Here's Your Pickle Surprise, Pal....

One of the readers of this blog posted a link to an interesting article called The Last Bear Standing that you might find of interest. Here is an excerpt:

"As Grantham points out, a bubble needs two things: excellent fundamentals and easy money. 'The mechanism is surprisingly simple,' he wrote. 'Perfect conditions create very strong 'animal spirits,' reflected statistically in a low risk premium. Widely available cheap credit offers investors the opportunity to act on their optimism.'

"And it becomes self-sustaining. 'The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you.'"

"My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. ... In which case, pessimists or conservatives will take considerably more pain."

So - encouraging in a way, although discouraging in another. I strongly believe, as readers of this blog know by now, that we are in the midst of the hugest Ponzi scheme in human history, and one day it's going to completely collapse. The question is whether that "day" is tomorrow or five years from now. One thing in certain - between now and then, the bulls will persist in posting their taunts here. Although at least to a lesser degree, now that the shield of anonymity has been taken away.

One other article of interest is Dead Market Walking, emailed to me by another thoughtful reader.

Today is the best day I've seen in a long time for my portfolio. I sometimes wonder on days like this is our national nightmare is finally over. One day does not a trend make (or break), so that remains to be seen. All the same, as you can see from this chart of the $INDU, the big boys gave up some ground, and the cyclic indicators are looking mighty encouraging.


The NASDAQ Composite, which has been weaker than the Dow, also fell. The key difference is that it was down pretty much all day, whereas the Dow sported a 40+ point gain at one point in the day before shriveling away.


My favorite index, the Russell 2000, fell the hardest. I like what I see here.


The S&P 500 remains above its former resistance, but any further drop will pierce that line and put us back into that gigantic upward-sloping channel.


The Gold & Silver index, which has been mercifully weak, continued to fall today. This is one of the cleanest, prettiest channels around.


As for the $XMI, it has kissed the underside of its former support line and is now heading in a more intelligent direction.


Ironically, I don't have much time today, so this is going to be a quick post with hardly any specific stock symbols. I offer here a few short suggestions (but not nearly as many as I could.....) There's Akamai (AKAM):


Affiliated Managers Group (AMG):


Avalon Bay (AVB):


MWP is turning down hard:


PVH is not as clean as the others, but it has certainly lost a lot of momentum.


Hopefully I will have more time tomorrow. Thousands of people come to read this blog every day, and I'm flattered and grateful for your interest. If the blog is this popular during this air-headed runup in prices, I can only imagine its popularity when we actually enter a honest-to-God bear market. Until then, I can only yearn to trade stupid, except for occasional days like today.

Sea Change

It was nice to see a good, solid down day. Particularly when the market blasted higher from the opening bell, riding on the wings of CSCO's strong earnings. The fact that the NASDAQ actually fell after such a strong opening is great. Green on the screen is a pleasant change these days.

The real change going on is in the political/social pulse of the country. 1994's Republican sweep into Congress preceded the monster bull market of 1995-2000. Conservative values, religion, the 'contract with America' - the whole schmear.

Now that the pendulum is starting to swing the other way, what do we have? Cover stories about aetheism, bestselling books about atheism, a very left-of-center Speaker of the House. It's like a mirror image of 1994. And don't you think the odds of a Democratic president in 2008 are pretty strong? The pendulum is swinging to the left, and I imagine it's going to be approaching socialism before it starts tipping the other way again.

How good do you think that's going to be for corporate profits? Can you imagine what kind of nuclear bomb will hit the market when the capital gains tax is eliminated and people must pay ordinary income on stock profits? After all, no more tax breaks for the rich!

Like I mentioned, the NASDAQ fell. The $NDX pierced its prior 100% Fib level (which, cough cough, I've conveniently skooched upward to today's high). I like the weakness today.


The Russell 2000, a perpetual favorite of mine, has puts which I've been gobbling up at these levels. Someone asked about IWM - to which I respond, yes, I like this for a short position. I wouldn't call it a head and shoulders, but I like how it is weakening.


I think I mentioned a couple of days back going long the $SOX. Nahhhhhh. I changed my mind and bought puts yesterday. I'm glad I did. This did well today, and it's got a really obvious stop price (and a really obvious this-was-the-right-choice price).


I've never drawn a trendline on an RSI until today, but it works rather well, don't you think?


The cool thing is that the $VIX is slowly but surely turning upward. A series of higher lows, marked by that ascending trendline, illustrates this. C'mon, $VIX!!!


Now for some specific short suggestions, all of which have put options available. AMG:


BA, which kissed the underbelly of its former trendline today:


FMX (no options on this, I don't think, but......):


HYDL, which busted its head and shoulders pattern, but still looks sweet:


TXT:


Hey, I could use another dose of Down tomorrow. We'll see.

Tasty Shorts

The market didn't do too much of anything today. Oil (and therefore OIH) softened up a tad, which is consistent with my speculation that the energy market is going to resume its downward movement. Gold, in spite of the metal's rise in price, softened too on the $XAU. The Dow just lost a handful of points. At least we didn't have some big 'recovery' day after Friday's nice drop.

I just wanted to share a few charts on which I own puts right now. Here's AMG. This pattern is basically in a "post-broken trendline" situation, which is a favorite of mine. The general uptrend has been clearly broken, and the stock has recovered partly or fully to the underside of the trendline. These often represent low risk/high reward trades. Let's call this kind of pattern PBT for the sake of today's entry.


LEN is just a nice topping formation:


NDAQ looks pooped:


TXT is another "PBT":


I've mentioned MRO a few times already:


Altria (MO), yet another "PBT", which seems kind of common these days:


The VIX went up some time, which is also consistent with my view that we've bottomed out on volatility and complacency. The market misbehaved badly in September and October (typically bearish months, yet the market went up) so let's hope the typically bullish months of November and December likewise confuse everyone! We bears could use a break. A sustained break.