Trading Diary: Investors try to avoid headline risk, pain

Stocks look increasingly ugly as Le Pen, crude oil, North Korea, Obamacare all make “Sell in May” a fine idea. Cliffs Industries does a cliff dive.

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Emmanuel Macron and Marine Le Pen, Round 1 winners in French Presidential Election 2017. (Images via Wikipedia entry on 2017 French Presidential election, Creative Commons licensed, altered by the author to create single graphic image)

WASHINGTON, May 4, 2017 – Short column today. Yours truly has been ailing and missing in action for the last couple of days due to a vexing inner ear issue, which, thankfully, is now on the mend.

As distracting as health issues can be, however, this week’s market action has been even more distressing. Sector and stock trends are suddenly looking muddy indeed. We’ve explored a few of the issues bugging investors right now in today’s companion column. To that list, which includes the French elections (i.e., Marine Le Pen), plummeting crude oil prices and Thursday’s alleged Obamacare repeal and replace vote, we’d add the continuing stand off starring the U.S. vs. North Korea.

Collectively, this is all known as “headline risk,” and we certainly have it in spades as the current investing week nears its conclusion.


Read also: Obamacare replacement bill, French elections bugging stocks



Piling on the often (though not always) true “Sell in May” axiom, and it’s getting increasingly tough to look at the buy side of current trading action. It’s looking more and more like the final markdowns in many stocks have yet to take place as we enter what long time technical traders regard as a long summer of what’s called “negative seasonality.”

In other words, this is a period during which often (though not always), the average stock will tend to lose money for the average investor. That’s why we always hear the phrase “Sell in May and go away.” We’ll see how that works this time. But thus far, this week has been ominous.

Trading Diary

We’ve actually done fairly well in our portfolios recently, save for the ongoing disaster in our large holding of shares in iron ore miner Cliffs Natural Resources* (symbol: CLF). Buying more of these ever-cheaper shares is continuing to be a really bad idea. The stock has plummeted in just a few weeks from $10 or so a share to as low as $6.03 Thursday morning, a sickening drop percentage-wise, even though we’re in there at an average price of $7.49.

If the shares continue to drop, we’ll be forced to peel off a few more shares just to reduce the size of the position in the overall portfolio. But we do this with reluctance, as we think the selling in this issue is misguided and is led more by panic and a few determined bears that are shorting the stock.

In fact, Cliffs has been seriously cleaning up its overleveraged books – the actual reason behind this week’s reported quarterly loss of 11 cents per share. That’s a good thing indeed, as Cliffs’ leverage issue and its disastrous foray into coal mining (now pretty much entirely terminated) have largely been alleviated.

But determined shorting has been killing the stock, which is trading under its book value. Hence, the reason we’re continuing to hold most of our CLF shares. They’ll bounce at some point, though likely not any time soon. And when they do, we could enjoy (and profit from) what might be the most spectacular short squeeze of 2017. In the meantime, we sit on the shares and regret the current direction.

Our small position in Apple (AAPL) got wobbly after that company failed to report their usual earnings “beat” for the quarter. iPhone sales were apparently moderately anemic, particularly in China. That’s the bad news. The good news is that the slightly anemic iPhone sales figures likely accounted for eager buyers holding off until the new iPhone model (iPhone 8?) is released, likely in the September/October time frame.

We’re holding this position for now. And if it finally drops below our purchase price, we think we’ll buy a bit more, given that the next iPhone is going to be the greatest thing to ever happen in the history of the world. Or at least that’s what Apple fans are increasingly believing. If this doesn’t turn out to be the case, however, well, if you hold the stock as we do, you just won’t want to look.

We put in for IPO shares of Liberty Oilfield Services (BDFC), a small domestic oil drilling and exploration company. But we suspect we won’t exercise our option (assuming shares are available), unless it’s deeply discounted.

In our opinion, this is absolutely the wrong time to IPO a company like this in a week when fears of a collapse in the oil industry are on the increase. But if the underwriters decide to discount these shares enough, we could change our minds. Right now, however, that doesn’t look likely.

Otherwise, we’re retaining an increasingly large cash situation. It’s just awfully sloppy out there, and odds of making bad investments in such a trading environment are increasing daily.

*Correction. I have made earlier, erroneous references to this company as “Cliffs Industries.” Personal confusion on my part. Throughout much of its existence, the company was known as “Cleveland-Cliffs,” and, for a time, I actually worked for them as part of the Great Lakes merchant vessel fleet they once ran in order to earn college tuition money. The company changed its name to to “Cliffs Industries” in 2008, and has undergone considerable reorganization since then, although the trade symbol, CLF, has never changed. My old connection with the company has apparently confused the synapses when it involves that name change.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17