Something To Consider
Like the Barron’s commercial
goes:
"When the market goes up you make money, when the market goes
down you make money."
I am not sure how many of the IT-readers hedge their
portfolios, but it is an issue one should consider. Hedging just
implies that you are alleviating risk on a position by
counterbalancing one position with another. Hedging comes in many
different flavors.
You can hedge yourself by
using a Pair Trading (or Statistical Arbitrage) strategy where you buy
and sell correlated vehicles simultaneously, using options on already
profitable positions or even implementing spread strategies as Tony
Saliba teaches. One of the simplest ways to hedge your portfolio is to
trade both the long and short side. Mark Boucher has an excellent
article on how to locate potential shorts titled The
Key Ingredients Of Successful Short-Selling.
Check out the link to the
article, I feel this is an important aspect to learn if you have not
done so already. Marks’ criteria is one of the best if you are looking
to implement an intermediate term short selling strategy. Like my
buddy Dave Landry said to me "Why would you want to trade with
one hand behind your back?"
Yes, it takes some time to get use to shorting,
but it adds another arrow to your quiver.
Patterns that one can look
for on the short side are inverted cup with handles, flat bases (or
flags), simple pull backs against the underlying trend and even
descending symmetrical triangles. From a technical standpoint,
let‘s
look at AOL Time Warner (AOL).
AOL looks like a multi week inverted cup with handle, notice how
volume has been drying up in the handle. Note:
AOL does not meet the selling criteria on a fundamental basis that
Boucher points out in his article.
Apogee Enterprises (APOG)
is a low–volatility
situation. The stock has been consolidating for a few weeks. This
indicates a potential move is imminent,
as volatility will revert back to its mean.
Cheescake Factory (CAKE)
is forming a handle to its
nine–month
cup. Volume has been drying up in the handle.
The
Semiconductor HOLDRs
(SMH)
put in yet another good day on decent volume gaining 3.4%. It appears
that the next level of resistance is in the 54-55 range. Watch this
level to see if the Semis breaks above this level on good volume.
The IShares
Japan Index (EWJ)
gapped up and closed 2.2% higher following the nice move in the
semiconductor industry. As we said in yesterday‘s
column with the Semiconductor Index ($SOX.X)
closing strongly above its 200–day
moving average has some positive impact on the Asian markets as there
is some correlation between the indexes.
Also gaining
was the Broadband HOLDRs
(BDH)
as it moved higher 2.1%
Losing today
were the Dow Jones US Telephone Sector fund (IYZ)
as it lost 1.7%.
The
Pharmaceutical HOLDRs
(PPH)
fell 1.7% in trading, as
did the Telecom HOLDRs
(TTH)
which closed lower by 1.3%.
The Telecom HOLDRs
appear to have found support at the 20–
and 50–day
moving average.
Remember that all securities
are risky. In any trade, you should always reduce your risk by
adjusting position size and placing open protective stops where
you will sell your long or cover your short in case the market turns
against you. For an introduction to combining price stops with
position sizing, see Loren’s lesson, Risky
Business.
Greg