Thursday, March 12, 2009

Bookkeeping: Selling More Morgan Stanley & Starting Short in Morgan Stanley (MS)

As I wrote yesterday Morgan Stanley (MS) has become quite the flier - both up and down. I am going to try to take advantage of both sides of the trade and create a hedged trade. I will try to short it when it gets extended and get long (or longer) as it dips. The volatility creates risk and opportunity.

We sold some Morgan Stanley yesterday and I am selling another large batch today to take it down to a 0.2% or so stake on the long side. Concurrently, I am going to begin a short position in the $23.10s. (2.5% stake) As I look at the chart the $24 area has been a ceiling the past two days and this was also an area of resistance a month or so ago. As the stock moves closer to $24 I'd probably build the position somewhat larger, and then take evasive action if the stock bursts north of it.

Overall strategy is as follows - I'd like to short Morgan Stanley down to a gap of $21, then I will be neutral on the stock (it could rebound or fall further - we'll determine when we get there). First inclination is to add long exposure at $21 if and when. If I am wrong on the short side, and the stock continues up north of $24, I'll most likely cover much of this short and in fact add to the long as it would point to a continued move upward. As I wrote yesterday, $27 is an area of resistance up above as well....

This market is so violent it is very hard to lay out strategy for anything longer than an hour but this is the general idea with Morgan. I continue to like the action of the market and still think we have an excellent chance to reach S&P 741. I'm not a fortune teller but how the stock market reacts around S&P 741 will tell me how to position for the intermediate term - if we break through it and go upward a lot of hot money will come off the sideline and into the stock market I assume. If we falter there, well it was just another spike that was to be faded (shorted). I am ambivalent which one of the 2 outcomes happens; we'll try to make some money either way. (And let me be clear that if S&P 741 is breached the Morgan Stanley short will be kaput and it will be time to get long, not short - every stock is a hostage to the stock market nowadays; however I want to have SOME short exposure at all times as insurance so this is one candidate)

As always about half of our money is on the sidelines during this epic bear market - we're doing all these moves under the context of being conservative overall but making some strategic moves with the other half of the pot.

Long/Short Morgan Stanley in fund; short Morgan Stanely in personal account

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