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Saturday, January 23, 2010

Market Thought... the smell

Its everywhere.

-The Administration stinks. The pandering to populist bullshit, and diverting attention from its continued short-comings in Washington, is causing uncertainty within the Street. (And I am a big fan of President Obama, but he lost a lot of brownie points last week due to this.)

-The Senate smells like stupid. The fucken morons do not get it. You vote Bernanke out, the probably of going into a Depression severely increases, and they will all be out of jobs. They vote to reconfirm him, they have a fighting chance. I love the way they blame him for the short comings of themselves. Bernanke does not have a doctrine to create jobs, that is the duty of the free market, and he makes sure the markets are functioning responsibly. (Which HE IS DOING!) He set to motion plans that simply can not be stopped over night, and the best person to run them and unwind them, is the person that put them in place. The Senate's pandering to populist bullshit is causing uncertainty, and will ultimately hurt this country very badly if they act stupidly.

-The markets smell like fear. Did you know the VIX is up 57% in 2-3 days? Why? Just take a deep breath and enjoy the nasty smell from Washingtion. (When the markets rise 60% everyone cries 'overvalued', but when the Vix does it, everyone cries 'sell the market'. Doesn't make too much sense does it.)

I highlighted when to protect (via my Market Thought... confusion post and indicated as such from the 'maybe, just maybe' and 'fear too soon' market posts), but the above events, IMO, exacerbated the decline and added more uncertainty than what the markets should be expecting, especially within the financials. Regardless, this is the situation we find ourselves in.

From a technical perspective, we are at a juncture that I wanted to become an aggressive buyer.

See how the Vix (blue line) approached the dotted upper red line. Also, many many names are very very oversold, and seem reasonably priced for a recovering economy.

But that smell coming for Washington is really giving me a fucken headache, and makes me question Washington's ability to lead.

So, how do we trade around 'the smell'?

Since some of my 'buy' triggers were achieved, I repositioned some options expecting a bounce on Monday. But I am also in 'day-trader' mode now. (Since many of you do not day trade, I am not going to post all my trades continuously.)

On Monday I will reposition my portfolio.

1. I will sell GS, regardless of it being up or down. (Its main function was to act as an income generator with the cash I am not using to actively trade, thinking it would trade in a channel, but 'the smell' is really fucking with the stock, and the income thesis is shot to hell. Although I think it is ridiculously inexpensive right now, 'the smell' can possibly make it go below 100.)

2. I will sell COST if I have to raise capital to invest else where. It is very oversold, and am expecting a pop to 59-60. But below I have developed a list, and if opportunities arise from that list, I would prefer them over COST.

3. Doing nothing with IBM.

4. PWR - the same reasoning as #2. But I expect a pop to the 20 level.

If Bernanke gets reconfirmed, I would like to enter these names with a declining market:

CHK - low/mid 20s
F - mid 8
IBM - low 120s
SQM - mid 30s
AAPL - around 185
GOOG - around 500
PBR - mid 30s (assuming oil remains above 66)
GS - there is technical support around 140, but I will have to re-evaluate how bad the smell is at that point in time

Now, the above market thesis assumes Bernanke gets reconfirmed, and is a positioning toward Bernanke not being reconfirmed. IF, Bernanke does not get reconfirmed, I am expecting the market to be a blood bath. I will...

1. sell all my positions (everything)
2. go short heavy the market via the 110 March Puts.

I will cover my market short position when the Vix overlay of the SP500 (via an 11 month perspective on the chart, approaches the SP500 level of 1150). That might not make a lot of sense to people who do not follow the vix much, but it does for those that do. (interpretation of data is what separates traders, and why many consider it Voodoo) I see a pattern w/in the 'SP500/Vix overlay' chart that suggests that will be the market bottom for such a thesis-shifting event.

I really pray the Senate is not that stupid. (seriously)

I will have very little confidence in the global economy, and will simply take short-term trades, after I think the markets bottom.

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