My Stock List for Potential Shorts
Posted by Frugal on March 13th, 2007
I have been looking at the following stocks but have only shorted a couple of them. The weakest sector goes down to the drain first, and obviously they are housing sector at this point. The next sector I believe would be restaurant and consumer discretionary stocks. Some of the stocks have fallen so much that I am not sure if they are good candidates to be shorted anymore.
Housing/Mortgage related stocks:
FMT
FED
NDE
IMH
LEND
NEW
NFI
MTG
GM
WM
CFC
FNM
FRE
Restaurant stocks (with restaurants between high-end and median most susceptible to slow downs):
CAKE Cheesecake factory
DENN Denny’s
RRGB Red Robin
IHP IHop
APPB Applebee
MSSR McCormick & Schmick’s Seafood
PFCB P.F. Chang’s
I have been too careful about taking my short positions. My best short has returned 50% in less than two weeks, but I simply have not shorted enough given my portfolio size.
You can come up with your own sequence of falling chips, and short them as they counter-rally. With the home equity drying up, I fully expect a slow down in housing and consumer discretionary sectors.
I have not taken a short position against the general market simply due to my reservation with the ending of the bull market run since 2002. The bull market always seems to have nine lives, and calling a top is dangerous. The record put over call volume is helping the bullish case.
In any case, I do believe that the recent low will almost for sure be broken before 2007 ends. With the upcoming Fed meeting in another 9 days on March 20/21, I hesitate to do more shorts except the weakest housing sector. I’m certain that Bernanke will give out some candies for the permabulls under such circumstances.
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March 13th, 2007 at 10:11 am
Frugal,
Make sure you add home builders and investment banks to that list!
March 13th, 2007 at 1:17 pm
Frugal,
Why not just short the NASDAQ index with short ETF’s like QID?
FT
March 13th, 2007 at 6:00 pm
MDJ,
The spreads on the Q’s are much lower, usually 1 cent. If you have a margin account it makes sense to short the Q’s directly. If you have enough equity in your account, you don’t have to pay for margin interest.
March 13th, 2007 at 6:19 pm
This is too scary for me. I’m going to wait and see over the next few weeks if gold drops below $600 and silver below $10. Probably won’t happen, but I’ll be buying a lot if it does.
Bought too early May 2006, and that began to teach me a bit of patience.
March 14th, 2007 at 5:50 am
1. Way too late to short homebuilders or lenders (if you can even borrow the stock).
2. PF Chang looks like a great short idea.
3. Any thoughts about shorting financials such as: C, LEH, GS, MER, C, BAC, WFC?
March 15th, 2007 at 12:24 am
ML,
I forgot to add housing stocks. Maybe you could help me adding brokerage stocks. I watch $XBD, but couldn’t find an ETF that correspond to brokerage. XLF is the closest that I can find.
Here are some housing stocks if anyone is interested:
XHB (ETF)
KBH
CTX
PHM
TOL
BZH
March 15th, 2007 at 12:25 am
MDJ,
I do consider QID or shorting QQQQ. But not yet….
March 15th, 2007 at 12:57 am
Larry,
My personal opinion is that you can still short homebuilders & Alt-A mortgage/bank (but probably after some rally).
I have just closed my short on a mortgage lender with some 80% profit. I was afraid that the stock would stop trading, and it will be kind of hard to cover for it.
Not sure about brokerages and banks yet. The even bigger drop is probably not in this wave (or this year).
March 15th, 2007 at 6:49 am
“I was afraid that the stock would stop trading, and it will be kind of hard to cover for it.” – You are not required to ever cover. If it ceased trading it would be marked to market at 0! You win and no tax liabilty.
March 15th, 2007 at 1:54 pm
Frugal,
IAI has a good overlap with $XBD but TDAmeritrade has had trouble finding shares for me to short.
I made some money shorting BSC and MER but lost some on LEH (timing is everything!).
The lenders are pretty scary here. The -70/+70 action in LEND is not for me!
To the home builders I’ll add DHI, HOV, LEN, MTH, etc. I think they are still shortable on bounces. I’m looking for price/book to go below 1 on them.
March 15th, 2007 at 11:24 pm
Larry,
You’re right. There are NO MORE shares to be borrowed for MOST mortgage stocks & XHB it seems. I was lucky to short through inexperienced FirsTrade brokerage, and made quite some money. Now 1stTrade, Scottrade, nor TDAmeritrade allows any retail investors to short those names.
I should have placed my covering order as BUY, instead of BUY FOR COVER. I wanted to re-short my position after the stock went up by some 100%, and I can’t do it anymore.
In any case, I had covered my shares at close to the recent lowest point since I thought the headline news should be contrarian indicator. I guess I was right,
.
I’m not so used to deal with companies/shares potentially going to bankruptcy. Just didn’t want to take that chance. The market maker could make a huge bid/ask spread to “profit share” any of the short-sellers’ profits, and you wouldn’t have any choice even when placing a buy limit order for covering.
Frugal