Kyle Felciano's  Instablog

Quint Tatro's "Trade The Trader" published by the Financial Times Press is a good read for a few different groups of people.  The first is a novice to technical analysis who is trying to get a base understanding of what goes into understanding a chart and why some of their investments tend to reverse course on seemingly no news.  The second group is a day trader or at least a very regular trader looking to improve their results.  The third group is the one I fall into; a more traditional investor who has a pretty good understanding of technical analysis that either wants to learn more about it, and see the red flags of when one of their holdings is susceptible to a technical bear raid, or a potential bullish breakout.

This book squeezes some very important topics into 202 pages as it is not overly technical and an easy read.  He not only sets the stage for some of the trades that he has gone through, but breaks down the chart prior to his move and after.  The idea of a trader using either an anticipatory or reactionary strategy to breakouts is an important distinction he makes.  While anticipatory moves yield stronger results for a buy and hold investor, this is not necessarily the case for traders.  A reactionary trader will wait to see a technical breakout or failure of a breakout prior to acting, and will then be able to deploy more capital as the risk of failure is lower than when anticipating the move. 

Chapter 12 titled "Setting Stops" is the safety net to his trading style as he says on page 125, "Many of our habitual learned activities are those that help us remain safe.  This is no different from trading when it comes to setting stops.  Just like when you buckle your seat belt or look both ways before crossing the street, stops become so ingrained into your daily trading routine that they are nothing more than a natural part of your investing process."  The belief is that if you go long 100 shares of XYZ at $25.00 with a trailing stop of $24.50 you are truly only risking $50.  There is also a very detailed, excellently worded description of where to set stops.  Rather than arbitrarily picking a stop price, he uses important prices that will signify his trading idea has failed.  My only complaint about the chapter is that he does not mention that a stop does not guarantee a sale at that given price.  If your stop becomes a market order during a heavy free fall and you have a large order in you may be risking more than originally planned.

After reading a decent number of investment books it becomes more and more difficult to find fresh information.  "Trade the Trader" is written in the post 2008 financial crash world and is very timely in some of its new ideas.  So many books will describe in great detail a strategy to picking stocks and when to invest.  However, they do not mention when to pull the rip cord.  Chapter 15 titled "Taking Gains" lays out both his methodology, and a way to alter this and create your own.  This book follows the old Chinese Proverb, "Give a man a fish and he will eat for a day.  Teach a man how to fish and he'll eat for a lifetime."  There are also enough warnings to make it clear that you are by no means guaranteed success just because you think you've found an edge.  However, it is similar to a professional poker player having an edge that should yield positive results over time. 

The author's voice is clear throughout the book and he is succinct enough to have written a 300 page book in 200 pages.  An advanced investor may not learn too much new information, but it is short enough that it is worth the 3 hours to get through it.  While I am very far from a day trader I found it very helpful.  As a long-term investor I still need to be able to avoid the land mines that will erode my capital. 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclosure: I am long CSCO, GMO.

Today the Secretary of the Interior Ken Salazar gave an update on some of the future of offshore drilling in the Gulf of Mexico.  He announced that a drilling moratorium will remain in place off the eastern Gulf of Mexico for at least 7 years.  At first blush the headline of a moratorium remaining in place sounded like a clear cut negative.  In March it was announced that some exploration would be considered in the area, but the reality is this was a long-shot to happen anytime soon before the Macondo spill, and clearly off the table after it.  While there is an estimated 3.7 billion barrels of oil and 21.5 trillion cubic feet of gas in the Eastern Atlantic, only exploratory drilling could tap into the resource.   Therefore this area wasn't even in play for drillers who have a sole focus on development wells; an example being ATP Oil and Gas,

While today's announcement changes some potential investment plans down the line for the majors, it can be seen as a positive for some of the current smaller players in the gulf with operating leases.  To quote Ken Salazar, "We are adjusting our strategy in areas where there are no active leases," the administration has decided "not expand to new areas at this time" and instead "focus and expand our critical resources on areas that are currently active" when it comes to oil and gas drilling."
 
To read between the lines, getting through the current backlog in permitting within the BOEM has become a major priority.  Rather than shifting focus elsewhere, it will now move to truly opening the Gulf back up for business.  When Louisiana State Senator Mary Landrieu gave up her leverage by no longer blocking the appointment of Jack Lew, it appeared that she didn't get anything in return.  However, the administration didn't want to appear as if her leverage strong armed them into doing something they weren't ready to do.  So by waiting a week to announce the new focus on current leases in the middle of limiting future exploration they have saved face. 

Below is a link to the BOEM's webpage where the permitting information will be updated daily and the table as of 12/1.  It will be interesting to watch the numbers to see how many permits to drill move from the pending to approved column as the next few months move on. 

http://www.gomr.boemre.gov/homepg/offshore/safety/well_permits.html

Shallow and Deepwater Permits to Drill Data last updated on 12/01/2010 09:10 AM (CST) and will be updated each business day.
Permit Type	Submitted since June 8, 2010	Pending as of December 1, 20101	Approved from June 8, 2010 through December 1, 20102
Water Depth Less than or equal to 500 feet (Pending/approved permits may include applications submitted before June 8, 2010)
New Well	21	6	19
Revised New Well	49	3	52
Bypass	12		12
Revised Bypass	6		6
Sidetrack	38	10	39
Revised Sidetrack	50		53
Permit to Modify	1542	118	1483
Revised Permit to Modify	1030	38	1029
Water Depth Greater than 500 feet (Pending/approved permits may include applications submitted before October 12, 2010)
Permit Type	Submitted since October 12, 2010	Pending as of December 1, 20103	Approved from October 12, 2010 through December 1, 20104
New Well A new well involves an operator drilling an original wellbore hole in the seafloor to a geologic target.	2		1
Revised New Well	5	4
Bypass	1	1
Revised Bypass		1
Sidetrack	1	1	1
Revised Sidetrack	4	1	2
Permit to Modify	40	20	30
Revised Permit to Modify	36	10	34

Disclosure: Long ATP