I want to get back to doing more theme type posts in the next few weeks, I have a bunch of them I want to write, I just haven’t been able to get around to it. Today I just want to do a little review of what’s taken place earlier this week, it’s been an exciting few days.
I’m looking at my book right now, and it caught me a little bit off guard that I’m only 15% long on an absolute basis here. Going beyond that, when looking at my long exposure which is about 54% of portfolio values, almost half of that exposure is in either Compania de Minas Beunaventura (BVN), Eldorado Gold (EGO), Silver Wheaton (SLW), or iShares Silver Trust ETF (SLV), this part I was well aware of. It plays into my recent theme for the past few months that the only way to swing/position trade this market is to be long/short and uncorrelated to the overall indices.
How did my long exposure get so low yesterday? Well it was really a result of choosing to sell out of Radware (RDWR) which spiked almost 40% on takeout chatter. I banked an average gain of 61% on the position, I’ll take the money and run. You might ask why I sold out. It’s very simple, Radware is now a deal stock and will trade on deal news, not technicals or fundamentals, just news. I am not what they call a “special situations” trader, that’s not my game, I really have no clue how to play it, and I will avoid it at almost every turn. It makes no sense for me to screw around in that stock anymore without an edge.
I sold out of Edwards Lifesciences (EW) yesterday morning as it broke down, decreasing my long exposure as well. I don’t like the selling action over the last few days on relatively heavy volume. At the end of the day I took the 2.5% loss and walked away. I am not going to screw with any long positions up here not acting correctly as the market is very overbought short term, not a chance. That is a recipe for disaster if you ask me, a momentum stock not acting well at the top of a big range in the overall market when we are very overbought. Avoid positions like that, shoot first and ask questions later.
Another piece of my long exposure is in Apollo Group (APOL), but it is a pairs trade as I am short Strayer Education (STRA). You all know the thesis here, and the trade is working well. This is a longer term trade, you need to give this one time to work, they are going to kill STRA, it’s just a matter of time, I’m with Eisman on this, their repayment rates are well below what they say they are and the market is going to punish them when they tell the truth, or get caught lying. APOL on the other hand isn’t in great shape itself, but at least it’s in better shape than Strayer, and they aren’t lying.
That leaves me with Nanometrics (NANO), a tech company I like a lot, ICICI Bank (IBN) the Indian bank that is going crazy right now, Atmel Corp (ATML) another tech telecom type company moving well, VirnetX (VHC) which has been on fire, I’m up 55% on that position, and a little bit of iRobot (IRBT), just because. So the list isn’t that long.
Given how well the market is acting here, and the fact that the leadership has broadened out, I should have been longer last week into this move. We haven’t seen the leadership broaden out like it has here in a while, not during the previous two runs to the highs that the market has made over the last 4.5 months. If we get a pullback here on light volume over the next few weeks, I will be very inclined to take some serious long exposure into the end of the year.
For now, I like where I stand, I think the market needs to rest and I’ve had a great last few weeks in terms of performance. I’ve kept up with the market while never having long exposure greater than 35%.
Let’s take a look at the shorts, which have fared much better than expected given the move we’ve seen in the market. My largest short position is not Yahoo (YHOO), I added more yesterday, the stock continues to trend downward below its 50 day moving average. I’m positive on the trade. My BP short hasn’t worked out well, nor has my short in RadioShack (RSH). I still like these two to get whacked as the market pulls back here, you know my thesis on both. My GameStop (GME) short continues to work well, it’s a longer term play, I believe this company is a dead man walking, their business model is sunk, and I don’t see them getting bought out. Last week I added two shorts in Polycom (PLCM) and Blue Nile (NILE) which are just around even.
In terms of overall performance, we’ve had a great two weeks. For the quarter we’re up almost 7.5%, trailing the SPX by about 175 basis points. Most of that absolute return coming in the last two weeks. I didn’t expect to have this good of a quarter, and I’ll be more than happy to lose to the indices if they close they month up here. Just remember, we beat the SPX by almost 1300 basis points last quarter and we’re positive in what can only be called a fugly market.
As always you can see all of my positions and performance on the Trading Book page of the site.
More later on a few themes in this market that you should be paying attention to and how to play them.