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OCTOBER 28, 1999

Diary of a Day Trader, Part 5

"George Soros said there was a lot of 'pain' to investing. At first, I did not understand"

Robert Barker
Robert Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online



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George Henel, a day trader from Buffalo, N.Y., thinks that his breed gets a bad rap, so he agreed to share several weeks' worth of his experiences with BW Online Columnist Robert Barker and his readers. Here's Part 5 of the six-part series.

Monday, Sept. 27
I think that we are due for a rally. I hope that this was not it today. Unusual that the financials did not participate.

I don't think that the Fed will raise rates. To do so now could cause a market panic and possibly abort a world economic recovery. My bet is that they will pass.

The value came into my friend Newmont Mining (NEM) today. It was up almost five points on news that the central banks are going to limit their leasing (and sales) of gold. The leasing allows producers to sell forward. It also makes shorting possible. Although I did not own any NEM today, I did have some TVX Gold (TVX) and Coeur d'Alene Mines (CDE) in inventory.

Quite a few oil recommendations today. Maybe Anadarko (APC) is next? I think J.C. Penney (JCP) will start to lift soon as we get close to the "ex" date.

Tuesday, Sept. 28
Another tough day for the market, but I think that we now have a chance for a rally. We were down almost 200 points, and then turned it around near the end of the day.

It's snowing in Denver today (two inches). This makes me excited. If it were snowing in Houston, it would really help Anadarko, which was down over a point today on big tax selling before the American Petroleum Institute's oil numbers were released after 5 p.m.

Big, big, drawdown in U.S. crude oil inventories. This pushed up oil in after-hours trading. I hope it will help APC, but not sure. There are a few calendar days left in the quarter, and it seems like they want to get this stock out of their portfolio. Hard to believe that there are sellers at these levels. Some people just have to have that tax loss.

The tax selling abated in J.C. Penney today, and I think we may make money on this one shortly. The dividend has started to lift the stock. It was a "value day" for Stillwater Mining (SWC) today. Joe Kernen on CNBC even mentioned it. I sold some. It was up over two points.

Right now I am just watching JCP and APC. I would have played the gold rally more if I did not have these positions. I think JCP will be the first out of the gate. I may be a longer-term investor in APC. I had to ride it down to these levels earlier this year. It came back. Hard to figure. I think that with a little cold weather we could easily see $30 oil.

You may notice that I ride these "value" plays out. At these levels APC could easily be a takeover. Remember, Asarco was $14 and Getchel Gold was $13. Both were worth almost twice these values on takeover. It's cheaper to "buy" oil on Wall Street than to take a chance in punching holes in the ground. I believe APC is now selling below its reserve value per share.

Once, George Soros said there was a lot of "pain" to investing. At first, I did not understand. But the more you do this, the more you understand. I keep a few chocolate bars handy for days like this. It really helps. They even say that it is good for you -- better than red wine.

Thursday, Sept. 30
Today is the last day of the month. Normally, the market starts a rally on the last day and moves up the first five days of the new month. Only problem, the new month is October.

If the market does not rally from this -- its current oversold condition -- I believe that there will be trouble for the rest of the year. There is a small glimmer of hope in that the advance-decline line improved yesterday in a down market. New lows also declined slightly. Bottom line: Yesterday's 62-point decline was not that bad.

Anadarko was up two points yesterday, but this was somewhat offset by a drop in J.C. Penney. I believe that the calendar quarter and month-end selling in APC is over and that it should end for JCP today. Some retailers were strong yesterday.

Gold is becoming very volatile. Keep your eye on this. Over the years, just about every bank, investment house, and hedge fund has shorted this commodity. To a large extent, the gold that was sold short was borrowed from a central bank. Now that the central banks have changed the rules on leasing gold, the situation in the gold market (the lease rates) has gone through the roof. Down the pike, we will probably hear of firms or funds getting hurt (or going under) from the damage to these shorts.

Today the Dow was up 123 points, with a good number of advancers over decliners. At times, I do have periods like this where I am "underwater" on positions and have to wait for them to resurface. It isn't often.

I feel that my major holdings will all do well, but we just need a little time. I could just sell as most traders do and cut the losses. To do so, however, would require twice the work to recover the capital lost in the drawdown. I know these stocks and feel confident that they will lift in a rather short period of time. So we stay in the holding pattern. The only thing that could derail my holding is a market panic.

The end of month, end of quarter, or tax selling, whichever, was rather intense in J.C. Penney. Anadarko also had its share. Tomorrow will tell the story. If these stocks don't start acting better, we may have to reconsider how long we want to stay at the party.

I feel a little better about the market today, but we have to put a few "up days" together to restore investor confidence. Therefore, tomorrow and Monday are important. Du Pont (DD) just warned as I am writing this note at 4:45 p.m. Could be trouble.

Friday, Oct. 1
I mentioned that J.C. Penney would start to lift. Today, when the market was down as much as 140 points, JCP hit a multiyear low of 33 15/16. Then, it turned on a dime. All the equity-income boys went after it. It was yielding about 6.5%. After being down 1/2, it ended up 1 1/2 at 36, even though the market ended down 64 points. What we witnessed was the "dividend lift." The stock goes "ex" on Oct. 6 for 54 cents. Next week we should witness more gains for JCP. In this market I can only hope for $38 a share. If we have a good rally, it could run to 40. APC was down a full point. Next week will be the make-or-break week in terms of performance. Currently, I have lost all gains made in September but still have my 12-month gains of 240% (August to August). The Fed meets Tuesday. My bet is that they will rally the market Monday. Almost forgot my Rydex Gold fund trade. Entered Sept. 29, exited today. Approximate gain: 2.2%, or about $1,195.

(Tomorrow: The 6th -- and final installment -- of Diary of a Day Trader: "Big rally today")

Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online

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