New Leadership (AVAV Breaking out)

Been quiet here lately as far as posting, but still playing the Obama Bid - hopefully all the way to the inauguration. If we see something funny at year end, or if we start straight down on Jan. 2, then I am bailing out or getting short (one or both).

Anyway, there are live stocks out there right now. There were some great bounce-trades lately, but at this stage of the retracement I prefer new leadership without significant overhead resistance.

Here is the updated Hit-List. I don't have time to categorize the industry groups, but none of these are from low-ranking groups.

AVAV (breaking out on strong, rising volume today)
DLTR
THOR
MYGN
AMGN
CEPH
ALGT
SXCI (very thin)
EMS (thin)
LOPE (thin, ipo, but trying to hold this thing at least to year-end)

The Obama Bid

Whether they planned it this way or not, the Obama administration displayed remarkable market savvy on Friday.

First, in leaking they were working behind the scenes on a plan to stimulate the economy come January 20th (something we're seeing news on this weekend), and then the market-timing of the announcement of Tim Geithner as the new treasury secretary.

The Geithner news was floated following a terrific flush into lower-low territory for the market, but not until things had already begun to stabilize...and then, right into the last hour of trading.

How can we be sure the market was stabilizing? Well, think of it this way: The latest death-spiral Financial, this time the titanic Citigroup (Piggy), was crashing further into oblivion Friday with the dreaded weekend and the promise of equity euthanasia at hand (Kill Piggy). And yet the market indices were basically flat at worst, before the treasury secretary news sparked a late, 500 Dow-point surge higher.

If the market cannot manage further grim while a former-darling Financial is being pursed for the reaper - then I would say the market was ready to rally.

I definitely had a rocky week, but I was market-neutral or net-short 75% of the time, utilizing Ultrashorts SDS and/or TWM as hedges. On Friday I removed hedges no less than 4 occasions, each time the market began to re-reverse positive on the day. On the last occasion I dumped hedges at-the-market the moment the Geithner news was uttered. At this writing, I am exposed to many of the longs listed below.

The shorts have had it very easy lately, but bear-market rallies have a tendency to get medieval on the shorts, insuring it is not only the longs who are marauded (this is an equal opportunity unemployer). The market has had a substantive flush (understatement), the new administration is now at the helm and we're heading into the strongest seasonal period of the year. If we undercut lows again, I will adjust, eat crow and retreat with maximum cowardice. In the meantime I'll argue strongly that the retracement period for the market has begun; that the upside of this retracement will be the strongest for quite some time; and while there will be dips along the way, that trend will remain in tact until the inauguration January 20th.

Buy the future Obama rescue - sell the fact.

The following is my current Woolen Woot Suit of Longs which I am trading around and largely long at this writing. With the exception of the Golds, all of the groups are currently highly ranked in terms of relative strength. The Golds are only middle-ranked, but they are climbing in ranking and you'll see major volume in the breakout rally of that group on Friday...



Airlines:
ALGT (thin)
UAUA
RJET

Commercial Schools:
APOL
COCO
CPLA (thin)

Biotech/Biomedical Svcs:
AMGN
GXDX (thin)
MYGN
GENZ

Commercial Svcs/Healthcare:
HMSY (thin)

Commercial Security/Safety:
EMS (thin)
ASEI (thin)

Retail:
DLTR
WMT

Military-Systems/Aerospace:
AXYS
AVAV
ISYS

Metal Ores-Gold/Silver:
GDX (Miners ETF)
NEM
ABX
GOLD
RGLD

Bend it Like Bedlam

Brutal.

Let's look at today. While volume was far from extreme, declining stocks bested advancing stocks on the NYSE by more than 11-1; Down-volume traded on the Nasdaq was an overwhelming 98%; the early CPI report highlighted a rising surge in deflating prices; not good. The Financials swooned another 10% as bellwether Citigroup choked on its own bile; the commercial real-estate woes came crashing homeward; Insurers continued their death spiral; the US auto sector...forget I mentioned it; Transports were down >8% as the supply chain there braces for a possible fail3er; GM's bonds are trading at 15 cents on the dollar; a single Nasdaq 100 stock was up 3 cents today (CA), while the 99 remaining Yahoo's declined; The S&P 500 posted 492 declines; grim.

Must be time to cover; must be time to buy.

But timing is everything. I don't know if we're going to breach 7800 and reverse immediately, or cough-up another 600, 800 or 1800 points in a couple of days before beginning a retracement. The only thing I feel confident of is that time-wise, we are close to beginning the retracement period. The levels will be what they will be; and again, that first retracement rally from the lows is going to be the best and most significant, assuming this market plays out like crashes of the past. Why? Because it will commence from the extreme-high in implied volatility (VIX, VXN), and the oscillations are at their most violent at the onset of the first trough. Thus, even if we're not going to see any economic recovery for quite some time, the upside of the initial retracement bounce won't realize this as it drives 20, 30, 40 or 50%. It will have plenty of time to drift into oblivion then later.

Of course, there is no rush to be early, no need to peg the exact bottom and no comfort yet should the Dow fail to break 7800 on this 48th re-test (since it may indeed need to break that level before a reversal will reign in any trading confidence).

But this is the belly of the beast. I can only imagine the newspaper covers being put together tonight. Yesterday (I kid you not) CNBC market cheerleader Maria Bartiromo said "There is no reason to buy this market - bottom line." She said this just prior to the 300-point surge higher in the last hour of trading yesterday. I'm not going to bash Maria (not with a seal-pup at least), but this women has gotten emotional at key turns in the past. Why else would I listen to that crap all day?

With a break of the 7800 level on the Dow, we should see if there are any buyers in the wings. Volume has been light and the market is (a tad) sold-out, so I'm not sure if we have what it takes to really break hard from here, even if the Big-3 Bailout fizzes (or perhaps - especially if that plan fizzles). The S&P, Nasdaq, NDX, Russell 2000, NYSE (all the majors other than the Dow) have already closed now lower than the October 10th lows. Only the Dow remains.

And yet at the same time, the volatility at highs and lows is extreme, so don't do what I do, don't try this at home, don't stay at your desk and pee in Vitamin Water bottles all day. This piece is for information purposes only - watch the guy trying to catch a falling knife. Watch when he momentarily removes the safety net (hedges) while high-wire walking back to Houston.

It's universal lemons out there right now. I'm just looking to make lemonade. Cases of it.

Get it Up or Duck!

While the action isn't entirely negative (yet), there is nothing overly encouraging since Thursday's big-bang blow-up reversal. If we are unable to resume to the upside by the end of today's trading in the US, I'll argue we'll break to lower-lows, probably in short order.

We know the fundamentals are negative, to say the least. A return to negative technicals leaves little hope for the immediate, near-term. I've cut back the number and size of positions here and I'm scaling into an SDS hedge for now, protecting the remainder of my holdings; I'm presently market-neutral.

Thursday was perhaps another case of too-far-too-fast, bear-market rally action and subsequently, today is key. After closing ugly on Friday, another lower close now and I think then a retest of lows is greater than 50-50. At the same time, if we do stage another retest of lows, I would put the likelihood of holding previous lows at less than 50-50.

In other words, if we don't catch a bid right now, I'd argue we'll purge to lower-lows, shaking the tree once more before beginning a substantive corrective rally.

This then is an exciting moment for Mr. Market. Blow to lower lows now and we'll see selling become emotional. And as I was arguing last week, the high volatility still in the market indicates the retracement rally, once it gets going, will be considerable; thus enabling a reasonable, best-exit for the 'stuck' among us, or a reasonable counter-trend, long-side trade for the rest of us. That view here has not changed - we'll see a substantive corrective rally, which could last several months and retrace anywhere from 20-66%.

The only question for me at this time is whether we have begun the corrective rally already or not. Not being sure, I'm trying to play it safe. Once more certain we have turned the worm, I'll play in long-only portfolio mode for as much of the retracement duration I am comfortable.

Beyond that point, which is too far out to really plan for, I would expect less volatility, lower (and lower) prices and a lengthy bull market in apathy.

Below is a look at the corrective rally which began in mid-November of 1929 and ran until mid-April 1930. The Dow corrected higher 52% at that time. As I mentioned, we don't have a large data sample for market crashes, but the point here is that the early corrective retracement, coincident with high implied volatility, is the strongest bounce to be expected for some time.

Happy Days are Here for Now

While the data sample is small (there just aren't enough US market crashes to go around), here is the simplistic view of how to position this slippery-slope, now that the technicals have shifted:

Volatility has declined (which is bullish), but remains historically high. This is a good thing for the bulls (and 'the stuck').

It is good, because it implies the retracement (bounce) will be significant and at times violent. Remember, volatility and panic operates in both directions. And don't listen to me, but we have now begun the retracement rally. The question is how big a bounce we will see (20, 33, 50, 66%, etc.).

As for chart-geeks, I would put the platinum pencils and Elliot Wave-runners aside - we don't know yet how far the retracement will run. Typically, the sharper the advance, the more short-lived the duration, while the more slow-and-constructive the advance, the longer one can pursue it. I don't like to box myself in, I prefer simply to know it when I see it. But a general rule while we build this in the meantime is to sell the close when the market rushes 6% or more in a day and sell/short a broken stock at the close when it rallies 10% or more in a day (yesterday being a good example of these rules).

When the retracement period has concluded however (cover your ears), we should enter first, a period of lengthy apathy and then ultimately, a new period of panic. The trend drudges lower, lower and lower still; seemingly endless; thereby rendering anyone still clutching their pathetically eroding portfolio ripe for panicking as soon as the first major nation goes bust and/or the first nuclear bomb is launched and/or the next world war has begun. It may not be so dramatic (I absolutely hope it will not be), but the point is that volatility returns again at the end of the cycle (after all the slow, bitter drudgery) and major world or national news can then create the catalyst for late-stage panic. For better or for worse, instead of asking when we will recover - investors will finally be asking if we will recover; the investment game-plans from the past will no longer make sense as everything will have changed (seemingly); the majority of sellers will 'never want to buy another stock again as long as they live' (and ironically, that will be the period for long-term buying in the US market - just don't ask Suze Orman when we get there because she will finally have just sold her stock certificates on eBay).

But that is down the road (smiles). The point to be taken regarding present time is that this is your last chance to reap reasonable gains, or get out at reasonably higher prices, or just grab a lemonade from the sidelines before worrying about the world's end.

Clearly, the scenario that plays out will play as it actually plays out and hopefully nothing terribly dramatic takes place to cause such a panic. But the bottom line is that when markets gets this dramatic, other drama tends to follow. Let's leave it at that.

These are my US stocks right now. I'm trading around (adding more on today's pullback for instance, after selling more-still at yesterday's close), but I am now holding an actual portfolio during this retracement period. I will still continue to hedge when I deem this necessary (not today), however I am no longer merely day-trading - I'm long an actual portfolio of stocks:

DLTR
GXDX (thin)
JPM
WFC
AMGN
APOL
WMT
GENZ
MYGN
UAUA
EMS (thin)
COCO
HOTT

I'm also holding my newer Asian (long-term) index plays (primarily Shanghai). When and if that region resumes a bull market I will look to trade individual stocks on that side of the Earth, but in the meantime I continue to dollar-cost average in the indices, adding slightly each time the world makes a fresh plunge.

Reverse Curse

Whenever I find myself growing grim about the mouth; whenever it is a damp, drizzly October in my soul; whenever I find myself pausing before coffin warehouses, I know the worm will soon turn, as the next calendar month steps quietly, methodically forward.

While I don't want to face-paint myself into a corner and lose the flexibility to adjust, I suspect we're on the verge of the next tradable bounce in the very near future. Nothing for widows and orphans to write home about, but this time I'd expect more than the one-day-wonder variety of retracement.

New, compelling reasons were witnessed Friday when: 1.) the volatility index (VIX) exploded to new highs at the US market's open, coincident with 2.) the S&P futures being locked limit-down prior to the open, and yet this resulted in 3.) nothing more than a re-test of previous intraday lows. In spite of far more dramatic declines in the rest of the world and the enormous implied price-move a level of 89 in the VIX indicates, the downside in the US Friday was largely subdued. Standard recent fodder in fact.

Put it this way, if we can't make new lows in a bear market when the futures move lock-limit down, then when?

Of course, given the lack of volume it doesn't indicate any great degree of buying or bonefide accumulation and in no way does this indicate any ultimate lows, but it does demonstrate a succinct lack of selling.

Take what you can get or perhaps be careful with the short side just now - the market appears sold-out for the time being.

I started building a portfolio again (started Thursday), although I'm presently 100% hedged with the S&P Ultrashort SDS. I also added another traunch of long-term powder into Shanghai, which was down only 2% on Friday; besting even the luke-warm 3% decline in the US. The rest of the World, you know, was woodshedded yet again...anywhere from 5 to 16% depending on where you look and what authorities halted trading in their country.

If investors aren't going to play fair then they shan't play at all, I guess.

Okay, if we blast to new lows this week and fail to reverse, then ignore this message (I know I will). In that case add this to the list of loser-calls, expecting anything other than pure, incessant drubbing. But if we see a reasonably positive tape, or an impressive reversal; moles leaving holes without getting bludgeoned; then I think we've begun our retracement.

Praise be retrace.

Oh, regarding the extreme volatility: take a look at Bill Luby's account of extreme volatility readings during the Nikkei's lost decade. While that market sustained its bear status for years and years and, (zzzzzzz) years, the counter-moves higher were routinely preceded by extreme volatility readings. I should reiterate that we cannot get bullish at the point volatility becomes extreme, simply because we don't know that the next day won't bring even greater extreme. If we crashed right now for instance, the readings would go still-higher. But when we see volatility go to an extreme and price unable to follow, we can get interested. Then if volatility begins declining we can get busy. Friday's action provided half of the necessary ingredients, we need to see volatility retract now in order to pen any of this as bullish (timing is everything, right?).

I'm not yet eager, love-sick and salivating over the look of leadership stocks just now, but I can at least now share a list of stocks exhibiting interesting potential. As I mentioned, anything I might own here presently is currently hedged, but I would add to these, find more of the same and let go of short-hedges should the market indeed catch a bid.

As always - don't do what I do. Pay no attention to any of the names below or anything you may have read here above.

Call me Ishmael!

(Early) Dry Powder Long List for the Retracement Rally:

Medical - Biotech/Genetic/Medical Services:
AMGN
GENZ
VPHM (eps due Oct 29)
CELG
GILD
QSII
STE (eps due Oct 30)
EBS (eps due Nov 6)
UTHR (eps due Oct 30)
ALXN
GXDX (thin)

Commercial Schools:
DV
STRA (thin; eps due Oct 30)

Big-Cap NDX (with eps out of the way):
AMGN
GOOG
AAPL

Misc Retail:
WMT
DLTR
ROST [edited-in 27 Oct]
HOTT (holding like a champ, believe it or not)

Misc Financial:
SF
NDAQ (eps due Nov 6)
USB
WFC (2ndary coming)
PNC
JPM
SIVB

Misc Other:
EZPW (pawn shops; eps due Nov 6)
RJET (airline; eps due Oct 30)
ISYS
SYNA

Yes I Want to Invest for the Long Term

[For a list of this trader's long term investment ideas, scroll down several paragraphs. Otherwise feel free to sludge through why I will merely trade and not invest in US stocks for the foreseeable future.]

I won't deny that the extreme price action lately has created long term value. Much like Buffett, I think this is the first legitimate opportunity for long term investing in quite some time. But unlike the old man, I'm not especially keen on guessing where in the US market that longer term value exists, or if it exists yet at all. Rome wasn't rebuilt in a day, right?

The US is a mature economy which, following years of various bubbles, accomodative, easy money from the Fed, smoke-and-mirror shenanigans from every direction, has finally peaked. Housing prices, a key component to the economic morass, remain high relative to comparative income levels and incomes will decline for an indeterminate amount of time now as the net-number of jobs decline in the coming months.

I could drag this thesis on, flash my platinum-penciled econometric Mr. Magoo Model-T Model, paint myself as cynical and unpatriotic, but instead let's just admit that we don't know at this time how far US stocks will decline and whether we ultimately make higher highs or not. We could gamble either way, but we don't know.

Now obviously, US economic growth in the long term may turn out to be reasonable, but growth prospects remain suspect and unless we really see things lance pessimistic, the degree of growth going forward should not be spectacular (and growth is what drives markets higher). I need to see much lower-lows, coincident with far, far less enthusiasm about stocks before considering putting long-term money to work in the US. I need to see a consensus of disgust for stocks, a prolonged apathy, nuclear bombs flying, riots in the streets, asteroids colliding, mom's apple pie going uneaten...I need to know that the majority of the public never wants to own a stock again.

I'll trade this market long (or short), but buy the US for the long term? No way. We've ended the most spectacular bull market in the history of bull markets, dating back to 1982 when we finally broke through Dow 1000; after something like 16 years of trying.

I'm not predicting we're on our way to Dow 1000 again and I don't want this to happen, but it is not out of the question either. And given the fact that we have a mature economy, the upside-reward potential just doesn't justify socking money away in US stocks. Not yet, not at these levels...not for me at least.

Yes I Want to Invest for the Long Term:

But hey, for the first time in more than 10 years I am investing long-term money. In recent, dramatic down days in the markets I've begun scaling into Asia; mostly Shanghai, but also Taiwan, Singapore and Hong Kong.

Shanghai is down 70% from the highs in October 2007. While the economy there has certainly slowed, it is still growing. A year ago Chinese officials were attacking their market with tight money, high short-term interest rates, new restrictive policies regarding investing in stocks, etc. Recently however they have begun stimulating - lowering interest rates and adding liquidity. We certainly might go lower from here, but growth prospects for mainland China are considerable and like Buffett points out for the US, the market prices there will be sufficiently higher before that new growth is obvious. If we do go lower, I'll just keep buying. I don't intend to sell for many years.

This may be 1907 for the Chinese economy, which means a long-term investor stands to gain 1000% or more by buying and holding. It's possible that China will not become the World's largest economy in the next generation; it's possible that the US decline will pull all the World's economies beyond the event horizon and no economic-light will escape; it's possible that the world will come to an end as we know it...

Still, I'm a buyer at the end of the World.

Asian plays from the US:

Opening a brokerage account in China is a little complicated and I don't want to commit long term money (on this forum at least) to individual companies, but here is a list of index plays for Asia which I have been scaling long term money into (these are all traded on either the AMEX or NYSE in the US)...

PGJ - ETF corresponding to the Halter USX China Index of 32 companies (Yield = 3.3%)
FXI - ETF corresponding to the FTSE Xinhua China 25 Index (Yield = 4%)
CAF - Closed-end fund investing in Shanghai and Shenzhen-listed companies (Yield = .7%)
EWT - ETF corresponding to the MSCI Taiwan Index (Yield = none)
EWH - ETF corresponding to the MSCI Hong Kong Index (Yield = 4.4%)
EWS - ETF corresponding to the MSCI Singapore Index (Yield = 3.4%)

I am also trading short the ETF FXP, which is a double-short on the FTSE Xinhua China 25 index.

That's me - the long term investor. Good trading!

So You Want to Buy for the Long Term

I had a biology teacher in high school, Mr. Haines, who on day-1 suggested those of us who studied and worked hard every day would be able to achieve an A-grade in his class. But he also made an alternative proposal: anyone who would write (by hand, on paper) the numbers 1 to 1-million sequentially, would be guaranteed an A regardless of how they fared in any other facet of the class, even attendance.

There was a buzz about the class and two or three students immediately went to work on this. As others began to join in, more began to follow. Within five minutes more than half the class was writing down numbers on lined, college-ruled notebook paper. By the end of the hour-long class, more than half of those who had started were already giving up, leaving roughly a quarter of the students working on this easy money assignment. The start of class the next day there were only 2 pupils still at work; the end of that week only one; the start of week-2...exactly none.

Where is this going? I don't know, but I think about this event at least once a year. Usually, what a sadistic biology teacher I had in 10th grade, but more interesting to me is the way the numbers of participants started cascading higher. Once more than a few had joined in, other students followed along, which inspired others to follow as well, even though there was very little fundamental value in this project.

I really do believe we are in the midst of a reasonable rally just now, but I have to say that the number of times I heard market participants discuss the long term value of buying the market at these prices was initially concerning and now, increasingly alarming. Today it is worse than yesterday, which was more than the day before. This is not the wall-of-worry sentiment which keeps me buying in an up-market. This is concerning.

As I see it, over half the class at the moment is busy writing out the numbers 1 to 1-million. They know they will one day look back at market prices from October 2008 and they will not believe the incredible values. Mr. Buffett's op-ed piece in the NY Times on Friday was when that opinion began cascading.

How many times recently have you heard (or thought yourself) that when we look back at October of 2008 we will be amazed at the amazingly low prices?

I don't like to go on record in calling the future, but I do know what the end of a bear market is supposed to look like - the majority of participants are not salivating over long-term value - the majority of participants should rather never want to touch the stock market again.

Kisses!

Up Chuck

Panic works in two directions.

Volatility measures remain historically high (VIX, VXN), so timing and tight stops are everything at the moment, but what I can say as a trader worth my own salt and vinegar, we are set for a little splash of upside.

We could drive still lower first, take out Dow 9000 tomorrow, even shake them very, very hard. But whether it is a root canal reversal, or we flog around a few more hours, or we just open-up and never look back, there is an up-move on the (event?) horizon that will open brows and spark a flurry of hope and greed; even if short-lived.

In fact, an explosive bounce would very likely be short lived. A more slow and constructive move higher could stand several days to a couple of weeks. But either way, I think we're on the verge of a tradable reversal beginning Thursday and I'm on hiatus again from shorting this market (long-only mode).

That said, if I am dead wrong, when a low is established here (the lows from where the bounce begins; counts for both indices and individual stocks), I will most certainly bail out and surrender to the bear if fangs begin puncturing ass flanks (Translation: I'll have stops at levels slightly above recent lows, once this trade begins).

For many larger cap names, that bounce began today and with heavy volume from a variety of industry groups. Major volume poured into big-cap names and they acted hugely resistant to pressure late in the day today; at the same time the indices were involved with Nervous Breakdown #19. That is a sign of institutional accumulation and something not seen in a while.

So even if we're still in the midst of massive redemption from so much of the hedge fund community, today we saw a tipping point in the degree of accumulation vs. distribution.

Another point to consider, the S&P futures traded something like an 8% range today in the pre-market (massive volatility tends to mark peaks and troughs, even if short-term).

The public is obviously sufficiently fearful of buying stock - that much has been good all week. But we need the big-money macas to begin buying before we know there is an aggressive counter-trend developing.

Look at the volume on the day in these larger-volume stocks and note how they closed on an otherwise down day (a day the Dow close down 2%):

TGT, XOM, X, INTC, AAPL, RIMM, PCLN, AGU, RIG, SLB, PCU, FCX, RIO, CNQ, NOV, COP, PBR, CHK, SID, NUE, CLF, YUM

This list is mainly to illustrate a point. I'm trading some of them, but mostly it is an indication of a new bid in the market. Until we see more of a bottoming action and not just an indication of an initial low, I'm keyed mainly on index trades.

Have a drink on me.

Trend with the Wind

While I haven't been updating here lately, I've been trading very actively. Unfortunately I left this page last time with a long-side list only and the market coughed-up the greatest decline in 7 years, but the list was in fact useful on days (or half-days, as in Friday's case) when the tape action was firm.

On the short side, I've stayed focused on commodity-related names, larger-cap technology and Ultra short index ETF's (TWM, QID, SDS, SMN, etc.).

Where do we go from here? Well, I just try to keep it as simple as possible and I respect any given day's trend when it is clear and one-sided. I continue to keep trades very short-term, increasing my position size late in the sessions and then backing away at the close.

I've mentioned before, when the market cuts to a new low in an environment like this, there is no floor and no telling how ugly it might get; hope and greed give way to fear and panic and the size of the air pocket beneath is always debatable, but potentially very severe. It's not necessary to get caught up in intellectual analysis of why any of this is occurring. It's a natural process for a market. But it is wise to respect the potential for disaster when there is no support underneath. Then, at the same time, rallies can be quite powerful, even if short lived. You've got to be ready for that as well.

There are not enough groups acting well enough right now to post a list of eligible longs, but it should be noted that the Financials (banks especially) continue to act best and these have been very good traders on the counter-trend bounces. When the market firms I'll be keen on new long lists of leadership groups and stocks, but at this writing there is not enough strength to go by and I'd just as soon stay focused on shorting until something better develops on the long side.

If you cut out the confusion and clutter and merely pay attention to the tape, it's really not that difficult to trade right now. I'm keeping trades very short, I'm zeroing in on the action of the day and I'm much more aggressive in the final 60 minutes of trading than at any other time; since the really dramatic days have had a succinct tendency to intensify in the last hour, and in the same direction of that day's trend.

I know this is not a lot of help to longer-term investors. But seriously, we have not had an envirnment for long-term investing in a very long time. If you get an October crash here, then you can start focusing on long term investing and it would make some sense. Or perhaps Shanghai on this pullback represents a reasonable long-term play.

We could be close to an intermediate term rally here, but we might not. So while short-term maniacs like myself have a reputation of being over-aggressive and risky, it is the long term investor who remains the gambler now.

Still Long Still Live List

You tell me, can the market really rally here?

...that's what I thought you'd say.

I'm sticking with long-only trades here, except for the occasional hedging. And while the action was a little more mixed last week than I thought it might be, last week's Long List held its own.

For this week I've removed a couple of groups (Oil/Gas Exploration and Energy-Other) and I trimmed and added a few names here and there otherwise. Various Financials groups are leading this market, while Technology and commodity-related industry groups are lagging.

For the next several days I'll be keying on the below Live Long List for days when the tape-action is clearly positive (I don't recommend fighting the bears when the tape is nasty). I've even started holding some of these overnight lately, but in general I am still operating with a quick, though reasonably aggressive trading strategy.

Am I bullish because of the bailout plan? Well, yeah actually - at least until the market can't rally any further. At that point I think the whole thing was just stupid to begin with (something akin to how Japan behaved in the 90's according to Jim Rogers). But none of that matters just now. The market has resumed an overall uptrend at a time when nearly everyone is skeptical of the market's ability to rally. The Feds are willing to throw anything and everything at "this sucker" (President Bush's words) so that it won't go down (don't be surprised to see an intra-meeting rate cut in fed funds this week). As long as they are succeeding, I'll keep my focus long.

Banks Savings/Loan:
JPM
PNC
HCBK
WFC
BAC
USB
BBT (16% short int)
SIVB (13% short int)
DCOM
FNFG
TRST (13% short int)
CFFN
UBNK

Finance Investment Bankers:
SWS
GS
JEF (13% short int)
NITE (12% short int)
TWPG
KBW (15% short int)
SCHW
RJF (17% short int)
ETFC (24% short int)
AMTD

Insurance-Brokers:
MMC
LPHI (extremely thin)

Financial Services Misc:
RMG
CYBS
NDAQ
ECPG

Homebuilders:
MHO (25% short int)
MTH (25% short int)
PHM (12% short int)
TOL (15% short int)
NVR (20% short int)

Machinery-Gen Industrial:
DXPE
FSYS
PNR (10% short int)
GRC

Retail Clothing/Shoe:
BKE (15% short int)
URBN (20% short int)
ROST
HOTT
NWY
DBRN (13% short int)

Apparel - Clothing/Shoe Manufacturing:
WRC (15% short int)
TRLG (daytrade consideration only due to 51% short int)
NKE
SHOO
KSWS (13% short int)

Retail-Restaurants:
PZZA (9.5% short int)
BWLD (daytrade consideration only due to 39% short int)
PNRA (daytrade consideration only due to 32% short int)
CPKI (20% short int)
MCD
CEC (24% short int)

Retail Misc Consumer:
POOL
SBH
CRMT (23% short int)
ZLC (daytrade consideration only due to 49% short int)

Medical Systems:
VAR
BABY

Medical - Biotech/Genetic; Medical/Dental Services:
CELG
PRXL (12% short int)
SQNM
GENZ
VPHM (13% short int)

Medical-Software:
QSII
ATHN (12.5% short int)

Airlines:
AMR (13% short int)

Internet Software:
WBSN
ARBA (12% short int)

Electronic - Component/Connector:
IIVI

Electronic - Military Systems:
AXYS
FLIR

Utility - Power:
HE
EOC

Misc:
SYMC (unusually firm vs. other NDX/tech stocks)
GEF
AZZ (15% short int)
SEAC (11% short int)

Bull Market in Volatility

There was nothing positive about today's action, as the market internals started soft, never really improved and then ended ugly. Subsequently there was no use for last night's menu of long-side buckshot.

The volatility index (VIX) remains high and we should expect ranges of 200+ Dow-points for the days ahead. Should we revert back to a positive tape (which remains to be seen), then I will be only too happy to attack long from the new long-list.

I missed a decent short-opp today (hanging out for signs of improvement since the volume was too weak for me to quickly paint the action as totally bearish). In the end, the tape was easy to short but I wasted my day sitting on ass hairs.

The Democrats surprised me a little too - After everyone was so colorfully painted into the corner by the emergency meeting Thursday night, I surmised a likelihood Washington would all get in line and just allow the Feds shove this plan down the collective gullet. If virtually none of them were willing to speak out against going to war with Iraq, for fear of political suicide, then this little crisis had a precedent for mouths being shut (so I thought). They're playing politics now instead (although no one is really questioning the deal itself, which might be the best idea, they want to use the occasion to tack-on additional agendas). It's more like normal politics after all...so far.

Whatever, I'm still in the game and the powder here is dry. If the tape is ugly again tomorrow, I might short some indexes, depending. But if we can firm again and the tape is sufficiently positive, I'll shop from last night's hit-list of longs (zeroing-in on areas showing the best group-strength on the day).

Otherwise I'll keep on my ass and act like I don't know what's going on - since I won't!

New Live Long List for Killing the Upside

Will it work?

Is the crisis over?

Was the whole financial system really about to crumble before our very eyes if those Feds didn't goose the market and run the shorts out of town?

Forget all that. The public and the media are as confused and tentative about current market conditions as ever - in fact, no one understands the rules to the game anymore, so even if they knew what to do they fear they cannot trust it.

That's the good news too, because meanwhile new leadership stocks are emerging. Volatility remains high (VIX) so opportunity is alive and well. Assuming the internals are reasonable-to-strong, this is the greatest wall of worry set-up in 7 years.

If it weren't for that last part I'd be just another blog, railing right now at how God damned ridiculous all of this intervention is - not the least of which is that the masterminds in control of the new rules did not include GE in their list of only 799 financial stocks now forbidden to short. Think about that for a moment? I guess if they'd have rounded up to an even 800, GE would have made the cut? That company makes lightbulbs or something, right?


Anyway, here is the Maximum-Woot Live Long List for killing the upside in the near term. I'm here to make money, not to complain about who's running the asylum. Over the next several sessions I am looking for a good tape first (further strong/positive mkt internals) and then zero-in on which groups are acting best on that day. If Financials and Homebuilders are leading on a given day and the market action is resolutely positive, I'll choose Financials and Homebuilders from the list below. Some of these might seem counter intuitive to some of you. Good!
**see below for a note regarding short interest percentages.

Banks Savings/Loan:
PNC
HCBK
WFC
BAC
BBT (16% short int)
SIVB (13% short int)
DCOM
FNFG
TRST (13% short int)
CFFN
UBNK

Finance Investment Bankers:
SWS
JEF (13% short int)
NITE (12% short int)
TWPG
KBW (15% short int)
SCHW
RJF (17% short int)
ETFC (24% short int)
AMTD

Financial Services Misc:
RMG
CYBS
NDAQ
ECPG

Homebuilders:
MHO (25% short int)
MTH (25% short int)
PHM (12% short int)
TOL (15% short int)
NVR (20% short int)

Oil/Gas Exploration:
REXX
ARD
APA
CXO
DVN
WLL

Oil/Gas Machinery/Equipment/Services:
GTLS
TDW (14% short int)
SII
RES
NR
SWSI

Machinery-Gen Industrial:
DXPE
FSYS
PNR (10% short int)
GRC

Retail Clothing/Shoe:
BKE (15% short int)
URBN (20% short int)
PSUN (23% short int)
ROST
HOTT
GES
NWY
DBRN (13% short int)

Apparel - Clothing/Shoe Manufacturing:
WRC (15% short int)
TRLG (daytrade consideration only due to 51% short int)
COH
NKE
DECK (26% short int)
SHOO
KSWS (13% short int)

Retail-Restaurants:
PZZA (9.5% short int)
BWLD (daytrade consideration only due to 39% short int)
PNRA (daytrade consideration only due to 32% short int)
CPKI (20% short int)
MCD
EAT
SBUX
CEC (24% short int)

Retail Misc Consumer:
POOL
SBH
CRMT (23% short int)
ZLC (daytrade consideration only due to 49% short int)

Medical Systems:
VAR
BABY

Medical - Biotech/Genetic; Medical/Dental Services:
CELG
PRXL (12% short int)
SQNM
GENZ
VPHM (13% short int)

Medical-Software:
QSII
ATHN (12.5% short int)

Energy Other:
ENER (21% short int)
SOL
CSIQ (13% short int)
SOLR

Transports-Rail:
GWR
NSC

Airlines:
AMR (13% short int)

Internet Software:
WBSN
ARBA (12% short int)
OMTR (uncomfortably high short int - 21%)

Electronic - Component/Connector:
IIVI

Electronic - Military Systems:
AXYS
FLIR

Utility - Power:
HE
EOC

Misc:
GEF
AZZ (15% short int)
SEAC (11% short int)

**Short interest percentages: I've noted the companies above where short-interest is higher than 10% of the float. Depending on a variety of factors, a high percentage of shorts can be either bullish or bearish from a trading perspective, but it is a giant red-flag from the point of view of investing. I avoid intermediate and long-term investing (long-side) in companies with a high-percentage of shorts (>15%). Longer term, the shorts are usually right when their numbers are aggressive. Smart money isn't shy about homework and when a short percentage is exceptional, you can be sure much of that is smart money. At the same time there is a giant short-squeeze at this moment, so quick trades on some of these might be a good idea.

Party Like It's 1999

A funny thing happened on the way to the woodshed today. The market caught a bid.

Too much too fast? Sure, maybe. But it is not like there aren't a lot of shorts out there at the moment needing to cover. And from the onset of the late day rally there just wasn't enough time and not enough sellers for the shorts to cover (an explosive mixture). Pressure had been building for this (if not a severe breakdown instead) and the combination of relative strength today throughout various industries in the market, coincident with an undeniable panicky mood and rampant expectations of doom out there, gave you the opportunity to get in and buy before the big news event of the day kicked everything into hyperdrive.

In other words, when the USA Today flashes the CRISIS cover with investors tumbling out of the sky and your phone is ringing off the hook with nothing but fear-based inquiries, coincident with firm, decent action on the tape in front of you - well, it's time to get back to basics and buy stocks.

I'll be focusing almost exclusively on longs only now for the time being. I might hedge here and there if I get caught long when a pullback transpires and I acknowledge that some amount of re-test at some point in the next several weeks will likely occur. But I also acknowledge that we've now see the lows for the intermediate time frame and this is what is key.

Again, I don't like to sharpen pencils and measure moves before they happen. I just like to get it right when there is power in a move and keep firing at it as long as it behaves appropriately.

So far so good - this doom and gloom, good for nothing stock market is now going to go higher. Hopefully an over-abundant amount of fear and distrust will prevail for a lengthy spell before the masses start considering coming back into the fray. Assuming the action is favorable, then the longer most of the participants and media-heads question it, the longer I can keep firing aggressively.

That's my biggest wish here - a firm and healthy tape coincident with massive fear, suspicion and doubt. The punch bowl remains full in that case.

Crack that whip!

Tipping Point

I came in today long and not without a certain egg on my face. The internals were so ugly however I managed an about-face by mid-day and scratched-back most of the early losses.

Today was exceptional and opportunity is blistering right now. But you've got to get the direction right. If you're wobbling senseless, you cannot afford to play; as it tends to just get worse before you finally give up. This is a lot of why I change on the dime as much as I do - I cannot afford to lose my crazy mind.

To the point, Wednesday's high-volume turnaround was violated today and with further violations in a distressed market, accelerating declines become common (the psychology of fear takes hold, whereas hope and greed had until then stayed illuminated). I cannot measure the size of a move, but there is a certain power building at the moment that is undeniable. And if you ascribe to the notion that there is no floor when the floor is removed, then you have to acknowledge that the worst-case scenario is as likely as anything else.

It's not a comfortable market to just hang-out and hope right now.

So for the moment, the evident fear and emotion (notice the VIX has risen to important levels) cannot be considered a positive UNTIL the market defines a new floor. That could end up being today's close or that could be 30% lower by Monday, I don't know. All I know is that you must respect the possibilities if you want not to blow-up.

Naturally, then - any hour now may again mark an incredible long-side opportunity (shorts get trampled as well, eh?). Don't do what I do, but I'm keeping very keen on the internals before sweating the long side. Today's internals were resolutely negative, and remained so throughout every rally attempt on the day. Subsequently, every rally attempt ultimately failed.

If you read this regularly you know I cannot shut up about internals (breadth and relative strength between the various indices, industry groups, etc.). The Advance/Decline line was so fantastically negative today there was little doubt as to whether or not we would close on the lows (there were no more than 300 advancers on the NYSE virtually throughout the session, out of a possible 3549 issues). Additionally, the price of gold made the biggest 1-day percentage gain in history, while treasury notes were trading below zero (meaning you had to pay to trade into a T-bill - as opposed to the typical business of receiving interest when depositing money. This deposit costs you a fee until you sell your money back...to yourself!).

There was a continued run on the investment banks today and GS and MS were woodshedded in the most primal sense. Reportedly, their borrowing costs (and they borrow a lot of capital in their business) doubled overnight last night; that amounts to something ridiculous like $8B/yr in additional fees for Goldman, so it's not just walking around money.

So, around the globe the markets are sucking-up capital faster than the Federal banks can inflate it. Our Fed is so far picking and choosing what to "bail-out" and at fat, favorable terms. This could end up making the US taxpayers hearty capital gains, once the Fed unloads these in times of less panic. But if too much of the chowder comes out of the pot, the Fed will have accumulated too much wet chowder on their face to look very good with all these blow-ups on the books.

The Fed writes a lot of the rules and as they see fit. They do not like to lose either, as their credibility is of tantamount importance, so the stakes are very, very high right now for the Fed. This begs the question: Is now really the time to fight the Fed?

I've been having fun being short, but I still say that outside of the select casualties, the overall environment is not that negative. Professionals everywhere are chiming that they have never seen anything like this in their 20 and 30 and infinite year careers - fine. Technically, I've been trading the market since the day it opened and I can tell you this is certainly different (it always is) but it is not yet extraordinary by historical terms. They have seen the market drop much further en-mass than anything like what we've seen so far on this move. They just feel awfully wiggy at the moment. So don't miss that point. As bad as everything is, this market as a whole as so far managed to hold its en-mass entrails, in-check.

The next few sessions might be the tipping point, where the cascade does indeed show folks something they've never seen. However, in the strong possibility that this turns out not to be the case, then I'm keeping very keen on the internals and firing long with abandon to take advantage of the sling-shot which will instead occur in the other direction.

I really doubt this will end with malaise and boredom - in my view the market is either on the cusp of its lows right now (don't forget the inevitable re-test of sorts however, so there is no rush for widows and orphans to buy membership cards for the next rally) or the air-pocket beneath us is going to spill en-trails, ala GS today.

Good day sir.

Stop Worrying and Love the Bomb

OK, the Fed held steady today on the Fed Funds rate, but they dumped an additional $50B into the banking system reserves (which follows the historically significant $70B they already shot into the system Monday). Then after the close announced they will indeed bridge AIG an emergency loan to the tune of $85B.

I covered anything left short at today's open, picked-up my rubber band woot suit from the cleaners and started buying long ~90 minutes into the session. By the time the market started driving higher with about 90 minutes left I was fatter than Brando and running like God. I sold my larger index trades into the rip higher, but I held several names long going into tomorrow; un-hedged.

I would expect a bit of follow-through tomorrow, and perhaps a sharp advance, but if it is dramatic I'm just selling into strength. If the advance is more casual (which will tend to have a bit more staying power), we might get a few days to a couple weeks of a firm market, but a re-test of sorts should eventually be expected.

So a strategy of selling emotional spikes higher and buying emotional dips lower is the gameplan here for the time being.

If we manage a successful re-test, or mark a bottom in another fashion (to be defined later), then I would actually move back to managing portfolios for a living; instead of reverting to this late-90's style daytrading (it was fun while it lasted at least).

If we don't manage a successful retest, but drive to lower-lows instead - I will get aggressively short and forget about getting flat by the close any longer. They'll be no way to be short enough should that develop.

Turn The Worm (Say Awe)

While there wasn't really panic in the broad price-action today, there was at least a cascade in hope and good cheer. The chorus crowd on the market ship is tilting dramatically to one side.

And you thought it was all bad.

Earlier in the month we had too few positive factors to begin looking at getting long, not the least of which was the calendar month (historically the weakest of the year). But now mid-way through September we have a few important features for a potential market turn; and counting.

I continue still to trade short-only for the time being, but that could change any hour now, depending. Every TV head right now is telling you: "don't be a hero," etc., etc., but if you've been short you can afford a few heroics when the time is right. Interest rates are driving lower again (IRX, TNX), and this includes home mortgage rates (no chart). Fed fund futures today began to indicate the Fed will cut rates at tomorrow's FOMC meeting. And they'll throw the State of Kansas at you, if you know this Fed, so I would expect full-tufted Fed butter; nothing less.

As far as technicals, I look for three general factors to turn before doing anything more than covering shorts (prior to going long). Below is a brief outline of those factors and where they stand. I can't spend a great deal with this tonight, but if I had a few hours I would write up something most entirely useful, complete w charts, timely suggestions of individual stocks, industry groups, mouths of foam, three green clovers, etc.

Positive Divergences: Ok, the S&P 500 is at a fresh 2-year low tonight. Naturally, the Financials (XLF) are in worse shape, right? Well, they are worse than they were 2 years ago, but the group is actually well-above the July 15th low. In fact, the lovely SKF, which is the Financial's double-short, shoot first and shoot-harder tool for the Street, spiked dramatically higher in July than it is now. Everyone should glance at the SKF chart, because you won't believe me otherwise; At the same time, the Nasdaq and much-more so the NDX (which tend to lead the broad market), have made lower-lows on this wave down. [Edit: the Russell 2000 is also well above previous lows]. Unfortunately, the Semi's have continued to draw lower-lows, but this is probably not the beginning of an important new economic cycle anyway (and we'll probably end up re-testing, perhaps not even successfully any lows we make Tuesday), so I'm less impressed that the Semi's don't show a positive divergence; Momentum, as measured by any reasonable tuning of the MACD (moving average convergence divergence line), is well-above any previous lows on any and all indices right now. In other words, momentum is set to make a higher-low vs. prices (which would be resoundingly bullish from a short-term perspective).

Sentiment: Negative sentiment improved dramatically today, although many of these indicators are still off of extreme levels; Put-to-Call ratios at the CBOE spiked-up, but they were coming from relatively complacent levels and therefore the 5 & 10-day moving averages are not yet extreme; The volatility index (VIX) surged, but it too is well off any records (not yet bullish); But importantly, the financial media swooned ugly today and Main Street was at attention; At least from a quick-trade perspective (potentially more) the succinct, low-flying mood in the air right now tastes awfully interesting (it is undeniably bullish once prices begin to show life*).

Price/Volume Action: Volume surged today, but it was nowhere near a record (which is not bullish); Declining stocks out-numbered advancing stocks on the NYSE by 19-1 today. Black Monday 1987 was closer to 16-1. Suffice to say, outside of a few names within only a few industry groups, we have not yet seen positive price and volume action on the tape. This can change quickly, in the span of a few hours on a high-volume reversal day in fact, so you have to be on your toes if you plan any heroics.

The last 90 minutes tomorrow are going to be crucial. Indeed, if a long-side trade is setting up now, we will see buying late in the session and the FOMC timing will have an impact fueling this. Look for positive divergences and vastly improving internals before venturing. I would not commit a dime late in the session if the internals look anything close to today. And I would commit money earlier in the day only with very tight stops.

OK, I looked-up a piece from the past where I have better outlined what to look for for a reversal and how to interpret the likelihood. You'll notice today did not exhibit the internals necessary (especially at the important time-of-day inflections, and you'll see a better explanation of positive internals and the emphasis given to time-of-day, etc.)...
From January 8th: Some things I look for from the market for a potential reversal, from this type of deeply damaged tape.

Finally - don't do what I do - Don't be a hero Mr. Billy!!

*I say "once prices begin to show signs of life" because sentiment will be extrememly negative in a market crash and it does nothing to improve the situation; rather it exasperates it. Thus, the improvement in price action, which must include a positive final 90 minutes of trading, is mandatory before clearly negative sentiment is a good thing.