Market Continues to Trade like *BLEEP*

If you turned this chart upside down, it would be a beautiful upside breakout and we'd want to buy buy buy. Unfortunately, we have to look at the chart right side up. Here is my general game plan and the same thing I do at just about every inflection point. As discussed earlier the first natural place for the market to put a stand in (on S&P 500) are the April lows, 1325-1330. So I'll assume all the King's Horses and all the King's Men [Jan 9: An Amazing Blunt Commentary on the Plunge Protection Team] will use that level to try to put Humpty Dumpty together again. At that point I'll lighten up on the short exposure - assuming yet another bounce. (note: A lot of people say there is a lot of support at S&P 1340 - I don't see it myself but if all of Wall Street sees it, than it must be)



From there either the market will (a) bounce or (b) slice through S&P 1325 like a knife through hot butter - in either scenario I'll buy back short exposure. We'd actually prefer a bounce for best profit opportunities on the short side. Either way we want insurance. Could the market make a bounce off April lows and rush upward into a new bull market? Always possible but I find it improbable and I don't position myself for the improbable.

If we do break through S&P 1325, then the next major support level are March lows way down there in the mid/upper 1200s (round balling 1280 or so, although we had that spike down to 1260). That was the Bear Stearns bottom. We would apply the same logic there - assuming a bounce - and if you thought the Invisible Hand was trying to protect us now, I expect every force of nature to be applied at that level. Because if we break through that, all bets are off - institutions will be selling wholesale and running to the sideline. The PPT knows this, so they will protect this castle.

I continue to believe if all the true reality were discounted into the market we'd be substantially lower - this bounce off the Bear Stearns bottom is just the market players trying to convince themselves and each other the 2nd half rebound will save us all. The 2nd half rebound thesis, as we get closer by the day, is looking more silly by the moment.

Again, the piece of inflation fiction comes out this Friday. If its "better than expected" the market will use it as an excuse to rally... because food prices will be ignored, gasoline prices will be ignored, home heating/air conditioning will be ignored - everything will be ignored because a government reports says it is not happening. So we'll have to accept that for the near term. But if for some odd reason this report shows any inkling of truth - much like the unemployment report last Friday - the Pollyannas will be struck another blow - and we could have yet another very ugly Friday.

Once more, there is no reason to press bets. I won't be "medium term" bullish until I see people start to toss aside fertilizer and coal names in panic. Or, when we all feel like throwing up - that's another good sign its time to become more constructive. My stomach feels fine (except when I look at that evil Trina Solar P&L the past 3 days). Let me re-emphasize we won't be unaffected by any potential future selloff as I described above - our goal is to be "less affected" and then have some free cash around to take advantage of the bargains created. We will not nail the bottom, but as always the purchases we made as the market does what I call 'waterfall' selloffs are the ones that generate the most gains 2-3 months later, even if 2-3 days later or even 2-3 weeks later they cause losses.