Update: Satyam Computers vs. Mahindra Gesco Long/Short Trade
A month ago, I wrote about relative strength analysis within & between sectors - specifically real estate (RE) and information technology (IT). A quick review:
. . . this is a good opportunity to enter a contrarian long/short trade: buy a (relatively strong) IT stock and sell a (relatively weak) real estate stock.
The logic is to short a small or mid-cap RE stock (not DLF or Unitech) since overall market breadth continues to narrow - implying increased preference for large cap stocks . . . As for IT, the idea is to buy the safest (large-cap, relatively strong) stock - again to minimize the risk for a long position
As of today, both positions are in the black (Satyam August Future closed at 478, Mahindra Gesco at 555). Of course, there are more than 3 weeks left until August expiry (30th), and anything’s possible until then.
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