Monday, October 15, 2007

Random Monday Thoughts

Back to posting after a short break. Looks like I have not missed much in the way of action. So a couple of quick comments in this post and some charts later today. Being away from the quote terminal often provides a little bit of perspective given how one can get caught up in the day to day action of the market.

I want to start by addressing the purveyors of calm as I like to call them. The people out there proclaiming that the credit crisis is over. You know the same ones who never saw it coming in the first place, denied its existence thereafter and now emphatically conclude it being over. I really do not know what to say to you if you are listening to these purported experts except to say I wish you luck you will need it.

Next I want to comment about all the excitement about the fed cut of 50 basis points. If I remember correctly back in Jan 2001 the Fed under Greenspan cut rates 50 basis points and the market rocketed about 6% only to plunge 45% over the next 18 months. Not much has changed I would guess.

The banks fessing up and taking hits, along with a failure (Netbank). Again I go back to Dennis Gartman's cockroach theory as there is never just one. If you all believe that the impairments announced by Merrill, Citi, et al is the end, well then again I offer luck because that is exactly what will be needed to extricate you from those position.

I have always been a follower of the action of the tape. It is what counts towards your month end statement. And yes, the action of the tape has been up, no question about it, but there are times in the market when the action of the tape has to be questioned and this people is one of them. There is significant fundamental deterioration happening underneath this market and to ignore it is folly of the first order. The quant (black box) funds are buying just to buy, so they can push their 4 horsemen as much as they want as the leadership gets narrower and narrower until one day the programs no longer say buy they say sell, and yes sell they will do to a level like now that will defy underlying fundamental logic. I see a lot of gunning the tape as some call it where resistance levels are pushed through triggering stops on shorts and new buying only to reverse thereafter. For those new to the game this is done to create a market unto which to sell. It is a technical version of spreading a false Warren Buffett rumor but succeeds in accomplishing the same thing, a market unto which to dump a very large positon.

If you are long and strong, mainstream equities, admit it for what it is, you are riding the wave of momentum without care of anything but price, and will be able to find a seat when the music stops, because this is exactly what you are doing. To claim anything else you are only deceiving yourself. You can pull a Jack Grubman/Mary Meeker/Henry Blodgett on me and rationalize that BIDU, RIMM, AMZN, GOOG, or AAPL trading only 150 times 2010 earnings is cheap but mark my words sanity will return. The economy which is 70% consumer driven will punish those stocks, and by the way AAPL , RIMM and AMZN are consumer stocks not tech stocks.

Suffice to say that very soon risk/reward will be uncovered to the light of day. Please make sure your positions are skewed toward trades that are heavy in reward and light on risk ! Good trading to you all.

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