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Joe Kunkle
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History/Trading Style: I have been trading for 12 years, since I was 15, and have studied a variety of trading techniques and strategies. I combine many trading philosophies and combine technical analysis, fundamental analysis, and macro-economic analysis into every trade. I mostly trade options... More
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  • Medical Action Industries: Small Cap with Big Upside
    Medical Action Industries (NASDAQ:MDCI) came across my screen yesterday on a breakout of the $14.50, which on the weekly chart is a clear inverse head and shoulders breakout, which occurred with a 9.4X surge in relative share volume, confirming a trend reversal.

    After further research I decided that this stock is the perfect play for an aging baby boomer population.  The Company develops bedpans, IV kits, waste bags, surgical headwear, sponges, walkers, canes, and a variety of other products for the medical industry.  This is a Company that does not do anything "flashy", but is sure to see a solid boost in product demand, and should continue this move higher for quite some time.

    Shares trade 15.5X forward earnings, 0.88X sales, 12.3X cash flow, and 11.5X EV/EBITDA, so it passes my test as a fairly good value.  The Company sold off hard as crude oil prices spiked, blaming high shipping costs, so now with crude oil prices subdued, profits should rally.  As feedstock prices fall, the price of Resin, another major cost of goods sold, is coming down sharply.  The shift in pricing of it's goods sold will be a big boost to profits because it operates in low margin products.

    The Company is a player in a $336B global medical device market, $90B US medical device market, and $71B US disposable medical products market.  The industry is growing due to technological advances, an aging population, and an increased need for infection control.  I also like the diverse product mix, with no segment accounting for more than 25% of 2009 net sales.

    As a niche player int he medical devices industry with improving margins expected, and drivers for future growth, Medical Action Industries looks to be a great small cap investment, and a potential takeover target.  The implied move from the technical breakout is to $23, 37% higher from current prices, but I can see an eventual return to 2006 highs of $33 in this pricing environment.

    Medical Action Industries (<a href='' title='Medical Action Industries Inc.'>MDCI</a>) 5 Year Chart

    Disclosure: Disclosure: Long Medical Action Industries (MDCI) at $14.75
    Dec 09 6:48 AM | Link | Comment!
  • Smart Money Predicts Volatility, Price Bubbles in Gold/Silver
    The recent surge in the prices of gold and silver is no secret, as it seems the major media networks have devoted far too much time to discussing the commodities that are hitting new highs almost everyday.

    The long gold/silver and short the US Dollar trade has gained too much popularity everyone continued to pour money into a seemingly "easy-money" trade that worked for months.  Any time you see a situation like this there is an opportunity to be the first to take the other side of the trade when certain factors surface that point to an over-crowded trade.

    Between CNBC guests calling for $2,500 gold (more than double current prices), the US Mint running out of gold coins, gold companies unravelling hedges, and even my grandparents beginning to talk to me about the price of gold, it is obvious that a bubble is forming, although it takes a certain fortitude to bet against John Paulson, an active buyer of gold companies and known for making some of the greatest trading calls in the market's history.  

    Recently, Barrick Gold (NYSE:ABX) did away with its hedges to gold, a major gamble that reminds me of how devastated the airline industry was, for the most part, when many of the airliners were un-hedged against the price of crude oil that topped $150 a barrel.  On Friday, Barrick traded in a 10% range, as gold prices plunged.

    Economist Blake LeBaron once discussed this relationship, basically saying that when everyone is on the same side of a trade, the crash is soon to come.  We saw a mini-view of this on Friday as Gold prices weakened and with everyone looking at the same technical levels, sellers triggered a volatile move lower throughout the day.

    I follow the action in the options market every day that is usually a leading indicator for where a market is heading.  On Friday, for the first time in more than 6 months, I began to see cautious positions trade in individual gold and silver miners.

    Barrick Gold (ABX) was very active Friday with 70,266 calls and 65,534 puts traded, around 4X average volume in each.  Nearly $1 million in net premium was purchased on the day, and the net delta of all option trades reflects a bearish outlook for shares, and for gold itself.  One noticeable trade was a 1,000 contract strangle sell in July, $60/$35 for $4.90, a bet against volatility and seeing limited downside in shares to around the $30 mark.

    Pan American (NASDAQ:PAAS), a silver miner, saw a trader sell 2,000 July $35/$17.50 strangles with shares at $25.50.  

    Standard Silver (NASDAQ:SSRI), another silver miner, was targeted with June $30/$17 strangle sellers, with shares at $23.62.

    Iamgold (NYSE:IAG) , gold miner, had a seller of the June $25/$12.50 strangle for 500 contracts.  

    There was also sizable (25,000+ contracts) closing in both December and February calls spreads in the Gold ETF (NYSEARCA:GLD).

    With the Volatility Index for the market, the VIX, still sitting near 1 year lows, the implied volatility in these silver/gold miners is approaching 1 year highs, also reflected by the Gold Volatility Index (GVZ), which broke to 6 month highs on Friday, gaining 11%.

    I am in no way trying to call a top in gold, as many of the fundamental reasons behind higher gold prices still make a lot of sense, but you have to respect trends in this market, and the action is reflecting caution of this irrational exuberance.

    You can draw further conclusions from this action as well, as the trading is likely looking for a summer 2010 increase in interest rates, and also looking for the US Dollar to find some stability over the next few months.  This is backed up by the heavy buying seen in the US Dollar Bull (NYSEARCA:UUP) fund on Friday, as one trader bought 20m000 June $23 calls, and others piled into January $23 calls, buying at the offer in aggressively bullish fashion.

    If you trade options and are interested in colelcting premium, and being on teh side of the "smart-money", I can see a whole lot of reasons to sell volatility in the gold and silver miners, and also begin to explore long positions in the US Dollar.

    Disclosure: Disclosure: Currently no positions in the above mention securities
    Dec 06 6:01 PM | Link | Comment!
  • Option Traders Cautious Semiconductors Despite Recent 52 Week High
     Traders may be getting cautious on the Semiconductors (NYSEARCA:SMH) after the group hit new highs and Marvell reported a strong quarter.  

    Earlier today a trader rolled 5,000 December $25 puts up to the $27 strike for a better delta trade in Texas Instruments (NASDAQ:TXN), and now a trader rolled 5,000 December $29 puts up to the $31 strike in Broadcom (NASDAQ:BRCM).  

    There is also heavy put buying in the RF Micro (RFMD) January $5 puts.  

    The reversal today in the Semiconductors (SMH) took place right at the 50% Fibonacci Level, similar to what is occurring in the broader markets. As a group, Semiconductors have some of the highest forward PE's in the market, and the outlook may be a bit too optimistic here.

     National Semi (NYSE:NSM and Research in Motion (RIMM) still have to report earnings this options expiration, and there is a Barclays Tech Conference next week.  Additionally, Texas Instruments (TXN) has a mid-quarter update December 8th and Broadcom (BRCM) has a December 15th Analyst day.

    Disclosure: Disclosure: Own puts on ALTR
    Dec 04 11:29 AM | Link | Comment!
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