Thursday, December 31, 2009

Happy New Year

The year-end selling I've been writing so much about lately really kicked in during the last 40 minutes of trading. As I've written previously, I think it is primarily a function of folks just cleaning out their portfolios so they can start the new year fresh. Most of the window dressing is done a few days before the end of the year, and that leaves some sellers who want to go flat. I don't believe we should be reading anything significant into it, especially, with volume so light.

The first few days of the new year can also be rather tricky, as positions are reestablished and new money flows in. We have had some sharp selloffs in early January in the past, but typically, it is a positive time, as everyone tries to start the new year with some quick gains.

Once again, I want to wish everyone the best in the new year.

Wednesday, December 30, 2009

Be Careful, As It Won't Take Much To Trigger A Cascade Of Selling....

Volume was very light today and the action very random, and that is what we should expect. There are a few good trades to be found, but it is very easy to get nicked on some bad ones, as there is little consistency.

The market almost always has one bad day right around the end of the year. I've been stung by them before, and I'm staying very watchful to make sure I don't get stung again. Some small-caps suffered today, but the broad market is still elevated on light volume. A lot of folks at this point just want to protect profits, so it won't take much to trigger a cascade of selling.

Tomorrow should be another very tricky day, and I suspect many folks just won't bother to deal with it. If you are participating, be sure you are ready to move fast....

musings; a recent purchase

the more gs stays down here, the more likely i believe it could really blow out to the upside, as the yield curve is made in heaven as far as it's concerned and the cost of employees has come down. it is amazing that just one analyst, meredith whitney, really controls this one. gs can report anything it wants in this environment, but she has it down to the pennies......hmnnnnn........i bought some april calls to ride this one back up. .....perhaps the most underrated tech story is nvda, upgraded today. graphic chips are a two-man race, amd and nvda, and i don't understand why intc, with all its cash, doesn't just buy the darned nvda - analysts hate it right now......

long gs

Tuesday, December 29, 2009

Time To Hedge?

Today, we had the lightest full-day volume so far this year and the price action was equally uninspired. We ended up with a poor close, but it wasn't anything too severe; mostly, it was just a lack of liquidity. Breadth was close to even and the biggest moves stemmed from some weakness in oil and gold. Most other groups just sat there and did nothing.

In seven of the last eight years, the Nasdaq posted a loss on the last trading day of the year. My theory is that most of the window dressing is done by that time and that sets the stage for those who want to take gains before the end of the year. I think conditions are ripe for such a bout of selling to occur again.

Given how we extended we are on light volume, I don't think it's a bad idea at all to hedge a bit, especially if you are holding some long positions that you don't want to sell this year. The final days of trading are always tricky, because volume is so low and there are a lot of considerations at work other than the fundamental or technical value of a stock. It isn't a time to make big moves, but there can be some good trading opportunities if you are very quick and stay flexible. I'm inclined to look for some short opportunities, especially after the weak finish today, but we'll see how things look as we wind down the year......

Monday, December 28, 2009

Looking Good, But Watch Your Step....

We finally had one minor bout of profit-taking, but before we barely turned red, the buyers jumped in and had us back in positive territory. Volume was extremely light, and breadth was around flat, but overall the action was healthy, with the big-cap technology stocks being the main driving force. Biotechnology and commodities also did well, while semiconductors and regional banks were the laggards.

With just a few days left in the year, it is very difficult to read anything significant into the action. There are lots of crosscurrents with market players making various tax-related moves and trying to add some last minute performance.

There can be some very interesting trading, for example GPRE and GFRE, both of which closed well, but you can't be too overconfident. The end-of-the-year action can be very whippy, and if don't pay attention, gains can slip away quickly.

We still have positive holiday spirit, but that doesn't mean we can't get hit with some selling before the year comes to an end.....

Thursday, December 24, 2009

Merry Christmas

If you wanted a textbook example of positive seasonality and holiday trading, you have a good one this week. Since Monday, it has been steady buying on declining volume, and market players don't seem to have a worry in the world. The only negative has been that no one is very concerned about any negatives.

Obviously, next week we are going to have thin volume once again, but I'd be surprised if we don't have at least one good bout of profit-taking as market players close the books on the year. It is very easy to let your guard down when the atmosphere is so upbeat. We need to keep in mind that a lot of this action has little underlying support, and the pullbacks can be sudden and sharp once some selling kicks in.

I'm not at all negative on the big market picture. We have had some very good trading, but the key to success is making sure you hold on to gains once you have them. I recall a number of times when the end-of-the-year action caught market players by surprise, and I'm going to keep that in mind next week.....

I want to wish everyone a merry Christmas and happy holidays. Here's some jocularity I found regarding "some assembly required:" The user manual starts off, "Our arrangement in content to the user's manual is overall and easily understood. We think it is reliable that it is correct that the information was offered in the manual and try hard to avoid the artificial fault, but the mistake that will unavoidably be found in printing, if causes some careless mistakes, please forgive more!"

Wednesday, December 23, 2009

Will The Bulls Hang Around?

The holiday party has lasted for three days now, and the big question is whether the bulls will hang around again tomorrow. I'm sure some are going to be tempted to lock in gains before they head over the river and through the woods to grandma's house for the holidays.

The good news for the bulls is that there really isn't any obvious reason to dislike this market. The best bearish argument is that no one seems particularly worried. We are acting like we don't have a care in the world. With holiday cheer in the air, maybe we don't.

So the big question is whether, after three days of very positive action, the good mood can last. When will some profit-taking finally hit? Trying to anticipate weakness in the market has been the single biggest mistake traders have made this year. They are constantly run over and turned into short-squeeze fodder.

While some profit-taking would seem reasonable before a 3½ day break, I'd actually want to see some selling kick in before I hit the exits more aggressively. We continue to hold well above key support levels, and the minor dips are being bought. We have to respect that type of action regardless of how complacent the market might feel. The No. 1 one rule is to always respect the price action and not to fight it.....

Some Stuff I Own And Am Considering Buying, Etc.......

AVAV is a play on alternative energy and grid plays. AVAV is in the thick of this theme. Interestingly, this stock also has a defense kicker as well. The next resistance zone is around $33-34 which I think the stock clears and longer term their battery tech area should provide the power for this name.

An old favorite, AAPL - I'm again fairly aggressively positioned in this name and have increased my exposure in front of the next earnings call and think the stock might trade into the $225-235 area within weeks to months. As written numerous times, I'm sticking by my low to mid $300's target and feel I may even increase that number sometime this year. I see the tablet somewhat different than many do and will have more on that later. In the meantime, the iPhone is a platform, not a product and feel that platform is the most significant in the company's history. That's a short way of saying I think the iPhone is somewhat taken for granted at this time and the stock isn't fully reflecting the upside for this device platform which I feel the tablet may highly leverage. Also, the new Snow Leopard launch has also received little fanfare but the product is a gem and sales are superb. I also feel at some point AAPL may find a way to better monetize their far superior operating system. Lastly, you can now buy a Macbook for under a grand. This power and performance you get in this product at this price point is stunning and I think we see Mac share growth continue to increase powered by their portable lines.

RVBD I think can play some catchup in the coming weeks. This is another name that had a pretty good recovery off of lows but looks to be pretty darn cheap on the fundies at current levels. I've been honing in on more M&A targets lately and this name always finds a way to the top of my lists for tech M&A......

DELL I actually think is an M&A target in waiting. More on this later.

BRCM will probably, as the best chip stock on the planet, has to get back to being mentioned in the same breath as AAPL, GOOG and BIDU. Frankly, given the move in the SOX, the move in BRCM hasn't been that great. BRCM is everywhere they want to be and where they are they dominate. This Dune purchase from them is very good and will aid the dominance in certain areas......

I also continue to like NDAQ, and is one of the cheapest growth names I know. Seems the Fast Money folks are starting to agree as I read they mentioned the name last night. Not much to say here except I think tax loss selling for the last few weeks has kept this down and I think next year will show a lot more value for this name.


Tuesday, December 22, 2009

Market Unfazed By The Dollar's Strength....

Just like yesterday, we saw strength very early in the day, but then we drifted and failed to gain any further traction. The atmosphere was upbeat and we had good breadth again, but volume contracted, which is exactly what you expect during holiday trading.

The difficulty in this environment is that with volume falling so much, it is very hard to anticipate continued momentum. Even if something does appear to be set up well, it is tough to have confidence that buyers are going to show enough interest to keep things moving.

The most interesting thing about the action today was the continued strength in the dollar. That did weigh on gold, but the broader market seems to be indifferent to it. The weak dollar is what helped keep this market rallying all summer, so it's a little surprising that the stronger dollar is not having a more negative impact on the market. The inverse correlation with the dollar was extremely strong at times, but luckily for the bulls, that relationship is not holding now.

With volume sure to slow even more in the next couple days, I'm watching very closely for the very complacent bulls to be surprised by a flurry of profit-taking. So far there are few signs of that happening, but I believe conditions are ripe for the bulls to be caught by surprise. And if they are, many will be happy to just close up shop and call it a year....

Monday, December 21, 2009

Thin Market, But Some Good Trading.....

After the gap up to start the day, the indices didn't do anything, but big-cap technology acted well, and we even had a little momentum in the solar sector. A stronger dollar pressured the precious metals, but it didn't present too much of an obstacle for the bulls.

Volume slowed quite a bit as the day progressed, and there was a lot of drifting, but that is to be expected as the holiday break approaches. Thin volume isn't necessarily bad for trading. Things can move a lot faster, but that can cut either way.

In this sort of environment I tend to focus more on sectors and individual stocks. Traders will almost always find some hot action in thin holiday trading, and those can work very well. You have to keep a close watch on them, but they can work well. Solar energy had some of the best action today, and I'll be looking for some continuation there.

The biggest negative this market faces is complacency. The bulls are content that seasonality will hold us up into the end of the year, and there aren't any big worries right now. If the market does start to slip, a lot of folks will be caught out of position, and that can accelerate the slide. We should keep that in mind as we navigate over the next few days.....

Friday, December 18, 2009

Will Next Week Be Better?

It has been a very random market for two weeks now, and what better way to cap it off than with a wild flurry of index rebalancing and option games? We had huge volume today as some big blocks crossed at the close and the indexers made their required buys and sells. In addition, things like AAPL were pushed to strike prices.

It is interesting to see some of the crazy action today, but it sure didn't do anything to clarify this market. We are still stuck in the middle of a trading range and have no leadership and few themes or trends. We did have the reflexive action to moves in the dollar, but we have been decoupling from that a bit lately.

You can be sure things will be much quieter next week, but that doesn't necessarily mean that we won't have some good trading. The trading atmosphere around holidays is often quite upbeat, and traders have a tendency to create their own action. If we stay attentive, we should be able to find an opportunity.....

long AAPL

Thursday, December 17, 2009

This Market Lacks "Leadership," But What Will It Look Like Without An Endless Supply Of Bank Stock Being Offered?

US equity markets were lower, with the DJIA, S&P, and NASDAQ down 1.27%, 1.25%, and 1.18%, respectively. European markets were lower as the DJ Euro Stoxx 50 ended down 1.2%. Asian equities are likely to open down today as Asian ADRs were lower during the North American trading day. Nikkei futures point to a down open for Japan and the firmer yen should hurt exporters.....

For the last couple weeks I've been complaining that although the indices were holding up well, there just wasn't much energy or leadership. The action wasn't bad, it was just slow and a bit random.

With the bulls acting so lethargic, maybe the bears could generate some better action if they had an opportunity. The bears got their opportunity this morning on weak demand for the C secondary, poor earnings from FDX, worse-than-expected weekly unemployment claims and a strong dollar. There were plenty of negatives for the bears to work with, but they didn't really press too hard either. We did end up closing near the lows of the day, but there wasn't any real panic, other than maybe in some precious-metals stocks.

Breadth was poor, with about 1,600 gainers to 4,200 decliners, and NYSE volume picked up quite a bit due to the very heavy trading in Citigroup shares, but Nasdaq volume was light. The worst action came in the big money-center banks, but there also continues to be pressure on popular names such as AAPL and AMZN that many were looking to as leadership into the end of the year.

With the drop today, the S&P 500 is right in the middle of the trading range we have been in for over a month and near the highs we hit back in October. The chart is still in OK shape, and there isn't any reason to be overly negative. We'd have to break 1085 or so to really do some technical damage.....

After the close, we have some good earnings reports from RIMM and ORCL, so it looks like we aren't in an immediate danger of a technical breakdown. I just hope that we see a little more excitement and energy in one direction or the other. This has been a very boring market lately, and the least Santa could do is give us a couple hot sectors to play with during the holidays......

long AAPL

Wednesday, December 16, 2009

Fed-Inspired Volatility Probably Contributed To Some Profit-Taking....

The FOMC interest-rate decision didn't contain any surprises, but it did give the sellers a little nudge to lock in some gains. The bearish spin on this action is that, when we fail to rally on generally good news, it means it is already priced in and we have nowhere to do but down.

The problem with that argument is that the FOMC news really can't be characterized as particularly good. The fact that the Fed said rates will stay exceptionally low for an extended period of time means it still has plenty of worries about the health of the economy despite some optimistic language. If they really believed the economy was heating up, there would be some hawkish comments.

Overall, it is just a lot of noise and doesn't do anything to change the big picture. We are still churning right around the highs of the year and can't seem to generate any real vigor. On the other hand, the bears are making even less progress, as we hang in the upper range of the recent trading range.

Tomorrow, we should see the pricing of the C secondary offering. That may help the banks find some support. There has been a lot a stock to digest in that sector, and it should be no surprise that the group has underperformed recently.

The dollar was weak early, which helped push up oil and gold. But after the Fed announcement, it bounced back and closed around flat. We need to keep a close watch on the greenback as a potential driver for our next move.....

Overall, the market continues to act in a healthy manner. If there is a negative, it is the fairly high level of complacency and expectations for positive seasonality. But it is impossible to use that sentiment to time a turning point in this market with any precision.

The bulls continue to have the benefit of the doubt. Until we see more negatives emerge, I see little reason to be highly bearish right now.....

Tuesday, December 15, 2009

Man Oh Man This Market Needs A Spark....Big Time (As The Mooninites Would Say)

Selling pressure from the financial sector weighed on the market all day. GE added to the pressure and a poor finish when investors sold into what seemed to be fairly positive guidance.

The market did a pretty good job earlier on of shrugging off the dollar's strength, but eventually gold and some of the other commodities started to pull back. On the other hand, oil held up, but the specter of higher gasoline prices probably put some pressure on retail, which was quite weak.

The most important action right now is in the financial sector. It certainly sounds positive that big banks are weaning themselves from government support by repaying their TARP funds, but the banks need to raise huge amounts of capital to do so, and those secondary offerings are sucking up large amounts of liquidity.

In addition to the poor action in financials, the biggest problem for the market is a lack of leadership. We have some minor action in narrow groups, such as solar energy, home health care or fertilizers, but there were some nasty reversals in small caps. In particular, I saw a lot of China names reverse hard.....

The paucity of upside momentum, coupled with weak action in financials, makes for a poor trading environment. Tomorrow afternoon, we have the FOMC interest-rate announcement, which will further complicate a market that is acting rather randomly.

The overall technical picture still isn't bad. We are in a trading range, and that tends to lead to some healthy chart setups. We just have to wait until this market finds a catalyst and starts to trend again. The Fed announcement tomorrow may be a good candidate......

Monday, December 14, 2009

The Buyers Keep Buying....

It was a quiet but positive day for the market once again. We started off with a classic Monday morning "gap and fade" open, but the buyers stepped up and kept bids under the market the rest of the day.

The action under the surface was actually better than indicated by the senior indices. Breadth was over 2 to 1 positive, and all major sectors were in positive territory at the end of the day. We had a little early weakness in financials and retail early, but buyers snapped up the laggards as the day progressed.

The big-cap technology names with the exception of AMZN performed well, and that helped the Nasdaq to outperform. The dollar weakened slightly, and that helped boost oil, gold and commodities. The XON acquisition didn't hurt matters either.

If there was a negative today, it was probably the lack of any worry or concern. Market players seem to be feeling quite confident that the market will hold up through the end of the year, and there are few indications that they are locking in profits and taking the rest of the month off. Maybe that will occur closer to the holidays, but for now, market players are quite content to hold positions.

It's a holiday atmosphere, and we might as well enjoy it while we can. I'm sure the ride will get a little bumpier before we end the year, but for now it's all good.....

Friday, December 11, 2009

Dullsville Again; No Catalysts

I'm going to try to avoid repeating myself, but there are only a limited a number of ways to convey how slow and dull the action has been this week. It has been an absolute snoozefest. By far, it has been the slowest week of the year.

That doesn't mean it is bad action. The major indices did manage to put some points on the board, but there sure wasn't much energy behind it. We had a lot of random action, with odd groups such as airlines and utilities leading at times, and, unsurprisingly, volume was quite light today and has been all week.

The biggest negative this week was that the U.S. dollar strengthened, and that put pressure on energy, commodities and gold. I was looking for that to trigger a rotation into some other groups, particularly technology, but it certainly has not been a smooth transition. Retailers, alumina and steel seemed to benefit the most this week, which is another odd mix. The strength in the dollar was overlooked to a great degree today, and, hopefully, that is an indication that we will be less sensitive to it going forward.

The big-cap tech names, AMZN, AAPL, PCLN, GOOG, etc., were a mixed bag this week. The group struggled today in a stronger market while they led yesterday. If we are going to have a run into the end of the year, I'm looking at these names to lead. These are the stocks that underperforming money managers are most likely to chase in an effort for some relative outperformance.

We are going to need something to take a leadership role if we are going to see a healthy Santa Claus rally. Airlines and utilities aren't going to do it....

The good news is that this slow action has helped to create some interesting charts. All we need now is a little spark to get them moving.....

long AAPL

AAPL's Weak Again Today; Repeating Why I Think That's Happening....

The big weakness in AAPL stock last week (and possibly the weakness today and part of this week) was a result of a major levered ETF unwind which was forced due to a dynamic change in margin requirements for those instruments. That unwind could still be happening in part through the end of this week (today) though I think the bulk was done by the end of last week. In turn, that unwind also served as the catalyst to push AAPL below a key MA (the 50 day) -- thus fueling more weakness. In short, let's call this a liquidity trade that has created a technical trade....

Further, we have seen no firm "good" news out of China. The market was expecting an instant smash. That hasn't happened so far, but the fact you have a couple million iPhones already in China floating around tells me when the features and price for "legit" iPhones finally connect, that market is going to be huge. And by the time we start seeing big sales numbers posted out of China, I'm not sure you'll be able to buy AAPL south of $235....

I've long seen the iPhone as a platform (not a product) and that platform will have a commanding, possibly leading market share presence for the whole cell phone category before this is all said and done. I see nothing currently to think my expectations for a further 50% or so rise in the stock price needs to be changed....

long AAPL

Thursday, December 10, 2009

Talk About Dullsville....

I'm running out of ways to describe how lifeless this market has been. Yes, the indices did post some okay gains, but volume was anemic and there isn't any leadership or momentum to be found outside a few big-cap technology names.

Even though the Nasdaq finished with a decent gain, breadth was quite negative, with about 1,040 gainers to 1,640 decliners. That tells us that money is flowing to a few big-cap names like AMZN, PCLN, RIMM and GOOG. Obviously, small caps are underperforming when breadth is that poor.

I'd really like to offer some better insight, but this market it is in no man's land, and until we see greater emotion and/or a break out of this trading range, it is just a coin flip. What is particularly difficult about this current trading range is that there is so little going on with individual stocks. There is a very limited amount of action and the few things I do see working tend to fizzle out quickly.

As I have been saying, this action isn't bad, it is just dreary and slow and not offering us many good opportunities. The indices are set up well for a move higher if they can generate better energy, but if the bulls don't get more active soon, then the bears may gain some confidence. Frankly, I'd just like to see a little more excitement, whether to the upside or downside, I don't really care. Any movement is better than what we have now.....

Wednesday, December 9, 2009

Banks, TARP and Inflation......

There is a good part and a bad part to what commercial banks have done with a combination of bailout money, recapitalization and zero-cost money.

The bad part is they have not extended credit to those who may be demanding it. By any measure of bank lending, there's a Roach Motel here: The money goes in but doesn't come out. Small wonder we are not creating jobs.....

However, the impairment of bank credit has prevented an outbreak of inflation stemming from the Federal Reserve's monetary creation. This is why year-over-year M2 growth is declining and velocity is just over crisis levels. If banks decide en masse to start lending -- and do they ever do anything in a non-herding manner? -- watch for inflation to pop higher.

Policymakers act as if their wisdom has prevented inflation when it in fact has been an impaired banking system.....

Some Gains, But Not Many Big Breakouts

We finished the day with some decent gains in the major indices, but under the surface it was another chaotic day. Once again, we moved in lockstep with gold, which has an almost perfect inverse correlation to the dollar.

Breadth was just about flat on the Nasdaq but the heavily weighted big-cap names, particularly AAPL and RIMM, outperformed and kept the indices solidly green. AMZN was the laggard in the group on concerns that Apple may present some competition for the Kindle book reader early next year. Apple reversed very dramatically, exploded higher and helped to carry the market along with it.

We also had quite a bit of intraday volatility with four fairly sharp reversals during the day, which is a function of the high level of uncertainty out there. The bulls are still optimistic about some positive seasonality into the end of the year, but the bears have had a strong dollar and some frothy sentiment in their corner. The bottom line is that we are in a rather murky place.....

We have been in a trading range and chopping around randomly for a while now with no one being able to gain a clear advantage. There is very little leadership, and the few pockets of positive momentum are steadily drying up. Many market players are looking for the big-cap technology names to attract money mangers looking to beef up their relative performance, and that is what kept AAPL running once it turned.

This is a market with a lot of conflicting themes, including the dollar, performance anxiety, seasonality and various fundamental arguments. Unfortunately, the price action isn't giving us a lot of clarity. That is ultimately the final arbiter, but we haven't gone anywhere for about three weeks now, and today's action didn't do anything to change that....

long AAPL

Hang On To Your Wallet, Because First They Came For The Bankers.....

While the British decision to impose a 50% surtax on bankers' bonuses above GBP 25,000 may seem like an "over there" story, it can turn into an "over here" story in a hurry. The tax will be imposed at the employer, not the employee level, and while there may be a few tricks available for banks to try and hide it, they all depend too much on the U.K. government.

They cannot threaten to move offshore; what, you're going to transfer the whole industry to the Channel Islands or Gibraltar? Shut up and pay is the path of least resistance.

We are entering an era of nickel-and-dime taxes; apparently, they will start with the unpopular ones. They always do, but as Pastor Niemoller lamented, by the time they come for you, there won't be anyone left to help.....

The tax dodge game is going to be part of the investing landscape and a wasteful distraction for several years. Chicago rules indeed.

Tuesday, December 8, 2009

Self-Defeating Business Policy....

How bad were Bush and his team that these radicals were allowed to hijack this government and no one's willing to stand up to them? The answer is they were pretty bad and in a lot of ways.

It used to be said politics in America was played between the 40-yard lines. What has changed is while the population remains between the 40s, the political classes are in the respective red zones, no pun intended. The dynamics of the long primary seasons, gerrymandered districts and too-expensive campaigns have pushed the political classes to where their interests and those of the citizenry do not align.

Moves such as the EPA's declaration on carbon dioxide and the rush to pass some ill-considered health care legislation smack of a government preying upon rather than serving its citizens. This is not a formula for long-term growth or prosperity.

Bill Clinton, for all of his faults, recognized he had to move back to the middle; this was his famous "triangulation" policy. But Clinton was only a true believer in Clinton; the present crowd seems to be filled with true believers, just as the Bush crowd had its people with an agenda.

What is amazing about all of this is the Constitution as designed and amended tried to force everything into the middle. This will tell you something about how hard the political class has had to work to achieve these consecutive administrations out of touch with the people and from two different directions....

Kind Of A Messy Rotation

It was a messy and unpleasant day of trading. Although the point losses in the major indices weren't too severe, we had broad weakness on slightly higher volume. No major sector was in the green, and the weak-dollar plays -- gold, oil, steel, coal, shipping -- were hit particularly hard.

The stronger dollar was the primary problem today, but what made it difficult was that the rotation into new sectors wasn't very vigorous. Some of the big-cap tech names -- GOOG, AAPL, AMZN, etc. -- benefited some, but at the end of the day, the gains there were limited.

If the stronger dollar and the rotation persist, then the likelihood is that we have seen the highs of the year unless the rotation into new names really takes hold and a few of the big-cap technology names really catch on fire. The big problem is that it is awfully tough to trust in a sustained rally of the dollar. The issues that have weighed on the dollar for so long are still out there and will pop up again. There is probably a bit of squeeze in the dollar right now, but it is obviously the key driving force in this market and must be watched very carefully.

The good news is that out of chaos, we usually see some better opportunities. We just need to stay attentive and wait for a little more clarity....

long AAPL

Jonathan Swift, EPA Administrator

While Gulliver's Travels is regarded as a children's story today, it was written as a political satire. What would Swift have made of yesterday's ruling by the EPA that carbon dioxide poses a threat to human health (duh; that's why we exhale it)?

Let's bring America's tort lawyers into the act next. Anyone who exhales is endangering their neighbors. Any lawnmower is a threat to human health. All volcanoes, forest fires and other natural carbon dioxide sources are tortfeasors. All countries who allow the wind to blow carbon dioxide across our borders are committing a hostile act.

While I do not take the extreme position that all climate control legislation is about asserting ever-greater political control and extracting taxes from the gullible, (Gullible's Travails?) I certainly can see how the EPA's actions will do nothing to discourage the fringe. Taken to the extreme, this is a tax on breathing.....

By the way, what's is Air Force One's carbon footprint for traveling to Copenhagen and then hopping over to Oslo to collect that hard-earned Nobel Peace Prize? I somehow think it is greater than mine for today, tomorrow and quite possibly the rest of my life......

Monday, December 7, 2009

Will A Theme Emerge?

The good news is that volume was light and breadth positive. The bad news is that the action was so slow, it was hard to stay awake. The dollar held steady, and that helped pressure gold, oil and commodities. We also had some notable weakness in big-cap technology names, like AAPL and AMZN, and weakness in financials. Small-cap stocks exhibited a little relative strength, which was a positive sign, but the trading was so slow and random, it's tough to give it that much weight.

The big technical picture still looks OK. The major indices are all in trading ranges, and there hasn't been much, if any, technical damage done. The QQQ is probably the most worrisome right now, due to the big-cap technology weakness, but it is still holding recent support levels. The IWM is going to look very bad if it breaks back down under its 50-day simple moving average, but so far it is holding near the November highs.

The market is at a juncture where we have to be on the lookout for new themes and trends, especially if the dollar stays strong. The action today reflected the uncertainty that usually emerges when sector rotations are about to start. It is muddled and directionless trading with little edge. We should have some better clues in the next few days of what may emerge from this lifeless action, but in the meanwhile we have to be patient......

long AAPL - and buying more tomorrow

Why AAPL Stock Is Sinking (I Think); And Why I'm Buying Some More Very Soon

At this very moment so many hedge funds are positioned wrong -- short dollar/long commodities -- that they have to take the market down with their reversal of these positions.

Even though I do not believe that the dollar will stay strong, the ferocity and strength of Friday's employment report will cause the hedge funds who thought rates would stay low -- the guys who keep buying Treasuries at these auctions -- cannot take a chance this late in the year to see their profits drop.

So, if you were in that mind-set, here is what you have to do:

1. Sell your banks, as rates are going up, and these banks make money from paying you nothing and investing in shorter securities, carry trade, and that goes away without a concomitant increase in loan demand.

2. Sell your commodity stocks aggressively, because they are hedges against a weak dollar. That goes away.

3. Sell your oils for the same reason as above.

4. Declare the gold trade over, and gold goes from a long to a short, especially because it has been bid up by the gold companies that took off their hedges.

Now this switch will cause a host of confusion for people at home like me who think, "Isn't this what we wanted?"

The home-people are right; they just aren't right for this moment, and their confusion will cause even more selling.

So, let the hedge funds unwind their trades. Let them lock in their gains. Look for opportunities in tech (not associated with rates), health care (the president's agenda is stalling) and transports, which need stronger growth to maintain trajectories....

But recognize that a market that totally relies on artificially lower rates and stimulus is NOT a good, long-term sustainable market, but one that relies on improving earnings, better credit ratios, a slow series of tightening, IS! Of course, anyone who bought when the market is up is now freaking out, and there's nothing worse than a market that opens higher and reverses. One of the keys here is AAPL, and it is being hammered as a source of funds by the frantic hedge funds.

With AAPL at about 190 as of this writing, I am going to make my stand by buying April 200 calls at about 14, hopefully. This way, I am betting that when the smoke clears, the funds will come right back to these, and I will be in at better prices because of all of their desperate thrashing to get their gains locked in.....

long AAPL

Friday, December 4, 2009

A Whole Bunch Of Crosscurrents In The Market Sea

It has been a very interesting day for the market with a number of complicated crosscurrents. Most action is being caused by the strong employment news this morning; some will dispute whether this report really is as positive as it sounds, but certainly the headlines sound pretty good.

The bulls obviously argue that this report is great for the market, as it shows the economy really is recovering. The problem is that if it really is good news, then it is going to cause the dollar to rally, and a weak dollar has been a major positive for this market since the bottom way back in March.

For months the market has had a very strong inverse correlation to the dollar, which means it has also been positively correlated with gold. All we have needed for the market to rally lately was a little softness in the greenback. Today, for the first time since April, the UDN is set to close below its 50-day simple moving average.

It is possible that the dollar will weaken again, but if today marks a change in trend, there is going to be some major selling pressure created as traders exit all the weak-dollar plays that have done so well for so long. That is going to be the key to the market. Maybe we'll see some rotation into sectors less sensitive to the dollar, but it is going to be a bumpy ride.

The other interesting crosscurrent today was the secondary offering of BAC. It turned out that the shares issued are considered to be common shares rather than preferred, which means that all the index funds have to buy BAC shares and reduce other holdings in the indices. That is causing higher-than-average volume today and some artificial movement that will likely be reversed rather quickly. Financials are still in a precarious position even though many seem to think BAC's repayment of TARP funds is a positive for the sector.

Overall the action today was a victory for the bears, but the problem with the bears is that they have been totally inept when it comes to producing follow-through. Maybe if the dollar stays strong they will have better success, but they still have work to do. AAPL continues its sickening sell-off....I'm buying more next week....

long AAPL

Thursday, December 3, 2009

Nerves Ahead Of The News? Does Someone Know Something The Rest Of Us Doesn't?

The bears finally managed to put some points on the board as we sold off hard in the last hour of trading. Fed member Bullard come out with a comment that just because unemployment was high, that wouldn't preclude the Fed from hiking interest rates. That certainly wasn't very helpful, but the major issue today was the inability of banks to rally after the news of BAC's desire to pay back TARP funds.

There also was nervousness over tomorrow's jobs report and growing concerns over weak retail sales, as a number of major retailers, like COST and TGT posted seemingly lackluster numbers.

If we get this BAC deal priced over $15 and the jobs numbers aren't too bad, then the dip-buyers may show up again, but they weren't interested in stepping in front of that news in the final. Market players were looking for a sigh of relief on the repayment of TARP funds, and it turns out that it isn't all that simple, because BAC still needs to raise the funds, and demand for its shares wasn't as great as was initially hoped.

Technically, the breach of 1100 by the S&P 500 is a negative development, but volume fell and breadth wasn't that bad at around 2 to 1 negative. We still have some major technical support at 1090 or so, but the biggest complaint about this market lately has been its narrowness, and if we lose key groups like banks, energy and retail, it is going to be very tough. We need some leadership other than just AMZN.

We'll see what the jobs report brings in the morning.....

Wednesday, December 2, 2009

Most Likely Why AAPL's Been Trading So Terribly While The Market Goes Up And AAPL Sells Everything In Sight....

AAPL's recent late - day (and all day) selling probably has to do with the levered ETF's and the new margin rules that hit yesterday. Given these margin rules many people will be selling the QLD and QID, as well as many other ETF's tied to the QQQQs. In most, if not all, of these, AAPL is the largest position. Those running these ETFs have to balance their books, and there are adjustments accordingly. AAPL being the largest position should therefore experience the most adjustments...

This really shouldn't occur for too many more days and is probably mostly done already. AAPL's Christmas results will likely be stunning, so I'm looking to add to my positions.

long AAPL

Bulls Are Still Loosely In Charge....

If one looks at the indices, it appears that it was a fairly quiet day, but beneath the surface we had a very unusual mix of action. On the bearish side of the ledger, we saw weakness in some big-cap technology names, such as GOOG and AAPL (more on AAPL in the next post) but strength in AMZN helped offset that. Financials were weak again, particularly GS and some of the money-center banks.

On the bullish side, we had good breadth, with about 3,650 gainers to 2,070 decliners, but the most notable action was some very strong momentum in China-related names and fertilizer stocks. Also, precious metals stayed very strong, even though the dollar strengthened today. The stronger dollar did weigh on oil a bit, but, for the most part, the market shrugged off the greenback rally.

Volume was about average, and the indices didn't move that much, so the positive bullish technical patterns are still in place. This narrow but very strong action in China, fertilizer and a few areas is the sort of speculative excess that feels like topping action, but it is the sort of thing that can persist longer than you would think possible.

There are a few other warning signs, such as the volume patterns and the high levels of bullish sentiment, which we need to watch. But the market still hasn't done anything wrong. The bulls remain in charge, and I don't see any reason to doubt them yet.......

long AAPL

Tuesday, December 1, 2009

The Pattern Holds True....

Certain patterns have played out in this market since March. One of the most notable has been the strength in the first week or so of each month from August through November. Today is only the first day of December, but the pattern is repeating so far.

It was an extremely strong day with about 3 to 1 positive breadth and all major sectors in the green. Banks were weak, but the XLF managed a flat finish. Once again, weakness in the dollar was one of the primary driving forces. That helped push gold to new highs and perked up oil. Oil has been showing some relative weakness lately and still has work to do in order to improve the technical picture there.

China stocks were the place for some wild momentum today, and many of them looked downright frothy. Momentum has been narrowing lately, so there is increased focus on a smaller group of stocks, which is why there were some exceptionally strong little pockets of action.

It is very easy to come up with fundamental reasons to distrust this market, but it is just plain foolish to fight this type of strength. The pragmatic traders out there are holding their noses and buying, and that is why it feels like there is an undercurrent of dislike for a market that keeps racking up big gains. It's a peculiar market environment because there is so little celebration, although many are obviously doing quite well as they ride the strength.

There are a few troubling considerations under the surface, such as the narrowness of the market until today, but if history is our guide, then we should be looking for more strength in the early part of the month. If nothing else, the bulls still deserve the benefit of the doubt....