The
Short Life-Cycle of the "Blimps"
(October 2000 - April
2001)
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Others began slowly to see the light but by November while we were getting into maximum overdrive and accelerating our short plays others were calling bottoms. By February after the January Artificial Rally, we began to reshort and continue up through this earnings quarter (Quarter 1, 2001). We kept on our path since the end of September and have not regretted one day that we were short these "BLIMPS". Its nice to have an indelible record of our SHORT Plays and position as to the extreme high P/E premiums would lead to a crash. This will go down as probably the most historic 6 months of the nasdaq's history!! |
There will be many shorting opportunities as long as stocks like AVNX, GSPN, EXTR, JNPR,BRCM, SDLI are so inflated and ridiculous. We will be laughing all the way to the bank on these. Puts will be the way to go, allowing of course of a period or so of dead cat bounces. I said this before we shorted ARBA and this will go on through EPNY, FMKT and all the others. ARBA will end up the same price as AAPL EXTR trades at a Premium PE Multiple of 223.8 times
vs. the 75.8 X average multiple at which the Communications Equipment
SubIndustry is priced. GSPN Trades at a Premium PE Multiple of 277.8 times vs. the 75.8 X average multiple at which the Communications Equipment SubIndustry is priced. BRCM Trades at a Premium PE Multiple of 249.2 times, vs. the 30.9 X average multiple at which the Semiconductors SubIndustry is priced. SDLI Trades at a Premium PE Multiple of 215.5 X, vs. the 30.9 X average multiple at which the Semiconductors SubIndustry is priced. JNPR Trades at a Premium PE Multiple of 671.5 X, vs. the 65.3 X average multiple at which the Networking SubIndustry is priced. |
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These might seeem like good earnings but the STOCKS WERE WELL OVERBOUGHT AND ANY GOOD EARNINGS WERE ALREADY BUILT into these blimps. Those without good earnings will be down even more.. NT.. is one good example. MICROMUSE REPORTS 114% REVENUE GROWTH FOR Q4 2000 Pro Forma Q4 Earnings Surge 151% - Announces 2-for-1 Stock Split SAN FRANCISCO – Micromuse Inc. (Nasdaq: MUSE), the leading provider of
fault and service-level management software, today announced record
financial results for its fourth fiscal quarter ended September 30, 2000.
Revenues for the quarter were a record $41.1 million, representing a 114%
increase over the comparable quarter of fiscal 1999. Pro forma earnings
for the quarter, excluding the write-off of purchased in process R & D
and the amortization of goodwill and purchased intangible assets, were
$5.4 million, or $0.13 per share on a diluted basis, as compared with
reported earnings of $2.1 million, or $0.06 per share on a diluted basis,
in the fourth quarter of fiscal 1999.
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Stocks should be chosen on the basis of techo-fundamental
analysis and proper homework, Any "Let's rumble and roll theory" has
really died... Role the dice and momentum theories have died as well. I
can think of a few more than need shaking out.. but there are really not
that many left. Out of about 100, maybe 4 or 5. The internets are dead, we
can really only count on good earnings to move our stocks and short the
ones that just don't give good earnings... Between bogus chat rooms, bogus
posters on SI and bogus strategies, bogus analysts, bogus buy
recommendations for the longer term... its no wonder the investor lost his
shirt. |
QCOM Trades at a 10% Discount PE Multiple of 63.0 times vs. the 69.8 times earnings average multiple at which the Communications Equipment SubIndustry is priced. The bull dogs... will more than likely be cut down to tolerable
valuation and adjusted to their earnings. If not we will have a market in
a downward trading channel with little blips of 'bearish flags'.. This is
what traders want.. huge volatility intraday moves of 5-10 points while
the public is being assuaged with 'don't worry, it will come back'.... :-)
By then we will ALL be waiting.. but investors will be Waiting..for
Godot. AVNX Trades at a Premium PE Multiple of 2925.0 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced. ITWO Trades at a Premium PE Multiple of 383.2 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced SEBL Trades at a Premium PE Multiple of 214.2 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced BEAS Trades at a Premium PE Multiple of 336.4 X, vs. the 44.0 X average
multiple at which the Software & Services SubIndustry is priced.
MCDT Trades at a Premium PE Multiple of 368.5 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced. MERQ Trades at a Premium PE Multiple of 190.4 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced. MUSE Trades at a Premium PE Multiple of 415.3 X, vs. the 44.0 X average multiple at which the Software & Services SubIndustry is priced. GSPN Trades at a Premium PE Multiple of 248.4 X, vs. the 69.8 X average multiple at which the Communications Equipment SubIndustry is priced. |
Companies with incredibly high multiples have to stand alongside companies like Best Buy? Its almost no contest and yes, I would not be an investor in this climate. We take occasional 1-3 week long foray into pharmaceuticals, insurance, financial sectors to 'supplement' trading income but I thank G-d we have options, because without options, I would have no guts to hold anything long in the tech sector overnight. Short Plays although easier to hold overnight, give you much better bang for the buck when you can pick up 4-5 put positions in triple digit and high double digit stocks, and leverage them for a small fraction what it would cost to short those stocks. There are a number of retail stocks reporting next week. It would be a good idea to prepare for the October retail sales reports on November 14. Tuesday, November 14 |
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Contrarian indicator? Do you ever wonder that too many people are expecting a rebound in technology and investor confidence is rising. Could that be sign for further declines? Maybe another 10 or 15%? Lots of people already escaped the tech sector, and are waiting for a rebound, which could mean another drop before a recovery. I'm not sure how anyone can talk about a "January effect" now when December is not even upon us and with the knowledge now that January has a new effect, which could be the effect of new earnings short falls especially in the semiconductors and and communications equipment makers. I would not jump into anything blind just yet. I would however expect companies to reveal any problems with earnings shortfalls for the fourth quarter more quickly than they did for third quarter. Changes in companies earnings outlooks should be made in plenty of time in advance of the actual report date. There was a rule enacted for the Securities and Exchange Commission called Reg FD, for "full disclosure".. This rule which went into effect on October 23, is supposed to level the playing field between Wall Street professionals and the individual nvestor by requiring that corporations give everyone equal access to potentially market moving information. Some companies are issuing press releases monthly reports on earnings forecasts. If and when all companies comply and offer easy access to company sales and forecast information BEFORE the scheduled report dates and BEFORE their earnings shortfall announcements, we may be spared the debacle we had in the last 3 months. Working so closely with earnings plays for 4 years now, it is easy to become trained NOT TO HOLD any technology stocks for more than a window of maybe 4 weeks in any earnings quarter. No long term portfolios, no blind investing in the tech sector, no holding any tech stock positions through the earnings report, and no "buy and hold theories" which are which whould be 'buy and fold' theories - buy and when you have a nice profit, fold. We leave buy and hold theories to Merrill Lynch, CSFB, Lehman and their
lackies as they try to explain losses to their investors.
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MUSE after last report dropped from 156 to 112. |
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MAJOR MISDIAGNOSIS That 200 day major support of 49 became MINOR RESISTANCE.. which WAS NOT pentrated..and offered a KEY SELL SETUP when TXCC upward move was STOPPED and a sell short was triggered instead. PMCS was in such bad shape we only wanted it to take out the 20 period moving average of 127 and move up from there. Volume had picked up on Tuesday late and it MIGHT have continued. That was not to be either.. PMCS had the same disappointing reversal period. It opened at 130 13/16, on a small gap up but PROMPTLY revrsed in the first 5 minute bar to close it at 127 13/16. Again not a real open, but buy orders piling in from pre-market gave a fictious idea that PMCS was really gapping up when after those few suckers had their buys filled, PMCS moved to its rightful status of "POS".. blimp in a strong downtrend. Rallies to be shorted, unless a significant trend was established. 2 5-minute bars in a severly downtrodden stock DOES NOT make a REVERSAL.. This stock is not ANF or TGH after its earnings report. PMCS (i.e BRCM, BEAS, JNPR, etc are stock that is officially in a DOWNTREND.., a TRUE SHORT CANDIDATE on rallies) FIRST REVERSAL PERIOD - SHORT TRIGGERS By 9:50, CFLO, JNPR, BEAS, MANU (not a POS but just overbought), were all added as short triggers. CONCLUSION |
Although not in the same category of the overvalued blimps, these can and do become short plays. HOW? te opposit.. the stock is in an uptrend. One day a major resistance level Everything looks rosy, the stock has broken maybe a year high or a significant resistance level that it was having trouble with before(key moving average, break above ascending triangle, symmetrical triangle, cup and handle chart pattern to the upside, or upper bollinger band) is broken to the upside). MANU had broken a cup and handle chart pattern to the upside.. at 113 and continued to an incredible new high of 132 1/8. This stock was getting toppy, the stochastics were overbought, MANU was getting 'blimpy'.. and its still quite at a high valuation. Good 'fodder' for a possible short play, especially in the backdrop of nasdaq dropping through support and other like ELNT had set a precedent JUST ONE DAY PREVIOUSLY WHEN WE SHORTED THAT ONE TIMELY.. MANU was a short play just waited to happen. It was on our short play list today and it was ripe for the plucking. Along with MANU PVTL, and SRNA (PRSF was not overbought but a failure to hold a 20 period moving average breakout) So we have two categories of short plays: The overbought stock in market of falling NQ's, moving against "opinion" and just overbought and topping. The continuing downfall of the overvalued, blimps mostly in 3 figures
or trading in the 90's. |
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Now the stocks are crashing and the charts are looking like they have brittle bone disease with 'head and shoulders' patterns breaking off at the bottom.. and osteoporosis setting into stretched out bent and disfigured necklines. We usually get in only 2 trends.. a possible short or long in the 9:50 to 10:10 or 10:25 to 10:35 reversal period. Careful not to get caught in te choppiness during the doldrums but watching and charting and analysing for later day breakouts. Then we short (or go long 1:30 to 1:55) towards the 2:00 breakouts that end the doldrums. I don't like getting into and out of trades and some days I am only short and than just flat. We have clearer and longing lasting trends in the last few weeks and the choppiness that makes for bad trading has abated a bit more than usual. We don't hop on every move on the bars which is really indicative of lack of confidence in some cases or panicky trigger finger, but 'peek' at the 60 minute chart to see what in reality is enfolding. Investors had an opportunity to cash it all in but you were retiring on AETH, IBM and LU was easier. Traders like us cashed in on the unprecedented 'cover up' by the analyst of the true story behind the economy. The irony of is that we traders were all in for the move up but from experience on past bubbles like the internet we were prepared and got out but rode the wave down and shorted the blimps. Now everyone is talking 'multiples' but I rarely heard that word in
early September when we were speaking of it.
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We saw a slowdown brewing and if you didn't see it, that's too bad. We don't think its over yet. When growth is slowing and profits are slowing and cash flow is slowing you can't have triple digit multiples, and this truism will more than likely continue through 2001. We called the downfall of the oil service, tech sector and even the internet sector on this thread and if you think we caused the downfall by calling the high prices and absurd valuations than so be it. Common sense is what we are guilty of and called JDSU short at 114 and not living like ostriches with our heads in the sand like many investors. Denial is a problem that might stem from something not covered in a financial bulletin board. There are other help groups and support groups for those kind of problems. You might want to move onto another media. We did well with our short plays and will continue going long and finding safer havens stocks in financial and pharmaceuticals and very carefully select tech.. where bad news is the norm and stocks move up only on a day bad news is contained for a while. |
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RIMM you should have seen that -DX crossover on the 5 minute chart.. At the very first move into the doldrums at 11:30 the +DX started to drop like a rock.. PRECEDING the price fall and showing a divergence as RIMM was only begining to fall. The stochastics immediately started to move down through the overbought of 100 by 11:30 and had tanked to 0.. before the beefy part of the down move even began. Thereafter from about 12:30 to the close stochastics stayed under 20 and even hitting 0. RIMM kept tanking until another and the strength of the DOWNWARD TREND
was so strong the ADX soared to 66.72 from 1:00 to 4:00.. other stocks
played the same scenario.... tanking.. Meanwhile APCC and CNET were
heading north. One of the best days,long and short, especially short.
Couldn't get a lot of stock trading but those options were nice.
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Another area to short are stocks that are just up too much in too short a time frame (i.e. IWOV, NTIQ, ONIS, NUFO, NUAN, CORV, MCDT, EFNT and the like) and any recovery will set the stage for a new short setup. We shorted IWOV close to its highs and it closed 67% of its high. MCDT it was decided to wait.. others shorted RIMM. We can play volleyball with stocks that are up 15% and more in one day AND ARE TRADING IN THE BOTTOM PERCENTILE OF THEIR YEAR HIGH. Because their prevailing trend is is DOWN.. Rallies in companies like these are usually no more than short set ups
and bear flag rallies. We need to diversify...not just in stock selection
but in long and short positions. There will be ample opportunity in the
next few weeks for longs in 'quality' techs as opposed to shorts in stocks
that are just dragged along on momentum but have no real legs.
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If there is a flow of money into technology (especially the
semiconductors).. or a trickle than its the biotechs, cyclicals, retail,
health service, and drug sector that might provide further short plays. If
however there is still more downside pressure, these sectors might provide
further safe havens. I don't like to limit myself to 'technology or bust..
and certainly not to ...Go long or bust. We should go with the trend and
sector strength. |
Technicals not too bad proving that JDSU might continue to have
some anticipatory upswing before its earnings report. If it takes out 102
1/2 the 20 day moving average it might move up a bit more. right now its
trading betwen a falling 21 and 50 day moving average. If it takes out 106
3/4 this will be a bounce off the 50 day moving average.
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