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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status |
|---|---|---|---|---|---|---|
| HAR | Consumer Electronics | 60.41% | n/a | 2 | 13-Oct-08 | Prior Holding |
18-Aug-08
Playing a Stronger Dollar
Holding Rationale for HAR.
As I noted in recent post on Harman International Industries (HAR), the U.S. dollar has been on a roll as of late. Here's a 3 month daily chart of the PowerShares DB US Dollar Bullish Fund (UUP), which is based on the Deutsche Bank Long US Dollar Index (USDX®) Futures Index:
The dollar's weakness appears to be part of a rotation out of a crowded short dollar and long energy trade, and I believe it will continue near-term. For now, my preferred way to play the dollar's strength, particularly against the Euro, is to remain short Harman. I believe this trade is a layup because the stronger dollar is simply frosting on top of already-weakening fundamentals.
However, I thought I'd lay out two others trades I'm considering taking:
I noticed the implied volatility on UUP call options is pretty low and thus premiums are pretty low. So I'm taking a look at a small long play on the September $22.50's. Given the tiny premium, a 5% to 10% run in the dollar could result in some nice gains here. However, keep in mind that like all unhedged options positions, the downside risk here is 100%, so I'm in no rush to get into this one.
The second trade I'm considering is shorting some of the major cyclical stocks like Caterpillar (CAT), or even buying puts on the Morgan Stanley Cyclical Index (CYC). The U.S. economy is obviously slowing, and with credit availability remaining tight, it will take a toll on domestic commercial contruction activity. And with the dollar moving up, the value of overseas growth will diminish. Therefore, these seemingly cheap stocks could tank as a major earnings tailwind (the weak dollar) disappears.
And finally, I'm becoming very tempted to short VMWare (VMW), especially with its recent run over $40. This is a high multiple stock which is sliding down the slippery slope of declining analyst estimates, and with 47% of sales coming from overseas, VMW could be forced to trim its guidance again because of slower overseas growth. At the same time, Microsoft (MSFT) is aggressively targeting the virtualization space, and while MSFT is unlikely to topple the competition on a technology level, they can offer low prices and slow down VMW's sales cycles.
As always, I'll update my blog after making any trades.
Posted at 07:36 in Holding Rationales | Permalink | Comments () | Top
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