Posted this on NFLX. It applies here as well...
For all of you who have been screwed by the short squeezes, here's a way to end them, once and for all. You are, in all likelihood, unwittingly enabling the institutions to screw you. I suspect most of the folks on this board hold Growth/Tech mutual funds. Those funds are holding these positions and playing the squeeze against you, squeezing for the last few percent before these stocks implode because they are overvalued.
Those of us who believe MOMO stocks are overvalued (they are riding QE2 momentum but risk is about to get structurally re-priced for all stocks with a possible downgrade of US Treasuries, even if we don't default) can get out at the top and end the short squeeze at the same time. Liquidate your Tech/Growth funds. Get out at the top, even if the Fund managers are being negligent and trying to squeeze the last 5% in something that is already 2X its rational valuation. Not only will you protect yourself against the re-pricing of risk and get out of your mutual funds at the top, but you will neuter the short squeeze. If the Fund managers were not taking unnecessary risk, they would be selling into these squeeze attempts. Protect your friends and family and get them out. The fund managers can explain to everyone else afterward why they were buying rather than selling at the top...
Good luck to all. I am long only AAPL, GOOG, and NSPH. In 70% cash at this point.
There is no 1 absolute point in time and certain trigger. It is a risk/return distribution. As we move closer to the August 2nd deadline, the probability of a material adverse event increases dramatically. We continue to see domestic weakness (400K+ continuing claims for unemployment benefits), Europe continues to struggle with sovereign debt (add Italy to the mix) and everyone knows the stress tests on the banks were crap.
I've made clear I'm not looking for it to happen in a day and I am not SHORT. I have puts. If it rises a lot, I will mark to the money or extend maturities depending on how this plays out. Having said that, I think there is a very high probability that the fast money in this stock will use the stress of the potential default to rock this thing lower than anyone can imagine right now. I may be a pessimist, but the Tea Party R's have every incentive to go to the brink. If they are going to compromise, they will get killed if they don't do it under extraordinary circumstances. So, while I think it will probably work out, I assign a high probability that it will go to the wire and be extraordinarily stressful for the country. Furthermore, in the Senate, some R's will likely have to break ranks to overcome filibuster from the Tea Party Senators. Easier said than done.
The Tea Party folks have good intentions. They truly believe that cutting spending is more important than raising the debt ceiling and they truly believe that having a technical default will not hurt the U.S. I disagree vehemently that it would not hurt us, but I think they will hold the line and it will get really ugly.
Even if all of that is wrong, you will see that all MOMO stocks selloff on this quarter's earnings. The institutions holding LULU will see it too. They will start preparing for the future selloff.
But why is it that they should be selling now as opposed to 2 months ago or. 2 months in the future. Yes they have to move out at some point but there is no reason they have to do it now. Your argument is valid, but I don't believe you have a good basis for saying it has to happen now or is already happening.
A few predictions:
1) NFLX will gap down and have a rough day. Hedgies bought aggressively at COB to get the 275 Puts on the cheap. They will sell those shares pre-market (especially if there is bad macro news) and gap it down, putting those puts deeper into the money.
2) Apple will either gap up or start down and then reverse. It will squeeze tomorrow because everyone thinks that Apple always sells off after earnings and it has held it ground. Hedgies have been shorting and buying OOM calls. They'll push it a little farther and then make a killing.
3) LULU will continue a gradual slide (with some up days) as the Fund managers do the right thing and take profits. Eager retail will continue to buy and roughly hold the price. Eventually, hedgies will decide the downside risk of holding the long position is too great and will get out and make money on the downtrend.
Fair enough. As I said, you have the luxury of liquidating without moving the market. The big boys don't. And, they have a fiduciary duty to those whose assets they manage. If they aren't selling at this point, they are derelict in their duty. I think that means this slowly falls. I don't expect a big move until the hedgies realize that the large holders are being responsible and disciplined. That will be at the end of the month. For now, it will fall gradually as the SMART money managers sell into the strength and squeeze attempts.
The problem is that the argument you make now was true before and LULU is still priced over 120. Yes a sell off will happen eventually but again there is nothing to suggest that it is happening now and that this stock is done growing. Bottom line, do you think LULU has reached it's peak and will fall from the point it is at today? It is a very simple question each investor needs to ask themselves. My crystal ball says no so I'll stick with my 65's.
Don't waste your breath on greedy people.
They're up 50% and still want the last penny!
Remember Housing bubble ?
Everybody was making money then, what happened to people flipping houses and getting stuck with houses that can not be sold now? Banks that are holding under-water mortgages now??
Remember "Be fearful when everybody is greedy, and be greedy when people are fearful".
Pigs get slaughtered.
Nope. The hedgies are going to make money on the shorts driving it up this high and on all the complacent longs assuming it will go higher.
You all might be right. I might be wrong. All I know is I am literally up 600% on my entire portfolio since March 2009 by playing the disconnect between the fundamentals and the technicals, driven largely by hedgies picking on weak retail shorts and longs. I hope it works out well for all of you and for me. I'm here until is does turn. Just made another $15K on NFLX today which I will use to maintain my position here into the future if necessary.
FWIW, I predict that Apple will squeeze tomorrow and go up, that they end of the day drop is hedgies scaring out weak retail and buying the weekly calls. It will gap up in the AM or start down and reverse.
I've learned the psychology of these folks. I understand their game and now I can profit on it.
They are not leaving money on the table. You can get in and out of 1K or 10K positions quickly and easily. Someone with 1MM shares cannot. If they dump all at once, it tanks. So, they have to get out gradually. Riding it to the point of reversal isn't leaving money on the table, it's maximizing return. If you start selling once the downtrend is in place, it will do down a LOT faster and ASP will be lower.
It may not be intuitive, but it is true.
If I hadn't been reading the same stuff since last October I might agree. All the logic points to LULU going down but the worst pullback I've suffered as a long this past year was the 15% one back at the end of May. The hedgies are going to continue to chase the outperformers until they stop outperforming.
I think this stock sees over 70 at least so I'm staying in although I appreciate your sentiments. I understand institutions will need to get out but i don't think this stock has lost komentum and they're not going to leave money on the table.