Learn While You Churn

The S&P 500 is now flat for the last 7 weeks; the XLF (Financials) is at the same level as early August; my fingernails have grown throughout, but I keep biting them back and they remain just as short as ever.

A true contrarian has been market-neutral for this period, but unless you've been a seller of straddles or something, that and a cup up coffee still won't buy you four bucks.

The bull market is frustration.

My advise for 95% of you (not me baby!) - unless you have something screaming at your insides, absolutely demanding you get involved, wait and be one-step late to the attack (and back-off abruptly if it doesn't then follow through; like today for the bears). Tops are a process and most of the easy money can be made by simply waiting to pounce; while firing too soon has a way of hampering your animal blood spirits.

If you're bullish and wish to play it that way, find a seat (if there are any still open) and wait for the market to post a proper breakout; hopefully remedying some of the uglier recent divergences while consolidating in the meantime.

For your sake.

Excitement is coming, but apparently not quite yet. We have acted nothing less than fairly awful for several weeks now (aside from some mostly-Chinese small cap growth names) and yet the market has resisted anything serious in terms of downside.

We shall see. I'm holding more short than long (again!), but I'm not really interested in a fight.

What's to learn you ask? The smartest trader in the world lately is the one who took a vacation; away from this arena.

Aggressive Accounts:
-Total Position: ~2-to-1 net-short, considering levered (2x's) TWM hedges
-52% invested overall
-Pure-longs = 20%
Currently Long (according to size): QSII (6.3%), DGW (5.3%), CML (new today, 4.4%), HEAT (reloaded today, 3.5%)
Currently Short (according to size): TWM-long (Russell 2k Dbl-short, reduced today, 11.9%), HBC (7.9%), SLAB (new today, 5.1%), XLNX (new today, 4.2%), TRLG (new today, 3%)
(Note: inverse-ETF TWM represents being dbl-short the R2k index)
Futures Accounts: - short 40% Dec NDX, from 1759.75 ave; short 10% Dec SPX, from 1091.75; relevant accts only

Other Accounts:
-Total Position: ~1.4-to-1 net-short, considering levered (2x's) TWM hedge
-38% invested overall
-Pure-longs = 20%
Currently Long (according to size): QSII (6.3%), DGW (5.3%), CML (new today, 4.4%), HEAT (reloaded today, 3.5%)
Currently Short (according to size): TWM-long (Russell 2k Dbl-short, reduced today, 11.9%), SSG-long (Semiconductor Dbl-short, 6.9%)
(Note: inverse-ETFs TWM, and SSG represent being dbl-short their respective indices)
Futures Accounts: NA

Slippery Slope (snowpack list of eligible shorts)

The UAE has saved the planet this weekend, coming to the aid of a troubled Dubai World (pictured above).

I for one am really pleased, since I couldn't understand how such a distant, seemingly insignificant default in the Mideast could ski-rope the global markets by the neck and pull it off the mountain.

Ha!

Personally, I don't care in hoot's hell what the catalyst is. If I sneeze and my arm falls off, then I know I'm coming down with a cold, sure. But that's got to be the good news, right?

Futures are higher tonight and the potential for a reasonable gap-up for equities is strong. My eyes are burning from screening a couple thousand charts the last 48 hours, but I'm emerging finally now with my new go-to list of eligible shorts.

I'll key on this as an attack-list throughout the week and key the groups especially which lead us lower on any given session. I'm not trying to short the strongest names in the market. Some of these still show reasonable, overall relative strength (RS), but those few are exhibiting some other negative divergence (and all of the groups below are declining notably in RS for the previous 1-to-6 weeks).

Why am I getting short this market? Do I see the next shoe dropping for the markets?

Ha and Ha! I'm getting short for a variety of technical and psychological indicators (and a hint of fundamentals, but fundamentals have been mostly negative for some time already; you knew that - which is why you were either on the sideline or else getting short some many months ago...let's not go there for your sake).

Severe downside? Oh sure, most definitely most maybe, it will perhaps be serious.

Or not. That's not my game this decade. This is the decade to let the market define the terms. I'm just a trader with smugs and few hugs (I sense you noticed I was getting snarky just now) and why the devil should I pretend to know how this chess board is going to play out six and sixty moves from now?

You keep me posted on that and we'll stay friends, okay?

Anyway, as always, this is not a list of here-and-now shorts, but an eligible list of my personal candidates. This week's screen is focused on the industry groups, both highly and poorly ranked, which have been dropping notably in terms of relative strength (RS). My selection process beyond that is based on divergences, liquidity and more.

Good trading - should be another fun weak(sic!)...

Banks-Money Center:
UBS
BK
HBC
C
MS
BAC
BCS
WFC
JPM
LYG
GS
DB

Finance-Investmnt Brokers:
RJF
IBKR (thin)
LAB (thin)
OXPS
SCHW
MF
NITE
BGCP
CS
BPSG

Finance-REITs:
KIM
LXP
PCL
IRET
FSP
REG
CUZ
DCT
CSE
ANH
UDR
CPT
AMB
DRE
WRE
MPG
FR
RYN
MFA
BXP
VNO
LRY
WRI
BMR
SPG
BDN

Finance-Mortgage Related:
FNM
FRE
OCN

Electronic-Semiconductor Equip:
WFR
ATMI (thin)
MKSI (thin)
FORM
AMAT
VRGY
LRCX
BRKS
KLAC
AEIS
CYMI
NVLS
VSEA

Electronic-Semiconductor Mfg:
ZRAN
IDTI
SIGM
CY
MCHP
XLNX
SPIL
IRF
CRUS
SMTC
NSM
ISIL
AMTL
HIMX
MCRL
ANAD
BRCM
LLTC
STM
DIOD
VLTR
STEC
ONNN
PMCS
TQNT
SLAB
TSRA
SNDK

Telecom-Wireless Equip:
NVTL
ERIC
CMTL
NOK
TRMB
QCOM
RIMM
HSTX
GRMN

Telecom-Svcs:
CBEY
ALSK
LVLT (penny stock)
TNDM

Elec-Component Connector:
MOLX
TNL
IIVI
VSH

Computer-Software Security:
VRSN
SYMC
MFE

Computer-Networking:
ELON
RVSN
PLCM
JNPR
CSCO
BRCD
RVBD

Internet-Software:
RNWK
GIGM
WBSN
ARBA

Commcl Svcs-Schools:
LRN
COCO
APOL
APEI
ESI
STRA
DV
LINC

Apparel-Clothing Mfg:
CRI
TRLG
ZQK (penny stock)
COLM
LIZ
UA

Retail-Clothing/Shoe:
HOTT
BEBE
WTSLA
JOSB
FL
CWTR
ZUMZ
PSUN
NWY
PLCE
SSI
BKE
LTD
ARO
SMRT

Oil/Gas Field Svcs:
NR
WEL
ALY
TRMA
DVR
HOS
TDW
SLB
KEG
HAL
HLX
GLBL
CLB
MDR

Oil/Gas Intl-Exploration:
EGY
NXY
TLM

Metal Ores-Gold/Silver:
AEM
JAG

Machinery-Metal Hdlg/Automation:
HURC
CASC
KTEC
PRCP

Funeral Svcs & Related:
STEI

Medical-Biomed/Biotech:
ITMN
RIGL
CYPB
ALTH
MDCO
VPHM
ALNY
PDLI
GERN
CRXL
ARNA
MATK
REGN
AOB
AMAG
ALKS
BIIB

Quicknote on Developing Action

I'll chime in briefly, since I believe a couple of important elements are now quite clear in the market.

I'm not so interested in the catalyst for this week's negative development (Dubai World) as I am the behavior of the market leading up to it. Action in recent weeks has been clearly distributive and sentiment in recent sessions reached extreme readings. With today's break, even though there is a notable bounce from the opening levels, we have what I would argue as an Intermediate term top now in hand.

This does not, again, suggest the degree of downside and I am not going to sell myself either way on that regard. I prefer to address it as it develops. I'm not against buying stocks on the way down if I am protected and action is favorable (leadership is behaving well, relative to the major indices; charts remain formidable; and signs of accumulation are evident).

I suspect you are looking at the bounce right now. Last night's extremes in the futures markets occurred with very little liquidity, setting up a gap-lower + bounce today; which cannot be surprising. The catalyst, which is not so important, is so far a perfect excuse to buy the gap-lower (sentiment and animal spirits have been very high; we had not yet broken-down in terms of price; many traders chasing performance can argue Dubai is not our problem and they had better buy the weakness).

Upside should be limited though, short-term and as such I believe today is your best bounce to counter. The last hour could go either way, but breadth is extreme enough negative that downside in that last hour, even though we have been only straight up since the open, should not be surprising.

I'm really not so concerned. I'm scaling into a short position here (which, among other things gives me a better ability to accumulate stocks lower if I am so inspired) and I think the levels for benching losses on these shorts is now readily defined (not so far away either, in terms of percentages). Thus the risk/reward equation is rather simple at the moment; for this trader.

Don't do what I do. But as long as we hold our defined highs now, I'm selling strength.

I'll update my position later. If interested you can review the trades live on my Twitter page in the meantime. Good luck out there - keep it simple and keep emotions in check.

Updated Position (very light into Wednesday)

-Total Position: 100% net-long, but only 15% invested

Currently Long (according to size): QSII (6.6%), TLEO (5.5%), DEER (3.1%)

Currently Short (according to size): no position

Futures Accounts: no position

Updated Position (1.5-to-1 net-long; for now)

Monday wrap-up was posted just now at Evil Speculator - HERE.

-Total Position: ~1.5-to-1 net-long, considering levered (2x's) TWM hedges
-55% invested overall
-Pure-longs = 39.5%

Currently Long (according to size): HMIN (5.8%), TLEO (5.6%), QSII (new today, 5%), CYD (increased today, 4.2%), DGW (4.3%), ASIA (4.1%), CRR (4%), RINO (3.3%), DEER (new today, 3.3%)

Currently Short (according to size): TWM-long (Russell 2k Dbl-short, 15.4%)
(Note: inverse-ETF TWM represents being dbl-short the respective index)

Futures Accounts: -10% Dec Euro, most recently from 1.4864; relevant accts only

Updated Position (+Back Pocket Leadership List of Longs)

My Back-Pocket Leadership List of Longs was posted earlier today at Evil Speculator - HERE.

Aggressive Accounts:
-Total Position: ~1.75-to-1 net-short, considering levered (2x's) TWM and QID hedges
-65% invested overall
-Pure-longs = 29%
Currently Long (according to size): HMIN (5.8%), TLEO (new friday, 5.5%), DGW (4.3%), ASIA (reloaded friday, 4%), CRR (new friday, 3.9%), RINO (3.4%), CYD (2.3%)
Currently Short (according to size): TWM-long (Russell 2k Dbl-short, 16%), QID-long (NDX double-short, 9.7%), AAPL (added aftrmkt friday, 5.3%), COF (increased friday, 5.3%)
(Note: inverse-ETFs TWM and QID represent being dbl-short their respective indices)
Futures Accounts: -short 20% Dec NDX, from 1764.75 friday; short 10% Dec Euro, most recently from 1.4864 re-entry friday; relevant accts only

Other Accounts:
-Total Position: ~1.4-to-1 net-short, considering levered (2x's) TWM, QID and SKF hedges
-57% invested overall
-Pure-longs = 29%
Currently Long (according to size): HMIN (5.8%), TLEO (new friday, 5.5%), DGW (4.3%), ASIA (reloaded friday, 4%), CRR (new friday, 3.9%), RINO (3.4%), CYD (2.3%)
Currently Short (according to size): TWM-long (Russell 2k Dbl-short, 14%), QID-long (NDX double-short, 9.7%), SKF-long (Financials double-short, 4.1%)
(Note: inverse-ETFs TWM, QID and SKF represent being dbl-short their respective indices)
Futures Accounts: NA

Night Gallery (butterfly dreams and superbee stings)