-- FEATURE-Short-sellers reverse course, bet on stock rally --
By Haitham Haddadin
NEW YORK, March 17 (Reuters) - It may be time to buy stocks,
for the short term at least. That's because investors who have
been profiting from the market's misery have switched gears and
are now betting on a rally in anticipation of a swift U.S. war
with Iraq.
These "short sellers," who profit when stocks fall, are no
longer counting on the market to keep spiraling downward toward
multiyear lows set in October.
Some are covering "short" positions -- bets that stocks will
head lower -- so as not to lose their heads in case of a huge
rebound. Stocks began to rally last Thursday after skidding to
five-month lows on speculation there will be resolution of the
Iraq crisis, either through a fast war, as expected, or through
peaceful means.
"I am not short anything. I covered all my positions last
Thursday. We are rallying because the war is going to start,"
said Bill Fleckenstein, manager of Fleckenstein Capital
Management, which oversees more than $70 million.
"This is not the start of a new bull market; it is a new
rally," Fleckenstein told Reuters. "Whether it lasts 15 minutes
and goes up 5 percent or lasts three months and goes up 40
percent, I don't know. We have to see what happens."
Since Thursday, the blue-chip Dow has gained almost 7
percent, while the technology-laced Nasdaq pulled into positive
territory for the year last week, and now is up almost 3 percent
after Monday's gains.
"There's a lot of short covering. People think war is a lot
closer," said Bob Basel, senior trader at Salomon Smith Barney.
War is perceived as a market positive "only because it takes an
indecisive situation and turns into a more decisive ending."
Once the rally runs its course, many short sellers will
return to shorting stocks which they see as grossly overpriced
given the underlying corporate fundamentals such as the earnings
and revenue picture.
NIMBLE MARKET WATCHERS
Short sellers are nimble market watchers who sell borrowed
stocks, betting on a market decline, and who make money by buying
them back at a lower price in the future.
They cover their positions by buying back the stocks they had
shorted when the market unexpectedly turns higher. Such activity
by thousands of short-sellers helps explain swift rallies, as
seen last Thursday. Then, the Nasdaq Composite index <.IXIC>
jumped nearly 5 percent and the Dow Jones industrial average
<.DJI> climbed 3.6 percent.
Short-sellers watch stocks with eagle eyes, since their
losses can be enormous when a wilting market rebounds and
continues to rally.
After weeks of declines cut major indexes close to five-year
lows reached last October amid lingering uncertainty over the
Iraq issue, the short-sellers now say they are betting on a
near-term market reversal.
The end of the three-year-old bear market is an entirely
different affair, note the short-sellers, adding they will be
back at their favorite pastime once the rally fizzles.
Another bear who has drastically reduced his "short" exposure
is Fred Hickey, the highly regarded expert who writes "The
High-Tech Strategist" investment newsletter.
"The shorts have taken positions off in anticipation of the
rally," Hickey told Reuters from Nashua, New Hampshire.
He said he had exited most of his big short positions in
technology stocks such as Intel Corp. <INTC.O>, the top chip
maker, and Juniper Networks <JNPR.O>, the maker of gear that
drives the Internet. He recently shorted technology retailer CDW
Computers Centers <CDWC.O> at $44.75 and bought it back at $41
about a week ago.
"I made a couple of points on it," he said.
Fleckenstein was short stocks like Juniper Networks, and
Applied Materials <AMAT.O>, the biggest maker of chip equipment,
and cellular phone giant Nokia Corp. <NOK.N>. Last Thursday he
got out of his last shorts in Intel and computing giant
International Business Machines Corp. <IBM.N>
"Their businesses are particularly vulnerable and they are
very liquid stocks," he said, explaining why he shorted these
stocks in the first place.
BACK TO SHORTING
When the market rallies, to many it will be happy days all
over again. Both Hickey and Fleckenstein disagree.
"Everyone will be talking about a second-half recovery,"
Fleckenstein said. "Since I am a short seller I have to take some
of this speculative nonsense into consideration."
For his part, Hickey is going to wait until the buyers
exhaust themselves before he goes back to shorting stocks such as
Intel, Maxim Integrated <MXIM.O> and Linear Technology <LLTC.O>.
"All these are overpriced stocks," he says.
Other short sellers like Manuel Asensio, who heads New
York-based Asensio & Co., will be adding to his short positions
as stocks rise. His shorts are concentrated in semiconductors and
pharmaceutical issues. His methodology, he says, is not to be
swayed by the market's volatility.
"You could have a full (short) position if the market was
9,000 (Dow). That's too high ... we short fundamentally
overvalued markets," said Asensio, adding the Iraq uncertainty
made it difficult to get a good read on the market.
((Writing by Haitham Haddadin, editing by Dave Zimmerman;
Reuters Messaging: haitham.haddadin.reuters.com@reuters.net;
646-223-6114))
(C) Reuters 2003. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Reuters. Reuters and the Reuters
sphere logo are registered trademarks and trademarks of the Reuters group of
companies around the world. |
