Trading Diary: Freaky Friday leads to stock portfolio moves

We reverse field on Cliffs Natural Resources (CLF) and take advantage (we hope) of Home Depot’s Amazon-induced dive off the appliance cliff.

Lindsay Lohan and Jamie Lee Curtis inadvertently swap souls and personalities in the 2003 remake of the 1976 Disney Classic "Freaky Friday." (Screen capture from promo video.)

WASHINGTON, July 21, 2017 – One of the problems small investors have when trading the market is those gobsmacking surprises that happen to their portfolio holdings when they least expect it.

Two such surprises greeted our own portfolios both Thursday and this morning. Here’s how we dealt with them.

Trading Diary:

In yesterday’s column, we noted we were comfortable holding on to our still-large but now-positive position in U.S. iron ore mining giant Cliffs Natural Resources (symbol: CLF).

But, no sooner had we posted that piece, noting that a great short-squeeze appeared to be underway in this badly-damaged, badly-oversold issue, than the stock started to experience significant weakness.

Having experienced the extraordinary volatility of this issue many times before, when we saw that the relentless selling that began yesterday was continuing today (albeit on low volume), we simply decided to bail and take the 17 percent profit on our remaining shares.

Don’t be impressed with that gain. We aren’t. That’s because we backed out of part of this position for a loss that mostly offset today’s gains. This maneuver leaves us more or less whole on the original transaction, to be sure. But we were nevertheless punished for our poor timing on this one. It happens.

Cliffs’ Q2 earnings report are scheduled to be posted next week. But with still no word forthcoming as to whether or not the Trump administration plans to slap long-threatened tariffs on the Chinese for dumping their underpriced steel on American markets, we began to worry.

It was starting to look likely that even decent or slightly better-than-average Q2 earnings might not provide enough juice to get this stock up to the $8 or $9 dollar range at least two investment firms’ analysts claim can be reached.

So we quickly shifted our strategy and decided to take everything off the table for that decent 17 percent profit. During the summer doldrums, it’s often best to take what you can get.

We did the same thing Thursday afternoon with our remaining shares of vulture capitalist firm Blackstone Group (BX). We’ve been able to sell this position over time in 100 share lots, averaging at least 15 percent gains while collecting a swell but variable dividend. When yesterday’s dividend announcement turned out to be surprisingly under-par, we decided to bail from the remaining position.

With both Cliffs and Blackstone, we may actually return if the market as a whole really decides to correct over the next 90 days or so. BX in particular remains vigorous if erratic, and even Cliffs is looking sunny in spite of that huge remaining short position hanging over head.

But with double digit profits in both stocks, it just seemed more prudent to accrue more and more cash as we took those profits. We just don’t trust what’s going on in the markets right now, and raking in profits is a truly positive way to head off to the sidelines for awhile.

On other fronts, just when we were starting to get excited again, our shares in ON Semiconductor (ON) are taking a roughly 3.5 percentage point beating today, currently trading down over 50 cents to stand at $15.21 per share. Analysts have been dissing the stock lately, although we see no reason to laugh at it’s current and likely next-quarter numbers.

Even so, tech has been soaring ridiculously lately. So should we take the measly 2.5 percent gain we’d have if we dumped our position today? Or should we endure another unpleasant but not fatal decline in these shares looking toward more robust future earnings? Who knows? We certainly don’t.

In another area entirely, noting the disastrous performance in companies associated with the retail sales of major appliances, aka “consumer durables,” after the joint Amazon-Sears announcement that Kenmore appliances would be offered for sale on Amazon’s increasingly ubiquitous retail website, we picked up a few of Home Depot’s (HD’s) badly nicked shares this morning and may buy more if they continue to go down.

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Home Depot is a great retailer, but appliance sales are only a modest part of all sales at this tradesman / do-it-yourself giant hardware store. Ditto Lowes (LOW), which also took a hit. Amazon will certainly give Home Depot a few paper cuts on the bottom line, and that’s for sure. But HD has been on a bubble-like roll lately, so the chance to buy these suddenly-discounted shares was simply too tempting to avoid.

If the market actually corrects soon, we figure that HD has already undergone much of that correction. So we’re in for a few shares of this expensive holding (currently $146.80 per share, give or take.) If we picked the wrong bottom in these shares, we’ll certainly have time to buy some more on the way down, given our increasing cash position.

That’s likely it for today. We’re going to sign off now and with you all a happy and safe summer weekend.

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