Thursday, July 12, 2012

fake rally and semi long term shorting with Technology stocks

1. From my study of technology sector, I find that these stocks are a great oppurtunity for shorting when they are at the top of the IBD list. I mean when these sector stocks on the tops they are bought on the hope of great revenue increase in the future but most of the time this does not happen.

2. Solar sector and the cloud computing sector from last year are a fine examples. These stocks rallied based of expected future revenues and profit. Then the irrational animal spirits take hold and there is a bubble or a rally. This rally cannot sustain unless the company is realy making good money like Amazon or Apple. Only a few technology companies can actually show increased revenue and one can count those companies on tips.

3. the rest of the companies like the FSLR, Clouding technology like Riverbed tecnologies and juniter tec went up and after one quarters time they all slided down atleast half their value.

4. Of course the solar sector has competition from china but the barrier of entry is low for technology companies other than the utility companies like cell phone companies where the barrier of entry is huge.

5. Now coming to the technical analysis this semi shorting strategy is a great way to make money.
One can observe in the charts of Riverbed and Juniter and other promised technology companies is that after reaching the top with sustained rally above the 30 day moving average up to one year, there is a puff off from major investors and one can see huge spikes in at the top for atleast a couple of months. Some stocks do slide fast like NETFLIX . It took just 1 month for NETFLIX  to come down from 300 to 60.

6. One should not be worried about these spikes at the top and not cover the shorts because these spikes are due to a huge number of people buy and selling stocks. But eventually those who made the profits during the rally will slowly book there profits as the promised revenues do not show up with most of these technology companies.

7. Even Biotech companies companies come under this technology bubbles psychology. Right now I shorted PCYC. I will wait for another 4- 6 months to see what happens. I am sure this stock will come down with a number of spike at the top.

8. After more than 3-4 quarter after the stock reaches the top one can see that stock spikes range comes down. This means that there is not this crazy buying and selling hysteria and no one is really interested in this particular technology stock. Then as I see in Juniter technology, RIMM, Nokia, the stock slowly slides down as more and more people are disillusioned by the stock and are moving ahead with other stocks. The long term holders slowly get out of the stock and slowly the stock comes down to lower 20's or 10's  or to single digits if the the EPS goes negative.

9. I have lost great oppurtunies to make money because I could not wait on my shorts. I could not understand this logic of semi long term hold on tech shorts at the tops and the psychology of long range spikes. One should hold these spike even if one is going negative 10-15 percent on the portfolio because in mostly one quarters time one is going to reap uptill 100 percent profit or more.

10. Waiting on the shorts is the KEY.

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