Brag Post (...sort of)

Something of a common theme lately - selling into morning surges has continued to work from a trader's point of view. I took the occasion to sell out of my position on the early strength.

Thanks to the tuna-run in TITN and some recent well-timed long entries from Thursday and Friday, I am down no greater than 2% in all but one of my accounts now for the year (or less than 3% now from all-time highs made Dec. 29th). The newer long-side trades came from the leadership groups I mentioned the other day - namely Oil/Gas Exploration, Energy-Other (there was a nice set-up Friday when Goldman downgraded the Coal stocks), and a good one-two punch from the Construction/Mining sector. Unfortunately I cannot give you specific names at this time.

I won't be posting a great deal in the near term as I am dealing with some personal matters (not at home, fortunately). I am still keying on the long side and I like the strategy here of building trades at good entry points, hedging when necessary (or else keeping tight benches) and until the market shows better - selling into strength.

I expect we'll continue the wall-of-worry action and keep scratching higher without any tremendous downside drama (in the short to intermediate term), however the possibility of waking up to fresh lows is not completely out of the question.

In general however, it is clear to me the market is healthier than people's moods right now and at the same time the general trend is fledging higher.

That's a good environment for keying long, in all the right places.

...until it isn't.

This Way That Way

The market is back into pelt-mode at moment, ending several less-than-spectacular rally days in a row. Given tomorrow is option-expiration Friday - I would not expect to see any daring advance in stocks before Tuesday, as money is no doubt remembering just how badly last months expiry (and the post-expiry session) went over. Like last month, Monday is an exchange holiday.

There has been progress overall of late, but outside of the leadership groups, the advance was a little too sloppy to get very excited.

The progress includes a weeeaak-volume follow-through rally in the Nasdaq Wednesday, meekly indicating the larger trend is higher in that index.

Present leadership in terms of industry groups:
-Ag (fertilizer, operations, machinery)
-Energy-Other (we saw the solars kick in again and on strong volume, while Coal-related names have been explosive)
-Oil Explor/Prod
-Metals, Ores and Steel.

I'm both long and short at them moment (I went short the Financials at the open today, which allowed me to buy a few stronger stocks pulling back), but I will let go of the shorts on Tuesday if the tape is at all positive. If the tape does not improve again by Tuesday, I would consider increasing short exposure (step outside of Financials) and reduce the longs I am holding (longs here are limited to names within the leading groups mentioned above - nothing dramatic in terms of exposure at present).

Good trading.

Change the Oil Every 3000 Points?

The Dow index is changed this week, as MO and HON have been replaced by BAC and CVX.

Mark Hulbert has written an interesting article outlining the Dow's historical under-performance as a result of previous company deletions and additions:

Ironically, one of the companies being added to the Dow - Chevron - has been in the index before. It was deleted on Nov. 1, 1999, with three other companies, in favor of four new companies that largely reflected the Internet bubble that was at the time alive and well: Intel Corp. (INTC), Microsoft Corp. (MSFT), SBC Communications (which has since been renamed AT&T (T), and Home Depot Inc. (HD) .

Since then, the four deleted stocks have gained an average of 27%, while the four stocks that were added have produced an average loss of 40%. The Dow itself over this period has gained 14%. (These calculations do not take dividends into account; the difference between the average addition and deletion would be even greater if dividends were included.)

Ouch.

In other words, the Dow would be higher today if the list of companies making up the Dow had not been changed in 1999.

This isn’t the only example of this pattern, either. Consider the changes made to the Dow on April 8, 2004, the only other occasion since 1999 in which companies have been added or deleted to the list that make up the Dow. (There have been other changes, but they involved new names for companies already in the index.)

The three companies that were deleted in April 2004 were Eastman Kodak Co. (EK) , International Paper Company (IP) , and AT&T. (Note that the AT&T that was deleted from the Dow that month was not the AT&T that exists today; that earlier AT&T was acquired by SBC Communications in 2005, and the combined company was renamed the new AT&T.)

The three companies that replaced these deleted firms were: American International Group, Inc. (AIG) , Pfizer Inc. (PFE) , and Verizon Communications (VZ) .

Since the date of these changes, the three stocks that were added have, on average, lost 23%; the three deletions on average have lost just 2%. The Dow over the same period has gained 17%. (As before, these calculations don’t take dividends into account.)

Once again, ouch.

Similar under-performance is seen in the historical changes of the S&P 500 as well. more...

Quick Note

I sold out of the majority of remaining long position today; Sold all of CHS and CMED; reduced CAF; holding only TITN and reduced CAF at moment

Snoregasm

I've been largely uninvolved in the market recently, as the market remains mixed, the larger trend for the moment remains essentially unresolved and my desire to churn both directions at the same time is not as strong as my passion for lawn bowling.

Bulls and bears can argue until the cows come home as the market illustrates daily: pockets of strength; pockets of weakness; clear resistance; clear resilience; few new 52-week lows and fewer still 52-week highs, etc. this; etc. that.

While Monday's ability to firm in the face of further negatives (AIG, world markets lower, etc.), Friday was equally discouraging for the lack of any follow-through on the heels of Thursday's high-volume reversal on the negative CSCO comments Wednesday night.

One positive development, many of the larger institutional names are catching bids lately; something we'll need to see more of if there is going to be any sizable advance. But unlike Friday, where money rotated into the institutional names (APPL, GOOG, RIMM, etc.) and the rest of the market sold off to pay for the spree, we need to see the market tide lift all boats.

I will get much more active long if we can manage an upside follow-through session and I will get out of Dodge if we continue to stall much longer. I'm expecting the former and tomorrow is the next-best chance, but I'm not convinced of anything at the moment.

I'm not trying too much in the meantime.

CMED, CUZ

Bot first tranche of CMED long; sold CUZ ahead of tonight's earnings.

Quick Note (Hedge Off)

I removed the SPX and DISCA shorts; Little activity otherwise; mostly inactive here and lightly invested at moment.

Quick Note (Hedge On)

I sold a lot of stock today and hedged the remaining with S&P500 Ultrashort SDS. I also re-entered DISCA short.

Currently market neutral at moment, in terms of long vs. short.
Portfolio, by size: SDS (SPX-Ultrashort), TITN, CAF, CUZ, CHS, DISCA (Short)

COH

Traded out of COH long, 30.32; late in session

LULU

Traded out of LULU long, 33.96; late in session

CPHD

Bot long CPHD, 28.15

ANF

Traded into retailer ANF long; 77.23

CHS

Traded back into CHS long 10.01

LULU

Traded into LULU long 32.52
(1-2 day trade)

CHS

Traded out of CHS long 10.33; for now

BCSI

Covered BCSI short 23.43

Pile Driver Long List

The market has deteriorated again this week and in not too subtle a fashion. And with CSCO earnings and subsequent "challenging" outlook blasting the market lower in the after-market today, it's pretty clear that Thursday's session will be...

...another day the market catches a bid, naturally.

That's just the way this thing is trading. So while it may be too bold to suggest the techs will reverse up, it's not at all too bold to suggest that other areas have a strong chance of seeing their lows in the opening minutes, creating reasonable long-side trading opps.

The bigger picture is cloudy at present (although the bears might scoff at that) but we may witness something defining very soon now. Re-tests of lows in the majors; formidable building of a bottom with higher-lows; confirmation of bears and hellfire with lower-lows; or a crazy combination of both of these is all on the table for the near term.

I don't own any tech and am not really shopping any tonight either. I would require a tech/NDX reversal tomorrow to consider trading that department; worry about that bridge when we cross it.

Highest ranking industry groups in the market presently include Ag-operations/Fertilizer, Metals, various Medical sectors, Steel and US Oil/Gas (Expl/Prod).

Highest climbing industry group rankings in the market presently include various Retail, various Financial, various Transportation and the Homebuilders. It will be important and interesting to see if these newly hot groups can demonstrate further resilience or if they go back into the tank now instead.

I'll be betting on these groups placing lows in the opening hour and I will be running like hell if they cannot catch a bid. Bear markets do not bottom on Fridays (I mentioned this going into the Thursday, Jan 17th session, and like then, I will not be holding longs going into Friday if the market does not firm in some way tomorrow. Closing on the lows tomorrow would really set this up for the bears.

Until then, however, I'll play for the see-saw, penduluminous reversal in the stronger sectors.

Live Long List (for firming market only) for Thursday:


Retail-Apparel:
RL
URBN
COH
NKE
LULU (14.7% short int. managmnt owns 42% of shares)
SMRT (6.5% short int; guided lower on 10th and then Chairman bot >$1m stock following)
DBRN (12.5% shorts; they guided lower on Jan 10th and insiders bot heavy on 17-18th)
CHS (8.7% short int; heavy insider buys)
CBK (13% short int; multiple recent month insider buys, though not heavy)
CACH (8.75% shorts; multiple recent, decent insider buys)
HOTT
ANF
ROST
AEO
CHIC

Retail-Home/Dept/Restaurant:
BBBY
WMT
PFCB (heavy insider buying in November + 37% short int.)

AG/FERTILIZER:
LNN
SYT
TITN
CVI (Management holds 74%)
CZZ
TRA
TNH
DAR
GU
MOS

Finance/REITS:
CBL (reports after the close; continuous recent large insider-buys; 8.7% yield; 7% short int)
HME (decent insider buy Nov07; 15% short int; yield 5.4%; decent relative strength (RS))
CDR (multiple insider buys; 8.5% yield; 8% short int.; ex-divd date 2-6-08)
PPS

Finance-Investment Bankers:
BSC
MER

Banks:
USB
WB
NTRS
JPM

Insurance:
AFSI

Transportation-Trans Svcs:
EXPD
PACR
FDX
CSX
KSU
NSC
BNI
RAIL
(some of these too extended at moment)

Steel:
SID
MTL
STLD
TX

Homebuilders:
NVR (strong relative strength; 28% short int.; Chairman bot >$50M in stock early Nov)
LEN

LULU

Out LULU 33.42
(would consider this retailer again for a trade. Market closing weak again and I am holding apparel names CHS and COH already)

RL

Out of RL long, 62.94

SNCR

Covered SNCR short 19.93

RL, LULU, APOL

Bot RL, 63.09 (brief long trade)
Bot LULU at 33.67 (1-3 day long trade)
Finished APOL position long at 74.30

SNCR

Entered SNCR short, 19.65

BCSI

Entered BCSI short, 24.54

APOL

Bot APOL at 76.82 (long; 76.82)

DISCA

Covered DISCA short (ave. 21.47)

COST

Bot back first tranche of COST long; 64.7; end of session

NVR

Traded out of NVR long (ave. 613.30)

IRIS

Traded out of IRIS long (ave. 17.73)

DISCA

Went short DISCA (ave 22.05); 1-3 day trade.

CLP

Sold CLP long 26.69
(this one goes ex-divdnd on 7th; prefer to avoid that here)

NVR

Bot NVR long 605.50

COH

Added to COH long 30.53

CHS

Added to CHS long 9.77

CHS, COH

Bot first tranche of retailers CHS (ave. 10.04) and COH (31.27)

GU

Out remainder of GU at 11.11

JASO, GU

Partial cover GU at 10.85 pre-mkt; working the rest at moment)
(biggest up-move in Shanghai since June '05 today did not help the Cramer fade)

Traded out of JASO (ave. 54.30)

GU (Cramer Short)

Went Short GU in the aftermkt (10.72); Cramer knocked this one up >12% from the closing price; will look to cover here early Monday

CUZ

Traded out of CUZ; 27.33; just below the 200-day m.a.
(might re-enter this, but it goes ex-divd on the 6Feb; record date 8Feb; 5.1% yield; prefer to avoid those dates here)

TITN

Added to TITN (ave. 16.32)

JASO

Traded back into JASO long; 52.80

JASO

Traded out JASO 54.12

CAF

Added to CAF long at 41.62
(adding to core position; closed-end Shanghai fund; Shanghai never traded to lower-low; down recently w/ US concerns and extreme weather)

DBRN

Traded out of DBRN (ave. 12.35)