Adding to Capital One Financial Short Position: Gotta Love the Stress Test

I need to start thinking in complete inverse here, if only I had been long Capital One Financial (COF) - the stock gapped up another 20%. I said facetiously, if not $20, why not $25? So I suppose if not $25 why not $35? Every $5 I am going to add a bigger swatch. I am up to about a 5% short position and will take this to 15% if we get up to $45-$50.

I love the stress test; now the government says instead of converting preferred to common which the banks protested, they will now allow to convert preferred to convertible preferred; this is so laughable at this point. Banana Republic. Whatever the banks ask for, they get.

As I said Wednesday, I am now going to get deeper on the short side with upside targets of S&P 950-975. The closer we get, the higher I'll go into the short end. There is now complete and utter complacency on the long side just as there was on the short side 2 months ago. Wake up every morning, go long and win.

p.s. if you want to see other workings of the invisible hand, check out futures at midnight versus 8:00AM forward. I have been watching this over the past year, and the past month; if you bought futures at midnight and sold at 9:35 AM, I think the success rate is 80%+. Many days it nets you 1-2%. Because there is such a rush by "someone" to bid up futures in the morning day after day, after week after week. Apparently the normal market hours are not long enough for "someone" and he/she needs to buy futures furiously every morning. I wonder whom.

p.s.s. on a quite related note, I saw a report yesterday on Bloomberg that Goldman Sachs (GS) which now is doing about 20% of all trading volume recently, only had 8 days they lost money in their trading operation in the entire first quarter. That's >80% win percentage. Apparently the traders on their desk are of a level no other desk has... clearly the idiots at Morgan Stanley (MS) have no skill. See, when you are the one who has a big hand in which way the market goes each day, you tend to win a lot. See Banana Republic comment above.

Disclosure: Short Capital One Financial in fund and personal account

Comments

[It Figures:]

Not clear from this why you are short, and continue to short, this stock, other than because "the system" is all screwed up. The little substance you do provide - regulators seem to be on their side, recent stock performance - suggest it's a better long.

You would do much better, I think, shorting some of the past 6 month's winners that are now pretty tired and are not participating in this rally.

May 07 07:48 PM

[mikebrah:]

AMZN is ripe. I shorted it into earnings and on the earnings pop and it buckled immediately after the initial pop. It looks like its been weakening ever since.

But, I am short COF and BAC as well and this may end up being another learning experience for me. But I have loads of available cash and a steely reserve so we will see. I'm prepared to go the distance.

MM


On May 07 07:48 PM It Figures wrote:

> Not clear from this why you are short, and continue to short, this
> stock, other than because "the system" is all screwed up. The little
> substance you do provide - regulators seem to be on their side, recent
> stock performance - suggest it's a better long.
>
> You would do much better, I think, shorting some of the past 6 month's
> winners that are now pretty tired and are not participating in this
> rally.

May 07 08:06 PM

[RiskReturnO...:]

The stress test report showed terrible loss rates for commercial real estate under adverse scenario. Maybe shorting IYR could work?

May 07 08:45 PM

[HBWOW:]

" LOGIC" clearly says to short the banks but under the daily manipulation by the boyz, logic does not work, only pre planned manipulation by a few bad men/women. PE's, ratios, good growth, slow growth, increased market share, good dividend payout, etc. etc. mean NOTHING in this highly manipulated volatile market. The cheaters get richer and middle Americans get poorer........AND SEC does nothing, n o t h i n g.......
SEC is clearly a group of ineffective, overpaid friends of the insiders and investment houses - clean house and set up a real
tough organization who is willing to do the right job of policing and
punishing of the culprits (and there are many).

May 07 09:06 PM

[basehitz:]

Mark,
I have learned watching your techniques. I too am amazed at how the bulls unrelently drive it higher, often on questionable data. I bought aggressively tech ultra ETFs very close to March bottom. My problem was I looked at our fundamental problems long term and took a quick profit. It seemed like a really smart trade. It was just the beginning. Since then, every piece of good data is magnified, mixed data is cherry picked, and negative data is spun. Da Boyz want it higher. That may change today, but that is still a question. My inclindation is to short, but not financial. The govt has decided they will not let any big bank fail, no matter how much money is wasted on these failed organizations. Retail however (e.g., CC) is not immune. And insiders have been selling aggressively (as with the market in general) for some time. Barron's has done several pieces in recent weeks. But I will probably do it with options or inverse ETFs, not shorting. The rules change every day, and the manipulators have the tape. Bears are getting trampled daily and reluctant bulls are being forced to invest, or so say some pros citing their performance criteria vs SPX. I expect this rally will fail miserably, but whether it's here or much higher seems unknowable. Good luck with your bet.

May 08 09:30 AM

[babajay:]

It is now 7.55 pm on May 8th and I am sitting here shellshocked at the action today. For those soccer fans that remember Diego Maradona's "Hand of God" one would have to imagine that may be what is keeping the market up. Even the banks that need "A LOT OF CAPITAL" rallied hard. As for COF.... If we dont get a takeover announced on Monday, I will be STUPEFIED (Of course who would buy this thing.... I shouldnt say that... They could make B of A buy it). Either way, this could be leading to a calamity of epic proportions if this is indeed manipulation by unseen forces.

May 08 07:58 PM

[2Labradors:]

I share your sentiment that COF is a shaky finance company with potentially some serious looming problems, notably on consumer credit default. However, It is widely believed and preached by many of the world's best traders that adding to a losing trade is one of the most fail safe ways to lose money. Especially, I would think, in a margined or infinite loss situation such as shorting. Scaling into a position as a long term investment is one thing, but shorting stock is not an investment, its always a TRADE. Now that being said, I have also been short COF several times in the past year. That was when the chart looked like a ski slope heading towards the ground. I think it could be a good short again at some point in the future. Just not now. You can't catch a falling knife and you can't stop a rocket lauching higher. Maybe buy some puts. Maybe just keep your cash on the sidelines and wait for a better entry point into this trade. But shorting all the way up is going to be a sure way to quickly eat up your capital.

May 09 09:35 AM

[t.o.:]

Well said 2 labr. Remember, "the markets can stay irrational longer than one can stay liquid".I wish you luck trader mark,but you should have been out of this position when cof went 16 up to 18 and you added to your short.Cut your losses and ride your winners.ULTIMATELY,THE MARKET IS ALWAYS RIGHT

May 09 12:11 PM