Monday, March 30, 2009

Warm Plunge?

Signals are mixed today.

The market internals are dreadful, with 88% of NYSE stocks and 81% of Nasdaq stocks so far declining on the session. The major indices are trading more than 3% lower, led by the NYSE; down closer to 4%.

At the same time though, leadership growth stocks are notably resisting pressure; in fact many of the leadership names have reversed higher today, in spite of the ugly tape.

I increased hedges early, scaling into a large percentage of TWM; which positioned my accounts net-short for the day (accounting for TWM and SRS leverage). At the same time I began covering individual shorts on the weakness, letting go of RSH and ELOS and reducing EGO; and soon began adding new leadership long (NFLX, TNDM and DRI so far).

In other words, I am presently hedged, but when the hedges come off I am suddenly going to be aggressively, almost fully long. This might run counter to the idea that I would sell sell and sell on a break-down in the indices, but frankly I am seeing too much continued strength in the leadership and the sell-off today has only further illuminated this reality.

If they cannot sell on a day like today, they are going to jam higher once pressure subsides. I don't have any comment on when pressure will subside, but with breadth this severely negative I would argue the odds of a reversal for the overall market today is significantly low. And don't do anything I am doing, but I am confident that leadership is going to higher-highs in the not-distant future.

So much for my Friday rant...I guess buying a further pullback may not be jumping in front of an eager bear after all. We'll see.

Currently Long (according to size): MYGN, ARST, NFLX, RJI, TSYS, PMCS, MNRO, WNR, SNDA, IOC, LFT, TNDM, DRI

Currently Short (according to size): TWM-long (Russell-2k Dbl-short), SRS-long (US Real Est. Dbl-short), AXA, EGO
(Note: inverse-ETFs TWM and SRS represent being dbl-short the respective indices)

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