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This Is Why I Don’t Short Financial Companies Like Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE)

Posted by timothysykes on Sun 13th of Jul, 2008 09:28:57 PM
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I’ve said it once, I’ve said a million times–PennyStocking deals with pump and dumps, frauds, little crappy companies….not real companies, not financial plays, not commodity plays. Tonight’s news that the US is unveiling a plan to back up FRE and FNM means these two stocks are gonna surge tomorrow morning. It’s why the market futures are surging right now. It means that no matter their falling knife chart pattern (good for shorting on frauds as it means the jig is up and a rebound is unlikely), this huuuuuge fundamental news is waaaay more important.

The other day people emailed me that they were bottom picking these two mammoth companies…they lost. Over the weekend, people emailed saying they’re short…they will lose.

These kinds of news-based plays are prime examples of why 90% of traders lose money. Scalping is possible but dangerous and time consuming. Longer term bets are even ore dangerous. It comes down to a lack of focus. It’s guessing games. And there’s less predictability…especially overnight or over the weekend.

Stick with PennyStocking because it’s good. Stick with it cuz its patterns are predictable. Stick with it cuz it’s not news-based. Stick with it cuz it’s just easier.

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  • Tim,

    That agrees with something I have always thought/seen

    great news can trump charts

    should be a wild week
  • AdamN
    Wow, glad I stayed disciplined on Friday and stayed out of a VEEEEEERRRRY tempting play on FRE to short. As a pennystocking student, I decided it best to stick to microcraps and let the big boys handle the likes of FRE and FNM. No place for a newb like me, hopefully soon I can be in that other tiny niche we seldom talk about, that is the 10% that ARE actually making money.
  • Adam
    I cannt imagine why anyone would have shorted those over the weekend, FRE and FNM nearly made back all of their pre market loses in one trading session. ~50% come back in one day should be a clear indicator that these things are going to keep going up. FRE @ 3.xx please, their debt is tied to tangibles in the trillions
  • The Chad
    Is this a guaranteed plan by the Gov - if it is, could it be a good play? .

    http://apnews.myway.com/article/20080713/D91T7R...
  • The Chad
    Even more of a reason? This almost sounds like you are buying a tax lien, if you pick up shares...

    Fed offers to lend to mortgage companies, Treasury plans possible equity investment.
    http://apnews.myway.com/article/20080713/D91T7V...

    A new American reality: The government as provider
    http://www.iht.com/articles/2008/07/13/business...

    Statement from Paulson...
    http://www.bloomberg.com/apps/news?pid=20601087...
  • Jorge
    You can have this argument both ways.

    At the "Green On The Screen" chat room we all had fun playing into the momentum of these stocks.

    I remember a guy just playing it with market orders cause the vol was so high he always got in at a good price and played it both ways the whole day making a lot of money.

    Sure, FRE in hind sight would have been a shorting disaster, if you would have tried to predict it before the market opened.

    Otherwise the volatility and huge volume made it very fun to make $$$ on.

    Jorge
  • The Chad
    Good point Jorge... I'll prob pick some shares, simply because it really can't fail - at least not as quick as it probably would have, before the Federal Government stepped in...
  • yes but if u have a small account, the low odds make it not worthwhile, especially since u're limited in how many trades u make aka u scalp too much and you're forced to hold overnight and risk a disaster like this either way
  • The Chad
    Good point Tim... What action, if any are you going to take?
  • Steven
    He just told you: NONE.

    This is a news driven guessing game and when you're subject to Pattern Day Trading Rules, you unfortunately only have 3 chances a week to get in and out of a position.
  • Fantom
    True Tim,

    This why your the teacher and I'm the student, and I'm short FNM, shit!

    How long do you guys think IDAE will run up?
  • Steven
    You better dump that early...man, talk about a short squeeze.

    As for IDAE, look at the chart. That's a multi-day, possible multi-week runner. It's a perfect breakout. As Tim said, $3-4 should be easy on this one. The fact that the stock has few shareholders/few sellers means it could absolutely skyrocket on any piece of good news this company releases.
  • Fantom
    Dumpin man, dumpin
  • surge on the news and squeeze the fuck out of the shorts, today should be a good day
  • oops
    Guess not.
  • Brian
    Well, it looks like topping 9.80 only gave the short sellers a larger profit margin today on FRE.
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Date Stock Buy Sell Net
Nov 19 AENY $2.80 $3.02 $1148
Nov 18 NLST $4.16 $4.40 $947
Nov 18 IMGG $1.42 $1.64 $2094
Nov 17 NLST $5.04 $5.59 $2195
Nov 13 VRMLQ $21.50 $22.97 $2901
Nov 11 EONC $2.61 $2.80 $687
Nov 10 EONC $2.74 $3.36 $9784
Nov 6 QXM $4.31 $4.80 $1936
Nov 4 COT $8.66 $8.88 $642
Nov 4 QXM $4.61 $4.89 $822
Oct 30 DDRX $25.70 $26.53 $812
Oct 29 CTDC $4.00 $4.42 $781
Oct 26 AWSL $3.24 $4.10 $2516
Oct 23 RODM $5.27 $5.23 $301
Oct 22 AMLM $2.69 $2.97 $820
Oct 22 USEG $6.12 $6.09 $85
Oct 20 CBOU $8.93 $9.06 $243
Oct 16 VRMLQ $16.79 $18.65 $2773
Oct 13 YONG $11.05 $11.66 $1202
Oct 13 NPHC $0.59 $0.71 $583
Oct 12 IMGG $0.60 $0.70 $682
Oct 9 ZAGG $5.50 $6.10 $2380
Oct 7 GVBP $0.03 $0.27 $702
Oct 1 NPHC $0.70 $0.85 $1482

Total: $98,094 (681%)