Taking Profits on the Euphoria Stampede

Quite amazing - I entered the week 4:1 long/short [Apr 5: Updated Position Sheet] and at worst was 2:1 long/short even at nadir, and still lost money this week. The magnitude of moves in these "quality" positions on the short side of the ledger is simply awe inspiring. So many short players; such a small door for all of us to rush out of at the same time - stampede! It reminds me very much of the summer of 2008 when the government instituted the short sale ban on financials and so many hedge funds were caught the wrong way - the short financial/long commodites trade blew up & reversed and the rest is history. Well until reality returned in September 08.

I took about 20-33% off in the following positions into euphoria:

1. Quality Systems (QSII)
2. First National Financial (FNF)
3. Morgan Stanley (MS)
4. Potash (POT)
5. BHP Billiton (BHP)
6. Smith & Wesson (SWHC)
7. Blackstone (BX)
8. O'Reilly Automotive (ORLY)
9. Myriad Genetics (MYGN)
10. Mastercard (MA)

I also dumped almost all my Lennar (LEN) as it hits resistance.

In almost all cases, everything I had a >2% stake in, and has risen >10%+ over past two days I took some off. I am a willing buyer on any pullbacks in these names - all except LEN have a nice chart. Unfortunately all these gains were obliterated by short positions - which on multiple days went up 20-30%+ this week.

Another rough week, and the constant short squeezes make it impossible to use technical analysis on individual names right now. I figured out what is so different this time around - usually these huge moves by the "bad stocks" happen at the beginning of the rebound - days 1 thru 5. This is week 5... and we are still seeing enormous short squeezes. This tells me a lot of hedge funds had the same exact thought process I did: "well if that's all they could rebound this far into a bull move (best 4 week move since 1933) then they must be safe to re-short at this point"

Not so much.

We'll make it up at some point later in the year... there are going to be some exceptional short set ups because the farther these stocks go up in a moon shot, the less support in their charts when the invariable euphoria turns back to reality. But for now, it's simply handing money over to the market to be shorting. Anything.

Again, this market is not lending to a hedged style one bit ... we've given back about 4% the past 2 weeks as government reigns down on our shorts. I'm still targeting S&P 870 as an ultimate upside target, and then we'll see where things stand. I am finding individual stock charts completely useless the past 2 weeks, so flying blind and now I remember what it felt like when I first started in the stock market buying stocks. Groping around in the dark is not a great strategy.

Alternative strategies I should of employed in past month

1. Putting entire portfolio into Citigroup (C) at $1 thirty days ago. It is now $3 or 200% gain
2. Putting entire portfolio into short Direxion 3x Financial Bear (FAZ) at $113 thirty days ago. It is now (below) $11 or 90% drop.

Magic 8 Ball failed to alert me of this "hedged" game plan.

Disclosure:Long all names mentioned in fund (ex C, FAZ); long First National Financial, Blackstone in personal account

Comments

[Dave Wrixon:]

Be interesting to see what the Easter Bunny brings!

Apr 10 08:32 AM

[predictorma...:]

I am in the same boat, Trader Mark. Hard when the market is illogical.

I was long some airlines and exited those positions after getting a mildly decent runup and reports started that air traffic was very soft (and I confirmed this with my own eyes). They dropped on that news. Then they went up. Then oil went up. They still went up. Then they went up again. No reason.

One of my short positions is commercial real estate. Absolutely no reason to think anything that happens in the market is going to effect that sorry situation.

Good luck.

Apr 10 08:50 AM

[KublaKola:]

Going Long on FAS would have better than shorting FAZ....

Apr 10 09:46 AM

[Steve W fro...:]

Anybody staying short the big banks going into an earnings season for which many CEO's have given veiled guidance about how well things are going has NO BUSINESS giving financial advice to anyone and should be cautious managing their OWN portfolio.

Even the blind could see that BAC had been irrationally beaten down way too far and was due for a rise. Still the case IMHO. I'd be holding through earnings and DEFINITELY would NOT be short the financials.

Apr 10 11:40 AM

[InvestBaboo:]

Here we go with a lot of speculation when things are clearly going the other way.

People, listen up. The charts are saying that these are the signs of a long term bull market. Very similar to the rally that happened after Regan took over. The signs are in every chart - from financials to tech to every other sector.

Trader Mark is too obsessed with daily reads and weekly reads jumbled in with his own downward bearish bias that will lead to a catastrophic loss in his investments. Don't look at what people are saying -- look at what they are doing!

I hang all the positive signs I am seeing on the premise that the kick in the jewels America got in 2008 will lead to a better people and a stronger nation. Many of the super-strong stocks of 2007-2008 that are trading today in single digits will likely exceed their previous 52 week highs just in the next couple of years. I have accumulated well over 75 such stocks in a multitude of industries for pocket change. Imagine this -- a stock with $90 plus 52 week high acquired for a dollar each! Needless to say many of these stocks now have doubled or even quadrupled from their irrational lows but they have a long long way to go! You may have missed the first couple of dollars of the rally but there are many more dollars to capture on the way up.

Do not ignore a rare generational wealth creation opportunity that God has handed to you on a silver platter!

Apr 10 12:23 PM

[thotdoc:]

I think that being rational, using charts, is not working at this time because people want to play..want to make money. So, it's a bubble within a crash,,,"Whee, I'm making money again." Whew, it feels good to tell my wife that I haven't lost the touch...that things will be OK.

I'm speaking for me only here. But, I've found that I'm so much like so many others. So, I love the furniture at Restoration Hdw...and so does everyone else in my "socio-economic class." etc,etc,etc.

Now, what will happen next is anyone's guess. But, if the euphoria of "making money" is at work, the rise will go on until it's really a bubble within a crash.

I think the prevailing thought now is: Invest into what will come back based on where we will be in a few years, speculate/trade on trash (big financials). Wait for the pullback..hold investments, sell trash, and then invest in all those stocks we wanted to invest in at the better prices, but wouldn't because we wanted to keep dry powder reserves at a high level during this "bubble within the crash."

I may be very wrong, but now is not the time to be rational. It's the time to be intuitive about what everyone else is doing and why they are doing it. Time to revisit the Behavior of Crowds.

What I'm writing is not related to any reality of where we financially really are in this country. I think we know we are in a mess, and that China will have us for lunch in the future, forever. This is a hurrah. Not the last hurrah, but adefinately a hurrah

Best,

G

Apr 10 12:47 PM

[Michael Jahr:]

Steve - You are absolutely correct, anyone who is giving advice to others yet can't see the trend going up is not very well qualified and his advice best be taken with a grain of salt. I am no expert but even I am averaging a 4% gain per week while looking at the glass being half full.

Then again in Marks credit, there are a lot of "experts" who miss the initial bull run because they can't see the forest for the trees. Until a confirmed bull market the strategy is to keep yourself alert for the dead cat in case she decides to bounce back down and in the meantime grab what you can!

Apr 10 08:38 PM

[montyman:]

Could someone please explain to me how the SKF is at $64. The last time it was at these levels, the DOW was up on 14,000 and the financials were at stratospheric valuations. Thanks.

Apr 10 08:54 PM

[Vladimir Se...:]

Montyman,

I believe SKF is attempting to reproduce amplified DAILY results. If that doesn't explain it check the prospectus for one of those leveraged funds that attempt to replicate DAILY results times X. I believe they give specific examples.


On Apr 10 08:54 PM montyman wrote:

> Could someone please explain to me how the SKF is at $64. The last
> time it was at these levels, the DOW was up on 14,000 and the financials
> were at stratospheric valuations. Thanks.

Apr 10 11:53 PM

[dcb:]

at this point you can likely buy one of the short etf's when you close on a new high. you can expect at least a drop of one day. I would certainly sell the short etf if that closes on it's high. you continue the trade if the short etf creates a higher high. i.e. it would be hard to believe you won't be able to do some form of short trade and make a profit tomm. Or pick up the short etf it if falls below yesterdays low into the gap. when gap is closed assumption will be that level has support so sell. I don't pick up the short etf at that point into it srops below that support level. I take the uside trade and keep it, but trade the down side as a hedge at this level.

Apr 12 12:18 AM

[user 385544:]

I had a large position in (DXD) built up as i took profits in the past 3 days. I took it all off Friday afternoon; 3 day weekend doesn't make me feel comfortable in this environment. Although, some world event, or this 5 week runc ould send things down at these high levels. Some new "BAILOUT" program of sorts could easily send the market higher. Taking off my DXD position HURT, as i feel this market will not hold....but alas i will not fight the tape. Monday will be interesting to see where i can put money to work.

Can i borrow your magic 8 ball mark?

Disclosure: Long (ITU), (EWZ), (FDIVX), (FLPSX), (UNG) and 60% cash.

Apr 12 01:22 PM

[user 385544:]

well put, nuff said!


On Apr 10 12:47 PM thotdoc wrote:

> I think that being rational, using charts, is not working at this
> time because people want to play..want to make money. So, it's a
> bubble within a crash,,,"Whee, I'm making money again." Whew, it
> feels good to tell my wife that I haven't lost the touch...that things
> will be OK.
>
> I'm speaking for me only here. But, I've found that I'm so much
> like so many others. So, I love the furniture at Restoration Hdw...and
> so does everyone else in my "socio-economic class." etc,etc,etc.
>
>
> Now, what will happen next is anyone's guess. But, if the euphoria
> of "making money" is at work, the rise will go on until it's really
> a bubble within a crash.
>
> I think the prevailing thought now is: Invest into what will come
> back based on where we will be in a few years, speculate/trade on
> trash (big financials). Wait for the pullback..hold investments,
> sell trash, and then invest in all those stocks we wanted to invest
> in at the better prices, but wouldn't because we wanted to keep dry
> powder reserves at a high level during this "bubble within the crash."
>
>
> I may be very wrong, but now is not the time to be rational. It's
> the time to be intuitive about what everyone else is doing and why
> they are doing it. Time to revisit the Behavior of Crowds.
>
> What I'm writing is not related to any reality of where we financially
> really are in this country. I think we know we are in a mess, and
> that China will have us for lunch in the future, forever. This is
> a hurrah. Not the last hurrah, but adefinately a hurrah
>
> Best,
>
> G

Apr 12 01:34 PM

[dcb:]

this rally was set up. from the leaked citi memo, to bernanke buying t-bills at resistance, to market to market, to toxic asset plan all right before g-20, then g-20, the wells fargo leaked earnings which were to be reported on the 23rd. I'd call it a bull market too, but I'd call it a bull sh.... market.

if you can't see when you are being manipulated that's up to you, but don't say this is a bull market when it has only been do to leaks and manipulation instead of the market.

pull all the retail investors in, pump up the market, allow banks to sell equity so they don't have to ask congress for more money. then when the economics of the situation come back to haunt people it doesn't matter becauase it's only the poor tax payer who will end up paying more to banks via stock losses. It's all just part of the big plan to get more money any way they can to the banks without the tax payer knowing about it, or congressional oversight.
How many times you going to see our government play the same game and not see it yet.

Apr 12 08:20 PM