A WELCOME RALLY

A welcome rally for bulls and in some cases bears as it allows them to reload short positions. In any case I feel this rally may be very short lived considering the economic data releases on the horizon . Producer Price Index and retail sales tomorrow along with the New York manufacturing report. Consumer Price Index and and Industrial Production reports on Wednesday with Housing Starts and the Philly Fed survey on Thursday followed by Option Expiration on Friday. This will be one busy week and probably highly volatile. I am already excited !



Currently I am long QLD while betting against financials via SKF and housing via SRS though I lightened up on both these positions last week.I will look to add more SKF and SRS if we rally hard this week. Took some of the table on GLD today. I am looking for a pullback in Gold leading up to the Fed meeting. I have been long GLD from $58 with an average cost of under $65. Selling above $89 is prudent . Agriculture is having a phenomenal run as of late with my position in the agriculture ETF DBA soaring. I believe DBA will be one of the best plays for 2008.



Here is an interesting chart courtesy of Headline Charts showing a market sell signal via and S&P 10 week and 40 week moving average cross over. This signal appears to have accurately predicted the Bear market of 2001-02 and the bull market starting in 2003.



If one wants a accurate predictor of where the markets are headed, keeping an eye on what the institutions are doing is key. This chart via Stocktiming.com shows the Institutions are reducing expsoure to equities.



There are 71 technology stocks in the S&P 500. Not a single one is above its 50 day moving average. This chart below from Bespoke Investment is incredible to look at.







Yahoo is the only S&P tech stock up this year ( as of this morning). Amazing. This can be looked in 1 of 2 ways. Either tech is oversold and a great buy here or tech is weak and will continue to get weaker. I personally believe tech will continue its downtrend though the above tech names could all rally in the next week or 2 towards their 50 day MA. Hence I am long QLD which is a bull ETF modelled on the QQQ x 2 . Since the Qs are mainly tech stocks, I believe a tech rally can be played best by utilizing QLD though some would argue ROM is better since its a bull tech sector ETF. ROM however does not have enough volume for my liking. Too illiquid for me.

Pre Market Analysis

Fasten your seat belts. We are going to be in for a bumpy ride. The markets across Asia and Europe are all down big. There is talk that the US is entering into a bear market.

Countrywides stock is plummeting this morning after is said it faces 'unprecedented disruptions.' due to the credit crunch. If CFC falls under $20 it will be an absolute steal. They will make it past this subprime turmoil.

More talk of hedge funds liquidating positions as the worldwide financial turmoil is affecting firms black box strategies. Quant hedge funds- those using statistical computer generated data to trade positions, are not prepared for the current state of the financial market and many of these funds are falling apart as I write this.

This morning I'm preparing to play things as they come. Just for the record, I had a dream last night that the Dow fell over 1000 points. While I am not suggesting this will happen, I am including the possibility of it happening in my gameplan for today. 13,132 and 13,000 are levels on the Dow I am looking at to reduce long exposure and add to the short side if they fail. The first 30 minutes are meaningless. Might add some SRS and SKF for protection. I would not be surprised if we actually have a test of last Fridays lows and reverse to close positive. On the other hand a plunge below may mean a test of 12,700. The S&P is sitting on its 200 day moving average at 1453. Another level to look for is 1427. Below that and 1400 could be tested. Gold is up this morning which is a positive sign. Whether it says up waits to be seen.

Recap

Today was a pretty horrible day to be long. The Dow, Nasdaq and S&P were down 1.37%, 1.07% & 1.29% respectively. Volume was extremely heavy with banking, housing and utilities taking it on the chin. Advancers were outnumbered by decliners 3-1 on the NYSE. Small caps didn't do too badly today with the Russell 2000 down only 0.6% which is comparative outperformance to the overall markets.

Some winning stocks today included BX JBL M SMSI SOHU. The stocks getting beaten up included QTWW INPC ALTH VRNM ZN NUAN.

Today was a good day to have plenty of QID SDS MZZ DXD SKF stuffed away. You never know when these hedges are going to come in handy.

Gold did really well today with my GLD position closing up . Its about time gold seperated itself from the overall market.

Blackstone Group's IPO was the main story today with the stock jumping over 20% at its open before settling down at the close. Forbes 400 members Schwarzman and Peterson are now both billions richer and laughing all the way to the bank.

With the volatility in the markets in recent weeks, cash is king . Wait till the market regains direction and then deploy the cash towards profitable use. I am glad I decided to liquidate some long positions a few days back. The extra cash can either be deployed towards inverse ETFs, puts or shorting stocks in general if a bear phase commences. On the other hand if the market regains its upward tilt than I can load up on some strong trending stocks like SNDK HANS MU NTRI PRAI OVTI BIDU and bull ETFs like DDM SSO QLD MVV UWM.

Right now I feel worn out. Exhausted like I've run a marathon wearing a 500 lb body suit. Its really hot here in Arizona. You step outside for a second and feel drained out. The sun zaps every ounce of energy from your body.

Recap

The markets rallied to a higher close after some serious weakness early in the session. Semiconductors and oil led the way while banking continues to be weak. Going long SKF might be a good hedge.

I had huge gains in my SNDK MU OVTI HANS BBND VCLK HOKU longs though SBUX gave me a bat to the head. LVS and NYX are also giving me ulcers.

Starbucks is a world class company and the way I see it, SBUX could go down to $20 and I will continue buying till its 10% of the fund. Based on my calculations, SBUX will be $50 + within 3 years as international growth boosts the coffee maker. If I can get an average price of $25 , and double it in less than 3 years, thats a 25% annual rate of return. Not bad for a low risk investment.

Panera Bread Co. is also on my radar . Under $50, PNRA looks to be a low risk, high return investment. Like Starbucks, Panera is a world class company with excellent management.

Better than expected economic data played a role in todays rally. Both the Philly Fed Survey and the Leading Indicators are showing an economic rebound.

Speaking of short squeezes, HOKU is really killing those betting against this green energy/solar cell maker. This company has a low float, 50% insider ownership,low institutional ownership and a short position that has multiplied in recent days. The perfect recipe for a short squeeze.

Two Lawmakers are asking the SEC to postpone Blackstone's IPO. Maybe Waxman and Kucinich want in on a piece of the action.

The S&P 500 closed above the 1520 resistance level which is a positive sign.The S&P bounced of its 50 day moving average today after intial weakness. Major resistance exists at 1540.