Tessera will be a formidable player in this field, and certainly a potential threats to OVTI.

What does this mean to our OVTI investors holding strong belief of the booming market? I would say sparing 20%-30% of funds you would like to pour in OVTI to get some TSRA shares. I believe both of them will do great in 2007. However it is just a matter of time for us to know who will be the final winner. If they can merge together, that will be THE company I feel comfortable putting 100% of my fund investing, however the world is not ideal. I cannot always get what I want.

BTW forget about MU in this market, up to date, they have no progress at all for digital autofocus to respond Truefocus, and they are not interested in adapting WLCSP and WLO to boost yield while getting smaller and slimmer camera modules, since doing that means more capital expenditure on their depreciated old Fabs, why would they do that if utilizing old Fabs is the sole reason for them to entering this market in the first place. To make things worse their chips are not selling well.

In MU's most recent CC in April, the recorded transcript reads:

"CMOS image sensors sales are down due to market share loss, shift to low-end phones in the market and pricing pressure. Image sensor market will remain challenging with current sensor inventory at MU over one quarter and it will take until the end of the fiscal year to work off."

So MU is not going to be the winner in the foreseeable future, simply because they don't have the right business model for the competition here in CIS market.

Update:

More info about where did WLO come from.

And very insightful comment from a forum post

Plain fact about MPEL and their Crown Macau

On May 12th Crown Macau finally opened, 15 days after the initial estimation (April 27th) made on the IPO day, and 4 days after the second estimation (May 8th), missed the Golden May Weekend. That's it, it was eventually there, a not very timely execution, you may wonder why it plummeted so much to make lower lows everyday. Today it actually touched $13.61, which was a 28.5% retreat from its IPO price $19. And it was considered sizzling hot IPO then.

Here is why, it is really not about the 15 days or 4 days delay, it is about the confidence of the investors on management ability to run the first 6-star casino ever built on that island.

So what is missing from the openning?

Let's get the fact straight, from the recent conference call

Crown opened with

26 VIP table vs. 80 planned 32.5%
142 premium mass tables, vs 142 planned 100%
479 gaming machines vs 550 planned 87.1%

"the additional 54 VIP gaming tables and 71 gaming machines will be operational within approximately four weeks."

let's do a quick estimation, if every time unit each gaming machine makes $1, premium mass table makes $10, VIP table makes $100, which is just a rough estimation, every time unit, under full occupancy they are planning to make $9970, for the first 4 weeks, they are only going to make 26*100+142*10+479= $4499, which is roughly 45% of the planned profitbility.

So their first month report will be a huge disappointment, since they simply don't have the capacity ready.

This is not the only problem, their real problem is the hotel room.

"Crown Towers hotel will be operational with approximately 60 rooms available within three weeks. Approximately 216 hotel rooms, including all villas and suites, will be operational by the end of July 2007."

in plain language, in the first 3 weeks, no rooms at all, after that 60 rooms until end of July, after July (hope there will be no further delay) 276 total rooms.

This hotel room condition will impact its casino revenue much much more than the table/machine capacity issue due to their geographical location. Basically they assume most VIP table players want to stay with them in the original plan, now they don't even have this facility ready for the first Q.

So even after all the 80 vip table are operational, in the first Q the revenue and net earning will be way off the original plan, let's break down the number

first month, roughtly no room, 26 VIP table, best estimation is it will only make 35% of those 26 tables full earning potential if VIP guests have no room to stay with in CROWN.
so our previous number of $4499 per time unit is really about $2809 vs full potential $9970

second-third month, 60 rooms, 80 VIP table, this looks better, however it can only make the efficiency ratio stay the same of 35% if not reducing at the best since much increased # of table and barely 60 rooms, the number we are looking at will be

80*100*0.35+142*10+550=$4770

so the first quarter looks like $4470*2+$2809=$11749, and the planned full potential is $9970*3=$29910, so my view is 40%-50% at the best.

Here we made a lot of numerical estimation, however looking from any aspects, I have reason to believe the first quarter revenue data will be a huge disappointment by a large margin if you think in the sense of their planned configuration.

When market gets this data, it will further hammer this stock, so I would say, the future of MPEL might be great (actually they did mention together with the second stage hotel rooms, there will be 54% more VIP tables available, which is another 44 more VIP table if we calc from the initial number of 80). The results from second quarter after every facility is in place is really going to make it move. However 4-5 month from now, MPEL stock price will underperform.

For now I will watch it from the sideline, MPEL has long way to go to really reach its bottom. In the meanwhile, there will be a small scale pre-ER run between the announcement of ER date for reporting Crown's first ever Q results and the actual ER, largely driven by naive retail longs hoping for some good numbers and thinking they get the bottom price. However such hope will turn out to be bloody, being a trader, you know what to do to make the best out of it.

After that bad ER in mid-late August (my best guess), MPEL will be trading lower due to the huge disappointment (I have shown you my estimation above), once it stops dropping about 15-20 days after that bad ER, I will be a buyer waiting to jump for a nice and surprising second Q ER number.

My two sets of long term holding portfolio

Set 1 (OVTI, HNR, URGI,USG), I call it Guru-Following Portfolio.

Actually I found three of them first and then found gurus which I can follow to confirm my investing thesis(other than USG, I knew Buffett holding it first)

OVTI: I lost quite a lot of money on its Nov2006 ER, then I did very thorough researches on it. Is it possible I have been totally wrong on this one, it is possible, however fortunately, Ken Fisher stepped up to support my investing ideas on OVTI by loading up his truck. Which is nice to know.

Since you already know I love his book, and I actually directly applied his theory to reconcile the thinking behind picking OVTI. I am wondering if he did the same thinking process.

HNR: I found this pick first, then I got to know Pabrai. I read his book, I know for sure if he is buying at current price, he must be thinking it is way undervalued. It is so nice to get a confirmation in recent Barron's article.

USG: enough has being said by Warren Buffett, I don't need to repeat. He is still controlling 40% of USG shares, which is a lot. I have faith in his decision on USG.

URGI: I haven't found the Guru to follow and confirm my thesis until today. , Now it is all complete.

The second set of holder portfolio is still under constrcution. I may call it Rule-Breaker portfolio, since I would like to do things differently here. Instead of looking for Guru's confirmation, I would like to really test my security analytical ability and stock picking potential. So I selected ACUS, SIGA, and JMBAW out, and would like to load ASPV later when I know for sure the incoming Phase III trial result is positive.

I am having fun doing all the research and hopefully both of them are going to make me nice monetary return over time.

URGI, Eric Rosenfeld, LTCM, and risk control

URGI's news presented me an interesting name Eric Rosenfeld, the same way HNR found me Mohnish Pabrai and his wonderful book.

Google and Wikipedia are always your best friends, if you want to know more information. This Rosenfeld is a big name on the street.

In the reference list, there is a very interesting read on Long-Term Capital Management where Rosenfeld was core member.

The story of LTCM is nothing ordinary comparing with famous stories on Amanrath and Julian Robertson's legendary tiger fund.

What did we know from those three stories? Risk control. I will stop here to not bore your guys, and continue later in a separate article.

Update on URGI

Today's news

"
Crescendo, which is controlled by managing member Eric Rosenfeld, said the shares "were significantly undervalued and represented an attractive investment opportunity."

As I said just now, when I(you) see value, other people see it as well.

update:
their avg cost is $12.5, this well explained why URGI rebounced back from $12 three times (including today) already. Nice safety net.

Interesting Forbes Article

12-buyout-target

Today I just pumped two names out of 12 in the list above: RAIL and OVTI

The truth is when you see value, other people see it too, when you see value stock getting cheaper, other people see it as well, eventually those value-cheap-losers will be in a lot of ppl's watchlist and become highly controversial losers, our main target in this blog. Once the trend reversed either natually (value driven like PLXS) or suddenly (news driven like MCZ), you have great opportunities to play.

There are many good stocks out there, I am not saying HCL is the only way to go, I am saying it might be the most efficient and systematical way to go to find highly profitable picks for trading and investing.

In a nutshell, it combines the momentum(DTer's favorite), sustainability of trends(Swinger's love) the value (Investor's holy grail).

If you come from value investor side, all you need to do is a little bit more patience (which I assume you already have, since without patience, you are not going to perform as a value investor). What to wait for? wait for bargain deals become sweeter, wait for the sign of end of downtrend and start of uptrend.

If you come from the trader side, first of all please drop your assumption of efficient market theory, it is not true. Keep your eyes and mind open, take advantage of amature "value investors" who think they are following Buffett, but they are really not. Buy-and-hope is primarily what they are doing. However they cannot always be wrong, once their hopes are actually realized (the probability is usually fairly low, especially those Buy-out rumors floating around), join their party. Once their hope turned out to be disappointment, beat the dead horse immediately without hesitation, I don't even care about if it is the very horse in investor me's own barn. I short ASPV after ER, I put OVTI after EK conference call, that's trader's best show time.

AVNR is about to break out

keep watching, this time will be for real

update:
break out also confirmed, time to jump to ride the momentum

update:
position closed: 3.17-->3.56

One more cent

MCZ will become non-penny,
what does this mean,
it means significant upside momentum, nothing short of those livermore type of momentum when stocks making new high to 100, 200, 300 etc .

when ONT reached $1, it quickly ran up to $1.46 within very short period of time, so MCZ will be the next $1 swing target.

update:

it made it, watch for volume for confirmation, then jump, very nice,

update2:
time to jump, swing target 1.3, stop 0.99

ESV is about to break out

making new high and breaking out together will be sweet to generate momentum.

keep watching, my June 60c is doing great.
update:
nice break out, previous all time high 59.39 is history now
see 60 next week.

Yet another HCL momentum

RAIL good for swing

Bought some BRNC

@15.83 testing water

HERO also looks good.
add EPEX

update:
when you see those tickers, you will notice the whole oil/energy sector is doing great today, my old pick ESV is also very nice.

Today's Bottom Momentum

on my watch list is ENT,

I am yet to find the cause

update:

the cause is the whole sector is strong, and those HCL will enjoy high percentage DT opportunity. I should have loaded ENT @5.48 when I saw it, my BRNC is doing ok, not as good as ENT

update2:
also check JDO, I played multiple times, a very nice DT target, however don't hold

update3:
whatever, I jumped @5.7, trail stopped out @5.72, not as good as I thought

Another thing I don't do is

IPO, today's CSUN is a great example, so hot, however I am going to watch it and trade it when I see the inital wave fades and new wave are generated and also get myself familiar with its trading range. nice one to watch and learn for today

Why? same as ER, I have no control of my downside risk, no matter how tempting it seems, not my money.

update:
being watching this one for a while, the impression is it is going to be very hot in short time period, waiting for the first major pull back to mid to high 12 and load.

Quick comparison of OVTI and CRM

as I am typing
OVTI $14.48
CRM $42.63

You would expect CRM to be much more profitable than OVTI and have much better business future, as the pps suggested, should be a triple. however the truth is:

for OVTI
ER date Apr-06 Jul-06 Oct-06 Jan-07
EPS 0.39 0.39 0.28 0.20

for CRM
ER date Apr-06 Jul-06 Oct-06 Jan-07 Apr-07
EPS 0.04 0.06 0.06 0.07 0.01

and both expect the next earning to be about break even.

Sure you can argue that OVTI is in earning downtrend, however the company officially declared the turning around in current quarter, let along the new products such as truefocus in the pipeline for the future. I am still not seeing the rosey future CRM CEO painted, given the fact MSFT and ORCL are coming to eat its market.

Cash position:
OVTI has about $6.5 cash and short term investment per share, which is almost half of the pps, and virtually no debt.
CRM has about $2.5 cash per share, which is barely enough for working capital.

Anyway you already know that I long OVTI and short CRM

Great fishing time for HNR today

OTM calls
september/december 10c 12.5c if you can get seller selling it at the bid price to you, that will be awesome.

update:
no seller is selling me such calls, even the pps is tanking, :(

Today's ONT

I have many regrets, followed it from penny, first load @1.07
and didn't get all the benefit,

however I do believe in the next 6 months, MCZ will do the same thing.

URGI found support

@12, which has been verified three times already.

nice rebounce, however the point is it is not the time for loading retail, the whole sector looks weak.

update:

it did better than I thought, I missed the news about institional holding, they have strong interest in this underknown retail, looks good from here

update2:
I am looking at its day graph for the past 6 month, the key(actually obvious) insight is it was trading in a range roughly from 12-15, so buy at 12 and sell at 15 have been working nicely so far, but I am actually expecting the next leg up will break that range, since summer comes, usually their sale will be strong in the coming months, waiting for ER and next month same store sales news to check it out.

Check CRM now

you will see why you don't need to bet ER beforehand, just follow the post-ER momentum, short/put at open, you will do great without taking the risk.

update:
From my observation, no hurry to cover your short position, hold it thru weekend, if will drop further. anyway just my personal opinion, YMYD

OVTI may pop up

yesterday's doji is a typical trend reverse signal.

and OVTI got strong support at 14-14.2 area.

looks good for today.

Although I don't believe max pain theory, however MMs do have incentive to push it to 15 by the end of tomorrow.

CRM ER out

1c vs 8c

I would say, it is very overpriced for this kind of earning. CRM is one of couple companies I really dislike. now let's see what will happen after this bleak ER.

update:
In the PR they said Thomson is estimating using Non-GAAP to get the number of 8c
and before GAAP, their actual earning is 13M/118M+1c=12c

sounds good on paper, let's wait to see what does market say.

update2:
the outlooks is similar like this Q, stock-based compensation will eat up all earning, very greedy management. The revenue will be inline with estimates, however the total share count will be at 122M.

update3:
looks like a sure short from here.

HNR analysis in Value Investor Club

In the previous post I mentioned Mohnish Pabrai, just got more information in the recent Barron article (which I don't have subscription, however got to know from VIC)

"In an interview with Barron's Online, Mohnish Pabrai declined to comment about Harvest's specific outlook as a matter of policy, but said the company "is our only and best bet in energy" with an intrinsic value significantly higher than the current stock price. "I'm pretty comfortable if it takes two or three years to get to its intrinsic value."

A long analysis on HNR is also available for 45 days delayed guest access in VIC, I would suggest all HNR holders check it out.

Another Buy-holder portfolio with super high volatility

I am going to generate another portfolio with high volatility, not for the faint heart.

Like the previous one, I am going to hold 4 in this holder portfolio.
for now I will keep 1/4 in cash and wait ASPV's phase III trial result. (if that fails, I will be interested in EICU, NBIX or JRCC depends on the price and situation.

the already decided 3 are

ACUS,
SIGA,
JMBAW

Will use today's open to track the performance.

Update:
Got all the inital prices:
ACUS: 2.53
SIGA: 3.84
JMBAW: 3.41
SP500: 1500.75

I am not saying you should buy at that price, since this is a holder portfolio, don't want to do any market timing at all.

Ken Fisher's Three Questions That Count

Finished reading this book last month.

I think it is a good read and well worth the time.

In this book, Ken Fisher summerized the following three questions that will give you investing edge over the market. So what are they:

Q1: What Do You Believe That Is Actually False?
Q2: What Can You Fathom That Others Find Unfathomable?
Q3: What the Heck is My Brain Doing to Blindside Me Now?

Quite interesting, using my own analysis on OVTI as example:

for Q1, When the market believe MU ate OVTI's market share because of the advantage of their business model, I don't agree and believe it is actually false.

for Q2, When others think OVTI's only hope for turning around is revenue from TrueFocus, and that is a largely unknown remote future money. I thought sth else.

for Q3, When long and short on OVTI are waiting for ER and think that is the only thing can move the stock in short term. I am profitting on such pre-ER run, because my brain is trained to think outside the obvious causes.

Same thing happened to ACUS, when the wall street thought ACUS has to meet all the endpoints in order to have a strong FDA case, I strongly disagree, and let's see what is going to happen next.

So I recommend this book to you, since i learned quite a lot from him.

Machine Trading and Market liquidity

Today I found sign of machine trading on JMBAW, as I already mentioned,
JMBAW is warrant of JMBA, and previously it had huge ask/bid spread, the market liquidity of JMBAW was rather poor. However because of the close relationship between JMBA, JMBAW, there are opportunities for arbitragy. It seems now, some hedge funds found this one out and implemented the machine trading strategy to exploit the possible arbitragy.

It is good to us JMBAW holders, since it improved the large spread issue and the lack of market liquidity for JMBAW. I am graduatedly making money on it.

The beauty of underknown/undercovered names

Yesterday I discovered this baby WINN

And you are watching what is happening to it.

Even if you don't take the risk and bet the ER, just ride the post-ER momentum on it, you will do better than 99% day traders out there.

Why? removal of uncertainty on those undercovered names can create very strong momentum, that's one of the foundations my methods are built on.

What is Bottom Momentum?

Check AVNR right here right now

I didn't find any news, so I don't know the cause, just love to watch those bottom momentum.

SIGA show time

For today, great news.

now people will realize SIGA has more than one drug. great news.

What is the risk of holding a stock?

Short term price volatility? nope

market meltdown? sounds plausible, actually it is the market risk, not risk tied to the specific stock(s) you are holding.

Geographical/political risk? for example, if Hugo Chavez is areally a maniac guy, HNR is a very risky investment. If military conflicts outbreak in taiwan straight, I will dump OVTI immediately.

However those are things we cannot control, let's just focus on what we can control. When I claimed that ASPV, SIGA are low risk holders, people may not agree with me. However the truth is the shares you are holding are the certificates of partial ownership of the company. If the company's business has very low downside risk, then your partial ownership has very little downside. Also your price paid to get that partial ownership really matters, leave enough margin of safety to yourself.

When I am trying to find such buy-holders, the downside risk of the business is really all I care about.

BBS, No more

Just wondering what I really get from there.
It wastes my time and attracts personal attacks.

I did meet a lot of nice people there and learned a lot.
Now it is time to shut up and move on.

A trip into ASPV's 10Q

Let's see what if we want to liquidate this company today.

Let's focus on balance sheet.

Total Assets 354,008k
total liability 32,701k

so total shareholder equity: 321,307k

Different from most other companies, in ASPV's asset part, most of the assets are readily liquidable, there are very little property and equipment and deferred income tax we need to discount if we are going to liquidate it today.

We still end up with about 315,000k current shareholder equity.

So that is if we close ASPV right here right now, with outstanding shares: 35,172,657
we end up with $8.95 /share, which means what we are paying now for its future cash flow is
$19.39-$8.95=$10.44/s

So if we buy today at close, we are paying $10.44/s for ASPV's future earnings.

Let's assume there will be no new partner and new deals.

What does this mean, this means CellCept will be the only drug which ASPV has to generate revenue. and it will face generic competition as early as end of May 2009

In this scenario, let's totally discount ASPV's future earning after 2009 Q2 (end of June)

To construct the earning flow. let's first have a look at the previous earnings.
last 4 quarter's earning:
0.78, 0.71, 0.73, 1.03

The last one $1.03 is the quarter ends March 31st 2007.
as we can see it is actually much better than previous ones on increased revenue and also due to they came to the end of Phase III trial on lupus (thus less trial spending)

Because of the simple business model: the next 9 quarters until our cutoff date can be very easy to estimate, let's use $1.05 per quarter as base, and assume the growth rate is very moderate and equal to the interest rate.

So we have DCF earning estimation of 1.05*9=9.45.

So you can see this highly discounted number is just $1 shy of what we are going to pay today.
That's why I thinkif ASPV dropped to <18.3, it has very minimal downside risk assuming all the above assumptions hold.

Why this number is highly discounted and super conservative:

1. we totally ignored the possiblity of getting a new Partner/Deal. If they are getting a deal, it will totally change the course, and that is the huge upside potential.

2. we totally discounted the earning ability after the patent expiry in U.S, in Europe it expires later, and the manufacturing patent which expires even later can also be a protection, even the most pessimistic analyst estimation in that scenario is sth like: earning will fall after 2010, and disappear after 2014. We did it even more radical, simply cut it off. So this part provided us margin of safety.

3. We estimated the sales on off-lable usage to remain slow growth (as slow as interest rate), which is a very conservative estimation according to previous earning data.

So we have a nice asset play, and very good margin of safety (I would say 20% at least), also great upside potential (if we have new deals), then what is the catch.

If you read my previous post, you will see the catch is actually the incoming Phase III on treating Lupus nephritis, that is the major part of their current off-label revenue.

If it is good, we are looking at boosting the usage of CellCept in lupus nephritis from current 14% to at least 50% in short term, which is a quick 3-4x. our next 9 quarter revenue will be sth like
$1.05, $1.35, $1.9, $2.4, ...

If it is bad, this part of revenue will diminish, and our next 9 quarter calulation will need to revise to sth like $1.05, $1, $0.9, $0.8 ...

So the real downside risk is actually the incoming trial result. If it is good, ASPV should at least worth 28-30 if not more, even if we don't have a new deal coming along at all.

If it is bad, and stands no chance for FDA approval, then ASPV is a sinking ship, will probably settle down in the range of $13-$14.

Another very important implication of the success of the trial: it will significantly boost the possibility of ASPV getting a new partnership/deal, since it shows ASPV's ability to fulfill their responsibility and generate great outcome.

I would say let's watch the trial result, once it is announced to be good, I will rate ASPV strong buy up to 24-25. For now, let's just patiently wait.

Interoil Corp. (IOC) Earning Report Monday After hour

IOC is a highly controversial winner (so far)

I am very bearish on its long term future, however it did have surprising
uptrend until now.

This ER will be critical and interesting to watch, and the post-ER momentum will be huge. Prepare for bi-directional with bearish bias. So I have the trading focus on Tuesday.

Don't bet ER though, as a trading rule (my own, if you want to bet, I would
say airforce it) on any highly controversial ones, no matter winner or loser.

So what did this company do in the previous earning reports?
Mar-06 Jun-06 Sep-06 Dec-06
EPS Est -0.15 N/A -0.06 0.03
EPS Actual -0.49 -0.55 -0.25 -0.13

update:
ER out -19c vs. -1c(estimate)
we will see very interesting day tomorrow

HQSB.OB

This is another fine example of zzpt's great FA finding.

It is now more than doubled from where he called.

Some more discussion on trade168

Bronco Drilling (BRNC)

very nice HCL to watch.

ppl claim it is a high growth oil drilling company on fire sale now

however the recent ER is not that great (you still can see the huge pre-ER momentum typical to HCL)

yesterday it rebounced 4.xx%, I like to track it from here, and do more DD and complete the story and filter out the key issues to watch.

So far from what I can see about the past ER, the rising cost is a concern, however the 40%+ revenue is very nice.

Mad Catz Inc. (MCZ)

This pick was initially from ZZPT@mitbbs, He did a very nice job to point it out before Februry earning report. I am still holding my 1500 shares @0.64 to support his due dilligence. In this blog we have some discussion already on this one.

Yesterday's spike was news driven. It setups another round of pre-ER run for MCZ. If you followed me so far, you will see reason for this pre-ER run is very clear, people's high expectation and hope.

Anyway it is fun to watch this little penny to become non-penny.

The typical Jun ER date for MCZ is June 8 or 9th, I still cannot find the actual date anywhere online. If you find it out, pls post it as comment. Thanks

Some more picks to add to watchlist

After I disclosed my HCL watchlist, I got questions about other picks with uptrend better established, or with higher pps. In this post I am going to give picks like PLXS I have been talking about. Still only a watchlist not recommendation. I did the intial screening for you, you need to dig deeper to find out if you like them or not.

LRW
HERO
CFK
WIRE
JOYG

开卷有益

今天读“世说新语”，读到这两句话，感受非常深。

“人所应有，其不必有，人所应无，已不必无”

“非以长胜人，处长亦胜人”

在股市上的延伸就再明显不过了吧，非常有意思。哈哈

Conversation Between Buffett and Munger

read it somewhere, sorry no link. Personally I really agree with what he said.

"On the housing market woes, Buffett noted how Berskshire’s housing-related businesses are getting hit. Unlike many overeager investors today, who feel compelled to run into burning buildings by buying flaming housing-related stocks on the theory that the worst is over, Buffett offered a contrary view: “My guess is that it continues for quite a while.”

No elaboration on how long is “quite a while.” But these guys think in glacial terms. Long-term is a lifetime. Therefore, “quite awhile” could mean at least “years.”

On the private equity bubble - which involves so-called private equity firms raising huge pools of money and then borrowing a lot more to buy whole companies - Buffett noted a great flaw in the scheme. Private equity firms have a “great compulsion to invest quickly.” That way, they can go out and raise another fund and keep the fees coming in. Basically, private equity firms are paid for activity, not results. And the nature of the business means that we won’t know who is successful until many years have passed.

Buffett said the “score card is lacking.”

On management compensation schemes, Buffett put the issue in perspective: “There are more problems from having the wrong management than having the wrong compensation structure. It’s more important to have the right people.”

On the record level of corporate profits in America, Buffett acknowledged the all-time high. He noted it is a weird world we live in where companies are getting 20% returns on tangible capital in a world where the long-dated T bond is yielding 4.75%. “At the moment, Corporate America is living in the best of all worlds.” History shows that these episodes don’t last.

Munger added that much of the record profit growth stems from the massive financial center, a fact that “has no precedent.”

On the best way to become a better investor, Buffett advised: “Read everything you can… after that, you have to jump in the water.” He said the difference between investing with play money and investing with real money is like the difference between reading a romance novel and doing something else.

On the health care mess, Munger said: “It’s too tough.” Buffett added: “We look for easy problems.” That may sound like a cop-out to some, but it is the core of a brilliant idea about the nature of good investing. Buffett commented how their success is not because their winners were any bigger than anyone else’s. It’s that they managed to avoid big setbacks. He mentioned a guy who was smart 99 times out of 100, but that 100th time did him in. Gotta avoid that.

On derivatives, Buffett noted how derivatives increase leverage - a “largely invisible leverage.” That could make a crash or downturn even worse, like adding gasoline to a fire. This is one of the big risks in the market today - the heavy derivative use by many firms. These instruments are untested in a crisis. We really don’t know how they will act or what they will cause people to do.

Buffett invoked the ‘87 crash as an act of forced selling. “We may not know where the danger begins or ends” with regard to derivatives. Munger added that the accounting for these instruments was deficient. People are getting paid for profits in which they are taking huge risks, like the proverbial picking up pennies in front of a steamroller"

Disciplined Investor in HNR

Mohnish Pabrai bought HNR shares again, and he really bought a lot recently.

Both of us knew the recent ER was fantastic. However I couldn't hide my exhilaration and rushed to load @10. This guru investor is just so disciplined to only load it below his preset threshold which we all know now it is $10. I like his coolness.

How did he come up with the preset threshold in the first place? From reading his book, I knew his strategy. He must have done very thorough due dilligence and come up with a intrinsic value for a business, and load it when it is on fire sale, the discount rates (margin of safety) for his previous investments have been 25%-40%. So in his mind, HNR's intrinsic value is about in the range of 25-40. I certainly don't disagree with him.

Anyway it is very nice to have this guy with us in HNR.

Buy when blood is running on the street

John Davison Rockefeller once said: "The way to make money is to buy when blood is running in the streets."

When you saw DNDN trading @ 4.9, you knew that is blood on the street.
When you saw FFHL trading @ 7.1, you knew that is blood on the street.

Does that mean you have to buy it when people are selling panically? and catch the falling knife? heck no

keep your dry powder, wait until the panic sale is done, buy in the uptrend not the downtrend.

So trading idea for monday is actually FFHL bottom momentum.

Vimicro International Corp. (VIMC)

Seemingly dirt cheap, 182M mkt cap, how come 102M in cash(according to yahoo, I don't trust it at all, however as long as there are ppl trust it, it is then a good thing to have on those HCL).

Delayed earning report, changed auditor.

Remind you another Chinese HCL CBAK right?

Interesting. So keep watching it.Since the delayed ER has to come soon.

You will have plenty of time to play Post-ER momentum.

Did you noticed I have just spent less than 20min and have done retail FA on the first 3 out of HCL candidates list.

All of them are seemingly cheap, however with various problems, I probably don't know its business at all, however I know the things to watch out, and the effort is minimal.

Can you rely on my 6min/pick retail FA for a buy-hold recommendation? heck no. Can you make a lot of money trading them after my suggestion? Surely yes.

Jupitermedia Inc. (JUPM)

Trading at book value right now (cheap)
track record of return on asset/equity is superb.

Great pick to play momentum, up and down very strong. If you check the post-ER downside momentum on Thursday you will know what I am talking about, It gapped down a bit, you had plenty of time daytrading it.

It might just break out after next strong earning report or important development on its focused online media core business.

A nice HCL to watch.

VISICU (EICU)

Great bottom momentom on April 27th after a strong earning report.
Very strong balance sheet. lots of cash. looks very cheap by any standard.

What is the catch?

It's future is being focused on the pending patent filling according to those
article1, article2

So it is a possible news driven player, once you see strong momentum and keywords like"U.S. Patent and Trademark Office ", "iMDsoft" "final ruling" "approved" in newswire. Play Bigger Fool Game without hesitation.

Quiz with Award

What are the reasons behind for me to only play
undercovered, small names (unlike AAPL, ICE, GOOG, everyone is playing)

The best answer will get the next momentum prediction sent exclusively to your email address.

welcome comment. (also just to see how many readers I have)


Update:

best comment: yong, bac
runner-up: Janhaus
honorable mention: theisland@mitbbs

please contact me for award you deserve.

How Frequently Should I Trade?

I saw a lot of day trading in and out everyday by newbies seeking for quick 1%, 2% gain (or should I say in reality equal chance to get 1%, 2% loss). My take is if your TA is not good, don't do that.

If you followed me since the inception of this blog, you already knew my style, I wait for the best chance to play bigger fool game:

Example of DT/Swing Momentum calls in the past week:

ASPV (link) : 23-->20 in 2 trading sessions.

OVTI (link) : 15.3-->14.29 after EK CC in 2 trading sessions.

SIGA (link) : Pre-CC 4.75-->5.04 DT, Post-CC blood bath until now 4.85-->3.69 in 3 trading sessions.

JRCC (link) : Post ER 9.3-->11.55 in 3 trading sessions

I predicted all the above momentums beforehand, although the direction of post-CC sell-off of SIGA is a bit unexpected to me, however I have no problem understanding and playing with it following the crowd. Since at the end of the day, my methods can only accurately predict the magnitude of incoming momentums (since I understand the magnitude of the human emotion involved), and will not be 100% right on the direction without knowing the actual event outcome beforehand,

You don't even need to rely on those unpredictable events such as MDTL-April-13th, and PTR-May-3rd. If you can spot them in real time, congratulations. If you cannot, don't worry, you have plenty of opportunities you can know before hand. However I do think once you have followed my approach, you have an edge to identify events such as MDTL in its very early stage ahead of most of the players. And in event such as in PTR, you will have an idea of the magnitude of the going-on momentum.

I am not here to say I can get all the benefit of the maximal length of momentum. That's not the point. The point is, if you can know those huge momentum opportunities beforehand and be under full awareness during the time window, you can profit by following them to capture portion of whole length (I do hope it is the largest possible portion). You don't need to trade frequently. You can trade infrequently say 2-3 times per week, and will still enjoy very nice return. Then you will no longer worry about your day trading limit.

As Jim Rogers Said:

"I just wait until there is money lying on the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.
"

My Expanded Highly Controversial Loser(HCL) Watchlist

Besides the ones I keep mentioning, those are additional candidates, not recommendation at all, just watchlist, I need to do more research to have opinion about any of them.

Update:
I think since there are many newbies watching my list I'd better delete all the biopharm play and filer the price/share >5

the updated list looks like:

VIMC
EICU
JUPM
IKAN
ALDA
STMP
CTHR
KONG
RMIX
IMAX(*)
RVSB
WPL
BRNC(*)
HRAY
OPMR
NSSC
NTE
EPEX
ASPM
CRED(**)
PTC
FNF
RAIL
LONG(*)
WTI
IFN
HW
MRVL(*)

Note: I assure you there will be a lot "value trap", falling knifes keep falling in those candidates, don't ever think about catching the knife, just wait for bottom momentum or news/ER driven momentum.

Update2:
Using the same approach, I picked out winners(for now) HLEX, OVTI, PLXS, HITK, HTE from a large pool of candidates, so the key is to check its recent price movement, if the last month performance is very good say 10-15%+, put it into your closely watched list and do more retail FA research to identify the key issues, that is the way to filter out most of the "value trap" and only pick out the ones which have good potential and get yourself prepared for bottom momentum driven by new developments on key issues.

Update3:
Besides bottom momentum day trading and short term swing, this is actually a nice approach to screen turning around business for long term holding. Still you need to wait until uptrend established (track it for more than 3 months from bottom), and read its 10K/10Q especially the balance sheet carefully to be aware of its cash position, AP/AR, inventory situation and any incoming credit risk possibilities. After you have done your research, you might just find a nice turning around long term pick. You just need more work from the initial surface screening and look out for uptrend establishment.

So far HLEX, HTE(reached my target) PLXS are clearly in this territory. We will also know if OVTI is with them by May 31.and I will watch JRCC closely for the next two months to decide if I should call it a turnaround pick or not.

That is exactly why I said Bigger Fool Momentum Trading and Long term value investing can be done using a unified methodology, the only two differences are the degree of effort after the screening, and exit strategies.

Update 4:

No, they are not buy-holders

My system has 3 steps:

1. screening out those HCL

2. retail FA research to find out key issues.

3a. As a Trader: predict the DT/Swing momentums based on new developments on those key issues

3b. As an Investor: following the results in 1 and 2, and dig much much deeper than in 2 and 3a and wait until uptrend established to call a real long term pick out for holding recommendation.

You can see now this is the list of initial candidates after step 1.

Out of those 30-40, I will probably follow 8-10 most promising candidates in the next month for DT/Swing Trading opportunities (Bottom Momentum)

It will be good enough for me if I can find one or two for investing purpose later.

Another OVTI/WLCSP news today

As I already mentioned here
We will see more and more WLCSP together with OVTI in the incoming news. Here is just an example, which I believe is part of OVTI's recent investment in China to have the interest in the second line of packaging service using WLCSP technology (which is the leading chip scale packaging tech up to date and will generate superb yield to enjoy the cost advantages over competitor)

Today's NEWS LINK

Difference between SIGA and DNDN

Both got hammered the recent couple days.

The key to differentiate them is the downside risk of SIGA and DNDN.

DNDN's data is not all that great.It faces not small risk of FDA rejection, and that is the single drug DNDN has.

SIGA's ST-246 data has been superb, 100% effective, 100% safe (so far after first stage trial and in the going on second stage trial) also It cured a 2-yr boy with multiple organ failures. Given those facts, the downside risk of ST-246 not getting approved is really low.

Besides government/military don't need to wait FDA final approval to start stockpile if they see it is necessary.

Balance sheet wise, grants/government money keeps flowing into SIGA, "current cash/grant can last beyond the next 12months", there is no issue in the near future about the corporation financial crisis. They don't even need to do offering like other biopharms have to do to dilute the shares. HHS will even reimburse the clinic trial cost of ST-246 this summer. I couldn't be happier when I heard about this.

And according to this CC, they now have all IP right of ST-246 and their current pipeline, no need to worry about legal IP issues any more.

They have been smart to rely on government anti bio-weapon grants to design pipelines targetting much broader than just anti bio-weapons. Thus they have a serie of drugs in development not just ST-246(which is done) and ST-294(which is near done) and the whole platform for developing other drugs outside the area of anti-bioterrorism.

I certainly don't care too much about this upside potential, that's future money should be heavily discounted now. What I really like is the low downside risk for siga at current price for an investor thinking about longer holding time frame. So I am in for a long run.

Update:
As a rule of trading, don't catch falling knife, you never know if it is bottom, just wait patiently for it to stop falling and load when you see sign of uptrend momentum.

As a Trader: FA , TA, and my edge

Do I know how to do technical analysis (TA) as most traders do? You probably already know the answer. Simple: you can hardly find any graphs here.

Do I know how to do fundamental analysis (FA) as most investors do? Sorry to let you down again. Although my FA ability is better than my TA, I am still no professional with no information edge.

Then what is my edge in trading?

I understand the decision making process of most players on the market on a handful stocks I have researched. Most of them are not well known and not commonly traded (unlike AAPL, and GOOG). Despite the players' information access, smartness or whatever edges they have, their actions are driven by human emotions.

Let me give you a few examples:

Hope or Anticipation (DNDN pre-FDA bet, OVTI pre-ER and buyout-rumor run);

Disappointment(no short-term quick money as previous expected in ASPV/SIGA/OVTI despite excellent conference calls and good developments around the corner);

Exhilaration(better than expected good results, such as TSRA/PLXS post-ER movement, or totally unexpected good news, such as MDTL-April-13th)

Relief (worrying about bad news before, but it turned out to be better than previously expected, JRCC post-ER momentum).

My understanding of those emotion cycles and the possible causes behind those movements is my SOLE edge in trading as a retail trader without being an expert on either TA or FA.

My sole purpose of doing retail FA is to locate the largest emotion and sentiment shift. Once it happens, strong price movement momentum will follow. The intensity of such momentums largely depends on the divergence of the actual result and the expected result beforehand.

DNDN's Post-FDA panel result is a wonderful example. When most of players are bearish on the panel recommendation prior to the event, you know what is going to happen after the panel said positive.

You can tell that I am able to find those momentum beforehand or at its very early stage. That's because I understand who the best friend of a trader is. If I can do all the highly accurate momentum predictions as above, you can do the same.

In the Spotlight: Apparel Sector

Reporting Same Store Sale(SSS) this morning.
AEO -10% expected +1.3%
URGI -8% expected -4%
still waiting for ANF, GPS, etc

So far the data is bad. Analysts already knew it was not going to be good, but it seemed to be worse. the divergence of actual fall and expected fall will be the key to drive down this sector. We are going to see enormous weakness in short term.

Slowing customer spending is due to rising debt and a wobbly housing market.

Another issue also contributed to this April report: easter week sale was counted in March instead of April(as last year)

Anyway, this sector will be very weak today and tomorrow.

You may find some good short candidates. (The secret is to find the biggest divergence from actual to estimated data the same way as you are reading earning report)

Looking forward, the next SSS report will be out on June 7th(correct me if I am wrong)
so DT strategy on June 6th will be crystal clear, pre-SSS run on those who drops the most from today to then (my bold guess will be AEO, unless we know bigger loser later today). Mark your calendar now.

Update: ANF data out -15% (v.s. -6.2% expectation), better short than any of the above. GPS -16% (vs -7.1%) also interesting.

Update2:
All the above 4 retailers I mentioned here have shown weakness in today's trading, however only ANF closed green with 3 cents gain, keep watching them, I do think they are going lower tomorrow.

My long-term holding portfolio UPDATE

OVTI: I have been spending considerable amount of time researching it. But I still don't have a very clear picture beyond year 2007 about the prospect of TrueFocus in the future, since very little is known about its possible competitors.

In today's presentation, Peter said there has been very strong customer interest. At this moment, I can only hope it will generate a similar level of revenue and excessive profit in 2008 and beyond.

If the future success of TrueFocus remains largely uncertain, why do I have confidence in holding it?

It is simply because I don't think OVTI needs TrueFocus to turn around. I have already explained the reasons here and there. Therefore, it is a high winning probability money for me to hold my leap calls here. When everyone else is assuming only TrueFocus can save OVTI from earning downtrend, I know it is not the case.

HNR: I have talked about it here and there, I am holding and waiting for the event to happen (just a matter of time if the management are not plain liars). Will sell out when it reaches my target of $20-22.

URGI: is a high growth stock at value price.It is the kind of pick Peter Lynch would like. I might be wrong, however I just like its story, balance sheet and operational trends. Will hold and wait for it to play out, and for the market eventually catch up with its value and growth.

USG: pure belief in Warren Buffett. If he is loading up truck in 46-47, I have no issue holding it here a bit below 50.

So, here we have value play(USG), asset play(HNR), turnaround and possible high-growth play(OVTI,URGI), event driven play(HNR) I think I will do well holding them in the long run.

Comments are welcomed.

URGI trading idea for tomorrow

URGI is going to report same store sale(SSS) data for April.

I am more bearish than bullish on this one, the reason is in the previous march SSS report

"
The Easter week occurred in the fiscal month of March this year and in the fiscal month of April last year. The Easter shift contributed a low-single digit comparable store sales benefit for the month."

Once this single digit SSS benefit get taken out from April data to be released tomorrow, it will hit the number.

However, currently the expectation is low, even after today's pre SSS run. If SSS is up 5 percent or more, URGI will run nicely. then play momentum in URGI.

Update:

There is a terrible number coming: SSS for April -8 percent, due to the easter timing. Although the combined march$april sale rose +2 pct. "low-single digit" in previous report should really be "high-single digit"@9.

I think it will drop a lot, a safe short here for DT, still need to double check to see if it is itself or the whole sector.

Update2:
the whose sector is going to see very bad numbers, not just URGI.

Update3:
"We have seen the whole quarter sales been flat, and Online sales, which grew 44 percent for the month and 51 percent for the quarter, were not included in any of the same-store sales figures," United Retail said. Would like to find out the online part of the story in the coming ER.

OVTI Presentation

slides
audio webcast

couple pieces of (not new to me) information:

1. TrueFocus, revenue starting 2008, very high customer interest
2. 2MP 1/4 form factor is the key for slim camera, Peter Leigh emphasized this one in front of the presentation and in the middle.
this might be the key product for the current quarter's turning around.
3. advance market great outlook, already enjoying increasing revenue in automobile industry, and High-dynamic range camera sensor is the key, and OVTI made it first.
4. FDA approved partner's colonscopy device using OVTI sensors last week. (this is new to me)

The No.1 rule for Bigger Fool Trading

The No.1 rule for Bigger Fool Trading:

Be a fool before everyone else,
Be nuts before everyone else,
wake up when other people become fools,
and exit when other people become nuts.


搏傻第一原则

傻在人前，疯在人先
人傻我醒，人疯我逃

今天早上开盘前call JRCC
有感而发

Investors' Best Friend

who are investors' best friends?

Impatience of traders(no matter professional or retail) and fear of other amateur investors.

There are more and more traders on the market compared to 30 years ago. The key developments during those years to make this happen have been:

1. Personal computers and internet make "home trading" possible. You are spared of the hassle of calling a broker to place orders. This means a huge barrier has been removed.

2. Discounted online brokers such as Scottrade and Interactive Broker provide another incentive for frequent traders. Fee per trade seems low, but it quickly adds up if you trade frequently.

3. Hedge funds targeting absolute return have mushroomed. Most of them engage in high frequency machine trading with up to 200x margin leverage.

More and more traders are on the street, sitting at home, or trading during their work hours.

What does this mean? It means Mr. Market can be much more irrational, and the extreme can be pushed even further. There are bigger fools everywhere.

For real investor, today's opportunities are much better than 30 years ago.

Buffett started to buy his USG at $18, and later it dropped to single digits. Still some hedge funds offered to pay interest to borrow his shares to short at unbelievable $4.

So if you are a real value investor, just be more patient. Never catch falling knife. Extremely good bargain can become even sweeter, since you have more and more best friends out there.

Trader's Best Friend

Who's trader's best friend?

Trader's best friend is other people's hope.

It's simple.

You ride the stock up with those hoping to reap excessive return overnight, like OVTI 's pre-ER, or buyout-rumor run. Then you get out before the judgement time of their hope.

You ride the stock down when those hopes burst, like today's DNDN.

The bigger the hope the better.

"Don't bet on hope" is no longer a trading tip as mundane as "control your loss".

Make it the first principle for your survival in the market.

The Top Secret Of Highly Controversial Loser(HCL) (1): Value Investing Gurus and Followers

When world-class value investors such as Warren Buffett and Mohnish Pabrai are looking for their next Geico or Frontline(FRO), they screen the whole universe of public traded companies following certain criteria. From those candidates , they pick the businesses they fully understand and whose intrinsic value they have a thorough understanding of. They know they are getting a bargain because of market's irrational valuation on those distressed business, most of which are big losers on one year graph.

But, how come only a small number of people become world-class and make themselves a fortune doing so, while most other people following the same strategy have failed and get trapped in "value lemon"?

Despite the fact that they all claim they are following the same value- investing approach, why are the the results so drastically different ?

The answer to this question can be very complex, to name a few reasons: availability of information, analytical reasoning ability, knowledge of finance, accounting, tax and bankruptcy law and etc.

We have to admit that those gurus are true professionals and they do tremendous amount of research to have an upper hand on their odds. Besides, they are extremely smart and some are born with investing instincts. What can we say, not everyone is born equal.

Does that mean we retails don't stand a chance to do long-term investing following the proven approach?

The answer is "No". Everyone has his/her own edge in particular areas and can discover leads to successful picks. (I am going to discuss this in a future post)

To be continued.

Before you open any trading/investing position

Before you open any trading/investing position, please ask yourself three questions:

1. Do you have any idea of the downside capital risk of this position?

2. Do you have an exit plan for both profit taking and loss control?

3. Do you have any idea about the company you are buying? While reasoning this trade, do you have minimal hope of excessive return overnight and maximal awareness of any possible downside risk?

If you have 3 firm "yes" to the questions,congratulations, you can open the position.

Otherwise, please wait.

If you have no clue of question 1.

For traders:
you need to do some TA support/trendline/double bottom research.

For investors:
you need to find out how to make an intrinsic value estimation of this business. Double check if you have a good-to-superb margin of safety to that valuation?

For instance, if you estimate that the intrinsic value of this business is $1B, and it is selling for $500M, this is called a good margin of safety. If it is selling for $250M, it is superb (something Buffett would be interested in buying)

If you are both the trader and investor, and have evaluated the downside risk from both aspects, it is even better. My call of HNR @10 is an example.

Very Important Update on OVTI ER

Date changed from previously announced June 19th to May 31th
the implication is that June option play is back to be alive.

The pre-ER run will continue and will be even stronger.

Good luck for the June OTM call play. (remember to sell before ER in the pre-ER run)

How to play ER on Highly Controversial Loser (2): Example

You have read the first part of the theory, and you may have questions on how it works. I am going to walk you through one of the recent examples in this second post.

PLXS: April 25th

PLXS is one of my value investing picks @17, and it has been a highly distressed stock in earning downtrend, and has been under margin pressure.
I found this pick using my value searching criteria, such as P/S ratio, strong balance sheet and previous strong ROIC. I believed it is an interesting turnaround play. However, if you check the 1 yr graph, it looks like a big loser. When more and more value investors find this, it becomes a highly controversial loser.

To make it even more controversial, fool.com recommended this stock in one of their most expensive newsletter after I found it (I got to know this reading yahoo message board). That makes it even more interesting.

Actually after I found it, it dropped further to 15.xx. But I didn't load then. Instead I loaded at 16.5 when I clearly saw the end of the downtrend.

The Pre-ER run happened as expected from 16.xx-->19.xx. It was nice sure money swing and I sold before ER.

The ER itself is actually good. 23c vs analyst's estimate of 17c.
However if you see title in newswire like this :
"Its fiscal second-quarter profit fell 45 percent"
Under-informed panic sale actually sent its price in after hour further down to 18.3(I had a chance to load there, but I didn't.)

Now think about this: the earning decline is already fully priced-in, it is already in a turnaround mode. How efficient the market is at their first response to the news. This was a great opportunities for prepared mind.

The second day's market turned out as expected, gap up, and strong momentum running up until overshoot. Overshooting is almost always a component in Post-ER momentum on HCL, that's why it is a DT opportunity.

So this is the story of PLXS. Today's JRCC has exactly the same story and Post-ER momentum is strong despite the increased loss compared to a year before (that is also already priced-in). Market is always looking forward, expecting a coal market to come back.

I am going to collect more such ER story on HCL to show you why there are so many opportunities for sure(high winning probability) money play before/after ER on such highly controversial loser picks. Once you see those many opportunities with very little risk, you will have no interest in betting on hope, such as option bet before DNDN's FDA decision. Instead you will do it after the FDA results are released,and you will have plenty of time to play the post momentum.

The next major ER I am watching is OVTI @May 31th. Tomorrow we will also see PRS.(however it is undercovered, not that controversial). We may have a post-ER swing opportunity if the ER is really good.

How to play ER on Highly Controversial Loser (1): Theory

To Sell or not?
To Buy or not?

It is a question every player is going to ask before an earning release.
Especailly on highly controversial losers we are mainly talking about here in this blog, it is a big question.

My answer is, play it before, play it after, just don't bet the ER.

The reason and logic is clear and consistent with all my trading/investing decisions:
Pick Sure Money, Don't Bet on Hope.

Pre-ER run is a typical swing opportunity for HCL, the reason I have explained in DT or Swing
to summarize, you profit on long's hope and short's fear. This is very nice and high probability money, and the more controversial, the bigger loser the better.

Post-ER run is a typical DT opportunity. the reasons I have explained in this post
to summarize, you profit on the removal of uncertainty, the uncertainty removal itself will generate huge inbalance of sentiment, once the balance of sentiment is broken, price movement momentum will follow, either up or down. The degree of momentum is associated with the degree of expectation, which comes back exactly to the same logic: the more controversial the better, the bigger loser(this is for up side momentum, for downside momentum you should check the degree of pre-ER run and expectation build-up) the better.

Update:
Since we are talking about ER play, here I assume that you are a trader. For investor, no such ER play thing at all. After ER/CC, when more information is available to you, you can make futher investing decision.

Trader or Investor

I would like to be both, since I find both sides equally interesting.

Being a trader, one really gets an edge if he/she understands what the majority investors on this stock think about it, and vise versa.

It is so interesting and nice to play both sides. However, I will only take
one side on each position. Don't ever doubt this. If you open a position thinking like an investor(or trader) then stick with your original plan, don't switch sides once the position has been initialized.

However, you can take both investor (value hunting) and trader(speculative) positions at the same time on the same stock, and can be on opposite positions, which technically is a hedge. Note that it is not for the purpose of a hedge, which is minimizing the risk. It is for the purpose of making money on both positions with different exit strategies and timing.

This is what I did with DT shorting ASPV after ER while holding ASPV July calls, and putting OVTI in amid of a totally fake EK buyout rumor (well I didn't actually do it, I called and I should have done so) while holding OVTI Jan08/Jan09 leap calls.

JRCC ER Momentum and Coal Sector

-46c vs -64c(expected)

update:

"We also believe that the coal markets have bottomed out as coal supply has dropped dramatically from CAPP and coal demand is returning to more normal patterns."

That's the key insight I keep getting from those coal companies.

"Despite a difficult first quarter, the outlook for the remainder of the year remains positive," said Boyd Payne, President, Fording Canadian Coal Trust(FDG) Recent ER PR

"Overall, average sales prices in our Western U.S. Mining operations increased, mainly reflecting an increase of almost 24% per ton in the Powder River Basin. These increases from our Powder River Basin operations resulted from higher prices on contracts signed in the prior year that are replacing legacy contracts as they reprice or expire, and were partially offset by lower volumes due to weather, equipment issues and higher repairs and maintenance costs. On average, per ton sales prices in our Eastern U.S. Mining operations increased 2.1%, driven by higher contract pricing in certain regions. " Pearboy Energy recent 10Q (BTU)

Arch Coal (ACI)
"
Arch Believes U.S. Coal Market Fundamentals Are Improving

Arch believes market fundamentals are improving in 2007 as the peak summer demand period approaches.

Over the longer-term, Arch maintains a bullish outlook on coal markets.
"

How to find the key focus to value a business?

Is P/E ratio really as important as people usually think?

For simple businesses, (little changes, the type Buffett plays)
P/E is important to value the business.

But for fast changing businesses, high growth, cyclic, turnaround, asset play,you should downplay the importance of P/E (a lot).

Let's take a look at cyclic businesses. You actually look for high(comparing with its historical data) TTM P/E business especially at the end of the down cycle and the start of the new up cycle.

For high growth businesses, you need to focus on its growth story's sustainability. check my post on JMBA and URGI.

For fast changing ones, you don't do it all together. Or if you still think you have edges because of your education/job/experience/insider connection, you have to make yourself an expert on all the issues related to those possible changes regarding future business outlooks and its competitor landscape. OVTI for me is a good example, I probably cannot call myself an expert, however I do have access to information not widely known.

For Asset play, it is actually not bad to value it, check the oil/coal reserve(HNR/JRCC), and check the future discounted cash flow (ASPV)

For turnaround business, you really need to focus on its balance sheet to evaluate the credit risk. With two turning around companies with similar background and future outlook, I will surely pick the one with more cash /less debt or better debt structure even if its products are less revolutionary.

I got all the above knowledge from reading Peter Lynch.

Update:

If a business switches from one category to another, the valuation focus will also shift. Theoretically this will create huge momentum.

For example, ASPV is now an asset player, the valuation is purely on cash+DCF or future earning with very good certainty. So if it can announce a new partnership, it will be placed in high-growth or at least fast changing category, the upside price movement will be huge.

HNR, on the other hand, is a distressed turnaround play discounted by the political risk and uncertainty, if it gets approved, it is now asset play to be valued by its reserve.

OVTI is fast changing and distressed technology company in an earning downtrend. If it can prove its future earning ability, it will be first placed in turnaround play(which I believe), and then high growth(which I hope). Therefore it will have great upside room when those changes happen.

However, you don't have to bet those key developments beforehand. You pick the sure money once it is announced and do it quickly before the majority think about it and react, because you already have this knowledge and insight from here and are fully prepared.

XinTec, OVTI and WLCSP

A piece of last November's old news,
and a not very significant key word "Wafer-Level Chip Size Packaging (WLCSP)" together made a big picture much more clear behind the scene.

If you have read my previous post
you can see I have been working on to give a plausible explanation on why OVTI is turning around right here right now without revenue from new products like TrueFocus, HDR etc. and also the biggest reason why it lost marketshare to MU in 2006.

My educated guess is sometime in the last year they have successfully solved their yield problem in their current production process which plagued them since late 2005 into 2006, and the company gave out hints about this information in a very low key way in their 10Q (I have to do a detective kind of job to figure that out) and also they started to murmur about previous yield issue in the later investor conference very quietly, which is understandable, no company would like to brag its previous mistakes too loud which has cost a lot of pain to its shareholders.

The key for OVTI's future is actually to further improve its production yield in its future manufacturing process. check my posts : ChinaCSP, Pre-ER
Once it finishes installing and starting volume production, it can gain the vast cost advantage over other competitors because of much improved yield from WLCSP.

And now we all know WLCSP and WLO(Wafer Level Optio) from TSRA will play a critical role in OVTI's coming back. and TrueFocus will further fuel the process of regaining its market dominance, however that will be in year 2008 not year 2007.

Later in 2007 we will hear more and more about WLCSP and WLO. For every OVTI sharesholder, those two words will sound as significant as TrueFocus very soon.