Tuesday, August 4, 2009

Bookkeeping: Adding Another Leg Into Wynn Resorts (WYNN), PPG Industries (PPG) and Caterpillar (CAT) Shorts

Let me preface this by saying these are perfect breakout charts on the long side so a pure technician would NOT do what I am doing. Normally I place a short position and if it begins to work against me I immediately leave but last week with some names I adopted an intermediate term strategy that is different.

Let me also say this market is on day 17 of a run where it not even corrected 0.5% on a close. That's just remarkable. +15% in that time on the S&P. We are still at the November 2008 "double top" - so if we close say north of S&P 1010 the move to 1050 begins. A definite risk ...

I put on "half" short positions in a bevy of names last week and said I'd put on the 2nd half higher. Well many are certainly "higher" - WYNN is now 20% higher, PPG 9%, and Caterpillar is 10% higher. Since the charts are still in breakout mode I am not going to put on the full '2nd' half but instead a quarter more of a position. So I'll have 3/4ths of my short exposure on these 3. If they advance 8-10% more in the coming days/weeks, I'll put on my last quarter and then assess from there.

So for these 3, I am adding about 25% to the half (50%) position I have established. Don't try this at home.

p.s. Caterpillar (CAT) announced today it can make $8 to $10 of EPS.... if the global economy recovers to normal... in 2012. Apparently we are now not valuing stocks on 2009... or 2010. But 2012. As for WYNN investors, they are paying a cool 140x forward estimates. Not for 2009. For 2010. As I've said before I am sure analysts will be wrong on this name, but even if I assume analysts are wrong by 100% on 2010 estimates, that is still 70x forward estimates. The algorithms don't care about these details - somewhere a microprocessor is simply scoffing at the use of valuation techniques of the humans.

Let me repeat again - these charts are what momentum investors who are technically based look for... so I'm like a trout swimming against a massive tide by betting against.

[actual photo of me - the trout - versus my opponent on these trades]

And it's not just these guys... there are more... many more. Early cycle recovery 6.0 rally is just as strong as the other versions we enjoyed through 2008.

Short WHR,CAT,PPG in fund; short Caterpillar in personal account

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