This past week saw a great deal of action in the four blogs on RealMoney. This weekend, we'd like to share the "Best of the Blogs" with TheStreet.com readers. These posts best captured the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.
This week, take a look at
on one angle to play when stocks are jumping,
on the dangers of averaging down,
on why traders need to know their energy options; and
on the rebound in Treasuries on Friday afternoon.
here for information on
where you can see all the blogs -- and reader's comments -- in real time.
Cramer's Blog: With Stocks Jumping, Target Shorted Names
Originally published 2/2/2006 9:50 AM EST
We're getting some blow-away numbers at the end of the earnings period, just blow-away. Nobody was looking for that
(ANF:NYSE) same-store number; that was unbelievable. Double what I thought we would get. But we also got an unbelievable number from
(CLX:NYSE), of all places.
? Aren't they supposed to disappoint?
(FORM:Nasdaq) delivers a picture-perfect, no-hair-on-it quarter, the quarter I expected next quarter, frankly.
More important, though, we are getting some serious jumps in stocks from, literally, out of nowhere. You get "news" out of
(CEPH:Nasdaq), which was totally expected, and you get 5 points of upside. The President mentions ethanol and
(DE:NYSE) goes up 3! Wouldn't shock me if
(WMT:NYSE) went up on the same news again!
I have to tell you that I believe there are a ton of funds that must be short this stuff, really short, and really caught. You get these exaggerated moves when that happens, and it is almost unfathomable. I was getting the call for weeks that A&F could blow up, not come in line but actually blow up! I don't know what I would do if I were short that sucker; I guess I would start some story going around about how management simply lied about the numbers and hope somebody believed it. But they wouldn't, and they won't.
At times like these, when I was back at my hedge fund, I would target heavily shorted stocks and bet that good news would happen.
(HANS:Nasdaq) would be one; I bet the momentum there is great. Another would be
(AMGN:Nasdaq), which is still getting a lot of detractors, wrongly. And anything teen retail.
Rev Shark's Diary: Averaging Down the Drain
2/3/2006 11:22 AM EST
One of the things that I've always found a bit humorous about the world of value investing is how investors are pleased by the fact that a stock is "below their cost basis" and they can now add more shares. The bad news is I'm losing money, the good news is I can buy more shares of a stock that is in a downtrend?
I'm obviously being a bit sarcastic here. The logic of this approach is that if you really believe in a stock and the market is giving it away at a lower price you should buy more. The whole idea is that the market is not correctly valuing this stock and therefore lower prices are "a buying opportunity." Maybe.
The problem I have with this approach is twofold. Foremost, it doesn't lend itself to good money management. If you keep on adding to a position as it declines, you build up some extremely hefty losses. If it turns out that your "value" thesis is wrong, you are going to take a very nasty hit.
The second issue is that I think people tend to overestimate how easy it is to determine whether the market really is mispricing a stock. It is surprising how often a stock that has been acting poorly ends up issuing bad news. In the world of Wall Street, there is always someone out there with more money than you who knows more than you do and quite often that is reflected in the price action of a stock.
I see too many cases where people are led to the slaughter by averaging down more and more into stocks like
(TZOO:Nasdaq) and so many more. If you are going to play the averaging-down game, make sure you are very careful about diversification and think about what you are going to do if your "value" thesis is wrong.
Steve Smith's Blog: Know Your Energy Options
02/01/2006 9:53 AM
Let's divert our focus away from
(GOOG:Nasdaq) for the moment and look a sector that is finally coming into its own and may produce the next....Google.
Alternative energy companies have had a nice run over the last year as they have benefited from the steep rise in petro-based fuel products. I thought the group was getting a little expensive and looked toppy, but with President Bush's State of the Union address proclaiming the U.S. is addicted to oil, the sun may really shine on this sector.
Some names to keep an eye on outside of the well-known
Energy Conversion Devices
(CY:NYSE) are smaller cap players
In general these companies are borderline profitable and the implied volatility on these names is fairly rich but as oil prices remain high and the prospect of more investment into the incentives flow into the space the stocks could catch a second wind.
Tony Crescenzi's Blog: Five Factors Behind Treasury Rebound
02/03/2006 3:49 PM EST
For starters, here is an excerpt from my morning note on employment:
As I have noted for months, Treasury yields rarely trade below the fed funds rate, and they do so only when an interest rate cut is on the horizon. With the funds rate likely to go to at least 4.75% and probably toward 5.0%, Treasury yields should follow.
That said, the recent jump in Treasury yields has created conditions that could be considered oversold. Moreover, there has been heavy put-buying of late in the futures market for 10-year T-notes, so the march toward 4.75% may not occur right away -- but it is likely to occur by the March 28 FOMC meeting.
Here are a few other reasons:
First, the bond market was oversold, judging by numerous technical indicators. The nine-day relative strength index, for example, was around 22.0 on a scale of 0-100.
Second, there has been heavy put-buying of late in the 10-year T-note futures. The market was leaning toward a strong number, and the high level of bearishness limited the downside in prices.
Third, yields have been rising in advance of next week's Treasury refunding and it appears that dealers were unwilling in the face of the large price drop to do any further selling. That said, should the market rally further from current levels in advance of the auctions, the dealer community is likely to return as sellers.
Fourth, there has been heavy buying of call spreads in the eurodollar market, with one player apparently purchasing 10,000 call spreads.
Fifth, there has been fairly strong demand for 30-year bonds today, the issue set to be auctioned next week for the first time since August 2001. The buying is reducing concerns about next week's $48 billion Treasury refunding.
Have a great week, and don't hesitate to
and send me an email.
George Moriarty is managing editor of RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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