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- Sell short 360 shares of China Technology Development Group (CTDC, news, msgs) at the open.
- Sell short 925 shares of Levitt (LEV, news, msgs) at the open.
- Sell short 140 shares of Pulte Homes (PHM, news, msgs) at the open.
- Sell short 310 shares of BankUnited Financial (BKUNA, news, msgs) at the open.
- Sell short 375 shares of BankAtlantic Bancorp (BBX, news, msgs) at the open.
- Sell short 450 shares of Fleetwood Enterprises (FLE, news, msgs) at the open.
- Buy 160 shares of Western Digital (WDC, news, msgs) at the open.
- Buy 140 shares of CTC Media (CTCM, news, msgs) at the open.
- Buy 85 shares of TransDigm Group (TDG, news, msgs) at the open.
Strategy Lab is MSN Money's stock-picking challenge. To learn more about the game -- and the contenders -- click here.
"If you don't like something change it; if you can't change it, change the way you think about it." -- Mary Engelbreit
Volatility has made following my portfolio quite difficult during the first week of Strategy Lab, as many of my picks exhibited significant moves on both sides of the spectrum and hit my stop-loss limits.
The first few were on the short side, and now a number of them are on the long side. Because my main goal in this contest is to help readers find good investing ideas, I am going to adjust my portfolio guidelines by slightly relaxing my trailing stops to 10% on the long side and 12% on the short.
I am leaving for this week's Money Show in Orlando, Fla., and thus won't go into a lot of detail on rationale of my recent trades, but here are some of my key investment themes, which are still in line with my earlier market forecast for 2008:
- I still believe recession is inevitable. This belief has not changed in any significant way since late November 2007, and all the most recent events (loan survey, Institute for Supply Management report, payroll data, etc.) seem to confirm we might be there already.
- I think the Fed's aggressive rate cuts are leading us in a wrong direction. They not only won't save us from recession but are likely to blow another bubble in something. It is also likely that the current short-term refinancing boom could add some more questionable assets to banks' balance sheets. It is true that underwriting criteria are a lot stricter than they used to be, but 90%-loan-to-value refinancing is still a valid option at some lenders, and to me, with a continued slide in housing values, that recklessness is simply silly.
- Agriculture-related stocks such as Potash of Saskatchewan (POT, news, msgs), Mosaic (MOS, news, msgs) and Monsanto (MON, news, msgs) feel quite "bubbly," and though most of my screeners stubbornly bring up MON as a top large-cap pick, I refuse to buy it back for now. I think that once the politicians come to their senses about the outrageous ethanol push, some of the ag stocks will go down hard and fast.
- On the other hand, while solar stocks are likely to trade in sympathy with oil (directionally down), given the severe declines in these stocks since the year-end, I think some kind of bounce is possible soon. The catalyst for that is likely going to be the solar-credits-extension bill. It is currently attached to the stimulus package, but it is more likely to make its way in a separate bill later in March or April. In this field I like some of more solid profitable names, like JA Solar Holdings (JASO, news, msgs), SunPower (SPWR, news, msgs) and Suntech Power Holdings (STP, news, msgs), but if you buy them in the short term, expect potentially violent swings in each direction.
- I believe in being fully invested at all times, as I've found timing the market impossible to achieve in the long haul. But given the somewhat limited options for trading in Strategy Lab, I am now going to tilt my portfolio to a slightly more negative tune with several new shorts in a queue. Ideally, I would like to run a 1.5-1 leveraged portfolio with individual shorts serving as a hedge, but given that margin trading is not allowed in Strategy Lab, this means too many positions and high trading costs. I already spent a full percent of my portfolio on commissions (at $15 per transaction), and thus will try to minimize trading costs in the next few weeks.
- But that does not mean I won't have new ideas. Some of good ways to play the downside are ultrashort or short exchange-traded funds like UltraShort FTSE/Xinhua China 25 ProShares (FXP, news, msgs), UltraShort Financials ProShares (SKF, news, msgs), UltraShort Russell2000 ProShares (TWM, news, msgs), UltraShort Real Estate ProShares (SRS, news, msgs), UltraShort MSCI Emerging Markets ProShares (EEV, news, msgs), UltraShort S&P500 ProShares (SDS, news, msgs) and UltraShort QQQ ProShares (QID, news, msgs). But don't forget these are leveraged -- so by placing 20% of your funds into these, you effectively take a 40% short hedging position.
Anyway, stay safe out there -- the market waters seem quite rough. Also, please feel free to drop me a note at skepticalcapitalist@gmail.com or visit my blog and leave a comment.
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