Pre-Gaming It

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MARKET WRAP UP 10/07/10

In front of the big earnings party that kicked off this evening with $AA reporting, market players held their collective breath today. After retesting and holding the key 1150 zone, the S&P 500 rallied back to finish the trading session down 0.16% to 1158. We saw weakness in the energy and materials, while many tech names recovered from yesterday’s drubbing. Above all else, today was the chop before the storm, if you will.

Whether we see a storm that drenches the bulls or bears remains to be seen. On the one hand, 1150 has held as support on the S&P since the big rally on Tuesday. However, the 1160 area is proving to be tough resistance in the short term. Moreover, while some sectors are quite extended, others clearly are not. Thus, the market remains a mixed bag, with the bulls having the benefit of a series of higher highs and higher lows since late August.

At the time of this writing, I see that Alcoa is up nicely in after-hours trading on the back of an earnings beat. I must say that I am reticent to automatically claim that the market will rocket higher tomorrow just because of $AA. Keep in mind that we also have a much-anticipated jobs report tomorrow morning, which will feature the usually post-report spinning. The zero hedge permabear crowd will thumb through every detail of the report to succinctly illustrate why the world will end tomorrow, while permabulls like Larry Kudlow and Ned Riley will claim that America is back to the sustained organic growth that it saw in the 1950’s.

Instead of playing the macro data game, I urge you to focus on a few other aspects of your trading and the market. First, verify when each of your holdings reports earnings, so as to limit any unpleasant surprises. Next, bear in mind that the market is simply going to do what it wants to do. Indeed, if we are in a bonafide uptrend, then macro news and earnings reports will actually serve as excuses for the market to go higher. Throughout 2009 and parts of 2010, we have seen stocks rise on bad news. To be fair, we have also seen sell-offs on good news. Regardless of how convincing a given macro thesis may be, however, the price action in the stock market pays a far better reward than winning a debate at an effete dinner party, and therefore it commands your respect.

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I added to my $DZZ, ultrashort gold hedge, today. I now have a 3/4 position, and will fill it up on further downside (see chart below).

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 62%

• LONG: 56% ($ATPG $CRZO $CSTR $GS $HMIN $MSTR $TIE $WYNN)
• SHORT: 6% ( long $DZZ)

CASH: 38%

[youtube:http://www.youtube.com/watch?v=xPcql4FuCK0 450 300]r
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With Alcoa officially kicking off yet another earnings season when they report after the closing bell today, consider this a friendly reminder to check and then double-check your current portfolio holdings to see when they are scheduled to announce. As a relatively short term swing trader, I am almost always looking to significantly reduce or outright close a position into earnings. There are simply too many variables for me to have an edge.

Even if you have illegal inside information about what a particular firm’s earnings will precisely be (and would thus face the distinct possibility of winding up in a federal pound-me-in-the-ass prison, with no conjugal visits) there is still no way to know how the market will react. Stocks can just as easily sell-off on great earnings as they can on horrific ones, and vice-versa.

Technical analysis has its clear limitations in that it can only demonstrate what is currently known and knowable by the markets. To presume that charts can dictate everything into the future is pure folly. Trading IS gambling, as we are wagering on outcomes yet to be determined. Instead of running away from that fact, a better approach is to embrace sound risk management.

In sum, leave the heroic all-in bets on an earnings play to old men trying to recreate their youth as they imagine themselves as Steve McQueen in The Cincinnati Kid. For those of you who have seen that movie, they will likely face the same fate as McQueen’s character did in the end as well.

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MARKET WRAP UP 10/06/10

The S&P 500 closed today down 0.07% to finish three ticks below 1160, at 1159.97. Based on that fact alone, you would think that today’s trading session was a wholly boring affair after yesterday’s massive rally. Indeed, many stocks took breathers today, including $AAPL. However, many other high beta names saw sharp declines, specifically in the cloud computing and data storage sectors. The selling in those names was heavy and steady. Despite many high momentum names getting sacked by the bears, the broad market held up remarkably well. The industrial/material/energy complex caught a nice bid as capital flowed out of the technology-led Nasdaq, which is a major reason why the S&P printed a benign doji after yesterday’s powerful marubozu.

The temptation for many market players is to extrapolate on today’s weakness in the high beta plays that the broad market will soon top out. However, I believe that a less formulaic approach is a better strategy here. Just because high momentum names, such as $CRM an $NFLX, have been crowded trades and are now shaking out the latecomers and weak hands, the more pertinent issue to me is where that capital goes when it leaves those issues. Does it come out of the market entirely like it did at various points throughout late last spring and during the summer? Alternatively, does it rotate over to the lagging sectors and thus prevent the broad market from rolling over? Based on today’s action, the answer is unquestionably the latter scenario.

This market has increasingly rewarded dip-buyers over the past several weeks. Throughout the summer, dip-buyers were severely punished, as every time it appeared that the market was poised to breakout to a fresh uptrend, resistance would turn stocks back down to the 1040 zone on the S&P. Ever since late August, however, an interesting thing has happened. The bears who became accustomed to shorting at resistance with ease have been continually squeezed, and the more aggressive bulls have earned a handsome payday.

As earnings season officially kicks off with $AA tomorrow evening, and with a jobs report on Friday, I would expect some more volatility to come back into the market. The extrapolators will argue that this means that the market can no longer go higher. Instead of abiding by a rigid market thesis, though, a more common sense approach will prevent you from falling victim to yet another false breakdown.

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I want to clarify that I welcome constructive disagreement and other points of view from my readers.

However, some of you have the writing skills of Sean Penn’s character in I am Sam after sniffing an entire container of glue. If you are going to claim that my analysis is wrong, then at least be thorough, focused, and cogent in your response. If not, then take your ass over to the Peanut Gallery and hone that craft, brother, or else face the consequences seen in the video below.

Hat tip to my boy @Gtotoy for the link.

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I bought a 1/2 starter in my main man Steve Wynn’s eponymous casino and resort business, $WYNN.

All you Chessmaster haters/bearshitters may commence said hating via my comments section in 3…2…1…. GO!

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 66%

• LONG: 62% ($ATPG $CRZO $CSTR $GS $HMIN $MSTR $TIE $WYNN)
• SHORT: 4% ( long $DZZ)

CASH: 34%