Saturday, January 05, 2008

Boil That Dust Speck

It's an unusual weekend for me here.

I've put aside all harpoon sticks, seal clubs, high-powered rubber band rifles and pup-lined chartreuse suits.

I'm studying the market instead.

There are dramatic cross-currents out there and ain't all of them pretty. Personally, in a January market I prefer to dress in ruby red and fire shot after shot of long-side aggression while pencil-geeked technicians clamor over how over-valued everything is.

But that ideal cost me - about three fingers, a complete set of nails and a sore lower back. Whatever whatever, it's not about me. It's about hunting, gathering and making sick amounts of gruel.

There was a terrific shorting opportunity of late. Smothering the weak, reeling, Linton-esq names and sectors out there. The Macy's; the Sally's; the sick in Bed retailers; the Klick and Klack's and Intestinal tracts. I missed a universe of opportunity.

Looking over the grim landscape though I still see powerful charts and healthy/formidable action - albeit in a clear minority of names and sectors. And even though the market has seen the worst first-three-trading-days of a new year since the 1930's, I'm fairly strong in the notion that we're going to bounce and that the leadership names which still look so good on the charts will continue to power...for now.

I got hit Friday, a genuine belly-buster to be sure. But let's be real for just a minute. I've been around the block enough times to know when my head is being handed to me - It's second nature when you've been crushed enough times - you know the taste of it. I knew Joe Kennedy Mr. Quayle. Joe Kennedy was a friend of mine...Senator - this downside is no Joe Kennedy.

Not yet.

We just exited the worst 3-day-open in the market since before Yahtzee and aside from a partial hedge for only two of those days I was down all of 4.2%. If you throw Monday in, I was down an entire 3% for the full week.

Think about that a moment. I know I gave up money and perfectly fabulous opportunities a short-minded, Friend-o killer should relish. Make no mistake about that - I missed. I should be floating in the Caribbean again right now, picking and swallowing whole clams and jellyfish while slathering sun butter on fattening forearms extended from my furry, pup-lined woot suit. Instead I'm having to go to school on Sunday, run multitudes of tests, drip anesthesia, study charts, listen to tones of losers complaining and determine just how the frigging fuck I managed to miss that opp.


But the point of this tirade is that I'm still long and somehow still in the game. I should be dead - hot-pot chicken flesh falling from bones (FYI, I need to mention - when the market is indeed peeling skin off bones, when kettles are molten-hot and Horton heads are piled on platters high - I try to get out of the water. Sometimes though, when you are in the water and it heats up but slowly, you are getting the worst of it before reasonable action is persuaded. That is a bit of how this week went. I was salivating at how, in a still-weak market, the hot-money stocks were holding firm; so given the big-picture reality for the month of January - that it is one of the strongest months seasonally ((for aggressive growth stocks especially)) - that is how the water was allowed to redden my skin before I finally took (((not enough))) action and pulled a couple of limbs outside the kettle).

Obviously, in retrospect, this was a great week to play both ways (long and short) - harpoon the sick and butter the rich. Simple stuff.

Fine fine fine. What we have now is new (detect a smattering of hope in that, eh?). There was a reasonable flush on Friday. Look back at contemporary dozens of flush-days and see how the market behaved immediately following. Sentiment out there is wounded and certain - a beautiful set-up for seeing action go the other way. The prospects for this market may indeed be worsening (of course they are worsening!), but that doesn't mean Rome has to crumble in a day. Look at the leadership stocks. Some of these are wounded and suspect (like an AAPL), but the majority of the strong (smaller) growth stocks which looked good on the charts this time last week continue to look very good on the charts now. This is never the case when a market is truly about to implode/decimate. These names went up on considerably higher volume than they retraced on. Relative strength vs. the S&P has increased notably. They did not break any key support or moving averages (bigger names like AAPL and GOOG aside, since those did give it up; but the smaller and medium aggressive growth stocks are what we are looking at now/January and they are holding).

Leading small and medium aggressive growth names right now still demonstrate the path of least resistance is higher. I'm not going to give up on these until I see them begin to break key support on significant, rising volume. Selling pressure in these stocks remains weak and as soon as the pressure is off the buying will return in droves (near term).

In short, when the market manages a reprieve beginning Monday, the moonshots in the stronger growth stocks will resume and this should carry on for more or less most of the remaining month (longer is possible, but why bother with thoughts like that; one eternity at a time).

If we rip new lows Monday and this type of stock instead begins to go south with urgency - well, it's (over)time to get those reddened flanks the hell out of the pol-pot and chalk another flesh-wound up to experience. 'Cuz baby, when this market is truly ready to rip you apart, if you ride it down you won't be turning on CNBC to hear how bad things are. You'll be too sick and in too many pieces to listen to that.

I'll chime in tomorrow with some sector and chart work. Unless we really are truly breaking down here, getting short is not a good idea at the moment. But the new break-downs on considerable volume out there are worth noting for the (near)future. They can serve us for short ideas, either now if hedging/attacking is still required, or later in the month after the market rallies. Otherwise, a look at what is strongest at this juncture is going to be most relevant. Good eating!

1 comment:

Bozo said...

Gee, I thought you were a contrarian. If you are looking way, way long, of course the market will recover. But short-term, I suspect this breakdown is for real. You might want to consider a couple of shock absorbers for your long positions, e.g., FXP and DUG. China and energy are in serious bubbles.

My own self, the first eleven years of my retirement draws (starting next year) are funded by CDs paying a laddered average of 5.75% APY. Yup, I went heavy into long-term CDs when the rates exploded back in August 2006. Took half off the table from my Vanguard balanced funds and never looked back.

Given the current rate environment and the volatility of the market, that locked-in yield looks pretty good.