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Getting longer on tech weakness
By Cody Willard 3/16/2006
From day one of 2006, I've been pounding the table about how bullish I am for technology stocks this year. But that doesn't mean I expect the Nasdaq to go straight up to 2,500, and therefore I have tried, and will continue trying, to remain opportunistic and careful throughout the year.
That means there will be times, such as when the Nasdaq hit 2,320 and I wrote that "I'm now officially a seller and short-hedger on strength," that I'll rein in my overall aggressively long stance by adding some short hedges and/or selling some of my longs.
Last week, I became an aggressive buyer as well as short coverer, on weakness. And on March 8, I covered about 90% of my Nasdaq-100 Trust (QQQQ, news, msgs) short, and earlier last week I'd covered about one-third of my Semiconductor HOLDRs (SMH, news, msgs) short.
All that said, the real action has been in my specific long stocks, so let's jump in and highlight some moves I've recently made.
I covered the last of my SanDisk (SNDK, news, msgs) common short hedge against my calls on March 8, and now am fully exposed to the long side only in this name. I'd put most of the short common position on at much higher levels and because I had many calls of different strike prices that at the time were fully in the money, that setup created what's called "positive gamma," meaning that I'd end up longer as the stock goes higher, and I'd end up less long as the stock fell. Well, the stock fell and fell hard, passing my $70, $65 and $60 calls.
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The value of those calls didn't fall as fast as the stock did, and that's where the concept of positive gamma comes from. For the record, I also own some $55s. Most of those calls will be expiring in the next month or so, and I plan on exercising any that are in the money and letting the others expire worthless. I don't expect SanDisk will be a highflier in the first half of this year, but the company could pop into the second half as its aggressive price-cutting strategy would then work out in a huge second half as it did in 2005.
I've been a buyer of Palm (PALM, news, msgs) lately, as I think Research In Motion (RIMM, news, msgs) has opened up a Pandora's box of competitive threat and Palm is the biggest beneficiary of RIM's mistakes in fighting the NTP litigation for so long. RIM told analysts on a recent call that it hasn't yet seen any major migrations away as a result of the litigation. Those migrations are coming though. And I've gone from being long RIM (sold just a day or two too early and missed that big 15% pop, I might add), to shorting the stock after the settlement hit.
I've been a buyer of Motorola (MOT, news, msgs) lately too, as the company told investors at a recent conference that it still can't keep up with demand for the supposedly "aging" Razr phone. The big risk with this stock is that Apple's (AAPL, news, msgs) going to be rolling out a new phone at some point this year, and Motorola will rightly get hit the day that news comes out. I don't expect an Apple phone announcement for at least another few months though, and I think this stock will run to new highs in the meantime.
I've been scaling into Micron Technology (MU, news, msgs) lately too. The company seems to be hitting on all cylinders and its core business of selling DRAM chips is likely rather strong right now, as many of its competitors are focusing their efforts on other types of storage like NAND. Micron's also seeing its digital camera component business boom. By the way, its intent to acquire NAND supplier Lexar Media (LEXR, news, msgs) is a smart move and is actually a big positive for SanDisk, too, as Micron will help legitimize that market.
I also recently wrote about a few single-digit Tech Specs that I'm expecting to see momentum shift into. I'm continuing to hold Brocade Communications Systems (BRCD, news, msgs) and Sonus Networks (SONS, news, msgs). Both have moved up a little bit, but I'm expecting a move of 15%-30% or so if the momentum investors pile in. I noted on March 8 that I'd bought more TiVo (TIVO, news, msgs) before its earnings call. The stock popped about 8% since I put that trade on, and I sold that part of the trade. I am still holding some though in expectation of a 15% move higher as the momos flock to this name. I want to reiterate that these are decidedly not investments and are short-term, highly speculative trades.
As for Apple and Google (GOOG, news, msgs)? Holding them steady.
By Cody Willard, TheStreet.com
Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney. He also produces a premium product for TheStreet.com called The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns. None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person.
© 2006 TheStreet.com, All Rights Reserved.
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