Bookkeeping: Closing CME Group (CME) and Alliance Data Systems (ADS)

Submitted By Trader Mark
I am tidying up the portfolio as we have too many positions for this type of market where flipping ETFs every 48-72 hours is all that matters - I am going to close 2 of our smallest positions, CME Group (m/quote/CME">CME) and Alliance Data Systems (ADS)

At this point, as 0.1% stakes in the portfolio, if these positions gained 40% from here it would have no impact to the portfolio so no reason to continue holding. I don't really have conviction to add to them, since on a continued market rally I'd rather buy other merchandise first.

CME Group (CME) was restarted on the October 10th flush down low in the $360s - bad trade! Ironic, considering Oct 10th was a market low (up until last week) - right timing, wrong stock. Thankfully the stock had a quick bounce and I took some of a 3.3% stake immediately off the table in the $390s so we had a smaller position within a few days. I don't have the ability to put in stop losses, but the stock was above the 50 day moving average at the time - once it sliced below it ($360) on the 17th it fell $140 straight points down to $220. Ouch. This is why you need stop losses in this market - it really bugs me not to have them. After a rally to $320 to early November (we took quite a bit of the position off in the $290-$300 range), the stock has been cut in half again to $160. Terrible. It's now bounced to $210 so I'm taking my marbles and going home. Thankfully we cut back this position a lot during the bounces or this would of been a disaster. I thought the upcoming clearinghouse for Credit Default Swaps would help this stock but I guess my thesis here was dead wrong. We only had a 0.1% stake left and are booking a $9K loss. Considering the chart below - it would of been a horrific loss if not for trading in between since the stock is down over 40% since we entered. So we're ending our relationship - CME treated us much better in 2007. I'm not saying it cannot rally - could get to $275 in a heartbeat but we don't have enough skin in the game for it to matter.

Alliance Data Systems (ADS) was bought for reasons to have some "yin" to our typical "yang" [Aug 29: Starting New Position: Alliance Data Systems] - this is supposed to be a boring type of stock which would be helped by an ENORMOUS buyback; about a third of shares at the time and even more now considering the stock has sold off. But in this market even finding companies trading at cash or below, or buying back 15-20-25-33% of their shares has not helped. It is quite amazing :) Selling is relentless no matter what. I still agree with my original thesis in this name, but the market does not care so we're going to get out of our remaining 0.1% stake near $43 with a manageable $2K loss, since we were able to trade this name for a few gains along the way, offset by this last leg down. We also made an excellent technical call to short this for a one day 13% gain but since we cannot short individual names in Marketocracy, we did not profit from it [Sep 18: A Short Opportunity In One of Our Holdings] Again, there is probably some more upside to upper $40s or $50s but with such a small stake I won't partake in terms of portfolio gain.

When fundamentals matter again, this type of stock should do well - this is more of a long term buy and hold type of stock, in a traders market. As they retire more shares their earnings per share should continue to increase, and I still think this is company appears to be setting themselves up to be sold; however no one is buying in this world - more deals are falling apart than being formed. Ironically Alliance Data was the victim of a broken deal in it's own past. This now trades at under 10x December's earnings...

We've now jettisoned 4 positions this week, making it easier to keep an eye on what remains. Generally we want to have fewer positions but bigger stakes so we can profit if our theories are correct. But frankly in this market owning 4 ETFs is really all that is needed. Individual stocks are for old fashioned types who still read earnings reports and do homework...

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