Halloween Monsters

In the spirit of the day and lacking the resources and imagination to do something as elaborate as the Guillermo del Toro couch intro for the 2013 Treehouse of Horrors episode of The Simpsons (definitely worth a click through) I have elected instead to construct a portfolio of what I am calling the Halloween Monsters – a group of ten stocks that have been absolutely killing it this year, leading the markets higher.

The list includes the following familiar momentum names:

• Tesla Motors (TSLA)
• Netflix (NFLX)
• Facebook (FB)
• LinkedIn (LNKD)
• First Solar (FSLR)
• priceline.com (PCLN)
• Baidu (BIDU)
• Amazon.com (AMZN)
• Gilead Sciences (GILD)
• Celgene (CELG)

I intentionally left off Google (GOOG), in spite of an excellent 2013, largely because this behemoth now has a $346 billion market capitalization and there are some limits on how quickly on organization this size can grow.

With the inclusion of Baidu, the list reminded me a little of something I did back in October 2007, when I sensed a little too much froth in the stock market and created something I called the OHFdex, which began as a “watch list of Overripe High Fliers” and quickly evolved into an index designed to track 14 such stocks. When the markets turned down, the group was pummeled, with some spectacular crashes from the likes of CROCS (CROX), Las Vegas Sands (LVS), DryShips (DRYS) and others.

The current list is certainly filled with high fliers, but whether they are overripe or capable of soaring higher is not as obvious as it was in October 2007 – at least for me. For that reason, I will keep a close eye on the Halloween Monsters portfolio going forward, as their movements will likely be a tip off as to where the broader markets are headed.

[source(s): Finviz.com]

At the very least, I expect the stocks on this list to offer some interesting fodder for the archives, just as the OHFdex did in 2007 and 2008. Who knows, perhaps the next iteration of the OHFdex is just around the corner.

For more on the OHFdex and similar flights of fancy, check out the links below.

Related posts:

• Whither Social Media Stocks?
• OHFDEX One Year Later
• OHFdex Getting Killed
• OHFdex Update
• From Overripe to Vulnerable?
• BIDU: Hogs (Eventually) Get Slaughtered
• People Trading BIDU Also Traded…
• Four Horsemen of Technology Running Strong Again?
• Biotech on a Tear
• From Futures to Pastures (an “And More” selection)

Disclosure(s): none

Whither Social Media Stocks?

Back in October 2007, sensing a little too much froth in the stock market, I created something I called the OHFdex, which began as a “watch list of Overripe High Fliers” and quickly evolved into an index designed to track 14 such stocks. When the markets turned down, the group was pummeled, with some spectacular crashes from the likes of CROCS (CROX), Las Vegas Sands (LVS), DryShips (DRYS) and others.

As stocks have continued their rise, I have thought about resurrecting the OHFdex, but I have not found sufficient reason to do so, until recently. The rise of social media stocks and some of the attendant valuations are the reason for my reconsidering the OHFdex. Clearly there will be winners as well as losers in this space, but relatively high valuations for LinkedIn (LNKD), Groupon (GRPN), Zynga (ZNGA), Pandora (P), Yelp (YELP), Angie’s List (ANGI), Jive Software (JIVE) and others have raised my eyebrows and even the launch of a Social Media ETF (SOCL, holdings) is enough to give me pause. The problem is that I have trouble picking the big winner from this group, particularly when adjusted for current market capitalization. The temptation is to short them all, but for now at least, it is time to put these stocks and counterparts such as RENN, YOKU, SOHU, REDF, DMD, FFN, etc. into a social media OHFdex and see how things play out.

I’m not saying this is October 2007 or tech media bubble 2.0, but every coal mine needs at least one canary.

As an aside, while I am lukewarm about the prospects for social media as a whole, I have been living on the bleeding edge of technology hardware and software for decades and am about as far from being a Luddite as one can be. I was surfing the Internet in the 80s, dragged my laptop on planes for at least two years before I saw anyone else do the same, had a US Robotics before it was branded “Palm Pilot,” bought my first digital camera in 1996, was on Facebook when it existed only inside two universities, and sometimes think that too much of my life has been spent as an inadvertent beta tester.

That being said, while it can be lots of fun to play with v0.9 of what might be the next big wave in technology, I wouldn’t recommend buying too many v0.9 stocks, particularly those that are based on nascent technologies.

Finally, if you have any interest in shorting these stocks and can’t find any shares available to short, consider buying puts, selling calls or creating a synthetic short position by doing both at the same time.

Related posts:

• OHFDEX One Year Later
• OHFdex Getting Killed
• OHFdex Update
• From Overripe to Vulnerable?
• BIDU: Hogs (Eventually) Get Slaughtered
• From Futures to Pastures (an “And More” selection)

[source(s): StockCharts.com]

Disclosure(s): short GRPN, ZNGA, P and YELP at time of writing

People Trading BIDU Also Traded…

Back in September 2007, I started periodically posting snapshots from the optionsXpress Trading Patterns feature and chose to highlight the highly speculative Chinese internet search firm, Baidu (BIDU), then trading at 299, as my guinea pig. Over the course of seven months, I twice updated what traders who traded BIDU were also trading at optionsXpress when BIDU was at 380 on 10/30/2007 and when it was at 350 on 4/22/2008.

I just captured the most recent Trading Patterns update, which shows traders who are trading BIDU (currently at 185) are still active in the most volatile names in agriculture, financials, shipping, solar, and casinos. The stocks on the top ten list: Potash (POT), Mosaic (MOS), Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), DryShips (DRYS), First Solar (FSLR), and Las Vegas Sands (LVS). Also on the list are two ETFs, QQQQ and SPY. Either optionsXpress customers have been cleaning up on the short side or they are a little early to the bull party.

[source: optionsXpress]

From Overripe to Vulnerable?

I recently published a list of ten of my “Overripe High Fliers” in a post with the intriguing name of “BIDU: Hogs (Eventually) Get Slaughtered.” Ironically, BIDU was trading at 301 at the time of that post (September 25^th), not too far from where it is as I type this, but I’ll save a more detailed discussion of BIDU for another day.

As of yesterday, my Overripe High Fliers list (yes, I actually call it an OHFdex) was up to 17 components. In the graphic below, I have sorted the OHFdex components by daily percentage change. Clearly the Macau gaming high fliers LVS and WYNN bucked the trend yesterday. Interestingly, those two stocks are down today while the tech stocks are rallying. The OHFdex group of 17 includes many of the market leaders and top performers from the past few months. If these continue to bounce back, then the bull market should remain strong. On the other hand, if this group falters, then the market will have to find new leadership or else succumb to the same gravity.

For quick visual reference, I have also included the CandleGlance charts from StockCharts.com for the 14 highest fliers (yes FSLR, LDK and ICE have been demoted.) For the record, these charts include a 20 day SMA in blue and a 50 day SMA in red:

BIDU: Hogs (Eventually) Get Slaughtered

As I write this, BIDU is trading at about 301, meaning that if you got in near the August 16 low, you may be sitting on a 140 point profit.

I was indeed fortunate enough to grab some BIDU on August 16^th, though nowhere close to the day’s low of 161. Over the course of the past few weeks I have been taking profits, with less than 10% of my initial position remaining after selling some earlier this morning.

As I was selling some shares, it occurred to me that it might be time to update my watch list of “Overripe High Fliers.” This is a list of ten momentum stocks that I keep a close eye on and expect to provide some clues about speculative activity. These stocks should be strong when the market is rallying and move sharply down when the market turns down. The list currently consists of AAPL, BCSI, BIDU, CROX, DRYS, FSLR, GRMN, LVS, RIMM and VMW.

In keeping with Amazon’s “people who bought X also…” approach, optionsXpress has a tool that tells you what people who traded BIDU were also trading. The results, in the graphic below, could easily be an updated list of those “Overripe High Fliers.” Consider that when BIDU finally makes a sharp turn south (and I expect a -20 day soon), the rest of the stocks on this list will probably be dumped with the same bath water. Contrarians, aim your guns at these targets.

…and don’t count on the nearly vertical rise in BIDU to continue much longer. As a general rule, the steeper the rise, the more spectacular the fall back to earth.