-- Posted Tuesday, 20 November 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, November 20, 2007
“Phenomenally accurate forecasts”
Yesterday being the Monday before Thanksgiving, we began the day expecting the Dow to open 100 points higher on a gap, then to tack on at least another hundred points as bears struggled to extricate themselves from the trap. Lo, the Indoos plummeted from opening bell and were down as much as 300 points by mid-day. An apparent contributing factor was a downgrade of Citi shares by some genius at Goldman Sachs. The analyst spooked the Street with a prediction that Citi’s rapidly metastasizing losses may hit $15 billion over the next two quarters. We’re pretty sure that that estimate, too, will fall far short of the damages yet to be recorded. By then, however, it’s possible the unmitigated disaster that is Citigroup could be masked to an extent by whatever huge and growing losses are being reported by other giant banks at that time.
Good thing investors evidently weren’t thinking about such things yesterday, for if they had been, it’s possible the Dow would have fallen by 1,000 points rather a mere 218. And how unThanksgiving-like would that have been? Meanwhile, we still expect a huge rally this week, but maybe we’re just being paranoid? We hold short positions in two stocks right now, including some put options in Citi that we partially hedged yesterday by buying some shares near the lows. This “backspread” position will automatically make us shorter if the stock continues to fall, or longer if it rallies, since that is the way backspreads work. The tradeoff is that the options are getting whittled away by time decay.
The Little S.O.B.
We can live with that as long as Citi continues to plummet, but we will also look forward to shorting the little sonofabitch whenever it embarks on one of those doomed-but-fleetingly-credible rallies that make bear markets such great sport. It is hardly a healthy sign that DaBoyz were able to short-squeeze Citi for just a measly few days last week. We’d expected at least a week of pain, but fortunately it was not to be.
Concerning our other short position, so far it has been the strongest stock in a rapidly weakening (but still very pricey) group. We remain quite confident, however, that our selection will get clobbered like all of the other companies in its sector. We especially like the fact that our pick has staked nearly a billion dollars on – well, think of it as a 20-acre Neiman & Marcus in Wheeling, West Virginia. That’s not what they actually did, but you get the idea. Concerning our trading strategy, we have modified it somewhat to include the purchase of put options with a higher strike price than the ones we’ve been buying. Check it out in Rick’s Picks’ hottest touts for Tuesday!
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 20 November 2007 | Digg This Article | Source: GoldSeek.com
