- Mercadolibre (MELI) - simply because I have a nice quick gain on this very volatile name I want to lock in. It has a very high multiple, and an even higher 'beta'. It dropped as low as $40 in the worst of the selloff Monday and is now up to $56, so I am going to layer out of part of this position.
- Mastercard (MA) - the way Apple (AAPL) has been treated has me wondering if Mastercard could await the same fate. All either company does is execute but both are not 'dirt cheap', and when people want to find an excuse to sell or a fly in the ointment they will find one. Earnings are next week, and I don't want to get "Apple'd" twice in a row here. So I think my current strategy is to ratchet down exposure severely ahead of earnings, and then if the market says "we won't hatchet you" I will just get back into this position (even if I have to pay up from where I am selling today)... all it costs me is trading costs to do this strategy. And if it is hatcheted, then I can buy back post hatchet job at a lower price. The stock has held up remarkably well during the selloff, which makes it a perfect candidate to be slashed for "no good reason"... just like they can take down fertilizer stocks due to "potash inventories", or infrastructure stocks due to "well these good times cannot continue". I am sure we can manufacture a reason to hate Mastercard as well in this environment if we really work hard enough. And earnings season is just the time to manufacture some fear factor. So in an instant MA can go from $190 to $160. Remember we have to fight "shadows" in this environment, not just real risks but those imagined - any shadow could bring death, destruction and pestilence. Again, if the shadow does not appear, well then we can buy back these shares with the risk of earnings behind us. Every earnings season is so very risky because people treat stocks so poorly on any bad line item or phrase not up to satisfaction, but this earnings season is particularly awful. Even good earnings and guidance is trashing some stocks. So with Mastercard, I'd rather pay 10% higher post earnings if necessary to avoid some of the carnage out there. We can see technical resistance for Mastercard is $190 (the 50 day moving average). I'll again place this transaction under "better safe than sorry" - I started the Mastercard positions from day 1 in the fund near $130 (and I plan to hold for a very long time) so I don't want to see all these gains evaporate in 1 week.
So my trades are as follows
MELI Selling 200 of 600 shares (33%) in the $54-$55s
MA Selling 100 of 165 shares (60%) in the $187s (I did just add to this position on Jan 11th @ $185)
This raises a nice batch of cash - well over $30K.
We'll monitor things from here. I remember back in August when we were in a similar situation I was selling a lot of items at "break even" just to get back to some cash since the drop was so frightful, and was piling into a lot of Ultrashorts only to watch the market ramp for 8 weeks on Fed cut Kool Aid. So while we have to be cognizant that we can return to another downturn quickly (fear), we also have to respect greed - a lot can be quickly forgotten in a short time and once a market makes a move up, people sitting on the sideline can quickly pile in and forget their fear as they don't want to miss a move.
At this point the short bucket of 5 ETFs is up to 5.5%, cash up to around 3%, so I am still heavily weighted to long. Will sit tight for now, as I said yesterday I do expect Microsoft (MSFT) to report a very assuring situation (as we saw with Nokia (NOK) this morning) post close, and it doesn't take much to turn human nature 180 degrees from fear to greed. We could see a nice run in the tech names from this, along with happiness on another cut next week from the Fed. When I look at valuations, I see a lot of cheap stocks - does not mean things cannot get cheaper (as we've seen lately) but all my caution has a lot more to do with the overall market than anything wrong with individual names I hold. While negative on the economy, I don't want to get too overbearing on that front like I was in August, only to watch the market to ignore everything in a spate of greed and ignorance. The S&P 500 can go all the way back to 1410 and only be back to where we were last week (current 1346), and up to 1460 and still be in a downtrend....
Long Mastercard, Mercadolibre in fund; no personal positions (just sold Mercadolibre in personal account on this spike as well)
3 comments:
Hi mark,
I can see this up leg is the B wave up to may be 1384 or 1420. After that is the C wave down to may be 1110. I can see you sell the stock that hold 200 and go in up to 50 days resistance. But what about those that are clearly on the down trend like LDK, or BCSI? Do you plan to add any long, or just strickly ETF like SRS, skf.. what is your asset allocation when SPX at 1384 and 1420? Do you think we will get the C wave down after that?
Well the MA sell was not purely technical; I have other stocks that held 200 day and below 50 I am keeping. This is more a case of (if market mood is bad) MA could sell on some made up reason. But if mood is good, MA could go up 20%.
LDK, BCSI I find good value there even though technically they are in very bad shape so I am keeping those for now.
If/when we get to S&P 1410-1420 I will be more aggressively trimming and moving into short ETFs. We have potential to go to 1460 but I am not counting on it.
Would I add any longs above 1410? Possibly. I am not a market timer, I just try to take some off the table when things get extended. But right now we do appear to be in bear condition on index charts so until this changes I am going to have to change the mindset a bit versus past 4.5 years when we were in a bull. So I will probably be more aggressively selling spikes than I normally would. And think twice before adding longs once indexes reach a certain point.
The other possibility is we go sideways in range bound fashion for a while. In that scenario, the quality names can continue to go up, and the bad sectors down. This was typical of December. But we shall see. I don't think S&P 1270 was the bottom for the year. Or if it is, we should at least retest it. I don't know if we go to 1100, but who really knows. Until we begin making new highs over previous highs, I am going to remain in cautious mode and sell the rallies. But hopefully we see more rally first. Remind me to sell once we get close since I might get too close to the Kool Aid punch bowl. ;)
p.s. how do you come to the determination of S&P 1100? Just curious. Looking at long term chart we have some support there at 1220 or so (summer 2006) and 1170 (fall 2005) and then 1140 (spring 2005) - we'd have to break all those to get to 1100, which takes us back to 2004 levels.
My concern is with the Fed funds rate below 3% and maybe going to 2.5% or so, (along with foreign central banks cutting later this year) we will be infusing the world with a lot of easy money and this creates yet another bubble somewhere. It won't be real estate .... This was part of my proposal for 13 Outlier Proposals for 2008, that in 2nd half 2008 equity markets could take on the liquidity and form new bubbles. Or maybe it will go to commodities. All this liquidity will need to find a home somewhere. We are just now in process of phase 1 of creating the next bubble... only question is "where".
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