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Navigating an Unstable Market


During a time like this I always like to adopt patience over any grand thesis or plan.


Good morning Minyans,

We have a rough start to the day as financial stocks continue to pressure the market. Short covering into Friday's close -- sparked by the emergency Citigroup (C) board meeting -- isn't carrying over to start this week. Rather, the mood is sour and futures are pointing to a sharply lower opening.

There really is no way to skirt the fact that the market needs the financials to stabilize. They don't have to lead or even rally, however they need to stop the bleeding in order for participants have confidence that the entire financial system is not going down the tubes. Unfortunately, this hasn't happened and therefore the entire market is shaky at best.

During a time like this I always like to adopt patience over any grand thesis or plan. I have never been one to actively seek opportunities when the tape is in a precarious position such as it is now, rather I like to take a step back and let others fight it out. Furthermore, with such a sharp decline to start the day, it is tough to get aggressive on the short side and chase the opening gap as it is the same as chasing opening strength on Monday morning, and never wise.

Because of the current time period we have positive seasonality on our side, I tend to remain slightly optimistic that this weakness will lead to better trading opportunities. Rather than trade in this mess now, I am spending my time building a watch list of stocks that I desire to own when the dust settles. So far some of my highlights include:

  • Advanced Analogic Technologies (AATI): The company recently reported a profitable quarter on a 52% jump in revenues. The company has a 2008 EPS estimate of 0.39 which is 144% growth year-over-year. Since its EPS report the stock has been consolidating under the $12.00 mark. I initiated a 1/3 position in this area and am watching for the pattern to tighten up a bit before adding again. If the market can settle down, I think this stock can gain some momentum and would consider adding on a clear break over $12.56.
  • Bruker Biosciences (BRKR): Reported a 50% pop in EPS on a 26% jump in revenues. The stock saw a nice run after the announcement and has since been consolidating in the $10.00 area. I have yet to start here but desire to do so and will wait until the market shows signs of improvement before wading in. Once this stock breaks the $10.60 area I suspect new highs will follow soon.

Should we stabilize and start to improve, stocks will set up and we will have ample time to enter. Until then we will have to remain patient waiting and watching. There is no reason to step in just yet until we know the environment has improved and we can wade in without losing a limb.

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Position in AATI

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