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Wednesday, October 12, 2011

Market Thought... the herd

Even though I am well aware that market action tells traders how to behave, I still find myself amazed when I witness it.

The type of bullshit that is allowed to circulate and gain credit is just truly amazing.  But that just goes to show the lagging and reactive nature of the market players mostly because a lot do not rely on solid fundamentals. They rely of 'what if' scenarios and false indicators, not questioning the meaning behind the numbers.  In any other time I would be thanking their predictable craziness, but this go around I sat out of it.  I am just glad I have this blog to time stamp my thoughts through out this craziness.

So, as they run like chickens without heads, we try to use our heads.  At this stage of the game, I would have light positions in AAPL, QCOM and GS (as highlighted in previous posts).  Through out this mess I would have maintained my BGCP, ITRI and AXPW.ob positions. And depending on the cash I would have accumulated I would determine if I needed to unload the second position of BGCP. But given the opportunity loss I calculate, I would be holding the entire BGCP position until it hits 7.75, then sell half.)

I would take on light 122 Jan 2012 SPY protection here.  This SPY position would be used for any very-short-term protection, as the action suggests short-pull backs, until Nov 3rd.

Many stocks and sectors are forming a bottom here. It started with the semis (as I pointed out during the heart of negativity), and the rest of the market is now following.

I would be waiting for initial entry points on SU, POT, ETN, IBM (after they report), DIS, GOOG (after they report) and SLB. All of which, like the market, saw "V" shape moves from the bottom.

The market seems like its clear sailing until the Nov 3rd EU plan is announced, but once the plan is announced the rating agencies will most likely start downgrading EU countries and Greece default goes in effect, which would provide some hick ups. The hick ups will not matter as much because US and EU bank capital can withstand it. (After Nov 3rd, there will be a green light to short the Euro again.)

In the mean time, if the SP500 see a 90eps (about $8 below estimates) for 2011, the potential range is 1080-1260, given a 12-14 multiple.  If SP500 sees a 100esp (about $10below estimates) for 2012, the potential range is 1200-1400.  So the market may form a base around the 1200 level, until economic data gives us better clarity.  (My lower eps is due to the hits the materials and banks should take due to lower commodity prices and banking pressures.)

While its tough skating against the herd ;),  it always feels good to be a few steps ahead.

1 comment:

  1. "and you can be happy if you've a mind to"