This Is No Bubble

 | Aug 14, 2014 | 12:00 PM EDT  | Comments
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Stock quotes in this article:

jcp

,

extr

I still hear the word "bubble" quite a bit. Brian Lund (@bclund) on Twitter this morning quipped that anyone who traded in the '90s would never call this a bubble. I wholeheartedly agree with him. 

Back in the very late '90s, I don't think it would be an overstatement to call trading insane. Seeing the Nasdaq, as an index, move 3% or 4% in a single day felt more like than norm than a crazy event. Seeing stocks double over a period of weeks or even days was more common than one might think, especially if they were in the right area. We all know about the dot-com names and their crazy IPOs, but people forget about other areas, such as networking or gene-mapping.

I recall chasing stocks simply because they had gene-mapping or the word "gene" in the company name or profile. The harder it was to find the word, the more likely it had not already soared to new heights. It was a steal! This was value-hunting at its absolute lowest point in history. There were clients who refused to sell a 50% move over just a few weeks, because they were worried about missing another 100% or 200% to the upside. Think about that for a moment.

Copper Mountain was one of my favorite names to trade. If I recall, the company focused on DSL delivery to apartment buildings. It was competing against many other names, one of which, Extreme Networks (EXTR) is still in business today. Copper Mountain, which traded under the ticker CMTN back then, soared from the teens to almost triple digits. My client did not want to sell ... any ... even as insiders were selling in the $90s. And then the fall began. By October 2000, after a dismal earnings forecast, the stock passed through the teens to the downside as it headed to single digits. It wasn't alone. Many stocks followed this path. Some are still in play today, but many more are just wallpaper. 

Don't be too quick to label a bullish and overbought market as a bubble. That doesn't mean we can't have pullbacks or corrections, but calling this a bubble is like ordering a Diet Coke rather than a Coke with your double quarter pounder meal from McDonald's and calling it "watching what you eat."

On to earnings and J.C. Penney (JCP), I have to say I expected a little more play on this one. The only position I like into earnings is a small lottery ticket on an unbalanced butterfly here on the call side. I'm willing to risk $0.20 to $0.21 to grab an August $9.5-$10.50-$11 call butterfly in a long 1-by-short-3-by-long-2 format. I could also see rolling the dice on a more typical $9.5-$10-$10.5 butterfly, but if this gets over $10, buyers could get excited and easily push this one another 5%. I am simply playing the average close of the last four earnings reports.

Columnist Conversations

Just some resistance to be aware of. Not saying it will cap the market, just that it is there for a decision....
Shares of Amazon (AMZN) are trading down below the 50% retracement level of their 2014 range in the after-hour...
Conclusion LNKD has a strong upward trend in revenue, has maintained very high gross margin % even as revenues...
Kass:
On the weaker than expected #s. From $143 to $106.

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