understanding the psychology of behavior

The market does not know which way to go.  It is obviously sick, as I pointed out before.  With that said, short-term, the decline is over done now. I closed out my protective puts and am waiting for a mini upward correction.  Basically my thesis for this is that markets can not go down every day, just like they can not go up everyday.  But also many stock are hitting support levels, as well as the SP500 hitting a double bottom.

This pattern of up in the morning and down by close is due to get broken. It has become too obvious now.

IMO, the best way to play an upward short-term push in the market would be 180/185 MA Dec Calls.  this is one stock that has maintained its strength and upward trend despite the threat of VISA and a horrible market tape.  With an upward market, MA should test 195/200 again. (But sell gains during this rally… assuming my thesis is correct.)

Putin’s words are getting more and more interesting. Amid his speculation that the US is provoking an election boycott…

“We will certainly take this into account with our bilateral ties with this state,” he added, referring to the US.

The $64K question… when to get into the banks again?

The two beaten down stocks that are on my focus are MER and C. Many media pundits are giving unclear signs as to when to get into these stocks. For instance, one moment there will be a overwhelming sense of fear and sick write downs coming in 2008. On the other hand, others state the financials are cheap, and good now for a long-term play. So, is it good now to get in? Lets look at the chart.

MER:

C:

The earnings these banks acquired from this whole credit mess started in 2001 onward. Their stock price is roughly in the same stock price back in 2001/2002. So basically the stocks already retraced their steps, however if we are dealing with a mini recession both may trend to their lower support line.

As such, an initial entry can be made for C and MER (although the MER chart indicates mid/high 40s would be better)… keeping in mind, these should be held longer than a year, and a potential doubling down in the mean time.

I am not a fan of the markets here. I would like to see a year end rally, and if we get this it may signal a channel bound market rather than a continuously declining one.

The overall trend could still be salvaged here, but fundamentally it seems unlikely. Currently the SP500 looks cheap based on earnings, estimates and the Ten Year Note Yield. But financials are not going to assisst this market at all within the earnings front, and the consumer (as per the RTH) will not be pulling us out of this.

What we have…

1. An important sector not pulling its weight on the earnings front.

2. A continued recession in residential housing.

3. A credit crund that will put commerical construction and real estate in a down draft.

4. A consumer that does not want to spend. (But the RTH and many retail stocks have already taken a blood bath, and a simply cheap. JCG to be at these levels is a gift, but uncertainty has brought it down and until earnings come out, most retailers will remain down.)

If we do enter a recession, it will be due to a domino effect from the above reasons.

Currently I am waiting for the market pattern to develop, hence still an owner of Puts on the SPY while continuing my normal trading. There are stocks out there that are still pretty healthy, and in nice trading patterns (I may posts some of these later).

Side Notes:

1. BNI produced some pretty nice rail data the other day. The rail data, imo, does not signal recession just yet, but the market is a forecaster and we have to see if its forecast is right or wrong.

2. If I told people there is a stock out there that benefits from Market Volatility, a depressed dollar vs Euro and has proven the quality of their fundamentals over and over again… would you be interested? Sounds like a good play in this uncertain market and economic conditions we are in… the play here, of course, NYX.

Here is a nice sign the good old fashion stock picker, and option players, are still in high demand. Goldman is lauching on of the largest Hedge Funds based on this premise. (article)

(Goldman, if you need an analyst/trader for this fund… just let me know )

In a slowing economy, a collapsing dollar and a seemingly bottomless pit of a problem regarding the US credit mechanics there is still plenty to be thankful for.

Happy Trading.

What will the Fed minutes say?

Obviously the markets do not know, and the uncertainty is driving it every which way.  The minutes need to state there are signs of life. I don’t care for rate cuts, I am sick of them, and seeing our dollar at 1.48 to the Euro. 

Judging by the Treasury 10yr Yield, the economy is weak, and cuts are coming. Which means the Euro continue to climb (unless there is intervention), and potentially the beining of a full blown bear market.

(Personally I would like to see news the market likes, hence a market rally to the end of the year.)

I came across this article upon my daily readings. “Net gridlock by 2010 study warns“. Basically it warns, what is already known to up-to-date tech watchers, about the band width shortage that will arise.  What I find interesting about this article is that it puts a value onto the needed infrastructure… $137B, globally.

The company that is positioned to deal with a global infrastructure boom, and has been, is CSCO.

The stock has been beaten down, with everything else, as it did not guide the way the street wanted. Technically the stock looks weak, but holding the 200SMA support. Currently looks to be a great entry point for a stock whos services are in great need.

Looks good here, especially on a valuation basis vs the back-drop of the sector’s macro conditions. (A PE of 23-24, with a service/products in great demand, and a HUGE overseas biz to take advantage of the dollar weakness… its cheap.)

NYX - the stock is weak (for no real reason… as annoying as it is) with a weak market, but hitting a support level. Although I was not expecting the daily supports to be broken, the weekly support is still in play… until its not. (I hate such unassuring comments too, but I did buy some Dec Calls, as it is very oversold despite proving its self time and time again fundamentally, and due for a pop.)

WWAT.OB - The current pattern has broken. There is a sense of negativity now, be patient for the double down as the dust needs to settle.

The VIX is not as up as it should be today, seeing how crappy the market is doing.

Suggests the pressure may be short lived as it is coming from low volume, imo.

With that stated, I am taking on a strategy where I will be continuously exposed to SPY Puts.  We are testing the 320SMA support, ultimately I think it breaks, maybe not this go around due to the above observation. Since I do not know when, the puts will always be in play.