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I've been an investment banker on Wall Street and currently invest (and trade) my own account full-time. At some point I will probably look to run some outside money. I can be reached at logthought@gmail.com
  • As Bearish as I am, I'm Lightening My SDS (and maybe SKF) a Bit In Front of the Jobs Report 11 comments
    Nov 2, 2009 06:55 PM
    This is a bit of a short-term trading call...

    I'm in the "L-shaped" economic camp, thinking that this economy will be stalled at current levels for at least several years while it works through the excess debt out there, with a real possibility that it takes another leg down into a worsening recession as the government realizes that it can't afford any more of the stimulus expenditures that have recently been propping things up.

    That said, it's pretty undeniable (based upon the generally flat revenue figures for Q3 vs. Q2) that-- at least temporarily-- things have stopped getting worse for most of the businesses out there, to the point where I'm starting to think that these companies will stop firing people for a while and "see what happens next". If I'm right, this could translate into a much better than expected jobs report this Friday, whereby there's no new net hiring, but enough of a reduction in layoffs that we may see fewer than 100,000 net jobs lost. (And yes, the number could very well be a BS government statistic that understates how bad things are, but what matters in a short-term trading call is what the market thinks, not what you or I think.)

    So, what I think could happen is that we get this better-than-expected jobs report and the market reclaims the 1100 level (or maybe more), as investors think that the next step after "no more firing" is "renewed hiring". I, however, don't think that "next step" will occur for a very long time, and thus if we do get a big move up on a better-than-expected report, I think it will be an excellent chance to reinstitute short positions at higher levels. In case I'm wrong about all this, I'll certainly keep some SDS and SKF going into the report-- just a bit less that I currently hold.

    As an aside, the current S&P 500 daily chart is starting to remind me of the mini-breakdown it had in July, from which it recovered pretty handily. This is another factor that's making me a bit more cautious in my short positions.
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This post has 11 comments:

  •  
    Leveraged ETF's are no place to be in this jittery market over the past few trading sessions, especially today's. But, I do think you're right. My thinking is that this week will tell the story for the rest of the year.

    A big tell, to me, was the quite heavy volume traded the last 15 minutes.

    Suggestion: Check out the intraday Down Jones Industrials. My jaw dropped when I saw that chart.
    Nov 02 07:38 PM | Link | Reply
  •  
    logicalthought---Enjoyed the post. In the for-what-its-worth department, I also believe stocks are likely to move higher short term. Beyond that, in a few months or so, I think there may be some major weakness. If and when the market is obviously headed south (lower highs and lower lows in stocks across the board), I will be maxed out on the short side. My personal bias in a troubled market is to the downside, but I don't like to play unless I have an advantage. There will be enough time for me to go short when the market breaks down. Better for me to wait than to try to call a top, since the top may occur 100 points from now, or 5000 points from now, depending on, among other things, liquidity injections. I am personally leery of government jobs data, as I am unsure of the accuracy. I do know that, on an anecdotal level, the job situation is tough. (I wrote an insta on it.) Thanks for the post.
    Nov 02 07:44 PM | Link | Reply
  •  
    Mayascribe: Actually, I liked being in the reverse ETFs for the past few sessions, as last Wednesday and Friday more than made up for Thursday. That said, it was a massive position for me (50% in SDS and 10% in SKF), and I think that ahead of the jobs report, I'll cut the SDS down to somewhere between 10% and 20%, with my finger right on the "buy" button if the report is worse than expected on Friday. By the way, at your suggestion I did look at today's Dow chart, and yes, 12PM-1PM was pretty wild.

    Swashbuckler: I agree 100% in "not playing unless you feel you have an advantage". Hell, even when one DOES feel one has "an advantage" it's pretty easy to be wrong. That said I put these trades on just under 1090, so they've been pretty good to me. I think that once the market realizes that Q3 was as good as it gets, the best case scenario will be somewhere around the 900 level, which would be 15x $60 run-rate earnings. On the other hand, I could visualize an economic slide back down and thus an S&P at 12x $45 earnings, but that's not something I'm ready to bet on at this point. If my hunch about a "misleadingly great" jobs report turns out to be right, I'll probably try to get more heavily short again back in the 1090s, with a stop if the S&P takes out the recent high of 1101, as I think that a lot of technical players will pile in if the market manages to take out that recent high, and frankly, I don't want the pain of being under that pile.
    Nov 02 08:37 PM | Link | Reply
  •  
    logicalthought--- Based on several of your earlier posts, I had a pretty good idea you were doing well in this market. And I've been keeping track of Maya's comments for quite some time, and I know he is also doing well. Although I believe that some of Maya's best performing investments have been in exotic, small- to-mid-cap sized companies that are far beyond my comfort level (or understanding, for that matter).
    Nov 02 08:59 PM | Link | Reply
  •  
    Yes, as with what you wrote about Mayascribe, the bulk of my profits this year have been via micro-cap long positions. However, I'm not buying anything new right now because I think that when the market goes back down, it will take all of those companies with it and thus offer much better prices than one can get today. So, I'm down to one last long position, which is a "special situation" microcap pharma company that I think is about to win a patent lawsuit, and if it does, the stock should move in a way that's non-correlative to the overall market. (Of course, if it loses, it will go down about 3x as fast as the overall market!)


    On Nov 02 08:59 PM Swashbuckler wrote:

    > logicalthought--- Based on several of your earlier posts, I had a
    > pretty good idea you were doing well in this market. And I've been
    > keeping track of Maya's comments for quite some time, and I know
    > he is also doing well. Although I believe that some of Maya's best
    > performing investments have been in exotic, small- to-mid-cap sized
    > companies that are far beyond my comfort level (or understanding,
    > for that matter).
    Nov 02 09:12 PM | Link | Reply
  •  
    Good discussion going on here between the three of us. Exotic positions are how one makes the big bucks, or gets waxed.

    LT: I was not talking about the movement from 12:00 to 1:00, I was talking about the last 15 minutes of today's Down Jones Industrials. Take another peek. Massive buys.

    Anybody who declares a massive position in anything gets my attention, as I want to know why.

    I'm in no way challenging anything you bring to the table. Quite differently. However, I will bang out big bucks (for me) when I believe, through many axioms, a day trade. If you endured through this hypo up freak me out up and down today SDS and SKF, well, I'm very impressed. I do not mean that in any way mocking. Either you have nads, or are more wise than...

    As a quasi and semi day trader mixed with long ideals, I'm quite skeptical.

    But congrats! So what's the special situation small pharma company?

    Why give the tease? Here at lit'l ol' SA we share.
    Nov 03 12:22 AM | Link | Reply
  •  
    Mayascribe,

    Re. holding the shorts ETFs through the roller coaster, I'm just trying not to get whipsawed, and instead keep my eyes on the big picture of where I think things are going. That said, I *am* getting semi-whipsawed by lightening up a bit ahead of Friday's jobs report!

    The pharma company is Santarus, a fast grower whose stock got crushed a couple of years ago when Par Pharmaceutical (PRX) challenged the patent on Santarus’s largest drug (Zegerid). Santarus recently (in July) won the first part of the lawsuit (verifying that Par was violating the patent), and I expect a favorable ruling on the second part of the case (the validity of the patent itself) any day between now and February (which is the end of the 30-month “generic challenge window”). I expect that the ruling will be favorable because the patent has already been re-examined by the patent office and declared valid. There are approximately 60 million shares outstanding, and the company is worth at least 2x run-rate revenue of approximately $150 million/year (i.e., $300 million divided by 60 million shares equals $5/share) plus its cash on hand, which is around $1.30/share inclusive of a $20 million milestone payment Schering Plough will pay in December upon FDA approval of an OTC version of Zegerid (which Schering will market and on which it will pay SNTS a low double-digit royalty). So, even in a crappy market I expect this stock to be north of $5/share any day between now and February, if they win. (In a good market it would be in the $7s.) If they lose (to which I assign a 10% chance), it goes to $2, or maybe even the high $1s-- that's the downside. Yesterday’s close was $3.09. This is a 20% position for me, and I've been maintaining it as such-- buying a little on the dips and selling a little on the spikes-- while I await the court's ruling.


    On Nov 03 12:22 AM Mayascribe wrote:

    > Good discussion going on here between the three of us. Exotic positions
    > are how one makes the big bucks, or gets waxed.
    >
    > LT: I was not talking about the movement from 12:00 to 1:00, I was
    > talking about the last 15 minutes of today's Down Jones Industrials.
    > Take another peek. Massive buys.
    >
    > Anybody who declares a massive position in anything gets my attention,
    > as I want to know why.
    >
    > I'm in no way challenging anything you bring to the table. Quite
    > differently. However, I will bang out big bucks (for me) when I believe,
    > through many axioms, a day trade. If you endured through this hypo
    > up freak me out up and down today SDS and SKF, well, I'm very impressed.
    > I do not mean that in any way mocking. Either you have nads, or are
    > more wise than...
    >
    > As a quasi and semi day trader mixed with long ideals, I'm quite
    > skeptical.
    >
    > But congrats! So what's the special situation small pharma company?
    >
    >
    > Why give the tease? Here at lit'l ol' SA we share.
    Nov 03 06:11 AM | Link | Reply
  •  
    Thanks for the Santarus info!

    Looks like the futures today are pointing in your invested direction. Good job.
    Nov 03 08:58 AM | Link | Reply
  •  
    As for the market direction, watch out for Berkshire...

    Abd yes, thanks for the Santarus data, logical!


    On Nov 03 08:58 AM Mayascribe wrote:

    > Thanks for the Santarus info!
    >
    > Looks like the futures today are pointing in your invested direction.
    > Good job.
    Nov 03 09:18 AM | Link | Reply
  •  
    Maya---Check out L.T.'s SA profile, then check out his Oct. 20 comment on a McDuffy article at 6:33PM regarding his 5 yr and year to date performance.
    Nov 03 09:33 AM | Link | Reply
  •  
    After thinking this over last night, the pre-market adjustment I made was to take my SDS down to a10% position, and RAISE my SKF to around a 25% position (thus reducing my overall short ETF position from 60% to 35%.) My reason for this is that I think that on a relative basis, the financials are probably much more overvalued than the S&P as a whole, due to the "reality" of their balance sheets vs. their "marks-to-fantasy". Also, when the SFK "moves". it's a hell of a great mover, and although I do this for a living, I like to have some fun at the same time. Take a look at a one-year daily chart of the SKF... It reminds me of Pets.com, circa 2001, except that it looks as if it's about to break out in a positive direction again. And yes, I do realize that the real chart to look at is its underlying index-- the DJUSFN-- and I think that if that breaks down from the mini-consolidation it's going through now following last week's breakdown, it's a gone-er.
    Nov 03 10:42 AM | Link | Reply
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