Twitter (TWTR), Apple (AAPL), Nike (NKE): Doug Kass' Views - TheStreet

Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.

Twitter's Upside and Downside

Posted at 5:56 p.m. on Friday, Sept. 23, 2016

"One more thing."

-- Lt. Columbo

I've promised to begin delivering upside and downside projections for my long and short positions, so here's my 12-month risk-versus-reward estimate for Twitter (TWTR) - Get Report:

  • Upside: $26 (up 15% from the $22.50 that the stock was trading at as of last check).
  • Downside: $17 (down 24% from current prices).

I approach the markets and every stock I invest in (long or short) on the basis of reward (upside for longs) and risk (downside for longs).

In the case of Twitter, I sold my entire position at about the closing price of Friday, based on an unattractive reward-versus-risk ratio (above) of 3-5.

Position: None

An Entry Point for Shorting Apple

Posted at 2:44 p.m., on Friday, Sept. 23, 2016

The proximate reason for this down leg in the market over the last hour is a report that Apple (AAPL) - Get Report channel checks appear weaker than expected.

As I have posted in the last week, I have accelerated my shorting of Apple as it approached the top end of my $90-to-$115 12-month range.

Here is a case where the upside/downside calculation may have provided a very good entry point on the short side.

Position: Short AAPL

Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

Moving to Medium-Size Net Short Exposure

Posted at 2:10 p.m. EDT on Friday, Sept. 23, 2016

I am pressing my ProShares UltraShort S&P500 ETF (SDS) - Get Report and Hartford Financial Services Group (HIG) - Get Report longs.

Also, I am pressing shorts in S&P 500 index (SPY) - Get Report,Morgan Stanley (MS) - Get Report , Goldman Sachs (GS) - Get Report  and Caterpillar (CAT) - Get Report .

I have moved to medium-size net short exposure.

Position: Long SDS, HIG; Short SPY, MS (small), GS (small), CAT (small)

More Lessons Learned

Posted on 12:55 p.m. EDT on Friday, Sept. 23, 2016

"I have a bunch of things I would like to short. ... There will be all sorts of trouble but it's not today's problems as there is no point focusing on it.

-- Bill Fleckenstein

Never forget this: In a market dominated by volatility-trending and risk-parity strategies, buyers live higher and sellers live lower.

What this should tell all of us is that charts and (recent) stock market action mean less than before quant funds dominated the market action. This means that we should not, as traders and investors, be complacent about worshipping at the altar of price momentum.

Rather, we should be distrustful of large and quick moves -- much like we have seen since the Fed made comments a few days ago. And we should use the exaggerated market moves served up by quant strategies -- as a gift from Mr. Market -- by buying what becomes cheap and selling/shorting what has become dear. In other words, even in our trading to act more like Warren Buffett (who is fearful when others are greedy and greedy when others are fearful).

On top of this, natural price discovery has been nonexistent in a central-bank-dominated, liquidity-driven market characterized by low interest rates. This is why I shy away from glib and self-confident views; they know not what uncertainties and artificiality in price discovery exists given the changing market structure and forces.

I am using the recent market strength, which I believe to be artificial and could be short lived, as an opportunity to raise my net short exposure (after being quite patient!). Since stocks are so stretched relative to GAAP earnings (and the spread between GAAP and non-GAAP has never been wider), I am willing to be more anticipatory after the magnitude of the rise in stocks.

Given the dominance of the aforementioned strategies, the beginning of a trend change could trigger a more meaningful move to the downside. It could occur for no reason; it may "just happen" as buyers are sated.

  • It could occur because of continued weak global economic data.
  • It could occur if European and U.S. bond yields move back higher.
  • It could occur coincident with a Sears Holding (SHLD)  bankruptcy filing or more problems associated with Deutsche Bank (DB) - Get Report
  • It could happen if Donald Trump performs well in Monday night's presidential debate.
  • It could happen for a host of others reasons.
  • Or it may not happen at all.

Bottom Line

Memo to my friend Bill Fleckenstein: Bill, from my perch you may not have to wait much longer to short the market.

"The Winter of our Discontent" may lie ahead.

Position: Long SDS; Short SPY

Peak Sneakers and a Pina Colada

Posted on 12:42 p.m. EDT on Friday, Sept. 23, 2016

The folks on CNBC are talking about a Nike (NKE) - Get Report downgrade. I have been making the argument for "Peak Sneakers" since May. I still believe this to be the case.

Position: None

At the time of publication, Kass and/or his funds were long/short XXX, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.