The Daily Dose of Trading Comments

You always know there will be days like this ... where something goes awfully wrong.  We have sold right down to the last point where support must kick in or the next step is a wringing washout. Don't know if it will happen, but it's not worth making a bet here unless you are betting with the trend. I'm mostly standing aside other than the accumulation of metals.

Nothing like a good spanking to wake one up. The market couldn't lift early for follow through today and the shorts started piling in quickly again. Although we exited most everything, that big loss on CACS is going to haunt us for a while. I'm sure we will make it up, but making it up is not the way we should look at things. We have to avoid these possible disasters as we have done in the past. My mistake.

Looking to the future, we are selling down to the area where the SPX and the NAS has to make a stand or the boys from Britain have this call right. For now, I'm standing aside other than starting to average into some precious metals. Ugly and uglier is all I see right now am the seriousness of this move and the losses suffered today makes me tentative at best.

Although the bounce is likely not finished, it's starting to look like a bounce and not a new leg higher. I've continued to pare exposure and have little left on the table. This is a day that will not soon be forgotten as we have given away precious capital and that's something we really strive not to do. A lot easier to make gains when you are not making up for previous losses. This month has been all about losses unfortunately. Last year we struggled mightly for a large part of the year making all our gains in about 1/3 of the trading year. Maybe that's the way it's meant to be. Sure makes for a frustrating livelihood the majority of the time if so.

I haven't liked what I've seen in the markets reaction to the news it was handed and have sold down the positions quite a bit again, concentrating in just a few issues and booking gains where we have them.  Still looking to trade out of the ugly trade.  Taking a hard look at the metals again. They are coming in nicely and represent one another opportunity I believe. Worth a good look.

Today is painful as the earnings guidance has literally killed CACS. I knew it could go bad, but I expected maybe 10 to 15% if wrong, not 30%. As I deal with this disaster, I'm reminded of other times that earnings plays have not worked. Usually I just stand aside and stay away from such trades as they are traps, good or bad in these more speculative stocks. Today is a painful reminder of such.

In general, the market is not really impressing anyone here though today. I was looking for a good follow through today with some volume pickup. Still could happen, but so far not so impressive is all I can say. I took the profits on the QQQs. At least we did something right there although it comes no where near making up for the losses elsewhere. Going to be an ugly month unless one of the earnings plays work.

Sometimes it really doesn't matter what you do ... it's just all wrong. Yeah, we averaged in a caught a nice rally and our timing was pretty good but it's all going to be wiped out by the elephant foot we take on CACS today. I had three stocks on my list to work for earnings thinking all three had a good chance to not only up the expected numbers but to blow them away. The first one fails and the haircut is steep. I see it down heavily this morning and I will have to take a licking on that one. So all the gains of yesterday are given back this morning on one bad move. That's what earnings can do to you because if you choose to dance with the elephants, you need to dance carefully and to the right tune.

As for the general market here, we have a lot setting up that could work to the market's advantage but it's way too early to think that we go back to 1140 SPX and 2K Nasdaq. Instead, let's concentrate on the first level resistance and see how volume acts. If we don't get a volume push this week, this rally is just a bounce.

The little rally that couldn't is growing a bit after hours with the bullish MSFT news and generally good earnings again. Whether this can morph into something more will have a lot to do with whether or not volume begins to expand in the coming days or not. A rally without volume will definitely invite selling. For now, it's a long awaited run back higher and the ability to pare the damage that was done over the first half of the month. I'll see you in the morning.

Today's little rally is not exactly awe inspiring as it still looks like a reasonably low volume bounce but then again, bigger moves almost always start with tentative first steps. Not that I'm calling for a larger move in the sense of weeks (intermediate term) as right now we were simply gaming for a decent sized bounce to play.
 
I was thinking about the posts earlier yesterday from our friends across the waters and thinking to myself that both of us could be right ... that is we game a bounce here which sets up the larger move south. Just a thought and we will have to evaluate it as we move along here, but many times the eyes of strangers can see very different things in the same view depending on their frame of references and time frames.
 
For now, I'm sitting tight. A full earnings plate tonight and now the question is will it help this move to build or not. I'm thinking it might for at least another day.

I just flipped those added QQQs from this morning for a small profit on the day and am looking to add them back a bit later. I fully expect another dip in the afternoon lull. If so, I'll add them back again. Looking to add some more BCO also as I added a little this morning on weakness. All in all, market struggling to turn the tide here short term. The timing is right and after being beat up for so long, I'm doing all I can to maximize this tentative move.

Hard as it is here, there are some tentative steps to a turn. I've added a little this morning on the latest dip and will be guarding the add with a relative tight stop. Stocks trading up on so-so guidance. Market oversold. Ingredients here for a bounce. Now if we can just get a few buyers who don't flip the stock in an hour.

Yesterday, try all they might, they were not able to work the market substantially lower. The beating the market has taken is making it quite difficult to see further declines at this juncture. That leaves sideways or up for the most part for the short term. We will see.
 
I'm ready to add a bit more to the QQQ long if the market permits. I'm a bit nervous today given the earnings are starting to hit some of these stocks I've accumulated. That, in this market, is concerning. The three stocks that have good earnings potential, in my opinion, that are in our portfolio and that we have attempted some accumulation of are CACS, NOOF, and MNC.

ACe Talking: Briefly;

Before I get hijacked again, a quick note on the Nasdaq. I hear that short positions are at a 20-year high. Yes, the biggest shorts on this index for 20 years. Maybe still on a flip of a coin, but everyone is calling heads !!
ACe

So the NASDAQ makes a few pennies on the day; oh my. No eight down in a row? It's getting comical at this point as nothing is bought ... everything being avoided. I begrudingly added a bit more to my favorite names and time will tell if that's the right move. CACS reports tomorrow night. We need to make a hit here soon as it's getting old watching our portfolio shrink.
 
I'm still thinking there's a bounce of reasonable proportion just around the corner if not more. As a result, I'll keep gaming for it here. Looking for the market to finally give us a break as the short side has gotten way to comfortable. See you in the morning.

Folks are getting to the point where they don't believe a rally can unfold. That's exactly what is needed for it to happen. I was bidding on some PXR this morning on weakness but it didn't happen. Other than that, I've been quite and biding my time. We are looking to early weakness here to set the stage for a rally. Another good jig down may do it. Even a sideways action can lead to it at this point. For now, I'm staying small and waiting for the opportunity to average in heavier on the QQQs. MMM is making the DJIA pay this morning on expectations of earnings going forward not being greater. They stage is set, we just need the first act to complete and it will be time for the big show. Don't know if it's today, tomorrow, or the next but it's getting close.

We actually start with pessimism rather than optimism on this trading day. That's a subtle change. Folks are actually giving up trying to catch the rally. Good!

Just as the comments from Britain below show us, even members of the same club cannot always agree on the short, or sometimes, even long term direction of the market. It's the future and I've yet to meet anyone who can predict it with great accuracy. The key, as I've said many times, is to pick your spots, manage your capital and pounce when you have the opportunity and odds on your side.
 
The comments below accurately reflect the market. Both give strong arguments as to what may happen but both with opposite views. The market has suffered a lot of short term damage and it is on the ropes here. At the same time, seven down days in a row on the NASDAQ with an oversold reading already kicking in might just suggest that we can't throw in the towel right at this juncture. Now the oversold rally that's likely to develop may be weak and may not offer much and we may just get the push that Frosty talks about immediately afterwards, but to push with that kind of force from here further south is not one of the more likely events I can imagine. Can't say that it won't happen but the odds do not favor it.
 
Having said that, I see the futures up this morning and I've seen gains disappears like leads in baseball game at Coors field in the ninth. They happen with regularity. So from that perspective, if you are working this market for a bounce here, recognize that you need to average in slowly and at set junctures all the time realizing that if we do get the big dump here, it's not going to be pretty. I happen to think that we will instead catch some footing somewhere along the line in here and the shorts will be squeeze mightly. There's the inverted head and shoulders pattern that I've referred to a lot of late. It's time if it's going to occur.

ACe Talking: Move over, this space has been hijacked !!

Apologies to the editor, but under severe pressure, I have been forced to hand over this space to two members of the award winning Dinner Investment Club. The following words will be from Steve "The Truth" Goodman and Andy "Frosty" Frost. I feel that this could be of interest to readers of these pages, so will now stand aside. Goodbye:

Ok investors, listen up. It's wake up time for all of us. We have read the comments from this page recently with alarm, particularly those from our fellow club member, ACe. Trying to make a bull case when the market is setting up for a sharp fall is utter madness. Sure, some charts are looking a little oversold, but some aren't. Sure, some selling has taken place, but plenty hasn't. Sure, some investors have given up and thrown in the towel, but most haven't !!

We suggest you look at the measure of fear, the VIX index, which hit an 8-year low this week. The market has fallen to the bottom of the range, with some main line stocks down over 20% from their recent highs, yet the VIX has fallen too. That tells us about how complacent investors are. Those panic buttons have not been hit...............yet. The S+P 500 has traded in an 8% range for 128 consecutive trading days, one of the longest streaks in history. That has to break soon, and it looks increasingly likely that it will break DOWN.

Sure, the Tranny is up, and the Brazilian index is up. Also, the Freight rate has recovered sharply, up 50% in a month, showing confidence that China is not slowing sharply, as feared. This is also reflected in the rapid recovery of the copper price. But we are not looking for reasons here. The reasons for a move often come AFTER the move, so let's not get bogged down with subjective talk. If you want something to chew on, Merrill Lynch gave you that, with their downgrade of techs. Their figures on tech inventories are most alarming. Intel's inventory is 50% higher than a year ago, Dell's is up 61%, Sun Micro 30% and Texas Instruments have seen a rise of 47% in inventories. Merrills also cut guidance for revenue growth from 16% to 6%. Furthermore, a poll of fund managers (also by Merrill Lynch) showed an increase in pessimism. A net 10% expected the world economy to weaken over the next year, whereas in June, a net 9% expected the opposite. In April, a net 34% expected strength to continue.

Also, State Street reported that investors' equity preference had reversed over the past month more dramatically than at any time in the past 9 years. Institutional Investors have stopped buying stocks that are exposed to world recovery, and have begun buying consumer staples and selling industrials. This is another big warning signal.

The S + P 500 is heading for its bigger correction, just as the Nikkei did in 1993. It's a shame ACe didn't stick to this train of thought, but we will turn him back that way. Remember, if we break the 8% range, we open another range of the same magnitude, which would take us to 994. Close enough to the 965 figure often mentioned, and sub-1,000, which should bring the buyers back. Also, we are entering seasonal weak periods of August, September and October, when you normally get a decent dump or two. And remember........YOU'RE TOO COMPLACENT !!

Thanks for reading, and good luck.
The Truth and Frosty.

ACe Talking: Listen to the samba beat;

Within a few short weeks, market sentiment has dropped off a cliff. Even the most rampant of bulls has thrown in the towel, and markets seem incapable of having even the minimum of bounces. The bull is dead.

Or is it? Like the editor, I remain very wary here. The story so far is of a rampant economy and even more rampant profits, but everyone knows that it's the Presidential Cycle at work, and 2005-6 is the "dead zone", not 2004. True, the economic numbers have softened, but maybe this is just a pause. With bond yields heading lower again, that cycle of mortgage refinancing may well re-appear for the 50% of the population that missed it first time round. I also look at my proxy for "hot money", the Brazilian stock market, which went through a correction of its own from January through May, falling 25%, with about 80% of the fall coming in the last 4 weeks of that period. Since early May, the Bovespa has recovered nearly all the lost ground, and is now just 10% off the January highs (that was 140% above the 2003 lows!).

Who cares about Brazil? I do. It fits in with the global jigsaw puzzle, and this piece fits in nicely with a story about confidence in low inflation, low interest rates, and another leg on this manufactured economic rebound. In my years of trading/selling in these markets, you have to search for the clues. As well as the Bovespa, what about your very own tranny (Transportation Index). Having broken above the 3080 level which capped it in January and early June, this index broke through in late June, rising to 3200. It then fell back but held the 3080 level (currently above 3100). That's a sign of strength. Will the Dow follow, dragging the rest up with it, or will the Tranny turn tail and head lower?

Having suggested a 20% correction was due a few months back, in keeping with the Nikkei 1993 story, you have to consider it a possibility now. The only problem I have with this idea is that so many big stock have had a 20% dump, like Intel, IBM, Cisco, Citigroup and Yahoo. All leaders in their particular industries. Maybe that's the 20% correction. You've had it. I can run with that theory, and probably will.

Just some thoughts to chew on. The alternative is a trip to 965 on the SPX, and if we fall below 1080 then that is certainly on the cards. Alternatively, we can draw a line touching the two recent lows on the SPX, and project appx 1060 as a target. Take your pick. For me, unfortunately, too much dumping has gone on already. I'll wait till 2005 to get dumping myself.

Good luck.
ACe

I'm finding it hard to continue optimism and when that happens a turn is usually within reach. I'm working the QQQs for a trade here with the idea of averaging into them with the 34 area as a mistake notice.
 
Lots of potential trades flashing here but I'm having a hard time putting much more money into individual stocks.

So today we get options expiration, some more inflation numbers and the end of another tough week. Seems each time the possibility of a move back higher arrives, there just isn't anyone willing to commit fresh money to this market. Instead we keep seeing distribution days as we saw two days back where the volume spurts come on days where we wash out a few more longs. At some point they will all be gone. Just hasn't happened yet.
 
In between, we are seeing decent earnings again. When the market doesn't seize good news and do something with it, it's not finished with it's work in the other direction. So, although we can look for a bounce in here soon, it's continues to appear that it will be nothing more than a bounce and that this time we have to consider some short positions that we stick with rather than fold on.

It was a long hard day driving and watching this pathetic market and it's malaise. I'm sick of this market as I suspect most everyone who is long is yet no one gives up. The lack of give up keeps us in the malaise. It's not complicated. Just like life, it's rather simple. We all chase the almighty dollar in one way or another. The little rat race we run is both pathetic at times and exciting at others. Whether we like it or not, most all of us run the little race knowing that we have but a small chance to finish first (or even close to first). So I leave you tonight with but a confession of my frustration. Earnings season is upon us and right now it looks like the last ... uninviting to most participants. There's just too much negativity and too many folks hanging on here. Somethings got to give and though we may catch a bounce here near term (still think that's on the way), the next few weeks look tough to muster more than a bounce still. Wish it were different and wish we could get back to making money again. In this little game, it's easy to know if you win. You just take a look at your bank account every so often. It doesn't lie.

Posting is difficult today as I drive into Miami. I did add some more stocks this morning in my favorite names as they were down on the general weakness. I don't know when we will catch the turn but I'll add to those areas I like on weakness and continue to deploy a bit of capital. Staying sane though. Even though the fact that we should rally never means we will rally so you have to manage your money as well as your expectations and average in as appropriate until we get what we want/expect.

With volatility increasing here, it's a tip off that a move of large range size is around the corner. The question, as always, is which direction. Given the data points I listed last night, I suspect that, for a short period at least it's up.

There were a slew of data points that hit a few minutes ago from PPI to inventories, to unemployment numbers and the Manufacturing Index. All in all, the data was mixed but the futures are trading up on it. They were slightly down ahead as the rest of the world continues to follow the big dog US markets.

My intent is to continue to work this bounce mostly in a few select names with the intent of taking profits along the way. It's been another brutal month for most and I suspect any bounce that get's going will initially gather some good strength from the inverse H&S patterns. Once we make it back towards the neckline though, expect some serious selling for a number of reasons.

Lastly, the metals will likely sell off hard again today. Yesterday's attempted move back towards new highs on this leg failed and then the lowered PPI this morning won