Halliburton (HAL) does not typically unload large blocks at the top of the market. However, they do pick up large blocks prior to an advance. The designated Market Maker in this issue covers short positions and accumulates in multi million share blocks. The reciprocal is that he distributes in smaller blocks of five hundred thousand shares or less.
I did not include the smaller blocks in the block matrix because I do not believe that the distribution phase of the merchandising cycle is currently being conducted. I believe quite the opposite is true. I believe that for the most part the accumulation phase has concluded. In addition, the file would be too long considering the space restrictions.
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I am also supplying a weekly chart, as well as a daily chart. I want to illustrate the longer term nature of this recommendation. Without the weekly chart you might not fully appreciate the importance of the blocks being analyzed. More importantly, I want you to judiciously consider what are the most likely price consequences when blocks of this magnitude trade in this issue.
If ever there was an object lesson of history repeating itself we find it here. Observe if you will, the block traded on November 3, 2010 and compare it to the block which traded on June 15, 2012. Do you see any similarities? They both were 4,058,234 shares. The odds of that happening and being unrelated must be astronomical.
That said, the first block traded was prior to a long extended advance from the $31 range to the $58 range. So if history repeats itself and I believe that it does. We should see a fairly consistent advance in Halliburton with pullbacks along the way. These pullbacks occurring at key levels could be exploited further by monitoring the 500,000 share trades where the swings will most likely occur. Of course, this is an oversimplification of a far more sophisticated process. Investors could do well enough by buying and holding into the end of the year. You just need the strength of will, to ride out the pullbacks.
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On the Basis of the foregoing these are my views and observations:
The Trade:
I recommend establishing a long position in Halliburton. Open your position with only 1/4 of whatever capital you intend to commit to Halliburton at $28.50. Purchase the remaining 3/4 of the position at $26.22 and stop out at $25.15. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant and in an abundance of caution I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? I would be looking to exit the trade (at least half) at an upside price target of $31.99. Do not allow this position to exceed 5% of your overall portfolio. You should seriously consider writing puts to establish your initial position. If the stock is put to you, then the premium will bring the cost basis down and if not, then the premium is money in your pocket. If all goes as planned then I would reestablish the position at $30, once again writing puts to engage. The same principals apply with respect to position sizing.
There is always the possibility that the trade may not work out.
There Is Never A Sure Thing (particularly on a short)
Investors must realize and recognize that there is never a sure thing. Sometimes events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.
In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.
Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. SUN TZU -Art of War "Use an attack to exploit a victory, never use an attack to rescue a defeat."
If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to .003 of the overall portfolio (theoretically valued at $1,000,000).
And finally, never be a brave and brainless investor because a fool and his money are soon parted.
A portfolio of $1,000,000 should position size in the following manner.
This is a trade, not an investment. Be ever vigilant.
That's it for now…. Have a nice day.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAL over the next 72 hours.
