Fakedown Set-ups for Monday (ATHN)

Several healthy stocks look poised to break key moving averages. Will they break-down or fake-down?

ATHN looks best to fake-out - click here for screencast

RR Tracks on AAPL Chart (screencast)

The dreaded Railroad track pattern is overhead now on The Apple Computer.

Click here for my screencast on attacking AAPL short (short-term trade only).

Trader's Ed (Red Asphalt edition)

Let's admit, some of what we saw last week was ugly.

Unwholesome actually.

Significant cracks re-emerged in the markets and I’ve backed-off, for the moment at least, my game plan of re-loading leadership longs into the resumption of your damaged mood.

As I’m prone to becoming cheeky when inspired, at times, I have to be disciplined and adjust the playbook when action in the market surprises me. This is especially true when forces larger than me aim for my head with ribboned toothpicks.

Animal spirits are fundamentally dampened now (which is important). Yes, yes, there were excited hopes of a bounce born Friday, but that’s a standard psychological response from men of business media who had their nuts up in a noose the day before. They’re just happy breathing, if you know what I mean.

This wasn’t the higher-low downdraft my salivary ducts were counting on (not yet anyway). For that strategy to maintain a positive expectation value, your mood should be ugly, certainly true. But coincident to lower sentiment, there should be clear indications of improving strength in the markets at the same time (a market making higher-highs and higher-lows from a previous month’s shockwaves, coincident to lower-lows in the prevailing mood, for example. We had something like that building before last week).

Negative sentiment, in and of itself, is not a bullish signpost. The worst elevator drops in history appeared coincident to negative sentiment and oversold conditions (re-read that line if you think an oversold market is a positive set-up). You need to see real strength (not merely value), coincident to the brood storm. Otherwise, you need to wait for a better market.

Then there's this anecdotal religiousware I use to preserve my neck from time to time: Severe damage can only persist for so long before everything becomes vulnerable. The path of wrath (if you will), when sufficiently inspired, sinks all ships (even if some more than others).

So, while I remain an idiot still and I can’t help but keep excited over the opportunity to get long leadership stocks, this nutcracker of a week was more than my balls were bulging for. I did get short ahead of the carnage (incroyable!), but the best strategy would have been simply to cover shorts during the panic, and go buy a couple of nice sweaters. I added several leadership longs during Thursday’s tumult instead, and three out of four of these silk-knits traded up from that point Thursday (which is a feat), but failed to exhibit any power then when the pressure came off on Friday (which is frightening). Friday should have been the gravy day for leadership, but the gravy was cold. Not a good sign.

If you’re trading aggressive leadership and your portfolio is acting aces on a flat market day, the next day the general market wakes up as well (hot money is the first to move). On days when your portfolio is going nowhere, however, while uglier merchandise is bid-up, the next session or two typically marks the beginning of a downdraft. When you buy leadership, you are ahead of the curve – for better or for worse.

And that is the point taken from Friday’s sermon. Leadership, which had sustained pressure so well (again!) on Thursday’s mega-drub, did not behave like the proverbial bar of soap under water once the pressure came off (the IBD-50 actually dropped .5% Friday and losers there had significantly higher relative-volume than did winners; the sort of action which terrifies me when I’m long of the same sack).

These lovelies should have popped right back to levels ordinary people are again uncomfortable to buy. They did not.

To be sure, I’m a bit of crackpot (crackpot scientist, actually). What you may not have realized though, is that, having failed to excel in the really advanced physics and math courses, I’m also something of a logician. Here is how I see the present situation:

1). When leadership fails to advance once external pressures come off, or if it is under-performing in that advance, it is likely to move lower instead.

2). When leadership is the only building left on the block that hasn’t been sufficiently hit and severe hits keep coming - leadership is going to get hit.

There’s no rocket science to this analysis. As a matter of fact, rocket scientists are too smart for such pedestrian logic (those guys have been short since 1999!).

In a true bear market, everything gets hit eventually. The group of stocks which held-up so well during the first few shockwaves, should get salted now if subsequent waves continue to appear; even if but for a session or two.

And hey, maybe not. Maybe we rally from here and for more than just a bounce. I don’t really mind. I can catch the next train (especially if it has left the station and you’re uncomfortable to pay-up and get aboard). It’s easy to pick fruit when it’s staring you in the face and your peers are primarily running for cover. But if fruit is no longer present, well then maybe there’s something to all the fuss. Hunting for squashed dimes near tracks of trains carries a negative expectation of value.

I need quarters to behave like that.

And it’s more than this subtle characteristic of Friday’s tape that has me fearing the quality of fruit. The smartest economist, we all know, is the price of Copper, and carnage was bathed in technicolor in in that market last week. Prices managed lower-lows on Monday (nothing sensational), but then accelerated into oblivion from that point forward (Copper fell 15.7% on the week, 18% counted to the low). Energy and softs were cemented and tossed from bridges as well, while Treasuries held firm and the Dollar strengthened. These are deflationary signals - signals that are screaming in concert now (hopefully for this weekend only).

Deflation is pretty much the market's worst fear.

I didn’t mention Silver. Put the children to bed and consider that Silver dropped 22% in two days (25% counting to Friday’s low). Train wreck is too kind a word right now for silver. Commodity futures trade 10x leverage, so that’s roughly a 220% loss in two days, in laymen terms. Those are Red Asphalt returns in Silver last week.

By the way, If you can’t watch that clip without getting sickened, you should not trade commodities (you probably shouldn’t anyway, but that’s another story). There are people with similar stubs for heads this weekend, having the misfortune of a bad trading week in commodities. As that movie once said (back in Trader's Ed and long before you were born, I think), “whether he failed to see the stop signs, or simply chose to ignore them, no one will ever know - but this account is dead.”

Very good, I was wrong to suggest another wave of suffering was all I needed to re-load leadership and drive these stocks up into Thanksgiving. I’m sidestepping that plan for now and keen on letting leadership have its day in court (she’s a witch!)…Before considering my same strategy of driving these names higher into Thanksgiving (!).

If (as in, IF) there will be another shockwave this upcoming week, I’ll lay money the NDX, which held up so well up to now, is going to get clown-dunked; even if for one or two sessions. We’ve seen a desperate grab for liquidity lately, over a wide and certain swath. On Friday the NDX’s number just came up.

Step up to the counter cowboy, Swedish meatballs are to die for.

[I’ll be posting a screencast regarding the subtle flaws of Friday’s leadership tape. A pseudo science explanation on why I am now, temporarily for the time being, short the NDX, and in particular, the Apple Computer.]

Follow @Centrifugal to fade trades in real time

Current Position: Equity accounts are 2.1-1 net-short, 108% invested

Currently Long (according to size): LO (9.9%); ATHN (8.7%), ULTA (7.9%), CELG (7.3%),ROST (7.2%)

Currently Short: Nasdaq-100 index via QID-long (19.4%), NSC (14.5%), AAPL (12%), BAC(6.1%), CSX (6%), BIDU (5%), SINA (4.1%)
...due to relative beta vs. current longs, QID is weighted at 1.75 x's (not 2x's) in the net-short calculation.

Futures: Short Dec SP500 mini from 1134.25, 5% of accounts

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

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...

AAPL Trade (nearly explained)

In a further attempt to not really go very far explaining,,,,

I went short AAPL as Steve Jobs took the stage today at Macworld. This was easy enough and unless the market weakens (and I need the hedge), this is a 1-to-3 day swing trade (if the drop is quick, I'm not after more than ~10 points from 174 - if it is slower to decline I might strive for more).

Traders know (2well) why it may decline. It ran up prior to the event, there was no major new product announced and there is a history of selling-the-news on just this event (x-out the new iPhone launch year anyway; on that go-round it did not exactly drop).

But I'll be more interested if the stock does not drop. In that case I'll presume 15-25 points upside is imminent; especially considering how frail Steve Jobs did appear.

That would take it to the area of old highs, which sooner or later is far from out of the question; even if it ultimately fails there. Even if not.

The point is that if they cannot beat it back now, then nothing is likely to stop an accelerated rise in the near term.

Twitter feed is on right for details>>>

Bellow Mellow (underwater basket weaving)

Still I refuse to post my thoughts concerning this pullback. But I remain sweet on Trish.

Her highest octave this morning was coincident with the highest prices on the day - imagine that:

"The market is off to the races today with the Dow Jones Industrial Average up 44 points!"

44 points is a full half-percent. As I write this, we're down however...a full half-percent.

I know I'm stretching here, but I promised yesterday to show some value (Trish-value). It's a relatively quiet option-expiration session thus far. Trish was never likely to hit a home-run today. She did her standard best. I calculate CNBC and I are roughly even then on the day; some modest compensation received in exchange for having to listen to this barb.

Something's got to pay.

Regarding the current position here, while I did shift away from an aggressive short stance (late Wednesday/early Thursday), I've yet to really cover that side of my position (I had added leadership longs for balance and have not yet covered much in the way of shorts; the reason I am up to 76% invested).

These pivot longs are continuing to work thus far and fortunately for me are out-performing my shorts (in terms of percentage gained), so I have not yet been hit on this mkt-bounce higher (even though I've remained more short than long (and long-winded, sorry)).

If we deteriorate much further the second half today, I will look to lighten the weaker longs to prepare for Monday. Monday's following Op-ex tend towards dreadful when/if the Friday expiration goes poorly.

What's got to pay?

It's Friday my reader friend. I can't leave before the close, since I'm babysitting this tidy group below. But ring that bell in a few hours and I am out the door, ready to roil!

36 hours of spearing, searing, pelting and svelting.

Bone weekend!

Total Position: 1.42-to-1 net short (plays 1.85-to-1 net short considering leverage), 76% invested

Currently Long (according to size): CYOU (6.3%), SNDA (5.9%), WNR (5.1%), NFLX (4.1%), PMCS (3.7%), DRI (3.7%)

Currently Short (according to size): TWM-long (10.8%; Russell2k Dbl-short), AAPL (7.6%), USB (6.4%), STRA (5.1%), AIPC (4.5%), PZZA (4%), BKE (3.4%), SRS-long (3.3%; US Real Est. Dbl-short)
(Note: inverse-ETFs TWM and SRS represent being dbl-short the respective indices)

Futures Accounts: Covered SPX Jun Wednesday 880.75, from 912.75; Remain short 40% Jun Euro FX, from 1.3585

Buy Polar (scaling into short)

Given that bears are dead (or slightly underwater as some suggest - ha!) I only need to see subtle signs of a top to begin firing short. Risk/reward is favorable, since getting stopped-out at higher highs represents a small-enough loss, while if it is the beginning of an intermediate-term top the potential profit looms considerably larger.

Today is not perfect, but there are enough signs for this trader to scale into shorting:

-Volume has been heavy today and Tuesday without further advance (distribution)
-The NDX led a downward reversal today (NDX is a leading index)
-Sentiment lately is sufficiently bullish/hopeful (thus, sentiment is no longer a positive)
-The majority of leading industry groups today are poorly-ranked, while the clear majority of lagging groups on the day are higher-ranked (bearish tape-action).

This is not enough to pound any tables, blow bold clarion calls, or even warn the widows and orphans their dreams are re-ending. For that we need to see confirmation and momentum; this is nothing more than a potential set-up, perhaps sufficient to begin an attack and then (and only then) scale into something larger as a change in trend is confirmed and momentum takes hold.

Scale into an attack. I am small now and looking to get larger only as the price-direction justifies such action.

And don't do what I do anyway (especially as far as the futures position I'll next discuss). Smarter traders are likely out or even remain long at this point in time. Most of my readership thinks I am a very patient bear - that is because perhaps they have been attacking this beast on and off for 8 weeks now. I don't even know if I'm bearish anymore, to be honest. Nothing is going to surprise me now; in either direction.

More than ever then, I want to follow along as opposed to anticipating. I don't like the idea of thinking I know anything in this market.

I scaled into a reasonable amount of AAPL short today (8%); Apple is now lagging, following a potentially toppy, new-high reversal. At the same time I reloaded WNR long (4%); that one was breaking out of a 12-week base on today's earnings report w/ strong, rising volume; highly-ranked industry group and 96 RS-rank on its own).

I am also scaling into an NDX futures short (in futures-applicable accounts). If I am not stopped-out, I am hoping to hook at least a swing-trade here and possibly something more intermediate-term, depending. I'll convey trades via Twitter, but if you follow along you are following only yourself. I'm not giving advice. If I were, my advice would be not to take advice on futures trading. But I'm not advising that either, since in fact I am not advising anything. Go get a beer.

See? I'm already down now on shorting the NDX - you wanted to follow that? ...such a loser.

At least the WNR is making up for things.

Total Position: 1.85-to-1 net short, 12% invested

Currently Long (according to size): WNR (4.3%)

Currently Short (according to size): AAPL (8%)

Futures Accounts: Short 40% NDX June, ave = 1407.88

Carry out the Shorts

While further upside for Monday is far from out of the question, the bang-up session came today. I'm trimming slowly and steadily, the spoils from my ramped-up and unprotected splash aggressive-long.

In other words, stepping over the bodies of dead short people while cutting back an aggressive long stance initiated yesterday.

I'll be traveling later today, to an as of yet undisclosed but thoroughly exotic blood-lust pack-and-Carrie whirlwind spontoon-festoon underwater action adventure thunderland.

As such I'm going to keep this brief. Follow the Twittcast for anything especially relevant from here. I expect to continue trimming; I want to get down to under 3-1 net long, and am looking to short an index near the close; as a partial hedge.

At the moment the action is quieting some, but internals are severe-positive. Hence I am trying to hold out for the close before hedging; via SDS or something similar.

Bone weekend!

Total Position: 3.88-to-1 net long, 66.5% invested

Currently Long (according to size): ARST, CYOU, TSYS, BKE, MYGN, WNR, RJI, MNRO, NFLX, TNDM BBY, CHKP

Currently Short (according to size): GE, AAPL

Rearranging Deck Chairs (short here for now)

Whatever I think about the market just now doesn't mean a great deal and it is subject to change rapidly anyhow. So let's just discuss more how I am positioning and less what the bigger picture paints.

I shifted short in the pre-market again and this time it looks like I will stick with that; for now. Later in the week however is the Good Friday holiday and as such we might see some seasonal strength come in on Thursday. It is possible I will ease back long by Thursday, depending.

I'm having a good session, especially considering that I was considerably net-long when I woke up (I changed that stance abruptly, as yesterday's less than stellar attempt at a reversal was going to be gapped right out of the picture today).

Good luck seeing the same kind of recovery today.

I sold several longs early in the regular session, but I did make one bothersome mistake. I managed a terrific entry long yesterday in the aftermkt on the new ipo CYOU. I mentioned then (via Twittspit) that >22 was really a better buy, but then today I went and sold it at 22.20 early in the session (grabbing the quick profit as I was nervous about my overly-long exposure and was selling things quickly, perhaps abruptly). Since then it has managed to take out the day-1 high and with strong, rising volume. This name hails from a leading group (same group as SNDA and NTES) and one of my favorite trades is to get long an ipo when it takes out the day-1 high (getting above that level demonstrates that buying demand is greater than the profit-taking supply; from those who got in on the ipo price and then are flipping to lock in quick, handsome profits; momentum and demand are greater than anything that can stop it).

If the market is going to manage a standard pause before re-climbing higher again (too soon to say and a bit ambitious perhaps) then CYOU is the type of new leadership I will jam hard with for the remainder of its first several weeks (or until it stops leading).

I bot back the same size of CYOU at 22.92 and am wearing that one still; we'll see what happens.

Total Position: 1.1-to-1 net long, 77% invested
(Note: though the position is slightly net-long, technically it is leaning notably short due to leverage of the 2x's short-hedges TWM and SRS; TWM-weight is >15% at the moment)

Currently Long (according to size): TSYS, ARST, MNRO, NFLX, CHKP, RJI, MYGN, CYOU, DRI

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