Checking in on the Old Man

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Back in late August, I wrote this post discussing the idea that Berkshire Hathaway’s share price had become a much better broad market, and in fact macroeconomic, “tell” than it had been in decades due to the cyclical nature of some of Warren Buffett’s recent acquisitions and investments (Burlington Northern Santa Fe, for example). Indeed, from a technical perspective, $BRK-A shares were flirting with a multi-year breakout from a massive symmetrical triangle during the summer.

Presently, $BRK-A has broken out of the triangle and is consolidating nicely above all major moving averages. On a weekly timeframe, the constructive nature of the price action continues to be a good reminder that, despite all of the terrible economic data and egregious monetary and fiscal policies, we simply must trade the market that we actually see, instead of the one we think we should have.

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MARKET WRAP UP 10/21/10

After a morning gap up to multi-month highs today, the S&P 500 sharply reversed to turn in the red before the bulls staged a final hour comeback, as we finished up 0.18% to 1180. Underneath the surface, many individual issues saw intense reversals as well. However, there was not nearly as much technical damage done as one would think. Across the leading indices and sectors, the short-term momentum higher is becoming increasingly turbulent. Nonetheless, we are simply going to need more evidence of the bears recapturing the initiative before a change in trend can be declared.

As an example, let us look at one of my positions, $SHLD. The stock was performing brilliantly this morning, breaking out of a tight price pattern. Along with the broad market, Sears reversed sharply as the day progressed, yet finished in the green. While today’s candle looks nasty on the daily chart, seen below, the stock really has done nothing “wrong” to force me to sell or turn bearish. Rather, it simply failed to hold its nice gains intraday.

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Sears is far from a broken chart. Should the bears build on today’s reversal and push Sears, along with the broad market, down tomorrow, then that would be a reason to grow even more cautious. Until that happens, though, the prevailing trend remains higher, albeit with a choppy short-term picture.

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1/2 starter. Tight stop. Time-stamped in The PPT. Details on the chart.

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Over the past few days, Mr. Market has adopted more personalities than Joaquin Phoenix after going off his meds. There are a couple of ways to view the increasingly violent price swings. First and foremost, remember that we are still in the midst of earnings season.

To me, trying to be a disciplined swing trader during earnings season is a lot like being invited to a party at Barney Frank’s house: It might be high profile with a lot of fun times to be had, but it’s just not my cup of tea. Beyond earnings season, the S&P has had an impressive run from 1040 up to 1189 today, and a 3-5% correction would be entirely reasonable and healthy within the context of a rally.

With all of that said, however, I want to remind you of how many serial top callers and underinvested bulls miss out the meat of virtually every bull run. There were a few days like today in that February-April run that we had this year, and they were not, in fact, the top. Instead, they proved to be excellent buying opportunities. Why, you ask, do so many people miss out on the majority of bull runs? The answer is because Mr. Market is a hater of epic proportions, even more so than other financial blogs who refuse to link to iBankCoin despite our heavy web traffic.

As I am writing this, I see that we continue to reverse hard off of this morning’s gap higher. We are back just below the support trendline, but I will look to see if there is more follow through before being too conclusory about whether this is “the top.”

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Thus far today, I made the following trades:

• I bought a 3/4 position in $CTSH, a name that I featured last Sunday as a top setup.
• I sold out of the rest of $SDS.
• I bought back 1/4 more of $HMIN for a full position again.
• I took the loss in $WPRT and sold out of it.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 44%

• LONG: 44% ($ATPG $CTSH $DDS $HMIN $MSTR $RGS $SHLD)

CASH: 56%

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MARKET WRAP UP 10/20/10

The film Memento (2000) centers around a man who suffers short-term memory loss, and must wake up every morning more or less starting from scratch in his quest to uncover the identity of the man who he thinks murdered his wife. With the stock market selling off aggressively yesterday, followed by today’s equally powerful move higher, one has to wonder whether Mr. Market is facing a similar predicament to Guy Pearce’s character in the film. Indeed, the past two days of market action have not been momentum trading at all, but rather “Memento trading” (or “memo,” for short), with yesterday’s concerns being thrown to the wind along with caution today.

Although it may not be very sexy, I believe that it was equally correct for swing traders to adopt a more neutral stance yesterday as it was to maintain it today. I continue to hold many bullish bets that I believe are sound setups, but I am more apt to now take a pass on upping my long exposure. Despite the S&P 500 closing up 1.05% to 1178, I will wait for the S&P and Nasdaq Composite Index, as their updated daily charts illustrate below, to recapture their respective support trendlines before allocating capital to the long side without reserve.

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