Sunday, October 24, 2010

Updated Position (plus some insight as to why and what for)

Remember that trader in Reminiscences, the guy who impresses Livermore by always always always holding onto his position, while traders all around are trying to pick tops and selling, because, "...after all, it's a bull market."

Well, let me tell you, I was rat-jack prepared for last week's slice lower. I think it took place on Tuesday. I'd have to check.

Okay, it occurred to me (finally!) that I spend a lot more time discussing the nuances of the market itself and much less my specific position. I'm going to try an experiment in boring you to death and see if it's worth the ink. Brace yourself in the event that it lasts for longer than tonight, at it reads like an appendix. I can't make a magazine layout of why I'm in or out of a specific stock. I try to focus on the discipline itself and to get the market right. From there I attempt to hate all the underlying parts of my position equally; these parts are filtered in from my discipline but they are not the discipline itself - I never want to mistake one for the other, since one changes gradually while the other can snap in half almost out of nowhere. I don't want to promote love (of individual names or themes) since I do not want to hesitate letting these go (don't try this with real life - you'll live a terribly lonely existence). Trust me, when you think you know something, or you find yourself truly believing in something, you have less of a chance getting away from it before it damages you. Better to distrust all stocks equally - that is what is really meant by not marrying your stocks. The best trader hates them all, indifferently!

Regarding current longs:
-Cloud-stalwarts CRM and CTXS are back in my long line-up. CTXS reported Thursday night and I would note the sequential rise in both revenue and earnings, and that the stock managed to rally on strong volume Friday (following an early fight). While I'll admit to having a bit of a tight leash on these, I'm not so judgmental that I won't allow them a chance to prove powerful again. So far, they are only mediocre vs. the broader market in terms of relative strength (RS), but they are at least challenging their downward trend lines here and we might see them gather upward steam again. You may as well throw VMW, FFIV and AKAM into the list to watch (the other larger-cap cloud plays which are having issues with RS), but note that $18.5B-cap NTAP is winning on price and RS, while several smaller to mid-cap cloud plays are also hanging tough (RHT, CVLT, APKT, NTGR, ISLN, ULTI, ARBA, and especially now RVBD). RVBD is the beast of the bunch now and I'm looking to re-load into that one as soon as possible; NTAP as well for that matter.
-MOTR was Cramer's Mad Money feature on Friday and I am looking to sell now Monday morning; hopefully above 19. Cramer deserves credit this last year (since March 2009, actually) as his style of investing and this market go well together and he has consistently detailed a lot of the better stocks. That said, I am always going to cash-in a coupon for free turkey when I own a speculative play pumped by Cramer. If he covers an ORCL and I am long that one, I don't pay any mind (whereas if I am short I usually just short more of it). But a name like MOTR may or may never get as high again, for all I know. I'll exit on the hype and let the name re-prove itself before venturing back.
-I'll (possibly) discuss more of the longs later this week. This is not a complete appendicitis I guess. Did you notice I gave props to Jim Cramer? Maybe we'll deal with that again. Certainly it is less fun than attacking him.

On the short side:
-I'm not so bullish on the Dollar bouncing, but I know my long-position (below) will get hit if this occurs further and this explains why I'm currently focused on SLV-short. I am not especially bearish on gold or silver here, but the metals-short were a good hedge with the market weakness Tuesday and I want to have something in this area should they follow-though (or else take a small loss if they pivot upward instead).
-I covered CRUS on Thursday and Friday, following earnings posted Thursday morning. That one is just above the 200-day now and I would/will try to get short again if I suspect it is ultimately going to break below the key-average. I'm not especially excited with CRUS at this particular hour (talk to me tomorrow at 2PM). Some few hours back though, it did provide good feelings ;)
-I am also on the sidelines now with the GMCR short, but looking to re-load at either the first sign of trouble, or else the next emotional thrust higher. Either of those makes sense to me to get short again - the latter then becomes benched above the corresponding thrust-high, which may even turn out to be a little above the 50-day moving average (MA), which would appeal to me. Note that time is still young since the GMCR breakdown. I know an entire O'Neil book which details how a former leader will regain the 50-day 3-to-4 times, following the initial break-down, before getting short has a high probability of succeeding. Getting short sooner might be more profitable when that works, but once you add in all your failed attempts to short earlier, whereby you are stopped-out at higher prices for battling a name which refuses to die so suddenly, you come out further behind in the end than if you had sat back and let it mature as a short (let it re-capture the 50-day MA 3 or 4 times, following a major-volume + dramatic price-breakdown.
-CVS is a low-beta short idea and I have covered again for now (out for now). CVS hails from a terribly ranked industry group (Retail-Drug Stores rank 173 out of 197 on O'Neil's industry group ranking. This database rank is is updated every day in IBD and should be paid attention to; since rapidly rising or declining industry groups provide opportunity for gain and for avoiding pain). CVS sports a low RS of 21, whereby the RS-line is almost at lows, coincident to a stock price still ~17% above that relative low. Right-click, open and expand this CVS chart. If CVS is going to confirm the charted RS line (lower-right of chart, now at 21), then price is going to test that August low. If so, I am looking to re-load short and am looking for any sign of a renewed downtrend with which to enter. Otherwise it is too dull a place to park money not to be making something on it (it might snooze higher for many percentage points for all I know and I'm bored already just talking about that). Again though, now that you're looking at the chart - note how the RS-line at 21 is well-below the July lows and not far from August lows, while the stock price is well-above both (price is almost 11% above the July low and more than 17% above the Aug. low). Not so boring when you graph that divergence, huh? zz zzzz zzzzzzz. What this illustrates, to state the obvious, is that CVS is still weak weak weak - relative to the broad market and that degree of divergence is in fact - exciting! ...get my jet!
I'm also still short ZMH, but am (even more) exhausted now and am going to move on instead of discussing it. I suspect there is something about a negative RS divergence in the ZMH chart as well (good answer!). And both ZMH and CVS are more mature as shorts than the whippersnapper GMCR.

Sorry for the rambling. If I edit this down it will cost me (even more) sleep and if I don't then there is no lesson tonight and obsolescence can strike so suddenly - rendering the work here largely unimportant, if not worse. Sucks to be you for reading down so far, but at least the futures are up big right now. Oh wait - you're under-invested - or short even.

Bah!

Follow Centrifugal to fade trades in real time

Total Position: Currently 3.43-to-1 net-long, 99% invested

Currently Long (according to size):
BMC (8.1%); ULTA (7.4%); CRM (7.2%); DAL (7.2%); NTGR (7%); QLIK (reloaded Friday, 6.8%); CTXS (reloaded Friday, 6.7%); OVTI (reloaded Thursday, 6.2%); LTD (6%); MOTR (added Thursday, 5.4%); AVGO (5%): LPSN (added Thursday, 4.1%)

Currently Short: SLV (increased Friday, 8%) DISH (7.3%); ZMH (7.1%)

Futures: no current position

It's light, it's fluffy, it has to go up.

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