The True Cocaine Trade is to GO ALL IN NOW

The closer we get to tomorrow’s jobs report, the more I smell fear in the air. I am 55% cash now, risk averse ahead of the numbers. I am very busy complaining about this and that, citing percentages and hardships. Meanwhile, back at the Federal Reserve castle, Benjamin Bernanke is fine tuning tomorrow’s numbers to be goldilocks, not too hot or cold. It will likely launch a powerful rally, displacing bears and sending them rolling downhill in their wheeled chairs.

Sounds crazy, huh?

Well crazy is exactly what happens, over and over again.

Everyone is expecting the market to rally soon. The REITs are at the top of everyone’s buy list and just about every broker I know is positioning for a rally. But there is two sides to this coin. Prior to the decline, pension funds and margin exposure were at their highest levels ever. The small investor was leveraged to the hilt, trying to get rich.

So the market declined, after speculation hit a feverish pitch. REITs are off by almost 20% in recent weeks and no one is talking about losses. There has to be a lot of people hurting out there who will take the first bounce to liquidate. I do not think we are setting up for another “V-shaped” recovery. I was going to buy some REITs, but have changed my mind after thinking it through.

Also, I was going to put some money to work today, ahead of tomorrow’s jobs report. I am not so sure about that anymore. If the numbers are good, interest rates will rip higher and the market will get crushed. Again.

Since 1993, the SPY has traded lower 7 times in June. The average decline is 4.13%. Month to date, we’re down merely 1.3%. I will feel much better about buying this dip only after the SPY is down more than 4%.

On Friday, I expect the jobs report to come in strong, which might lend to further downside action in stocks. It’s well known by anyone with a modicum of sophistication that stocks do not trade higher based upon macro-news. Instead, stocks trade higher based upon the Permanent Open Market Operations (POMO)–spearheaded by Benjamin Bernanke.

Basically, if you believe the economy is in the tank, you should go out and buy short dated calls on the market, for it will trade frantically higher on a worse than expected report. If, however, the report is good, prepare to have your testicles shaved.

Bad economy= more POMO.

I like WETF, RAS, BX, APO, HOV, USG and of course IMMR. FRO is good too, but not my top choice at the moment.

Let’s put the correction aside for the moment. The prevailing wisdom is the economy is in recovery and possibly booming. This is happening because housing has recovered and is booming in many parts of the country. Due to this boom, retail stores, construction materials, mortgage lenders and residential builders are leading the market. The facade is based upon this myth. If this myth is discredited, we are without facade and the Dow is 5,000 points too expensive.

So, housing should be at the top of your buy lists, as well as REITs (non-commercial), banks and mortgage lenders. Also, banks that do better with a sloping yield curve might attract idiot hedge fund dollars. Your plays are KEY, HBAN and CMA.

SPECIAL EMERGENCY ALERT FOR MEMBERS OF THE CLUB OF GENTLEMEN OF THE DISTINGUISHED VARIETAL

BEHOLD! The Impala Lifestyle
http://www.youtube.com/watch?v=-bRSJ-dtN6g

Nevermind your charts for the moment. We are going to calibrate the precise bottom of this trading range to the exact tick. This is what The PPT was built for, identifying ranges and it has timed the bottom, over the last 12 months, with 90% accuracy. Over the history of The PPT (2008), the algorithms have timed the exact bottom, give or take 1-5 trading days, 73% of the time.

The first mistake you’re gonna make is believing these choppy waters are shallow. They may or may not be shallow. Or, perhaps this is the beginning of something significant, something extraordinarily deep. When buying bottoms, never go all in. Moderate yourselves, knowing it’s more of a process than an event.

I will have many more names on my shopping list by this evening. You should be looking for names that would’ve ripped today, like AMBA and HOV, had it not been for such a devilish tape.

Sorry to upend Ragin Cajun’s plea to follow the path of Gint, but I cannot agree.

Gold and silver are in dreadful bear markets. More than that, the general indices are plunging. This is not the time for idle speculation or half measures. If you haven’t secured your own destiny by now, someone is in the process of doing it for you.

Markets are in turmoil. Are you prepared? Did you take the necessary steps to avoid giving back your ill-gotten gains?

They were ill-gotten because they were never yours to keep. As you can see, the market is taking them back now, neutralizing the dumb money, as it has done for centuries. This is the clawback that I warned you about. Don’t worry. It will not last forever and we will make a fortune buying the margin calls of others.

Be patient and eat plenty of sandwiches.

Locking in a big winner here, upping cash position to 55% in the process.

You don’t have to jump back in at the first sign of strength. The day is long and there is plenty of time to reverse lower. Plus anyway, you should be shopping for names that have been sold off, not hitting new highs. If that’s the case, these names are down 15% over the past month. If they’re going back to new highs again, what’s 1-3% of missed upside in the big scheme of things.

To crystallize my opinion: one should exhibit a modicum of patience here and not try to catch quick trades. The play is to buy larger cap or highly liquid names that have been sold off. If top tier REITs are off by 18%, why bother playing in the gutter with the filth and the offal?

Step 1: Have cash for dips. If you have cash, be patient. The market sell off can last much longer than you think.

Step 2: Buy quality; avoid filth.

Step 3: After catching a bounce, drink champagne.

Step 4: repeat steps 1-3.

I’ve been watching this market like an old, wise, owl–plotting moves and slapping elderly people in the face for frowning at me sideways. With my 45% cash horde, I am going to buy just three stocks, which will absorb all of my money–putting me at 100% invested–for the turn–for the win.

As the market marches lower, the list will change, naturally. Here’s what I have so far (don’t tell anyone else about this. We wouldn’t want other jackasses, aside from yourselves, front-running me).

AMAG
ANGI
APO
ARMH
ARR
CRM
EVR
FB
KBH
MAC
N
NMR
O
RAS
SCTY
SLCA
WDAY
WPC
YELP
Z

I closed flat today, even with the market getting hit. I do not want to trade in stocks of the day when the tape is bad. Those spec stocks can get crushed in an instant, so it’s not worth the risk.

I’m not gonna sell IMMR, MU or FRO. Everything else is fair game.

I will be looking for names that are growing revenues more than 15% yoy, that are down more than 10% over the past month. There is a very long list building and those who have been smartly placed in cash, especially those adhering to the core principles outlined inside of 12631, will reap the rewards when the market turns.

First you have to sack up and buy the blood. Therefore, you need to know what to buy.

I know you all want to hear the big gay call, long or short. But “The Fly” is here to tell you to quit wasting your time searching for unicorns. Markets do not crash anymore. They simply decline in a very orderly fashion, with a sense of style and honour. After the decline is viewed as “sufficient”, it is gently walked back up, amidst weeks of daily 40 point climbs.

Yes it’s true, the market is being flushed today. Major kudos to The Devil for making that call. However, this correction did not come out of the blue. I’ve been a coward for more than a week now, saddled with 45% cash.

Here is why I am hesitant.

That is an index that I call “The Risk Appetite Index” inside of The PPT. It is a compilation of muni, government and sovereign bond funds. It has plunged to new lows, thanks to renewed fears that the Fed hasn’t an exit strategy and rates are going up. This, of course, is ridiculous and will be proven wrong in time. But for now, this is the “prevailing wisdom.”

I will buy back into the markets when TLT stabilizes, The Risk Appetite Index stops going lower and IYR gaps higher on volume. Until then, we might grind lower for another 2-3 weeks, maybe even longer.

It’s June and if you’ve traded successfully this year, you have good gains to fall back on. Don’t be overzealous and press your luck into a poor risk environment.

There will be easier tapes than this one. Bank on it.