Before the Open

It has been a helluva week... Finally found a good pot dealer in the neighborhood, some super duper smoke, so I've been doing a lot of photo editing and not too much trading. I have a comment from a wise trader who caught the huge reversal in financials trading UYG, a solid counter trend move that I have much respect for, and seek to emulate in the future. My macro perspective of the market (weakening American economy in real estate, finance and discretionary) hindered my ability to see the obvious out performance of the aforementioned sectors in the recent mess. I got burned shorting real estate in the reversal, SRS from 130-122, though I've bought it back ~107, SKF ~102, and SCC ~94. What really caused my surprise was not the correction in SRS, but rather, the lack of upside in GDX (which proceeded to happen the next day), which gave me a helluva scare. Needless to say, I'm short the usual suspects via SCC, SRS, SKF and long precious metals via GDX, GLD and SLV yet again. Yen and Franc will continue to strengthen over the next few months as the mess spreads. IBKR had great earnings once again, but continues to struggle in the lower 30's, I guess it is hard to swim against the current. I'm still keeping a small position in BPT, huge dividend, and solid looking chart touching support. I'm also a tiny bit long energy and basic materials via UYM and DIG, but I expect to close these positions Monday, seeing as I was using them to hedge my bets over the weekend.

Market Metaphors for the Maligned and Miserable Market Mavens

This past weekend I got drunker than the American consumer, only to find myself locked out of a friend's apartment like a depositor in a bank run. Like Mike Shedlock, I rang the bells and made some calls, but too no avail, for my cries fell upon unattenuated ears, similar to the monkeys on Capitol Hill. A companion gave me a boost as strong as a 100bps slashing of the fed funds rate, enabling me to swing high up on a fire escape like the October 2007 market. I pounded on the windows and screamed louder than a retiree looking at their 401k this coming Tuesday, hoping to wake my host, who was as unresponsive as the risk managers at Merrill. Apparently I was peering into the wrong apartment, because I was chastised by a neighbor, reminiscent of a dialogue between Peter Schiff and Tom Atkins. "What the fuck are you doing on the fire escape," said the would be Peter Schiff. "Errrr, ummmm, dahhhh," I said with my best Tom Atkins impression. Thankfully, my slumbering friend had arisen in the great cacophony, and opened the door (please insert metaphor). Like a fool, I could have used my pals window to enter safely, but I got suckered into talking the fire escape down. Like the mortgage backed securities market, the ladder only budged in fast and jerky downward motions. Finally, when I assumed things were safe, I got on the ladder, only to be shocked like a value investor who is looking for a bottom in MBIA. My foot was slammed by the metal rungs, caught between metal and a hard place, much like the Federal Reserve in periods of stagflation. More battered and bruised than the emerging markets, I finally made it to the ground, and hobbling into the apartment, which offered about as much relative safety as utilities. The next morning, there was the inevitable bit of swelling that comes with such accidents, but like a market bounce, it didn't last too long. Sadly, authorities had been notified, and my host was rather perturbed by the whole affair, making me as popular as Angelo Mozilo. Good luck Tuesday, ya'll gonna need it.

I don't know what tomorrow will bring, though I expect some high volume capitulation a la August 18th some time this week. Luckily I sold my GXC Friday for a nice 1-day 3.5% gain, though I may have shot myself in the foot by covering SLV, and buying a little GDX. I'm still short gold, and I will probably purchase some SCC and SRS if they make new highs on Tuesday. The blood in the emerging markets is impressive, but we are a long way from rivers of red in the street. I suspect there is a great deal of panic at leveraged hedgies unwinding unsustainable trades, but that is idle speculation. Yen and Swiss Franc are the safest bets in these environments, as carry trades unwind. I guess there will be strengthening in the USD as well, but I can't imagine how long that will last, for I believe the powers that be will try and inflate our way out of the remarkable trade deficit we've amassed over the years. I know I've been calling for a bounce for a few days now, and it hasn't materialized. This has been a bit of a lesson in the "trade what you see, now what you believe department," and I hope to improve my trading as my longer term macroeconomic thesis of American economic collapse comes to pass.

The Good, The Bad, The Ugly

Didn't spend much time watching the markets today, settling instead for an informal lunch, matchmaking a friend from overseas with my father... but that is hardly why you read this site, so here is today's news.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.