TIB: Today I Bought (and Sold) - An Investors Journal #358 - US Banks, Steel, Gold Mining, Cybersecurity

Markets ease off a little in US. A few oddball trades - buy relative value, buy lithium dreams, hedge some more with gold mining and positioning ahead of earnings to lower entry prices.

Portfolio News

Market Rally

US markets stepped back from the rally mood

The headlines are deceptive. Markets did take a step back but the last hour of trade looked a lot happier than the hours before that.

Now I did watch the latter half of the State of the Union address to find out what was going to move markets. This line caught my attention

We renew our resolve that America will never be a socialist country

The camera cut across to a very, very red-faced Bernie Sanders, well done Mr Producer. Donald Trump is a master at using labelling to push a point and to get people to stimulate debate and then to think his way. I have a few pet peeves on this whole labelling topic. A big part of the political correctness agenda is designed to do the opposite - no labels = no debate. As I reflect on a life lived (4 countries) and worked (15 countries) under different government models and an education that included a lot of study on political models, politics is ultimately a simple game. You choose a model that keeps enough people happy so that they do not go into the streets and start rioting and tearing the place apart. [And I did live in a country that went through regime change by exactly that - South Africa]

• Capitalism: you offer the chance for business owners to make money and they will hire enough workers to keep enough people happy
• Socialism: you offer enough free stuff to keep enough people happy but without losing the support of the people paying the taxes.
• Dictatorship: you bribe enough people and threaten, imprison or kill enough of the other people (sad but true) (North Korea comes to mind - choose your favourite)

In our evolved social democracies, we have arrived at something of a blend, without applying the labels with much rigour - how many versions of social democracy are there in Germany? In the process of applying the label, Donald Trump may well have started the process of winning back. The Democratic Party will have to choose whether they are swinging further to the Socialist end or back towards the Capitalist end.

This article also caught my attention - worth reading

https://finance.yahoo.com/news/trumps-attacks-on-socialist-democrats-might-work-204338450.html

Bought

The Goldman Sachs Group, Inc (GS): US Bank. I watched Jim Cramer's daily rundown video. He said he was looking for a down day to do some buying. "If there are stocks you have not bought yet, a down day is one of those buying days". He was specific about Goldman Sachs. "Buy below book value". I looked it up on my broker platform = 0.80. The market thinks Goldman Sachs is only worth 80% of its asset value. I bought a small parcel in each of my portfolios - I will follow price down if it keeps dipping. Dividend yield is a low 1.62%

A quick chart looking back 5 years at the banking sector based off SPDR Banks ETF (KBE - black bars).

The leaders are Bank of America (BAC - orange line) and JP Morgan (JPM - green line). The laggards are Goldman Sachs (GS - red line) and Citigroup (C - blue line). Close half the gap to the leaders and Goldman Sachs could rise 29%

Posco (PKX): Korean Steel. I saw a few items over the last few weeks pertaining to lithium in Chile. First, was the closing of the sale of Galaxy Resources (GXY.AX) salt brine tenements in Chile to Posco. 2nd was an article saying that Chile was hopeful that they would be able to extend their dominant supply position in lithium to being a producer of batteries or battery components.

Add in Donald Trump announcing the date of the next summit with North Korea and my mind switched back to Posco. I averaged down my average entry price by adding another small parcel of stock. This is really a play on lithium but any uptick in steel demand from peace on the Korean peninsula will help (See TIB237 for the initial discussion)

https://www.bloomberg.com/news/articles/2019-02-01/lithium-giant-s-landmark-deal-is-big-step-to-battery-hub-dream

The chart tells a steel story. Price smacked when tariffs are introduced and not moving (up) after the North Korea summit. Price did find support at the bottom of the selloff

Yamana Gold Inc (AUY): Gold Miner. I added the Jan 2021 2.5/4 bull call spread to one of my other portfolios for a net premium of $0.46, which was lower than yesterday (see TIB357 for that discussion). This brings the maximum profit potential on this trade to 226% (206% yesterday). I did toy with the 2.5/5 call spread but chose to cancel the open order before market open. In this particular portfolio, I hold the stock - this options trade was equivalent to 25% of the shares = a way to lever up an in-the-money stock position. Closing price was $2.75 = $0.25 in the money.

Income Trades

FireEye, Inc. (FEYE): US Cybersecurity. FireEye were due to report earnings after market close. My covered 18 strike call written for February expiry was standing in-the-money with price holding around $18.50, implying I would have my stock assigned. Cybersecurity will continue to be an important topic. My initial purchase of FireEye was predicated on a belief that the market does not understand the business and rates it like a software company despite its growing services activity through its Mandiant acquisition. I want to hold FireEye longer term. I sold a strike 17 February 2019 expiry put option to generate some income (2.1% of closing price of $18.42) and to give me a chance to buy back at $17 if earnings disappointed. Price needs to drop 8.4% to reach the sold put strike.

Earnings were posted not long after market close and they beat expectations but the forward guidance had some complications mostly to do with quarter by quarter comparisons. Q1 2018 had some big deals which are unlikely to be matched in Q1, 2019. This is a good example of the problem with quarterly reporting. After hours market dropped to exactly $17 - depending on how the market flows in the next 7 trading days, I just bought FireEye 8.4% cheaper plus 2.1% net premium banked.

For me this is the key line in the article

FireEye revenue for services — including things like threat intelligence, email security, endpoint security and network security — rose to a record of $38.7 million

https://www.marketwatch.com/story/fireeye-earnings-top-estimates-but-forecast-hurts-stock-2019-02-06

Cryptocurency

Bitcoin (BTCUSD): Price range for the day was $117 (3.4% of the high). Price found buyers just above the previous lower low level but price did not close above half way through the bar making this a seller bar - we could see more downside.

Ethereum (ETHUSD): Price range for the day was $6 (5.7% of the high). Price tested down to the $100 round number and found buyers there below the previous lower low - whew!!

I am tempted to call this the new short term support line (pink ray) though the dotted green line is a stronger weekly support line from late 2018. Why? Because price closed above the half way mark making this a low test bar off the level.

CryptoBots

Profit Trailer Bot No closed trades

New Trading Bot Trading out using Crypto Prophecy. No closed trades.

Currency Trades

Outsourced MAM account Actions to Wealth closed out 2 trades for 0.28% profits for the day.

Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas

Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search, Marketwatch and Bloomberg.com. All other images are created using my various trading and charting platforms. They are all my own work

Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers

Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices

February 6, 2019