Why I'm Shorting Moody's

Thanks to a reader for alerting me to this chart... Moody's (MCO) is not something on my typical watch lists but it's been in the news a lot of late. There is a lot of headline risk here, and noted hedge fund manager David Einhorn is waging war against the name (the last prominent name he was against was Lehman Brothers). [May 28, 2009: David Einhorn v Warren Buffet on Moody's] Those are not really the reasons for the short here ... first, I need something to try to balance this portfolio out having been stopped out or liquidated many short positions the past few weeks, and second - a low risk entry on the chart.

We'll short here in the $23.20s; and stop out somewhere around $25 if and when. I really like setups like this when an oversold stock rallies right back into resistance. The stock has rallied 8 of the previous 9 sessions after a lot of bad headlines. Probability is, it just goes right back down... if not, we have an very identifiable area to take a moderate loss. Placing a 2.9% allocation on this trade.

Short Moody's in fund; no personal position

Comments

[Macro_Man]

Looks like a good idea. What is the risk that it is an overcrowded short and there will be a spike up on a short squeeze? looks like everything is going up against the dollar

2009 Oct 16 03:06 PM

[DonFurio]

Shorting Moody's was so last year... Jk, but while I know Moody's has issues, the stock is still way down from a few years ago.

2009 Oct 16 03:33 PM

[DonFurio]

I will say that overall your strategy is fine though because you have the stop, so if you think it's worth the shot, go for it.

I have no position in Moody's.


On Oct 16 03:33 PM DonFurio wrote:

> Shorting Moody's was so last year... Jk, but while I know Moody's
> has issues, the stock is still way down from a few years ago.

2009 Oct 16 03:35 PM

[TraderMark]

Basically over $25.20 or so I am out. Main risk for me is in our system of captured regulators they just wash their hands and say "no problemo" "the stock market is up, so everything must be fine"

I think Einhorn has a far more long term view than me, and that it should be a smoldering hulk of ashes.


On Oct 16 03:06 PM Macro_Man wrote:

> Looks like a good idea. What is the risk that it is an overcrowded
> short and there will be a spike up on a short squeeze? looks like
> everything is going up against the dollar

2009 Oct 16 04:59 PM

[TraderMark]

Shorting anything was so last year ;)


On Oct 16 03:33 PM DonFurio wrote:

> Shorting Moody's was so last year... Jk, but while I know Moody's
> has issues, the stock is still way down from a few years ago.

2009 Oct 16 04:59 PM

[Macro_Man]

The trend is still up, difficult to make money shorting. Best to go with the flow in small size or sit on the sidelines and wait it out. if you start shorting too early, you will run out of steam when the drop starts. got to wait for some catalyst.

1. some credit event or 2. fed actually soaking up some change or 3. an impulse break out of the dollar out of the falling wedge pattern or 4. spike in interest rates or big spike in 3 month libor.

if you cant wait perhaps best to buy some long-dated out of the money cheap puts and wait for the market to collapse

2009 Oct 16 05:09 PM

[TraderMark]

I'm literally down to 3 minor short positions due to being stopped out of every attempt, so yes - I am just trying to have something in case the market is allowed to fall for say 3 days. We had a moment such as that just 2 weeks ago (remember the employment report? ahh, seems like a faint memory)


On Oct 16 05:09 PM Macro_Man wrote:

> The trend is still up, difficult to make money shorting. Best to
> go with the flow in small size or sit on the sidelines and wait it
> out. if you start shorting too early, you will run out of steam
> when the drop starts. got to wait for some catalyst.
>
> 1. some credit event or 2. fed actually soaking up some change or
> 3. an impulse break out of the dollar out of the falling wedge pattern
> or 4. spike in interest rates or big spike in 3 month libor.
>
> if you cant wait perhaps best to buy some long-dated out of the money
> cheap puts and wait for the market to collapse

2009 Oct 16 05:14 PM

[Angry Banker]

And the most compelling reason to short Moody's.... Warren Buffett has been selling his stake, meaning the company has no future (just take a look at the current state of most other companies that Berkshire has bailed on in the past....)

2009 Oct 16 06:35 PM

[RogerScott]

McDonald's has done quite well.


On Oct 16 06:35 PM Angry Banker wrote:

> And the most compelling reason to short Moody's.... Warren Buffett
> has been selling his stake, meaning the company has no future (just
> take a look at the current state of most other companies that Berkshire
> has bailed on in the past....)

2009 Oct 17 01:27 PM

[tj7654]

ugggh, like Goldman Sachs???


On Oct 16 06:35 PM Angry Banker wrote:

> And the most compelling reason to short Moody's.... Warren Buffett
> has been selling his stake, meaning the company has no future (just
> take a look at the current state of most other companies that Berkshire
> has bailed on in the past....)

2009 Oct 19 12:52 PM

[Century_XI]

Hello! Did you take your stop yet? If not, hurry up, cuz earnings report is coming! The clock is ticking....

2009 Oct 22 07:02 PM

[TraderMark]

already stopped out

www.fundmymutualfund.c...

Seeking Alpha only posts a portion of my blog entries... so you don't see all the transactions here.

Thanks for your concern.


On Oct 22 07:02 PM Century_XI wrote:

> Hello! Did you take your stop yet? If not, hurry up, cuz earnings
> report is coming! The clock is ticking....

2009 Oct 22 07:48 PM

[Century_XI]

Sure I don't. By the way, I don't question your skills; at all. I hope you're doing well. It's just that those of us who are long term holders of MCO (an endangered species it seems) need from time to time to score some victory over the bears.

I couldn't help but write...

Best regards.


On Oct 22 07:48 PM TraderMark wrote:

> already stopped out
>
> www.fundmymutualfund.c...
>
>
> Seeking Alpha only posts a portion of my blog entries... so you don't
> see all the transactions here.
>
> Thanks for your concern.

2009 Oct 23 12:15 AM