Baby Momo Drama

The high beta momentum plays are being sold hard today, namely $CRM $FFIV $NFLX $AKAM $PCLN. There are countless other cloud computing and data storage plays that are getting whacked on the back of $EQIX‘s big earnings miss last evening. Despite the blood on the street in many of those momo names, the market has more or less been flatlining all day.

With the huge rally that we saw yesterday, it would be easy to assume that the high beta plays rolling over today would mean a down 3% day on the senior indices. Instead, we are seeing capital simply rotating out of the high-flyers and into other areas, such as energy, financials and materials.

This is a huge change in character from the market action that we saw over the summer, where we would see two or three weeks of strong risk appetite, followed by several weeks of complete risk aversion. That kind of broad market analysis, done as objectively as you can, is what I am referring to when I urge you to trade what you actually see, not what you would like to happen.

Many bears who have missed or fought the move up from 1040 on the S&P are happily cherry picking the glaring weakness in the high beta names today as evidence that we are topping out. If that weakness had spread to the broad market, I would probably be inclined to agree with them.

However, thus far it has not, and therefore I do not agree with them.

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The future ain’t what it used to be.

-Lawrence “Yogi” Berra

MARKET WRAP UP 10/05/10

After digesting the move higher in early September for the past two weeks, the market illustrated today that the summer highs, of roughly 1130 on the S&P 500, have now become strong support. Including yesterday, the bears had every opportunity to take this market back down into the choppy and sloppy trading range where market players spent several months essentially risking dollars in order to make a penny here or there. In addition to 1130 acting as current support, the bulls also firmly held above 1150, which had been acting as tough resistance over the course of the past two week’s consolidation. Beyond the S&P closing up 2.09% to finish at 1160, breadth was incredibly strong, and we even saw a nice uptick in volume compared to that which we saw during yesterday’s dip.

A day like this is a firm reminder to always trade what you actually see, and drown out the noise as best you can. After a sharp rise from the August lows, technology stocks could have easily rolled over and taken the broad market along for the ride down. Instead, they took a benign pause for two weeks and resumed their march higher today. Simply put, that is what I see, so that is what I will trade. At the end of the day, price is all that pays. Macroeconomic headwinds, inept central bankers, and poor unemployment are all good reasons to avoid claiming at dinner parties that all is well with the world. However, those ideas will not matter much to Mr. Market if he is set on going higher.

Barring some type of sudden reversal, Mr. Market does, indeed, have higher prices on his to-do list.

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I am back to full positions in $HMIN and $TIE, as they are setting up for higher price and are not yet too extended to buy.

All trades are timestamped in The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 62%

• LONG: 58% ($ATPG $CRZO $CSTR $GS $HMIN $MSTR $TIE)
• SHORT: 4% ( long $DZZ)

CASH: 38%

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Enough said.

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[youtube:http://www.youtube.com/watch?v=-lGnHqlXilg 450 300]r

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[youtube:http://www.youtube.com/watch?v=DnvXpLOzKeQ 450 300]r

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I sold out of my $QID position in full. After technology has rested for the past few weeks, and is now moving higher today, I am unable to justify holding that hedge.

I also bought a 3/4 position in $MSTR, based on one of the most historically accurate features inside The PPT algorithm.

If you are caught heavily short right now in the market, remember that there is nothing so terrible about being wrong. Rather, staying wrong is usually the genesis of the major losses that traders suffer over the course of their career. The market simply does not want to roll over, and barring any major reversal it looks as though the bulls have finally conquered 1150.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 54%

• LONG: 50% ($ATPG $CRZO $CSTR $GS $HMIN $MSTR $TIE)
• SHORT: 4% ( long $DZZ)

CASH: 46%

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MARKET WRAP UP 10/04/10

In front of both another earnings season and a government-sponsored jobs report later this week, the S&P 500 saw a good deal of profit-taking today. The real action came just before the New York lunch hour, as the bears were finally able to sink their claws into the broad indices. In the afternoon, however, the action abated as the S&P 500 chopped around before closing down 0.80% to 1137. The good news for the bears is that breadth was pretty poor, with all major sectors flashing red. Despite the lack of green, the selling volume was not particularly intense, indicating that institutions were not sprinting to exit their bullish bets.

Within the broad scheme of things, the bulls firmly held a retest of the summer breakout around 1131. If the bears are going to submit a deal breaker to the bull thesis, then they simply must break and hold below the summer highs. If not, then days like today will be remembered as simply giving many charts the time that they needed to firm up and prepare for another leg higher. Leading stocks, such as $AAPL, $CRM, and $NFLX all have had several days to digest their recent gains, and they have also pulled back to their respective 20 or 50 day moving averages. Looking ahead, it will be telling to see whether the bulls will able to assert themselves at obvious support zones. Thus, with those key stocks hanging in the balance, my strategy today was to raise slightly more cash and exercise patience.

It is often said by many Wall Street critics that investors or traders picking stocks and trying to make money have no better odds than a monkey throwing darts at a board. After consolidating in a tight range for two full weeks, there will most certainly be a group of traders who are caught leaning heavily in the wrong direction whenever the market explodes (crashes) from this compressed state. However, as individual traders we have exclusive control over how much risk we decide to take. Despite how many stocks have worked through bases during the past few months, I am still reticent to become very aggressive with the market oscillating between 1130 and 1150.

On this one, it is best to leave the front-running to the monkeys.

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