Bookkeeping: Short Brinker (EAT)

For a long time I called out restaurant stocks as one of the consumer discretionary sectors to enjoy a very bad future. [Sep 19, 2007: Tough Times Ahead: Restaurants?] At the time commodity prices were ramping huge in the agriculture space (wheat, milk, corn, cheese et al) and the end of the house ATM was going to hurt the consumer. Unfortunately, I could only talk about it and not profit from it due to the previous tracking system we were using. For example the stock we're focused on below fell from the upper $20s to $4 at it's bottom... now that's a profit opportunity lost. (of course we would not of caught that entire move - but even a terrible trader could of made lots of money multiple times with a stock in such a downtrend) A lot of stocks in the sector have fallen 60-80% in the meantime....

Brinker (EAT) is actually one of the "better" names in the group but it's had a HUGE rally off "not as bad as expected earnings" nonsense that bulls love. $4 to $12.

• Brinker International Inc., which operates the Chili's Grill & Bar restaurant chain, posted a loss in its fiscal second quarter Thursday due to the sale of a restaurant chain and other one-time items. The company also reported sliding sales during the quarter, as the holiday season did little to spur customer traffic in the restaurant sector.
• But investors had already expected lower sales at the chain given the recessionary environment, and appeared to focus instead on the company's adjusted results, which widely beat Wall Street's expectations.
• Same-store sales, or sales at locations open at least a year, fell 4.5 percent excluding results at Macaroni Grill.

Brinker International, Inc. owns, develops, operates, and franchises various restaurant brands primarily in the United States. It operates full service restaurants under the Chili�s Grill & Bar, On The Border Mexican Grill & Cantina, Maggiano's Little Italy, and Romano's Macaroni Grill brand names. As of June 25, 2008, the company owned, operated, or franchised 1,888 restaurants in 50 states.

Technically, we have the potential for a double top forming, so an easy in and out trade here and I actually don't like most of this sector so that's an additional bonus. Unlike the punditry I see no consumer recovery in "the 2nd half". They need minor things like... jobs.

That said, the stock has been on fire and we'll use the double top as our line in the sand. The stock is @ $11.80 (2.9% stake started) and has stalled around $12ish which was also the high in early January. Market maker could really snap you out of a position like this so I'll place the stop loss a bit higher, around $12.25 and we'll see if we can get something around $10.50 on the downside. The 50 day moving average is down in the $9s, so it could actually fall even farther than mid $10s if this trade works out. If I get stopped out I will probably try this trade again from a higher level.

So we're going with 3.8% on the downside; 11% on the upside. The logic here is a double top is forming and some back and filling is required. You can see volume is also stalling out this week at the bottom of the chart. Whomever bought @ $4 - congrats to you.

So this gives us 3 short positions, but still missing some REITs, some vegas casinos (no rally in those names despite market strength), some credit card companies, some retailers, and the like. Still searching for some better low risk set ups in those sectors - I'd like to get 8 to 12 shorts and get rid of these darned Ultrashort instruments of destruction. Once I get the short side built up properly I'll feel more comfortable owning more long exposure and be "in balance"; slowly moving in the right direction. Someone please push MGM Mirage up 20% ....

Short Brinker in fund and personal account