BIDU is Breaking Out

…just saying…

Btw, got me some [[BIDU]] at 323.48, because it’s a hard trade with a Costanza-like quality to it.

 

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The market is starting to look very oversold. That’s not to say that it can’t get even worse from here. But, it’s starting to get extreme on the downside, just like it can get extreme on the upside.

One sign is to look at the leading stocks in the leading sectors: ag, oil, steel, coal. They were going great, until they weren’t. This is a typical example of when a major downturn is approaching “the bottom”. Everyone gets taken out behind the woodshed. No one escapes punishment. This is an indication that the market is “washing out”, e.g. capitulation on even the strong RS stocks. I’m seeing this happening with my “fuckus stocks”, much to my chagrin. However, the silver lining is that there is a potential reversal in the making. You take what the market gives you.

Don’t misinterpret me. I’m not calling a bottom here. Just being on guard for a bounce, which could be major—and playable.

I’ve trimmed positions on [[SKF]], [[DBA]], [[FXP]], [[SRS]] and [[SDS]]. Also I’ve covered 1/3 of my short position on [[MA]]. This is also the time when I’ve loosened the stops on the the strong RS stocks (aka fuckus stocks), because I don’t want to be stopped out early, only to see them rebound.

Finally, I’m sitting on lots of cash and starting to make a shopping list.

IF I get confirmation of a major reversal, my game plan is to get positioned in leveraged ETFs to get immediate exposure to the upside, playing the initial bounce. Then when the rally fizzles out, look to get short, turncoat-style, thus leaving the suckers holding the bag of shit again. All this is simply a moral decision on my part to do this. You see, it is immoral to let a sucker hold on to his money. He must be de-banked. Egregious, indeed.

Developing….

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Central bankers may have to swallow a cup full of bile.

At this point, salvation for the market bulls must take place in the form of a meltdown in commodity prices, particularly oil. Corporate earnings are getting slashed. Financials are in the piranha tank. Ben and crew cannot lower interest rates anymore and risk further erosion in the dollar and egregious commodity price advances. Period.

With commodity price inflation, interest rates need to go higher so people can buy $2 gas again for their SUVs.

People, look at what is going on in the emerging countries. They are experiencing massive inflation. China’s inflation rate stayed near a 12-year high of 8.7 percent in May; prices in Vietnam jumped 27 percent in June and Indian wholesale prices increased 11.6 percent last month, the fastest in 13 years. Inflation is higher than lending rates in China, Russia, India and at least a dozen other emerging countries.

Central Bankers are going to have to fight inflation by raising interest rates. Unfortunately, since these countries have pegged their currencies to the $USD, they have had to keep monetary policy somewhat linked to Fed policy. Fools. 

They might be faced with pulling a “Volker”, aggressively raising interest rates.  Pushing borrowing costs above the level of inflation will help to cool things down, but at a time when economic growth is already weak. Prediction: Pain.

However, what we saw in the early 1980’s, when Fed chair Paul Volker raised rates to 20%,  was oil prices drop in a big way. Perhaps the Fed overshot, but it also ushered in the longest bull market in history from 1982 – 2000.

Were all this to happen, we could see a spiral down in commodity prices, thus cutting the nuts off the bears. This would help the cause for Bernanke and Company, as well as the ECB. They are afraid of $200 – $250 oil, and bears with big balls. This will be a major topic for discussion at the G-8 meeting (except for the part about the big bear balls).  

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We are in a bear market. We have been for a number of months now.

While we may be approaching oversold territory and could see a massive rally this week, do not  be misled. Earnings are going down and inflation and interest rates are going up. If it looks, smells and acts like a bear market, guess what?

Be smart, use any rallies to get short on weak stocks or use inverse ETFs, thereby sacking and pillaging the bulls two bit trading accounts.

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In celebration of attaining positive returns of 15.6% for the first six months of 2008, my wife and I had supper at one of the local fine dining establishments last night. As I was merrily consuming my 2 1/2″ buffalo ribeye steak, lo and behold, Mr. Obvious sat down at the table next to us. Mr. Obvious is considered a very astute investor on the Street, and followed by many, many investors. In accordance with the principle of “carpe diem”, I seized the opportunity to pick his brain.

What follows is an after dinner conversation that transpired over cigars and a goblet of Grand Marnier:

AD: Mr. Obvious, what are you seeing in the market right now?

Obvious: Well, Alphadawgg, what I have determined through careful analysis is that we are in a bear market. Through yesterday’s action, the Dow is down 20% since it’s peak in early October of last year. The S&P 500 is a tad below 20% down, and the Nasdaq is down 21.25% since its high on 10/31/07. My measuring stick is 20% down from the peak. So it’s official. We are in a bear market.

AD: Isn’t that somewhat of an arbitrary measure? Bear markets are characterized by markets that trade back and forth and go nowhere, even down. Hasn’t that been rather obvious? No pun intended, of course.

Obvious: Well, not exactly. Prior to being down 20%, the market was just exhibiting volatility. You see at my brokerage firm of Obvious Lee Klewliss & Howe, we prefer to be optimistic about the markets. We are buy and hold investors. You have to look at things over the long term and ignore market “noise”. It is always a good time to buy. That’s our motto, and we’re sticking to it. Besides, bear markets, which we prefer to call “pauses”, only last a few months. Actually, we are still in a long term bull market. These corrections are simply pauses, as we say. It’s analogous to a bull in the pasture, happily consuming vast quantities of grass, then lying down for a brief knap (chuckle).

AD: Interesting concept (rolls eyes). But, don’t you think that by looking at the charts, examining trends and market sentiment, you can clearly see that we have been in a bear market now since late last year? As a matter of fact, since late March of 2000, the Nasdaq is down 54%, the S&P down 17% and the Dow has been flat. Doesn’t that qualify as a secular bear market? Isn’t eight years an awful long time?

Obvious: Maybe. Again you have to look at things from a long term perspective. To me, charts and technical analysis are fictions made up by people who think they can time the market (chortle). It can’t be done. College professors have proved this to be a fact.

As far as market sentiment, I try not to get sentimental about the market. It’s too emotional and I run the risk of getting verklempt. Really, if you look at the market going back to 1926, it has given us an average return of 10%. Where can you get 10% these days?

AD: But that’s over 80 years. People don’t invest for that long. Additonally, returns are never always 10%. That’s simply the average. We can experience quite a variation in any given year. Also consider that by the time many investors reach age 47 1/2, they start pulling money out of stocks and going into bonds for part of their portfolio. They’re advised to start being conservative.

Obvious: Yes, that’s true. We even tell them to do that.

AD: Well, then they probably won’t be able to make 10% , will they?

Obvious: (Scratching his head). Hmmm, I didn’t think of that.

AD: Moving on, what should people be doing now?

Obvious: Well, since we are now officially in a bear market, which I prefer to call a “pause”, people could consider moving into cash. They should also buy bank stocks. They are cheap and pay a hefty dividend.

AD: But Mr. Obvious, going to cash and buying banks,  isn’t that contradictory? Aren’t you worried about a further meltdown with financials?

Obvious: No. Haven’t you heard of the C-O-N-T-R-A-R-I-A-N strategy? Go into cash and buy the banks, now!…Before it’s too late!

AD: Mr. Obvious, with all due respect, you don’t know WTF you’re doing, do you?

Obvious: How dare you speak to me that way? I am the Chief Investment Strategist and CEO at my firm!

AD: Obviously, we are in a bear market, Mr. Obvious. Nice call.

——————————————————–

And obviously, this is a fictional account of what a typical conversation most retail investors may be having with their brokers right now. 

The NYSE Bullish Percent is now at 30%. The percentage of NYSE stocks trading above their 10-week MA is at 28%. We are approaching oversold territory, but we’re not completely at that stage—– yet.

The public is starting to get worried about their bullshit accounts. Capitulation, here we come.

It’s also interesting to note that some of the most highly regarded hedge fund managers on the Street are down for the year. They are in the process of raising cash to try to take advantage of oversold conditions and a bounce.

We saw some of that yesterday, obviously.

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The “fuckus” stocks (aka “focus stocks”) are a paltry 2.5% of my holdings. A pittance. Therefore, no amount of “fuckus stock disaster” will come anywhere close to shipwrecking my twenty-four story aircraft carrier. 

By posting the “fuckus” stocks for your perusal, I’m simply offering up some fare from my table laden with ribeyes, lobster, ambrosia, tycoon whiskey and whatnot—so to speak. In essence, I like you.

People, I still hold [[SKF]], [[FXP]], [[DBA]], [[DGP]], [[GSG]], [[SZK]], [[FXA]], [[FXC]], and [[DXD]] in my large and profitable hands. Additionally, there are other holdings that are waiting in the wings to fill my coffers with coinage. You need not feel sorry for me because some people decided to waylay some of my stocks in some of the leading sectors. Every dog has his day.  

In closing, it pleases me greatly that [[MA]] is following my orders to the “t” , after I so unceremoniously shorted it around the $295 mark. Again, and I quote, “death to MA and all who practice usury”.

Thank you, and good night.

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