The Wrap 2/23/11 What To Do


So what do you do when you turn on your screen Tuesday morning after a restful weekend with friends and family and get hit across thew face with a waffle iron? It doesn’t help to see similar action the following day. Emotions run rampant, do you buy the dip, alter all, if you had bought any dip over the last two years you were rewarded. Do you hold because your stocks will “come back” ? Maybe you sell because this time it’s “different” and the market is heading lower for real.

If you asked yourself these questions the last two days you are in great company, because everybody on the planet who is long or short is asking the same question. Me included. The answer is, no one knows, no one. It would help if you could get in side the mind of the mad man that is Kadafi and figure out his next move. From what I have read and seen he seems to be channeling his best Saddam Hussein as he has threatened to burn his oil fields and fight the good fight to the bitter end.

It didn’t make big news today, but some rockets were lobbed into Israel and Israel retaliated. The Mideast isn’t just about oil. If things go bad over there over the weeks ahead (it may not) and I mean, oil shortages due to attacks on pipelines and burning oil fields, oil will explode higher and most certainly put a panic in global stock markets. If things get out of control in Riyad Saudi Arabia (so far so good), all bets are off, oil goes to $200 and the global markets implode. It’s not necessarily all about oil (of course a huge part) but perception. Right now the market is thinking about what could happen, the market is starting to discount this, as we saw oil hit $100 today and back off. When you see a 24/7 news loop of riots in three or four countries it has a tendency to give investors quick trigger fingers. The market hates uncertainty, hates it, and right now that’s all we have.

For now, the best advice I can give you guys, ( and it is exactly what I am trying to do myself) is trade small. If you are a 1000 share buyer, maybe buy 300 shares. If you find my stops too wide or not consistent with your own risk tolerance than please adjust and make them tighter. This is the time in the market where you try not to draw a lot of blood, some blood is normal, but you want to keep your powder dry for the right time to step in aggressively. That could be long or short.

I still believe the play going forward is energy. I am watching the materials (UYM), and the fertilizers may have bottom and reversed today (not sure yet), but I didn’t want to be Christopher Columbus on that trade near the lows today. If the market rolls over we could lose 50 SPX in a hurry. The 50 day moving average for the S&P is 1286.26, we may need to test that level before any meaningful bounce.

Some individual names I am looking at to start long positions in are: CLF and OXY (re-enter). Also SMSC did trigger yesterday as a short, I mistakenly left it off the list. I guess I was sidetracked calculating all the stops.

This may well turn out to be a big by the dip, and I don’t mean to be a wet blanket, but this is a long and short approach and I don’t want you guys to be Pollyanna’s with the belief that trees grow to the sky, I want you to think offensively about what could happen so you can be proactive. I have probably made more money short than long in my trading career and its probably because in the market, I trust nothing. We will be ready if things get ugly.

With that said I have some oils and mining to watch for the next couple of days.

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