I have felt that the oil market has been unnecessarily inflated (due to the capital speculating in the space) for a number of years. In fact, I am fortunate that I didn’t make a move to short oil when I felt we were beyond a level that seemed right.  As they say, don’t fight the tape.

Once oil cracked $55, it felt way overvalued, beyond $70, a bubble. This oil market that we are in comes with the support of a LOT of capital.  The capital appears to be providing an artificial prop for the price of oil and this trend doesn’t look to be changing.  That being said, if I am your contrarian indicator, now is the time to jump in and short oil.

Paul Tudor Jones on Oil

Paul Tudor Jones has this to say about the state of the Oil market:

Q: Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?

PTJ: It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

Take it for what it is worth.  Is oil artificially inflated, I believe so.

By the looks of a 3 year chart on IMGG, you would think that they cured a disease or struck oil.  Not the case.

Imaging 3 (imgg) Stock Chart

IMGG is a stock that has had a very rapid run as of late.  The company offers 3d imaging technology, but the stock is acting like a typical pump and dump.  When reviewing a pump and dump, you need to read any press with a grain of salt.  One of the easiest things for a company, whose stock is being hyped or promoted, to say is that they are a development stage company.  When that is said… hands are off.  That would explain the lack of revenue and the lack of revenue in the bank.

Deeper digging will give you the facts.  The following is from Tim Sykes (TimAlerts.com) on 9/24/2009

Imaging3, Inc. (IMGG) is another pump & dump, promoted by the same scoundrels as behind GVBP…10 cents to 70 cents/share so far, many people ask, why not just buy these? Because I’m not good at it, I don’t sleep well when I do and these things can fall out of bed quicker than I can send an alert so it’s not worth the risk….much easier to short when they show signs of cracking…sometimes short even down to 0 like GVBP…this one will be nice, but I hope it gets above $1 first to give it more downside.

IMGG did not crack $1.  Not even close.  It reached $0.70.  I shorted at $0.67 and took a small gain covering at $0.52.  The downtrend is continuing and the event that they were hyping on 9/30/09 appears to have been a non-event.

The biggest tells here are with the promoter behind the stock and snapshot of the company.   Read any news on this company with this thought.  ”Enough to string you along believing it could be real”.

When trading in this arena, you have to be a cynic.

Unrealistic expectations

This cartoon really sums up the approach that some take when it comes to retirement.  It is shocking to me that there are bright folks who earn a good living and don’t put anything away for retirement.  Forget about the rainy day, I am talking about retirement.

Some feel that when the time comes they will just ‘get aggressive’ to achieve a return.  The cartoon shown here is a great representation of that detachment from reality and if you have ever had to give folks advice, and let them know how unrealistic their expectations are, you will appreciate this.

I am in the same office building with someone who has an interesting view.  He talks about what to do with a spare $1,000 and literally said this the other day “If I could just turn the $1,000 into $4,000 or $5,000 in a few months, I would be happy”.  I am serious!  That was how out of touch he was with a realistic return.  My reply was something along the lines of “Really?  Really?!  You would be happy with 400% to 500% in 6 months??? Really?!  Really?!!”

I had to remind him that he had a poster in his office pitching a product from his company.  It was a product that was offering 1.92% annually.  He is pitching 1.92% annually and he is shooting for 400% – 500% in 6 months.  I can’t print my full response to his statement.  It went something like this “Are you f*#*ing kidding me?! Get real!  You have got to be joking.”

Don’t forget to set some funds aside from retirement.  The level of risk that you have to take in order to achieve a greater return is not something that you do in your later years.  With risk comes volatility.  You might have 3 years at 25% followed by a year of -20%.  That isn’t something that your portfolio can handle headed into retirement.  If you are 30 or 40, you have many years to make up the down year.  You don’t have it if you are already at the age where you need the funds.

Even if you don’t have much to put away, put something away.  $50 per month or $100 per month adds up over time.  Check out the following savings calculator to use your own assumptions.

I will continue to watch the stock of GAEC, but as of today, I am out. I covered my 2555 shares @ $0.40 per share. The whole trade was odd. I shorted with a limit of $0.50 only to get a price of $0.55. I was pleased at the price on my short, but this reeked of “painting the tape”. When attempting to cover the trade over the past few days, I found that I could not get a bid or ask on this. In most cases you can find a quote for an OTC stock at PinkSheets.com. In fact, your broker probably uses Pinksheets.com. Take a look at what comes up for Gulf Alternative at the site:

GAEC at PinkSheets.com

You can’t find a quote.  My hunch is that the market maker is a bit too cozy with this company.   Pure speculation.  From everything that I read about the company, there isn’t much there as far as operations or technology.  I am not sure what turned up after the 2 week halt by the SEC.

This company is too small to be on the radar of investors or the SEC, but there is enough of a market (created by promoters) to allow the folks that own the company to continue to sell shares and pay their salaries.   The company has virtually no revenue and stated in the quarterly report that the funds to operate and pay salaries are generated by selling shares.

From the quarterly:

We do not have enough cash to satisfy our capital requirements for the next twelve months and we rely on shareholder loans and sales of common stock to pay our operating and research and development expenses.

B. Management’s Discussion and Analysis of Financial Condition and Results of Operation

We currently have few assets and no income. We are continuing to develop our cellulosic ethanol feedstock manufacturing facilities.

I have another short order out there now.  I’ll post if it goes off, but I don’t expect this company to be much more than a trading vehicle for the insiders.

When treading in the pink sheets, you will find some real doozies.  Well, Gulf Alternative Energy (GAEC.PK) certainly fits that bill.  I am currently short the shares.  I shorted a few shares when they were @ $1.60 and within a couple of days, the stock was halted due to an SEC investigation into GAEC.  The shares were suspended for a couple of weeks and reopened at $0.50 per share.  I wish my short was of significant size.

From the SEC:

GAEC suspended by the SEC:
Jul 31, 2009
Pink OTC Markets News Service

Washington, D.C.— SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
RELEASE NO. 60410 / July 31, 2009

SEC SUSPENDS TRADING IN THE SECURITIES OF GULF ALTERNATIVE ENERGY CORPORATION

The U.S. Securities and Exchange Commission today announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of Gulf Alternative Energy Corporation, at 9:30 a.m. EDT, July 31, 2009, through 11:59 p.m. EDT, on August 13, 2009.

The Commission temporarily suspended trading in these securities because of questions regarding the accuracy of statements made by Gulf Alternative Energy Corporation in press releases to investors and on its website concerning the quality of the company’s technology and the company’s business prospects and agreements.

The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not it has complied with the rule, it should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 5515760. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, it should refrain from entering quotations relating to the securities of Gulf Alternative Energy Corporation until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider prompt enforcement action.

If any broker, dealer, or other person has any information which may relate to this matter, they should contact Christopher Ehrman, Branch Chief, at (202) 551-4590, or by emailat ehrmanc@sec.gov.

There is little chatter about the company, but when you do find it, there are clearly some people who have followed the company for quite some time.

From Zekel at Hotstockmarket.com
The technology you reference has been alleged to be stolen from the inventors of the pre-processing technology. GAEC has no expertise in this field, no assets, a mountain of debt, and 30+ million shares (and counting) issued to management and friends at PAR Value – a virtual ATM machine!

Complaints have been issued to the SEC, including allegations that they (management at GFET/GAEC) stole over 6 million shares of partnering company, AETE.

William Carmichael, former CEO of GAEC, has audaciously taken GAEC’s equipment down the street to a new private venture called Proven Technologies, pretending to have clients (CNFO, Biotricity) and pretending to have proprietary equipment (which is the GAEC’s same equipment they are alleged to have stolen from AETE).

To say that this isn’t the first go round with the SEC might be putting it mildly:

From: http://www.sec.gov/litigation/litreleases/2009/lr20961.htm

Two Texas men, who perpetrated a massive e-mail spam campaign to drive up the demand for low value stocks they owned, will pay nearly $4 million in penalties and fines and will no longer be able to trade penny stocks under an agreement reached with the Securities and Exchange Commission.

The agreement, which was entered today in the form of two final judgments by Judge Kenneth Hoyt of the U.S District Court in Houston, prohibits Darrel T. Uselton and his uncle, Jack E. Uselton, from violating antifraud provisions of the federal securities laws and trading in penny stock. Darrel Uselton also agreed to pay $2,838,866.72 in disgorgement and prejudgment interest and another $1 million in civil penalties.

Another incredibly interesting point is the fact that I am placing a limit order to short shares @ $0.50 per share and the transaction is going off at higher price than my offer.  This reeks of a market maker who is in on the game.  A higher transaction price could be viewed as a positive for the stock. It appears as though the stock is up 10% today due to the transaction that I placed @ $0.50 hitting at $0.55.  My hunch is that if I were to offer 100 shares for sale @ 0.12 that my trade might just go off at $0.55 or $0.60.  I would try it but I don’t want to waste the trading fee.

Look at the history of the folks behind GAEC (GFET @ $0.03, no volume | AETE @ $0.13, no volume)

Here is another Gem from the March 31, 2009 quarterly report:

We do not have enough cash to satisfy our capital requirements for the next twelve months and we rely on shareholder loans and sales of common stock to pay our operating and research and development expenses.

B. Management’s Discussion and Analysis of Financial Condition and Results of Operation

We currently have few assets and no income. We are continuing to develop our cellulosic ethanol feedstock manufacturing facilities.

Gulf Alternative Energy

I can’t begin to tell you how much the beating of the commercial mortgage drum feels like the lead up to the residential mortgage mess.  Prior to the residential mortgage market imploding, I heard a lot of noise.  There were plenty of folks saying that this was coming and here is. I ignored the calls that there was gloom and doom on the horizon and held some things that I shouldn’t have.  To say that the folks discussing the impending doom were correct would be a massive understatement.

There are enough folks out there discussing the issues in the commercial mortgage market to warrant some consideration.  A commercial mortgage crash can be played using a vehicle such as SRS.  It is volatile to say the least, but if you expect a commercial mortgage crisis to hit us, buy SRS.

Beating the Drum

Bob

When trading in public view, I have come to realize that my parameters are a bit unrealistic.  When I enter a position, I am typically going in with too little capital at risk.  At the same time, I am trying to extract a particular dollar figure out of the position.  Typically, I am trying to reach 7%-8% profit on a trade.  That is completely ridiculous in the grand scheme.  I have entered trades with a profit goal of $100-$300.  When looking back, it is completely absurd in some of those cases since the security would have to move 10%-20% to achieve the return.  I have been fortunate, in many cases, that we are in a VERY volatile market.  A 10% swing from the day low to the day high is not unusual.  But, that won’t last and I have be get realistic about where things need to go.

A quick trade that I made earlier today is a prime example.  I bought puts in the DIA.  I bought 10 puts at $0.97 ($97) a piece.  My goal was to make a quick $100 on the trade.  When looking at that number, the contracts would have to move about 12% for me to reach my goal (after trading costs).  That is an absurd goal to try to attain on a trade by trade basis.  I ended up getting out with a quick little profit of about $95 on this trade.  I had a 10% move in about 25 minutes.  Percentage wins like this don’t help me dial in to 3%, but I must do it.

After analyzing the trades that I am currently stuck in, I have come to an even greater realization of this issue.  I am stuck in one stock because it didn’t hit my 18% gain needed to extract my dollar value goal.  It moved up more than 15%, but didn’t trigger my sell!  15% in a day, and I didn’t take the trade!  The stock has since traded down and I am down more than 5% on the position.  Had I tuned in the dollar value goal with a more realistic move in the shares, I would have put a bit more capital at risk, set an exit at a more realistic price point and achieved the same end result.

The exercise of trading in public view, has been educational for me.  It forces me to go back and analyze what I did wrong.  Was it my reason for buying?  Was it a bad entry price? Was it a macro event?  In most cases, it was an unrealistic exit price.  If the market choppiness abates even more, I will need to be dialed in even tighter.   I don’t expect it too become less choppy anytime soon, but I have to be prepared when the time comes.

Bob

Oxen Group’s pick of the day: CNX

Oxen Group’s pick: Shorting CNX

Courtesy of David at the Oxen Group

If I were a betting man, I would bet the market is still going to trend down Wednesday and it won’t have the sort of rebound it has had over the past three session. Yet, even with futures posting their lowest numbers in weeks going into today’s trading, the market still will be heavily influenced by important reports on crude oil inventories, durable good orders, earnings from Sprint, Time Warner, and ConocoPhillips. However, none of these indicators, has the power, unless extremely positive, to really change the market.

I think Wednesday is that big day we are all looking for where we drop 1-2%. Tuesday, unlike Monday and Friday, saw an attempted recovery that failed. This means less and less money that is on the sidelines is ready to jump into the market as fears rise. One stock, however, that is an interesting play is CONSOL Energy Inc. In after hours coal producing rival Massey Energy reported outstanding earnings that drove the stock up 5%.

CONSOL reports earnings on Thursday. Tomorrow, it is a big day for investors going into earnings. The way I would play it at the current market direction is that it will most likely gap up on the news from Massey, and it should be shorted into a lower opening market. However, as it hits a bottom for the day, we may want to pick it back up as it could rise into earnings. This definitely changes if the market is green or moving to green after the morning news. If the news is bullish, the stock will probably gap up, move down, back up, and trail off as the market can’t hold the upward movement. Either way I like CONSOL as a solid short moving into a buy in late afternoon.

Entry: Recommend 5-15 minutes in if data and earnings are weak, waiting 35-50 if the opposite.

Exit: We recommend exiting after a 2-4% increase.

Stop Loss: We recommend a 3% stop loss on all buy in prices

Upper Resistance: (lower) 32.00

via Oxen Group’s pick of the day: CNX | Phil’s Stock World.

Patting self on back.  It feels good when a call is confirmed (especially when 2 other ideas/trades are dumping).  Today, Celgene announced their second quarter results. Numbers were very good.

Celgene has traded up more than 13% in the pre-market.   This comes after a very nice run in the shares.  We were touting CELG as a great buy on 4/15/09 @ $38.70/share.  I added a bit on 4/23/09 @ $39.37.  It is trading at more than $53 in the pre-market.

7:33AM Celgene reports EPS in-line, beats on revs () 47.19 : Reports Q2 (Jun) earnings of $0.46 per share, in-line with the First Call consensus of $0.46; revenues rose 10.0% year/year to $628.7 mln vs the $620.9 mln consensus. REVLIMID Net Product Sales Increased 22% to $397 Million; VIDAZA Net Product Sales Increased 54% to $92 Million; THALOMID Net Product Sales Totaled $105 Million.

We have been touting Celgene since day 1 at BobandScott.com.  You will find mentions in many of our podcasts and we are both long term holders of the shares.  This is a company that is operating well. They have drugs in the pipeline, but the key to this companies growth has been the approval their current drugs in other markets and for use in other applications.

Celgene is a strong performer that I would, and have, recommend for most portfolios.  As I mentioned earlier in the week, CELG,MTB,GLW make the start of a very nice portfolio.

• Love Celgene, M&T and Corning (7/20/09)
• Celgene is a Bargain (4/15/09)
• Celgene is Buying Celgene (4/27/09)
• Bought Celgene Not a Trade/ (4/24/09)

Celgene - CELG

If I was looking to start a lower risk portfolio with a few positions, I would want stability with the potential for growth and the possibility of a dividend.

I would recommend the following three stocks to virtually any investor:

1. CELG (Celgene):  This stock might be the one with the highest opportunity to pop.  The Obama health plan is a bit of a drag for this sector, but once things shake out there, the stock is poised to perform well. In fact, we were strong on CELG below $39 on 4/15/2009.
2. GLW (Corning): Corning is solid, good financials, and in the position to profit from a growing economy.
3. MTB (M&T Bank): Some exposure to the financial segment is not a bad thing.  You could do this via an ETF (such as XLF) or via a solid stock like MTB.

These stocks have been touted on this site since we started BobandScott.com.  I have owned a core number of shares in CELG & GLW for at least 5 years and have traded a bit during that time.  I have owned MTB from the mid 20′s and have added to my position on a couple of occassions (in the mid 40′s).  MTB is a solid regional player that stands to benefit with the recovery in the economy.

Bob