Thursday, March 11, 2010

Bookkeeping: Closing Rackspace Hosting (RAX) and DragonWave (DRWI), Cut Some Seagate Tech (STX)

I said entering the week, these are 2 positions I'd be monitoring, along with EnerNOC (ENOC) as they are the 3 weak links we had in the long side of the portfolio.  I've culled Rackspace Hosting (RAX) twice this week, and said yesterday if I did not already have other shorts maxxed out, I'd be shorting the stock at that point.  Unfortunately as Greenhill & Co (GHL) stopped me out first thing this AM, I went to go short Rackspace as its replacement and it was already down 3% right at the open.  So the "perfect" entry was gone, but it still seems like a good short with a stop out over $20.  But I have not pounced at this time.  Instead I am selling the last 0.1% allocation.

DragonWave (DRWI) is swimming in its own misery - I am also dropping the last 0.1% to avoid looking at this mess.  I expect it now to fall to $8.50 or the 200 day moving average.  After its cursory bounce off that level I will be curious what it does.  While technically a good short, I don't like messing with stocks that move 7-8% in any 1 day as shorts.  If you get the timing right you can win, or it can blow through your stop loss in minutes.... and then reverse back down without you. 

Does this mean these stocks cannot turn around and rally beginning tomorrow? (like Greenhill did today)  Certainly not.  But there are now so many stocks in excellent charts (but extended), that I'd rather buy on a pullback - there is no reason to deal with stocks facing much tougher conditions.  I gave both names some extra time to see if their condition would be reversed and despite massive tail winds of the general market, especially in their size of market capitalization - they have not joined the party.  So we'll cut these and find names with less headwinds in the near term.  I'll still keep an eye out on these companies, since I have yet to see any fundamental changes to the stories... but maybe someone in the know has seen a change, hence the behavior.

I also cut about 40% of Seagate Technology (STX) this morning, as competitor Western Digital (WDC) has completely broken down and is taking Seagate with it.  This is just the typical precautionary cutback when a stock breaks a key support - in this case the 50 day moving average.  I shoot first, ask questions later - it might reverse right back up as it did in early February since it's a volatile stock.  Only a 2%ish loss here, but I gave up some nice unrealized gains over the past 1-2 weeks on this one.  STX is now in a precarious technical position despite the whopping 6x PE ratio .... meanwhile retail stocks at 40x earnings are sailing. ;)  The "playbook" baby...

Long Seagate Technology, EnerNOC in fund; no personal position

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