Tuesday, July 29, 2008

There ya go...

Day late, few dollars short, but we did and are indeed getting that pop we expected! Let's see if we can have any follow through on Wednesday after the Turnaround Tuesday! Pretty amazing how Tuesday truly goes get many snap back rallies! And, today was no different - WOWSA - very nice trend day UP, a day after we had a huge trend day DOWN!

That does not happen very often, but this market is full of psychotic surprises! The volatility is intense, and CASH IS KING here as we can't honestly predict from day to day whats going to happen here.

I suspect we get that 730s on the ER (it closed at 714) and perhaps the DOW can motor a bit more. From there we'll have a hard time I suspect, but again, I do think Oil has peaked at least short term and I think the dollar has some more upside and Gold has a LOT more downside from here. If it breaks (when) below $900 and holds below it, it could easily fall another $50 to $100 without blinking. Today we bought some depressed stocks and we played the MER $22.50 calls for a NICE sweet FAT gain! In truth, we also played initially the GS $180 puts and stopped out. That's trading, though. You make a mistake, you realize it and reverse. Net/net positive!

I like TIE potentially here.Stock is heavily shorted I believe, and its near its 52 week lows and the CEO just bought nearly 200,000 shares MUCH higher than here AND they have earnings August 4th or 5th! To me, that's a nice setup for a nice move with low risk since I would set a stop around $10.29. Would think $15 is within reach if the call is correct,otherwise worst case stop out. Today also there was a rumor about the company taking itself private. With the CEO buying a ton of shares, that could be possible, though rumors like that rarely pan out.

They are, however, often a precursor of a bigger move and I have to think that move will be UP and not down!

If we get a gap down Wednesday I think its an automatic BUY, at least for a trade, assuming there isn't any bad news.

I want to just briefly explain why the MER news today was so horrible cause clearly the market got it DEAD WRONG!

I point to two recent news items that are comparable. WB and WM.

I believe both are eerily similar, and what's even scarier is that the market reaction is nearly identical to their news as well!

Both WB and WM, and now MER took on new capital in the form of common stock sale BELOW current stock prices. Today MER sold $8.5 BIL worth of stock at $22.50.

The stock market took this as a sigh of relief, believing that there is now a "floor" at $22.50 that the stock is supported at. BUT, if you take a close look at the deal, at least my interpretation of it, these deals almost always involve WARRANTS for the purchaser to buy even more shares at the same or a lower price. That dilutes the share value even more. Further, these deals often have "puts" to the buyer which protects them above and beyond all others.

How does that work? Well, often times what happens is the buyer says "look, the market is bad right now, we don't want to buy your MER stock today at $22.50 and then you need more capital and you sell it to someone else at the same or lower price and crush our investment!

So, then the company basically "guarantees" that the investor would get locked in at the $22.50 or higher no matter what if they take on more investors in the stock. This has the affect of hurting their ability to raise additional capital as needed and it further still dilutes the value of the common stock.

Like I said, read the WB and WM deals, they are basically the same as best I can tell. And, both those stocks rallied (WB not really, but WM certainly did) on the news, and the pundits said the same thing, "now we have transparency!". WM sold shares at roughly $8.50 area if I recall and WB I think it was in the $20s. Since that happened WB has seen $8s and WM has seen $3s. MUCH lower than the investment prices.

As a trend player all I can do is go on historical data. We BOUGHT MER long today and made out nice! It's very VERY possible MER gets back to $30s here short term. Longer term I think the common stock of MER is DONE and I will be looking to short it once this move has run its course. I would love MER to see $35 or higher, to me thats an instant short unless some news changes things.

In the meantime, there ya have it, a lot of info, go get 'em!



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