Yesterday’s Action

by Dan June 15, 2011 8:06 am • Commentary

Well, some things are predictable. Death, taxes and snap-back rallies from an oversold condition……and that’s exactly what we got yesterday.  I have been trimming shorts in anticipation of this with the notion to put them back out at higher levels.   Some of you have asked why if I was worried about a snap-back did I not cover all my shorts and just get long and there is a fairly simple answer; I think this is just a temporary bounce and the nature of my positioning, overwhelmingly options spreads, gives me some time to ride out a few day rally without all the slippage of covering, getting long and then selling longs and shorts again…..

Yesterday’s rally was broad-based with almost every sector participating.  As I noted throughout the day yesterday on Quick Hits, the only sub-sector in the S&P not to join the party was the Banks, which is a little odd because in some way the short-term bottom they put in on Friday sparked the snap-back……in some ways it makes sense when you consider the fact that as the rally broadens a little, some of that money that found its way into banks Friday and Monday is looking for new oversold opportunities.

I started to pick at a few names from the long side yesterday, JNPR and CSCO, and added small to my RIMM June Call Spread.  JNPR is very oversold since management spoke at ML tech conference on May 31, and I think the stock could retrace 5 or so % in the next few days if the market were able to stabilize and rally into Friday’s expiration.  I bought the June 31 calls for .16, defining my risk…..CSCO is a slightly different story and probably a bit longer term play, the stock is severely oversold and I have to assume this name is activist bait much like MSFT was……the second have of this year we are likely to see a big move by activists in large cap tech, especially as social media tech IPOs highlight the innovation and entrepreneurship that was once a staple of the last tech boom but now is lost in these ol’ timey tech stocks.

RIMM is just an all out disaster with what appears to be little end in sight for the selling pressure…..But taking a closer look at BBY‘s results and guidance may hold the key for how RIMM will act tomorrow after they report……BBY left guidance for the full year intact and actually displayed confidence in their ability to hit it. While I think that is very unlikely and that they probably reduce that guidance at some point before the holiday season, RIMM could say something similar and cause shorts to cover.  The stock is extremely oversold, and if the company pulls anything to try to prop the stock up; ie management changes, stock buy-back, hint at taking the company private, change operating system to Android, partner with MSFT to offset costs or merely explore “strategic alternatives,” the stock will surely be back above $40 near term.

JCP hired away Ron Johnson, AAPL‘s former retail head for the last 10 years to be their new CEO and saw its stock rally 17% on massive volume……wow, this one will take a little while to figure out and I am not sure JCP will be able to hold these gains in anticipation of Johnson’s Nov. 1st start date and the time it will take to make any meaning-full changes.  Clearly a great hire for JCP and a loss for AAPL.  As it relates to AAPL the biggest issue is the potential for more high level defections at a time where Steve Jobs’ future with the company is very uncertain.  Any time there is a large cap tech CEO opening, Tim Cook, AAPL’s COO and acting CEO while Jobs is on medical leave, name is always top of the list.  While Cook is unlikely to leave as he will most likely be permanent CEO some day soon, there are plenty other long time Jobs lieutenants that could depart making execution in the post Jobs era much more challenging……I wouldn’t sell AAPL on this but something to watch.

As for the markets they have to hold a good part of yesterday’s gains in order to avoid a quick meltdown to 1250…A close below 1271-ish (Friday and Monday’s closing range) would clearly signal that the rally is over and watch out below…..If you are picking at some longs keep tight stops and in volatile names define your risk….this thing could turn on a dime….trying not to be too negative as I was waiting for a bounce, but with the S&P futures down 6 points pre-opening on Greek debt fears we are back to more of the same….we also have our share of economic data to come with inflation data today and jobs and housing data tomorrow….any really bad data could have us back towards last week’s lows in a quick…..stay nimble and don’t be afraid of being in cash.