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Keith McCullough
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Research Edge, LLC ( is the leading real-time research firm. Focused exclusively on generating and delivering actionable investment ideas, the firm combines quantitative, bottoms-up and macro analysis with an emphasis on timing. The Research Edge team features... More
My company:
Research Edge LLC
My book:
Diaries of a Hedge Fund Manager
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  • Early Look: Mental Flexibility
    “It's easier to think outside the box if you don't draw one around yourself.”
    -Jason Kravitz
    One of the hardest things to accomplish as a person is mental flexibility when things go wrong!  Mental flexibility means forgiving yourself for slips, while keeping the mental focus on positive progress – learn from your mistakes because you are going to make them.  Wow, that’s deep for the early morning wake up call, but here we go anyway. 
    If you have some degree of mental flexibility, it’s unlikely that you will get overly bent out of shape when things go wrong. One of Keith’s favorite sayings is “when the facts change we will”, which is of course borrowed from Keynes.   Having the mental flexibility to change is a very desirable trait, but it takes a strong discipline and a process to admit that you are wrong. 
    As an investor, without the flexibility to change, you put at risk your performance and the ability to recover from mistakes.  As an analyst, the key questions to ask are: Am I able to see things from different perspectives? Can I fully appreciate the viewpoint of others that disagree with me?  “I'm right and you're wrong" - is nothing more than an expression of intolerance and narrow-mindedness - that is a problem.
    Having the mental flexibility to be open to new or different ideas allows one to adjust to a changing environment.  Much of the stress we experience in life and in the market is due to the inability to accept change.   Change is both inevitable and the very nature of life. Changing one's mind is not a sign of weakness, but of flexibility and growth. Flexibility also promotes mental and physical health because it frees us from stress, resentment, anger, and fear.  To the flexible person, life is not about survival but about enjoyment.
    I know there have been a number of times in my career when a stock was going against me, but I kept making excuses to justify my opinion.  The facts just kept getting in the way!
    Keith wrote yesterday “when I made the transition from being wrong on the top end of my Range Rover (954) to calling it for what it was – a confirmed breakout - I started giving you higher-lows of support and higher-highs of resistance.  Now your daily risk management objective is to play the game that you see in front of you.” This is a process that some have criticized as too short-term, but certainly allows for mental flexibility! 
    Which leads us to the set up for today; the risk reward for the S&P 500 suggests that there is 1.5% downside and 1% upside.  This is a trading range, with commensurate risk and reward. The levels of immediate term support/resistance for the three key indices are:
    1.      SPX = 971-996

    2.      COMP = 1954-2007

    3.      Dow = 9026-9238

    I suspect the July rally has caught a number of people flat footed.  I know where I sit; I have not found the mental flexibility to get bullish on my stocks, the restaurant sector.  While I have certain names that I like and dislike, being out right bullish seems counter intuitive to the fundamentals.  But the market seems to be telling me I need to be more flexible and look past next month’s comp number.  I’m working on being more mentally flexible every day.
    Tags: Dow, S P, COMP
    Jul 31 8:28 AM | Link | Comment!
  • Chinese Rising: Chart of the Week

    After closing at another new YTD high last night, the chart below only continues to amplify. Whether you agree with us that the 21st century is as much China’s opportunity as it was America’s in the 20th or not, both the math and economic balance of power continue to shift China’s way. President Obama finally gave overdue respects to this New Reality in Washington this morning.

    At 3,435, the Shanghai Stock Exchange is now up an astounding +88.7%. Yes, I know that the myopia of the moment has folks like Mr Bernanke still searching for the almighty “economic indicator”, but sometimes … some things… like say, the sun rising in the east, are very obvious.

    China’s economic growth is now running +8%. Chinese money supply growth is running +28%. And, yes, China’s stock market is a leading indicator.

    If you’d like Andrew Barber’s in depth “China Black Book”, please email us at

    Be long what China needs (copper, gold, stocks, etc…), and be short what American politicians want China to need (US Treasuries, US Dollars, etc…).

    Tags: China
    Jul 28 8:37 AM | Link | Comment!
  • SEC And The Jerky Boys. I Don’t Gotta Audit You, Chisel-Chest!
    I don’t need to talk to you, Jerky!
     - The Jerky Boys
    Last on this week’s litany of SEC near-successes is the case of
    SEC vs. Eric Todd Seiden.
    According to the SEC complaint, “Seiden has fraudulently induced
    at least fifteen broker-dealers to buy over $1.8 million of thinly-
    traded stocks.”  How did he manage that, you ask?
    “On numerous occasions from at least October 24, 2008 to the
    present Seiden, a former securities professional, telephoned
    broker-dealers, falsely identified himself as a customer or customer
    representative, and place large orders to purchase a thinly-traded
    stock for the customer’s account.”
    Seiden, a 38-year old resident of Boca Raton, worked as a
    registered representative from 1993 until October of 2008, which is
    the month in which his alleged fraud started.  Seiden knows lots of
    folks on Wall Street.  He has worked at a number of firms and
    knows lots of folks, both professionally and socially.  Using the
    names of individuals, and of customers that h has known off and
    on over the years, Seiden allegedly placed calls to at least 24
    different firms to have them buy large blocks of penny stocks. 
    These trades would typically not be discovered as problems until at
    least T+1, when they would be rejected for delivery by the firm
    that allegedly placed the order.
    One point that stands out in the SEC’s complaint is that the traders
    and brokers at these firms all know Seiden.  Trading desk tapes
    were played back for some of them, and they immediately
    recognized his voice.
    Another point that emerges – in the Prayer For Relief at the end of
    the Compliant – is the SEC has not yet determined the purpose of
    this behavior.  One would naturally assume that Seiden first
    established positions in these illiquid stocks, then, by placing
    fraudulent orders, created the liquidity to make his own positions
    profitable.  But the SEC has not yet determined whether such
    trades were ever done, so they only ask for disgorgement of any
    illegal profits Seiden may have received from this activity.  We
    find it curious that the SEC has not tracked down Seiden’s motive. 
    This looks like the SEC moving swiftly to put a stop to fraudulent
    behavior.  It may take more time to track down Seiden’s own
    financial interest in this matter.
    But the big kicker on all this – compliance officers take note – is
    that these trades are not being reversed.  In each case, the name of
    the broker or trader who allegedly gave the order was known to the
    executing firm.  That is why Seiden gained access at all.  But it
    was Seiden himself, and not the person whose name he used, who
    placed the orders.  
    Once this scam came to light, compliance officers and lawyers
    from the brokerage firms were on the phone immediately to the
    firms on the other sides of these trades, insisting that the trades be
    But trades are not being broken, and after a certain amount of
    huffing and puffing, the calls are being abandoned and the trades
    allowed to stand.
    As with every scam – Madoff comes to mind – there were those
    who did not take the bait.  There were firms that were approached
    with orders from Seiden, and that declined to do the trades.
    As to those firms that went through with it and made the
    purchases, trades are being left to stand.  They are being told they
    did not know their customer.

    Jul 28 8:23 AM | Link | Comment!
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