Despite "elite" valuations I am willing to buy some of the generals that have pulled back in case somehow this market tacks on another 9% in October without a retreat. I have a very specific strategy with Salesforce.com (CRM) since my bet is still that we have more odds of downside rather than upside in the coming few weeks.
Stage 1: After effectively selling the entire position except a holding stake, I placed a limit order at gap #1 around $111.00. This just triggered today - I've added a 1.8% exposure. This also happens to be the 50 day moving average.
Stage 2: Either / or - either Salesforce.com bounces here (along with the general market I'd assume) OR it is going to go down (along with the greater market) to go fill gap #2 down at $100. $100 is where I really want to create a position, not up here.
Stage 3: To compensate for the potential downside, my stop loss will be around $107.50, where I will exit today's purchase near $111. If that happens, I will then make a much larger purchase down at $100. (of course that will be below support but with the 'generals' it seems to matter less) Not only do I think this is a likely scenario, I am actually hoping this is how it would work out even though I'd take a near term loss, since my cost basis would be lower for the long term. If I'm wrong to the upside, well then at least I have a pony in the race, even if its not the full position I want.
How do I lose in this scenario? If HAL9000 sniffs me out, takes CRM down to $107 area and then quickly jerks it back up to $111+ on the path to CRM $200. (courtesy of QE2 of course) Overall however, I like the construction of this trade and potential scenarios.
One caveat - due to extreme valuations in these type of names I will be cutting back no matter where we are in the chart, ahead of the earnings release. So many of these leadership stocks have run so far in September that they will be prone to blowups.
Long Salesforce.com in fund; no personal position
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