Trade Alert: Covering lots of shorts and selling one long

If you really want something in life you have to work for it. Now quiet, they’re about to announce the lottery numbers. – Homer Simpson

It sure got ugly in a hurry in tech, didn’t it? Just about the time that “tech feels safe” was about the time that the market topped. And now, now that stocks have pulled back and the markets are down 5-10% from their recent highs back when “tech felt safe”, is the time to start scaling back into the stocks like Apple that I suggested trimming above $600, or others that you trimmed at higher levels.

And more to the point, if you haven’t bought any of the tech stocks that I’ve got listed as longs, then I’d strongly suggest starting to scale into these names now. You don’t have to draw a line in the sand and you don’t have to load up on each or any of the longs in the portfolio, but I’ve made a career of using a tranche approach and buying tech stocks on weakness when we’re in a bull market (and shorting strength when we’re in a bear market, but that’s not today’s strategy since we’re currently in bull market mode).

In other words, if you want to own 100 shares of Apple in your portfolio because, like me, you think it’s going to $1000 by 2013, then you should look at buying 30 shares of Apple right now while it’s down 15% from its highs of just two weeks ago. If the stock is down again tomorrow, especially if it’s down big after its earnings report tonight because the company’s got a couple quarters before any new major products hit and thusly the numbers tonight are the dreaded “less than expected” then you buy another 30 shares tomorrow. And then, if at any point in the next couple weeks the stock is down near or below $500 (I don’t expect we’ll see that price again, but you never know how far a price to earnings multiple will contract when a sell off starts like AAPL is currently), you will want to buy the last 40 shares.

And if the stock doesn’t continue to fall from here? Then patiently buy the rest over the course of the next couple weeks, regardless of where the stock has rallied or flatlined and get the full 100 shares built up over the next two to three weeks instead of all right now.

The same goes for any of my five favorite longs right now:




Level 3


Buy a little now while they’re down big from their highs and then slowly but surely buy a little more of each over the course of the next couple weeks until you’ve got what you consider a “full-sized” position in each. A full-sized postion could be anywhere from 5-20% of your overall stock exposure depending on how concentrated (and therefore risky) you want to be in each respective stock.

But don’t rush into any of them.

And I also want to reduce the number of holdings in the portfolio today, especially letting go a couple short positions.

I’m going to take a 40% profit on our SLV short position. We nailed that trade when SLV topped and subsequently broke down, but it’s been dead money for awhile now and I’ll look to revisit it when silver starts to act toppy and dislocating again.

And I’m going to take a nice 20% profit on our Live Nation short. I still think the debt load and loss of pricing power for concert tickets is going to crush this company. But the biggest problem with this short right now is that they’ve got private equity and/or other acquirers sniffing around and that has put a floor under the stock near these $8 levels.

Finally, I’m going to sell the DBA, which is a basket of edible and consumable commodities like soy and cotton. We’ve done nothing on this inflation-in-the-things-we-need bet and while I continue to think that inflation is a major problem ahead over the long-run as a result of the bailouts and stealth bank bailouts, but when my dad is telling me about how the hay he bought last year for $8 a bail are now going for nearly $25 a bail, I want to step aside and let the edible/consumable commodity sector settle down a little bit.