The Market Sells Off…Hilarity Ensues

Once again, the market makes jackasses out of the people (like me) who sold into what appeared to be “warnings” of an overheating tape. As always, this is one giant bear trap, devouring suckers whole at the expense of reason.

I am looking to reallocate cash now.

DEVELOPING…

The idiots over at TSLA have decided to triple the amount of “solar powered” charging station, enabling drivers to travel “coast to coast.” Also, in their infinite wisdom, they’ve decided to make a sweepstakes out of the announcement of their new ‘super charger’ supplier–to be announced today at exactly 1:30 pm (est).

Because of this news, the alternative energy sector has been on fire, with the likes of soon to be bankrupted companies shooting higher–in the hopes that they might be the recipient of “The Great TSLA Super Charger Contract of 2013.

According to the market, the contestants are:

CPST
BLDP
QTWW
UQM
ARTX
FCEL
PLUG
ABAT
HYGS

NOTE: Following this historic event, the shares of 99% of the sector in question might come under extreme selling pressure.

In light of the recent correction in REITs, I want to buy some, simply because I do not believe rates are going up. The natural buy here is TLT; but upside is limited due to the bull market in stocks. I am going to provide two groups of stocks, one that offers conservative returns and the other is straight up high beta cocaine gambling–high risk and reward.

List 1.
KIM
HCP
WPC
VTR
AEC
AVIV
NNN
O
REG
BPO

List 2.
JMI
IRC
SBRA
NCT
MTGE
RPT
UHT
AGNC
ETFs
PHK
PTY
JRS

These stocks are buyable now. If the losses should deepen from here, I will be an aggressive buyer.

I don’t care about anything but large cap, treasuries and REITs right now. These are real economy cogs, not some fly by night rumor mill buoyed story stock. It’s disheartening to see names like KMB, CPB, WY and BX taken to the woodshed, even though I do not own any but KMB. These stocks are long overdue a correction and the corrections have arrived, fast and furious (extra diesel). I am not suggesting this correction is anything extraordinary. It’s actually quite ordinarly and pedestrian, save the spike in treasuries. However, I am suggesting that you pay close attention to the trends, for they are telling us the market is overheated.

The big divvy payers have led the market higher. It should come as no surprise to see them lead us lower. I am sure there will be people who believe we can still rally, as the large caps get flayed. But this is simple folly, a mistake made by people wearing blued collars and burlap’d pinstriped on top of velcro underpants.

NMR, HCP, VTR, HCN, SNE and MFG are officially in correction mode.

Other dividend payers getting taken to the woodshed include: BAK, HAS, TLK, BIP, BBD, ABV and NGG. PPT members can access this screen here.

I lost 1.5% today, but raised a lot of cash. At the close of trade, I was up 29% for the year and in a 42% cash position.

Everyone is having fun trading FNMA today. I, however, have opted for a less exciting afternoon, looking for broad market clues and building a watchlist of stocks that can last the test of time.

The IYR is down another 2.5% today. Let me explain to you why this is happening.

REITs enjoy a very low rate environment. Because of these low rates, they’ve been able to finance projects at extremely low costs. REITs live and die by the credit markets and are valued based upon their NAV, which is based upon their balance sheet. If rates are heading higher, that is a material downside event for their balance sheets and NAV, which in turn means the stock prices need to go down.

But are rates really going higher? Do we really think the Fed will allow this to happen?

I am skeptical of anyone who shorts The Bearded Clam, for he has made me fortunes since 2009. Assuming I am correct, the REITs are great buys down here.

We must take a look at O, SBRA, MPW,JMI, AVIV and other hard hit REITs.

I am going to narrow down my watchlist to a few good REITs and begin buying them soon. I am respectful of market forces and will allow for the stocks to breathe, knowing they’re under extreme selling pressure. Believe it or not, this is typical of May, seeing the REITs get hit. It happened last year and in 2010. Both times the May sell off represented optimal entry points for the industry. I believe buying them from here until mid June will yield the same results.

REITs are getting smashed again. See for yourself.

In turn, mortgage related plays are getting hit too.

Add in the homebuilders, which are down more than 1% today, some much worse than that, and you have a legitimate reason to believe this correction is for real.

PHK is down more than 4.5% again today, further solidifying evidence that anything with yield is getting hit. I must admit, this is surprising, especially since TLT is up for the day.

High risk alternative energy plays continue to surge based on speculation that TSLA is doling out a “super charger” contract this week. Names in the mix are BLDP, UQM, ECTY, PLUG and CPST.

For now, SRS and DRV are the inverse plays to own, as these REITs get smashed to pieces.

Be distinguished about your exit from the market. There’s no need to make dramatic proclamations or go for a spin in the FAZmobile wearing nothing but VXXtits. The market is heading lower because it must.

I am a firm believer in Darwinsim, the mechanism that corrects (extra Grady) the stupid money from ever encroaching on that of the smart. Every once in awhile the dumb money makes it through, infected local country clubs and charitable dinners to the chagrin of legacy members. But for the most part, those who lived by the sword will die by it.

Many of you reading are the epitome of “stupid money”, always clowning around in the margin account, playing the hot stocks for hedonistic pleasures. Your time will eventually come to and end, as the multitudes of speculators who went bust before you.

“The Fly” is edified in the old ways, instructed to “never lose money” under any circumstances, which at times makes me risk averse–causing me to “miss out” on occasion.

Enough of the boastful lecturing, here’s what you need to watch carefully.

PHK
TLT and a little bit of LQD/JNK

It’s important that yields remain low. Should they keep spiraling higher, it will spook the markets and set us back 1-2,000 points on the Dow. There isn’t any cause for alarm yet, as this may resolve itself soon. However, in the event that this is the beginning, you should take it upon yourself to sell out of high spec names and raise cash.

Treasuries, REITs and Japanese stocks have been hammered this past week. On top of that, we’ve seen notable risk aversion in many high beta names, like NFLX, UNXL, RSOL–just to name a few. The PIMCO high income fund (PUK) dropped by 6% for the session and commodity related stocks have been behaving as if runaway deflation is taking place.

My Risk Appetite Index has fallen below $100, coming down from $105.

Either the large cappers and income names are foretelling dangers ahead or the rotation out of stodgy non-risk names is so acute that we can coexist in a world where rates soar, the dollar rises, and stocks continue to make new highs, all the while “old economy” stocks get placed in the doghouse.

All I know is that I’ve been tempted, perhaps by The Devil himself (you never know), to buy a wide array of super risky stocks, like BLDP, CPST and PLUG, at a time when my assets under management are at levels that have marked my top in the past. Each and every time I hit this level, I am rebuffed and sent seaworthy, like a viking without a paddle.

Going into today I was fully invested, so I sold some stocks to remain nimble towards the end of the session. There isn’t anything wrong with raising one’s flexibility in the face of a profound sell off in treasuries. No matter what they say, there isn’t a pleasant outcome to this story, if it plays out like it did today.

We cannot, must not, have higher treasury rates, else all is lost. The initiative of the bulls will be snatched, like a purse from and old lady in Brownsville– and the housing market will stiffen up a bit (no rigamortis).

With cash, I reserve my god given rights to depravity and will exercise this enablement whenever, wherever, I choose, with the highest degree of talent and penchant for performing “market magic” afforded to me through my patrons: the gods themselves.

NOTE: Today was the first in four days that overall market breadth eclipsed the 50% threshold.

http://www.youtube.com/watch?v=UqDt0rnNYvU

I sold MT and JIVE, but added to IMMR, in order to raise cash and allocate assets to a name that I fervently believe in. Both JIVE and MT were designed to be technical break out plays, not based upon a story. IMMR is a story, which is working, so I bulked up into the bell.

The situation with treasuries is a JOKE. Believe you me, it will be resolved and everything will be fine. However, we’re dealing with a bunch of melodramatics in the media, who enjoy conjuring up fear on main street, which in turn affects Wall street.

Sell your illiquid names, the ones that are pure gambles. Anything you buy, do it with purpose, have a reason behind your purchases and try to do so in liquid names.

Liquid to me is a stock that trades at least 500k shares per day.

My day was flat, after gaining 1.5% in the morning. I had losses in FRO and gains in USG, IMMR, YZC and PAMT.

God strike me down if I get bearish again. For now, let’s just call my act of conservatism a pause in the degeneracy that I typically partake in on a daily basis.

Treasuries are getting smashed, sending yields to new highs. Since everyone is pondering when the Fed will stop QEing, rates are going up–organically. We haven’t had anything to worry about since European sovereign rates were blowing out. Well guess what?

If US rates continue to surge higher, borrowing costs will become burdensome, precipitating another credit downgrade. It’s one of those self-fulfilling prophecy thingies that we’re all so fond about.

The market is still up, but gains have been cut in half. Don’t look now, but a major panic is right around the corner if TLT continues lower.

Do yourselves a favor and get some protection, raise some cash, and DO NOT retweet this post or share it with anyone, else they’ll steal some of these ideas for themselves.

UPDATE: I sold JIVE and MT, raising cash levels to 35%.