Weekly Summary

Another volatile week in the back pocket, and no real improvement in conditions. A lot of bad days spiced by one huge reversal for half a day - but we ended up significantly lower on the week. Technically, we continue to grind at best sideways and an honest assessment would say "lower". Last week we named our range as 850 on the downside to 970s/980s on the upside on the S&P. We penetrated below that Thursday (840 was the line in the sand), set off a rash of stop orders as we quickly collapsed to S&P 820 and then a technical reversal which trading desks jumped on to make some quick short term gains ensued. But we lost much of it Friday as the lack of conviction permeates.


An optimist could say we are building a wide base here; a pessimist would say we continue to make lower highs and cannot even break through the 20 day moving average to the upside. This bear year was previously topped out by swings in which the market would make runs at its 50 day moving average (at least) and its 200 day moving average (at best) - now we are not even making serious strides at breaking through the 20 day. Right now that is S&P 930; the 50 day is 1030 and falling fast. As I said last week, any move up to those levels I only take as "white noise" and a trading environment aka the casino. We cannot build any bullish condition off that. In fact the longer we stay below support without making an a serious attempt higher, the more bearish a stance one must concede. While we broke S&P 850 on an intraday basis, we have yet to break it on a closing basis - that would be the next foreshadowing we're looking for if we are to make a new leg down. If this happens, we'll remind the next target down is S&P 770s or so, although we'd have "round number" psychological support at 800...

None of our conditions that we are looking for to to deploy capital in a meaningful way are improving - in fact it is alarming how none of them are. Some of these would include: reduction in volatility, separation of "benign" sectors from "poor" sectors, separation of "solid" companies from not so solid within a sector, the end of "student body left" (sell everything!) and "student body right" (buy everything!) trading, the ability to invest in 98% of stocks with more than a 2-48 hour time frame, the emergence of any sort of sustained leadership. None of these are happening - the only leaders I see are tiny groups made up of dollar stores, re-education/adult education, and a few smaller medical equip/tech companies. We cannot build a bull market on 15 names.

The duration of time since we've had any sustained move up is also alarming. Even in 2002, which was a constant beating we had some serious oversold rallies that lasted more than 1 day. Nowadays, our oversold rallies are 4 hours long and those who are a day late, or a dollar short chasing into the rallies get their heads handed to them. This action leads to a non commitment by anyone outside of daytraders to make sustained investments in the market... I myself had taken that course. Individual stocks have become so dangerous, with the ability to lose 20% overnight by any random movement, we've been mostly playing in the world of ETFs. I have a gut feeling this is what most of the traders on Wall Street are also doing as stocks have mostly detached from fundamentals so doing homework has become quite useless. We sound like Groundhog Day around here, but once more there is no reason to become very committed to a market that acts with any rationality and whose time frame to have wins on the long side are measured in hours or at best "a few days". We can't build up winning positions over time, so until the market allows it we won't bother. A high cash stake and then "trading stake" with the remaining portion of the portfolio seems the only way to try to make a buck in this current atmosphere. But only for the quick.

The economic docket this week has some interesting reports - PPI is interesting to me as I'd like to see how producers costs should be benefiting from the massive drop off in commodity prices. (this should help profit margins as long as prices can be held stable) A few industrial type reports come out earlier in the week and since they reflect a very horrid October - they should be... well horrible.

Earnings season is coming to a close but we have some interesting names still left
Monday - Ctrip.com (CTRP), Lowes (LOW), Target (TGT)
Tuesday - Home Depot (HD), ReneSola (SOL)
Wednesday - BJ's Wholesale (BJ), LDK Solar (LDK), Trina Solar (TSL)
Thursday - Gamestop (GME), Suntech Power (STP), Buckle (BKE)

Two more to add to my list above for "changes in character" we want to see - stocks that go up on bad news (bad news priced in) .... or at least stocks that respond to good news! In the big cap space I am watching Walmart and McDonalds - both stocks stymied by resistance of the 50 and 200 day moving averages (they should be breaking above as beneficieries of the ailing US consumer)... and a few smaller canaries in the cold mine - LDK Solar (LDK) now raises guidance every 6 weeks and sells off constantly, and Buckle (BKE) is one of the few retailers performing wonderfully with double digit same store sales but in return the stock has fallen from $30 to $20 in a month. When you are not rewarded for good news, than there is no reason to bother....

Last, the action in financials is beginning to worsen again - despite all our tax dollars funneled into their back pockets. Citigroup (C) and Goldman Sachs (GS) look like death the past two weeks, and General Electric (GE) with its large finance arm doesn't look much better. Worrisome.