-- Posted Thursday, 21 August 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, August 21, 2008
“Phenomenally accurate forecasts”
With Fannie Mae shares apparently headed for zero, we went bottom-fishing yesterday, looking to catch a dead-cat bounce from a Hidden Pivot at $5.20. The stock fell so hard, though, that we never even got a chance to get in trouble. Our strategy had called for buying October 6 calls for 1.10 if and when Fannie fell to the target. Since the stock had settled the previous night at 6.06, we needed for it to fall a further 20% in a single day to put our option bid in play. Little did we imagine that FNM was about to perform a cliff dive to $4 that would lop 33% from the value of its shares in mere hours. No less surprising is that call option premiums exploded as the stock fell. If they were pricey before yesterday’s mini-crash, they were beyond exorbitant at yesterday’s lows, so we wound up buying none. It would seem that no one is willing to sell these calls, so fearful are they that the Government could announce at any moment a new bailout plan that would cause the stock to soar.
Look at a chart of Fannie (or Freddie, for that matter) and you can see why it is often so challenging to short a stock that everyone “knows” is going to zero. In fact, it’s usually easier, and less dangerous, to try and catch a piece of the corrective rallies. In the chart above, you can see how lethal Fannie’s bear-baiting has been for those who have tried to stay short it. Keep in mind that ever since FNM began to fall apart last Halloween, its ultimate resting place at the very bottom of the Mindanao Deep was never much in doubt. But the stock fell so steeply when it first broke last October that unless you were on board near the top you would have missed most of the ride. Keep in mind that in order to be short at that top – 68.60 in October – you’d had to have ridden out a 70% gain off lows near $41 that had been recorded more than two years earlier. Few of us have that kind of patience, and even fewer the capital to buck such adversity.
If you somehow managed to get short Fannie after it started to fall apart, you had three savagely lethal rallies to contend with between last November and now. The first saw the stock rally 53%; the second, 95%; and most recently, 276%. And that’s why we would rather play the long side of a stock that looks very likely to fall to nearly zero.
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Fall Seminar September 10-11
Would you like to learn how to forecast price swings and trends as accurately as gurus who do it for a living? If you think learning such skills is beyond you, then you haven’t visited the Rick’s Picks chat room lately. More and more graduates of the online, six-hour Hidden Pivot Seminar can be found there each day, comparing notes, trading confidently and forecasting with the skill and accuracy of the professional tape-watcher. But don’t take our word for it. Drop by sometime and ask a seminar graduate yourself. You can get a one-day pass by clicking here. Because seats for the class are limited, if you would like to sign up now, click here, and then on the “Upcoming” tab to register; or here if you would like more information as well as a detailed description of the Hidden Pivot Method and a free Hidden Pivot calculator (our latest model, designed for beginners).
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Winning Essays
In conjunction with the upcoming seminar, we’ll soon be announcing the winners of the Rick’s Picks essay competition on the topic “How to Save America.” Over the next few weeks, the best of the more than 50 essays that were submitted will be published here. Top prize is a full scholarship to the Hidden Pivot Seminar and online tutorials, with numerous other prizes to be awarded.
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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 © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 21 August 2008 | Digg This Article | Source: GoldSeek.com
