Thursday, September 9, 2010

Bookkeeping: Short Texas Instruments (TXN)

Until further notice I plan to just keep trading this range until one day we exit it.  That means getting more aggressive short on the top third, and more aggressive long on the bottom third.  This will work until one time it will not - i.e. buying at the bottom end will cause losses, or shorting at the top end will cause losses.

One group not enjoying much of the recent euphoria of the past 8 trading sessions is semiconductors ... I am trying to think like a silicon based algo and hence the Semiconductor ETF (SMH) comes to mind.  See chart:

While a broad based ETF, the 3 main components are Intel (INTC) @ 21.2%, Texas Instruments (TXN) @ 20.7%, and Applied Materials (AMAT) @ 11.1%.   So rather than short the ETF I picked one of the three.  The latter two have similar charts, whereas Intel appears lost at sea.  You could view that in one of two ways... it has not recovered at all so (a) it might play "catch up" on future rallies or (b) it will be the leader downward since it is so weak.

My style is to short near resistance areas so my stop losses are clear and close by.  Hence the other two are more my style.  I chose Texas Instruments (TXN) with a 3.4% allocation to start rebuilding some short exposure.  The risk of an individual stock rather than an ETF of course is company specific news... but I like the fact this sector is weak because it tells me HAL9000 is not interested.  This is not 'fast money' as these names are not super volatile, but we have limited upside risk ... one could place a stop out at either $24.25 if they want a very tight leash, or over the weekly high at $24.50 for a slightly wider stop out.  Downside target is about $1 from entry near $24.

In the broader picture while copper is doing well, semiconductors are another key leading indicator and is telling us a different story.  Interesting.

In terms of the market please keep in mind we failed to fill the gap at S&P 1090 on Tuesday; missed it by 1 point.  Still needs to be filled in due time.

Short Texas Instruments in fund; no personal position

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