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New trade entered - short BBG

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Billabong International - BBG

The trade
Entry: Short $7.05 on 3pm, 11 Mar 09
Initial stop loss: $7.35
Hedge: Long ASX index CFD at 3243, ~2x BBG trade position size

Entry rationale

BBG, a specialty manufacturer and retailer in surf wear and other borad sport equipments, has been battered in the last year. The company's business model is being challenged, as they try to maintain a premium brand positioning against heavy discount by other retailers / manufacturers. BBG products are highly discrectionary, which means they are sensitive to consumer confidence.

Today the consumer confidence survey reported a slight 0.2% fall from previous month to 85.6. This means consumer confidence is still low, although not falling as fast as before. http://business.smh.com.au/business/...0311-8ul5.html

The company reported a profit that met expectation, and is still projecting a 10% rise in EPS for the full year. This seems hard to achieve given the reports coming through in the US about shopping more being deserted - even Westfield malls have had to cut back the openning hours. The management have had good growth track record, but they haven't really experienced a down turn yet.

On the chart, BBG's been surfing around a narrow range in the past month or so. It has bounced off lows of ~$6.1 to $6.2 a few times, but also retreating from highs of $7.1-$7.2.

A 7% jump today on the back of strong US market (driven by financials) provided an opportunity to take a short trade with a close stop loss at $7.35. Initial target is ~$6.5, giving a R:R of 1.8. BBG also goes ex-div on 17 Mar to the tune of $0.27. So the ex-div target is ~$6.2, which were previous support is. A gap lower tomorrow morning will probably see me take 50% profit.

Given the possibility of a strong bear market rally, I am over-hedging this short trade with an index CFD trade. The hedging is done at ~2x the BBG position size, as BBG is more volatile than the market as a whole.
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Updated 11th-March-2009 at 03:44 PM by skc

Trade review , Australian equities


  1. Russtafaerian's Avatar
    Hi SKC,

    I read your posts with interest as am just learning - curious how did this trade go for you?


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