Have We Not Learned

This same thing I have seen over and over again in my life as an investor / stock trader. If you know what I mean, the year 2014 appears to be a speculative year again. People just like the excitement although they do know that what they are doing is a negative sum game. If it is a negative sum game, why bother? Well, if you look at Genting or Genting Malaysia's shares, we can basically understand - there is never a year where Genting will be on the losing end but still people will just like to take that bet - hoping that their luck will be good that day.

The last few months, it has been a good time for penny stocks, in which case most of them have little investment value. One who have been into stocks market long enough would know that any deals that are announced are just useless deals, but they are welcomed with hope, just like those who goes to a casino in Genting.

I have started tinkering with the market since the early 90s and I have seen this large speculative period in 1992/93 (basically on all stocks including loan stocks), 1996/97 (especially second boarders and could have indirectly caused the collapse of the economy), 2004 (MESDAQ counters, to the extent that Bursa changed the name to ACE Market?) and more recently but less dramatic (the penny stocks). Little do I see the same group of people excited over the same speculative period. Why? Because they have left the market getting burned.

For those whom are still living with that excitement of thinking that you can beat the market this way, well look at it - the world is getting more connected. Systems can get more complex which means that the person can trade from overseas, and not being tracked. They can create an account trading under a foreign company. They have all the information about the stocks and market while those who follow blindly (but thinking they have the information) are just playing to their tunes.

Just read some of these news here and here and here. The point I am trying to make is not on the people whom SC is trying to nab but the stocks. How many of these stocks are still around? Do anyone think they can really beat the market this way by trading on the useless, low value stocks?

Many do not know the best way for any investor to learn is to spend time learning about the business and companies - not the trading patterns. Even for those traders, they have a very strong understanding and hold of the market behaviour, economic conditions and positions of the controlling shareholders. They are not really read through the market movements and take a bet.

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Bursa Should Regulate This Immediately

The sell down in Sumatec, PDZ and a few small caps with huge volumes caused significant losses and uncertainty to investors and traders. As I have said before, brokers should be allowed to regulate themselves and protect themselves, i.e. manage their own risks.

However, I do not think there are rules currently to stop/regulate the measures to limit margin financing for certain stocks. If a market is hot and heady, like the market was over the last week, ANY brokers would have in their arsenal the CAPACITY and ABILITY to derail sentiment. Even among the brokers, whichever broker that makes the first move will come out smelling like roses, while the rest of the brokers will be left holding the "bag".

I believe that can be misused, or may even be construed as front running if you know the move before hand or is part of management decision to implement the decision. You and I know that any such move during a heated market will send the markets into a tailspin. As much as the losses were, if you knew beforehand, you can save a lot of money or even make money shorting on the way down (prop traders).

May I suggest the following:

a) any move to reduce the marginable amount of a certain stock, or the removal of certain stocks from a brokers' approved list for margin MUST be made public at least 5 working days before actual implementation. Even that is not a solid proposal as the act itself will be sufficient to derail the markets.

b) maybe a better way is for a broker to have issued a warning that they are considering reducing the margin for certain stocks or remove certain stocks, a grace period of 5 business days will have to be in effect before actual announcement of such moves

A warnings would send the right message, but be more orderly. The grace period would be akin to UMA, but it gives investors time to reallocate their positions. The grace period notification should be sufficient to quell speculation from going heady. IF speculation continues to be drastic following the grace period, then its nobody's fault when the broker implements the reduction in margin 5 days after that, or completely takes it off their approved margin list.

The current system is too open for chaos and unfair advantage to whoever calls the first shot. Its also to save the brokers from fighting one another as to who gets to make the RED CARD umpire call first, thus relegating the rest into chaos of picking up the pieces.

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Gainers & Losers

From Think Big:

The average S&P 500 stock is up 5.89% year-to-date, and 65.4% of the index is in the black for the year.  Below is a list of the 40 best performing S&P 500 stocks so far this year.  

As shown, there aren't any 100% gainers in the index through today, and we're going to need to see some big gains over the next three and a half months if the index is going to register any "doubles" this year.  Newfield Exploration (NFX) is currently the biggest winner in 2014 with a gain of 63.82%.  Another Energy company -- Nabors (NBR) -- ranks second with a gain of 58.09%.  Under Armour (UA), Electronic Arts (EA) and Green Mountain (GMCR) round out the top five, all with YTD gains of more than 50%.

Surprisingly, all ten S&P 500 sectors are represented on the list.  The one Utilities name to make it is Pepco Holdings (POM) with a nice gain of 40.46%.  Technology is the most represented with ten names, followed by Energy with seven.  A few of the notable names on the list include Facebook (FB), Southwest (LUV) and Delta (DAL), Chipotle (CMG), Intel (INTC) and First Solar (FSLR).

The list of 2014's biggest losers in the S&P 500 is dominated by consumer stocks.  Coach (COH) ranks dead last in the index with a decline of 35.54%, and Whole Foods (WFM) isn't far behind with a loss of 33.84%.  Four more brick-and-mortar retailers rank third through seventh worst, and maybe surprisingly to some, web-giant Amazon.com (AMZN) ranks eighth worst in the S&P with a year-to-date decline of 20.18%.  As you saw in the table of winners above, not all retailers are having a rough year (Chipotle and Kroger), but clearly the group as a whole has struggled.  Of the 40 worst performing stocks in the S&P this year, 17 are in either the Consumer Discretionary or Consumer Staples sectors.  Investors are definitely looking for back-to-school and the holiday season to help turn things around.  Historically, the holiday season hasn't been a time to hold retailers, but given their performance so far this year, maybe we'll see a divergence from the normal seasonal stock trends.

While no S&P 500 stocks have doubled this year, 19 names in the Russell 3,000 are up more than 100%.  As shown in the table below, RadNet (RDNT) is currently in first place with a year-to-date gain of 316.17%.  Pacific Ethanol (PEIX) ranks second at +281.34%, and Plug Power (PLUG) ranks third at +275.48%.  Intercept Pharma (ICPT) is up the fourth most in the index at +247.36%, but it's actually set to open tomorrow morning in first place after gaining 58% after-hours!  InterMune (ITMN) round out the top five at +203.53%.

The list of winners in the Russell 3,000 is dominated by biotech names, with 14 of the 40 stocks coming from the Health Care sector.  Biotech ran into big trouble back in March and April, and the group as a whole has yet to take out its highs from eariler this year.  That being said, there are still plenty of names in biotech that are having banner years.

If you have time, browse through the charts and fundamentals of these big winners.  You may not find any long opportunities from a list of names that are up so much, but you'll get a good sense of the trends that investors are playing these days.

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