Con Artists at Cornerstone (CRF)- Of course the best short idea in the universe did not have shares to borrow at $19.39!!!!

You might be interested in checking out CRF(see also CLM), a closed end fund that trades at 170% of its NAV (was 190% recently before a drop). It owns a bunch of Dow stocks as its top holdings (nothing special) and is only 85% invested. The kicker is that the fund carries a current yield of +11.5%, which equates to paying out nearly 21% of its NAV. Clearly this is not the modus operandi of a "going concern" closed end fund, however the meat of the story appears to originate with the fund's largest holder Ron Olin and his relationship with Doliver Capital and a firm called "Deep Discount Advisory"....oh the irony! My best guess is that these firms are engaged in selling shares of CRF to small investors in cash/retirement type accounts where they cannot be margined. There is a distinct lack of large holders, with the thirteen largest stockholders (behind Ronald Olin and related entities) holding a mere 2% of the outstanding shares. Thus, there are no shares to borrow for a short position against this overvalued asset, which is a shame since there appears to be an obvious incentive for Mr. Olin to market his overpriced stock to unwitting investors, who are no-doubt focused on the current yield of the fund (rather than the all-important NAV).

This essentially amounts to selling people a one dollar bill for $2, not exactly a fair trade...especially when you consider the distinct lack of special assets in the fund. Note, being 15% invested in cash has not stopped the fund manager from charging fees on the assets under management. To put it another way, in the chart below, figure that the "white line" should be trading somewhere south of the "blue line"...which implies a 40% plus drop is in the cards for this turkey sometime in the near future (assuming the Dow Jones average does not double...in which case it could remain flat!)




Thought given your position this might be worth passing along, as this would be an excellent case where short sellers would be able to save future investors from "getting their faces ripped off" by Mr. Olin. Note, I am short zero shares due to the clever scheme that has been set up here. (PS- note that CRF is a long-dated fund that traded at a discount prior to the 2000's, but since undergoing manipulative marketing it has been on a rollercoaster ride)

Best Investment Idea of the Year- Overweight recommendation on Chipotle Gift-Certificate Cards (literally)

Sell your house, take out a second mortgage, this is the idea you've been waiting for..... For a pittance of a sum, you can buy a $25 Chipotle gift-card and receive a coupon for a free burrito. Based upon an implied value of $5.50 per burrito, this works out to a 22% return on investment. While the coupon must be used before year-end, estimating by my current rate of Chipotle consumption...that would be good for at least 10-20 trips before year-end (and the gift cards remain valid for at least another year). Thus, the rate of return on your investment increases substantially when you discount the fact that you would have eaten at Chipotle a couple hundred times next year, whether you had bought the gift certificates or not. Essentially, that money is a future "sunk cost", so taking advantage of the gift certificate is equivalent to getting free money.

Democrats win Congress

Hydril Update- I couldn't take it anymore and sold my Hydril at $69.30, as it continues to rally out of control. Nearly a 40% gain from $50.50 entry price. Too bad I never got to my full position, because it rallied so quickly. Next time I get to buy this good of a company on the cheap (while the cycle is still in their favor), will put on a full-position in the name right away. Meanwhile, my hold-discipline on FRK is not paying off yet, as the stock has fallen off of the $46 high from a week or so ago. Not too worried, have been reading that the Cemex bid for Rinker Group would need to climb nearly 10% for certain fund managers to consider accepting that offer....which would bode extremely well for the prospects of the less-expensive Florida Rock.














QOTD from Will Rogers- "A holding company is a thing where you hand an accomplice the goods while the policeman searches you. "

More Dirty Politics.....

Vote or Die

Bubblin' Crude- HYDL- Hydril Corp

Ben Graham (1976-FAJ)- "The stock market resembles a huge laundry in which institutions take in large blocks of each other's washing...without true rhyme or reason."

The spasmic market decimated Hydril's stock price following the decline in oil and nat. gas prices. I do not believe that I have any crystal ball or special edge in forecasting future oil prices. However, as seen by all of the johnny-come-lately hurricane forecasters predicting another "storm of the century" in the year AFTER Katrina hit, it appears that many "expert forecasters" offer much ado about nothing. After seeing Berkshire's reinsurance profits rise 5-fold, I have a bold prediction myself(with a 99% certainty) that Buffett will have a very funny, smart-ass quip in his upcoming 2006 annual report about the various weather experts and forecast models!

Onto the subject at hand, am up significantly on HYDL. Originally wrote up at $55/share, but the stock fell so fast at the beginning of October I wound up buying a half position at $50.50. Following an awesome wedding for my brother in Austin last week, I was incommunicado for the last 10 points of stock movement (luckily, as it did not tempt my fate to sell my shares). HYDL earnings will likely be limited in the near-term, as excess drill-pipe capacity needs to be worked off by E&P companies. At $50/share, HYDL traded at 7x Ebitda with a huge order backlog and a strong management team ( I worked with them as a private lender at Principal, top shelf guys...even when the market was not overly favorable towards them). Am not buying any more here and debating whether to sell some (just so I can say I made 30% within a month :) ). The RSI on this was near 20 and way oversold in early October and is now nearly 70 (overbought).

In other news, notable LBO/buyouts that have occurred today include SWFT (Swift Transport- Walmart trucking co.) and ELK (Elkcorp exploring strategic actions and company bid....stock is up 23%), ELK was a name I had ordered up annual reports on due to its valuation and the fact that all of my neighbors get their roofs replaced every 5-7 years unnecessarily (insurance money). Interestingly, SWFT first peaked my interest more than a year ago based on the insider buying by their CEO at $22/share. Their CEO is back for the rest of the company with a $29/share bid that may increase. No position in either of these companies unfortunately.

Where is the LUV???

G. Gerswhin-" Life is a lot like jazz... It's best when you improvise"

Sold the $15 November Put (20 days to expiration) for $.30/share. Net of commission, this amounts to a target return of 2.0% on my $14.71 VAR (value-at-risk). This amounts to an annualized rate of return of 35% on VAR that is invested in one of the best airlines EVER. I could cite labor costs, lack of strikes, no bankruptcy, consecutive years of profitability, hedged fuel costs below $40/bbl of oil, its own reality television show, but instead I think the most telling feature is that Southwest manages to accomplish its historical profitability without compromising on customer service (i.e- they still give out peanuts and an ENTIRE can of soda), unlike those bastards at other airlines.

The stock is at a 52-week and multi-year low, while I think it could have near-term downside to the mid $14 area, it should have some support at current levels...particularly given that the company has been earnings money the past five years and trades at a lower valuation than it did then...








Here is a chart-printing of the option. If you prefer to own the stock, but want a yield higher than Southwest's meager .12% payout (perhaps the major chink in the LUV bull argument), you can always write the $15 call. Again, these strategies only make sense if you have ultra-low commissions(similar to Southwest's ticket prices)






Is free peanuts a valid investment thesis? (The answer to that rhetorical question is yes, in case you didn't know). Look what happened to Lone Star Steakhouse when they removed the peanuts from their restaurant. There were some other problems with sales and earnings, which were probably due to the lack of peanuts I imagine.

I Wanna (Florida) ROCK!

Pat Riley- "Giving yourself permission to lose guarantees a loss. "

Florida Rock rallied 15% on Friday (at the high of the day), before finishing up around +8%. I continue to own this position, which performed this rally on NO news and no earnings announcements. The key driver of the stock gain appears to be a buyout offer that Cemex launched to acquire Rinker. The buyout offer values Rinker at nearly 10x Ebitda, while at the same there is a private equity push at TXI (Texas Industries) , which is also trading above 10x Ebitda. While Florida is not currently considered the "hottest" residential housing market around... it has historically rebounded and still holds a lot of what can't be rebuilt on the prairie (namely, waterfront property).

Florida Rock is only about 40% exposed to the residential market in Florida, due to its diversification in the Southwest and maintains a very strong balance sheet, with negative net debt. At 7x Ebitda (trailing), its hard to want to sell this stock on a 15% up-day in trading, especially when one considers the chronic cement shortages that have plagued builders in that state for the past three years (state is a net importer). Perhaps I'm being greedy, but historically selling (too soon) good companies as they start to overcome investor pessimism has been my weakness. I would expect to see this stock approach the $50-55 area within the next few months, if only to move in-line with where other cement/aggregate companies are valued at in the marketplace.

Long FRK (up to $43, from purchase price at $38)- Writeup from Sept. 06 Journal below

It A'int Pretty But Its Cheap!
Have noticed that some of these bank stock options are not paying close attention to the dividends on the underlying stock, too focused on volatility numbers, etc.

Here is the trade, sold $45 November calls on Citigroup @$5.80, while buying the stock at $50.80. If Citigroup closes above $45 (or does not fall 13%) by November 18th, then this trade will net me $50.80 per share, versus my cost basis of $50.80. Not a great-sounding trade you say? Lest I forget, Citigroup will pay a dividend to holders of the stock on November 6th.... of $.49/share.... which is really all you get out of the trade.

So doing the math, we are really only risking that the stock falls below $45, with that being our net investment in the trade. For a 23 day holding period then, we will earn ($.49-.02 commissions)/$45 at-risk =1.04%,annualized gain*(365/23 days)=16.5%

EXP- Eagle Materials: Attached to this post is a sample of one of my note-book writeups on Eagle Materials. They recently had several large insider buys in their stock, but hopefully this gives a sample of some of the info I focus on when analyzing a company/industry. I am extremely impressed with the grasp of EXP management on their market dynamics... however I would probably wait to buy the stock if it gets to the low 30's again.

Well... the market is at a 52 week high and up about 12% for the past twelve months (depending on which market qualifies as "the market" to you. For the past 2-3 months, a lot of stock I have been following are up 15-20%, with very few of the decent-quality companies trading near their lows.

The only recent market overreaction has been in the energy sector, with many drillers and oil service companies getting clobbered due to oil price declines. I bought HYDL at $50.50, which has rallied up about 7-8 points in about a week. I only bought 1/3rd of a position, as I was buying into it as a falling knife. I like management, company has >10% of market cap in cash, no debt, and dominant market position in premium connections (deep sea oil drilling). I should have bought more exposure in this sector, possibly including GRP (grant prideco) below $35. Recent buyouts of NSS and MVK (steel tubing for drill pipe) bode favorably for this sector, possibly affording buyout interest in either GRP or HYDL longer-term.

Recent strong performers for me have been GTRC, CPWR. AGYS, FRK, CCRT, DEBS, IUSA,JBHT, YUM, HYDL, DRI, EAT, and several others. Am debating buying some WSM in the low 30s due to strong insider buying and decent niche retail concept. JLG is a solid trucking company (aerial lifts) that was oversold and had just hit my low-debt/valuation screen....prior to receiving a buyout offer more than 25% above its prior closing price. Ironically, even after the huge jump in stock price it is still on my low-valuation screen! Deluxe Corp (check printer) is also up nearly 50% from its $14-15 bottom of a few months ago. I hated this company and their extremely weak former management, however new CEO Lee Schram appears to have the right stuff and has made some tough decisions to preserve cashflow. Based on their high debt leverage and strong current cashflow, DLX is LBO bait if the stock price fell below $20/share, although I am less excited about it at $22/share (upside to $30?) Am not excited about a lot of names and am waiting for some opportunities to develop. Will continue waiting for some exciting names to go on sale....

Jon Stewart the Daily Show - Internet Tubes

Awesome....Just awesome

A Couple of Ideas I'm working on....

BUY CSC @$48 range. CSC announced their company was not going to be sold to a buyout group, but that they would be going ahead with a $2bln stock repurchase, which represents 22% of their floated shares. The company is also subject to an options-grant investigation that most companies are facing, but in any event their stock fell 13%...half of which occurred intraday. On a technical basis I think their is support at $48, and additional longer-term support in the $43-45 range. I would have liked to sell the puts, but their options pricing is way too skimpy and doesnt compensate for the risk associated with writing them.

I am recommending putting on a trade position in 1/4 sizes at a time and hope to sell the puts at the right premium level.CSC trades at 4.3x ev/ebitda, vs. the market average valuation multiple closer to 7-8x. Any stock repurchases below $50 should enhance a buyout firm's ability to step back into the picture and pay a larger premium on the remaining shares, so I am fairly positive on the outlook.

MWY- Short Squeeze Part deux?


MWY is also forming a killer short squeeze, 95% of the floated shares are tied up and Sumner Redstone appears to be moving in tor the kill, buying 1% of the outstanding float per day. Sumner's buying in the single-digits and low-teens in 2005 caused the stock to move from $8 to $24 last year. After he ceased buying MWY stock in the high teens, it has since fallen to $7 (admittedly, the company is a terd). However, since he has restarted stock repurchases in the past two days the stock is up 15% to $8.09. With approximately 2MM shares short and 7.6MM in the float, there is the distinct possibility of a short squeeze into the low double digits... as Redstone owns 85% of the company and is very near the 90% threshold required to take the company private.










BUY PSUN under $18- continue averaging into position as stock trades down

Am also looking at value in CLE- Claire's Stores (less fashion-sensitive than other retailers), and DG (which is less economically sensitive than other dollar stores and is trading at approximately 12x peak free-cashflow. All of these names are oversold,
PSUN is down almost twenty percent from where I first noted it as being potentially interesting. While I was more concerned after checking out some of their stores, they are now trading at around 4.5x trailing ebitda ( versus 6.5x for the group, which is still below the market at 7.5-8.0x). Essentially, if PSUN's earnings were chopped in half, they would have a P/E of around 21x. While that P/E level is high, for a depressed earnings multiple and worst-case scenario it would seem to indicate that current levels offer a good entry point.

ACS- Affiliated Computer Services- Sold the July $50 put

ACS has been extremely volatile over the past few years, as evidenced by the attached chart. From looking at the volatility, one might never guess that their underlying business activities are fairly benign, such as processing student-loan payments and setting up toll-booth collections for various states.

After 5 years of back-and-forth activity in the stock price, the company decided to implement a dutch-auction buyback for half of the company (in response to an unsolicited buyout offer from private investors). But like a tree that falls in the forest, what happens when you do a dutch auction and nobody is there to tender their shares at $63? I can answer that question.... your stock price will fall to $49. The company now has a $5Bln credit facility and a $7Bln enterprise value, which would allow them to buy-back up to 2/3rds of their stock if they really wanted. Conversely, if their stock price were to fall much more, me-thinks that whatever LBO buyer was interested at $55+++ would be back in the game buying up shares at sub-$50 stock prices.

So, between a potential buyout above $50 and a potential new share buyback, there seems to be downside protection below $50. Additionally, the long-range value of the company is about $50-$55/share from my estimates, so I feel comfortable writing (selling) a $50 put expiring in July. I collect $200 if the stock finishes at $50 or higher and my adjusted purchase price if it falls is $48. Given that the odds of a shareholder buyback increase significantly the more the stock price falls, a price decline might actually be a positive event. While I am bullish on the company, their name is involved in an options-backdating scandal and several other negative headlines events that should not be overly material to them (i.e- less than $100MM aggregate for all items).

Recommendation- Sold the July $50 puts (conversely, you could buy the stock at $49 and sell the July $50 calls). This basically provides you an income while negating upside above $50. In actuality, it may be a better risk/reward trade to just buy the stock (in the event it gets bought out at $60/share), but I like to make things complicated sometimes. My last idea like this (WLS) worked out way better than I could have imagined, rising from a price of $73 to $128 within the past two months.

Housekeeping Items.... (in reverse chronological order)

Recommend taking profits on half of Neumarkets position (NEU), stock is up about 10 points from where I recommended it at $36...in spite of being off nearly 10 points from yesterdays high at +$56!!!

Other trades, ALKS shouldve stopped out for a small loss at $25.50 a long time ago, CONR should have stopped out for at least a 5% gain, JOYG is up about 10% to $64.88 and could easily fall 5% (without breaking its current uptrend.... I would tighten stops on this name),


Inco (N) is a trade that has done very well, although my initial recommendation for a stop-loss at $44.70 would have allowed a lot more upside than my greedy followup advice to raise your stop (after the stock had advanced some. Copper fundamentals and technicals are strong due to chinese demand and mine outages. Hell, these miners can't even find enough tires to fit on their big dump trucks because the demand is so strong ( I'm not kidding, either). Stock is currently at $54, up from $46 reco- price... and up a lot from the $47.08 that I i got stopped out at!

Homebuilders appear played out, have already taken my gain in WCI (which was up more than 10% from my $25 reco-price. WLS had a 36% gain in ten days, after "the General" bought out his company.

Ryerson Inc is up about 10% from the $24 reco-price, while the cup-and-handle looks intact, would still raise your stop loss price to lock in at least half of the current gains. These guys had some accounting issues, unbeknownst to me when i first glanced at their chart.

ASEI- Stock muscled from $84.65 to $92 after I recommended it on a pullback. It has since come down to $81, although fundamentals of port-security and xray machines appears intact. If you were following trailing-stop-loss rules though, you should already be out of this name, hopefully with a gain. Last resistance/support level on the chart is in the $73 range...

HRS- recommended the stock at $43.2 before it powered up to $47...only problem was it gapped up the next day, so entry would have been impossible. No position was seriously looked at due to this glaring issue.... (although I look like a genius for posting the chart when i did! lol)-

NYX/ISE - All of the stock exchanges have been battered, and are down 20%+...interestingly, I was fundamentally negative and was specifically citing a technical breakdown in their charts.... for instance, NYX had a dark cloud, then a gravestone doji (w/ negative follow through at $87 level) and ISE had a huge bearish engulfing day in mid-March. This was a major missed opportunity for me, which I didn't engage in because I was too wussy to initiate the trade with tight stop losses (fear of getting executed?) - missed out on +20% within a month

GCT- This REIT has traded higher between 1-5%, as well as paying out a 2% dividend since my posting. In classic rock-paper-scissors style, I'm hoping potential for a buyout trumps any accounting issues. Also, they canned the CFO for being a pansy-ass...can't say I blame them. Continuing to hold (+3% currently)

ERTS- Shorted some ERTS at $54.90. Should have shorted more at $56.30. Some buttwipe at Lazard Capital actually said this company is a buy, because its trading at 30x PEAK earnings in 2010, which figures in all these optimistic assumptions panning out over the next 5 years. Inco and Phelps Dodge are 10x earnings RIGHT now at their peak...what kind of weenie pays 30x earnings 5 years from now? I thought all that "new age" and "internet" crap went out of style already? Someone needs to call that analyst up and tell him " Year 1999 called, it wants its hype back". This stock is a total terd trading at 50x earnings...i saw their recently released James Bond Game trading at $18 used at Gamestop yesterday.... War of the Monsters (circa 2003) is still trading at $29??? Talk about precipitous decline in pricing.... I promise to cover my short-shares when ERTS stock is priced less than the cost of their average new game price (currently $39.99).

Insider plays- this wasn't a recommendation of the companies I cited, so much as an example of situations where perhaps buying off of insider trading is much more helpful than trying to fundamentally grasp what is going on at a small public ocmpany.

"ALL YOUR INSIDERS ARE BELONG TO US...."

These are several examples of small cap companies that hit my radar screen, for which the insider buying would be the primary factor motivating a purchase of the shares... either due to losses at the company or extremely limited insight/disclosure from the company, due to their small size, etc. NKBS was actually found on my value screen back in the 1's, while CFS and KNOL I've been watching go up 50-200%, respectively.

GCT/KRG are examples of REITS with strong insider buying that I've put a little bit of money into, but I'm nearing the point where I will simply put a significant amount of money in these small caps without forcing myself to do a complete due diligence on the company. KNOL and ARTG are terrific examples of why I would be willing to buy based on insider activity alone, although that does create a dilemna on where to set a stop-loss level at.....

GME vs. ERTS- Approaching shortability???












I originally wanted to buy Gamestop back at $19.50, on decent valuation(EV/Sales<.8x, P/E<20x), modest growth targets (10%/year), and a decent chart buildup....that was back in mid-2005, literally the day before they agreed to buyout Electronics Boutique.

This has added nearly $1Bln in debt to the balance sheet, but has also leveraged the company's sales and profitability as well. In all, the company's sales have roughly doubled while their enterprise value (mkt.cap+debt-cash) has nearly quadrupled since their April quarter-end.
Ironically, the historical Gamestop operations would have generated $260MM Ebitda versus the $1.15Bln Ent. Value (at 04/30/05), or roughly 4.4x!!!! A lot of the earnings upside has been driven by trading in used games and movies, versus new consoles and new software sales (which have significantly lower gross margins attached). Ironically, the Electronics Boutique acquisition ($1.2Bln) reduced overall earnings, even after eliminating the one-time merger expenses.

So where does that leave me??? Well, GME has outperformed largely due to arbitraging the used video game market against the likes of Electronic Arts, which has responded by cutting prices on newer video games (i.e- Godfather released at the $39.99 price point). It certainly appears that BBI/MOVI are too disorganized and "grabass-tic" to effectively compete in used video games, however I do see potential negative catalysts for both EA and GME. Namely, lower new-game prices will shrink margins on used-game and new-game sales, while the upcoming launch of PS3 and current XBOX 360 release should result in lower sales of existing PS2/Xbox inventory. While earnings have remained strong to date, the significant inventory growth (+150%) could be difficult to deal with in late 2006. For now, Electronic Arts (EA) appears to be the more compelling short, as it is getting squeezed by GME and has consistently missed earnings over the past 18 months (not to mention, it trades at a higher valuation). Both of these companies should be viewed as potential shorts...particularly when you hear analyst comments about them being properly valued at 25x 2010 Earnings(which also conveniently assumes customers are buying all their games at $59.99/title)

GCT- GMH Communities Trust $11.18

For much of 2005, GMH was the subject of strong insider buying, by multiple officers and directors. In addition, Vornado Realty Trust even bought 700K shares in the company's September secondary offering at $14.25/share. GMH is a REIT focused on college-student-housing and military family-housing. Based upon increased college enrollments and military base realignments, there is decent demand for both of these sectors and GCT has a number of projects in its backlog.

The chart below shows the dramatic dropoff in the share price, which reflects the CFO (was not an insider buying the stock) having written a letter to the board-of-directors whining about a "tone at the top", whatever the hell that means. Presumably, the top management was pushing the CFO to be aggressive, but not do anything illegal (so says the company's internal investigation). From what I see, they adjusted pro-forma earnings down about 10% for the year, but made no adjustments to cashflow for 2005 (which is the important item to watch).

http://finance.yahoo.com/q/bc?s=GCT&t=6m

So why am I looking at this name if there is potentially aggressive accounting? 1) There have been no problems identified at any of the company's properties/developments that I am aware of. 2) Company insiders were buying the stock at much higher prices, including the CEO that was purportedly pressuring lower level management to be overly aggressive. 3) Subsequent to this "tone at the top" letter being disclosed, it appears that the CEO upped his stake to 1.2MM shares and issued a 13D filing that indicated he may make an offer for the whole company (it also implied that he had "shared voting rights" covering an additional 5.8MM shares, which implies that GCT's largest holder, Cohen & Steers, is supporting his prospective bid for the company).

Recommendation? Maybe dip your toe in for a few shares... like most REITS now, this is trading well above book value, yields an 8% dividend and trades around 12x FFO... implying that an 8-9% dividend is sustainable in the event the company is not bought out. (current yield is 8.14%). I believe the CEO is seriously considering buyout the company, however I'd put only a 50/50 probability on this occuring, given the serious disclosure /sarbanes-oxley issues that might be brought up by those investors currently underwater.... (unless the buyout were to come at $15...which is just rampant speculation)

THE BIG SCORE-WLS

Stock just ran past $100. "The General", my favorite new counterpart next to "the Colonel", just offered to buy out the company at $93/share (we had previously alluded to his $82 offer price that was rejected in mid-2005).

From the post-close recommendation at 03/07/06, the stock is up 36.9% over a 10 day trading period. Unfortunately, if you listened to the recommendation you also put only about 1/3rd of your normal-size trading position into the name. Still, not a bad trade for a 10 days worth of work.

Recommend selling here at $100, given the stock is trading 7 points higher than "the General's" tender offer level.

Mexican Jumping Beans & Overpriced Stock exchanges....

Okay, first I'm going to talk about a company that makes something near and dear to my heart...tacos! Namely, Chipotle tacos (of the barbacoa variety). A distinct product of value that is created by hand and sold at a reasonable price. People are required to eat and tend to buy more of their products and form lines out the door due to the high quality and reasonable prices....

All that being said, Chipotle trounced analyst earnings estimates and managed to earn only $.16/share (implying $.64/yr, or approximately 80x earnings). Unfortunately, that $.64/year will probably go down next year by at least 20% (even if they grow earnings 40%), due to the fact that the current year earnings do not reflect corporate income taxes that the company is not yet paying (due to prior year tax losses). While the company is impressive and actually had insiders buy stock in the low 40s after their IPO, I'm going to save my money for the tacos instead...as they are the only thing cheap enough for me here.


Now onto part 2, I've compiled a list of stock exchange charts....much like the aggregate market indexes (Russell 2000 at all time highs) brokerages and stock exchanges are experiencing strong growth and record profits. However, stock trading is shifting from phone orders to a highly fragmented system of smaller, low-cost orders, with better execution spread across multiple exchanges. As an example, on the day the NYX (NY Stock exchange) officially IPO'd its own stock on its own exchange, they handled only 60% of the orders in the stock! That is pretty embarrassing and shows the extreme level of competition and technological innovation occurring in this space. LOOKING TO SHORT NYX, ISE, and maybe ICE...watching also BOT, CME

The chart with the most compelling reversal is ISE, with a strong bearish engulfing that sucked away several weeks worth of hard-earned gains on very strong volume. This might be ripe for a short on an upward retracement.





















http://stockcharts.com/h-sc/ui?s=ISE&p=D&amp;yr=0&mn=6&dy=0&id=p76940969904

BOT also had a nice gravestone doji (around its prior peak-point during the IPO hoopla) that was followed up by some weak performance. It looks like it may weaken further from here.


















NYX is owned primarily by former exchange seat-holders, who may begin to sell their holdings towards the end of this month (initial lockup expiring). Its interesting that NYX is finding such strong resistance towards the end of that dark cloud formed several weeks ago. I am probably speculating too much because these guys are horridly overvalued, but this (and other stock-oriented trading outfits) would seem to be ridiculously overvalued. Instinet and Archipelago were valued like dogshit not even 1 year ago.... so unless they are abusing their monopoly position to increase exchange fees, I fail to see why these companies should be trading so highly.















Other publicly traded exchanges.... given the craze, I'm probably way too early in this speculative BS to be shorting....so will be usign TIGHT STOPS! Note, ICE and CME are highly cyclical and exposed to the commodity cycle, but would appear to have much better control of those markets than the stock-exchange outfits listed above. They are probably too expensive as well, but the commodity floors are likely to be less exposed (still exposed) than the stock-based exchanges.

Ryerson Inc- Trading near support @$24, put a stop loss underneath, upside potentially to 30s?

INCO LTD (N)- $46.20

Bought N@ $46.08 (recommended
stop-loss order @$44.70).
Stock is off 12% in the last few weeks and it looks as if its near longer term uptrend line. Copper prices have stayed at 52 week highs as well. These guys are buying out Falconbridge (copper/nickel commodity company), but there are rumors that they may have to raise their bid price to complete the acquisition. There is likely to be no additional information on this topic until May 15th, although the scuttlebutt started in the UK last week (the rumored bidder is Xstrata PLC, which owns 20% of Falconbridge

In any event, I'm looking for a bounce to around $51 (gain of 10%) and have set a stop-loss at $44.70 (downside loss would be 3.5%) and this would appear to be a decent risk/return tradeoff. I probably wouldn't be using a stop loss order if i was bottom-fishing at the trough of a commodity cycle, however breakdowns have historically been nasty in this name (ranging from 33%-7! 5% declines).

William Lyons Homes (WLS)

WTF? ANOTHER HOMEBUILDER? You have got to be kidding me. If that isn't enough, its one exposed wholly to southern/northern California, Nevada (read, Vegas), New Mexico, and Arizona... the juiciest and diciest markets going. Anyway, to the point, Last year, General William Lyons (yes, the Chairman is a general!) made a formal tender offer to acquire the 48% of the company he doesn't own at a price of $82/share. This caused the stock to jump and promptly run all the way up to $160/share. Currently, at $73 and change the stock is well below the previous takeout price... which doesn't reflect the earnings the company has generated the past few quarters. Last quarter, the company turned in $10/share, which would put it at 7x last QUARTER'S earnings!

Before I get too excited and start talking in all caps, this company does have a fair amount of long-dated debt ($620MM net debt vs. $633MM market cap) and forward 2006 earnings are supposed to be $14-15/share (per lowered co. guidance, which could be tenuous given their >25% cancellation rate for existing orders). Still, "the General" has been building homes for more than thirty years and seen enough cycles to have known something like this might happen. My guess is that a buyout could still come, particularly given that another insider owns 23% of the company which leaves a very small float out there(2.2MM shares out of 8.6MM outstanding). Interestingly, .67MM shares are short, which represents 30% of the float and would seem to be a dangerously high short position for a company with easy "takeout potential". Also, WLS could be a takeover candidate for a larger homebuilder looking to gain exposure to the "zoned zone" and juicy southwest real estate markets while gaining the benefit of WLS' pre-existing balance sheet leverage.

Recommend buying 1/3rd of position in low 70's and buying more if it dips to the mid 60's. Although a smaller, highly geared homebuilder concentrated in hot markets is a bit risky, I believe the takeover potential is too high with this company and the slightest change in builder sentiment may cause a short squeeze.















http://stockcharts.com/gallery/?wls

WCI had recent insider buying by CEO Jerry Starkey- 37,000 shares at $26, or just under $1MM for a guy that gets option grants and compensation worth $3MM a year. Not a small investment..... Some support exists at $25/share

http://stockcharts.com/h-sc/ui?s=JOYG&p=D&yr=0&mn=6&dy=0&id=p76691122479



















http://stockcharts.com/h-sc/ui?s=NEU&p=D&yr=0&mn=6&dy=0&id=p76691122479

PZZA is at/near its highest level in years, with strong insider selling and highest valuation in years. Trend seems to point towards a cup and handle...with upside retracement...

ALKS having a beautiful breakout of its 52 week high... put a stop at 25.50 and let it ride??? Should it get easier than this? time will tell....

Conor Medsystems breaking out to new 52 week high. Well off the lows, but strong earnings growth. Recent spike up was due to revocation of an Angiotech patent, which is currently being appealed. buy on pullback?