Shake It Like a Polaroid Picture (Market Wrap Up 04/16)

The $GOOG reaction after the bell yesterday, the Greek and $GS news today.  All of these excuses were posited by many as the culprit for such a glorious bull run seeing red today.  To be sure, the $GS news affected a great number of stocks in the financial sector, in particular.  However, what I saw today more than anything else were some great, convenient excuses to take profits, as the $SPX fell 1.61% to finish at 1192. Although we pierced and closed slightly below the trend line of the rally since February, keep in mind that in the past two months we have covered a lot of ground, going from around 1043 to 1213.

The good news is that all of those cautious bulls who have been whining about the market being too extended should have some great entry points if we continue to pull back next week.  The first target is the 20 day m.a. around 1180 (we came close to hitting it today). After that, we are looking at a huge retest of the original breakout point of the rally at 1150, followed by the rising 50 day m.a.. Needless to say, the bulls have many layers of defense to back them up before we can come close to saying that the tables have turned in favor of the bears.  Despite the scary headlines today, you have to keep in mind that it has been profitable to buy every single market pullback since March of 2009.

As I noted earlier today, I got stopped out of my $CLNE and $CSIQ positions, and I now have a very high level of cash. I continue to like my $EPAY and $DPZ positions.  My main focus is observing the action early next week with a watchful eye. On any sign of the buyers stepping back in, I will look for long setups.  Today’s action was constructive in helping to sculpt less extended, yet still bullish charts.  As I have said for over week now, having extra cash than usual on hand during earnings season is proper strategy.

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This morning I got stopped out of my $CSIQ and $CLNE positions.  My cash position is now at a very high level again.  The $GS fraud charges by the SEC , combined with an options expiration Friday have given the market a great excuse to sell off and raise volatility.  Regardless of what happens the rest of the day, early next week will be the real “tell” as to whether this is the beginning of a correction or just a blip on the screen.

The late stages of a rally feature stubborn bears withstanding more pain than they ever thought possible.  To wake up every single morning and argue with the stock market, via wagering money, will always be a losing strategy regardless of how smart you are.  Being a contrarian is fun when you can nail the top or bottom.  However,  there is a reason why Warren Buffett calls it “bagging the elephant,” and it is NOT because the elephant is standing still waiting for you to catch him.  Rather, the elephant is stomping on the ground moving all the time. Bottoms and tops are extremely elusive, almost by definition. Although it may seem intellectually sexy to call yourself a contrarian and bet your money in that fashion, it is a long term money losing strategy. Wait for an inflection point, and then ride the trend.  Simple, blue collar, and profitable.

In 2007, when the $SPX was over 1500, the idea of it going back down below even 1300 was unthinkable to most. Similarly, when the $SPX was below 700 in March 2009, the idea of a rally to 950 seemed laughable.  When we did make it back over 950 and then 1000, pushing for 1200 was just too absurd to bet money on.  Of course, all of this reasoning must have appeared, at the time, clear headed and steady.  And it was also entirely wrong.  Markets are a function of mass psychology.  When you are at an NFL game, you’re going to see people act a lot differently than when they are own their own in a foreign country.  The attorney from Great Neck, Long Island, is going to be much more humble and cautious when he is lost on a side street at night on a vacation in Rome, than when he is drunk, sitting with his buddies at a Jets game with a Dentist from Hoboken sitting behind him cheering too loudly in his ear.  The herd mentality has a powerful reinforcing effect. RIght now, short sellers are getting clobbered left and right. Eventually, this rally will end.  For now, however, the best strategy remains one of staying long, with a little more cash than usual on hand, and not much shorting, if at all.

The $SPX closed up 0.08% to finish at 1211, as it was another green day, albeit a quiet one.  As the chart above shows, we still have plenty of room to run before we can truly call this a parabolic move. I have said all along that above 1220 would be a time to seriously consider scaling out of your longs, in an orderly manner.

Personally, I remain with a larger than usual cash position and a long only portfolio.  I initiated a new position in $EPAY today, as I believe that the stock looks poised for a big move higher as it breaks out of a pennant.

$FTK was my top performer today, and you will see many more breathtaking short squeezes occur before this rally ends.

With my oversized cash position, I bought $EPAY. The multi month chart looks ready to BTFO.

Side Note #1: If you are ever in New Orleans, walk down past Cafe du Monde on Decatur Street in the French Quarter, and you will see the man pictured above, Jude Acers. He plays outside all day in front of a fudge shop now, but at one point in his life he was one of the top ten chess players in the world, fyi. He is hilarious too and provides great entertainment to you tourist types.

Side Note #2: Yes, my name is chessNwine, and NOT cheese.

As you can see, big Dave has ceased to be able to pay for an omelette station ever since the $SPX climbed over 900 last year.

Take Home Lesson: NEVER make an investment decision based on what an economist says about the stock market.

Another day, another chance to make ungodly sums of money based on my setups from the night before, and the from the ones I posted going into this week.  And yet here I am again, going all high school vice principal on your ass, preaching discipline and a calm demeanor.  Today, we saw a 1.12% rise in the $SPX on pretty strong volume to close at 1210. We are finally starting to see cautious bulls turn into more exuberant bulls. Main Street media is becoming more and more bullish on the economy and the stock market.  Retail money on the sidelines wants back in to stocks. While we still may have quite a ways to run to the upside, I hereby declare that today is the beginning of the end of this rally on a short to intermediate term basis.

Again, please recall that the summer of 2008 rally topped out in a broad 1220-1300 range.  That area was the last place where the most amount of bulls got trapped before we saw the greatest crash of our lifetime. I fully expect that when those bulls, indeed many of whom are fund managers, are finally made whole they will take a decent amount off of the table.  The updated daily chart shown below should clarify my thoughts.

The bottom line is that you always have to consider reward and profit within the context of the risk involved. In my estimation, despite the profitable individual setups that I have been offering up to you, the closer we get to 1220 and above, the higher the risk there is of an imminent correction.  I still have some longs on, but reduced my exposure today and was a net seller. I sold out of $KLIC on the huge move up, and initiated a small position in $FTK (yes, The Fly’s Flotek) because the chart looks good and the short position looks to get squeezed.