New information changed my mind about a Santa Claus Rally…

The November ISM report  came in at 49.5… declaring the manufacturing sector is contracting…New orders fell from 54.2 in October to 50.3.

The market didn’t rally when the White House said there has been progress on the fiscal cliff… naturally the market should have… unless it is starting to realize any agreement will still mean taxes go up and spending goes down.

The only scenario that would have been positive for the market would have been a “kick-the-can-down-the-road” type deal… and this is no longer a possibility in my opinion.

Even the glorious “Grand Bargain” financial media is blaring about will still raise revenue (taxes) and cut spending.

I think there will be another shakeout before a deal is reached… and maybe another shakeout after a deal is reached… as the market realizes the United States is entering into an era of austerity.

The price action today was horrendous from a Bull’s perspective… After making a fresh high on recent rally Mr. Market pulled back below the last three session’s closing prices.

That is why I got net short today.

There is a significant amount of support in SPY from $141.75 through $140 so I will keep a tight leash on this short – starting with a stop slightly above $142.

Below $140 SPY could make a swift move down to the $135′s… so I bought DEC put options with strikes at $140.

Along with the long positions I illustrate below, I am currently holding a short on SPY that proportionally offsets the risks of said positions. The short position is a result of my belief we are overbought at these levels and are due for an immediate and brief pull back. As the market retreats I will reduce the short position, as I anticipate a September rally in the name of QE3 and iPhone 5.

On Monday, the market’s violent march higher forced me to cover my short positions, by end of day 80% of my paper profits vanished. Now I am positioned long. Below is the current state of my portfolio. YTD return is 16%

Long: AAPL CHD CMG DOW EBAY FFIV GIS HD INTC ISRG KORS KMB 

Significantly Short: XLF QQQ 

Overall net short 

This past week had its ups and downs for me. My ups included getting long AAPL right ahead of earnings around 558, then flipping it the next day for 610. Selling 2/3 of my DOW the day before its earnings was another good move. Those stocks along with a FSLR short provided significant gains that helped offset one of my most asinine moves of the year: shorting AMZN ahead of their earnings. Thankfully, size was minuscule and losses absorbable. My thesis for shorting AMZN was justifiable; they have razor thin margins akin to supermarkets, out of control spending, an absurd valuation (165 P/E), and a “hot” product that sells at a loss per unit (kindle). There was fair chance they would post a loss for the quarter. What I failed to foresee was an accounting gimmick(see zerohedge).

Trading earnings is synonymous with playing table games at the casino, and I will hang my hat on these games for the rest of the season.

Lately, the market has impressed me. In the face of an abundance of skeptics, it has shaken off a significant amount of negative news and continues pressing higher. Continuing claims are the rise, parts of Europe are in 1930’s like depressions, and some Euro sovereigns have been flirting with crisis levels… Only in a bull market is such news completely ignored.

I added some stocks to the portfolio this week.

Chipotle Mexican Grill – CMG is still in an uptrend, P/E is high but justified by the opportunity to expand stores internationally and domestically, solid balance sheet, high profitability.

F5 Networks – FFIV had an exceptional earnings report, company has a solid balance sheet, tremendous growth, and high profitability.

Home Depot – HD is my play on a housing recovery. The stock has been in an incredible uptrend since Oct 2011, plus the dividend is attractive. If it breaks its 20 DMA I will bail.

Intuitive Surgical – ISRG had an incredible earnings call, after a small pullback I decided to pull the trigger. Their monopoly on robotic surgery is so damn appealing, I have owned the stock several times since 2008 and every time I sold thinking I’d booked awesome gains I ended up deeply regretting the decision.

Michael Kors – KORS has a high P/E, but their potential to grow in the coming years with new store openings is phenomenal, Women love this stuff…

Intel – INTC reaction post earnings was not fair in my opinion. I like this company; it has a great dividend, nice margins, good balance sheet & cheap valuation.

Despite my purchases I am still sitting on 71% cash. As these stocks rise I will continue allocating capital towards them.

Short

EWI EWP XLF USO UNG GRPN RIMM FSLR BKS GME BBY

Long

TLT CMG AAPL

I am in a bearish mood, can you tell?

Today was my worst trading day of the year. The amount of money I lost was small, but the damage to my ego was huge.

Under the assumption the S&P would fail to breach its 50DMA, I got stopped out of three asinine trades on the short side. After three strikes, and seeing SPY march higher I figured if you can’t beat them, join them, so I got long. With my portfolio generically long in both SPY and IWM, I started looking around for individual stocks to play.

My eyes immediately drifted to Apple’s chart, which is always fixated on one of my screens. I previously sold AAPL near its highs before the DOJ lawsuit was announced and now it was over $10 less than my last sale. The lawsuit is complete bullshit, DOJ is claiming consumers were scammed out of $100M, even if they’re guilty, AAPL has lost billions in market cap since the announcement.

The shares were trading relatively weak compared to the NASDAQ 100 and I thought it was going to play catch up. When it started ticking up, I started buying, confident it would be in the mid 630′s by the close I made three consectutive purchases at higher prices. Then the shorts stepped in and ruined my party, watching it fade as the market stampeded higher was painful, and my trades were fucking regretful. I made a final purchase near the day’s low to average down my trade price.

I also bought some CMG and M (no regrets there)

I think this rally has room to run, the market will probably make another high. Tomorrow I plan on using the SPY and IWM money to buy some individual names.

Ultimately AAPL will trade higher, and I will be victorious.

This morning at the open I flipped all of the Longs I took on yesterday at the close for a profit. At the moment I am in 100% CASH.  I can not justify getting long any stocks until SPY can breach its 50DMA (137.38) on decent volume. I even closed out my successful short sales in GRPN and RIMM, an astonishing number of attractive shorts are getting squeezed today, and I do not want to be next. There is no rush to get into this market Long or Short.

As I am writing this SPY is flirting again with the 50DMA… Watch and see if it holds with conviction.

Summary

Sold CMI MSFT AAPL ORCL DOW

Covered RIMM GRPN

Update

It may be more important to see S&P futures breach their 50DMA, which is 1372.

Fear of a European recession, and no mention of QE by Bernanke last night scared the hell out of investors today. While I watched SPY break its 50 day moving average this morning I liquidated all of my long positions (even AAPL) and mercilessly took on a large short position in SPY, which led me to profitability when others saw their portfolios get slaughtered. Around 3:30 I covered my position and started nibbling long on stocks that looked oversold. Going into tomorrow I am slightly long (~ 12.5%) AAPL, MSFT, CMI, DOW & ORCL. Alcoa’s earnings beat may provide the market with a gap up tomorrow, but beware of the fade…

Note: Still short RIMM & GRPN