You guys didn’t think I resumed hiatus didja?

Well I didn’t. Fuck that.

Yesterday, Fly mentioned the scrotum indicator, an oft-forgotten measure that is very important in the decision making process.

One has to ask…do my balls agree with this? A lot of money has been made on Wall Street this way.

See, I feel it deep in the heart of my balls that the Focus Media Holding Limited (ADR) [[FMCN]] story is flawed. I’ve outlined the reasons, I’ve even outlined the massive resistance at 26 and again at 30. By the way, it should come as no small surprise that today’s rally in FMCN took it precisely up to 26, but not higher.

I’ve seen the [flawed] story a million times about a particular stocks’s growth and cheapness, only to be left in the dust. A good example is that of old Nutritional Systems. [Please read my other hilarious NTRI ramblings here: Darfur 2: NTRI, NTRI: A Capital Weightloss Plan, and finally NTRI: A Capital [Weight]loss Plan Revisited.]

For the longest time, NTRI was a company with AMAZING growth prospects, a great backstory, and it was cheap on nearly every metric. Oh, and they had a huge short interest the entire time.

Then, they got ass-raped from 70-13 over the process of a year. Why? Why were retail longs, message boarders, even professionals, beguiled by this stock?

Because they missed the fundamental reality, which was that it had a poor business model with decreasing margins and startling increases in customer acquisition costs. Additionally, for the chartists, it was in an unassailable downtrend, marked by the occasional short-squeeze.

Trust me, I lost a small radio flyer full of money on this asshole stock. I cut it loose in the 50s after a devastating loss, assuming I had sold the bottom. I must have rebought and sold it numerous times.  Ultimately, I made the right decision, sparing my scrotum much pain.

I see a corollary with FMCN here. Unassailable downtrend. Misunderstanding around the stock despite “AMAZING growth, a great backstory, and cheap on every metric.” It has a huge short interest. I mean, the stock is 65% off its highs, and yet nearly every analyst out there has a buy rating and a price target 100% higher. If they disappoint again, there is nowhere for these ratings at PTs to go but down.

I added to my puts today in the name.

Here’s the good news for my wallet and temperament.

I’m going to buy calls if it cracks 26 on the upside. Lunacy? No. FMCN is so “cheap” that if they blow out earnings, proving the shorts and I wrong, the company ought to be worth $40 no prob. Also, right now 22-23 is the floor, and I doubt it goes lower than that into earnings. So I guess I’ve turned this into kind of a strangle. My contention, however, is still that it sees the teens and that’s where I stand to make money. The calls will be a hedge, if I ever buy them.

Here’s my final point. There is only ONE company I have ever known to be highly shorted, highly egregious, then all of a sudden it turn it around, bank hard, prov everyone wrong, and catapult higher.

AMZN.

If there are others that come to mind (FWLT 2002-3, NIHD 2003?), please remind me in the comments section, as I’m sure there are, I just can’t remember then/before my time, etc.

I remember shorting AMZN each earnings (3 for 3, woot) making the easiest of easy money. “Oh, AMZN’s reporting soon? Short 400.” It was Pavlovian. Then, one day (thankfully I didn’t short it) it “melted up” 25 points or something on earnings, going from ~40 to ~60. Then 90.

If the bulls are right, FMCN ought to do this as well, rendering my calls highly highly profitable. They are in an Amazon-esque postion. Hated, down, and trodden upon. I think this is a critical report, and if they blow it, they will join so many other once-prominent high-flyers in the teens.

BTW, OT, I unloaded my index calls at 1295, banking a 62% return since yesterday.