A Lot of Indecision Will Make Ya

[youtube:http://www.youtube.com/watch?v=cN8WeadBW1o 450 300]r

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…to conclusions.

I lightened up a little bit this morning before the market sold off further. However, I am forcing myself to stand pat for now. The S&P 500 is still operating above all major moving averages, and we came within three points of hitting the rising 20 day moving average, thus far today. The resilient dip-buyers are probably growing more frustrated with each passing day that we fail to break and hold above 1150. At the same time, the bears have proved inept at pushing us below 1130 over the past few weeks.

I am keeping my hedges on, since my longs are still technically healthy. In this situation, I think it is important to be nimble (Read: a decent cash position), so as to not get caught leaning the wrong way.

Finally, below is an updated chart of the Aussie Dollar/Japanese Yen cross. I believe that this currency pair is the best gauge of global risk appetite, with Aussie strength indicating the commodity-rich country is benefiting from global risk appetite, while Yen strength indicates risk aversion, with an unwinding of the carry trade. I urge you to continue to monitor this chart, as it has settled into a very tight base for nearly three weeks now.

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In the face of the weakness this morning, I am taking my foot off of the gas pedal a bit. I sold out of $GNK for a push, and took off 1/2 of my $TIE position to lock in some profits. I may very well deploy the cash later today to some high momentum names acting well, such as $F and the casino names, but in order for that to happen the bulls will need to step up here.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 56%

• LONG: 44% ($ATPG $CRZO $CSTR $GS $HMIN $TIE)
• SHORT: 12% ( long $DZZ, long $QID)

CASH: 44%

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Looking at a daily chart of the S&P 500, it is easy to see why many traders assume that we have been topping out just like we did at various points throughout the summer. The market has seen a sharp rally for several weeks, followed by a long period of consolidation, just like we saw in June and August. However, a look underneath the market’s hood shows that there is far more underlying health now than compared to any point from late April until August. Not only have the leading stocks seen bonafide breakouts on stong individual volume (the broad market volume remains tepid, but look at February-April of this year to see how far and long a low volume rally can actually last), but now that many of those leading stocks have had time to rest, capital has rotated over to the lagging stocks and sectors instead of coming out of the market as a whole.

The bears had a golden opportunity late last week to capitalize on Thursday’s intense rejection of a break above 1150. In a matter of hours, we went from 1157 down to 1136 on the S&P. With the ball in their court on Friday, the bears proved to be impotent, which is in stark contrast to the coup they pulled after the June 21st downside reversal. Given the underlying strength and sector rotations that we have seen, I would look to lighten up or even outright remove all short hedges should the bears continue to lack any follow-through to the downside.

Below, you will find my best trading ideas for the upcoming week. Feel free to pick and choose whichever setups best fit your style. Please keep in mind that these are trading ideas only. I also urge you to use stop losses in order to mitigate your downside risk. In general, I prefer a trailing 7-8% stop loss, unless otherwise indicated on my annotated charts.

I hope you find these ideas helpful.

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In this video, my goal is to walk you through my thinking on the $DZZ hedge that I initiated on Friday. Keep in mind that I am net long stocks, but I am looking to take off my $QID hedge sometime next week if technology continues to correct in time more than in price. I feel that an ultrashort gold play offers more of a “heads I win, tails I win” scenario, where if gold weakens and the U.S. Dollar bottoms out here, stocks may not necessarily roll over. That scenario would be a repeat of 2004, where correlations between asset classes became detached. As you know, 2004 is a relevant comparison to 2010 in many respects. Moreover, even if stocks fall along with gold in a “risk off” herd mentality, then my hedge will have worked as planned, in the sense that it will ease the pain of my losing longs. The only scenario where I get crushed is if gold rockets higher, but the stock market sells off. The last time we saw that happen was in the late 1970’s and early 1980’s, where a wage-price spiral led to massive inflation. Needless to say, with the current economy in a completely different spot than it was back then, I am willing to take the other side of that bet.

Regardless of what happens in this trade, the more important idea is that I believe you should consider how each trade you make fits in to the broad puzzle of your portfolio. Sure, the ultrashort gold trade individually does not make much sense, as gold is in a very strong uptrend. However, there is a little more substance to my style on this one.

Thus, you should always be taking the chess game of the market into account.

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[youtube:http://www.youtube.com/watch?v=T11GRdLH5LA 450 300]r

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I will likely post a more in-depth video tomorrow. For now, though, this video seeks to broadly summarize the state of the current market. Please note that the end of the video cut me off a bit, but my point was simply that $FCX has been breaking out on a weekly time frame in a way that suggests the broad market could be on the verge of doing the same.

As usual, if the video screen is too small to watch here on iBC, you can simply double-click the screen and watch it on YouTube.

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[youtube:http://www.youtube.com/watch?v=c-MT4emXC9M 450 300]r

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I started a 1/2 position in $DZZ, which is the ultrashort Gold play.

All trades are timestamped in The PPT.

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TOTAL PORTFOLIO:

EQUITIES/ETF’s: 68%

• LONG: 56% ($ATPG $CRZO $CSTR $GNK $GS $HMIN $TIE)
• SHORT: 12% ( long $DZZ, long $QID)

CASH: 32%

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