Prosper On Failure

Long: AAPL CHD CMG DOW EBAY FFIV GIS HD INTC ISRG KORS KMB 

Significantly Short: XLF QQQ 

Overall net short 

This past week had its ups and downs for me. My ups included getting long AAPL right ahead of earnings around 558, then flipping it the next day for 610. Selling 2/3 of my DOW the day before its earnings was another good move. Those stocks along with a FSLR short provided significant gains that helped offset one of my most asinine moves of the year: shorting AMZN ahead of their earnings. Thankfully, size was minuscule and losses absorbable. My thesis for shorting AMZN was justifiable; they have razor thin margins akin to supermarkets, out of control spending, an absurd valuation (165 P/E), and a “hot” product that sells at a loss per unit (kindle). There was fair chance they would post a loss for the quarter. What I failed to foresee was an accounting gimmick(see zerohedge).

Trading earnings is synonymous with playing table games at the casino, and I will hang my hat on these games for the rest of the season.

Lately, the market has impressed me. In the face of an abundance of skeptics, it has shaken off a significant amount of negative news and continues pressing higher. Continuing claims are the rise, parts of Europe are in 1930’s like depressions, and some Euro sovereigns have been flirting with crisis levels… Only in a bull market is such news completely ignored.

I added some stocks to the portfolio this week.

Chipotle Mexican Grill – CMG is still in an uptrend, P/E is high but justified by the opportunity to expand stores internationally and domestically, solid balance sheet, high profitability.

F5 Networks – FFIV had an exceptional earnings report, company has a solid balance sheet, tremendous growth, and high profitability.

Home Depot – HD is my play on a housing recovery. The stock has been in an incredible uptrend since Oct 2011, plus the dividend is attractive. If it breaks its 20 DMA I will bail.

Intuitive Surgical – ISRG had an incredible earnings call, after a small pullback I decided to pull the trigger. Their monopoly on robotic surgery is so damn appealing, I have owned the stock several times since 2008 and every time I sold thinking I’d booked awesome gains I ended up deeply regretting the decision.

Michael Kors – KORS has a high P/E, but their potential to grow in the coming years with new store openings is phenomenal, Women love this stuff…

Intel – INTC reaction post earnings was not fair in my opinion. I like this company; it has a great dividend, nice margins, good balance sheet & cheap valuation.

Despite my purchases I am still sitting on 71% cash. As these stocks rise I will continue allocating capital towards them.

Short

EWI EWP XLF USO UNG GRPN RIMM FSLR BKS GME BBY

Long

TLT CMG AAPL

I am in a bearish mood, can you tell?

Today was my worst trading day of the year. The amount of money I lost was small, but the damage to my ego was huge.

Under the assumption the S&P would fail to breach its 50DMA, I got stopped out of three asinine trades on the short side. After three strikes, and seeing SPY march higher I figured if you can’t beat them, join them, so I got long. With my portfolio generically long in both SPY and IWM, I started looking around for individual stocks to play.

My eyes immediately drifted to Apple’s chart, which is always fixated on one of my screens. I previously sold AAPL near its highs before the DOJ lawsuit was announced and now it was over $10 less than my last sale. The lawsuit is complete bullshit, DOJ is claiming consumers were scammed out of $100M, even if they’re guilty, AAPL has lost billions in market cap since the announcement.

The shares were trading relatively weak compared to the NASDAQ 100 and I thought it was going to play catch up. When it started ticking up, I started buying, confident it would be in the mid 630’s by the close I made three consectutive purchases at higher prices. Then the shorts stepped in and ruined my party, watching it fade as the market stampeded higher was painful, and my trades were fucking regretful. I made a final purchase near the day’s low to average down my trade price.

I also bought some CMG and M (no regrets there)

I think this rally has room to run, the market will probably make another high. Tomorrow I plan on using the SPY and IWM money to buy some individual names.

Ultimately AAPL will trade higher, and I will be victorious.

This morning at the open I flipped all of the Longs I took on yesterday at the close for a profit. At the moment I am in 100% CASH.  I can not justify getting long any stocks until SPY can breach its 50DMA (137.38) on decent volume. I even closed out my successful short sales in GRPN and RIMM, an astonishing number of attractive shorts are getting squeezed today, and I do not want to be next. There is no rush to get into this market Long or Short.

As I am writing this SPY is flirting again with the 50DMA… Watch and see if it holds with conviction.

Summary

Sold CMI MSFT AAPL ORCL DOW

Covered RIMM GRPN

Update

It may be more important to see S&P futures breach their 50DMA, which is 1372.

Fear of a European recession, and no mention of QE by Bernanke last night scared the hell out of investors today. While I watched SPY break its 50 day moving average this morning I liquidated all of my long positions (even AAPL) and mercilessly took on a large short position in SPY, which led me to profitability when others saw their portfolios get slaughtered. Around 3:30 I covered my position and started nibbling long on stocks that looked oversold. Going into tomorrow I am slightly long (~ 12.5%) AAPL, MSFT, CMI, DOW & ORCL. Alcoa’s earnings beat may provide the market with a gap up tomorrow, but beware of the fade…

Note: Still short RIMM & GRPN

This week I opened new positions in the following companies…

TAP  – Molson Coors, got beat up after announcing a take over of a european brewer, stock became oversold after concerns they will need to raise cash in order to complete the transaction.

NSC – Norfolk Southern, a solid railroad company I have been watching for a while. Its price action this week in the face of a weak market warranted a long position. Look for them to benefit from transporting the record wheat crop being harvested this year.

SWKS – Skyworks Solutions, A significantly undervalued company in my opinion.

CMI – Cummins,  A report that indicated orders for trucks will be weaker than expected created a buying opportunity earlier this week.

LVS – Las Vegas Sands, Intrinsically undervalued, and price action this week warranted a buy. In addition, S&P took them off credit watch.

EBAY – After announcing a new payment system that will compete with Square, stock took a hit and become oversold.

Yesterday I bought puts in two companies, Groupon and Research & Motion. An SEC investigation of Groupon is music to my ears. They have an unsustainable business model and had to cook the books in order to flip it to the general public. Andrew Mason is almost (innocent until proven guilty) common criminal who should retire and play with his dollhouses. All the banks that took them public should be burned to the ground, this disaster will not reflect lightly on legitimate young companies looking for public money. Take a look at their financials and try not to laugh out loud.

Research & Motion simply could not innovate along side Apple. Everyone important has or is jumping ship. I predict it will trade down to the single digits before some bigger stupider company (ie MSFT) makes an offer to buy their crap. Till then it will bleed cash month after month, quarter after quarter…

Cheers,

GG