Best Bet on the Long Side in This Market: Materials

by: Leigh Drogen

I don’t like this market and continue to believe that on the swing/position trading time frames you should be small and hedged with both longs and shorts. As you know, this isn’t my kind of market and I will never make a killing on the short side. But, targeted shorts here are warranted. Between Thursday afternoon and Friday morning I covered half my BP short for about 10%, it was a sizable position and a good win. I still like my GameStop (NYSE:GME) short long term, that is a dead company walking and I think eventually investors finally put it to its grave.

I have a few positions on the long side in Nxstage Medical (NASDAQ:NXTM), Radware (NASDAQ:RDWR), iRobot (NASDAQ:IRBT), and the grains ETF JJG. The NXTM position is rather big and I have a short leash on it.

So where do we go from here? I’m scared of holding tech to the long side in size for more than a few days, leaders continue to get picked off one by one, and although some stocks are acting very well, see (NYSE:CRM) and Akamai (NASDAQ:AKAM) Friday, it’s hard to find the winners amongst the mess. Trading the intermediate term trend is about having that trend with you, which lifts all boats. Your job is to pick those stocks with the best chances to outperform during that trend, and have conviction in them for more than 2-3 days. I just don’t have that here.

If you are going to play from the long side here, I think the materials sector is the place to be, specifically agriculture, coal, and gold. I’m seeing a lot of really good setups here longer term. Stocks basing out well, the gold miners are showing great relative strength, and I think gold goes to 1300 eventually. I will post a bunch of the best setups on

The other place I would be looking is emerging market banks and telecoms. Stocks like Bancolombia (NYSE:CIB), Banco Bradesco (NYSE:BBD), ICIC Bank (NYSE:IBN) all look great and I’m just waiting for the right time to enter. Telecoms like telecom Indonesia (NYSE:TLK), China Mobile Limited (NYSE:CHL), and Milicom International Cellular (MICC) look very strong and I love these companies fundamentally.

From the short side, I will reiterate, do not short small/mid cap tech. You know why. Look for shorts in retail and domestic banks, along with the oil service names.

There’s no point in being exposed heavily in any way right now as the market is just a complete mess. Have some patience and read a few books while we wait for the fall.

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