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I had asked about how to play the dow on the down turn. I received these great
responses. I hope the individuals that sent them to do not object to me passing
them back to the group. They are all going into the "Good-Advice" directory.
They are not any any particular order. There are five total.
---------------------------------1-----------------------------------
I just happen to have run a screen on the DJ-30, sorting for alpha over
the last several weeks. As I'm sure you know, the worse the stock has
performed relative to an index, the more negative the alpha. The index
used was the S & P.
This may not answer your question of whether to look at stock price or
earnings growth, but it may be of interest, especially since Hewlett
Packard has the highest alpha over the time span.
Weakest stocks are listed first.
8/21 7/24 6/26
Stock close close close beta alpha
-------- -------- -------- -------- --------
-------- ---------
dj Coca-Cola 60.62 70.19 69.88 1.23 -0.70
dj Eastman Kodak 66.62 68.12 77.88 0.25 -0.62
dj M M M 91.50 95.62 102.00 0.63 -0.57
dj J'son & J'son 59.12 61.88 63.88 1.27 -0.56
dj Merck 94.75 103.75 101.75 0.69 -0.45
dj United Technl 80.75 85.62 84.44 0.85 -0.40
dj Disney 78.88 79.31 81.56 0.93 -0.37
dj Gen'l Elec 65.94 71.88 65.12 1.36 -0.25
dj ProcterGamble 137.88 153.50 136.50 1.24 -0.24
dj Exxon 62.31 62.00 61.19 1.29 -0.20
dj Morgan, J P 112.12 109.19 107.69 1.22 -0.08
dj McDonald's 49.62 52.50 48.88 0.59 -0.06
dj Goodyear 62.75 63.62 61.75 0.48 -0.03
dj Allied Sig 85.56 93.00 82.50 0.90 -0.02
dj Philip Morris 44.75 43.94 42.81 1.12 -0.01
dj Travelers 67.38 70.75 63.25 1.34 0.04
dj Boeing 56.62 60.00 53.75 1.08 0.05
dj DuPont 65.94 67.12 61.12 1.33 0.14
dj Chevron 78.75 76.88 73.88 0.81 0.20
dj Amer Express 81.62 79.62 75.12 1.30 0.21
dj Int'l Paper 54.69 59.19 49.62 1.27 0.36
dj Sears 58.75 61.75 53.19 1.11 0.40
dj Wal-Mart 36.69 37.00 33.00 1.03 0.50
dj A T & T 39.94 35.62 36.12 0.83 0.53
dj ALCOA 84.88 84.00 75.38 0.88 0.66
dj Union Carbide 53.62 52.75 47.31 0.85 0.74
dj Caterpillar 60.12 55.00 52.81 0.63 0.98
dj Gen'l Motors 63.31 58.38 55.38 0.61 1.00
dj I B M 105.75 107.81 90.62 0.62 1.27
dj Hewlett Pack 64.00 64.81 54.00 0.98 1.30
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I'd find one that's in an intermediate term down trend and close to
the top of the channel. Since I don't have the DOW stocks in my database,
I don't know which one that is. By the way, If I was going to short, I'd
look for the high PE stocks with disappointing earnings, not the DOW
stocks.
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go against the whole group and buy "puts" !!!
please keep it simple.
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Thought you might enjoy this Cramer rant about shorting...In case you're
not familiar with him, he's a regular on CNBC, a hedge fund manager,
and writes a column called "Wrong!" at www.thestreet.com. (Pretty funny
guy)
Personally, I prefer puts to shorting (sleep better) and credit put
spreads on decreasing relative strength (IBD) stocks even more. I use
LEAP puts, so that all I need is a 10 point move either way, during the
course of a year or so...
Anyway, here's the article:
Truth Serum Features & Columns
Wrong! The Rules of Shorting, by Mrs.
Cramer
May 1, 1997
By James Cramer
The fascination with the short side knows no boundaries.
Ever since I
began writing for The Street about short-selling
escapades, my email box
has been flooded with requests about what to short and
what not to
short, and which instruments I use to get short.
As I will always decline to offer an individual advice
on- or off-line about
individual securities, let me save you some email ink: I
am not going to
respond to suggestions that I write negative articles
about certain stocks
and I am not going to bash stocks so that you or I can
buy them lower.
But, I do feel I can offer some general guidelines that
will make it so you
won't come crying to me about your Microsoft short or
your Cisco
puts. These guidelines are worth much more than a list
of stocks I have
puts on, as I short strategically, as a method of
decreasing my exposure,
more than I short to shoot the lights out.
First, my wife wrote my short-selling bible. She traded
for legendary
short-seller Michael Steinhardt for years before we
married and
worked together and she is as fearless as they come. I
can't tell you how
many times my wife would grit her teeth and put out more
stock when the
yahoos rallied her shorts. She almost always took the
other side when I
wanted to capitulate and she would double down on a bad
short and
work her way back to even, a small profit or a home run.
All of this during the greatest bull market in history.
I always thought she had nerves of steel. What she had
though was a
rock-solid core of disciplines and beliefs that were her
only friends. So
rather than cobble together my own anecdotal insights,
which are funny
but unactionable, I'll let you in on her basic tenets.
Print them out, pin them somewhere, carry them in your
wallet, take them
on vacation, tattoo them to your forehead. Just don't
forget them. They
have saved me a million times. They will do the same for
you. (As Karen
is plain-speaking, you won't have any trouble
understanding them,
either.)
Known simply as the Business Week cover rule, Karen
would always
ask me, "Do you think that this stock could be on the
cover of Business
Week as the world's greatest company?" Simple rule.
Lifesaver. There is
nothing worse than being short Merck, as I was once, and
then reading
a loving Merck B-Week cover story three days later. If
your short idea
involves a great company, forget it. Even if you have
insight, just forget it.
Can the company be taken over? If yes, Karen would say
to me,
"You are on your own." I've been short three companies
that received
bids in my career: NCR, Systemix and Genentech. With
each one I
had what I thought was a great reason to be short. The
first two had
disastrous fundamentals, as the acquiring companies
later found out. The
third had traced out a perfect head-and-shoulders
pattern (technical
analysis jargon for a stock that's about to roll over
big), something I
guess Hoffmann-LaRoche didn't care about when it made
its partial
tender. In all three cases I could have guessed that a
takeover could have
occurred, and I should never have been short them. This
point alone is
worth millions.
Never short because of valuation. I don't care what
Microsoft sells
for, it doesn't matter what the P/E of Ascend is, it is
irrelevant that
Vertex has no earnings. Never, ever try to call an
irrational top based
solely on multiples of sales or earnings. There will
always be some mutual
fund out there that will keep the ball in the air and
crush you. Steinhardt
taught this to me and my wife, though ironically he
never listened to it and
he lost a ton of money shorting good companies because
he ignored his
own teaching. Take Cisco: seemed expensive for years,
but as it kept
beating numbers it looked cheaper and cheaper on past
earnings. Turned
out to be a bargain in 1992.
Use puts where you can instead of common stock. Puts
don't subject
you to being "bought in" when stock can't be found to
borrow, and puts
limit your losses. Lots of great short-sellers went out
of business in 1990
because they shorted common and discovered that stocks
do go to
infinity. If you are sure something is going to go down,
but don't know
when, use deep puts going out many months. You will
never regret
paying the extra vig. This way you can't be wiped out by
a Microsoft,
Intel or Wells Fargo, which, at various times, resemble
Eveready
Bunnies more than stocks.
Never be part of a gang tackle. If you ever hear of a
bunch of people
shorting the same names and you are shorting them too, I
can tell you that
you will be a dead man. Karen would always ask me, "Does
anybody
else have this call?" If the answer was yes, her answer
was no.
Most important: It is not cool to short. Karen
short-sold for a living
and it is gut-wrenching, harrowing and extremely
rewarding when you are
right, and mind-numbingly painful -- truly Novocaine
free -- when you
are wrong. But there is nothing suave or gallant about
shorting. Hedge
fund managers always like to brag about their shorts.
They think that it
distinguishes them as truly intense, sharp thinkers.
Nah, my wife would
say, "same as going long, except you can't quantify the
loss."
So, short-sellers, good luck to you. You'll need it.
------------------------------5--------------------------
My feeling in this matter would be to short that
stock which has had the tendency to suffer the largest percentage drop
under fear of a retraction.
Harley Meyer
meyer093@xxxxxxxxxx
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