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Breakfast with Brodsky

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Good morning - I am getting a late start today because I am feeling a bit under the weather but there was one subject that I did want to touch on. I have noticed a recent trend, and although I am currently bullish, it is making me nervous. Lately, when a company reports any type of good news their stocks flies! I mean let's look at yesterday; Biogen Idec (BIIB: NASD), Broadcom (BRCM), Netease.com (NTES: NASD) were all up huge amounts (on a dollar basis). Biogen was up 10! Netease.com was up 10! Broadcom was up almost 4! These are big moves for large cap, high priced stocks.

What can we take away from this? Well, in my opinion, there are two schools of thought here. First of all, we can look at these names and conclude that short sellers are still out there in size and any shred of positive information can send stocks screaming +10%. If shorts are lurking around in these names, one could conclude that they are everywhere and that the market could still be a powder keg waiting to pop off into a "blow-off" top.

The second view that one could take, and yes I am about to say it, is that this type of trading is a bit wild. In my opinion, it is wild to have stocks like this make moves like they are. Is it that people are starved for decent companies and are throwing money into ANY good news? Or, is it that we are in a frenzy where the rug could be pulled out at anytime? I think it is a bit of both. Yes, we are all stock crazy again but that does not mean there isn't any money to be made on the long side.

Recently, I have searched out more "safe" investments to stick money into. This current market action, while fun if you are on the right side, is certainly dangerous. I have said one thing repeatedly and that is to know your trading environment. Know the risks involved with trading this tape. Yes, I am bullish. Yes, I am net long. But, I do not have 20% positions in names where the risk/reward is not acceptable.

So, in conclusion, I believe that the trend is currently up. The high beta names, in my opinion, should continue to outperform but I think the easy money has been made already. I keep that in mind every time I put a trade on. Just because a company is in "techland" or its competitor said something positive and it is trading up 10%, that does not mean everything else in the same space will. If you are looking to trade these names from the long side, I would suggest doing your homework because in this high paced, high fling environment, a poor performer could get taken out to the slaughterhouse.

And one thing is for sure, that's not where you want to be.

Note: To read Bill Fleckenstein's market rap from last night (highly suggested), click here!




No positions in stocks mentioned.

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