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Trading What's In and Trading What's Out


Traders should keep a long list of all alternative energy names and continuously review them for pockets of relative strength.


Occasionally I like to sit and contemplate the bigger picture, which is typically sparked by a chart digging session that is less than inspiring. Since just about every sector I see is entering or has entered a longer-term downtrend, I can't help but sit back and contemplate longer-term themes that could play out over the next several years. Here are some of my In and Out thoughts from the weekend:


Domestic Retail: There is no more arguing about the vigilant US consumer. While they may continue to spend in drips and dribbles, the robust card swiping is coming to a halt. Most US retailers have already been taken to the woodshed however I believe there is more pain to come. We are going to have to see some specialty retailers call it quits and stronger names fall far below book value before it's all said and done. Longs should not attempt to catch or call a bottom here and stay far away until the above criteria takes place. Shorts may consider fading any counter trend rally or stepping into those names that haven't yet fallen into the depths. Two of my favorites for shorting opportunities at present are Nordstrom (JWN) and Jos. A Bank (JOSB).

Commercial Real Estate: The next domino in the lagging consumer thesis and the domestic retail debacle is the space these stores occupy. When a retailer starts to have problems, their first course of action is to close stores to try and stop the bleeding. When a retailer closes a store, they often remain in the lease, so the property owner still is paid, as long as the company leasing the property remains solvent. Unlike residential real estate, this break down will be much slower and more methodical, however if domestic retail continues to struggle it is inevitable that eventually the commercial real estate side will start to hurt as well. My favorite short opportunity in this area is Simon Property Group (SPG).

Buy and Hold: Throughout a longer term downtrend there will be wonderful pockets of opportunities for the savvy trader. If we are in fact ending a 5-year bull run, no longer will investors be rewarded for buying, holding and hoping something will go higher. It will be those who are willing to step in on both the long and short side capitalizing on the longer term trend as well as counter trend rallies who will prevail. As a trader and an active money manager this is very exciting for me and I will embrace the action with confidence, not a lack of composure. Don't know how to trade it? Well, it's probably time to consider Boot Camp.


Global Construction: While the US muddles through its domestic issues, no longer will our slowing growth hinder the rest of the world. Regardless of the fact that US homes are being foreclosed on and credit card payments are slowing, roads will still be built in India and buildings will be finished in China. Petro dollars will continue to invest in infrastructure and tourism in the Middle East and global construction firms will benefit. Traders who agree should keep an eye on Fluor (FLR), Manitowoc (MTW) and Foster Wheeler (FWLT).

Biotechnology: As the Baby Boomer nation embarks on retirement and the later stages of life, health and well being will take center stage. The demand for new and improved medicines is increasing by the day and major drug companies are well positioned to purchase these advancements rather than create them. The speculation surrounding who will purchase who is already being discussed, but rather than betting that Pfizer (PFE) will buy Biogen (BIIB), investors should consider looking at and trading the iShares Biotechnology Index Fund (IBB). The ETF has held relatively well during the recent carnage, despite major components such as Genentech (DNA) and Celgene (CELG) seeing a significant amount of selling pressure. I suspect the resiliency here is due to the thought that many smaller companies will eventually be purchased for higher premiums. However, regardless of the speculation, it doesn't change the fact that over the next several years, I suspect this will be a big area of interest.

Cross Market Trading: Soon I will be trading within my new Interactive Brokers (IBKR) account, of which I am very excited about. While I have not been that impressed with the charting services and reporting tools, the fact that I can trade on foreign markets not just through conventional ADR's has me giddy. As an institutional investor, I have always had the opportunity to pursue this through a major brokerage house, however the costs and hassle has never been appealing. The simple fact that with a few clicks a US retail trader can now buy or sell stocks on the Hong Kong Stock Exchange is very interesting. I suspect that over the years, many savvy traders will start to gravitate towards the opportunities presented on other exchanges in addition to their own.

Alternative Energy: To me this is the grand daddy of all 'In's.' I have written extensively on my thoughts regarding this subject however in a brief synopsis I believe it is quite clear that the real push to implement alternative energy all throughout the globe is finally upon us. I suspect this will become a major industry in the United States in addition to many developing countries worldwide. The last few years, solar stocks have been the runners with companies like First Solar (FSLR) and SunPower (SPWR) telling us they were the clear winners. As time goes on, I am curious if other sub sectors will start to emerge like Fuel cell, Water or Wind. Traders should keep a long list of all alternative energy names and continuously review them for pockets of relative strength. The gains we have already seen in this area have been substantial however I believe this may have just begun.
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