When the Madoff business hit the news we wrote about “trading Madoff.” Now that Madoff has been sentenced to 150 years (but not life) it is appropriate to visit the issue. There are two sides to this. First, there are a lot banks with a possible failure of due diligence as trustees of their clients’ accounts. Secondly, are there more Madoffs out there and will anticipation of their demise provide a trading opportunity?

As we said three months ago, “The number of smart people who put their money in a situation that was too good to be true, never exercised due diligence, and never questioned the results is astounding.” Now Mr. Madoff has been sentenced to the maximum number of years and lawyers for those who invested with him are looking for someone to sue.

In the wake of a stock market collapse, pension funds loosing their assets, and venerable old companies going under it is hard to know where to start. The general bad judgment seems to have been everywhere.

That will be the issue for the trader who is looking for banks, pension funds, etc. who did not exercise due diligence in investing with Madoff. Bank exposure will be with the trust departments who were to manage the estates of wealthy clients and whose lack of due diligence have lost fortunes for inheriting families.

In the wake of generally bad judgment throughout the investment community it may seem to be a hard case to make that “sticking with a winner” was a bad thing. However, due diligence would dictate that those investing other people’s money with Madoff were obliged to look closer and even to diversify assets when the accounts kept growing. This is perhaps where the bank exposure lies. If a couple of large bank trust departments had decided to move half of their assets out of Madoff’s firm the Ponzi scheme would have collapsed years ago as there were no real assets.

The Madoff sentence takes care of the director of the Ponzi scheme but not those whose greed, indifference, and stupidity cost so many so much.

As this plays out there will be items in the news and there will be fluctuations in stock prices. As bailouts have stabilized banks and there has been a reshuffling of players and with subsequent mergers the names will have changed but the liability for not exercising due diligence remains. Staying current with the various law suits may provide the astute trader with opportunities in the options market or for scalping large market moves when bits of news leak out.

What to trade. As we said months ago you will be trading news about lack of due diligence in using Madoff’s firm. Bank exposure in civil matters like the Madoff issue can take many years to settle but there will points along the way when stocks will rise and fall based upon news coming out of the various pre trial steps leading to trial itself. Usually the hype spewed by attorneys on both sides is useless except that if it is particularly sensational it could move the markets.

The side issue is what other company or stock is doing too well to be true? Keeping a healthy skepticism will help you be aware of the possibility of other company collapses and the possibility of substantial profit in their wake. Or is it at their wake?

Keep doing your home work and trade according to your plan.

Popularity: 5% [?]

“Energy Efficiency: $600 million is available for PHAs to create more energy efficient public housing units. Applications are due for this category on July 21, 2009.” Thus reads a line in www.recovery.gov. We have talked before about “trading the recovery.” The recovery website continues to post news about where the economic stimulus money is going. Funding to improve home insulation is not the only place where money is going. Take a look at the recovery web site for idea on where to trade. It is still not too late to anticipate were the stimulus money will go.

Under the authority of The American Recovery and Reinvestment Act of 2009 HUD has already allocated $3 billion to housing authorities throughout the USA for energy efficiency economic recovery projects that are already underway. Now there is another billion dollars of energy efficiency, economic recovery money that will be allocated by bid.

As recovery.gov notes the last application date is July 21. It might be interesting, and profitable, to see who submits bids and for what kind of energy efficiency projects.

An interesting link from recovery.gov is FedBizOps.gov which lists jobs up for bids. Much of this is very individual but some of the jobs are substantial and likely to involve companies listed on the NYSE or NASDAQ. The site lists 2,000 biddable projects to paid for by money from the economic stimulus, economic recovery funds. Much of this goes beyond energy efficiency into repair and maintenance work as well as larger, long term, economic recovery projects.

In talking about trading the stimulus we have talked about green projects. Many of these will be up for bids later this year and the bidding may well be tradable situations with a nice profit to be made by scalping as the winner is announced.

As we mentioned before one need not even watch the various bids and grants on the various government sites to realize that certain types of products and materials will be used in all of these energy efficiency and economic recovery projects. These include insulation, plastic sheeting, staples, nails, paint, caulk, etc. Everyone who makes general construction materials, especially home insulating materials is likely to benefit and will be possible targets for a good trading strategy.

Trading stimulus will work for another year or so, both as stocks go up, and as they go down when the projects are over. There will likely be “trading the stimulus,” economic recovery money to be made going both directions.

Another trading the recovery thought is what the shape of the US economy will be as the recovery progresses. This writer’s parents were young adults during the recession and remained frugal their whole lives. Wal-Mart is doing well as more shoppers are reducing expectations and budgets. Will shoppers used to Wal-Mart and K-Mart return to more upscale stores and brands? If so, who will be the winners as jobs and paychecks come back with the economic recovery next year? Will energy efficiency become a cultural concern, at last, with smaller and more fuel efficient cars. What will be the shape of a new General Motors not to mention its supplies post economic recovery? It is never too soon to start looking at where all that economic recovery money and its aftermath are going to lead us.

Popularity: 17% [?]

When the so-called Swine Flu first surfaced we talked about “trading the flu.” Two anti viral meds kill the A H1N1 flu and two don’t. Lots of folks bought facemasks. Now there is a race to produce a flu vaccine for A H1N1. It may well be time to trade the flu vaccine race.

Some of the panic has subsided but the press keeps milking the flu scare. A theoretical concern is that the A H1N1 virus will mutate over the Northern Hemisphere summer and become a killer in the fall as apparently happened with the “Spanish flu” in 1918.

This article is largely background information on the A H1N1 flu, previously called “swine flu.” For the well informed, trading opportunities will arise in relation to pharmaceutical companies that make influenza vaccine as well companies that make anti viral medications and products as basic as facemasks and cleansers.

As accurate news alternates with hype the wise trader will avoid being sucked into group psychology and will successfully trade the influenza vaccine situation.

Whether the flu mutates or not (is has not as of this week) there will be influenza vaccines available this fall. The companies making influenza vaccine include Glaxo, Baxter, Sinovac in China and others. The technology for making influenza vaccine is time tested and works. However, making sufficient quantity of safe influenza vaccine takes time.

The virus is injected into eggs where it grows and is then re-injected into more eggs until a sufficient supply is available. All of this needs to be done under sterile conditions and needs to be tested on animals and people before a safe influenza vaccine can go out to the public. This process typically starts in March to have vaccine available by September.

Companies such as Baxter and Glaxo have been making vaccines for a long time and have the technology and resources to produce enough vaccine to treat the world, given time. A question regarding this influenza vaccine is if someone will try to get their influenza vaccine out on the market sooner than others. If someone bypasses safety procedures in the production process for making an influenza vaccine what will the results be? If someone jumps the gun will influenza vaccine supplies run out?

Will the history of defective Chinese medications exported to the third world with deaths resulting repeat itself with a flu vaccine?

There were lawsuits in the 1970’s after the 1976 Swine Flu vaccine. The 1976 Swine Flu vaccine may or may not have caused the problems described but lawsuits followed the influenza vaccination campaign that year.

Flu stories are likely to continue as the World Health Organization has declared a “global pandemic.” What this means is that this flu has spread in two global regions. The virus is still highly contagious but not especially dangerous to the average healthy person.

There is some evidence that genetically isolated communities, such as the Inuit in Northern Canada, are more prone to more serious complications. Thus we may see some very unfortunate news on the TV about pockets of more deaths from this flu. Knowing the news media it is unlikely that these incidents will be reported as being isolated but rather be touted as a genetic mutation that threatens the world.

The astute trader will keep with the story and trade successfully.

Popularity: 23% [?]

The market recovery is on its way. Day trading makes a profit scalping on large volume moves. Buying call options has worked out as stocks have lifted higher. Now what? We have one party running the White House and both houses of congress so things should go smoothly, right? Wrong. It is politics as usual. So how can you play the politics to make a profit day trading?

Every elected official has his or her own state, district, and agenda. To get what he or she wants the politician (read congressperson or senator) needs to bargain and for that they need bargaining chips.

A case in point that relates to market recovery, politics, and day trading is the set of three free trade agreements awaiting approval by the US senate. We know that shutting off world trade caused the Great Depression and that we need to stimulate world trade to hasten the recovery. Panama, the first treaty up for ratification, is no great threat to US labor, as they have no industrial base. However, they do buy a lot of US products. So, it is a shoe in for confirmation, right? Wrong. US labor and its supporters are opposing it. Regulators have picked up on the desire for banking treaties and greater transparency. Everyone wants their bit in order to support a treaty that would likely gain US jobs.

How do you trade this? Caterpillar supports the treaty. After NAFTA Caterpillar’s exports of heavy equipment to Mexico and Canada quadrupled. The more than $5 billion USD Panama Canal Expansion still needs lots of heavy equipment. If the treaty shows signs of passing Caterpillar will edge up a bit and if it shows signs of being buried, like now, it will drop at bit.

This goes back to following the news while you are day trading. Politics plays out not only on the floor of the House and Senate but on the news and with the talking heads. Market recovery going forward or not you can make money day trading or options trading by watching the politics play out on any number of issues. Just look to see who wants what, and needs to barter votes to get it.

Obama wants to revamp the health care payment. People who are on the fence on this one can be convinced but will want their pork barrel project pushed through in payment for their vote. This is the politics of roads and bridges in every home district. Pause ever so briefly in your day trading as a Senator or key member of the House talks to the press. Watch the economic and market recovery picture as seen from Detroit or Dallas and you will be day trading where the action is next.

Day trading feeds off public sentiment and herd psychology. Stay focused and in touch with your own day trading plan as the politics of market recovery meets the usual politics of the day.

Green stocks will probably still do well during the market recovery as they benefit from stimulus money but day trading the news will help you know which company, in which state, will gain based upon who plays their cards right in congressional politics.

Popularity: 42% [?]

There are a number of trading strategies. Here we look at scalping versus momentum trading. In each case the trader needs to think about how many trades to make a day or week and what his or her profit targets are.

This article has to do with not missing the forest for the trees. One can get so caught up in the intricacies of trading, be it scalping or momentum trading, that the big picture goes missing. You are in day trading to make money. So what is your profit target? And how do you get there?

Scalping has to do with jumping in and out as the market moves. Your target is profitability. The fact of the matter is that each trade costs a commission and not all trades are successful.

This is a paper and pencil problem. Write down the amount of money you will put into each trade scalping and figure out how much profit you need to make scalping per trade to pay for the commission. Then how much is left for you. Then look at what your scalping losses will cost you. What percentage of scalping trades need to be successful and for how much to meet our daily profit target?

Momentum trading has to do with waiting for a big market move and then jumping in. Momentum trading works better the better educated you are about the stock or market you are trading. If you get in too late you might as well be a long-term investor, missing out on most of the stock’s profit.

So, assume that your momentum trading gets you in early. Do you sell bit by bit as the stock price runs or do you wait for the stock to show signs of turning around? Sounds like more work with paper and pencil.

Here is where successful momentum trading depends so heavily on you knowledge of the market conditions, stock fundamentals, and investor psychology. If you have a clear ideal why the stock is heading North or South then you can choose your point or points of exit wisely and not based upon greed or fear.

Wise traders will tell you that you have not made a profit until you have taken the profit. On the other hand if you understand what is happening and expect a long run you can wait a bit before taking you momentum trading money out of trade.

Whether scalping is your thing or momentum trading and waiting for the big move, it is wise to set profit targets. How much is your time worth? You need to do homework on whether you are scalping or momentum trading and you need to do simulation trading. Look at the total time you spend trading, preparing for trading, and reviewing your trades. Then, look at what you do best and which activity gives you the best return on investment, both capital and time.

Scalping and momentum trading are only part of the range of strategies available to the day trader. Whatever your strategy, look at what makes you money and how much time you need to devote to make a living. This will give you the perspective to recognize the forest when you are among a lot of trees.

Popularity: 48% [?]