Stock Traders Blog

I finally decided to buy something today. I bought 500 shares of FIG (FORTRESS INV GP LLC). That is not much and I am planning to hold it for a while. I just bet it will report a good quarter. I thought Bank of America would go down after its earning release but that thought was proven so wrong. BAC just kept going up with the other big banks and with the overall market. If I don’t remember wrong almost all data released these few weeks exceeded expectations. The Dow went from 8150 to 9300 in a few weeks. It turned out that we should be all in when the DOW was at about 8000. And it clearly showed a V share recovery at least during the past two quarters.

Thinking back I was quite stupid to liquidate my entire portfolio back in March when the market was close to its lowest. As I mentioned I had a portfolio of about 100K back in year 2000 and when I liquidated my portfolio I got back about 30k. I still keep track of my original portfolio and my original portfolio has MSFT, INTC, ORCL, JNPR, EMC and SNPS. If I didn’t touch it I would have 65K today instead of 27k. So I started to question my new ways of investing - day trading. What I see is that there is no one way of investing to work well at all times. I bet no day trader worked better than someone that bought and held for the past couple of quarters.

I ask myself do I want to go back to buy and hold? I don’t know the answer yet. I feel there are some companies worth to buy and hold. I am recently looking at something very conservative like Q(Quest Communication), OB (OneBeacon Insurance Group) and BP. I might be too late on OB because I feel its price is going to jump starting today. I am watching the big banks also. The big banks were doing very well but somehow I feel they are just very good at hiding the bad news or postponing them. I still think they are overvalued unless they resume a reasonable size of dividend payout which could be years away.

I haven’t report my balance for a while and there is not much change. My balance stood at $27,107 and I am holding 500 shares of FIG at the moment

I shorted BAC again and made a small profit. In my previous post I was asked why I dump BAC with such a small change in price. The question really make me think a lot whether it worth while to trade in and out so often. I don’t know. I don’t find I am comfortable to hold anything.

I didn’t think it worth while to hold long position on BAC. The market is already up a lot. After this earning season I think we will see profit taking. I don’t see much excuse for the market to pump BAC with its unclear earning picture. In other words I feel BAC will have more bad news coming then good ones. How about the short side? Hold a shorted BAC position for a couple of weeks. I don’t want to hold short position either because I feel uneasy holding a short position especially after I missed a better short entry point above $13. But my reasoning keeps telling me that I may see BAC touching $11 soon. Please convince me if you think I am wrong.

It was like I traded this few days for blogging purpose so that I had somthing to talk about here. It should’ve been the other way around. I blog for better trading. I am searching for some kind of confidence that I had before and I still didn’t find it back. I have no confidence in holding anything.

Anyway Wells Fargo is going to report earning tomorrow before market open. It will be the focus of the financial sector tomorrow.

Account Balance 2009/07/21

Transaction 2009/07/21

Account Balance Changes: +89.80

I lost again all because I didn’t trust my own analysis. In a previous post, “Baidu is Holding up Well Today”, I mentioned that BAC’s earning was not good in fact. Because of general market sentiment I didn’t take the short side today and I bought into BAC today at $12.32. I thought it was low enough to expect a same day rebound. It didn’t happen. I lost again. Bank of America dropped big time today all because its earning potential. I guess BAC will make no profit for the rest of the year so did many analysts. Earning Potential is ultimate driving force of stock price and that is why BAC dropped. I guess BAC will see profit only when loan loss preserve start to decline. With rising unemployment it probably won’t happen still next year. $13 is probably the CAP for BAC in the coming months. I am very disappointed as I haven’t seen a decent green amount on my account for a long while.

Account Balance 2009/07/20

Transaction 2009/07/20

Account Balance Changes: -$160.30

Yesterday I thought about shorting Baidu at $318. I am glad I didn’t do so. Baidu is holding up above that price and didn’t follow Google dropping. I guess traders are waiting for its earning report on Jul 23rd.

I traded again today I was tire of watching. And I lost again. I short Bank of America at $13.30. It went up to $13.47 after that. I covered it when it fell back to $13.33. It kept falling after I covered it. I shorted it because its earning was not a good one basically. It reported profit only because the big gain on selling stake in China Construction Bank. The gain was more than 5 billions instead of 2 billions that I guessed in this post “Bank of America Earning Forecast and Financial Statement Analysis”. If the gain was 2 billions then Bank of America will show 1 billion lost as I was expecting.

Seems to me Bank of America will report no profit or will report loss for the coming quarters. I kind of think Bank of America will keep falling starting from here. But again I don’t trust my judgment.

Here is the trade today and balance.

Transaction 2009/07/17

Account Balance 2009/07/17

Account Balance Changes: -$50.33

I covered my short position on Bank of America and brought some Baidu Jul 290 puts. I felt I took the wrong side. I felt the market turn bullish after Intel report better than expected earning. Technology stocks may go up tomorrow and so will Baidu. Baidu likes to follow Google or the Chinese stock market as far as my observation goes. Looks like it is not going to go down either way. Google will report earning on 16th. My put option will expire on 17th. Looks like the chance I make profit on this put is low.

Tansaction 2009/07/14

Account Balance 2009/07/14

Account Balance Changes: +$18.72

Bank of the Ozarks is one of the banks I followed. It is a very small region bank comparing to Bank of America. You may read Bank of Ozarks business profile here if interested. I have long believe that Bank of Ozarks is one of the well managed banks that is financial is much healthier than its bigger peers. Bank of the Ozarks reported earning today. So lets see if that believe still holds and see if we can get some hint about the earning of Bank of America from Bank of the Ozarks.

It reported record earning $9,501,000 and $0.56 per share. 10.4% higher than the same period last year. Q1 2009 had profit of $9,286,000 so Q2 was a bit higher. I summarized what was the change compared to Q2 2008 or Q1 2009.

• Loans and leases were 0.7% declined from last year
  
• Deposits 7.6% declined from last year
  
• Total assets 3.6% declined from last year
  
• Common stockholders’ equity and Book value per common share increased about 23% from last year but slightly decline from Q1 because of an unfavorable change during the quarter in the Company’s mark-to-market adjustment for unrealized gains and losses on AFS investment securities.
  
• Net interest income for the second quarter of 2009 increased 28.2% but slightly declined from Q1 2009
  
• Non-interest income for the second quarter of 2009 increased 306.9% to $22,610,000 compared to $5,557,000 for the comparable quarter of 2008. Q1 Non-interest income was about $9,000,000. his large increase in non-interest income was primarily attributable to significant gains on sales of investment securities during the most recent quarter.
  
• Service charges on deposit accounts were $3,047,000. Q1 was about $2,800,000. 2.7% increase from last year
  
• Mortgage lending income was $1,096,000 in the second quarter of 2009. Q1 was about $900,000. 72.3% increase from last year
  
• Trust income was a record $751,000. Q1 was about $650,000. 19.4% increase from last year
  
• Net gains on investment securities and from sales of other assets were $16,487,000. It was $206,000 last year and about $4,000,000 in Q1 2009
• Non-interest expense for the second quarter of 2009 was $17,945,000. 33% increase from last years. It includes $1.3 million for the special assessment levied by the FDIC on all insured institutions. It was about $16,000,000 in Q1 2009
  
• Nonperforming assets as a percent of total assets increased to 1.37%. It was 0.59% as of June 30, 2008 and 1.17% as of March 31, 2009
  
• the Company’s provisions to the allowance for loan and lease losses totaled $21.1 million. It was $4.0 million last year and $10.6 million the first quarter of 2009.
  

The source of this data is from
businesswire Bank of the Ozarks, Inc. Announces Record Second Quarter 2009 Earnings

What I saw from this summary is that business was about the same from Q1 to Q2. Provisions to the allowance for loan and lease losses almost doubled form Q1 to Q2. However Non-interest income, mainly the gain on sale of investment securities and other assets was able to more than offset the provisions for loans loss.

I don’t see this earning report a good news because the record income was not generated from its day to day business. Loan loss provision has huge increase and it doesn’t look good for the next quarter with employment rising. However stock price of OZRK went up 2.4% after report come out.

I kind of think we will see the same on Bank of America. Like the analysis I did on this post, “Bank of America Earning Forecast and Financial Statement Analysis”. Business may not have significant improvement compare to Q1. Loan loss provision will be huge. Mark to Market change is not favorable. And Bank of America has to rely on gain on asset sale to show a profit and most likely this gain is not able to offset loan loss provision and MTM changes. So it will likely to show loss. Book value may slightly decrease from last quarter.

Today is a big up day especially for the financial sector. Meredith Whitney upgraded Goldman Sachs dragging up the whole financial sector. All the big banks were up 6% to 9%. That was a lot in a single day for one analyst call. Of course it was not all attributed to Meredith Whitney. But she did choose the right time to show off her power. I on the other hand traded in and out of Bank of America and lost almost $250. At the end of the day I hold 2000 shares of short position on Bank of America. I feel uneasy at the moment because that is a lot of shares and I will lose $200 dollars for every 10 cents if BAC is going up. I take the short side most of the time today because I bet the big bank’s earning is not going to be as good as the market expected especially for Bank of America. Meredith Whitney didn’t upgrade any other big banks except for Goldman Sachs. She said big banks in general were in better shape. That is something we have already known however.

I made a lot of trades on Bank of America. I don’t usually make so many trades in large amount in a single day. I did that today because I found a technical indicator in my trading tool seemed to be pretty effective for the past couple of days and I wanted to see if it really worked again. The technical indicator I was talking about is RSI (Relative Strength Index). See the bottom part of the following graph. If it is over 70 then it means the stock is over bought and if it is under 30 the stock is over sold. I short sold 2000 shares at $12.80 when RSI was above 70 but it kept going up and it was above 75 at the end. Today’s trading pattern looks familiar to me. Short covering pushed up stock price at the end of an up day. I lost on the same pattern more than a couple of times by taking the short side too early. Looks like I am going to make the same mistake again.

The following are the transactions I made today.

Tansaction 2009/07/13

At closing price I lost $242.29. BAC actually went up to $13.07 in after hour so I lost $160 more already.

Account Balance 2009/07/13

Account Balance Changes: -$242.79

Yesterday I thought the University of Michigan Consumer Sentiment Index wouldn’t have a good reading today. It turned out to be true but the market didn’t drop as much as I expected. I was thinking the DOW would drop over 150 points at some time today and BAC would test the lows of yesterday’s $11.30 when I saw future dropped more then 70 points before market open. I was busy during the day and I set an order to buy BAC but never get executed. Close to the end of the day I took a short position on BAC in hope that a selling attack would happen but it never happened. I noticed that JP Morgan dropped a lot. It is going to release earning next Thursday. I originally though BAC is going to be the first big Bank to release earning on next Friday but JPM is one day ahead of it. And the first big Bink to release earning is actually Goldman Sachs which is on next Tuesday. So there will be a lot of earning to watch next week.

At the end of today I pull in about $30 gains on the BAC trade. No gain is too small to have.

Stock Transactions 2009/07/10

Account Balance 2009/07/10

Account Balance Changes: +$29.71

In my preview post I quoted some Meredith Whitney’s opion. She says she is most comfortable with stock valuations close to tangible book per share levels. So I did a comparison of price and tangible book values for the too-big-to-fail banks and sorted them by the closeness of their price to tangible book value. Citi Group is The closest one followed by FITB and BAC. Is that mean Bank of America is worth to buy? In the group of banks she mentioned Citi group and Bank of America have the lowest price compared to their tangible book values. And she opt out Citi Group as a choice. So seems to me BAC was the one she recommended

Tangible book value and price information is collected from Forbes Public Company Financial Ratios

Last night when future was down more then 80 points I was expecting the stock market to drop at least 100 points at close today. So I took profit when I saw opportunity. I sold BEAT and USB at a profit. I traded on FAS but lost a little bit. At market close when I saw the DOW was up 40 some points and some of the hard hit stocks didn’t bounce back I couldn’t withstand the temptation and bought a couple of them. I bought PCX (Patriot Coal) and DRYS (Dry Ship). I think if the DOW tomorrow can remain unchanged or up a little then PCX and DRYS may rebound nicely. I didn’t buy a lot though. I am still bearish on the market with the earning season coming. The following are the transactions today.

Transactions 20090706

My account was up about $100 at closing price. I believe at some point tomorrow I will have the opportunity to sell all my position to make a profit and my account can be up above $30,000 which was my initial capital.

Account Balance 20090706

Today I focus on a couple news related to Bank of America. First is “BofA’s bad loans up 10% in 2Q”. I think this is the news that caused BAC tanked today. Second is “Whitney’s New Take On Modified Loans”. Meredith Whitney thinks that with the held of regulation and government incentive loan modification will soar and that will lower loan loss reserve which will benefit banks in near term. I don’t know how this two factors will play out in Bank of America’s second quarter income. I remain cautionary on Bank stocks. Bank of America ever dropped below $12 this morning and quickly bounce back. I was busy on something else and didn’t get this opportunity.

Account Balance Changes: +$118.29