So what’s goosing this market? Not big cash inflows to mutual funds. The “new” money to drive this thing just isn’t there. Yet.  About twenty five billion dollars has been taken out of mutual funds over the past month or so, although we did see some loot, (about a billion), get committed so far in January. That has helped, but it’s still nowhere near where money flows need to be to drive a nail through the heads of remaining shorts.

That’s OK though, the market drifts higher, ignoring most bad news and that is what “up” tapes are supposed to do. Problem is it never lasts. Down tapes don’t last forever either.

So what we are left with are mini sector rotations within the bigger picture. Money moves around quickly and none of the money is of the “sticky” type.

The money committed to to the financials is still there. The rally that started in $XLF since the end of November has hung around. The ETF has gone from 11.70 to 13.92.

Yesterday the semiconductor sector exploded and there were 5 and 10% winners in that group all over the place. That group could run for a while.

We’ve seen a dramatic pop in biotech, as the $IBB index has just ripped. Stocks like $AMGN, $CELG and $GILD have tagged 52 week highs.

Coal $KOL and energy $XLE, have lagged  as well as the oil service group $OIH. I got long energy yesterday, as I think they may pass the baton to the sector soon. Whoever “they” is.

Housing stocks $XHB  are starting to trade like its 2008 again, but utilities $XLU are trading lower as risk gets put back on.

So what’s my point? The key to success trading over the short term is to  try and figure out what sector may be used as a source of funds to buy the next sector. Will they sell financials to buy energy or will they start peeling out of biotech because the think the coal sector is just too cheap?

Without  massive inflows of new funds we will probably play the rotation game as sectors get bought and monetized at the same time. But that’s the market and there is nothing wrong with this dynamic. So far market depth and breadth has been pretty good.

When Joe Sixpack comes back into the market with reckless abandon that is when we will most certainly top. We”re not there yet. Bottom line, it’s a great trading market.

My subscribers are having a phenomenal January. Email upsidetrader@gmail.com if you would like to see performance.

“I simply don’t know where the money is”- Jon Corzine

Here is the full transcript of Jonny Boy’s release before the hearing today. I hope he doesn’t take the fifth because this market is dull and I need something to watch in between all the chop.

I think fast money and algos are having  a blast with this market, but I think the serious money is still sidelined as they don’t want to get caught long in front of a possible  weekend failure in Europe. That’s understandable. That is probably bullish if things go well, but there won’t be enough put options if it doesn’t. The $SPY 200 day moving average in the line in the sand and a convincing move through that level could trigger buy stops galore.

I’m leaning long because the world is watching these jackasses and failure at this point is not an option. But their track record has been horrible, so nothing would really surprise me.

This tape is interesting because it is offering up good long and short set ups. Sometimes in an uptrending market shorts are really hard to find, but some potential breakdowns are showing up.

Blagojovich got fourteen years yesterday and Coach Sandusky got taken off to jail because he couldn’t post bail. His new nickname in the can will be “Happy Valley”.

Alec Baldwin was ejected from an airplane for playing Words with Friends. Stephen Baldwin was ejected from Hollywood for having no friends. Danny Balwin is still running through the Plaza hotel naked, drunk, and high on blow. Great kids.

$SPY, $QQQ, $TNA, $UUP

April 20, 2007 — “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.” -Hank Paulson

It turns out Hammerin’ Hank had a cozy sit down with some hedge fund rain makers warning them of the potential implosion at Fannie and Freddie. Four of these rainmakers were ex Goldman $GS dudes. Now we will wait (maybe another committee investigation) to see if they acted on it, slammed bids and went mega short on the news. Paging Mary Shapiro, this is silly fun, but nothing will come of it.

The market popped yesterday in a big way. Healthy bull markets always gap up 300 points on anemic volume don’t they?

In other news, we now know that Corzine’s bet at MF Global ($MF) on Euro debt was about 11.5B. Quick tip for you wanna be hedge fund titans. Find Corzine’s number, hire him (if he doesn’t get jailed), convince him he’s awesome, put him on a “demo” trading screen (don’t tell him), then do the complete opposite. You will have hundreds of billions under management in no time.

Meanwhile the missing 200B “may” have been found at $JPM in London. In an effort to save costs on finding this money, forensic accountants were not hired, instead the team of Barnaby Jones and Matlock have been retained.

We saw nice reflex bounces yesterday in market leaders like $AAPL, $AMZN and $GOOG. Even the toxic brigade known as “The Financials” ($XLF) caught a bounce.

Things are moving quickly so stay safe.

What is happening now, in my opinion, will make 2008 look like a hiccup by comparison. It won’t happen today, or tomorrow, or this weekend, but it will happen.

In 2008, we started to rollover and after each sell off people basically breathed a sigh of relief and said “that was it”. Until the next unwind and the next chunk of deleveraging. We would get a shot to the bow, then a rally that would invariably induce complacency, the long only crowd caught knives and were dragged to the wood chipper. It wasn’t the end, and the market went into a massive meltdown. After all, how do you cure years of government recklessness with just a few market corrections? I’m talking the Greenspan induced freak fest. You know, a chicken in every pot and house key in everyone’s pocket.

So how does Europe cure decades of recklessness? The cradle to grave approach is sending Europe to an early grave.  It doesn’t get fixed in a few months or with the swipe of a pen.. Extreme pain will be needed first and yes it will probably throw us into a double dip. I know this has become an old story and we’re all sick of it by now. My point is that Europe, from a market perspective, is probably in just the third inning. Maybe there will be some massive monetary howitzer that will emerge, but for now it is a rudderless boat that is leaking uncontrollably.

I’ve told subscribers to get in cash, hedged and short. I am also aware that perhaps we are getting oversold and that a face ripper of a rally may be around the corner precipitated by any small headline that is perceived as “bullish”. I don’t buy it, but I will trade it.

Eventually we will disconnect from Europe, but not yet, and I don’t think much is safe.

I’m short the euro $FXE and the banks $XLF and will stay that way.

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$SPY, $EURO, $UUP, $QQQ, $NDX

The bums couldn’t do it. We gave them weeks and countless hours and they failed miserably. A U.S. downgrade will most certainly happen over the next few months and we will find out to what degree this is already discounted. Just what we need right now, partisan ideology to crush any remnants of confidence.  I guess we will always have The Bernanke and his evil printing presses though. The double dip is coming.

Bloomberg did a review  of the analyst community (the sell side) and found that the best were no better than a coin flip. They looked at calls made from January 2009 to August 2011 made by 2900 analysts on the financial sector and found that they got 1.3 predictions out of 16 correct. Staggering, just staggering. The analysts that were considered the “good ones” barely beat a coin flip.

$RBS was the worst at 39% accuracy and Raymond James was first with 67% accuracy. One of the best track records was from banking analyst Mike Mayo who I wrote about here.

So remember these stats the next time they tell you there wont be a double dip or a downgrade.

Futures are leaning green this morning after yesterday’s thrashing. We will see how long it lasts.

I have been warning about $AMZN for over a week and yesterday the stock was hammered through its 200 day moving average and it looks lower. Market leader $GOOG sold off, broke its 20 day moving average and also looks lower for now. The next support looks like 555-565. Yesterday $AAPL came within a few points of its 200 day moving average, better support is around 355.

The melodrama continues and we may see an over sold turkey week rally. I couldn’t have less interest in trading this tape this week.

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Don’t get me wrong, I love women, after all I married one and my Mom was one.  A better title for the book would be “Ten Bozillion Reasons Not To Invest in the Stock Market”.

Last night on Twitter I made a simple tweet that went something like this,   “If u can survive this market you will most likely be able to survive any market, it will get easier, hang in there.” I never received more emails from a simple comment like that. It clearly telegraphed to me that people feel that when they turn on their trading platforms in the morning it sucks them through the screen into some sort of matrix  spin dryer.  The rest of the day is met with spins and turns that result in bruises from head to toe. Experienced traders, as well as newbies, are taking shots to the head on a daily basis.

Let me start by saying the I have never ever seen a market like this and I have been doing this for twenty years. I’ve seen tech bubbles burst, the 87 crash (that was fun), two Mideast attacks which resulted in panic sell offs, the 2008 crash and a cute little flash crash that was thrown in for good measure. Now we see volatility constantly, all of it brought about by the fear that Europe may in fact cease to exist as we know it.  Right now it’s just Europe, next week it will be Europe and the super committee. There is always a wall of worry, always.

So how do you trade it? First of all you don’t have to. “Cash” is a valid strategy. If you’re nauseous, be in cash. If your long and trapped, then take a loss if it’s making you miserable. If you must trade, use smaller size ( I use 1/3 position size in these markets and only press larger when a trend reappears). I also use tighter stops, if they get hit they get hit.

I get short often, but even in this tape that can be dangerous. I has some shorts on Monday, they looked vulnerable, when the market started to rally on Tuesday at one point I covered at small gains. Yesterday those shorts went my way, but I had much less exposure. I was more upset about closing my shorts than I was about losing some money in my longs, but I was shaken out. Everything is getting shaken out. Things change by the hour and there is no trend. Just brutal chop.  Even if you have a solid opinion (I did , being short), the market will embarrass you.

The one sector that I feel good about is my short position in the financials $XLF via my long position in $FAZ. If you read this blog you know I feel the sector is still toxic and will continue to under perform. Actually, I think the sector will implode at some point and I want to be short when that happens.  It’s a core position for me and it also acts as a great hedge against any longs I’m carrying.

I also like energy $XLE and I have been long the crude trade and it’s doing well. Crude rarely trades on demand and I’m not naive enough to think that that it does.. The weekly inventory numbers are silly. The global economy will be in recession soon (if it isn’t already), so there isn’t organic demand, yet it trades higher. If the problems with Iran and Israel gain traction, speculation should push price higher, maybe much higher. I also like some drillers and oil service $OIH. I don’t trade refiners, they are silly too. I have better things to do than figure out crack spreads and how they should work.

In this market you may be wrong for a few days before you are very right so you have to be able to stay tough during that period when the market makes you look foolish.

Stops are key, take them, you can always reenter later at a better price. You will be miserable if you don’t. Watch the S&P 1225 level for support. We may need to go much lower before things resolve.

Italy’s Monti will be announcing his financial plan at 7AM this morning and there is a bunch of economic data that includes: housing starts, building permits, initial jobless claims, November Philadelphia Fed, natural gas inventories and a 10 year TIPS auction.

If you are feeling lost here, trade smaller or not at all. Good luck.

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A sell side analyst works for a brokerage firm and evaluates companies for future earnings growth and other investment criteria. They sometimes place recommendations on stocks or other securities, typically phrased as “buy”, “sell”, or “hold.” They are incentivised by offering their recommendations to institutional investors clients, as well as by seeking investment banking deals with the firms they cover, although the latter is subject to significant regulatory restrictions, particularly in the United States. A proper title for some sell-side analyst is Equity Research Analyst.

Well that’s the broad definition of what an analyst is. Those of you who read this blog know that I have almost zero regard for these ivory tower charlatans. I never did.  The analyst, the investment bank and the issuer had become way too incestuous. Way too buy and hold for me anyway and not much accountability after horrible calls.  Not that long ago, an analyst would put a buy on a stock and presto, business came from the issuer to the investment bank.  The analyst was given a bonus and a high five and then began work on another strong buy for yet another issuer. Rinse, repeat.

There were many other layers of self dealing, and the SEC did finally did step up and make some changes, but some things just stay the same. Let it be known that I have zero use for the SEC either.

Analysts are part of a herd or pack mentality. They zig and zag together. They chat and text together, they drink at the same watering holes. Did you ever notice that many times an upgrade or a downgrade on a stock happens on the same day or a day apart. Koinky dink? It’s all about the first guy that blinks and none of them want to be left behind on a call.

Mike Mayo is a bank analyst that has made some sector calls that have been completely opposite of the herd. I found this excerpt from his new book very telling.

Analysts are supposed to be a check on the financial system—people who can wade through a company’s financials and tell investors what’s really going on. There are about 5,000 so-called sell-side analysts, about 5% of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of more than $15 trillion.

He goes on to say:

Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners.

I remember the crash like it was yesterday, and I remember how the great majority of analysts reacted to it. They did nothing until it was too late. They watched and watched until the first one blinked.  Then they all sold.  The herd ran. Always the herd.  It was way too late, but they sold.  About 80% of mutual funds lost money that year. All were petrified longs waiting for that “call” from the ivory tower. The call came, but the damage was done.

Here is a link to the Wall St. Journal piece. I think it is not only a great read, but a must read.

$XLF, $SPY

The banks “voluntarily” took a 50% haircut. Voluntary in that Merkel, Sarkozy, et al. told them that the alternative was a 100% haircut. “That’s the offer, guys. Take it or leave it.” Cue the theme from The Godfather.

And because the write-off was voluntary, there would be no triggering of credit default swaps clauses. Because if it’s voluntary it’s not a default – capiche?

And that smooth move, dear reader, triggered a rather significant unintended consequence, which resulted in the market “melt-up.” Let me see if I can walk you through this rather bizarre world of derivative exposure without exposing too much of my own ignorance.

Let’s say you bought credit default swaps on a certain bank’s debt (let’s use JPMorgan, $JPM but it could be any bank) because you think that Morgan is exposed to too much credit default swap risk. Just in case. Now, if (say) Goldman $GS sold you the CDS, they could and would in turn hedge their risk by shorting some quantity of Morgan stock, or perhaps if the risk was sizeable enough, the S&P $SPY as a whole. It would depend on what their risk models suggested.

But as of yesterday, the risk evaporated: there would be no CDS event. So why buy CDS? Time to cover. And then the shorts get covered.

Further, the risk to financials was cut by a large, somewhat murky amount. But it was definitely cut, so buy some risk assets. Which puts any long/short hedge fund in a squeeze, especially those with an anti-financial-sector bias. But because of the nature of the hedge, the whole market moves. It involves rather arcane concepts that traders call delta and gamma. (Remember that the recent rogue traders had been at delta trading desks?) Guys at those desks can calculate that risk in a nanosecond. You and I take a day just to wrap our head around the concepts.

And it just cascades. The high-frequency-trading algo computers notice the movement and jump in, followed quickly by momentum traders, and the market melts up. Because a significant risk was removed. But not without cost.

I’ve been bullish, bearish, neutral, agnostic, bored, euphoric and pissed at this market..usually all in the same day. Europe may still fall apart and will probably still go into a deep recession, but you have to respect what happened today. A good portion was a short squeeze and the nanobots went on cruise control from the open, but there was organic buying.

When drek like the financials $XLF rocks 6% and housing $XLB rips 4% and steel $SLX pops 9%, there is usually a deeper undertone brewing. Ours is not to reason why, but to follow momentum and feed at the horn of plenty. $AAPL seems to be just hanging around for now.

I came into yesterday a little long, but short a few names. I was long $EPV which had me short Europe. After Merkel and Sarkozy finished playing naked Twister in the middle of the night they put on their superhero garb and proceeded to save the free world from financial disaster. That felt like doing Drano shots with shaved glass while being paddle spanked by Rosie O’Donnell. I’m over it.

Anyhoo, that was corrected via a stop and I proceeded to follow the unbridled enthusiasm of rabid bulls and went long.

I think we’re going to 1350-1370 by year end.

My plan is take the names and heads of anyone who stands in my way through the end of the year and yes, I will get even with Sarkozy.

Good luck tomorrow.

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The toxic bank ETF

I rarely hold anything overnight anymore. Merkel could get a hangnail, Sarkozy could get arrested in a cat house or Berlesconi could get the clap.  The market could have an awful gap in the morning and I hate having a gag reflex over my Cheerios if I am caught leaning the wrong way. You have to be clinically insane to trade this market, but because I fall under that umbrella I feel qualified to opine on things.

I hate the financials, everyone knows that, but I have stayed out of their way the last week or so because the sector has rallied. I actually traded FAS long at one point, but felt soiled and dirty and closed the trade. I know traders are not supposed to have an opinion and just trade whats in front of them, but I wish death to the financials and by being long, some twisted thread of DNA in my cerebellum made me close the trade.

I shorted the $XLF yesterday by being long $FAZ because of the chart above. As I blogged yesterday, the sector has rallied 22% in a short period and it was having trouble breaking through key resistance, (double top?) it tried and failed. I went long FAZ near the close and had a great profit at the open. I closed the trade this morning  It was a two buck trade overnight from the close the day before.

I went long FAZ again as the market started to breakdown this afternoon( $TZA too) at around 2:30 as the XLF started to fold like a tent. The financials are always my go to sector for a short because they are still the most hated group and holders are shit scared to admit they’re long. They usually shoot first and ask questions later. The financials are also a disastrous group to own in a toppy market, especially if Europe blows up, which will happen, it’s just a matter of time. As I have said before, I trust Casey Anthony with my kids more than Merkel and Sarkozy and their ability to fix anything. Oh, by the way, the IMF was tossed around today as one of the many saviors of this “Eurodrama”. You, the taxpayer, are a chunk of the IMF, so smile when you hand over a chunk o’ cash to Europe. But we bail out everyone so big whoop.

I covered 2/3 of TZA and FAZ at the close. A small gap down would be appreciated, but if not, I’m golden on both trades. I could be wicked long tomorrow and I have a ton of cash right now. Treacherous.

Trust nothing.

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