RM's occasional market calls...

Quote from trendlover:

Good for you Rearden for the ADT! :) How do you "feel" that? You say you have"feelings" I think is experience.
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While I often give my reasons for entering a trade at "it feels right", and just leave it at that, the ADT short wasn't one of those trades at all!

If you flip back to mid-April, I posted a full accounting of my rationale behind this particular fundamentals-driven trade, right here in this thread. Basically, all of the sudden ADT has some very aggressive competitors moving in on their turf, making their forecasted healthy earnings growth highly questionable. I still think they'll be forced to either cut estimates or announce an earnings miss at some point this year, so you can bet I'll be looking to add size on any bounces.
 
Quote from Rearden Metal:

While I often give my reasons for entering a trade at "it feels right", and just leave it at that, the ADT short wasn't one of those trades at all!

If you flip back to mid-April, I posted a full accounting of my rationale behind this particular fundamentals-driven trade, right here in this thread. Basically, all of the sudden ADT has some very aggressive competitors moving in on their turf, making their forecasted healthy earnings growth highly questionable. I still think they'll be forced to either cut estimates or announce an earnings miss at some point this year, so you can bet I'll be looking to add size on any bounces.
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Yes I understand that. This is why I say "experience" is what make you "feel" something.
So sometimes you explain in the fundamentals, sometimes you "feel" but I think when you "feel" is really experience talking to you.
 
Hi there Rearden Metal,

Thank you for this journal. I've been following a couple of others recently, and while both of more posts and more pages than your journal, neither one of them has come close to the trading activity level found in yours.

Thank you,

Temuco
 
No, thank YOU Temuco!

ADT $40.55 (=current price): This is where I begin to add a <b>little</b> size to my ADT bear positions. No puts yet, but rather I just shorted the July 40 calls (naked) at $1.90.

ADT $41: If it gets here, this is where I add more.

ADT $41.50: If it gets here, I'll add even more.

ADT $43: If it gets here, this is where I start uttering various Islamic terms and other curse words, because I'd seriously rather it didn't bounce this high.
 
Just what ADT needs right now: Yet another big name national competitor moving in on their turf. Good luck hitting those earnings estimates, guys!

http://www.latimes.com/entertainmen...eshield-home-security-20130604,0,656687.story

<b>DirecTV buys LifeShield, joining cable rivals in home-security field</b>

June 4, 2013
DirecTV is getting into the home security business.

The satellite-TV company has acquired LifeShield Home Security, a Langhorne, Pa., company that operates wireless home security systems.

DirecTV is the latest pay-TV distributor to look for new revenue streams in home security. Cable operators Time Warner Cable and Comcast Corp. have also made moves into the home security sector.

DirecTV said it will start marketing LifeShield to customers starting in the first quarter of 2014. Terms of the acquisition were not disclosed.
 
Quote from Rearden Metal:

...ADT $43: If it gets here, this is where I start uttering various Islamic terms and other curse words, because I'd seriously rather it didn't bounce this high.
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it could hit 43 in the blink of an eye.....just sayin
 
I think the thesis is sound but for one thing - takeover risk.

Look at the relative market caps between ADT and some of its new rivals. I believe ADT's brand name and market leading position would make it a very valuable and viable takeover candidate. Not sure if the the market price is currently too high for that or not, and If I remember I know you did mention this risk at some point.

In the security business servicing contracts are basically a commodity and valued at a multiple RMR (recurring monthly revenue). Depending on the quality of the customer they usually go for 30X to 60X RMR. I wonder what the value of all the contracts are on ADT's books.
 
Quote from HurricaneUS:

it could hit 43 in the blink of an eye.....just sayin
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When the idea of shorting ADT first came to me two months ago, the short interest stood at 3% of the float. Posted short interest is updated twice monthly, and every update brings the ADT short % of float to a higher level. We're up to 5.8% now, and I wouldn't be surprised to see 10%+ short interest before this ADT bear move is done.

What I'm saying is that we are now in the sweet spot of the bear trend, where the big short-seller pros are quietly increasing their positions. I've yet to see any of them tout the play to the public, which is a good sign that ADT isn't nearly finished dropping yet. I believe the stock would be hard pressed to rise past $43, as you have plenty of interested short-sellers willing to come in to soak up any extra demand. It could hit $43 in the blink of an eye... but I wouldn't bet on it!
 
RM,

I agree that ADT is a short, with that said...

You shorting too low, the current entry is premature, let price catch up with the 13 MA in the weekly then pull the trigger hard in that area without the need to average down; its nicely trending down, so it should have no trouble making new lows from that area.

Right now the pressure is up and it's going for the means.
 
I agree with Maushi, the current price is too low for shorting this stock. Ever since earnings last came out, ADT has shown that it is capable of making strong pullbacks in its present bear trend, even on days when the S&P 500 was relatively weak. I'd wait until ADT hits 42 before initiating a short position.
 
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