Make 50% long, 20% short…

Is it sacrilege to go the other way?

The most pronounced and uni-directional move is underway this morning in the DXY. This is the op-ex, year-end move where currency traders must look to show how smart they are in selling and shorting the dollar. ALSO, our friends down on Maiden Lane are hard at work trimming the government debt on a dollar-denominated basis…

This action in the dollar, coming on the heels of a huge move higher in bond yields, is designed to bolster the collective bank balance sheet for year end. Without this cover, mortgage-gate would wreck havoc. Don’t worry, BAC won’t go out of business in 2011 either…

This dollar drop is leading to all kinds of commodity fun and festivities and it is trickling into stocks too. Deal flow is in a hurry before year end. Option expiration is Friday. Many books unofficially close for the year on that day. So profit taking is out of the question until then.

It makes for a perfect time to create the taxable event that I’ve been aiming to accomplish. The energy stocks, bought a few months ago when nobody would drill again, are up 30-50%. The Technology stocks bought when you were told the PC business is dead, are up a similar amount. These are my prime profit-taking candidates. Sure, Chinese Lotto and little miners have been all the risky rage. But don’t marry these bad boys and girls because they will bury you when you least expect it.

I’m sure there will be folks who tell me that I’ve got my head up my “you know what” because I’m not 200% on board. 100% is enough for me. I know your attitude is to just “buy the dip, you asshole”, but instead, I’ll be closing out the positions I bought when you pikers were cowering in your basement, long all kinds of VXX. Very few of you were able to swing it around 180 degrees and buy at the right time, like Dr. Fly, but then again you don’t have a time machine either…

Stock market investors and prognosticators of various ilk have once again taken the vigorous stock market action over the past few months, and have extrapolated it to an economic recovery.

Fool me once, shame on you. Fool me twice shame on me.

The economy is not roaring. Commodity prices are and a few anointed or heavily shorted stocks are. But not the economy. Don’t believe the hype, again.  Remember, one third or more of every dollar spent or squandered in this country is done right now.

We should all now expect to live through these “cycles” of Monetary and/or Fiscal stimulus, followed by market gains, followed increased confidence and sentiment, followed by another reminder of reality and the new normal. Our reality is that we continue to live is a credit contracting environment. Until and unless the massive private debt gets restructured, any gains will be illusory and trading-oriented only. That’s good enough for me and most, but keep your expectations in check.

Bull cycles, like the one we’ve enjoyed since September, breed bull market hero’s and massive complacency. When markets sucked in the summer, nobody wanted to buy anything. Nothing. You were repeatedly told to sell stocks and buy bonds. Hundreds of billions of dollars did just that. But that is when the risk was lowest for stocks. I continually said to buy stocks throughout the “double dip”, death cross and every other silly indicator. Remember?

Now the sentiment says not to fight the Fed and to buy stocks and commodities forever. Even during the holiday season of 2008, markets stabilized and traded in a range before resuming their crash. The Fed is in complete control and front-running the market at every turn. For example, everyone says to buy commodities because the dollar must go to zero. So far the DXY remains in a bone-fide uptrend since the announcement of QEII. Plus, simultaneously,  interest rates have risen sharply. Part of the sell off in bonds is profit taking, but many want to believe that it is because the economy is roaring or that tax cuts matter. Don’t believe the hype, again.

The fact is that banks continue to suck and every single action the FED takes is designed to give them cover. Because the only way for them to make money is on the Fed’s teat, when the yield curve steepens, they make more because they still borrow from the Fed at .25 and lend to the Treasury at ever-higher rates. And rates are peaking now. So the Fed’s stated goal is not being met, yet they help the banks anyway. Does this yet prove that everything they say is a lie? Not yet? They must be one step ahead of markets to continue to be the profit center that the government needs them to be. I will continue to wait and see if any politician can figure out that the Treasury is being funded by the Federal Reserve.

We’ve talked about technical patterns not working. They do work, only later than usual, and now the major indices are in the process of making a textbook perfect double top. Will the pattern hold? Perhaps after another fun little spike higher, just to get the masses firmly on board and cap the year. THEN it will work…Be ready…

In the summer it was hard to keep accumulating in the face of ever-present weakness. But it worked perfectly. Today it is difficult to liquidate in the ever-present strength. That will be the correct strategy too.

Our tactics remains the same: Keep liquidating or raising stops. Create a taxable event now, before it goes away.

Did you see Uncle Ben on 60 Minutes? A very telling performance. You don’t need a body language expert to know exactly what is going on. When telling a lie, his lip twitches while speaking. When telling the truth, there is no twitch. Watch the video tape.

Did you notice during which topic he twitched? Talking about “buying Treasuries to lower interest rates” and “not printing money”. I’m beginning to believe the vast Zero Hedge conspiracy theories more each day especially witnessing last weeks market action.

And BTW–I though Scott Pelley was a smart reporter. Not one question about FOOD, ENERGY and COMMODITY INFLATION!

I’ve posted a chart here showing the recent action in the SPX. The pattern that had been developing was a perfect Head & Shoulders top. Normally, that is an unmistakable bearish pattern, especially coming off a big run up. But like so many “obvious” technical patterns, it was blown out by last weeks monster 3 day run. Now it looks like a perfect double top. But who wants to get in the way of free money forever?

Just remember, this is the season where silly things are believed. Sugar Plum Fairies dance aloud in the heads of money managers and Primary Dealers. But very little should be believed. The market is ramping all manner of stock but is clearly lying, like a rug, again.

Can this continue? I guess. But the cycle that started in September has ended. This is just the “ether”. It can be profitable, but you had best be careful.

Have a safe and happy weekend. After this explosive week, why not! See you Monday…

My fancy new site is down today, so my morning show will be open to ALL for FREE.

http://www.ustream.tv/channel/scott-bleier-biz-radio-simulcast-live