My thoughts and journal

Did you know that the Gold inventory at Ft. Knox has had an independent audit in several decades? Of course we can trust our Uncle Sam.

On Thursday the Composite gained 4.6, closing at 2,105.28 while the S&P500 gained 1.61 points to close at 1,183.55. Volume trailed off, down 15% on the NASDAQ to 1.91 billion shares and decreasing by 14% on the NYSE to 1.45 billion shares. Since I turned quiet bullish and said to get off of cash and into equities the Composite is up nearly 10%, while the S&P500 and the Dow have both gained more than 8%. The last several days have been kind of frustrating for me, only because I have been waiting for the pullback that does not ever want to come. I Have heard many people saying this is a good reason to short the market, which I feel is the worst thing to do in such a strong market. The fact that the market can get this overbought is a sign that we have probably entered a bullish phase for equities. The market continues to respond very favorably to bad news, yesterday for example Applied Materials said they would miss their numbers by a healthy margin, the stock opened down 5%, but by the end of the day it had gained 30 cents. That is a sign of a market that wants to rally.

Yesterday I think that the oil stocks put in a bottom. You can look at the chart of the OIH and see that, or look at a chart of the IYE. So, I think it is time to start putting some cash back into the energy sector. Some of the better looking stocks include BP, XOM, RIG, PTEN, CDIS, PGH, VPI, LUFK and VIP.

Outside of oil a few new names have popped up onto my list as well. Dell Computer has held its gap very well and continues to consolidate. A move above the highs of the last few days would present a compelling entry on the long side. Apple Computer continues for the last several days to trace out a volatility coiling pattern. This could break either way, but which ever way it breaks should be strong. Too Inc is another stock which gapped up nicely on favorable news and earnings Wednesday and continues to hold. I would like to see a few more days of basing and then a breakout there and I will be a willing buyer.

Leading stocks not mentioned above include IWS, EWA, GGC, UPS, VIP, HMT, ABFS, CREE, MRVL, WYNN, FPIC, RSTI. Continue looking for buy setups in strong names.
 
here is a little risk trade for up to a buck for holding over the weekend, PSFT right here, 99 percent sure the share tender will go thru this weekend, worse case it opens flat, best case it trades up to the 24 buck offer price, it wont get it all because of poison pill but it should move some.
 
Quote from buddhabless:

Can you explain why there is little risk? What if the deal does not pass? Does it not cause the stock to go down?
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It will most likely go down if the deal does not go through.

Brandon
 
Quote from Brandonf:

I would also note that I still agree with that, that overall I think we have entered into a secular bear market phase. That there is much more downside overall than upside in US Equities. However, current price action dictates that I be long.
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Brandon,

I enjoy reading your updates and journal. It is obviously extremely difficult and insane to call a bull or bear market and not have the sense to change your bias if prices/volume prove otherwise. However, I was looking at an S&P 500 Futures chart adjusted for the Euro and it shows a clearly bearish consolidation pattern. I have attached a chart of the S&P 500 futures in Euros to see this clearly. It tends to support your assessment that this is a bearish consolidation on a longer time frame rather than a runaway bull. Can you comment on this?

Just as a disclaimer, I am a scalper. I never have a bias or I'm dead, so I'm not as seasoned as others on interpreting charts.
 

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Quote from FuturesTrader71:

Brandon,

I enjoy reading your updates and journal. It is obviously extremely difficult and insane to call a bull or bear market and not have the sense to change your bias if prices/volume prove otherwise. However, I was looking at an S&P 500 Futures chart adjusted for the Euro and it shows a clearly bearish consolidation pattern. I have attached a chart of the S&P 500 futures in Euros to see this clearly. It tends to support your assessment that this is a bearish consolidation on a longer time frame rather than a runaway bull. Can you comment on this?

Just as a disclaimer, I am a scalper. I never have a bias or I'm dead, so I'm not as seasoned as others on interpreting charts.
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That is an awesome chart.

Brandon
 
It’s hard to put much importance any of the action we saw last week. The highlight for most people I talked too was that they did not have to work at all after Tuesday. But with that in mind I have been over the last several days finding myself feeling increasingly bearish. Some would say I have found my true, the sky is falling, the economy sticks and we are doomed self again. Looking at the market’s technicals it could really go either way. The weekly charts could be forming a 2T continuation pattern to the upside which would trigger above last weeks highs. It is also possible that the daily charts of the Mid Caps, Small Caps, S&P500 and NASDAQ 100 are putting in 2B topping patterns. Who knows for sure? Not me. What I do know is that long term, things are not looking good.

I know that in our long history “no one” has made money consistently betting against the United States of America. People who say this tend to forget that the market did not really recover to its 1972 highs in inflation adjusted terms until 1994, but I guess we can forgive them their 22 year lapse since the price chart looks good and presents a nice easy lie for the brokerage industry to sell. The good news for all of us is that just because US and maybe even Global equities are staring down the barrel of an extended bear market, that does not mean there will not be bull markets in other places. Commodities, for example, have been very strong. Sugar is up over 400% to name just one. The bad news for you guys is that I won’t have my series 3 until the middle of February, the good news for you is that due to my money management business I have to have it soon and plan to have it by that time. I think that I am a damn good stock trader. Now, not to break my arm patting myself on the back, I am much more comfortable trading commodities, and that comfort translates to more confidence, which in turn has made me historically a better trader in the commodities markets that I am in stocks.

As stated above, I am very bearish on the long term outlook for the United States economy and market. More than I have ever been in the past. The record trade deficits mean that the dollar is going to continue to get slammed. Because we depend on foreign buyers of T-Bills to finance our debt Greenspan is eventually going to be forced by the market to raise rates. He is going to be forced to do this much faster than he wants too, and he is going to have to raise them much higher than he wants too. The implications for this are going to be far and wide. For example, in Florida right now, negative ARM Interest Only loans are the most popular type of home mortgage. People holding these in say four to seven years are going to be screwed in a bad way. They are going to be forced to refinance, but because so many people are going to be feeling the pain and having to sell their houses, I believe these people are going to be upside down and will have a heck of a time finding another loan, certainly one they can afford. Consumers who taken out Equity Loans against their homes, the stupidest thing in the world to do no matter what your loan broker friends might tell you, are going to get slammed as well. The bursting of the Tech Bubble in 2000 was painful, but it was not felt by the majority of the population. The majority of our population are now home owners and they will feel this pain.

The debt of the average American has expanded more than our waist lines. Just twenty years ago the total debt of US households was equal to half the size of our economy. Today, it is more than 85% of our economy. The average American is currently spending a record share of his disposable income just to pay interest on his debt. This is occurring already, and interest rates have not even gone up yet. The dollar continues to hit fresh new lows, and Oil continues to tax our economy. Until the dollars freefall comes under control though, Oil is going to go up, so will other industrial commodities.

So, where do we stand right now, in the short term. As I said in the first paragraph the market is in a place right now from which it is going to have a nice sized move. I don’t really know which way that will be short term though. There are some stocks that look fine, but outside Oil and other commodities most groups look like crap again. This means that the stocks that do look good will have to most likely move by themselves and wont have the benefit of moving with a strong group. This will put an anchor on any rally. Some names to watch for buying opportunities would include AMWD, IAIA, MFLO, AGII, NTAP, CHA, GFF, FILE and PAAS. On the short side I like FITB, JNPR, INTC, MXIM, KSS, NVLS, CCMP. For the past month or so I have been very bullish and advising you to be light on cash, and maybe even on margin. I would start to raise cash again and play everything very close to the vest.

Brandon
 
Quote from buddhabless:

Very interesting to see someone who is so bearish. Do you think we will have a year end rally?
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We could easily rally into the new year, and even into the first or second quarter of next year. I still have long exposure so I wouldnt feel too bad to see it. In the bigger picture though I am bearish and starting to accumulate more cash and shorts.

Brandon
 
What a day! Ok, not really, in fact the highlight of my day was defiantly the stand off between Nina (one of our cats) and a big black snake swimming in our pool. Nina is fine, and we managed to shoe the snake out of the courtyard, so I suspect he is fine too. Truth be told, by the end of the day I think I wished he had bitten me as we got him out of the court yard, simply because it would have provided some form of excitement.

Over the last few days Retail as a group has topped, you can mark that down. Semiconductor stocks continue to act poorly, and I suspect that will continue, and bonds have topped out too. The pendants, myself included, have mentioned the many bad things we face and are pointing out the many reasons we should be going down. In spite of this, the market continues to hang tough, going sideways to down slightly on low volume. Some of the bigger cap names are suffering more severe setbacks, but the small cap and mid cap names continue to perform well. Until this changes, I will be long term bearish, but short term bullish. In practical terms what this means is that I will not be as aggressive in my buys, I will be willing to mix things up a bit with longs and shorts and I think that having some cash is again prudent.

On Tuesday the S&P500 lost 4.75 points to close at 1,173.82, while the NASDAQ composite lost 10.06 points, closing at 2,096.61. Volume was light as it has continued to be on this pullback. This is good news for the bulls no matter what anyone tries to say. On the NASDAQ 1.85 billion shares changed hands, while on the NYSE that number was 1.55 billion. We saw narrow ranges in most of the major indexes again today. This means that volatility is coiling and traders will be falling asleep. If you want to be a professional this is a good time to start paying attention because when the majority gives up the market will move. Jeff Semmel’s Tradingscans.com shows us 167 new one month highs against 58 one month lows. This is an important number to pay attention to as it shows us very clearly the short term momentum. While it is clearly still positive, those of you who have been reading this article for some time know that the number is not as strong as it was.

Going forward I am going to be looking for a few more longs again. The shorts mentioned the other day have treated us very well since Monday, those being FITB, JNPR, INTC, MXIM, KSS, NVLS, CCMP. I myself KSS very nicely, and MXIM, but I messed it up. That happens sometimes. At any rate, every stock mentioned as a short has performed very well over the last few days with the exception of CCMP, which has simply gone flat. Natures Sunshine Products (NATR) is a stock I have been long since $16.00 per share on Nov 12th. It broke out very nicely that day and showed great strength until today. I sold a very small number of my shares yesterday near the highs with the idea of picking them up later at a lower price or on a new breakout. That did not work out though as my trailing stop was hit on the balance of the trade at $17.20 per share.

Some of the stronger names that I am watching for breakouts include BDX, NTES, CAH, IYE, RCL, XTO, BR, AMWD, and UHAL.
 
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