The M&A attention is bullish for the sector. There are some good plays out there.

The big gap to the left on the below chart of PDLI is one reason to be long this stock. Another reason is the Green indicator at the top, which is a modified Money Flow indicator. The lower Blue line is a modified Accumulation indicator. Notice how both have turned up sharply while the stock has barely budged out of this tight range since mid-Feb?

Click on the image for Higher Resolution

Now, take a quick peak at the Biotechnology Index going back to 1992. Seriously, click on the link and take a look. This is a monster chart. She’s in new all-time territory. The blue and green lines are Fib. projection and retracement lines. I’ll let you guess which one’s. Swing Traders should be lurking in these stocks.

Disclaimer: Author is a shareholder of PDLI.

I would also love to comment on readers trade ideas and their technical analysis work or fundamental perspectives. Especially you young ones out there, like Angel, Jason, Brian and dozens of others, who would love to post their analysis and charts and get my feedback as well as the valuable feedback from other viewers of the blog. Especially after, or during, your attendance at one of the T3 Live Immersion Training Programs.

Make sure you visit T3 Live and take advantage of their Free Trial.  Once you sign up for a trial, email me your username and I’ll make sure you get access to the restricted areas unavailable to other free trial members. Then when you’re ready to join as a full member, I’ll make sure you get a price available only to Investment Capitalist members.  As the Director of Institutional Development for T3 Capital Management, LLC, I have a little pull in these things.

Until now, readers have not been able to post their own analysis, but readership has grown enough to where I think this experiment will actually prove to be a good decision. I trust many of you and respect your analysis. In fact, many times you’ve emailed me  ideas that I’ve written about.

So without further delay, I invite all readers to post their analysis for others to follow, read, learn from and just share ideas with each other. Just a few points to remember:

• If you post a chart, make sure it’s small and fits within the borders.
• If you post anything but analysis, or comments on analysis already posted, it will be deleted, and so will you:  the  one responsible for the post
• No links of any kind will be permitted in posts. So no subtle attempts at trying to advertise a porn site or something.
• Make sure you check mark the appropriate Category Boxes based on the content of your post

You are going to see additional commentary from me on the T3 Live blog and I don’t want duplicate content on the internet. So make sure you visit T3 Live where you’ll see some more of my analysis going forward, as well as analysis from some of the top proprietary traders in the world.

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30-year Treasury Yields are about to spike along with a dollar rally. I feel this is the catalyst to trigger a sustained pullback in equities, which will reflect our rising unemployment rate and all the stimulus plans that are slowly phasing out.

Equity Long/Short Market Neutral traders will have an edge in this market over Momentum traders waiting for an expansion in the VIX.

For example, convertible bonds are the “paper of last resort,” and the airlines are desperate for cash (when aren’t they?). So it’s not a surprise Continental is in the market to raise some expensive capital and a $200 million deal (if the green shoe is exercised) is nothing serious. But the devil’s in the details.

I think the coupon is going to float around 4.5%, literally a 25% premium on a five-year maturity. The bonds at this issue price are a clear advantage over the common and set up an ideal trade, again at the issue price. I keep emphasizing this because the hedgies will be buying up the offering and shorting the stock to capture the premium so the spread should narrow really fast.

My bet is that most, if not all of this offering is going to the hedge funds. A few back of the napkin calculations, and after the offering, it’s quite possible that up to 60% to 65% of the common will be short.

Since the deal is for $200 million (including the $30 million green shoe), with a 25% conversion premium, this means about $184 million of stock will be controlled by the bonds. Around $120 million of stock will need to be sold short to hedge the deal. This means somewhere in the neighborhood of 7.5 million shares.

With this in mind, the sell-off in the stock should continue. So hit the rallies and hit them hard. The sell-off began with the deal’s announcement but it’s not over. I wouldn’t expect it to settle in much higher than $13.50 or $14. Perhaps even closer to $12 on an overshoot. In fact, if the common does overshoot through $13 and then through $12, look for a dead cat bounce trade of a couple quick points.

I’ll do some research over the weekend and post some more ideas. I know I haven’t updated the blog recently but I think the weather in New York is going to give me an excuse to stay in and write more often than before. It is absolutely, insanely, unbearably cold here.

MW

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I’m watching the 70.50 level like a hawk in Oil, as are several prominent hedgies I dialogue with on a daily basis. Right now, until Crude breaks above $71, I really like the spread of Short Crude vs Long Nat. Gas. I would lift the short side on a sustained break above $71 in Crude and get long and strong the entire energy complex, including equities.

The Dollar is beginning to weaken across all currencies rather than isolated instances, as was the case throughout the summer, when the Greenback showed strength against many majors. However, it now appears the floor for the US Dollar is being tested and probes are underway to see where the Federal Reserve will likely begin to increase its open market activities along with the US Treasury. It’s too early for a “strong” dollar in this economic bounce. Too many talking heads came out and said the worst is behind us. Which of course means that it’s not.

Keep an eye on Copper. China opened its mouth at the start of summer and swallowed this base metal like a wild boar, which threw off a lot of macro models because Copper is, of course, watched as a leading indicator of economic recovery. However, being that China was behaving like the gluttonous behemoth that it is, it could have just been a strategic build-up of reserves, or a hedge gone bad that needed to be covered. With China, we never know these days. Capitalism being so new to them, they’re like an over-grown kid on a high school football team that’s never played the sport but the coach puts him in there because he’s so big. Clumsy and stupid at times, ultimately very bad at playing their cards close to the chest and equally bad at not giving out the wrong signals and then chasing their own tale ex-poste.

I know many of you are Prop. Traders, whether equities or swaps or paper, or whatever. It doesn’t matter. The forum is to exchange ideas and share trades and various perspectives from highly qualified and advanced traders around the world (including myself, of course).  It goes without saying that if your LinkedIn Profile indicates you are a recruiter, or unrelated to content of the group, your request to join will sadly but most assuredly be declined.

With that being said, I invite you to join Discretionary Proprietary Traders Worldwide

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And those taking credit on for “sending a signal” to sell Oil around early June?  One day before an upside explosion that is about to go parabolic. Well, ask yourself who it was giving the signal, and whether or not that “analyst” should even be passing judgment on macro data sets.  We all know daytraders sell a monster bull market at the first sign of weakness. Then quickly realizing their error, they jump back on the train like a monkey chasing a banana boat. No different than the sell-side analysts fresh out of school and green as a cricket.

Moving on…

Nasdaq breaking out on rising volume. All momentum and breadth indicators confirm this is real. Big cap tech has been leading the way, so don’t be surprised to see the generals outperform.

S&P 500 could break away from here, but experience tells me there may be at least one, perhaps two, head fakes designed to drive daytraders and weak-handed swing traders absolutely batty.

Commodity stocks possibly near a short-term top though. Only caveat here is the greenback. There has been a monster dollar rally which began in the early morning hours of Wed. June 4th. After a temporary pause mid-day Thursday, the Greenback exploded again in overseas markets. For us equity bulls, we want to see continued weakness in the Yen/Dollar cross, and strength in the Euro/Dollar cross. If the dollar can just stabilize, equities will rally as a group. If the dollar collapse resumes, we’ll see commodity stocks go into overdrive as the short interest is most definitely building up because of the speed of the rally. Watch big-cap tech run and you’ll be disappointed you don’t own a chunk of this group.

Focus on the following sectors:

• Building materials
• Casinos
• Coal
• Footwear
• Internet commerce & services
• Specialty semiconductors and equipment manufacturers.

Most of the participants that missed the lows in early March are now looking for those winning lottery tickets that may have been neglected by careless traders. The only problem is the observant players have already made their money and have locked in their gains. The “easy money” is over.

Seasonally, we are in a bearish period, although if the bulls want to kick off a sustained, secular bull market, they have to exert a great deal of firepower to extend this rally into August. If this happens, then we’ll be in the early stages of a secular bull. With continued weakness in the US Dollar, I remain bullish on oil and gold, and neutral on bonds.

During the course of this rally, technology, retail, housing, and cyclicals all led the way up. These sectors have now broken their relative strength uptrends, which had remained intact since those March lows. The groups holding onto their relative strength uptrends, albeit with very little breathing room, are: financials, agriculture, chemicals, oil drillers, and emerging markets. I continue to favor emerging/frontier markets as well. Global stock markets have become more correlated over the past decade. Generally when the S&P 500 has risen in a secular bull market, it tends to underperform the global equity complex.

The 10-day moving average of the put/call ratio is still moving up (which is bearish for the market). But here is the chart of the daily ratio, which shows how high Friday’s reading was in comparison to the last few months.

Buy MR at mrkt and accum.
KBW breaking out!
AB / RJF accum core breaking out
SDTH core China stock. Accum at market.
SMI 100% potential.
SPRD short squeeze.
PMI short squeeze
GROW: Accum core
UYG, FAS, IAI: Add to long bskt

SNDA: short

Naz: 1775 ceiling. 200d=1740. Breakout is 1774-1776. 1675 Support.
Inside sigma channel: 1715 – 1775 – 1840

BKX: Bank Index approaching Fib. convergence and 200d EMA. Resistance Range: 45.40 – 45.80 (200d=44).  This suggests a blow-off top in the next 1 or 2 trading days.

CRB Index: Confirmed reversal with 1st target of 258-263 (8%)

DJUSFN: Approaching major resistance with heavy upside momentum. Other indices have broken through similar levels. Ideally, pullback to 205 to confirm uptrend.
200d= 237.  T/L= 240.  Fib=234

DJUSHB: Nice correction to buy into.

Defense Index (DFX): At 200d EMA. Broke above trendline on Friday. Could be a short sector this week.

BTK: Biotech Index might make a run to 740 if the broad market continues to rally. It is lagging so far but March lows way above Nov. lows. So market may be “catching up” to this group. 660 heavy overhead resistance here.

DJUSAF: Showing resilience. Continuation rally after breaking and closing above 200d EMA. Turns consolidation into flag type. Looking for 485 (12%). Is this a proxy on global economic rebound?

DJUSAT: Auto parts makers closing above key resistance and 200d. Look for continuation rally to indicate market’s bullishness.

DJUSCA: Casino index consolidating above 200d. Watch for breakdown as possible indication broad rally may be over. Break below 260 sets up potential short trades in the group.

Limit Orders:
LFC=56 or >57.50, FMCN=7.305 or >7.95, CYOU= 29.35, ADI=20.25, BRCM=18.05, HIMX=2.50, NVDA=9.10, PLXT=2.85, SIMO=3 or >3.70, ACTS=1.80-1.88, AMCN= 5.75, CHL=46.50,CTRP= 30, GSH=23.50, JASO=3.55, MR=24.30, NPD=5.15, STP=14, XING=1.80,MBI=5.75

CHINA:
CPSL= new leg up about to begin, CHINA= 2x bottom monitor for entry around 1.35, ASIA=About to breakout >18.50, CBAK= 3day cons. >200dEMA go long and strong, CPBY=a.m. earnings, EFUT=closing gap 7.75-8.50 unreal growth rates, HMIN= about to breakout. Gotta be long prior to move., SIRF=2.85
SIMO trying to breakout
SVA: monitor closely

FINANCIAL:
ABK=trgt 3.50 buy possible gap down on earnings, BK=30L, ICE= monitor for another leg higher, JPM= 45 trgt, NYX= 30trgt, ORI= 15trgt, RF= buy on wkness,

Disclosure: Author actively trades the above stocks. These are NOT investment recommendations, nor should any of the above be construed as investment advice. The above are excerpts from the authors trading journal. Do your own research and consult a professional if you are not one yourself.

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HMIN – Huge hotel chain throughout China.
NPD- Enormous retail drugstore chain throughout China. Excellent growth and margin ratios.
CPSL- Specialty Steel
HIMX- Specialty Chipmaker
ACTS- Semiconductor Manufacturer
SVA- Biotech with H1N1 “hype”
QXM- Mobile phone handset distributor and network developer.
LFC- China Life Insurer
ACH- Aluminum Company of China (ChinAlco)
SOHU- Online Portal with huge advertising growth

Some of these stocks have already started to move, so be careful and trade wisely.

Disclosures: ALL OF THE ABOVE are traded actively by the author.

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Game Plan - Ride bear squeeze while preparing for bear raid

Campaign - Reflexive strategies off Fibonacci levels

March 15

Let’s see how the week starts out. It looks like there’s room but perhaps a quick pullback early in the week?  Or, we could see pent up retail demand trigger a gap up on Monday, which should be sold into. Watch NFLX near a.t. highs here.

If we get a down opening:
Launch Long baskets and short SHORT baskets.

LONG FAZ/BGZ looks like a perfect set-up.

Quick momo trade:  AIPC, CMG, BWLD, AMGN, GILD, CELG, ICE,

POS: BWLD, NWPX CMG, CME, DRYS, F, ISRG, IBM (?), LCC

MONSTER SHORTS:  GOOG, PNC, FSLR, AAPL, GS, MBI

March 11

Spoo’s target 840 – 850: prior symmetrical triangle consolidation boundaries converge (apex). Tuesday’s move confirmed with multiple indicators and most recent low from last week was not qualified (negative divergence).
FIB retracement targets:  720, 733, 747.50, 770 (24SMA), 785 (40EMA),794, 802, 818

SPY apex convergence ~87
SPY fib’s: 73.85, 75.10, 77.50, 79.35, 80 (a.z.), 81.05, 82.75
BWLD= 39
SKF target 170, 163,
BGZ T= 80
TZA T= 81.75, 74.50

ERX T= 25 >21.50
FAS T= 6
BGU T’s= 18.75, 22, 25.50

X: 23.50, AGU= 39.50, CAT= 31
WHR: 26, WYNN > 20,
YHOO > 13.45, AMZN >66 = 70, BIDU = 198
BAC= 7

March 5th PRIORITY- Volume climax in financial names. Short-term trend exhaustion. Dow recovery of 7450 level short term reversal in progress.