How the other side lives

There's always the time that things are different, so I can't hold conviction - but it seems to me there are still too many good leadership growth charts out there to be consistent with a market about to implode.

Check out TK's video tonight for a glimpse at how the other side is thinking. I have only respect for Tim and this is no pissing contest, but I'll briefly present the other side.

Right now (two weeks from now I don't know) I could post just as many powerful charts of new growth leadership as Tim can post laggard old-leaders that have rallied now to strong resistance and look like juicy shorts.

I won't make a speech (ha!) and I don't have the time now to make a lengthy argument, but from my experience there are never so many great leadership charts en mass (like now) when the market is headed for imminent, lengthy trouble. At the same time I would argue there are numerous occasions when there is a large host of ugly charts and the general direction of the market is not so phased by them. I'll keep the emphasis on the hot-money trends. Not every ridiculous shoot-the-moon penny jam, but within the realms of quality.

When the insanity stops, then so do I. And things can change quickly, obv.

And (more speech, sorry) as long as market volatility remains motive (which is clearly still the case at this point) I cannot see the logic in getting ahead of the trade, as TK is illustrating himself as doing.

If I am on the wrong side, there may well be a day (soon!) whereby TK scores big and I am out-back woodshedded. The next day however, we would presumably be more or less on the same side (I should be neutral at minimum, if not short; given a dramatic break-down).

When the volatility dies, getting ahead and trading-less is important to maintain an edge, but for now isn't it easier to just keep 1-step behind and forget about when it should peak (since that point was illustrated endlessly by so many as far back as late March!).

Yes, it is necessary to be on guard and you have to be very astute at getting out of crowded theaters, but that is the risk of trading with the trend. I don't care about back-of-the-coaster old growth after it has been cut down - I'm keen to focus on the new forest as long as it is thriving. When we no longer have that, what's wrong with getting short then?

I've got the rest of my life to sell on the way down. But if this rally is going to keep pumping then I sure as hell am not going to miss it.

Speeches aside, futures are down .25% tonight and I don't really like the prospects of a gap-lower here. I don't want any bargains right now as we start October. I have a partial hedge now, but I'll be hedging with abandon and selling my weaker names if the Nasdaq, Russell and/or SPX trade below last Friday's lows. At that point, if we only worsen, then I'm serving coffee to bears, selling more names, getting net-short and putting wax fangs in my mouth from then till Halloween.

If we rally firm tomorrow (somehow), I'm letting go hedges.

Easy game.

RINO is a Beast (and I am a madman)

I got caught with pants down early today, but here is what I can (briefly) inform, regarding the present action.

-Lower-lows on the major indices (posted Friday last wk) remain the pivot point for taking considerable action. So far today the Dow has penetrated this level, but that is the only significant index to do so; thus far this is bullish.

-GS was not invited to the selling party. On the other side, AAPL is holding its own. Semi's and various Tech are also firm; thus far bullish.

-Oil is rallying now, following earlier weakness and the Dollar has been down throughout the session (at the same time the market has weakened); probably bullish (I say probably because we may be further de-coupling with the Dollar/Equities inverse-correlation, more than indicating clear bullish prospects for equities; keeping an eye on this - even though you don't know what I just said).

-Breadth is clearly negative early, though not severe, and volume is rising; bearish, unless we can recover most of today's losses, reverse higher, shoot the moon, etc.

Heavy amount of Put-buying today; bullish.

-Trish came on and she was not very excited in reporting the Dow down more than 100 points; this is a clear negative for this session and was the tipping-point-catalyst for me taking on the partial hedge via TWM (originally I was looking to add double the amount of TWM, but not until the Russsell 2k traded below Friday's low; which has yet to occur...Trish means that much in my decision process).

-Action is not so grizzly thus far, but more big data hits this week (both tomorrow and Friday). If not for Trish, I would be simply taking lumps, pants down and hopefully wearing boxers down there. As it is I am still long, but a little less so; call this bullish or bearish - I refuse to use myself as a contrary indicator, at least publicly.

Since I have a bit of hedge now, I am free to add to longs (as long as we haven't broken any uptrend in the overall market). I'm taking an usual line on accumulating RINO. I'm paying up, as this thing is just a beast (higher again all day today, which is saying something), but I am only into a small, partial position thus far. I will intentionally add to this at a lower level (or else higher if it consolidates northward and creates a new entry). I also added back to JDAS, and I am eying BCSI.

The point regarding RINO is that I intend to break my rule of averaging-down. I don't like averaging-down, but this thing is a bit of a runaway and that strategy is my only chance now to have any piece of it; we'll see what happens. I'm probably doomed.

And if I end up with too many names as the market breaks my benchmark for needing to neutralize I will be adding to my hedge and simultaneously culling out weaker names long at that point.

Finally, if the market drives lower and the Dollar does not rally (further decoupling), then you can be rat's ass sure I am letting go of this UUP hedge.

When a hedge is not a hedge and it starts losing money, there is only one thing left to do.

Chuck it up!

-Total Position: Aprox. 2.5-to-1 net-long, considering levered TWM and low-beta UUP hedges.
-71% invested overall
-Pure-longs = 52%

Currently Long (according to size): CTSH (7.9%), RKT (7.5%), SWM (5.3%), SXCI (5.2%), CFSG (3.4%), JDAS (5%), CLW (4.9%), TSRA (4.9%), ULTA (3.6%), RINO (2.6%)

Currently Short (according to size):
-TWM-long (Russell 2k Dbl-short; 7.3%)
-UUP-long (12.2%); current inverse correlation with equity markets defines this as an equity hedge
(Note: inverse-ETF TWM represents being dbl-short the respective R2k-index).

Futures Accounts: no position

Quicknote for Tuesday

I re-read my post from Monday and I can't say I was impressed. On top of that it is late and I am not particularly inspired (which is good since ramping-up my manic salts right now would tax energy necessary for tomorrow).

I'll say this much - if the market trades to new recent lows tomorrow or Thursday then we should be in for some pretty wicked downside in the short term. I don't expect it and I'm far from positioned for it, but it is lingering now in the 3rd-car garage of my brainpan and my fight-or-flight nature is prepared to take-off running should that scenario develop.

Otherwise, I'll just keep increasing long-side exposure, gradually but purposefully, and according to the action at hand; my Deckchair list of live longs still in hand.

Easy game.

-Total Position: Aprox. 4.5-to-1 net-long, considering lower-beta UUP hedge
-57% invested overall
-Pure-longs = 45%

Currently Long (according to size): CTSH (8%), RKT (7.6%), SWM (5.4%), SXCI (5.2%), CFSG (3.5%), CLW (5%), TSRA (4.9%), ULTA (3.6%)

Currently Short (according to size):
-UUP-long (12.2%); current inverse correlation with equity markets defines this as an equity hedge

Futures Accounts: no position

Bears in Wraps (tame reversal action)

I'm half-full of fool today - keeping my glass nose exposed long; following the market's early pivot higher yesterday.

I've been active, even if quiet. Getting back to long was easy enough, but keeping hands on flames as the rally begins sputtering today is full fool faith; daring bears to wrap teeth around my already wooden leg.

I'm keying on several things simultaneously and not all of them are positive; surely. But for the immediate moment (which just passed, sorry) I am recognizing the tape is still flashing a bit of strength, coincident to the overall action beginning to slow. If we are really rolling over again I would expect a lower-high reversal to be more exciting than this day has been able to show so far.

That last line is the meat of this entry. The market rally from yesterday has stalled some, yes. But the reversal has been as exciting as special-order mud flaps.

Even though noticeable - not so moving.

You are correct, it is the end of the quarter tomorrow. I didn't use that as a bullish argument though, since frankly that dynamic is closer now to a sell-the-news event. Whatever leadership upside we've seen which might be attributed to window dressing is already in the cake. Move on Einstein - get a look at October.

And that isn't to say we're poised for straight-down action either - now that end of the quarter support should be waning. Sit down Sophocles.

You show me straight-down action and I'll perceive straight-down action. You put teeth in my leg and I'll hobble my ass to the other side.

In the meantime I'm keeping long, soaking 39% in the sun atop these shark-infested waters. Cue the scary music.

Note: I am jockeying a lot more in accounts than I am blogging about lately, but I've been able to keep trades updated live though via Twitt-trough on the right>>>.

-Total Position: Aprox. 4-to-1 net-long, considering lower-beta UUP hedge
-52% invested overall
-Pure-longs = 39%

Currently Long (according to size): SWM (5.4%), SXCI (5.2%), CFSG (3.5%), RKT (5%), CLW (5%), CTSH (5%), TSRA (4.9%), ULTA (3.7%)

Currently Short (according to size):
-UUP-long (12.2%); current inverse correlation with equity markets defines this as an equity hedge

Futures Accounts: no position

Quicknote on portfolio

Heading into Tuesday...

-Total Position: Aprox. 5-to-1 net-long, considering lower-beta UUP hedge.
-60% invested overall
-Pure-longs = 48%

Currently Long (according to size): GS (9.7%), SWM (5.3%), SXCI (5.2%), CFSG (3.5%), CLW (5.1%), CTSH (5%), TSRA (5%), TSL (4.3%), ULTA (3.7%)

Currently Short (according to size):
-UUP-long (12.2%); current inverse correlation with equity markets defines this as an equity hedge

Futures Accounts: no position

Deck Chair List of Leadership Longs

While I didn't exactly get mauled last week, the market flashed various forms of ugly as bears finally stepped out of traps and ultimately hijacked the hot dog cart.

Given the specter, the last thing I wanted to post this weekend was an updated list of live longs. Obviously then, that's exactly what I ought to do.

Don't do what I do. I'm born-again rabid, one-legged and restless. If you think this market can still trade higher, as I'm paid to suspect, then you're certainly not welcome to play any of the names below, as you need an examination. The list is dry powder, like my mouth, but in the ever-unlikely event this Titanic is not yet sunk, I've re-arranged the deck and will trade long from this updated list of leadership...

Chinese ADR's (tiger by the tail):
SPRD
RINO
CFSG
PWRD (only if successfully pivots off of 50-day MA)
CISG
HMIN
VIT
BIDU
CTRP
SHI
DGW
ASIA
EJ
CHBT (very thin)

Non-Chinese (all from highly-ranked industry groups):
SYNT (thin)
CTSH
SWM
CLW
EBIX (thin)
JDAS
SWI
NEU
ININ (thin)
TECD
WMS
WRC
PCLN
PTI (very thin)
NVEC (very thin)
MRVL
TQNT
KLAC
CYMI
CREE
SWKS
PMCS
NETL
MU
VLTR
TSRA
FORM
VSEA
INFA
JOYG
BUCY
LULU
JOSB
GES
ATPG
ROSE
BAK (thin)
IEC (thin)
LZ (still extended)
RKT

Noteworthy (not from highly ranked groups):
BCSI
RAX
RHT
ARST
ULTA
GMCR
SBUX
TSL
WLT
IOC
IAG
HAWK (thin)
DRQ (thin)
SXCI
CERN
QSII
AAPL
GS
IMA
USTR (thin)
FFG (thin)
GNW
STAR
PEGA

Night Gallery (natural eating machine)

Bloat Note

Following body shots taken from the weak reception of IPO GAME, I'm presently net-short again; having coughed-up SNDA and CYOU longs into that unseemly event.

I could have reduced my hedge and/or replaced lost longs, but the potential pivot in the market has deteriorated and I'll keep things small here (overall short until something improves). Market internals, while not extreme, have returned to negative. NYSE breadth for example, has re-reversed today; currently 2-to-1 negative.

Noteworthy, bellwether GS is trading to lower lows now and the AAPL reversal higher has faded (although AAPL is still quite impressive relative to the RIMM weeper). GS may be having a bit of trouble from these failed IPO's this week (their name was on several of them), but whatever the reason - if the Financial's leader is driving/leading lower the buy-button should likely be avoided.

I bought TSL and SXCI today before things worsened. They're holding in so far and not such a worry since I have but one other long remaining. [Follow realtime on the Twittpitt if you dare]

Back to the GAME blame - I think it is clear the course of action for me was to take lumps quickly, unthinkingly, given the surprise weak-open in GAME. I'll be staying off this group for now, but definitely interested. If they are not longs, then I would have to call them shorts. Something may have died under the floorboards today...any lingering smell would indicate rotting.

Thus bears remain downtown after all, sipping coffee still. And it looks like I bought the most recent round.

-Total Position: Aprox. 1.75-to-1 net-short, considering levered SKF and under-levered UUP hedges.
-33% invested overall
-Pure-longs = 13%

Currently Long (according to size): SXCI (5.1%), TSL (4.2%), ULTA (3.4%)

Currently Short (according to size):
-UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
-SKF-long (US Financials Dbl-short; (8.4% position)
(Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).

Futures Accounts: no position

Early Action (not so grimm)

Internals have improved to flat-to-slightly-positive early today, following the gap down to the area of yesterday's lows.

So far a victory for the bulls, but it does not yet confirm any new pivot higher. I've adjusted to slightly net-long here; 49% invested overall; pure-longs = 29%.

Leader AAPL shaking off the RIMM blow-up speaks rather positively. Besides what is says for AAPL itself, if it holds up it is a bellwether-positive for growth technology as a whole.

Bears are not back in the woods yet, but they cannot be comfortable sipping coffee here downtown.

Quicknote on position

I have a healthy amount of respect for healthy respect.

Subsequently I'm pulling in further today, reducing exposure and positioned now slightly net-short. The net-short stance is for reasons of 1.) Market pressure is accelerating, leadership is getting hit harder now than the major averages and internals on the day are not suggesting much possibility for great improvement here and now (as in today). And 2.) Being a little a little short here gives me a better ability to buy leadership at new entry points; perhaps lower, but not necessarily.

But my main ambition at present is to get smaller and see what develops; see if this is more of a healthy pullback within a larger bull market...or something worse.

I aim to remain 1-step behind this market; which has served well the last couple of years, or since the market's highs.

-Total Position: Aprox. 1.25-to-1 net-short, considering levered SKF and under-levered UUP hedges.
-36% invested overall
-Pure-longs = 16%

Currently Long (according to size): SNDA (5.2%), CYOU (4.1%), CFSG (3.6%), ULTA (3.3%)

Currently Short (according to size):
-UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
-SKF-long (US Financials Dbl-short; (8.1% position)
(Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).

Futures Accounts: no position

Bearspring!

Bountiful images aside, I'm going to make this as boring as possible.

Candles did glow red late in the day after all and the market reversed lower on reasonable, rising volume; an outside reversal and clear distribution day, the first of either in some time.

Let's discuss some (boring negatives):

-Oil and most commodities were down again and this was true for all the day. Cramer came on at one point late (just before the market peaked) and made the argument that the stock market was finally de-coupling from the movement in oil prices. That was true today, but only up to the moment that he mentioned it. I suspect tonight Cramer will find a was to take credit for today's pullback now, but who cares about that? He can take credit for his own birth - I won't mind.

-Shanghai has been down all week. Small GDP-economy or not, this is where a lot of the growth is and partly why US Mainstreet has no idea how a stock market can be so good when things are obviously so bad out there (out there, in their minds, is not far enough out the window perhaps, as emerging markets have been fueling growth, while domestically, only cost-cutting has been adding much to bottom-lines).

-The Baltic Dry index has been down for some weeks now; well enough off the highs to make a negative impression.

-Trish, I mentioned earlier, today asked a pro when and not if the Dow would reach 10,000. I have said many times to listen to Trish. You think I am crazy, but you don't know Trish the way I know Trish. Trish is a sentiment composite; she's a peach.

But before you bears go crazy with excitement, there are positives:

-We were still making new highs in indices and in key stocks as late as, well today. Leadership has yet to do anything but lead on the upside, not down.

-There are a ton of stock offerings coming this week and many of them have the Goldman/Morgan Stanley name on them. I cannot recall a week with big offerings where the market had a substantial sell-off. Big firms with big sell buttons want nothing of a panic when they are trying to distribute such quantity of stock. Hands-off the sell buttons right now would be the company line...let's see what happens.

-Fervor, yep fervor today now on the message boards, as bears finally have something to high-five about. And I have to say, it reminds me of someone finally getting a big win at the race-track and shouting with way-too-much vigor. Sorry, but this is what a long-term loser sounds like when he eventually nails an exacta. Bears should not over-celebrate a small victory here. Bears should be keen for either of three possibilities now and respond accordingly. Hope is not a trading strategy.

-A small pullback here would be a nice positive, assuming it doesn't deteriorate with accelerating force each day. Letting off a little steam, without that acceleration, would be a bullish set-up. If we see accelerating force, then respond accordingly - naturally.

That's as boring as I can make it for such an exciting day. I sold stocks with abandon in the last hour today - but that is less about what I might think and more about what I do (accelerate exposure going up and manage risk, if not change sides, going down).

I don't even want to know what I actually think about any of it.

I went from 13 to 8 names long today and I reduced several of those remaining. Here is how it looks here going into Thursday...

-Total Position: Aprox. 1.5-to-1 net-long (down from 4.3-to-1), considering levered SKF and under-levered UUP hedges.
-56% invested overall (down from 84).
-Pure-longs = 35% (down from 65).

Currently Long (according to size): SNDA (5.5%), EBIX (5.3%), DGW (4.9%), CLW (5%), CYOU (4.2%), TQNT (3.9%), CFSG (3.8%), ULTA (3.4%)

Currently Short (according to size):
-UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
-SKF-long (US Financials Dbl-short; (7.9% position)
(Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).

Futures Accounts: no position

Shanda Spin-off (quicknote on GAME-ing the system)

SNDA spins-off IPO GAME, which should begin trading on Friday (it is due to price tomorrow; after the close I presume).

I wanted to reduce the SNDA position tomorrow, just ahead of that event, but it is running hard this morning and given I was more than double-normal on the long position, I bailed out on half today; 58.80.

I'm looking to hold the remainder (now 5.5% of accounts) into Friday and then blow-out the GAME holding once the new issue begins trading (should it open at a decent premium). I expect to hold SNDA from there, unless it trades poorly following the spin-off; I will blow it out same day in that case.

On a side note, NTES from the same group is breaking out today. If I were really bright I'd be long that name as well.

Itsy Bitsy Bearish Post

No doubt you saw it - the market traded lower for an hour or so this morning.

I know it was a long time coming and yes, I know there were a handful of red candles on the hourly earlier this week as well, but today was even more convincing.

Than ever.

Well, bears be damned - It's me and Trish now. I'm sitting here with a lawn chair up my ass, sipping on caustic sodas while hot dog mustard glazes pen-protected corduroy t-shirts - waiting for Dow 10,000.

If I were smart (smart enough to write 'Trish and I' instead of 'me and Trish'), I would notice that Trish has now begun asking guests when we will hit Dow 10k and no longer if.

Fortunately I remain an idiot.

The FOMC announcement hits today ~2:15 PM EST. We'll see if candles can glow red on the heels of that biggie.

When will it be time to go short?

Not sure here. They don't pay me to know.

Update on portfolio

While I took the day off from blahging yesterday, I didn't take the day off trading; lifting SKF and TWM hedges early and then adding TQNT, EBIX and DGW longs. Follow realtime on the Twitterspitter if you care about any of this.

Heading into Wednesday...

-Total Position: Aprox. 4.3-to-1 net-long, considering under-levered UUP hedge and temporary ATT (T) short.
-84% invested overall.
-Pure-longs = 65%.

Currently Long (according to size): SNDA (10.3%), CTSH (5.8%), CFSG (5.7%), SXCI (5.3%), RKT (5.3%), DGW (5.1%), CLW (4.9%), EBIX (4.5%), JDAS (4.2%), TQNT (3.9%), ININ (3.7%), SWI (3.5%), ULTA (3.4%)

Currently Short (according to size):
-UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
(Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).
-Short Cramer's T (7.2%, from 27.12; 1-day Cramer-scalp only)

Futures Accounts: no position

Quicknote

The half-full glass is half-full of half-empty just now, but I'm keeping little changed so far; from the portfolio posted last night.

Give the market some credit here, as it flashes resilience yet again. Most of the more aggressive growth stocks did catch a bid following today's gap lower.

But while the Nasdaq reversed positive (so far) on the day, internals today remain mostly negative. The victory for the bulls may be more in the market stabilizing and getting quiet for now; as opposed to a strong upward reversal; we'll see.

Nasdaq is currently higher by .25%, but leader AAPL remains lower by almost 1%, overall breadth is negative by a couple hundred issues and volume is running on the low-end of recent normal (certainly lower than Friday).

Over on the NYSE, which is still lower by .66%, breadth remains greater than 2-1 negative.

Commodities are taking body shots today - also a negative.

Drivers this week include the FOMC meeting, G-20 summit, the Dow 10k magnet (which is getting a lot of attention), a boatload of IPO's coming to market, plus a handful of other things I'm paying virtually no attention to.

I'm keeping with SKF, TWM and UUP hedges for now and not accumulating further longs at this point.

Night Gallery (durrrred)

Update on portfolio

Heading into the week of 21-September...

-Total Position: Aprox. 1.75-to-1 net-long, considering levered SKF, TWM and under-levered UUP hedges.
-85% invested overall.
-Pure-longs = 52%.

Currently Long (according to size): SNDA (10.1%), CTSH (5.7%), CFSG (5.4%), SXCI (5.3%), RKT (5.3%), CLW (5.1%), JDAS (4.3%), ININ (3.9%), SWI (3.5%), ULTA (3.5%)

Currently Short (according to impact):
-SKF-long (US Financials Dbl-short; (7.8% position)
-TWM-long (Russell 2k Dbl-short; 7.3%)
-HAIN (Cramer-feature-fade 1-3 day trade; 6%)
-UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
(Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).

Futures Accounts:
-No position - Covered Dec BR Pound short 1.6334
-No position - Covered Dec SP500 short at 1057.75

Fool School (a trader's guide to chasing ambulances)

Sharp STEC in the eye - click chart to enlarge...
The heart is a lonely hunter.

Millions of people trade the markets. But contrary to how we tend to think, people have a relatively small influence in the face of a big move in an individual stock.

When we refer to such a move (a major sell-off like above, for example), we tend to think, report and refer to it with terms such as more buyers than sellers, people were selling, something like that.

In fact it is just the opposite. When you see a high-flier break-down with a vengeance, you see also, oddly, that people are buying, not selling. The notion that the stock went down because everyone got out is wrong. If you look at the number of trades you'll see a terrific imbalance of buyers vs. sellers - but opposite the ratio you might expect. In a serious break of a formerly leading stock, the strong majority of tickets in those couple of days are buy-tickets.

1000 shares here, 1000 there and 100 shares or fewer here, there and everywhere.

People are getting-in, not out and its happening in droves. Yet the stock drops like a stone.

People must be over-rated.

A lousy few-dozen institutions are hitting bids faster and harder than these eager folks can possibly support. The fact the price is crashing is a simple matter of supply vs. demand, but it is certainly not because everyone was running for the exits.

Tens of thousands of units of demand can rush right into a burning theater while but a few larger units of supply simply engulfs them.

We may as well discuss STEC then, a leadership tech name which was handing heads out on platters this past week:

Even though STEC had been a powerful leader before breaking-down badly on Thursday, and although a quick, downward slice on the strongest stocks is commonly a good entry**, there were several red flags which argued against stepping-in under the piano to bargain-shop STEC...

1.) While a leader previously, STEC broke through the 50-day moving average (MA) early on Thursday, with a volume pace well above 4x's normal (50-day MA was 34.67 on Thursday).

2.) The catalyst for the break was nothing more than a small firm's analyst-downgrade (in other words, somebody sneezed; be very wary when a sneeze is able to cause so much damage - that sneeze is infectious).

3.) Perusing the Yahoo message boards, I saw virtually all of hundreds of comments whereby people were buying the pullback, looking where to buy the pullback, bragging about where they had already covered short the pullback and discussions of when where and how the stock was stabilizing. I am not exaggerating, virtually no one was commenting on this being a short-opportunity, a sell, or even a stock to avoid. Yahoo message board traders were all on the buy-side BUT that did nothing to stem the sell-wave. I never like a situation where a clear majority of players cannot hold a candle to a minority of sellers. In this case, folks were buying or looking to buy, but they were dwarfed by the force of selling (respect the larger force, especially if a clear majority of people disagree with it).

4.) Never buy a gap-up of a couple or few percent the next morning following such a significant technical break. The same group of bargain-hunters above have bid the stock-up (because they live in the past and even though this stock was jokingly expensive to them at 32 on the way up, it now appeared attractive and cheap; merely because it was coming down from above 42). This group cannot hold the tide. If you are stuck in a breakdown like STEC on Thursday then you were ill-advised to take that position overnight. The gap-higher the next day is your now-best exit - take the gift you dumbass!

5.) Look at the bearish Railroad Tracks formation 4 and 5 days ahead of the Thursday's breakdown. This is a technical pattern that makes perhaps little sense, but it has marked the highs in some great winners of the past (two days of trading at the highs, whereby the trading range is nearly identical; looking like two parallel lines or railroad tracks; it indicates churning, especially if volume is greater than normal). I have a refreshed respect for this formation.

6.) Short interest was exceptionally large on STEC. At one point I recall greater than 30% of the float on STEC was short, but even at 22% (current level), that is too high to hold any faith in a name breaking down [Edit: short interest is still >30% vs. the float. 22% is based on total shares outstanding]. Big shorts have done their homework. And while it is true that a large short interest can make for terrific short squeezes going upwards, any issue with above 20% short interest is a huge red-flag and should never be trusted when driving downward. When a stock is shorted to such a degree, sooner or later the shorts tend to be right. Sooner or later you're buying CROX coming off the highs and ultimately you end up wearing them on your face.

7.) Another warning sign prior to the breakdown was that STEC was already driving lower, although not so dramatically, before Thursday AND at the same time the market and other names in the Semi-mfg group were driving higher. Kudos to Tim Knight on Slope of Hope for adding STEC to a new short-list late in the session on Wednesday.

8.) STEC has a float of 31M shares and it traded 21M shares on Thursday and then 12M on Friday. Take a guess who owns these STEC shares now? ...yep.

**One thing I want to clarify: I mentioned that a strong, downward slice on a leadership name is commonly a good long-entry. Yes, this is true, but you have to be sure it is not the expulsion from paradise, like in the case of STEC this week. Volume is your best measure. Don't trust a name that is breaking on a significant rise in volume (a price-break greater than 5% on 4x's or greater normal volume is a sell in my opinion (and 2x's is enough volume if a large-cap is breaking more than 5%); but a stock thinly traded which jackknives down 5% on only a little more than normal volume is very often showing you its short-term lows in that 5 or 10 minute period. And, importantly, these slice-entry opportunities tend to recover quickly (that same 5 or 10 minute period, in fact). They don't keep making lower-lows as the day progresses. I can't get into it further just now and this is a dangerous tide to play in, so let's leave it at that and instead forget I said anything on this. Please don't go buying every downward slice on my account. Please find a suitable hobby and call your mother - she loves you man.

Sitting on Hands (sans hedge here at moment)

Yes you can!

Bears are jumping up and down now, seeing actual red on the tape and a negative reversal in the major averages.

Myself, I had a sloppy cover of my new SDS hedge, coughing it up as the averages surged early, only to watch them revert right back to Earth afterward.

Amateur!

Fine. Normally I would hop right back on, if/when I regret exiting a trade. But this is a hedge and I am committed still to the long-side as long as it is working.

And no offense to bears (ha!) but in many ways I am less nervous today than I have been most of the week.

The reason is that I'm looking to hedge in order to protect - for defense. But of my still-too-many 13 longs today, there are only 3 in the red at the moment (meaning, if this is the pressure I was worried about ensuing, then I may as well just try to ride it out).

CNBC's Fast Money just finished (morning segment) and 4 out of 4 of the trader pros there suggested selling this market; but breadth is not very negative, far from extreme; leadership is obviously holding well, with names like AAPL and GS still up strong on the session; stocks are still breaking out to the upside, charts remain live and I'm up almost a full percent with currently 10 out of 13 longs in the green.

What me worry?

Anyway, my finger is not far from the trigger, but I am going to keep to the strategy of hedging only if I have to (may be before you even read this ;). I don't mind a bit of whipsaw now and then and I don't expect to trade perfectly. But I will not be net-short this market until the long side stops working.

Total Position: Aprox. 7.5-to-1 net-long, considering under-levered UUP hedge; 72% invested (pure-longs amnt to 60%)

Currently Long (according to size): SNDA (7.2%), CFSG (5.6%), NEU (5.6%), CTSH (5.6%), CYOU 5.5%), RKT (5.4%), ULTA (5.3%), CLW (5.1%), JDAS (4.2%), ININ (3.9%), SWI (3.3%), FNSR (2.9%)

Currently Short (according to size):
-Long-UUP here (12.1%); which due to inverse correlation with equity mkts defines this as an equity hedge and I have it in the short-camp as a result.

Futures Accounts:
-20% Dec BR Pound short, from 1.6497
-Covered Dec SP500 short today at 1057.75

My leg - bear mouths...

Quicknote

Busy morning and previous portfolio update already out of date; as I covered most short hedges for now. All trades (and occasional updated-allocation) are being conveyed via Twittfeed.. Futures accounts aside, allocation here is nearly fully long again (UUP Dollar-hedge the only exception at moment); may change again, depending, but internals early in the session are too strong to fight w shorts.

Pure-longs at moment = 69% of portfolios [Edit: 59%, not 69]

CFSG has broken out.
SNDA acting like a beast following downgrade to sell by big firm.
STEC breakdown is a bit of a wake-up call; as that name has been a tech leader.

Update on portfolio

Total Position: Aprox. 1.5-to-1 net-long, considering hedges; 95% invested (pure-longs amnt to 59%)

Currently Long (according to size): SNDA (6.9%), NEU (5.6%), CTSH (5.6%), CYOU 5.5%), RKT (5.4%), ULTA (5.3%), CFSG (5.2%), CLW (5.1%), JDAS (4.2%), ININ (3.9%), SWI (3.4%), FNSR (2.6%)

Currently Short (according to size):
-SDS-long (SP500 Dbl-short; (12% position)
-FLEX (7%), new Cramer feature-pump (1-3 day trade)
-NITE (6%) newer Cramer fade (1-3 day trade)
(Note: inverse-ETF SKF represents being dbl-short the respective index).
-Also Long-UUP here (12.1%); which due to inverse correlation with equity mkts defines this as an equity hedge.

Futures Accounts:
-20% Dec BR Pound short, from 1.6497
-20% Dec SP500 short, from 163.50

Night Gallery (two in the bush)

Quicknote (plus CFSG shoptalk)

Action today is quite firm. Underlying internals are strong enough presently to suggest a reversal is unlikely today and the potential for closing at or near highs is reasonable. Note that underneath the major averages the NYSE and Russell 2k are outperforming, along with Financials (XLF); which have finally managed to join the new-high party.

I let go the SKF hedge early today, which turned out to be fortunate and as such I'm riding significantly exposed on the long side just now. I still have the UUP dollar hedge and I still hold the Cramer fade FLEX short (1-3 day trade only), but basically I am significantly long at moment (long and wrong; long in the tooth; longing for more of this joke of a rally ;).

CFSG-long is new here. The name is poised now for break-out (we'll see) and is posting the biggest volume on record [edit: biggest since July '08]; following a presentation overnight in China. There are a lot of interesting ingredients here (Chart is poised; 2-year lifespan is favorable; management holds a 60% position in the outstanding shares; strong margins/cash-flow; it is, well, a Chinese ADR), but it is less than perfect (group is poorly ranked, although I will break this discipline at present for Chinese ADRs if highly ranked; name is thin, although thin-is-in these days; Growth is less than stellar, but at same time PEG ratio is favorable (price/earnings/growth), ideal is to see RS run to new highs ahead of a bkrout and so far not the case).

If you understand that last paragraph then you're hired - I could use the help.

I may or may not re-hedge the overall position here at the close (earlier, certainly, if we begin to reverse); cannot say at the moment, but last night's post still represents my near term thinking.

Other trades today are recorded on the Twittfeed on right>>> (I am indeed going to get the number of longs down, even if I do not yet reduce overall long exposure; today was a small start).

Beast out

This One Goes to 11

While the market action was more impressive Tuesday, the rise in sentiment is not backing down and continues to be a growing concern. Fresh economic data further indicating an improving economy is no less concerning, as market rallies within a recession have a tendency to stall coincident to a shifting perception that the economy is truly improving.

We're two weeks now from the end of the quarter and this should start to get more attention. Window dressing is commonly heightened in a year that most managers are under-performing their respective benchmarks and this dynamic may be worth more right now than most expect. That said, we cannot count on the dynamic of under-invested managers piling-on and keeping the market pumped right to the last day. There have been a couple instances in the last two years where a good rally stalled-out and got ugly, with several trading sessions left in the quarter's tank.

My trading may get a little wild here in this period. I have too many names (long) at the moment, or at least too many to respond to a directional shift with any rapid immediacy. So while I don't mind the heavy exposure presently, I am uncomfortable with having this many children to escort across a highway when/if the time comes to run. I was looking to reduce the number of names Tuesday, but none stood out as shoot-me candidates to cull my book. Wednesday is another chance.

Even with a smaller bunch, I intend to push on this until it pops, with a succinct goal of getting out without egg on my face. It helps to be a bit of a maniac, but nothing here is automatic, so don't follow along for more than learning and entertainment. Good or bad, there will be something to learn here in the next couple of weeks. I know what I am after and I am capable of pulling it off, but playing with fire doesn't always equate to a feel-good ending by the time credits are rolling.

And the sequel is usually worse.

The name of this blog begins to make some sense, perhaps. I'm pretty confident I can beat the train to the tracks - but I'll be speeding things up now, in an effort to be sure.

Total Position: Aprox. 2.4-to-1 net-long, considering hedges; 92% invested (pure-longs amnt to 67%)

Currently Long (according to size): SNDA (7.1%), CREE (6.1%), NEU (5.6%), CYOU 5.5%), CTSH (5.4%), RKT (5.4%), ULTA (5.1%), EBIX (5%), CLW (5%), MRVL (4.7%), JDAS (4.2%), SWM (4.1%), ININ (3.9%), SWI (3.5%), FNSR (2.6%)

Currently Short (according to size):
-FLEX (7%), new Cramer feature-pump (1-3 day trade)
-SKF-long (US Financials Dbl-short; (6.9% position)
(Note: inverse-ETF SKF represents being dbl-short the respective index).
-Also Long-UUP here (12.1%); which due to inverse correlation with equity mkts defines this as an equity hedge.

Futures Accounts: No position - Covered Dec BR Pound, 1.6463

Red Rocket Forecasting (and a dish of Trish)

Here's a guy who looks like he knows what's coming next.

While the US market has continued to rise, market sentiment is erecting faster now than prices themselves. Monday's reversal had merit, but this was no great percentage reversal; while volume declined to the lowest levels in the previous few sessions.

As long as the market is rising, this sentiment stuff is not so important (lunacy has no boundaries). But if a down-trend were to develop, coincident with eager, buy-any-dip sentiment present, that would get me defensive in a hurry.

That said...

-Parading CNBC-heads who at much lower prices were arguing we'd pullback because the market was overdone, have shifted to the general opinion that this market wants to go higher and can be bought.
-Maria Bartiromo was uncharacteristically giddy Monday, in fact she was cackling, even, over the market's incredible resilience (we should discount this some, however, since her big-boned parent GE was leading the generals, up >4%).
-And message boards today saw a notable pattern of capitulating bears covering shorts, citing something along the lines of "this market wants to go higher." Interestingly, there were several examples of people covering and turning around and getting long.
-Tuesday we'll see if Trish's octaves shift to dramatic, as she was on too early Monday to digest more than the market's negatives (fears of a trade war with the Chinese rattling investors around the world, etc.).

Trish is basically a sentiment composite; a sponge. I'm pretty sure she has no real thoughts herself (think Buddha), but her job (posted by CNBC on the floor of the NYSE no less) is to ask questions, interpret and report what all these smart people around her are saying; presenting it in her best professional news-casting persona. That sounds cruel, but I'm not being cruel. I don't think she knows anything about markets, what's wrong with that? Trish is pure, In fact she's a muse. If you know how to listen, especially to changing tones, then Trish is the best real-time sentiment indicator who's still in the business. When the inflection gets extreme (such sweetness), that grating shriek signals the wave is complete (that ride is over).

Recall a lady named Trish
Far from a CNBC dish
But if you listened real close
When that shrill voice did roast
The opposite direction commenced

Special thanks to TK for inspiring the latter, with his Green Clovers limericks post after the close today.

Total Position: Aprox. 3-to-1 net-long, considering hedges; 89% invested (pure-longs amnt to 70%)

Currently Long (according to size): SWI (5.9%), CTSH (5.4%), NEU (5.4%), CYOU 5.4%), ULTA (5.2%), RKT (5.2%), SNDA (5%), EBIX (5%), CLW (4.8%), MRVL (4.8%), SWM (4.1%), JDAS (4.1%), ININ (3.9%), HAWK (3.5%), FNSR (2.7%)

Currently Short (according to size):
-SKF-long (US Financials Dbl-short; (7% position)
(Note: inverse-ETF SKF represents being dbl-short the respective index).
-Also Long-UUP here (12.1%); which due to inverse correlation with equity mkts defines this as an equity hedge.

Futures Accounts: Short Dec BR Pound (20%), from 1.6678

Punch Bowl List of Live Longs

US Futures are down 1% tonight (at this writing) and bears are no doubt salivating. The end of the rally is quite possibly, ever so likely, perhaps finally at hand.

What better time than to update some of the punch-bowl longs for aggressive growth.

Don't do what I do, but if we gap lower Monday and the market catches a bid, I'm using this list to fire fresh, weakened dollars for long-side trading. If we fail to catch a bid and blood begins to tint the water, then the list self-destructs and I'm scrambling to further neutralize my position; which right now stands roughly 1.8-to-1 net long, hedged by SKF, SRS and UUP.

Except for several of the Chinese ADR's, which are highly ranked in-and-of-themselves, names from this list hail from industry groups currently ranked in the top 50 (out of 197 industry sub-groups ranked by IBD).

Chinese ADR's (hot till they're not):
FUQI
PWRD
CISG
HMIN
CYOU
BIDU
CFSG
NTES
CTRP
SHI
DGW
LFC

Non-Chinese (all from highly-ranked industry groups):
STEC
SYNT (thin)
CTSH
SWM
TECD
WMS
USTR (thin)
WRC
PCLN
GS
NVEC (very thin)
MRVL
TQNT
CYMI
CREE (only above friday's 2ndary pr. 35.00)
SWKS
PMCS
NETL
MU
ALTR
NVDA
VLTR
CYMI
FORM
VSEA
KLAC
FFG (thin)
GNW
LULU
JOSB
GES
CLW
RKT
ATPG
ROSE
BAK (thin)
IEC (thin)

Noteworthy (live longs not from top-50 group ranking):
EBIX (thin)
JDAS
ININ (thin)
ARST
ULTA
NEU
IAG
HAWK (thin)
SXCI
AAPL
SWI
IMA