DEADShort term sentimentsDEAD

[vin]

New here – mostly swing trading. I’ve been searching for a serious site and believe I have found it here. Mr. To’s commentaries are excellent. Let’s cut to it - I for one am spooked short term (1-3 weeks). Here are my reasons:
First, the current rally just doesn’t seem to have teeth. The move up on June 29 seemed exaggerated. It was just a big ‘Hurrah, the Fed did what we expected.’ Many read a future pause into Bernanke’s statement but who knows? It’s almost as if the market ‘willed’ a rally.
Second, after this delayed follow through day the major indexes responded with a pullback on increased volume (modest in percentage loss).
Third, two days prior (June 27th) all three indices had what I call a ‘heave day.’ They climbed over the previous day’s high only to close lower than the previous day’s low – all on increased volume.
Fourth, there was no doubt some end of the quarter window dressing and short covering.
What has happened since? Some call it consolidation; I call it distribution and selling into bounces. The accumulation volume has been anemic. Although the holiday week clouds things the leading events remain.
Lastly, the most important thing is the gut. Something makes me feel very uneasy (see below). Maybe it was the synthesis of what I mentioned above; maybe I am worried about locking in gains on this recent move up. Nevertheless, I liquidated everything except LEN as I don’t think homebuilders can get beat up much more (gee, wonder where I got that idea?).
North Korea lobbing missiles into the sea doesn’t help. I think there will be one more shakeout before we test old highs again. I don’t know if we’ll sink to (or below) the mid-June lows, but it could be painful. Predictions are pretty much worthless until events transpire. I’m only building an arguable case. The market doesn’t care or need reasons to steamroll every naysayer out there. Let the tape decide.

Side note: I was reading my Bible before the market opened and came across these verses:

“With her enticing speech she caused him to yield, with her flattering lips she seduced him. Immediately he went after her, as an ox goes to the slaughter, or as a fool to the correction of the stocks…” Proverbs 7:21-22

I don’t claim to have divine intervention on my side, and starting my day with this verse might have been what spooked me. Take it for what it’s worth, but the wording in this verse is uncanny in its application to bulls running up a blind (r)alley. The Bible remains the best book on investing ever written (not to mention the invaluable spiritual content). If you don’t have one, get one.

[lmrhoades]

THX for the handholding
_________________
LMR

[HenryTo]

Hi Len,

You're right - this year could always be an outlier but to expect further carnage in the primary dealers at current levels would essentially be a bet against our capitalist system as a whole. Are you willing to make that bet at this point? I will not make that bet - simply because the probability of an unraveling is very, very small - especially now that the Fed has "back-stopped" the actions of the 19 primary dealers and our entire banking system as a whole. Gold, oil, the Canadian Dollar, the Pound Sterling, and the Euro all went down today - some tremendously so the Fed as an institution and a lender of last resort is still safe.

The Fed is now shifting to a more hawkish policy - but the Administration and Congress are now starting to implement policies that will target the housing sector specifically. The Freddie and Fannie move was just an opening salvo. Until the stock and housing market stabilizes, they will continue to create new policies as time goes on.

The tape itself is now also getting better. There are positive divergences all over. The weakest sectors today were energy and materials which are all constructive to the U.S. consumer and U.S. homeowner.

Keep the faith.

Henry

[lmrhoades]

Henry...
I don't doubt your smarts and wit regarding the market...i also thought at first you were crazy to short the market at 13900...however i wish you were still wanting to be short. I've read alot of your posts from back to 2000 and you were right then too, a little late on 2003 but still very good calls, right now just seems as though there is no valid reason for the market to go up. Why should it. Just because it's oversold and setiment and cash are beyond historical averages...why cannot this be the year it's a record? I wish you were short and then i would be 100% short, the only reason i hold on is due to your calls in the past. Your' smart, i'm not. I can admit that, i sure hate the day to day of this right now...just when you think we are out of the woods...they take it back out to the woodshed and spank it.
Take care yourself
_________________
LMR

[HenryTo]

Len,

I would be worried if I agree with the 90% or so relatively uninformed investors out there. After all, how many of the 90% or so shorted stocks back in July or October of last year (when the DJIA was over 13,900)?

I am not sure if you're talking about JP Morgan or Morgan Stanley, but the former is only down 0.6% today and the latter is up 1.4%. Also, JP Morgan just received $1.3 billion today from the Visa IPO - with potentially more from any over-allotments.

Take care,

Henry

[lmrhoades]

THe day after looking ugly, many calling for morgan now needing huge cash infusions...this does not appear to be clearing up anytime soon...i hate to be so negative but don't see this getting better. I would feel a lot better if Henry agreed with 90% of others out there. UGLY times
_________________
LMR

[rffrydr]

It did indeed--and options ex. I'm definitely more bullish today. There are amazing signs of life--even extreme signs: Bear is trading, trading at a big premium; Countrywide preferreds; even gutted but not delisted Carlyle is actively sought---even the deathstar, NovaStar up 40% today.

Dollar strong...money is becoming money again--becoming investment.
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Today is the Tomorrow you worried about Yesterday!

[lmrhoades]

WOW, nice follow through...is this typical action?
Wonder if it had something to do with the commodity drops today!
_________________
LMR

[gregf]

a note - IBD didn't count yesterday as a follow through because the volume eased from Monday - and they didn't like the internal action much either.


RE: Cramer. How does that guy keep a job? Contrarian indicator indeed!

[lmrhoades]

Is this negative, not getting a better follow through or will tomorrow be the follow through day?
_________________
LMR

[probtrader]

Today's SPX action is similar to March 25th when the index almost went to touch the 50 days SMA and then reversed. Current bar is set at 1350.

[chestnutstime]

[HenryTo]

Was on a conference call where Bill Miller of Legg Mason spoke yesterday. Many were questioning his holding in BSC up to the very end. He first remarked that they (the Value Trust fund) had the maximum allowable (5%) holding for JP Morgan. Prior to last Friday, they only had 1% or so in BSC. More importantly, as of the close last Friday, he remarked that option prices were only pricing in a 2% probability of a share price less than $10 in BSC going forward. So a lot of folks got caught on the wrong side here, as many were expecting a higher buyout price.

[probtrader]

Bespoke on credit default risk, claims we're not out of the woods yet. Lot of CNBC talking heads calling the bottom.

[rffrydr]

So yes, yes and yes.

Yes they were solvent. According to the wsj article above to the tune of 17 billion on Thrus. Yes, he knew the risk was zero, "buy ITM options" (which is technique advice you won't get from most tipsters) and yes it was worth far more than its trading price--it just showed it in a way neither he nor anyone else could have imagined, JPM's "good will."

I saw only the video. It was spliced with Charles Manson and some other "zany" stuff. Yet nowhere THERE does he say buy BSC. He's a hedge-fund guy, a lifer and early last week it was all about the hedge-funds, BSC's pre-eminent clients. It's natural that he'd respond on that level. It's also natural that his audience, the little guy, would take it the wrong way. The Chairman also said BSC was solvent. They were solvent. That's the nature of a bank run. Now you see it; now you don't. As long as we live in a world where banks don't have to match their liabilities to assets one-to-one this can never be ruled out--the most rare of rare birds; perhaps, but only recently repeated across the pond in N. Crock.

I pay more attention to this fool since almost having my head handed to me trading against him. I was short POT against his almost exclusive pumping this winter (after this permabull, correctly turned bearish on the overall market) on a thin float. I took out a subscription to Real Money finally, cause of one guy there, Howard Simons--and now I can keep an eye on the Madness. His latest, "seven reasons to be bullish."

The real lesson is that is that there is no "free-market." Restraint and Reach go hand-in-hand. Thinking otherwise...is madness.

In the end, the Madman went with the odds--the only sane bet. At what price to his character?
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Today is the Tomorrow you worried about Yesterday!

[nodoodahs]