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0920 EST Wednesday March 09 2006

Good Morning: Sometimes the most obvious trades are often staring us in the face. A lot of times making a successful trade can be just common sense, that with hindsight we say, how could one have missed such an obvious and potentially easy way to make money. Of late as we've been ramping up coverage by MODAR across all markets and have had some big trades on Google GOOG and Rambus RMBS, where we've bet big to the tune of up to 10 times our normal position size, or $100,000 and also have on occasion bet up to half a million. Such cavalier trades are few and far between for now, because there's always the risk of being badly wrong and hurting performance, which we try excel at and strictly limit losses to as little as possible. Still of late we have been looking for that Million Dollar trade to pounce on...

Yesterday, that trade presented itself at 9.30 AM Eastern Time in what we had thought of as a low risk and almost can't lose situation, but to be fair, it was not necessarily so until the benefit of hindsight showed us that by 4.00 PM a Million Dollar bet would have yielded $200 K.

That trade of course was to buy the New York Stock Exchange NYX, which rose from the opening tick to almost the high close of the day and we had actually outlined this trade, the day before, noting that often, very high profile IPO's or in this case the unusually prestigious reverse merger with Archipelago was almost certain to be a success much like the launch of the Chinese 'Google' clone IPO a while back.

But not so fast... The less publicized but ultimately highly successful launch of the Nasdaq Stock Market Inc NDAQ although it rose just fractionally on its first day of trading, it subsequently went into a nosedive getting more than cut in half from its first day IPO from $12 to $6 before eventually soaring to recent all time highs of $46.75. Still the logic there and in the case of the NYX might have been, if you can't bet on the very exchanges themselves with such a rich and successful history, then what can you bet on? So in a way it was a no brainer.

No brainer or not we still managed to screw up through being distracted and so consumed by other events that we missed it altogether and that is something that can often happen, where you come up with a great idea and somehow miss out, as it gets overlooked. For MODAR, there was really no excuse, because even though we had technical problems overnight, discipline should have dictated that we enter our buy as we often do in our pre-market daily report to MODAR subscribers which has made some great opening calls over the past year and yet still, we feel bad, because we let our subscribers down, not alerting them to what could have been a unique and historic first day trade.
And yet again in a curious twist of fate we happened on a fairly rare but occasional 100 plus percenter in of all, a newly bankrupt company:

And the fate of that company is interesting, because, had we been able to short it back on August 16, 2005, that turned out to be a rather unusually rare day in which we felt we could sell short with total impunity and actually could have progressively shorted up to a 100 times normal position, because this issue WHAI World Health Alternatives Inc, looked like it was doomed from that day forward, as it suffered a catastrophic technical breakdown, that almost guaranteed that its doomsday was coming and the same has happened to many other well known issues such as United, Delta Air, Northwest, Delphi, Dana and Refco all of which have provided potent trading opportunities since...

The strange thing is, and we have noted this behavior on occasion, by the time WHAI actually got the Q on the end and formally traded as a bankrupt company and just as is often the case soon after with many other companies including the abovementioned, all the bad news of impending doom is more often than not already factored into the stock price, so we decided to buy WHAIQ, because it was acting well and as it turned out the stock rallied vigorously throughout the session affording us an excellent day's gain. And, while we only extremely cautiously, recommend trading in bankrupt issues, which carry all kinds of SEC warnings on the pink sheets website, our record in trading bankrupt issues is better than our normal often upwards of 80 ~ 20 Win-Loss ratio, to more like a 9 to 1 success rate, but we have had our share of burnt fingers with the 1's too. After recommending and often trading Owens Corning OWENQ, almost flawlessly for some 2 years, we made one trade too many betting on this one's last vote in congress, which failed and has now put this company in renewed jeopardy, but we did manage to avoid the United Airlines debacle, which ended up being another opportunity to heavily short with virtual impunity.

Few investors might realize that OWENQ actually rose from its first day's trade in bankruptcy to rise some 13,500 percent in less than two years. That's why we pay a lot of attention to companies in short term difficulties that may or may not involve some sort of bankruptcy filing and investors should realize that for what it is: More often than not it is some form of bankruptcy protection so the company can reorganize and get back on track. So if you come to know of a company in bankruptcy, most all of the bad news is already in the stock price and yes more often than not, as yesterday, it could present a short term windfall gain, or as in the case of OWENQ, it could become the trade of a lifetime, where in that case, it was truly possible to turn $10,000 into more than $1.35 Million in near record time, instead of say betting $1 Million to make a few hundred thousand. It's much better and more exciting to turn a small fortune into a large one! Still: Caveat Emptor. The inherent risk of trading in bankrupt companies is: News can impact stocks dramatically and there is always the threat of unknowns, but it pays to think logically when confronted with what may appear to be the point of greatest risk that in actual fact may be near zero risk and in the right circumstances, in what could be a particular very highly leveraged situation, could truly be the mother of all opportunities...

Equities and Metals Rebound with Some Renewed Vigor

We actually called the lows on the S&P 500 and Equity markets in general around noon yesterday, explaining how we felt that the higher than expected Crude Oil inventories would pressure Energy issues and at some point that would kick in and re-support equity prices. That is exactly what happened, even though it was a very tough call from what was a weak technical standpoint, it just goes to show that this S&P 500 just keeps coming back and while the technicals have improved greatly, we are still not out of the woods as to higher follow-thru.

The same rebound occurred in Precious Metals, where the Amex Gold Index HUI. potentially completed a perfect ABC 3 wave correction.

Trade Well
From the Desk of Savant

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