Stock Traders Blog

I sold my 1000 shares of PCX (Patriot Coal) at $6.47 this morning. Net about $250. So my account is up a little bit.

PCX launched a secondary offer not long ago with offering price at $7.90. Its stock price started dropping before the offering from above $9 to $5.60 a couple days ago. I don’t know whether the secondary offering was a successful one. But I feel its stock price is stabilized. Seems to me it has a good chance to bounce back above $7 and I feel it is safe to get in around $6. It dropped to $6.08 this morning and I hope it will do that again tomorrow. I sold PCX because I am betting ADP Employment Change tomorrow won’t be good. Just a wild guess and I will see if I can get in pre-market if PCX really drop tomorrow morning.

I am bit forgetful. When I bought PCX I was planning to wait till tomorrow after the window dressing effect. I only recalled this when I read my previous post. I also notice PCX has a good volume today. Hopefully I will not miss out a good run up tomorrow.

Account Balance Changes: +$249.81

Dr Doom Roubini speaks out today. The following are some of the minutes of his speech.

1. Those aren’t “green shoots”–they’re yellow weeds
2. The crisis isn’t over, and everyone has become way too complacent
3. We’ll be in recession for another 6-9 months
4. The recovery after that will be weak
5. Big risk of a double-dip
6. Households aren’t deleveraging
7. Oil could go to $200 just as economy starts to recover
8. Real interest rates could spike, killing housing, etc.
9. Concern about hyper-inflation
10. All this could lead to “perfect storm” that will clip wings of economic and financial recovery
11. So we need to stay focused on averting disaster before we redesign regulatory architecture.

So Roubini or Buffet who is going to be right? Buffet was very optimistic. He called for the stock market bottom last quarter when the Dow was at around 8000 and it later dropped to 6500. Roubini called for the financial melt down more than a year ealier and he was right. Buffet was onto banks and he was right too. For most part their views may not be contradicted with each other. For example their views on the risk of inflation. But their views on housing seem to be different. Buffet was optimistic on housing market going forward. Roubini’s view was kind of depressed. Who do you believe.

I am more on Roubini’s side on housing because I just don’t think housing price will go back to 2006 without a major raise in wage. Banks will not provide those exotic mortgages again. Housing price went crazy during 2005 and 2006 majorly because of those exotic mortgages. No money down, stated income, 110% finance and reverse mortgage. Those things are not easily coming back.

As for inflation some economist think it won’t come until consumer borrowing increase. But consumer borrowing is still decreasing so inflation will probably come eventually but not that early. However inflation expectation will built into commodity price before the economy recover. Roubini predict “Oil could go to $200 just as economy starts to recover” that is about 6 to 9 months later. So it is probably a good move to load up the oil share like CEO or PTR now.

Banks in a short time will run up because some of them will repay TRAP and no matter what it will be seen a positive sign for the sector. Anyway I just want to jog down some of the ideas I want to keep in mind going forward.

I make some profit today and I feel comfortable with it. I said I didn’t want to trade option but I trade again. I sold USB put again. Next weekend will be the expiration day let’s see if I can pocket the $450 bucks. I said I want to be on the long side of banks but I took the short side when BAC was above $12. I trade a couple times and make profit. Another thinking I change is that I don’t want trading cost get into my mind and affect my decision whether to close a position or not. As long as I can make money net of commission I don’t want to care about how much it is.

Account Balance Change: +$196.98

I frequently asked myself these couple questions. Is trading stock equal to gambling? Are you an addicted gambler if you are tempted to trade stocks? I answer both questions, “NO”. These are the answers that I prefer. But I really don’t know whether I answer these questions based on my own bias.

I answer both questions based on a fact that I believe to be true. I already mentioned that in my blog mission. It is that when you are gambling you are always playing on the side that statistically the probability of losing money is always higher than the probability of winning money. You may win from time to time in gambling but if you are playing long enough or the number of times you play is large enough there is only one out come and that is you lost. That is how the casinos games are designed. Interestingly a lot of people keep playing in an attempt to win their money back. Casino will tell you who won a million but they won’t tell you who lost a million. It is a marketing effort to entice you to keep playing. People have no problem sharing their joy and victory with the public but they tend to keep the sadness and failure within their closest friends and family.

Theoretically there is one casino game that you can beat the dealer. And that game is black jack. There are all kinds of card counting strategy out there telling you how to beat the dealer. And those strategies have one common nature that is to identify a situation where the probability of wining is greater than losing and increase your bet accordingly. I believe the same applies to stock market. The stock market is emotional and it derails from reality from time to time. The more it derails the high the probability it will heading back toward the rational level. If we can identify those irrational price levels and take the right side then the chance of making money is higher then losing money. If we are always able to find the irrational level and trading on it long enough then we should be able to see substantial gain. With that said I am not saying you will make money on every trade. I mean if you are able to do that you will find you can win more and lost less.

Well I am just talking and I am trying to prove my point with my blog. Successful or not time will tell. Nevertheless the hard work lays in how to identify those irrational pricing. That is the critical part. In traditional financial theory those irrational price is not existing because the market is efficient enough to prevent them from appearing. That is so called the efficient market theory. In that theory no one is able to beat the market index in terms of return per risk. But we can see this market is far from efficient with all kinds of manipulation in place.