CAT Top Hammer Pattern

Caterpillar has a top hammer pattern on the daily chart.  This is a bearish pattern and may indicate a pullback, which can be a buying opportunity.  The ParabolicSAR study and the Bollinger Bands are indicating that 105 is an interesting area to watch.  Also keep an eye on the gap near March expiration.

 

Green Energy Deployment Needs Resiliency Just Like Information Security

 

 

Christopher Mims has a great piece at Grist on the state of Germany’s photo voltaic(PV) system compared to Japan’s Fukushima nuclear complex.  We can skip over the math arguments that the PV system in Germany is 20% more efficient than Fukushima at the height of the day.  The point now is that Fukushima is producing ZERO watts of electricity.  The design of future green energy systems should incorporate concepts from Information Security.

Information Security attempts to build the CIA triad.  CIA is

  • Confidentiality – Is the data protected from unauthorized access?
  • Integrity – Has the data been tampered with?
  • Availability – Is the data available for people to use when they want it?

 

We will look at Availability.  Information systems are typically protected by an Uninterruptable Power Supply (UPS) which has a battery backup.  If electricity is lost the batteries continue to power the servers.  In most cases the UPS is supplemented by a diesel or natural gas generator to recharge the batteries.  In very scenarios where interruption of service is a high impact event, a company will deploy backup servers along with the resilient electrical resources in a geographically separate area.  In some cases this can be cross continent or across the world.  The objective is to prevent a total loss of your business from a geographically isolated event.  The second objective is to provide the customers with a service that is available when they want to use it.  For example, a business in Japan may have located servers in another country.  If the datacenter were destroyed by the tsunami, the severs in the other country would take over automatically and the customers would not know the difference or know immediately that something was wrong.

Green energy needs the “A” principle of CIA in order to be useful.  Pundits on both the green energy side and fossil fuels side have advocated for a one size fits all solution.  Windmills, solar panels, and ocean power have not reached the efficiency levels to replace fossil fuels.  Fossil fuels are reliable, but are subject to supply chain disruption and competition for the resources themselves which results in higher prices for everyone concerned.

Green energy sources should initially supplement fossil fuels and should be used much like a hedging strategy in a stock portfolio.  If there is a disruption of the main power plant, the green alternatives can take up part of the slack while the main facility is being repaired.  As more green capacity is brought online it can be built in a decentralized manner.  This reduces the exposure that consumers face from the loss of a centralized power source.  Green energy is great, but if it is unusable due to a natural disaster the effort is wasted.

Earthquake Play in CAT

The world is shaking apart and the Japanese may need some heavy equipment to rebuild.  CAT has strong demand anyway, so this could be an opportunity to ride a price spike.  A 1 Standard Deviation move would put CAT at just over 90 by April expiration.  This could be a good opportunity to get in.  CAT would have to pull back by 10% to make this move.  We managed to get in for .47 so this has already had a good move.  Sizing is important if you decide to chase it.

SELL -1 VERTICAL CAT 100 APR 11 90/85 PUT @.39

Stock-Analyze---CAT-2011-03-14

Democracy in the Middle East Bad For Your Portfolio?

 

A colleague mentioned that they overheard someone ranting about the people in the middle east rioting.  Apparently this person’s portfolio was taking a beating because of all the uncertainty there.  There are many ethical issues at play with this approach. Should we cheer for the dictator to protect our portfolio as well as their power?  With the right strategy we can cheer for democracy, delight in the fall of a dictator, and watch our portfolio maintain the status quo or grow even larger.

Don’t Sweat It

If you’re investing for the long run, don’t look at your portfolio! You’ll be like “that guy” who always complains about every little negative mood.  Go outside and enjoy the fresh air, read a book, or do something else with your time.  You haven’t lost any money until you actually sell.

Defend Your Profits

Using Stop Loss orders in this environment is essential.  A Stop Loss is an order to sell if the price of the stock drops to a level you have set.  You can use it to lock in profits.  If you bought something at $50 and the current price is at $80, you can set a stop loss at $70 to lock in $20 worth of gains.  If it suddenly falls from $80 down to $50 you don’t have to do anything.  An order to sell at $70 will execute on the way down.  Wouldn’t you rather sell at $70, make $20 in profit, and then buy it back again around $50?

Sell Everything

If you think the world is going to end, just sell everything, wait for it to bottom out, and then buy the dip. 

Sell Some Things

Pick a few stocks that are doing just OK and would be affected by volatility.  Take your small profit on those.  Don’t let a small gain turn into a big loss.

Sell a Portion

Besides using Stop Loss orders, you can sell half or a quarter of your portfolio positions to lock in those profits.  If things pull back your loss won’t be as big.  You can always buy back in if things start going up again.

Hedge The Portfolio

Hedging is a somewhat advanced topic.  In general you allocate a certain percentage of your portfolio to some short positions that will lessen the impact of a pull back.  Usually this is done using S&P 500 Options or Futures contracts.  For example if 100% of your portfolio is long stock, you may decide to sell 30% of your holdings and then take the proceeds to temporarily buy Put Options on the S&P 500 Index or short the S&P 500 Futures.  The short positions will gain if the index pulls back which will lighten the impact of losses in the rest of your portfolio.  You’ll want to quickly close these short positions out if the market goes up.   Individual investors do have the option of selling everything and sitting out a storm, while fund managers usually have to be 100% in the market at all times. The advantage of hedging is that you don’t have to sell everything to minimize risk, which is great if you have a lot of open positions.

Defeating the Dictator

With the proper hedging strategy it is possible to make money while the stock market goes down.  Not all stocks will pull back if it is a short term market dip.  Some of your positions may continue to go up.  If your hedge goes up more than your losing positions have declined you’ve experienced bi-winning, as Charlie Sheen would say.  It is possible through troubled times to still have a winning portfolio and delight in the fall of the dictator.  That’s having your cake and eating it too.  As for the dictators, we don’t want to “let them eat cake” because that would mean that we would have to share.

Boosting The Economy With Sunday Alcohol Sales

There has been some discussion of legalizing Sunday alcohol sales in Georgia to boost revenue to the state.  Instead of boosting revenue to the state with alcohol, let’s take a look at how alcohol can boost our revenue.  Here are some well known alcohol companies.

 

TAP Molson Coors Brewing Co

Stock-Chart---TAP-2011-02-27

 

BUD Anheuser-Busch Inbev

Stock-Chart---BUD-2011-02-27

SAM Boston Beer Co

Stock-Chart---SAM-2011-02-27

 

HOOK Craft Brewers Alliance

Stock-Chart---HOOK-2011-02-07

 

DEO Diageo Plc

Stock-Chart---DEO-2011-02-27

 

As we can see most of these look pretty terrible.  Good old Sam Adams appears to have some potential opportunity.  It appears to be range bound since the gap up in December.  The low end of support is around 88.  There is a bounce off this with a two day rally.  If it moves above the 50 day it could be a good entry point.  A bull put spread of 90/85 might be a good play for a 1.30 Credit.  Adding another pair of legs on the call side at 100/105 to create an Iron Condor for a .60 Credit could also be a good play after the price rises.  Exiting or hedging each side of the iron condor with a butterfly debit spread can also give you some breathing room.  Earnings will be announced on March 9 so there is risk that SAM could miss or it could have upside risk if we go with an Iron Condor.  These options also aren’t very liquid so there is the risk of not being able to exit if there is movement that doesn’t go our way.  This may be a good time to enjoy a Sam Adams in our glass, but not in our portfolio.

 

 

Stock-Chart---SAM-2011-02-27--trendlines

GMail Disruption Loses Thousands of Accounts

CNN is reporting that a disruption at Google may have caused the loss of 150,000 GMail accounts.  Google is working on restoring the email, but one user in the help forum asks, “What if the cloud fails”?

Most home users have been using “the cloud” since the 1990s via hotmail or through email hosted by their dial-up or broadband ISP.  Today users mostly rely on some kind of web mail for both business and personal communication.  As we have moved away from client applications we rely more and more on the service provider to ensure that we can access our data when we need it using a web browser.  For a small business owner or freelancer loss of data can mean loss of revenue from downtime, if not wiping out your entire business.

One step that users can take is to consider using client applications again. This may seem like a backwards step until you need to access your data while the service provider is down.  GMail works with any program that is compatible with Microsoft Exchange or using the IMAP protocol.

GMail support details how to configure IMAP in your email client.  Since IMAP synchronizes with the mailbox there will be a copy of the email on the server that can be accessed with a web browser or it can be accessed through a client program like Outlook or Thunderbird.  Using IMAP can be a cheap (free) form of insurance in the event that the email provider has a permanent failure.

Small business users may want to consider the benefits of using an email client to keep a copy of their email.  Hard drives can fail or experience a fire, flood, or other catastrophe in both the datacenter and in the home or office.  Keeping multiple copies of email in different locations is one way of protecting your business.