Doc's Diamonds

What goes up ..................

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Well, you have all heard it time and time again. "What goes up must come down." While that is definitely true for gravity, it is not completely true for stockpicking. There are hot sectors and hot stocks that can go up, it seems, for an infinite amount of time. Every time you look at them, they are still climbing and you wonder when it will ever end.

My experience with that type of stock is mainly when I have not invested a penny in it. In other words, I kick myself everyday when I look at the quotes and see the stock "up again" and I did not know when to take a position. I wish I had more of these experiences when I actually invested, but that is not nearly as common as the "kick me" stock described above.

One of the reasons that I do not have such a great experience for stocks I am invested in is that I believe in taking profits before you get squashed. Jim Cramer has such an expression when he says "Pigs get slaughtered." While I do not have such an aversion to being a pig as Mr. Cramer, I do recognize that the only stock you make money on is one you actually sell at a higher price than you bought. (Please forgive me all you dividend buffs out there, I do know that dividends can alter that simple equation.)

It is with this in mind that I plan to sell parts of several positions where I either have a nice gain already, or I anticipate a larger loss if I wait. I will be selling about 1/3 of my position in AAPL and 1/2 of my position in MOS. In those stocks I have a decent gain and want to take some profits. In addition, I will sell part of my positions in NVDA and all of my position in BBY. There was a nice gain in BBY recently and I would love to "escape" without further losses. I still believe in the retail sector long-term. but the short-term picture is simply too dark for this time shortened game. I may return later or I might not even get out because my "limit order" is too high. My hope is to take advantage of another decent stock day and "escape" at a slightly higher level for BBY and NVDA.

One thought on MOS and POT and others in the "AG" sector: THESE STOCKS ARE OVERBOUGHT IN MY VIEW !!!!! My advice is to save yourself and take some profits. This is a real life example where some "Pigs" are going to get slaughtered. I recommend taking profits and waiting for a pullback before considering buying more. Based on the worldwide shortage of food, I think these stocks will do well over time even from these high levels. However, there is likely going to be a sector correction soon and I suggest getting out of the way! I feel so strongly about this that I almost decided to sell my entire MOS position. Experience has taught me that even a savy investor cannot predict accurately the turns in a sector or when a hot sector will cool off. Therefore, this is only an educated "guess".

Further, to mitigate my volitility in any down move, I plan to buy large positions in ultra-short ETFs for the Nasdaq and financials. Again, I might be wrong in my prediction for a downward move, but in a stockpicking game (or real life) you need to have the courage of your convictions and act on them. (As long as you utilize discipline and logic as you go.)

We will see how these moves work out over the next week or so. I will report back then.

Doc

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What goes up ......... REVISITED

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Well, my proposed reversal on agricultural stocks has not transpired as of this time. POT and MOS continue to plug along to the upside. Again, this is why I did not sell all of the MOS in my SLO2 account. You cannot accurately predict the turns but must have the courage of your convictions and see it through unless you have new information that changes your analysis.

With that in mind, I am going to move to the short side further than normal tomorrow by purchasing DUG at a full position for my portfolio. My reasoning for this is similar to the reasoning for selling some of MOS before a strong turn in sentiment. Oil is at an all-time high. Now I happen to be of the belief that this high will be taken out easily over time. Oil might even ride further in the coming days. (AGAIN, YOU CANNOT PREDICT THESE TURNS EXACTLY.) However, the short-term movement is being caused by factors that will be corrected in a reasonable timeframe (disruptions in pipelines and such.) Once those are corrected and before the summer driving season hits full-swing, Oil will almost certainly drop back some after this rapid run over $113. The trends seem to indicate that it will drop back to $100 or lower for a time. The chart pattern (bearish) might indicate a return to just below $40 for DUG before it starts back down again. That would be a cool 21% gain that is very likely to occur. I am willing to take the chance that oil will pull-back some before returning to it's upward trend.

For those who are not familiar, DUG is an ETF which is an "ultrashort" of the oil and gas index. It is provided by Proshares, who have some of the best sector ultrashort ETFs available.

I will also purchase a 60% position in Sirius Satellite Radio (SIRI) at a limit price of 2.39. This is another speculative move that speaks to my belief that the merger between Sirius and XM will be approved to take place and that this will drive the shares upward (at least for the short-term.) I happen to think that SIRI is caught in a trading "window" between about 2.30 and 3.20. Good news is likely to drive the stock to the upper side of that window. If this occurs, SIRI should track to the upper end of that range. If it hits my target of 3.10, I will sell most or all of the position for a 29% gain. Again, I will not get greedy and if it slows down as it hits $3, I will consider selling slightly sooner some or all of my position.

These are contrarian moves against the trend of the oil market (DUG) and against the trend of the stock (SIRI). I will hold my other positions for now and reassess soon.

Doc

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Courage of your convictions

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Why spend all of the time you do researching stocks and trends if you don't follow your research?? When you really think about it, this usually occurs because of fear or uncertainty. If it comes from new evidence, then that is fine. Many times though, it comes from the uncertainty that occurs from short-term action that goes against your view and shakes the courage of your convictions. This may result in your acting on those uncertainties and leading, most often, to bad investment choices.

This is the case with my investment in GOOG that I added to SLO2 with good research to support that the street had unfairly punished this company and it was poised to rebound. When the short-term price action didn't go my way, I simply sold out and lost a golden opportunity for a nice portfolio boost. It will move decidedly higher tomorrrow because of beating street estimates. (up over 75 points). Yet another example of the importance of doing your research and sticking to it.

This advice occurs on the upside as much as the downside. With this in mind and staring in the face astronomical fertilizer prices recently announced, I plan to sell all of MOS if/when it hits $136 per share. All the momentum is up with this stock, but I plan to sell out and take my 16.5% gain and move on. I will follow this for a pullback, and if one occurs, I will consider a rebuy. It is simply too hot for me right now.

Apple, however, with a 30% gain is still not too hot for me. I did take some profits recently, but I think there are upside catalysts remaining and the stock is still down substantially for the year. It can certainly move higher.

Boone Pickens is decidedly against my "ultrashort" move on gas and oil. I myself have questioned this move because of strong oil demand and no increase in supply. As I said, I think the trend is decidedly "up". However, I still feel that a pullback will occur soon. If so, I will likely get a nice gain and will sell the ETF. If not, I will sell the ultrashort within a 10% loss window.

Interesting stuff.

Later.

Doc

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Courage of your Convictions --- Revisited

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Based on some of my recent posts, I want to review my current thoughts and apply them to my next SLO2 moves. I am trying to take advantage of short-term moves that have gone against me (or for me) to strengthen my positions. This emphasizes that an individual investor must research hard and stick to your investment thesis in good times and bad unless new verifiable information changes that thesis.

1) I believe agricultural chemicals have had a great run and are due for a strong pullback.

Action: I will be finalizing my sellout of these from my original SLO1 account by selling all of POT at the market tomorrow. I have also sold all of these from my personal accounts.

2) Regardless of the strong upward fundamentals in the long term for Oil and Gas, there is only so far Oil will pull away from $100. Much of the upward trend is depending on the drop in the value of the dollar and short term disruptions in supply. These are almost certain to correct slightly and oil will respond with a downward bias for awhile before restarting it's upward flight. History has strongly supported this type of price action for oil and the "fast buck" speculators will pull their funds quickly when they see the trend going against them. Similar to the pullback I expect for agricultural chemicals, this does not change the overwealming fundamentals in favor of upward price movement over time. It does give me an opportunity for profiting from these courntertrends. Remember, with contrarian investing it is especially hard to maintain the courage of your convictions but it is essential to do so to profit from the trade.

ACTION: I plan to enhance my ultrashort position on oil and gas by increasing DUG with even a slight further pullback. I am convinced, if I am patient, I will profit.

3) As much as I hope the market turns around by the end of the year, I think the evidence suggests that we are in a recession and a bear market. The recent rally, in my view, was a bear market rally. With that in mind, I think we will be in a downward trend again soon and I want to capitalize on that before rebuilding my long positions.

ACTION: I plan to add to my ultrashort NASDAQ (QID) with any slight further pullback. The NASDAQ is poised to underperform the other indexes even though some of the earnings have been good this quarter. These months are very poor for technology in general and the NAS is tech heavy.

4) Financials are not out of the woods yet. Despite some of the calls to wade into financials at this time, I still feel that bad news is coming beyond what is expected. The credit crisis is not nearly completed.

ACTION: I plan to add to my ultrashort financials (SKF) with any slight pullback.

5) There is no positive short term catalyst for NVidia (NVDA) despite the fact that I am convinced that NVDA will be a strong tech stock going forward.

ACTION: I will trim my NVDA position and look to rebuy below 18.

6) Apple has had a great run. There are multiple upward catalysts but expectations might be too high.

ACTION: I will trim my APPL position by another 1/3 with any upward price movement. I will then hold the rest long term and may add if the stock pulls back after earnings.

7) Verizon has a great dividend and is surprisingly underappreciated. I know that they have a high debt level, but they have multiple positive catalysts including strong wireless and fiberoptic networks.

ACTION: I plan to add to my Verizon position with any pullback.

That is my summary of trends and actions for now. I will update once these changes have a chance to be successful.

Doc

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