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Surviving Market Whiplash

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Rules to stick with in turbulent times and friendly tech names to consider.

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The financials should be in full throttle mode with the recent Fed action. Yesterday, I wrote about moving trailing stops up in the financials. Soon after that they got hit.

The monoline situation is the latest scare tactic and while the situation is serious the imminent threat of bankruptcies among these companies is wildly overblown. There is an excellent Barron's piece concerning this and MBIA (MBI) in particular, where it points out that the bond losses get paid over many years (20-50 years) and the stock is worth substantially more even in a run-off scenario. This is part of the reason why Ambac (ABK) declined an equity infusion a few days ago, when its stock was lower than it is currently is.

Could this be one of those quintessential problems that if not overblown, is simply too big for the system to let fail?

Meanwhile, this market is reacting far, far worse than it should be based on usually benign items like many economic releases. The futures activity has been manic and the stock indices have followed suit. The machines have been having a bull-fry special this month, though we saw this effect earlier soon after the uptick rule was eliminated.

Due to this immense whipsaw action many portfolio disciplines are all serving their purpose these days:

1) No position should be more than 5% of portfolio.
2) Scale your buys and sells.
3) Keep investments investments and trades trades.
4) Use stops, both to preserve gains and minimize losses.

However, perhaps the most important part of disciplined action is sticking to your time frame on your investments and not letting the market shake you out of solid long-term ideas due to short-term crash conditions.

Maybe the government just needs a stimulus package for a subset of the worst subprime securities. I could imagine that taking $50 billion of the most toxic paper off the books of both the monolines and banks would do wonders and it would seem to be a lot cheaper than letting one great big bad apple, or quite a few bad apples, spoil the whole bunch.

Thinking About Tech

  • Amazon (AMZN) is higher now and really did have a strong quarter. I had written some time ago about the overvaluation of AMZN when it was about 20 points higher and thought it a much better short than long. At current prices I'm still not a buyer, though I do think eBay (EBAY) represents excellent long-term value.

  • How many people want Google (GOOG) to drop 10% after it reports tonight? Too many?

  • Catching up on some prior EPS calls, Harmonic (HLIT) ripped off a great quarter and Arris (ARRS) caught an upgrade and has moved nicely higher since HLIT's report. Mellanox (MLNX) was very strong last night.

  • VMWare (VMW) is doing a good job of holding at $55, even during times when the market is down quite a bit.


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No positions in stocks mentioned.

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