Daily Research Blog

I decided to start publishing my daily research. I like the flow of this blog the way it is, and did not want to break it up with the daily scans. In order to maintain the feel of this blog, I have decided to start a second blog devoted strictly my day trading research. If this is something that interests you, feel free to visit Day Trading Research: Daily Research 5/31/08.

Always perform your own due diligence before making any investment.

CNN: June could be crazy month for stocks

The annual revamping of the key Russell indexes at the end of the month could lead to a hectic shuffling of stocks by big investment firms.

May 31, 2008: 11:07 AM EDT

NEW YORK (AP) -- "The whole month of June is kind of a magic month."

Citi Investment Research equity strategist Lori Calvasina wasn't referring to weddings, graduations or wildflowers blooming. She was talking about the stock trading that will take place in the next few weeks in anticipation of the annual reconstitution of Russell Investment's indexes.

It may seem like a wonkish matter that few individuals would pay attention to, but the reshuffling of the stocks that make up Russell's indexes, including the widely followed Russell 2000 index of small companies, will have a big impact on stock and mutual fund holdings.

"Your benchmark index is going to change," Calvasina explained. Those changes will affect some $4.4 trillion in assets that Russell says is tied to one of its indexes, which were launched in 1984.

Citi estimates there were 120 funds passively linked to Russell's 26 U.S. indexes as of Dec. 31, holding nearly $535 billion in assets -- nearly five times as much as such funds held in 1999. Morningstar Inc. says there are 20 Russell 2000 index funds alone, among 246 that use the small-cap list as a gauge for their performance.

The managers of all those funds will have to adjust their holdings to follow the new lineup in the indexes. But before that happens, hedge funds and others will try to take advantage of the changes.

"Hedge funds are going to try to game this," Calvasina said. "To a certain extent it's already been happening."

Wall Street analysts have been pumping out notes on a near-daily basis with their educated guesses for which stocks will be added, deleted or moved between indexes.

They are able to come up with fairly accurate lists, because Russell makes its methods for picking the stocks in its index public, unlike, for instance, Standard & Poor's, which uses a committee system to develop its S&P 500 and other indexes.

Here's how it works: At the close of Friday's trading, Russell Investments will take the first step of the reconstitution by taking a "snapshot" of approximately 13,000 stocks traded on U.S. exchanges.

It ranks the companies from largest to smallest, and filters out those that don't meet its criteria, including companies not based in the U.S., stocks that trade below $1 or those that trade over the counter, or on what are called the Pink Sheets, which do not need to meet minimum requirements or file with the Securities and Exchange Commission.

After factoring in a few other matters, the largest 4,000 companies are picked to be part of the Russell 3000E Index, which represents approximately 99 percent of the U.S. equity market. All its other indexes are subsets of this master list; for instance, the biggest companies become part of the large-cap Russell 1000, while Nos. 1001 through 3000 make up the Russell 2000.

The Russell 2000, has had a difficult year, falling about 12 percent since 2007's reconstitution. One reason has been the overall weak market performance, especially in financial stocks, which at 20.6 percent make up the single largest sector in the index.

With so many stocks falling, one sure thing is that the market value of the companies that make up the small-cap index will be smaller than last year.

Melissa Roberts, senior vice president of quantitative research at Keefe, Bruyette & Woods, estimates the market caps of the new stocks in the Russell 2000 will range between $165 million and $2 billion, a dramatic fall from the $261 million to $2.5 billion range last year.

She said that along with market weakness, the big decline reflects a large number of companies that were dropped from the list in the past year due to buyouts and delistings, and some changes Russell made to its methods for including stocks.

Overall, she expects 312 new companies will be added to the small-cap index, including 42 companies dropping down from the large-cap list. Keith Miller at Citi put his estimates at a total of 307 additions, with 40 stocks falling from the 1000 to the 2000.

Because analysts and others can be so specific ahead of the actual reconstitution, the stocks in question could see some hectic trading in the coming weeks before the final lists for 2008 are released June 27.

Find this article at:
http://money.cnn.com/2008/05/31/markets/bc.na.fin.mkt.us.wallst.ap/index.htm

Always perform your own due diligence before making any investment.

Off Topic ~ Free Hugs

This hug's for you!



http://www.youtube.com/watch?v=vr3x_RRJdd4

All the Same ~ Sick Puppies

I don't mind where you come from
As long as you come to me
But I don't like illusions I can't see
Them clearly
I don't care, no I wouldn't dare
To fix the twist in you
You've shown me eventually what you'll do
I don't mind
I don't care
As long as you're here

Go ahead and tell me you'll leave again
You'll just come back running
Holding your scarred heart in hand
It's all the same
And I'll take you for who you are
If you take me for everything
And do it all over again
It's all the same

Hours slide and days go by
Till you decide to come
However long you stay is all that I am
I don't mind, I don't care
As long as you're here

Go ahead and tell me you'll leave again
You'll just come back running
Holding your scarred heart in hand
It's all the same
And I'll take you for who you are
If you take me for everything
And do it all over again
It's always the same

Go ahead say it
You're leaving
You'll just come back running
Holding your scarred heart in hand
It's all the same
And I'll take you for who you are
If you take me for everything
And do it all over again
It's all the same

Always perform your own due diligence before making any investment.

May Performance

On May 16th I made a post which included a mid month recap of my monthly goals. I was easily exceeding most of them, and was looking forward to tying up a few loose ends and having a fairly stress free couple of weeks... Well, if you follow the market at all, you realize that didn't happen!

Below are my final results for May, which take into account commissions and margin interest. As a reminder, I have decided to base my monthly goals on portfolio value.

Account % . . . . . Goal. . . . . % Actual

Trading . . . . . . . . 25% . . . . . . . . 5.65%

Investment . . . . . .12% . . .. . . . . 5.18%

IRA . . . . . . . . . . . . . .8%. . . . . . . . . 5.40%

As you can see, I did not make any of my goals for the month as far as my portfolio balance goes. Of course those results (all gains, just shown in red because they did not meet the set goal) are nothing to sneeze at. They translate to annualized returns of 67.8%, 62.16%, and 64.8% respectively.

While I am not setting realized gain goals, I am also tracking those. For the month of May my realized gains are as follows.


Trading . . . . . . . . 28.85%

Investment . . . . . 11.2%

IRA . . . . . . . . . . . . 1.72%

I really could not be more thrilled at this point. Those numbers translate to annualized percentages of 346.2%, 134.4% and 20.64%. Obviously I am not going to see these type of gains every month. In fact, I expect June to be really rough. I will probably not take advantage of every trading day with hubby on vacation, and of course I obviously am carrying a lot of unrealized losses over into June. I have a lot of open option positions that I need to close out in the next 9 trading days, and if the market doesn't cooperate, I'm in for a rough ride.

As I have probably mentioned before I have a set group of stocks that I track daily so that I can learn their rhythms for options trading. These include PCU, POT, DRYS, RIMM, FWLT, GS, and GOOG. Another thing that I track during the month is my trades in these stocks. Some of these trades are equity trades and some are option trades, and they have happened across all three of my accounts. Below is a list of the good trades per total trades for the stocks on that list that I traded in May, and whether there was an overall gain or loss in trading that stock. They are ranked best to worst by dollar amount gained/lost.

GOOG 10 for 11

FWLT 9 for 9

DRYS 8 for 11

PCU 2 for 2

GS 2 for 4

POT 0 for 2

These 6 stocks accounted for 69.98% of my realized gains for May.

There are a few key things I have learned over my past 7 months as a day trader that I need to remind myself of.

*First and foremost, close ALL option positions the Thursday before option expiration (for the upcoming month that is June 12th).

*During option expiration week limit any option trades to round trips. The majority of trades during options week should be equity trades.

*FOOLS RUSH IN...do your own due diligence before opening a position. If you don't have time to make a few basic checks before entering a position, then you don't have time to watch it once you make it.

*No Fear, No Greed...the bears are in control, and are ready in willing to shake the fearful out of their positions. Know your support and resistance areas, including type, strength and variance. Hold firm to positions pushed to the limit, but do not be afraid to take the loss once they push through. There is always another trade to be found.

*Research all positions daily for changes. My daily research includes closing price, after hours price and news, chart, short interest, market sentiment, support, resistance and possible break outs.

*Begin each month knowing if there are any days the market is closed. Market holidays should be treated like expiration days, close out all open option positions a week before the holiday, and limit option plays during the week proceeding the holiday to round trips. June does not have any market holidays, however the market closes early July 3rd, and is closed on the 4th. Option expiration is June 20th. This means that all option plays picked up beginning June 23rd need to be closed by Thursday, June 26th.

I have decided to keep my current goals through the end of August for a couple of reasons. First of all, as mentioned above, I am entering June with a lot of unrealized losses on the books, and may not be taking advantage of trading every day. Unless the first half of June is as remarkable as the first half of May was for me, I am going to have a difficult time making these goals in June. Therefore, I want to continue to reach for the sky with these lofty goals through August to determine if I am able to achieve them once I get back in the day trading groove. At the end of August I will evaluate my performance and adjust my goals accordingly for September through December.

Have a great weekend, and Happy Trading!

Always perform your own due diligence before making any investment.

Round Trip Options May 19 - May 30, 2008

Despite having a lot more option positions than I prefer this month, I was able to round trip a few more options. Here is how they faired.


DRYS PUTS gain .70 for 18%

RCH CALLS loss .20 for 43%

DRYS PUTS gain .80 for 15%

PCU PUTS gain .85 for 44%

GOOG PUTS gain 1.00 for 23%

DRYS calls .50 loss for 10%

Overall I am pleased with the performance of my round trips for the month. June option expiration is Friday June 20th. My husband will also be taking vacation from June 23rd through July 4th. My goal is to close out all of my open option positions by Thursday June 12th in order to avoid the accelerated time decay of options week, as well as allow myself the freedom to trade or not as I please while Hubby is off work.

Always perform your own due diligence before making any investment.

DOW down 427 points in two days!

What a crazy week so far!

I realized on Tuesday the market was going to be weird this week, with the upcoming holiday coming. I can't predict how Friday will go, but it will probably be low volume, and highly manipulated. In the mean time, I'm working on closing out as many option positions as I can before then, and get back to being more strict with the options day trades.

Visit my round trip options board if you are interested in keeping up with my plays as they happen.

Always perform your own due diligence before making any investment.

Roundtrip Options May 1 - May 16, 2008

Well, I got back to making a few round trip options plays this month. This is how I have fared so far.

DUG calls .60 gain for 65%
PCU calls .70 gain for 10%
FWLT calls .50 gain for 16%
EXM calls .50 gain for 25%

Visit my Roundtrip Options board. We have a few new assistants on board that will help bringing some options trading ideas for quick trades.

I will try to get back into the habit of documenting Round Trip Option plays each week.

Always perform your own due diligence before making any investment.

Everything happens for a reason...

I found out today that had I stayed in my full time job (I went part time in Feb '07 to spend more time trading, then quit the part time position in October '07 to trade full time.) I would have been laid off on Monday. Just thinking about all of the things I would have given up had I stayed in that job the additional 14 months before the inevitable lay off gives me a deep appreciation for my position. That first decision in February to go from full time to part time started my destiny into motion. The fact that I started trading at the beginning of a bear market gave me a crash course in how brutal the stock market could be. I've learned that being too cautious is as detrimental as being too greedy. I learned that the market makers will rule you through your greed and fear if you allow them to. No fear, no greed, is so important.

The big story so far this month has been oil, which has sent one of my favorite stocks HTE on a run. Close of day 5/1 HTE traded at 21.83. Close of day today (option expiration) it traded at 25.55. That's a price increase of over 17% in just 12 trading days! Not to mention (yet again) the .30 per month dividend.

The option stars for me so far in May have been V, FWLT, and GG calls. All traded or currently held between 100% and 400% gains. In realized gains V barely edged out FWLT, but FWLT shares I am holding continued to gain while my V options are basically the only red in my trading account. My big losses were POT calls (I should have bought out a month further) and my DRYS puts. That could have been a huge gain if I had bought the calls instead.

Looking at the two year and lifetime charts on POT, I find it hard to believe that I can lose money on call options, but I do. Long term this one is a no brainer though. I have a few swing trade stocks in my IRA that I will convert to POT as I take profits.

LIFETIME

TWO YEAR

I was a little late making my goals for May. As you may know my trading has been limited between February and now based on market conditions and my bathroom remodel. Anyway, about a week ago, I decided to set some goals through the end of the year. I decided to go with a portfolio percentage increase each month, taking into account the money that I need to remove each month from my trading account in order to meet our household obligations. I created a spread sheet that is linked to my "scorecard" where I keep my high level stats for my three accounts. This spreadsheet will automatically adjust the next months goal based on the previous months final balance, so I am set through the end of the year. If I decide my goals are unrealistic, I can easily change the formulas to adjust based on new percentage gains projections.

My goals and current status as of 5/16/08 are
Account % . . . . . Goal. . . . . % Actual

Trading . . . . . . . . 25% . . . . . . . . 29%

Investment . . . . . .12% . . .. . . . . 15%

IRA . . . . . . . . . . . . . .8%. . . . . . . . . 7%

I will be keeping an eye on GOT this week. It has been consolidating since mid April, has had some insider buying and may get a pump soon with the rest of the retail sector.


At this price, a 50 % gain is reasonable once the stock starts it's upward move.

Always perform your own due diligence before making any investment.

Hot IPO's

I am currently invested in three IPO's. The first V I have discussed here before. It has been down a bit this week, with option expiration coming, but staying within the upward bound trading channel. I've heard predictions of 100 before the end of the month. I'm not sure if it will go that high that fast, but we will definitely see 90. I have been collecting V in my IRA, and have gathered a lot of June 100 and 110 calls. I held them through the expiration week, so I've had some time decay, but with the flips I did before this week, I'm still green over all on V trades, and looking to score big in the coming weeks.



The next IPO I am trading is IPI. Intrepid Potash has been channelling between 46 and 52, and I bought a few June 55 calls to make a short term trade. My first target is 100% gain.



The last one is a little risky, but I made an extremely small purchase (less than 100 shares) of CFX. I have it in my investment account. I got in on a dip today at $23.75. I got tired of watching it go up a dollar or more each day without me!



Always perform your own due diligence before making any investment.