Short Fin (SKF)

Click chart to enlarge

Today treated us well. We have long positions in the Ultrashort ETF's SKF, DXD, SMN, and FXP. We also have long positions in Ag names POT and CMP. CMP is not a "trend channel" type of stock, but it's a lesser known Ag/materials play which is showing incredible strength, so we have a small position in it. Of course we don't like seeing CF charge ahead without us on board. We continue to hold POT despite it hitting the top of its channel, because we have an imbalance (more Ultrashort than long), and because we can't get hurt holding it considering we're also holding SMN. The SMN insurance policy cost us 4 cents today. A small price to pay considering how well the Ag names performed today. We'll take insurance at that rate anytime.

Although we were early to leave CF, and think it could go as high as 160 before retreating, our conservative approach (in bear markets) tells us that we'll have a chance to get back into the name cheaper at some point in the near future. In the meantime, we're cleaning up on SKF, following continued weakness in the financial names (see chart of SKF above). This position is specifically targeted at the weakest point of the market, in line with our overall approach of "long strength, short weakness". On days like today, this approach (long Ag, short fins), pays off in spades.

LDK remained above support. Every day it does this, its support level strengthens.

Back to CF :)... we're thinking that this may be one of the best performing stocks of 2008, even from these levels. As much as we do follow our trend channel rules, we also have a gut. Our gut tells us that this stock is not going to play by the rules this year. When it begins to retreat, we're going to buy back into the name with a 25% position at 140. Although we feel the stock is overextended following a nearly 50% gain over the past couple weeks, it has scarcity value. It's in the strongest sector, and it's a medium-sized company. Large enough to be relatively stable, yet small enough to really move. Its relative strength is quickly making it surpass POT as our "favorite" stock. We are going to begin to get more aggressive with CF, buying as if its trend channel were higher (using its 75% mark as its centerline). This means we'll be trading it based on its log chart, rather than its more conservative arithmetic chart (see earlier post "Adjusting Offsets"). This is as liberal as we're willing to get. If it breaks through the top of its log chart channel, it is free to go up without us. We will not chase it into an impending crash. We're aware that getting caught up in a bubble can devistate a portfolio. For this reason, we are only going to become more aggressive with CF as long as we ramp up our position in SMN the appropriate amount to offset the position. We feel that anyone buying Ag stocks "up here" without hedging with SMN will have some VERY bad days around the corner. Still, we cannot avoid being part of the Ag bandwagon, as the strength in these stocks suggest that they will continue to outperform the market for the forseeable future. It is always the stocks that are hardest to buy (they don't pull back) that are the ones you really should own.

Although we believe that the market will remain under pressure for at least the remainder of the week, we're going to begin scaling out of SKF and FXP soon. We have a great profit in SKF, and are close to breaking even on FXP after being underwater for some time. We'll hold DXD because it simply doesn't move... there's little risk holding DXD considering the small percentages involved. Needless to say, we will not be selling any SMN considering the Ag stocks have completed at least 75% of their current rallies, if not more. It will be interesting to see which position will be more profitable over the next month, CF or SMN. While we would not want to bet on it either way, we don't mind being long both names because regardless of the outcome, we feel this paired trade will be profitable.