Corporate Boards are like Pro Athletes.

Corporate boards are like professional athletes.  Very few of them care about anything but their personal way of life, even if that means forgoing maintenance on the vehicle which put them in such a position in the first place.  Corporate boards, like athletes, are actually slaves to the people who manage the funding underpinning their way of life, not because they're too dumb to figure it out for themselves, but because they are able to partition their responsibilities neatly, "It's just a job, when can I get the private jet to Bali?"

Recall Capital One releasing tons of reserves after 1q2010, Home Depot raising their dividend after 1q2010, STI instituting a dividend while still saddled with TARP and a Texas Ratio over 40, and so many other examples of common idiocy at the highest levels of corporate management.  At least one hopes it's idiocy.  COF gapped the morning after the release and hasn't been within 2% of that opening tick since.  Try to remember that these measures develop at the behest of Wall Streeters who, through voting power, control the lifestyles of board members via appointments, comp packages, and ultimately advice and share price when it comes to option exercise and expiry.  Wall Street also does not care about investing.  It's just a job.  It's just a trade.  As long as the board member keeps his ticket on the gravy train, Wall Street gets assuaged, even if at the cost of the business and/or the retail shareholder.

In this office, any company buying stock, raising dividends, and/or acquiring at this point in time goes on the watch list for shorting.  If a company can't support its stock price through performance then all the rest ain't no different than the gold plated gas cap on my '86 Cutlass Supreme.

The longer a market defies its nature, the larger the reversion candle will be.

Bulletin Board Skepticism

For anyone that doesn't know by now, I came up through the Bulletin Boards.  Most folks with a formal education and dedicated careers, and trading with an ethical bent, avoid the OTCBB and Pinks with the kind of physiological aversion developed by girls after spending months on the school yard hearing ghost stories.

Everything you hear about these exchanges are true.  They are the wild west, they are illiquid, they are scummy, and they are scammy.  These exchanges are also exceedingly honest.  If you're looking at a stock and it stinks, you're going to go broke holding too long.  If you're looking at a stock and it seems too good to be true, it is.  Effectually, these exchanges contain the unfiltered truth behind every stock seen around us, because the leadership most likely hasn't been indoctrinated into the Wall Street culture, and therefore, infrequently understands how to maintain a ruse longer than a couple of capital raises.

Trading over-the-counter sharpens what should be an already innate skepticism toward the world for people who deploy their own money.

If I could prove that someone sponsored Monsanto's recent multi-million dollar insider buys then I'd be able to short without regard for price action, however, that's simply not the case.  On the other hand, one has to make sense of the information given.  Namely:

1. Management has been completely caught off guard by the patent expiration of RoundUp;
2. The tone of the most recent conference call sounded confused, and uncertain;
3. The company remains heavily involved in anti-trust and patent litigations;
4. The company has committed to buying back shares.

Those are some big cannon balls to dodge if one's going to buy shares.  Item 1 goes to the case of single minded, institutionalized, management.  Item 2 is purely a developed sense that I trust.  Item 3 never looks good for future price action based on unreasonable expectation of stability.  And Item 4 never happens except with the express purpose of trying to arrest share price declines, assuage analysts and large institutional holders, and/or goose CNBC into giving some Kramer Koverage.

You can't put all your faith into balance sheets anymore, the convolution of rules has made it next to impossible to stay ahead of all the ways to find the fraud they hide.  On top of that, the government passed legislation all but requiring banks to irresponsibly under-state the loss risks they face.

This short post isn't meant to bag on MON in particular, there are plenty of other righteously overpriced doo doo equities out there (STI, RCL, COF ...).  No, I would like to emphasize that folks should look past the ties, slick hair, SAT words, and seemingly good news in order to locate logic, knowing for certain that corporate executives care about one person alone, themselves.

Good luck.

Disclosure.  I passionately dislike all stocks mentioned in this article, but own none of them long or short as of the time of this writing.  I have traded them all short at various times over the past 3 months with varying success, and will likely continue to do so.

Quick and Dirty Market TA for 5.20.2010

What a wild ride, indeed.  I remain bearish on the consumer and financials, but am frustrated and getting frustrated'er by the lack of segmentation between pigs (COF, ZION, LTD) and value (DNN, LPIH, TSL).  When the trend is on, already good values will get more valuable, so we must stay patient in adding.  There will be a post in the near future about how electronic Emini trading has effectively turned the whole American equity market into an ETF that gets rebalanced nightly.  I remain steadfastly bullish on uranium producers (not explorers), and biotechs as both sectors are long overdue for M&A among other more specific reasons.

Operant Conditioning (noun) - A process of behavior modification in which the likelihood of a specific behavior is increased or decreased through positive or negative reinforcement each time the behavior is exhibited, so that the subject comes to associate the pleasure or displeasure of the reinforcement with the behavior.

During the past 3 years traders have been party to rare levels of volatility coupled with self-reinforcing trends up and down.  I do not accept that we are going to double-dip, yet.  I maintain belief that the DJIA will trade a roughly horizontal range, even if that range is wider than the normal few hundred points.  I believe this partly because it is the only trade that hasn't taken place for several years, and also because it'll take at least 4 to 6 quarters for a sort of post-apocalyptic stasis to manifest itself.  Previously alluded value segmentation will be the primary validation of this thesis.

Dow chart below (click to enlarge) is one ugly mofo.  Long term trend now clearly broken.  First support 10250-10290.  This one has been very important over the last 7 months and the 200 dma just so happens to join in a confluence there.  If this one looks like it's not going to hold, I am prepared to book gains on some long term holdings.  Second support 10050-10100, reasonable to expect capitulation-type overshoot into 4 digits if this comes into play.  This support level also has a corresponding Fibonacci retrenchment area.  Below these ... let's not get below these.

Chart Study: Institutional Panic

Capital One financial sucks, just released a bunch of reserves, and now is going to be subject to interest and fee regulation courtesy of Uncle Sam.  The "consumer" has been running up credit card debt having witnessed the market ramp, but there have been no structural remedies.  There are plenty of reasons to hate this shitty company, not the least of which is their stupid Viking raider commercials, and the thought of the type of consumers to whom the company markets.

Capital One, what's on your balance sheet?

Anyhow, below is a picture I want to remember (click to enlarge).  It's what a chart looks like while institutional investors clamber over one another for the escape hatch:

Market Order

Saw this in Capital One today (click to enlarge):