Markets surged today apparently on what appears to be good news on the financial situation in Europe.
CCI looked at this up move not so much as an opportunity to take profits, but more as an opportunity to look to add some short positions to the portfolio. One hedging action take today was to short Lululemon (LULU). They manufacture and sell high-end athletic apparral often associated with yoga. (No, CCI does not own any yoga clothes.) They are "the hot" retail concept opening some 140 retail outlets. The main driver to shorting this stock is their forward p/e of 39 and trailing p/e of 54 which means the stock is kind of priced for perfection. Shorting this stock is not an original idea as short interest was shown as 18.5%. The stock moved up over 7% today and I'd assume some of that move was caused by a short squeeze to those already short. CCI wanted to get some short exposure for the overall portfolio so we shorted just below $57. It is always risky being short as irrationality can continue longer than my patience, but we are hoping either
a). this stock backs down to retrace the large gap in the chart and towards it s moving averages in the short term and we can scalp a few dollars off the trade possible to re-invest in a bearish option strategy on the stock.
b). Holiday sales for this high-end product may not meat expectations causing weakness in the stock be early next year.
Of course, it is also possible that we could just be wrong and become the next victim of the next move up. However, the overall long bias of the portfolio will probably perform very well if the market continues to move straight up, so this trade can be rationalized as an overall hedge. Stay tuned.