Briefing Stock Brief: Traders Edge: The Bears Have It
23-Aug-01 10:53 ET
Everywhere you look there is evidence that the bears have taken over control of the market. The latest example was a headline in Wednesday's Wall Street Journal that short-interest on the NYSE had risen to 5.91 bln shares in August, a sixth straight monthly record. This is just the type of contrarian indicator that sends a trader on the prowl for squeeze opportunities.
Trading Points
- Leaning on tech: No surprise that six of the top seven names with the largest short positions hail from the technology sector: Lucent (LU), Sprint PCS (PCS), Global Crossing (GX), Motorola (MOT), AOL-Time Warner (AOL), Nortel Networks (NT)... Of these issues, LU, NT, and GX are trading below $7... Forgive me if I seem out of touch with reality, but LU and NT are not going out of business this decade, and GX is still sitting on $2 bln in cash... Some investors may be playing these stocks for a ride to the single-digits, but one would have to think that most individuals short these names possess enough market experience to know better.
- Rattling the cage:What would it take to jar bears enough for them to begin shoveling in their short positions? For stocks such as Lucent (which I went bullish on last week) to begin attracting the interest of value investors. In our opinion this has already begun to occur.
- Short will not be a good place to be when the Lucents of the world begin to climb off the floor. Ability of heavy stocks such as LU to advance out of a base is the type of event that can prove infectious. With NYSE short-interest now at 5.4 days, the perception of large-cap technology having bottomed could put the shorts on the run for several days.
- Searching for a squeeze: Please don't confuse a slightly bullish outlook on the trading environment as an opinion that the technology sector as a whole has bottomed. The slant here is that everywhere around us are indicators that the market should move lower. Not sure about you, but can't remember the last time the markets did what the indicators said they should.
In the attached table, we highlight some of the names we think traders will look to first in the event of a near-term technical/short-covering rally. Some of these stocks were picked solely for their high multiples (which in several cases mean no P/E multiple at all, as losses are expected for the year). It has been our experience that the equities that seem the most obvious shorts on a valuation basis are usually the ones picked up first by the momentum crowd.
Traders Edge Table:
Message 16250866
Send comments or suggestions to Damon Southward
--------------------------------------------------------------------------------
Copyright © 2001 Briefing.com, Inc. All rights reserved.
Used with permission of briefing.com |
