We just unloaded the 25% position we had in CF at 137+. This position was added yesterday at 131.70. It will probably go higher from here just based on its momentum, as it has done in the past, but rules are rules. The top of the channel is at approx 138. Of course when it drops to the 3/4 mark again (currently at approx 133), we will be reloading with a 25% stake.
Now we are looking at POT. If we can get 181, we'll unload that one, too. We sold a small amount of SKF at the open (110+) and replaced it with a small position in SMN at 33.8
8 comments:
Hey Snot,
Obviously you are a trader in Potash which is a 50bn company. DO you think smaller comapnies have better growth opportunities or is there litle difference from a channel trading point of view? I see LDK or YGE as having a lot more room to grow then say MTL or POT. Also, would you consider shorting a stock as it hits the top of the channel? If you look at MTI, the way i draw it MTI is topping today, albeit on a lot of momemntum. What do you think?
Cheers Sniper.
Sorry, meant MTL - Steel co..
Smaller companies generally do have larger percentage moves. There is a trade-off between percentage and stability. Generally the stocks we trade have market caps of 10B and up. We prefer the larger, more stable, more predictable companies to the more volatile ones. Remember, though, we are trading CF along with POT, and CF has a market cap of only 8B, so we're not just attracted to the largest companies in the group. CF's move from bottom to top of channel is about 22%, whereas POT's is only 16%, so you can even see the difference between the two stocks right there.
We have a suspicion that while POT will likely struggle to get any higher than the top of its channel, CF may sail right on through it to 150 or so. The smaller names have that potential, but frankly we'd rather be in the one that turns back once it hits the top because predictability is very important to us.
MTL has had an enormous run, and it is at the top of the channel like you said. If people are looking for shorts, we recommend they find stocks that are in downtrending channels trading below downtrending moving averages, and short them at the top of their channels. That way, time is on your side. If you short an uptrending stock, it could just go sideways for a week, then have room to break out to the upside again, all within the channel. Time is against you when you short an uptrending stock. It is actually the same thing as catching a falling knife, only in reverse.
Look at a chart of X. It would have appeared to have hit the top of its channel in late March. Now look at it! That's the danger of shorting an uptrending stock. When do you cover if you're wrong? You don't have the moving average to give you a signal.
Speaking of steel, check out SID. Like MTL, it lends itself to channel trading. We're going to watch these names for a pullback. We don't fully understand the steel story, though. Is it a multi-year thing, or is this just a fluke? China has been building aggressively for almost a decade now. Why all of a sudden has steel become so popular? We understand the sustainable run-up in Ag profits, but shouldn't steel prices level out at some point? The economy isn't exactly chugging along right now. If we buy steel, it will be close to the bottom of the channel so we can find the exits quickly if the story should end abruptly.
The momentum with which MTL and CF have reached the tops of their channels suggests that they may have further upside, or at least will be bought on small dips for some time. If they do break the top of their channels and keep right on going, that's a bubble. Look at a chart of DRYS. In late Sept 07, it broke through the top of its channel. We were trading it at the time. We watched with jealousy as it advanced for the next 3 weeks. Like all bubbles, though, the story ended soon afterwards.
Sorry, this is off current topic.
Since you had pretty actively followed FXI/FXP, I'm wondering what your current position and outlook are on the two. How relevant will the next two weeks of financials' earnings and the market's reaction (or lack thereof) be to your assessment of FXI/FXP? Currently, what rough percentage of your peak position do you still have in FXP? Roughly at what average cost? What is your realistic target in the near to mid terms?
Thanks.
Is there an email address where we could send you a question, case study, etc. and you could choose whether or not you wanted to post it and make it a part of the blog. That way off-topic posts, like this one, wouldn't clog up each post and discussions could be on-topic for each. This is a huge improvement over the crazy LDK board environment with all the conspiracy theorists and bag holders who didn't want to admit their mistakes but blame some Darth Vader on WS for it.
Feel free to email us at snotwheel@yahoo.com
As for FXI/FXP, you don't need to watch China at all. Just look at the U.S. indexes. If they break support (see recent posts about the Dow) then FXP will do very well. If they break resistance, we would close the position. It may not be true on a day to day basis, but overall, China will do whatever the U.S. does.
Deciding to hold FXP for another iteration through its cycle was our worst call this year. We've managed to average down via daytrading in and out to a b/e price of 87. We are growing tired of having to babysit that position, and are ready to move past it. The only reason we're still holding it is because the market is currently directionless. Once the market chooses to take a side, our fate with FXP will be sealed, for better or worse.
snot, are we going to have trouble getting even with fxp? also.i.b.d.has a buy on sid at 42.08 thanks rob
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