Wednesday, May 04, 2005

An article on yahoo finance says that the government will likely be offering more 30-year treasury bonds for sale sometime next year. This explains why the spread between the 3-month and 30-year bonds jumped up 16 basis points to 188 since yesterday. I'm not yet sure what implications this has for the economy.

Instead, I've been looking through a lot of charts tonite. Because the market has been advancing over the past few days I've been looking for long candidates. Unfotunately I'm not seeing a lot of stocks finishing off handles. A notable exception is RX. RX is at the end of the handle on a cup & handle base beginning in February 2004. I may put on a small long position in RX if it can clear $25 on heavy volume, but if the market isn't rallying at the time then I probably won't take the trade. It bothers me that the yahoo finance numbers are so funny for this thing. It shows a return on equity of 143.99%, revenue growth of -3.2%, but earnings growth of 140%. There are other inconsistencies too, like $2.02 cash per share, book value of $1.116, but a debt/equity ratio of 2.451. However, the worst part is the huge float: 227 million shares outstanding and basically no insider ownership.

I'm a lot more inclined to get into some long-side scalps in a few of my favorites from last year that look ripe for a squeeze. TASR, TZOO, and AIRT all look like another big green day on the naz could pop 'em up 15 or 20%.

I've got a few other interesting candidates on my radar for later this week but I'm only going to talk about one more because its another one of those layup trades like the GRU trade I posted up here a few days ago. I'm going to try to get a position in GEOI somewhere between $7.50 and $7.75. I haven't studied the bid-ask spread in the stock, so I'm not sure exactly where to put the stop, but with a 1% spread and an ask at the March 30'th range low of $7.44, the bid could be about $7.37. Market makers could take the stop order shares that go down to $7.37 without dropping the price below $7.44, thus keeping the range intact and not setting off a panic. If my assumptions are correct, a stop at $7.35 might be a good place. So my projected worst case scenario would be a loss of 5.5% (7.75 / 7.35). I think a long fill at about $7.55 would be optimal because this would keep the risk under 3%. An $8.90 target (17.8% gain) is reasonable because it is well within the contracting range that has formed over the past month, but I wouldn't necessarily close out the position just because it got to my target. The target is just my place to get real defensive on scalps. Just to clarify this, I don't use targets for trending positions like my NSI long or QQQQ short, those get to run.


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