I was originally envisioning retirees who had stuck out the market through thick-and-thin for the last 2 years only to see prints of $.01 on stocks like Accenture. That frightened me lots. Then I thought about it. What the media out there terrorizing you isn't telling you is that the prints on these stocks at these low levels lasted milliseconds. By the time the little guy's stop loss order got filled, things were almost back to normal again. I'm sure people got hurt. I got banged up a little. But if you are going to adjust your trading style for a once in a lifetime event, I don't think you have the mentality to trade or invest in the first place!
The solution to this dilemma is to maintain a basket of stocks long and short, use stop losses at key levels (my favorite being 4% below the 200-day moving average), and never invest more than 75% of your assets in any one direction (long or short). When all was said and done, I got knocked out of two positions Wednesday, but when all was said and done, at the end of the day my account was up .5%. That's because after my longs got knocked out, my shorts were there to keep working for me.
So if you stay long-short, it's true that over time you might not have crazy 7% up days because you are not wholly invested one way or another. You will have fewer proud days and fewer somber days. Things will smooth out over time with less fluctuation. Not as thrilling. But with thrills come anxiety, and you will likely have the same type of return at the end of the year without all the discouraging whipsaws, especially since the beginning of '08. So invest long/short. It's the only way to fly.
I understand why markets went up quite a bit today. People were just starting to get comfortable with going short the market. Then, the EU cracks out the bazooka and shows everyone who's really boss. So a lot of people covered today. Volume was weaker than on the last two down days. It's only logical the market has to go up now. I mean, everyone thinks our bailout is working (at least on Wall Street), and it's now a foregone conclusion that the European bailout is going to work. Not so fast.
Let me ask you a question. If your neighbor's credit rating was dropping like a rock, was getting letters from the bank, and he found some poor souls to lend him almost twice as much money as the amount he was at risk of defaulting, would you be more or less confident in his financial future? Right. The markets have the warm fuzzies right now, and the up-trend in the broad market is actually still in-tact on a closing basis despite everything that happened last week. Also, we had huge volume last week, and I got completely knocked out of my remaining long positions. I can't think that I am that unique. All I have is short positions now, and I would be pretty reluctant to go out shorting more unless the market gave me some darn good reasons. A break in that uptrend would be a good start, but until then, it seems to make sense that we would resume the uptrend now. I trade the market I have, not the one I wish I had.
Another thing to point out is that the Chinese and European markets have been downtrending for months now. I don't think we can be exempt from that much longer. We are all kicking the can down the road on the credit problems and we are all still joined at the hip.
How's that for a rosey picture. Speaking of not so rosey pictures, I had quite a few remaining long positions out there that got knocked out over the past 2 weeks since my last writing. Sorry. My day job has just been hectic as all get-out.
Activity Since Last Writing
- 4/30 - PDL BioPharma - Sold 12% loss due to hitting stop loss 4% below 200-day moving average
- 5/4 - Georgia Gulf Corp - Sold 3% loss due to hitting stop loss 4% below 200-day moving average
- 5/5 - Lender Processing Services - Sold 8% loss due to hitting stop loss 4% below 200-day moving average
- 5/6 - Hudson City Bancorp Inc - Sold 5% loss due to hitting stop loss 4% below 200-day moving average
Sniffle, sniffle, tear, tear. I became short of Motorola last week and this week became short of Verizon. Analysis of the Verizon follows.
Fundamentals
A quick rundown shows this one stinks quite a bit:
- Operating margins of 18% are below the industry average of 19%
- The price/earnings ratio of 34 is over 1.5 times the industry average of 19
- The price-earnings-growth ratio still has it fairly priced compared to its competitors
The biggest fundamental drag on this stock is that it's payout ratio (the % of earnings it is paying out in dividends is 220%, and that, my friends, is wholly unsustainable. There are a lot of retirement accounts and pension funds that are invested in this stock because of its rich 7% yield. It will become drastically unattractive when they cut the dividend. By the way, I have to be out of this by the ex-dividend date of July 7, or I will have to pay out 7%. Not me!
Technicals - Weekly
On a weekly chart, this stock has broken a major trend line. It has been drastically underperforming the market since March of 09, which is when the market bottomed. And look at that horrid accumulation/distribution line! People have been dumping this stock hand over fist! So this looks like a great short on the weekly chart.
Technicals - Daily
The daily chart unfortunately shows the stock to be almost oversold. You can see the RSI is not far from the lower boundary. There is divergence in the RSI, but that's OK because the divergence hasn't happened below the lower oversold boundary (30). The stock probably needs to claw back to the 200-day moving average or so to reset for its next leg down (should that hopefully occur). It has outperformed the market recently, and the accumulation/distribution line was showing people coming in to save the stock recently, but then it rolled over again and hasn't recovered.
As usual, thanks for reading!
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