Michael Shulman

The Obama Bounce Trade: Here Today, Gone Tomorrow

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You want to be on the short side -- with the purchase of put options and ETFs, not the actual shorting of stocks. And here is what you should consider right now:

• The banks are broke and getting broker, held aloft by Uncle Sam's greenbacks and the promise of more to come. Check out the UltraShort Financials ProShares (SKF) -- the SKF is an exchange traded fund that goes up 2% every time the Dow Jones Financial Index goes down 1%. It trades like a stock, is very liquid, and if you postpone that trip to Las Vegas, you could gamble and take that poker money and look at calls on the SKF. A 2% drop in the financials can lead to a 4% pop in the ETF and a 50% pop in the calls. While you are having a cup of coffee.
  
  

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• The homebuilders are already hiring lobbyists to get Obama to spend some dough and help people buy new homes. That is funny -- with foreclosures accelerating as they are, and all sorts of other problems, bailing out homebuilders with funky new programs for home buyers is a laughable thought. His probable answer? "Ask not what your country can do for you, it is dead broke."
  
  Here is the dirty little secret -- the homebuilders are getting cash rebates from the IRS based on losses they declare in 2008. Well, that well will soon go dry and once this source of cash dries up, getting new credit lines is going to be harder and eventually one builder will blow up, go bankrupt and the entire sector will be cut in half. Among the dozen or so publicly held homebuilders, look for ones with weak balance sheets, big debts coming due in 2009 and exposure to sunbelt markets.
  
  
• Also look at the cousins of homebuilders -- material suppliers such as Masco (MAS) and Louisiana Pacific (LPX).
  
  
• And, of course, the consumer. Joe the material boy and Jane the material girl are now going frugal. There are a myriad number of choices, but stick with the most discretionary of spending -- restaurants, travel, leisure goods. The Las Vegas casinos have been whacked but may also be ripe for another leg down.

• How to do research? Restaurants are easy -- go eat out and take a tax deduction. I do it all the time -- and have put on 20 pounds since restaurants began to crater. For travel? Check prices for flights and hotels daily on Expedia (EXPE). Speaking of which, online travel sites are also a good place to find short opportunities.

So, don't play momentum or charts or whatever -- the post-election bounce is over. Now it is time for data -- hard data -- and a harder reality.

Want to see my take on playing Obama's first year in office? Check out my story, 7 Trades to Make After Election Day by clicking here.