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 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

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

I am out of my Corning  call options as of a few minutes ago.  I already miss them.

I took a nice percentage gain on these contracts over the past couple of weeks.  As I mentioned in my I love Corning post, I love Corning.  Why did I sell my contracts if I love Corning?  Well, the market is very likely to be tested again.  I really feel that the IBM numbers (especially guidance, or lack of) this afternoon will dictate the direction of the market to come. Earnings will be flowing for a couple of weeks and guidance will be critical.

I fought the urge to turn this trade into an investment.  I left something on the table, and will be disappointed if I am not back in this contract before earnings come.  I have traded this contract on 7 different occasions (really 6, but one was sold off on 2 different dates).  Each trade has yielded a nice % gain. Symbol: GLWKC (Nov 15 calls)

• Out 7/16/2009: +73.5%
• Out 7/14/2009: +33.6%
• Out 7/16/2009: +19.9%
• Out 6/12/2009: +13.65%
• Out 6/12/2009: +38.03%
• Out 5/27/2009: +11.54%
• Out 5/20/2009: +20.84%

I wish that I could do this more often, but we have to play what the market gives us.  I have simply been playing the market swings with this option contract as a vehicle.  If IBM comes out good, this one could be long gone.  GLW should rally with that sector.  I am a bit upset with myself for not holding on to some of the contracts that I sold off this morning.  We’ll see how it pans out.  I am not sure that I believe the rally will continue.  Feels tired already.  Too far too fast?

Corning - GLW

If you are a regular reader, you will probably know that I am a big fan or Corning (GLW).  They are positioned so well for the spending that is still occoring in the economy and also to take advantage of the spending that will come once we recover.

Flat panel: TV shift continues
Green Tech: Filter products
Network build outs: ongoing and stimulous money helping to spike the current spend
Cell phones and other devices: Gorilla glass ®.  Let’s hope for that Apple tablet type device to boost 2h 2009.

If you are looking for a nice long term investment, consider Corning.  There has been a bit of a swing in share price, but anything under $15 a share should look like a fantastic entry point in a couple years time.

I am trading in some option contracts right now.  Down a bit on one batch and up a bit on my second batch.  I might just see myself out of these contracts tomorrow.   However, I am getting a bit greedy and will consider a hedge of a gain rather than an outright sale on these contracts.  We’ll see what tomorrow brings.

Corning - GLW

This trade in WLP was outlined by Andrew Wilkinson today. It shows how you can utilize options to make a bullish play on a stock without laying out the cost for the shares. If successful, this trade could yield 3x your money within a two month period. Try to follow below.

WLP– The Indiana-based health benefits company edged onto our ‘most active by options volume’ market scanner after one investor appears to have established a ratio call spread in the August contract. Shares of the firm are up slightly by about 1.5% to $49.71. Hoping for continued bullish movement, the trader purchased 5,000 calls at the just out-of-the-money August 50 strike price for a premium of 3.50 each and simultaneously sold 10,000 calls at the higher August 55 strike for 1.54 per contract. The net cost of the transaction amounts to 42 cents and yields maximum potential profits of 4.58 if shares can rally up to $55.00 by expiration. The investor would begin to amass profits if shares increase just 71 cents from the current price to surpass the breakeven point at $50.42 by expiration in a couple of months. – WellPoint, Inc.