I Have A Great Pair Trade

Yesterday in The PPT, in the blog section, I highlighted how super-extended the hybrid scores were and to take profits. Because of that, I was able to sell ECR above $7.10 and then swing those funds around into AAL.

This is a very simple trade, even an idiot can do it.

AAL is the most leveraged to oil going down in the airline space. Them and ALGT have the most to gain from cheaper crude. Naturally, if crude spikes, there will be weakness in the shares. Nonetheless, this is a very healthy business, with over $11 billion in quarterly revenues and nearly a billion in net profits.

Here is how Exodus is grading the airline sector now.

Even after today’s move, the sector is still trading near the bottom end of its Hybrid (combination of both fundamental and technical factors) range. AAL is still down 6% for the year, unjustly, and stand to profit most from the rout in oil.

The pair trade is this:

Long SLCA/Long AAL.

Both are heavily leveraged in their own right and possess the ability to spit out significant free cash flow.

Greece is the story this evening and futures are off. We know how this ends, with Greece blinking, bears caught in ‘fag-boxes‘, tossed idly into outerspace.

Oil reversed yesterday’s gains, sending my airline stock, AAL, through the roof. After all, they are only netting close to a billion dollars per quarter in an environment of cheap fuel and rich consumer.

“The market is supposed to go down,” said the bear. The people disagree.

The people want stocks. They buy it in their sleep. They dream of it and plan for the occasion. They build vacations around buying stocks and make sure to get in before the markets gets going again.

There isn’t going to be a giant event, one that shatters the life-force of the retail hack. Prepare for more of the same, gritty, drawn-out, range bound hell of hells, then breakout to the upside when no one expects it.

The only way to avoid the pitfalls of hades is to be long, strong, and determined to see it all through.

I get this question all the time: “what are some stocks that you’re holding for long term, you know at least 5 years out?”

Members of The PPT know that I list all of my positions on the sidebar, most of which are static and do not change on a weekly/monthly basis like most of my swing positions. If forced by gun point to pick just 5 stocks to hold for the next 5 years, these are the stocks I’d pick.

BID: The ultimate aspirational brand. When all currencies go to zero, collectibles will be the new currency.

GILD: The Apple of biotech.

HAR: Single best way to play high-end luxury automobile market.

HABT/SHAK: If it weren’t for SHAK’s absurd valuation, I’d pick SHAK hands down. Casual dining is my favorite long term hold. It’s worth noting, however, that the industry has undergone significant multiple expansion in recent years. Nonetheless, hamburgers will always be an investable concept in America.

FB: I bet most of you thought I’d pick YELP. Although I love YELP and believe the stock goes higher, FB is, by far, the must own stock in social media. It is a cash generating cow, which is something YELP hasn’t figured out how to do yet. When investing for long term, one must account for all sorts of scenarios, such as recessions and booms. FB is a keeper and can survive in any economic environment.

Imagine a rocketship about to take off to outer space. Now picture yourself in a position to ride inside of said rocket ship for a 6 year trip, hidden from the crew, stowed away in the ass of the ship without food or water. Your plan is haphazard at best. You only care to ride in the rocketship for the sake of riding in the rocketship. You haven’t thought it through and now you’re hungry and desperate with thirst. But it’s too late. The rocketship is in outer space and the crew doesn’t know you exist, as you reside in the ass of the ship, stowed away from civilization.

Within one week hence, you will die. However, the autopsy will not show that you perished from thirst or starvation. There is one reason why you stepped onto that rocketship, and one reason only: you are a fucking idiot.

Nothing else can properly explain why you do what you do. One must simply chalk it up to a line drive off the head as a boy, or a genetic default that renders you incapable of making quality life decisions.

We all have bad trades, some last longer than others. Stubborn, brutish, ox-headed and aggresssive are some of the traits associated with man. I am guilty of possessing all of those qualities. But I am not an idiot, unlike you. I see what I see and know what I see.

They (central banks) have been gifting you guaranteed wins for almost 6 years now, yet you choose to continue this reckless path of moronic design; you pig headed jackass of a fool.

This period will be viewed upon as the meridian, the crown jewel, for investors, of all time–making the Gilded Age look like a time whence austere lifestyles dominated and strangled America’s rich. You will get to tell your grandchildren that you sat out the greatest run of all time because you disagreed with a set policies that you feigned to understand, in the simplest of terms, and opted to bet against the most powerful central bank mankind has ever seen.

Bravo (golf clap).

I sold ECR above $7.10 and purchased more PEIX.

I see oil is coming in. However, the run has been fanatical and it was bound to give back a little. Despite current weakness in oil, I still like SLCA, FMSA, DVN, OXY and of course PEIX. To hedge that, I went long decent size in AAL.

Frac sand plays are going ape-shit to the upside, following HCLP’s earnings. Bear in mind, these companies are highly levered to the shale and should see material downside revisions in their numbers. However, they are cash cows when times are good. Hence, bidders are bidding them up until the whites in the eyes of shorts pop out.

I am long both SLCA and FMSA. Aside from HCLP, EMES is the only other frac sand play public. CRR is related, but ceramics. These are some of the most heavily shorted stocks in the oil space. Needless to say, these stocks can continue their war-path higher, providing they receive the appropriate amount of tinder.

Using The PPT‘s new hybrid charting tool per industry, I started a position in AAL here.

1. The airlines are fucking cash cows.

2. They are excellent hedges against open long positions in oil.

3. They are oversold, and unlike oil; their fundamentals are improving.

4. Everyone hates them now.

Have a look at the Hybrid Chart of Major Airlines, courtesy of Exodus (still in BETA)

AAL is down 10% over the past two weeks.

To finance this, I sold out of laggards MDVN, TPH and XLRN.

Figures, we can’t have a harmonious melt up. Oil and industrials are doing good- but just about everything else sucks. Tech, biotech, retail, are in the pits.

Should we buy these dips and sell oil?

Maybe.

Today’s dichotomy of winners and losers is just another example of how fucked up this market is. If you stepped into today long tech and biotech, maybe a retail name or two, the names that have been working for the past 6 months, you are down. As I write this the NASDAQ is about to go negative.

This is not a buy and hold tape. Be nimble and be quick, otherwise you’ll find yourself in the city square without your dick.

I’ve been buying oil stocks, little by little, for months now. I’ve built up some decent sized positions and have reduced my cost basis on several losers to reasonable levels.

My largest oil position is SLCA, second ECR, third DVN, fourth PEIX (ethanol), fifth OXY, 6th MUSA, 7th TA, 8th FMSA and 9th CHK. I also own a 10th oil position in WRES, but it’s miniscule.

Holy shit I own a lot of different oil stocks.

My basis on SLCA is $35 and ECR is $6.38.

NOTE: I added to PEIX this morning.

This market is a proven thief and a rapist. It’s very nice to see futures up and TLT in the dirt this morning. However, let’s not pretend the game has been won. The market hasn’t even opened yet, so don’t celebrate wins that haven’t been realized.

Speaking of which: take those profits. Don’t pay attention to what anyone says, including me. When you’re up 10%+ on a short term investment, consider taking some coin off the table. For months, maybe even a year, this market has defecated on long term investors, and swing traders alike. Only the degenerate day trader has thrived.

That being said, I am in immediate need of a pornographic win. The small wins are for the rats, the sneaky creatures nibbling on the tip of the corn cob when no one is looking. “The Fly” eats the whole corn, not just the niblets.

Fuck 3-D printers and stay focused on where the winds are blowing, not just the wind.