We do seem to have quite a change in character even on the technical side - if you are not in the "blessed" sectors you simply cannot buy breakouts anymore. Because by the time the stock "breaks out" it is 80% done with the move and you are left with table scraps. I am seeing this time after time with my buys in the past 4 weeks. That does not apply to retail, healthcare or airlines but most everything else. This is a big divergence from the past and speaks to the fact one must buy heavy dips (although that can cost you money if you time it a few days early) and then flip out, expecting breakouts to fail. This is a very difficult way to make market because your margin for error is nearly zero.
For example - let's look at Apple (AAPL). We're "happily" taking out about $4 (stock price) worth of gains in - a whopping 2% on this last trade as we bought the "breakout" instead of the "breakdown". So you buy on the breakout in the lower $170s to sell in the mid to upper $170s; that is not a way to make money. The problem is the breakouts are not extending as they normally would - again buying the breakout means you are 80% done with the move.
So the easy answer is "hey just buy the dip, you dip!" Sounds easy on paper but ask all those dip buyers in commodities (hand raised). Apple dropped from $180 to $153s the last time around - whose to say $175 was not the "dip to buy". Or $170. Or $166. Or $160. Etc etc. So it simply is a grind right now to find profit opportunities in the "wrong" sectors. Even technology which is a "sorta right" sector is proving tricky.I am simply not taking chances anymore and instead of taking a layer in and out approach, at first sign of weakness I'm cutting hard and fast - to me Apple is now in a prove to me area. If it can get back over $180, and then $190 we'll see real strength. Otherwise this reversal from $180 to $175 can turn into $180 to $155 very quickly. I am not predicting that but at this point the trade becomes hard in this market environment - we'll cut Apple down from 2.5% to 0.4% of portfolio and watch it from here.
Research in Motion (RIMM) is in sort of a better position but not by much. I am cutting some here and taking it from 2.5% to 1.5% of the portfolio but again - I'm in take no prisoner mode. Once again, if you buy that double top breakout in the low $120s (we did) you got a whopping $10 of gains at most - not very much.
If this gets to $123 we're going down to a much smaller stake. If it can break back over $135 than we see strength. In between those two - we see confusion and white noise.
So it appears to me right now if you don't make cars, fly airplanes, sell clothing or drugs - you cannot "buy strength" - everything else must be "buy the carnage" and then flip out when you get your gain - again, a much harder thing to get correct, because bottoms are endless in this market and if you are "early" by a few days you will be down 10, 15, 20, 25% right quick. Ironically if anything, the COMMODITIES are now in the "buy the carnage" stage but you could of said that anytime in the past 2-3 weeks as well and it does not work out. Showcasing why I say this strategy is much more harder to execute than "buy strength" and ride the trend. But at some point they get oversold and are worth another buy - but it will unfortunately be nothing more than a trade in this type of market.
These are the type of times you think going to cash would just be a much simpler exercise.
Long Apple, Research in Motion in fund; no personal positions
5 comments:
I sincerely hope you are wrong. I had been hoping to actually sit on a couple of stocks for awhile... I use stochastics and see much more upside than you do.... I too own larger positions in both and have about the same profit margin... Kinda looks like they should both go up about 20% on the weekly stoch. Kinda figured the recent choppiness on both was a result of options expiration ....
jegan ;-)
I have been excelling at being wrong of late so dont be too worried.
I probably am just being a nervous nelly type who sees a ghost arond every corner of late .
Thanks for the reply... But you're probably right... I'm trying to set up **something - anything** that will run for awhile... So I settled **logically** on RIMM, AAPL, MTL and OGZPY ...We'll see...
On another note, you were watching Heebner's moves... (I also own $20K of CGMFX and am willing to let him have his head.. ) ... I did find that he will be reporting his holdings next week... But as you and I know, he'll probably be out of most of them by the time it hits print.. And it probably won't include his average 5% short position either. Apparently anyone that calls CGM gets no info. Period. Fair enough...
I did check your thinking about him moving to financials.. But if you compare EEM (MSCI ETF) against CGMFX the last month, I think you'll find a very high correlation. My first thought of course was that with the FXI down so much and who knows what will happen after or as a result of the Olympics, that he might have taken a large position in China.. But FXi doesn't seem to correlate at all..
Thx again - jegan ;-)
Mark,
I think Heebner has some Ford now, and coal stocks too..
I saw a news article on yahoo saying so.
Interesting, the writer made it seem shocking he had some F.
Jegan
I did not say Heebner had financials. I simply said he clearly has moved out a lot of commodities in the past few weeks. There was a day last week when commodities jumped and if his holdings were anywhere near the same he would be up 4-5% that day; instead he was flattish so he has made a change. I did not say into financials - I don't know what into. I believe whatever is posted for his 6/30 holding he has already flipped out of since his portfolio diverged about 2-3 weeks ago.
FXI is really Chinese stocks (large caps) on US exchanges - different from shorting the local Shanghai index which has been in utter freefall for 3 quarters now.
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