Covering and Cutting Back Shorts: Commercial Real Estate and American Express

With the massive dilution in the sector plus Federal Reserve backing, it appears things like rental rates and occupancy percentages are meaningless. Perhaps my throwing in the towel will mark the top, but as I scanned the Commercial Real Estate sector chart after chart this weekend, all I saw were 'bullish' set ups. Stocks above all moving averages and bouncing on each test of a support. If I were truly genius, I would of been going long or be going long today in fact.

I covered the SL Green (SLG) short a week ago, and now am going to jettison the remaining 3; this was part of a basket of names, and I did not have much left. All together I have roughly 1.5% in these 3 names, but for now, all corrections are supported by key moving averages which are not the type of charts I prefer to short. These are all material losses, but most of the damage was done in April on these positions. Since then, I've just had small positions waiting for the market to turn down... which apparently is now a Black Swan event.


American Express' (AXP) chart took a turn for the better Friday as well after falling below the 200 day moving average. It could have gone either way last week as it was below the key resistance line (in fact closing below it 4 days in a row), but the squeeze in the last 10-15 minutes Friday killed the bearish set up. So in this case, you make a probability bet, but as I've been saying for over a year now, the market is dominant and individual equities mean little nowadays. The move of the market dominates the individual moves. Valuation is extreme, but no one is doing valuation analysis anymore. So I cut back half my short here to contain damage, and if it continues up tomorrow will probably exit the short completely.

A move over mid $26s would have it set to test early May highs. 30x forward estimates for a consumer discretionary relates that the stock is cheap in this market apparently.

The 2 other shorts we put on last week are still below key moving averages, so I'll monitor those as the market is sweeping up almost everything with it.

I feel like my capitulation is a sign of the top, but then again, I've thought all my capitulations to the short side for over a month now have been as well. I've been under the impression once all the shorts capitulate and everyone is "in" the market reverses, but apparently there are still holdouts like me in larger number than thought.

I also thought we could no longer rally on the 90th iteration of the same 'green shoot' news (China purchasing index up - just like past 2 months, is this new news?) but that is also incorrect. Somehow the same news is justification for the same rally week after week. I thought the market was an excellent discounter? Apparently it keeps getting "surprised".

I also thought Americans saving at rates not seen in a decade (as we've predicted for 2 years) would be bad for consumer discretionary stocks, since those dollars no longer are to be used shopping. That thesis is also apparently wrong. So each time I cover I think "you are doing it right at the top"... but that's not been the case.

Disclosure: Short American Express in fund; no personal position

Comments

[RiskReturnO...:]

Watch the secondary common stock offering of AXP ... the price will set the new floor for AXP (at least many, many in the bullish camp will use it as buy points) ... perhaps shorting AXP is OK, but the risk-reward needs to be right ... if secondary is set at $24, then the only good risk-reward is to wait for entry point at $28 with a hope of a double-top, stopping out at $29 (-$1 risk to go for +$4 reward).

Jun 01 07:46 PM

[Alan Young:]

I've bought, and been stopped out of SRS about 100 times this year. Still trying to snag that top and ride it down. My consolation is that it's a little cheaper to buy each time. And when I burn out on the effort, someone else will will take up the cause. Shorting real estate is a tough job, but someone has to do it....

Jun 01 09:34 PM

[Arnold Layne:]

Right on Alan, count me in too!

Jun 02 02:09 AM

[DonFurio:]

I love that this short author has been getting busted!

Jun 02 02:41 AM

[predictorma...:]

I gave up SRS for TZA. Other than yesterday (down 12%) it has been less painful than SRS, which is a gut wrencher.

Jun 02 01:26 PM