Earnings season hit its stride this week, although the effect on markets has been hardly salutary. Trading in US equities was highly volatile, with the leading indices whipsawing back and forth in the absence of any overall negative or positive theme. The DJIA spent most of the week above 10,000, but closed out on Friday below this key psychological level. Economic data played a minor role, with most attention paid to another brace of mixed housing numbers. September housing starts and building permits fell below August levels, while the September existing home sales data over 9% sequentially. With the holiday season imminent, a National Retail Federation poll showed that US consumers plan to spend 3.2% less on a y/y basis on holiday shopping in 2009, stating that “Americans are not ready to declare an end to the recession.” Meanwhile, third quarter GDP reports from China and the UK impacted FX and bond trading. China’s GDP growth was stronger than the prior two quarters at +8.9% (though slightly below consensus), while a dismal UK GDP data reading of -0.4% shocked investors and took the wind out of sterling. The Fed confirmed this week that it has been testing reverse repo operations for several months, calling it a critical part of its eventual exit strategy, although it declared that the tests do not signal any imminent policy shift. Note it was just last weekend that Barron’s implored Fed Chairman Bernanke to raise the Fed Funds Rate to 2%, and later in the week the FT speculated that Fed governors may soften their commitment to the zero rate policy via wording in the FOMC statement. For the week, the DJIA fell 0.2%, the S&P 500 declined 0.8% and the NASDAQ Comp slipped 0.1%.

Tougher government regulation of telecommunications and the financial industry occupied Washington this week. It was hard to avoid news of moves by the Treasury’s “pay czar” Feinberg to slash executive compensation at TARP recipients and examine even wider restrictions on pay at banks. The Fed began its own review of pay in the financial sector, noting that up to 28 large banks would face special “horizontal” compensation reviews. On the Hill, the House Financial Services Committee voted in favor to speed up implementation of elements of the Consumer Financial Protection Agency. The FCC moved closer to adopting “net neutrality” as official policy, with exceptions for “reasonable” network management needs.

On Wednesday Morgan Stanley was the final big banking firm to report earnings. Morgan blew out estimates and returned to profitability after three quarters of losses. Morgan Stanley’s CFO insisted that putting losses behind the bank is not a relief but an affirmation of its strategy. Leading regional banking name Wells Fargo also crushed expectations, although many commentators have expressed concern that the bank continues to rack up more non-performing assets and higher provisions for credit losses. Dick Bove spooked markets on Wednesday afternoon with a big reversal on Wells Fargo following the bank’s report. Bove, who had initially called Wells Fargo a big winner just after the earnings came out, seemed to change his mind by afternoon and downgraded the name to a sell upon closer examination of loan loss figures. The regional banks appear to be splitting into groups of winners and losers, with solid results from Bank of New York and US Bancorp, and more losses from Fifth Third, KeyCorp and SunTrust.

So where do we go from here? The S&P closed below 1080( by about .30 cents )hardly technically significant in my opinion but who knows? Be aware of a fun fact that no one is talking about, mutual funds end there fiscal year on October 31st. Does this mean there will be serious portfolio window dressing this week as they try and close them strong for performance reasons? Will funds that don’t have enough long exposure chase stocks higher? It will be an interesting week for sure, but hopefully one that will make us money.

Here is the weekly calendar

QCOM-SHORT

TNDM-SHORT

BAC-SHORT

VMI-SHORT

I was long OIH,XLE, and QCOM in the morning. The world at that point in time thought Uncle Ben would “fix” things. Oil was fading and the financials were on fire. I was up big and covered everything. Then I saw the oils starting to act better and I thought if the Fed didn’t cut, which they weren’t going to do anyway, then the commodity bulls would have there way again anyway. What’s the catalyst to stop them? The G-8 meeting didn’t do a damn thing to strengthen the greenback, and it’s business as usual with the Fed. I was right, and it feels good to anticipate and be so right. As I said in that last post, if this scenario played out I would switch gears, and I did. I went “long” OIH and XLE and shorted the breath out of the UYG and MER. As I said last night they caught a dead cat bounce (the financials) and that’s all they caught.

The OIH rallied eight points off the lows (of course I didn’t catch all that move) and XLE rallied beautifully off the lows. I went long and made some nice loot, but the real impact for me was getting short UYG and MER. UYG closed about 10 cents off the day low and gave back EVERYTHING!! MER closed a little off the lows and if it had more time I think was ready to implode. So much for falling oil solving the markets problems, we now know Bernanke can’t. The commodity bulls got a free pass for now and I personally think they continue higher. Show me a catalyst for lower oil,and I’ll listen. It sure won’t be Israel lobbing some missiles into Iran. MOS rallied about 8 points off its low and IPI rallied about 6 points off its low, amazing reversals.

After the close, RIMM,NKE and ORCL are all lower. The open should be lower. I am going to stay with the girls I brought to this dance, energy long and financials short. I like the ferts for a bounce too. Watch the steels, especially NUE. I wanted to buy IPI down 6 but never pulled the trigger. My bad. Catch you later and don’t buy the pundits.

Strong-semis,financials

I’m long some QCOM

This weekend I will be working on a shopping list for next week. Many good stocks are at or near great buy ranges. I will also be analyzing my trading and how I can improve. I’m such a work in progress and it is truly amazing that I literally learn something new everyday. I listen to a live feed to the S&P pits in Chicago every day and a trader there was talking about how “you never let your trade turn into a prayer.” Words to live by, you will be able to stay in this wonderful crazy business forever through risk management and realistic position sizing. Simple techniques, the hard part is living by it every minute. I will thinking out loud over the weekend. Please enjoy the weekend and the folks that you love. It ain’t all about the dollars.

PS I sold all solar names I had in the CNBC challenge

For those folks trading DUG on a move down in oil-shouldn’t it have been killed today? Yet it went higher with oil and closed at the highs. Odd isn’t it? From the cursory due diligence I have done, DUG looks like a more correlated play on the action in XOM (Exxon). I don’t have time now, but go pull a chart on DUG and XOM . Around 2pm XOM rolled over and DUG moved higher at the same time, Even with oil at the high of the day. That’s why if I think oil is going lower I just short USO. It worked well for me as a short earlier in the day because EXXON hadn’t rolled over yet. Hope this tid bit helps because I couldn’t understand the dynamic at all. I bought SDS (double short etf) around 3pm as I thought the bulls were scared shitless and wouldn’t be in the mood to make bids. You know how it ended. Be smart and wait for more of a pullback.

As you know I borrowed USO to short. I never did it. Maybe tomorrow.

Some names I watched today that showed great relative strength and that I will be looking at tomorrow are PACR,JRJC. I think QCOM is getting close to near term oversold as the selling started to look exhausted today.

I will try to post up some charts later, but it may have to wait until the morning. Hope you all had a great day.