the Yuppie Pig

Update for the day - The market has really broken down again, wiping out yesterday's gains. All my sell stops got hit, and further weakness here, probably means SPX 1020 is in the cards very soon. That would cause some considerable damage to the longer term trend. Perhaps the top is in - buyers beware!

Just keep doing what works... The market bounced hard off the 50 day EMA, so we will have to respect the long term trend of the market which is clearly up. There isn't really any reason to be overly bearish until we get some more classic signs of a top including lower highs and lower lows.

In the shorter term, the market has rallied right up the upper trend line in the 60 minute chart. I would expect a short pull back; perhaps a few SPX points without making new lows to confirm the bullish thesis. To play this, I've simply tightened stops, and will just wait the day out. Should be fairly quiet. Just waiting for the market to show its hand.

Just a quick note; Covering some shorts but not entering new longs here. I think we might get a bit of a cursory bounce into the area around 1065.

The 15 minute chart is very oversold, and backing out to a longer 60 minute chart; the market is right on support. We'll see how the price action plays out from here.

Here's an interesting chart for a trade to the long side. Comverge is a pure play smart grid company which focuses on metering and management of load. Earnings are out Nov 9, and I don't want to gamble on that particular binary event, however, leading up to it, the stock appears to be breaking out on good volume.

Judging by the basing pattern of the stock, a breakout move measures to the 17-18 range.

Wow, is this market getting volatile again! We were up 1% just after the open to test the upper channel, and swing down 2% to test the lower channel. From where we stand now, the market is clearly in a short term downtrend, which likely has some additional selling pressure as 1075 is now resistance. The next support level is around 1058 which fills the next gap the market left behind, less than 3 weeks ago.

The bullish case would have another test of the upper channel....


But... I think it's a fairly low probability event given the recent reaction to earnings and news flow.

Also noteworthy, is today's action in the most crowded short in recent history. The USD broke its recent downtrend. I took the opportunity to actually buy some USD (as being in Canada, I'm naturally short USD and long commodities in general) This takes me to a neutral position in my active trading account from a short position. I've also started a short position in oil through the USO.


Over the next few days, I'll start to look at potential long candidates as this corrective move comes to and end; as well as potential longer term shorts, should the next market bounce quickly fades and not make new highs.

So far, the hypothetical downtrend channel outlined in dashes, seems to be playing out. We'll see if this pattern holds with a break below 1075 and upward move beyond 1090 or so. Should the market continue to break down from here, there is some significant support in the 1050 area where I would lift my short term bearish position.


In order to play out this view, I've started two short positions. The first is in MOS, a fertilizer stock that has lagged its peers. It should have significant upside resistance at this point, and volume patterns have been fairly negative. My guess is that it will continue to consolidate within this large triangle formation. Downside target for MOS is around 47.5


MCO is a stock I've been watching for a while, waiting for a good entry to short. The risk:reward ratio seems favorable here, so I started a position as the short term 60 minute chart is starting to break down. We'll see tomorrow how this chart plays out. Stop is above the recent high.

Here's an interesting trade that should be out of the ordinary. Platinum - the forgotten precious metal recently broke out on high volume on this ETN. It's rather illiquid, thus perhaps it wont be as reliable as a more heavily traded ETN or ETF.

The metal is typically used as a catalyst in the auto industry, so this is a derivative play on 3 things. Cyclicals (auto industry), the "green" movement as this is needed to make fuels burn cleaner, and precious metals; all of which are currently on upswings in the market.

Right now, it appears to be back testing the broken resistance, now support. There is some constructive volume patterns and the 50 day EMA should provide good support. An entry at 32.5 should be a good risk:reward ratio. first target would be back to its highs at about 35.3, but the pattern does measure to around 38.5 over time.


FYI - From Wikipedia

Of the 239 tonnes of platinum sold in 2006, 130 tonnes were used for automobile emissions control devices, 49 tonnes were used for jewelry, 13.3 tonnes were used in electronics, and 11.2 tonnes were used by the chemical industry as a catalyst. The remaining 35.5 tonnes produced were used in various other minor applications, such as electrodes, anticancer drugs, oxygen sensors, spark plugs and turbine engines.

The market managed to fill that gap at 1075 early in the morning, (at least initiating the potential for a lower low within a downtrend) and quickly reversed to close out near the highs. This has set up a potential downtrend channel. But until this reverses down again (without making a new high), I won't become bearish.

In the following 60 minute chart, I show the hypothetical downtrend channel which might be forming, but given the momentum, I won't be surprised at all, for the market to head to new highs. AMZN reported after hours and is trading up nicely, and MSFT is tomorrow, which may set the tone of the day. We'll see how the charts set up, but for now, its best to remain bullish.

The last time we had an intraday reversal like that, was a few weeks ago which lead to about a 60 point drop over a couple weeks. Today, the charts look like they are setting up for a similar move. Right now, the market has closed right on support at 1081, which is a clearly visible level, by many traders. So, from here, we'll see which way the market goes. If we can get a move below 1080, I'll start to get short term bearish, and become more aggressively bearish if on a corrective move, the market does not make another new high. We've got a couple support levels below us and a few gaps that might act as magnets for the market so lets watch for them to be filled. Major support to the downside, I think is around the 1050 level, where some supporting trend lines from the past few lows converge.


After the close, TQNT reported and the stock was taken out back, and beaten to a pulp.

4:08PM TriQuint Semi reports EPS in-line, misses on revs; guides Q4 EPS below consensus, revs below consensus (TQNT) 8.10 -0.12 : Reports Q3 (Sep) earnings of $0.10 per share, excluding non-recurring items, in-line with the First Call consensus of $0.10; revenues rose 2.3% year/year to $173 mln vs the $177.8 mln consensus. On a non-GAAP basis, gross margin was 35.0%, up from 33.2% in the prior quarter. Gross margin increased due to improved factory utilization and the elimination of inefficiencies associated with high sequential revenue growth in the second quarter. Co issues downside guidance for Q4, sees EPS of $0.10-0.12, excluding non-recurring items, vs. $0.13 consensus; sees Q4 revs of $175-185 mln vs. $188.03 mln consensus.

OK, definitely not a blowout quarter, so I would expect for the stock to be down 5% or so. Instead, its down a whopping 20%, so I must be missing something here. It's been acting weak, along with its peers (relative to some of the other wireless infra names) for a few weeks ever since RIMM and QCOM have stumbled. It may be possible that this name is levered more to some of the companies that have not performed as well as AAPL (which is taking share - and not losing any). I don't believe TQNT is levered at all to AAPL, but its the sector I'm bullish on, not any particular stock. Perhaps that's a mistake. I have a small position as I've spread out capital allocation within this sector to a bevy of names, and typically, Id like to add on weakness. I just need a better explanation for this reaction.

As for the chart, it will likely open well off its highs and just above some support at 6.5. I should point out, that it nearly traded down to this level just 3 weeks ago, on the tail end of the last correction, and is up a little from 1 year ago, with "basically" the same financial position; although the outlook should be better.


The Dry Bulk Shippers opened up nicely today, and gave up its gains late in the day with the broader market sell off. Since we are still holding 1080 on the SPX, the Baltic Dry Index was up, I'll hold on to my positions for a little longer, but I don't want to give them much room as I sit on flat positions in an increasingly bearish view of the market.

Here's a fairly uncorrelated stock that looks ready for a short at $26. There's some knee-jerking headline risk possible, but overall, this chart looks like it should run into a wall above 26. There has been good selling pressure at 27-29 to put a cap on the stock, and the trend line has been falling. I'd like to short it up at 26, as I think it can go slightly higher, and leaves a tight stop-loss. On a 60 minute time frame, the chart is moving up quickly in a tight channel, so I'll look for a break out of that formation to confirm the start of a new trend.

The market broke down out of a rising channel in the 60 minute chart, and its about time for another pull back. They seem to show up every 3-4 weeks, and last for 2-3 weeks - albeit shallow. To confirm a short term sell, I'd like to see a break below 1081 or a lower high form. before turning down. We'll see over the next day or two.


In last nights post, I highlighted the dry bulk shippers as a potential trade. I took today's action to start small positions in each of GNK, DRYS and DSX. They all have decent volume, and appear to be breaking out. If these turn tail, and head back into the consolidation range, I'll quickly scale out and await another opportunity. This just makes more sense, especially given the state of the 60 minute chart of the SPX.

We now have breakouts in pretty much every commodity.

Oil - Check
Gold - Check
Copper/Metals - Check
Ag - Check

Now I suppose, the only thing left to move, is the ships used to move the latter 2. In the past we weeks, we've seen some stabilization in the Baltic Dry Index, and stocks levered to that index have consolidated nicely.

Here is the chart of the BD Index. It appears to have broken out of its downtrend and if coal, grains, iron ore, etc, are to actually be used, they have to first be shipped. I'm quite aware of the very bearish conditions for dry bulk shippers - a glut of ships anchored off, hidden in a south Asian ocean, but for the moment, I'm looking for a trade. Or perhaps a cyclical bottom if one believes in the resumption of global trade.


And here's your typical dry bulk shipper. To add a few names to choose from - consider DSX, DRYS, EXM, EGLE and a bevy of others. All of the charts basically look the same. This business is quite commoditized so one can pretty much lump one ship in with another. The question is the level of debt and outstanding contracts.



If we're going to play a trade here, and you want good leverage to the BDI, I think DRYS is the name. This use to be a 100+ dollar stock back in the old days (2 years ago) before plummeting to $2.72 1 year ago.

Or if you want something that is going to reflect the index a little better, DSX and GNK are good choices.

What I'm looking for here, is a solid break out of this consolidation pattern with good volume. I would suspect that given the size of the pattern, there should be several days of follow through. But I'll take it one day at a time. For now; just looking for that solid break on volume.

Here's a quick update on what tomorrow looks like from the chart. The 60 minute trend line has been breached, and we'll await a confirmation by some selling below 1081. So far, reactions to earnings haven't been great, but we will let the charts show its hand first. A first bearish sign would be for the market to not make a new high and break 1081. There is a clear gap just below that to be filled.

I quite like the wireless Internet sector. Specifically, names catered to increasing the ability of devices to converse over the Internet. I do believe there is a secular trend towards wireless devices, not only in smart phones, but several others. (laptops over PCs, Internet/wireless connections in vehicles, logistical uses, small home electronics and appliances, vending machines, and a whole host of others) However, this is going to be one very competitive sector. (think smart phones - rimm, aapl, palm, nok, mot, and now goog, dell and grmn are getting in the game) Like the initial Internet wave, the survivors might be names that don't even exist today. So here's a few names that I like right now, not just from the sector, but from the pull back in their charts that present an opportunity to start positions. This is more of a shotgun in smaller names which operate in different segments in the mobile Internet sector.

TSRA is a miniaturization patent company which is key to getting everything mobile. Smaller is better. More compact and takes less power. This name should also be less correlated within the sector. It's reasonably priced at about 20x forward earnings, and has pulled back to previous resistance, now support. Not sure if support will hold, but for secular buys, i actually like to buy names on pull backs to major moving averages.


TLAB provides products are services for wireless broadband. It also has a wireline business which I think is overly competitive, but its the wireless portion that is interesting. As information flow continues to grow, there is going to be continued growth in increasing capacity of wireless data.


SWKS and RFMD is a "pick'em" name for me. These companies build components for cell phones which were hit hard by NOK's earnings. I think these names can come back as the trend towards smart phones is going to require more of their products. Also a very competitive industry but we can play the short term trend in these names. Both have pulled back hard, and I think is worth speculating on a resumption of the trend.

I'm trying to play both sides of the market here with different sections based on their respective oversold/overbought conditions. For the long side, I believe VMC is a worthy candidate. As job creation becomes the focus for congress, some talk of another stimulus package may gain traction. I'd expect that it would be an actual infrastructure and tax cut type stimulus which would be good for VMC and the like.


On the short side, copper has once again reached the top of its range and pulled back a bit. Each time, FCX tends to make new highs while the metal does not. More likely, this is additional PE expansion occurring with each step, and I feel like trading it to the short side when its at the top of its range, and to the long side when it is at the bottom. I'll make sure to keep a tight stop.

Today the market rallied out of the gate and is not back testing recent support, now resistance at 1041. I took a short position in SPY as the SPX pushed into this area. Tomorrow, we should see if this rally is just another shallow correction, or if there is a more significant sea change in the market. I'll keep a tight stop at today's high and let it play out.


Should the market rally from here and make new highs, I'll look to initiate some short positions to offset my current long positions. In this scenario, CCL, GRMN and HOG catch my eye. Should the market continue to make another leg down, I'll add to some wireless tech and potentially some agriculture names.

I wanted to take a moment to highlight the recent action in the high yield bond sector. Much of the rally since the March bottom can be attributed an increase in the willingness to accept corporate risks. Investors are willing to accept the increased risk over US treasury for higher yield through corporate bonds.

The HYG highlights this, as it essentially mirrors the S&P500. It's true that the price action of this this chart does not tell us anything more than that of the index, but the volume is telling. The major indexes are now plagued with intra-day trading and high frequency trading, making volume less telling than it use to. But this isn't the same for this ETF. What I see here, is massive selling volume as there is a movement to reduce risk exposure which has not been present at any other point in this rally - signaling a major red flag against the bullish case.

There's a key metric in every type of market. Sometimes, its the Fed numbers, but in this market, it's all about the jobs.

Today's number is starting to show that the second derivative of improvement is a double edged sword. The market is no longer impressed with a rate of change - change. It's now a matter watching the absolute number as many analysts now expect positive jobs numbers early next year.

U.S. employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8 percent

Analysts polled by Reuters had expected non-farm payrolls to drop 180,000 in September and the unemployment rate to rise to 9.8 percent from 9.7 percent the prior month.

The government revised job losses for July and August to show 13,000 more jobs lost than previously reported. Preliminary annual benchmark revisions, released together with September's employment report showed that total non-farm payroll employment for March would have to be revised down about 824,000.

So what is different this time? You'd think that this much money sloshing around would have more of an impact. Let me count just some of the ways...

The stimulus was not designed for job creation!

There is a massive de-leveraging in addition to a cyclical recession

Uncertainty in energy policy and health care is causing future corporate planning uncertainty, forcing firms to cut jobs as the only way to increase profitability

Investments made today are in capital goods and technology, not human capital in order to compete globally

I believe two dynamics will play out mostly with regard to psychology over fundamentals. That is, "preservation of gains" and "chasing S&P performance" are going to take place. Those in the former camp, are likely to begin to trim down major winners and high beta names in favor of lower beta names. (sell retailers, long staples) In the other camp, there may be an avoidance of these same retail names as "don't buy" due to valuation/growth, but a shift back towards higher beta names with secular themes including technology. This potentially could have a large portion of fund managers cramming into increasingly smaller pools of assets. In regards to news, impacts may be muted as the psychology takes center stage. As a result, Q1 2010 may immediately begin to relatively align to news as the year ends, and books are flattened to zero.

Right now, the S&P is now once again testing the uptrend line. Risks relative to reward is increasing as the market moves higher without significantly better than expected news. In the short term, 1040 is the front lines, with the first support beyond that at 1020.