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Finding a "balance", when the big boys play....



March 30, 2014 – Comments (16) | RELATED TICKERS: IBB , ALXN , GILD


Disclosure:  If I knew anything I would I be here?  Stocks go up, stocks go down.  I may or may not be holding any stocks in this blog and I may or may not decide to buy any.

I blogged this past Thursday that it appeared instituitonal investors were rebalancing, possibly end of quarter cleanup, or possibly taking a more conservative stance after a nice run on the markets. I commented that Biopharms were being hit particularly hard.       jiltin pointed out that some techs had also been hit.  (Facebook, Netflix, etc).  Yes, the "event" rebalancing, redistribution, moving more conservative, hit internet based stocks, and other stocks that had been on the momentum "favorites" list and were starting to have high metrics that needed strong earnings to support.  Of particular, however, the smaller cap Russell 2000 index dropped about 3% harder than the S&P.

This could be signalling a correction, but I also cautioned that those who stay in cash and fear a correction often miss out on more than they would lose.  I am certainly, however guilty of this, preferring to hold my gains, limiting future gains, than see them disappear.  It's tough to find a balance if you've invested in some of the down periods over the last 20 years, such as the tech bubble in 1999/2000 and the 2008-2009 dump.

Biopharm investor zzlangherhans pointed out in his pitch for  Alexion Pharmaceuticals, Inc (Nasdaq: ALXN) that in a possible bubble investors should focus on stocks with revenue and potential.  After a 20% decline some of these stocks would be safer positions once the concerns of Congress questioning Gilead's pricing fades as earnings are announced.  I highly recommend his pitch, (even if you are not a biopharm investor).  The part about bubbliciousness, has broader applicationss.

Unfortunately, the market is tossing the good with the bad currently. Maybe this will stop end of quarter. Some of   the biopharms, however have tested lows, bounced, and retraced again.  While not a mid-cap filling ZZ's example, Tekmira Pharmaceuticals Corp, (TKMR : NasdaqCM)  dropped 20% on March 24th, when I mistakenly downthumbed it by accident, thinking I had caught a bottom.  It rallied back up about 12%, leaving me deep in the red on my mistaken call and getting me some mirth from my Foolish Friends, only to drop another 17% on Friday.  Oscillations with lower highs and lower lows are not a good sign for investors.

So what to do if this continues?

  jiltin added to my last blog:  "I have seen two recessions/corrections when rates are increased. we (individuals) must have proper strategy to protect the money/values. It can be beginning or next year or middle of next year. I am still confused what is the best strategy."

Again, I would add that predicting a bubble, as bbmaven, our "Top Fool" keeps in front of us is usually detrimental to making a profit.

I'm not sure what to do either, I spend more time trading, and less investing.  Usually trading in a rising market can also reduce potential..... :)  In an erratic, market, however, traders with some luck, skill, time, can do better than longer term investors.

I would suggest however, for those with conerns or shorter duration timeframes:

1. Don't try to catch a falling knife:  Often stated, but more apt when lots of knives are falling at once.  If I had attempted to catch TKMR in real life, I would have been disappointed. If I wanted to go long and average in, then perhaps the attempt would have been better made.  The best approach, however, is to give a falling knife a few days to settle.  One of two things will happen, it will bounce and those who thought it was a bargain would join the rally OR it will bounce and those who watched it drop the first time, but were still holding, will run and dump a few percent higher, and the stock price will drop further to the next resistance level.  So you can wait, or you can buy and then set a limit under your buy price, losing a few percent if it trips, and trying again later.  Buying an equity that has corrected hard once, gives some measure of safety.

2.  Look for the strong in the sector.  As ZZ noted.  Look for the cream, watch earnings, metrics, and fundamentals.  In a correction, these "should drop less". Averaging in can help. 

3. If you're not sector preferenced, determine where the smart money is heading.  I don't expect a large correction, barring a catalyst, because there is lots of money going into the markets. Interest rates will remain low, gold and silver are out of favor, money HAS to go somewhere.  From this rotation, it appears, there might be a focus on utilities and energy.  (Although I personally feel oil and natural gas are on the high end of their trading range).

4. Emerging markets also appear to be bouncing, but are higher risk for most investors.  China got a rather hard hit the last few weeks.  I closed my YINN and YANG positive on a bounce back up, but missed a chance to play Latin America.  I took a look at Turkey, but this appears to be an "election rally" with questionable legs. (seem my pitch on Turkey Index: TKR).   On the plus side, Russia/Ukraine tick for tact sanction nonsense on governement officials who could care less and turn the sanctions into bragging rights may be improving.  I'm hopeful this will help all markets, especially emerging. See my blog on the Crimea Affair, where I foolishly play with 3X RUSL.   Monday should show a trend back up, especially if Russia agrees to pull back troops from the Ukraine border, but investors need to stay carful as many believe Putin has additional "ideas" to help areas return to the Motherland.

That the Russell 2000 is dropping hard is a concern to me regarding longer term prospects.  This cycle and move to safer utilities and energy is similar to moves in the past that precede corrections.

The BIOPHARM adjustments should be clearer going into this coming week.  Resistance levels, lows, bounces should be easier to track for those technial traders.  Personally I dabble in "blending fundamentals with technicals"  There are certainly purists in both areas.  I find that for technicalists that a trend/pattern is a trend/pattern until it's not.  For Fundamentalists, things can change rapidly.  The belief of some that a stock that had a high of so $20 a few months ago that is now $10 has a potential to double back up.  It may be down 50%, but it was up 50% higher.  This is a very dangerous way to attempt to place value on a stock. Past performance is ZERO recommendation for future performance.  Find what changed before diving in. 

The sky is not Falling Today, but there were quite a few tornados around recently as spring returns.....



16 Comments – Post Your Own

#1) On March 30, 2014 at 11:22 PM, anchak (99.91) wrote:

Very timely and outstanding post....Keep it going- I wish I could add something - but there are some clear constraints...

All the best!

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#2) On March 30, 2014 at 11:46 PM, constructive (99.97) wrote:

Again, I would add that predicting a bubble, as bbmaven, our "Top Fool" keeps in front of us is usually detrimental to making a profit. 

Remember the story of the boy who cried wolf? At the end, he is right, yet the sheep (and possibly the boy) get eaten anyways. The moral of the story: always keep a shotgun handy.

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#3) On March 31, 2014 at 12:25 AM, awallejr (39.57) wrote:

And yet nowhere do you point out that I am tellling people to invest in yield. I was the first to call this market a "generational" buying opportunity back in April 2009 until Cramer decided to steal the call.

You can put yourself in cash and earn hopefully  1 pct (which means you are losing to inflation) or you can invest in BDCs, MLPs or REITs that yield near or over 10 pct.


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#4) On March 31, 2014 at 12:40 AM, HarryCaraysGhost (86.65) wrote:

Adding to my KO DRIP this week.

Woot,woot! Might get a nice price.


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#5) On March 31, 2014 at 12:41 AM, TSIF (99.97) wrote:

I have called REIT's in my CAPS portfolio, and hold them in real life, and in my 401K.  They do have their good times, but are NOT all the same.

Some OFTEN pay  out dividends, but then borrow money or issue shares to carry out regular business.  The cycle eventually degrades their share price. 

MLP's were good for a time, but got over invested as well.

Dividends can help protect you, especially if you reinvest, but one needs to be careful, especially in a rising interest rate environment.  They do add to a balanced portfolio. 

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#6) On March 31, 2014 at 12:43 AM, TSIF (99.97) wrote:

Shotgun's loaded Mega, good reminder, probably due for a cleaning.

Thanks Anchak. 

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#7) On March 31, 2014 at 10:51 AM, portefeuille (98.75) wrote:

Hey, let's not be too hard on our Canadian friend.

Tekmira in Toronto trading.


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#8) On March 31, 2014 at 10:52 AM, portefeuille (98.75) wrote:

And again forgot to start by "nice post" :)

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#9) On March 31, 2014 at 11:06 AM, TSIF (99.97) wrote:

Thanks Porte,

I really hope TKMR  does snap back for zzporte.  When you have that $100M maybe you will need a low level lacky to get you coffee....Buffet's secretary probably does "okay".

I chose it as an example because my wrong way thumb made me a little more intimate with it, and it's behaving as a perfect example of one to watch in a downward trend. 

But right now, the fundamentals aren't easy for someone like me, so I'll have to rely on the technicals....if it holds above $19 this week it might look interesting!  :)   (But only a little above $19 for a day or so so I can close my WRONG WAY THUMB!  :) 

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#10) On March 31, 2014 at 11:14 AM, portefeuille (98.75) wrote:

When you have that $100M

It will be zzlangerhans that has those $100M. By then my 6% profit share will sure look nice though :)

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#11) On March 31, 2014 at 12:52 PM, awallejr (39.57) wrote:

Oh I agree that not all REITs are alike.  In fact that is pretty much true with any sector.  Also you get those secondaries because the company has to distribute 90% of its income.  Secondaries tend to be quickly accretive.  You do get used to them and learn to actually take the opportunity to add.

Lately I would hear how we are near a top, that stocks are frothy, that interest rates are going up etc.  And usually when this happens the market sells off hard.  Except, I submit, this time will be different.

The main reason is the market is missing that necessary ingredient, the retail investor.  Pundits will say once the retail investor piles on that signals a top.  But the retail investor isn't piling on.  The boomers got burned too many times.  They simply are not coming back.  They will die clutching their puny bonds.

With that said there simply is no reason for the market to crash like Inthemoneystock likes to predict every month or Jim Rogers.  And it is for the reasons I have argued for years now.  Just follow the earnings. 

I forget which thread it was but someone was arguing how the doubling of the market was FED induced, no substance to it.  He used an earnings chart as an example.  Except, as I pointed out to him, he didn't bother to actually look at it.  If he had he would have seen that the earnings for I believe it was 2012 as the last year was DOUBLE that of 2009.  Market was double that of 2009 and earnings were.  That is not a coincidence that is a causal relationship.

So as long as earnings keep growing and Washington doesn't do something stupid, this secular bull market can keep rolling on.

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#12) On March 31, 2014 at 1:14 PM, TSIF (99.97) wrote:

  I see some retail coming back in, but I agree not in full force for the reason you cite. 

I agree with your overall comments, but .....

So as long as earnings keep growing and Washington doesn't do something stupid, this secular bull market can keep rolling on.ts. 

That's still TWO big IFs:

Earnings should be okay if we can keep energy prices down a little bit more. 

Regarding Washington, however...that's a LOT of assuming, but we can only hope..... :) 

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#13) On April 05, 2014 at 12:59 AM, jiltin (46.04) wrote:

 The big drop in so-called momentum stocks — typically high-growth companies in the technology and biotechnology sectors that led 2013’s rally — overshadowed the day’s relatively strong March jobs data, which helped the Dow and Standard & Poor’s 500-stock index hit new intraday highs early in the session. 

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#14) On April 05, 2014 at 9:59 AM, TSIF (99.97) wrote:

The two day lull was interesting and then the Friday Hammer out of the blue....proved it was much deeper than sector rotation end of quarter...

Wish I'd had more $$ conviction it wasn't over. I had a handful of Facebook puts, but it was a bonanza for puts and shorts. 

It's interesting when the S&P can hit new dailey highs while biopharms and techs can selloff.

Might be some bargains out there, but it could continue to be painful for some stocks.


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#15) On April 05, 2014 at 12:10 PM, awallejr (39.57) wrote:

I did find it interesting that on such an ugly Friday my caps score actually ended up slightly green  To me that is helping to confirm that the retail investor isn't really around.  Since institutions have to basically stay invested it is obvious that they are just rotating.  They are moving into more fundamental plays with yield.

Bought some more AINV and got its divy today.

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#16) On April 05, 2014 at 2:04 PM, TSIF (99.97) wrote:

I did some digging as well.

I had thought my small REIT holding in my 401K had been in a lull and maybe I should rotate out of it....funny, I hadn't noticed other than utilities and some energy stocks what was being rotated into....REIT's are up 10% this year...rather than rotate my 8% of so piece of it, maybe it's time to rotate some of the mutual funds holding too much biopharms and google into the REIT fund...

 Good point awallejr....lots of money out there...neet to find where its your case it sounds like you front ran it!!!  :) 

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