The Panic Continues

[wndysrf]

Mark?s Market Commentary ? January 8, 2002

 

Everyone remembers being in college, dating those young girls who couldn?t be tied down. The girls were flying around campus, dating 3 guys at once, some times 20 different ones each year. They were casually looking for husbands, but cast a wide net to sample as many different studs as possible. Meeting them in traditional places, over the normal course of life, in no real hurry, and using plenty of diversification.

 

Fast forward 20 years.

 

Now the girl is pushing 40 and time is running out. New fangled tools are available to ?speed up? the process of searching and finding a husband, the most notable being Internet Dating.

 

Now she operates hysterically, pointing and clicking, scanning the databases for possible ?selections?.

 

Then when she thinks she found one who qualifies, she immediately throws all of her emotional energy into that one guy for the moment, abandoning all others.

 

She?ll go out with him once, and immediately starts discussing ?the commitment? and ?where is this relationship going?. Of course, the guy will get spooked off, but she pursues him relentlessly.

 

The 50 daily hang up calls on the answering machine. The unexpected visits at his apartment. The presumption that the next weekend is automatically reserved for a romantic weekend with her.

 

And when the guy attempts to stall, she instantly rolls out her psychoanalysis, running him through all kinds of questioning. Ultimately, requests to seek counseling are recommended.

 

Wait a minute!! What are you doing? I?ve only been out with you once!!

 

The 6,000 mutual fund managers, the 24,000 chief strategists who work under them, and the 100,000 X-Box gamer traders who actually buy and sell the stocks are no different.

 

In the old days, it used to be about careful diversification, casual market observation, and being in no hurry to hit the home run. The moves were small, the broad market moved slowly, and trends could be followed with a simple ruler. Team of researchers would go out and perform site visits at the 20 or so companies they followed. There was no real hurry to buy or sell a stock.

 

Now each one of these market participants is hunkered down in dark rooms surrounded by plasma screen displays. Locked in a desperate daily battle to ?find the one? stock that is going to move 15% in one day. Hundreds of technical signals are analyzed on hundreds of different stocks. All energy and commitment is thrown at the top movers in the PreMarket HeatMap each morning. High expectations are heaped on these stocks, hoping that this stock is ?the one? to stage the next 120% move in the next few months.

 

And if that stock ?fails to commit? then it is immediately hosed and traded for another.

 

I have never seen such a chaotic and frantic trading environment, where even the most boring stocks are now trading like coffee futures, and the playing the fastest moving Supermodels is like trying to play tennis with a Superball.

 

In today?s environment, where everyone is gaming the same charts, everyone has Level II screens, everyone is watching what everyone else is buying, and everyone has 1 second executions, and everyone is on margin, the volatility is no surprise.

 

How can we have such maniacal explosions so late in a bear market? Why haven?t stocks relentlessly grinded down? Why are surprises found most often to the upside and not the downside?

 

Why are downside gaps and surprises like Florida Rock (FRK) and Harrah?s Entertainment (HET) immediately bought?

 

Why are spectacular short sqeezes are regular occurrence? How can such a large amount of overhead supply be pushed back temporarily by aggressive buying?

 

We have repeated that the cause of all this madness is the giant-sized Liquidity Bubble.

 

The Liquidity Bubble has created zero down, zero interest, zero payment money for the HedgeHogs. Half of the HedgeHogs are trying to short the equity market with 10 to 1 leverage, and the other half are speculating on various convertible bond, CDO, or spread trade arbitrages which also require them to aggressively short stocks.

 

So what you have is a giant pool of short interest, financed with free money, using insane leverage.

 

And the short squeezes have done nothing but frustrate the short sellers, so now many of them are playing the long side. No different than a 42-year old spinster exiting the church group and heading immediately to a Rave party. Whatever it takes to get action, and get on the correct side of the game.

 

The short squeezes will continue as long as the Liquidity Bubble keeps growing. There will be no real market decline until we experience a contraction in liquidity and the Multilevel Marketing Pyramid Scheme breaks down.

 

For now, Doug Noland continues to experience his ongoing nightmare, with a Repo Bubble going parabolic, and The Wall Street Money Machine launching even more exotic securitizations to keep the pyramid fed. No signs of any shoes dropping. Only manical stock market rallies.

 

Remember a couple of months ago we reported how any strung out, partially-employed Hollywood rock and roll punk could buy a top of the line Stratocaster Guitar with no down, no interest, no payments until 2004?

 

Note the $4 ramp job in Guitar Center yesterday on the back of some blowout earnings report.

 

Financial historians just might refer to this era as the Decade of the Flood.

 

An Ocean of credit.

 

An Ocean of dollar claims.

 

An Ocean of Repos.

 

An Ocean of desperate speculators.

 

And now to the market action. Once again, we witnessed some spectacular whipsaws with short sellers in JPM, VZ, SBC being the latest victims.

 

What about the EBAY breakout? Is it a buy or sell now?

 

Nobody knows if these moves are giant fakeouts or the real thing. Who wants to take a chance on getting the shaft like FRX?

 

No money is really leaving the market, so the cash hoard Wildebeasts today decided to exit the gaming stocks, Alcoa, and others and run into the retailers and homebuilders. In fact I would not be surprised to hear that we experienced record mutual fund inflows this month, just like we did during March Madness. The public always gets sucked into the top.

 

So that is why I think the 200-day is still a viable target for the broad market, which isn?t too far away. But that last 5 yards always seems like the beginning of a mile sprint to the short sellers.

 

And I do not doubt for a minute that Al Green will be turning on the Repo Blender tomorrow A.M.

 

Now its time to talk about insiders.

 

According to the most recent Barron?s and The Wall Struck Journal, we have a torrent of insider selling.

 

Remember those guys at ROOM offloading at the exact top? Too bad Jeff Henley at ORCL isn?t properly tuned to stock market timing. He unloaded $17 million worth on January 2, and he could have pocketed another $1.5 million if he waited until yesterday.

 

And week after week we have seen ERTS insiders selling. Now look at the stock.

 

Relentless insider selling continues at APOL and COCO. Remember, on-line college loan securitizations are the latest fad thrown into the U.S. Dollar Duplication Machine.

 

And there have been some heavy sellers over at ALLY. Note how the gaming equipment stocks were hammered today, shortly thereafter the filings were reported. DELL, INTU, and BBBY continue to see constant selling. Insiders must be laughing to the bank, no doubt getting out near the highs.

 

Once stock to watch closely is ATVI, which had over 6 insiders buy recently. If ATVI retests that huge volume doji at $12 and it holds, then we might have to look at that one for the long side.

 

I am beginning to understand the psychotic hysteria surrounding stock market trading. In a real bull market, longs are always shaken out with violent selloffs, but the stocks usually quietly make their way to new highs. Use gold as an example. Remember the July carnage? All of those losses have been made up, while nobody was really paying attention.

 

All shorts blown out this week will find that these stocks are dramatically lower in 3 months. ?If only if I held on?.

 

Buddha has a good trading system:

 

?Basically trading is boiling down to two basic simpleton readings. On high TRIN days don't gamble just sell. On low TRIN days, buy. On successive high TRIN days go long at close. On successive low TRIN days, go short or sell. All the rest is nonsense. All the money is wildly speculative at this 4th year point in the Bear, it is dominated by riverboat gamblers, gamers and Keno jammers. All have incredibly short time frames to reduce risk. Waves, fibs etc. are all very interesting but in the end it is intraday momentum that is all. The momentum is best simply measured by warnings signals that register off simple TRIN readings.?

 

?Less is more. Sectors that have sold down into 5/15 day support off high TRIN readings are then a definite buy. Metals that have sold off as equities slurge rally, are a definite buy at support. Keep it simple and then turn off all noise, distortion and other nonsense and do not listen to wild stock picking posts and this and that. It?s all too complicated. The real road to any gain in this Casino is simplicity. Cardinal rule is to avoid bottom picking on high TRIN days. How do you know it?s a high TRIN day until the day is over? You really don't since it can change intraday and that is why TA is a dog food science. But then it gives you a tendency. If one still can't manage a winning trade I say this for simplicity?s sake. Always buy when you most want to sell, and always sell when you feel most comfortable buying. Seek the most emotional pain upon your entrance and your exit promises to be rewarding.?

 

The Nasdaq TRIN closed around 3.14 today.

 

Note that since the March 2000 top, there have been about 12 Nasdaq 5-day ARMS readings at 2.00 or below. The rally off the October lows has produced five of these readings. A clear signal of ?can?t miss the bottom? anxiety and aggressive HeatMapping of the top 3 stocks only during the rally days.

 

Volume was light, so we have to assume that the least path of resistance is going to be up.

 

More commentary from Buddha:

 

"I am always reminded of the Twilight Zone episode "To Serve Man" whenever I look at Cheat Street. Idiots are lining up to get on a spaceship for a fantastic vacation and find out their hosts are planning to cook and eat them instead. I have never in my life witnessed such rank hooliganism as what is common on Wall Street. These people rank on the bottom of the ladder, the entire preoccupation is with deception and distortion, lies and prevarications. Kudlow and Cramer are basically just reptiles. Creatures that live under rocks. Lower life forms spawned from eggs."

 

"The whole point of and them for Wall Struck is that black is white and white is black. Sell what is being talked up and buy what is being talked down and then turn off the monitor. Do this in whatever time frame you are comfortable in. All the rest is nonsense in my opinion. Attempting to chart waves and retrace points is all very noble and interesting but it misses the point. One must trade off sentiment and fade it constantly but above all else, one must have a money management strategy that allows for loose stops and a way to leverage the bottoms of these trades so that you don't get constantly swept out of positions by floor men right at the turn."

 

Anybody see Bob ?Mr. Clean? Froelich and Jack ?Tin Man? Welch on Hee Haw this morning?

 

Can you imagine being a hapless, large breasted 32-year old female Hollywood Production Assistant who knows nothing about the economy or the stock market, inheriting some money from her grandmother, and walking into a brokerage house asking for advice?

 

And then sitting behind the desk listening to recommendations by Froelich and Welch? Do those guys look like they could be trusted to safeguard your inheritance? Can you see them recommending the Merrill Lynch HyperGrowth Special Situations Leveraged Fund with a 5% load? Then walking into the men?s room, high fiving each other, commenting on the perfect size and shape of the poor girl?s mammaries?

 

I continue to be amazed at the U.S. ? centric Global Speculative Sphere. Just watch the Bloomberg overnight news ticker, and it?s a repeat over and over:

 

?Tokyo Electron rose 6% on hopes of a rebound in PC demand and cell phones?

 

?Samsung dives 3% after concerns on Iraq affecting the U.S. consumer?

 

?Infineon explodes 7%, as U.S. consumer spending is expected to increase IT spending?

 

?Taiwan Semiconductor up 5% as investors expect an economic miracle from the U.S. consumer?

 

Has anyone ever seen a scenario where so much hope is placed on the U.S. consumer? Business spending, export demand, IT spending, and the rest of the global economic cog is 100% fully dependent upon the borrow and spend habits of Joe Sixpack.

 

Trillions of Global GDP is at stake. Trillions of speculative capital rotating around, chasing this stock and that, all searching for hints of a dramatic pickup in charge card spending habits at the largest U.S. retailers.

 

It is as if demand from other countries is of no consequence. China?s 3 billion consumers can?t even outspend the 300 million here in the U.S. Hordes and billions of people in India barely make a dent in the global economy. Even those happy Europeans who chat on the latest cell phones, buy the latest American fashions, and obsess with whatever MTV fad is available cannot muster a blip on the economic radar screen.

 

The whole globe seems to have a giant feeding tube connected to the U.S. consumer. And the Wall Street Pyramid continues to generate an overwhelming avalanche of U.S. Dollars and Dollar Claims, all recycled back into the Pyramid which feeds the Matrix to churn out even more dollars.

 

The mechanics and the sheer size and scope of this insidious self-feeding system defys all practical description.

 

And of course, the byproduct of all these fantastic explosions of Repos, no interest, free Keno chips, unlimited dollars, and all the rest is an intensely ferocious Speculative Frenzy in the U.S. equity markets, with electronic circuit cables stretching worldwide, ensuring that the entire Global Stock Market is lockstepped to the minute by minute TICK of the Supermodel Index.

 

Could J.R.R. Tolkien have thought up of a story as complicated and fascinating as this?

 

I doubt it.

 

Where will it end?

 

How will it end?

 

With a giant meltdown or a miraculous recovery like Argentina predicated on some type of IMF fix?

 

Who is the IMF? Another player in the U.S. Dollar Pyramid Scheme? Are they hedged? With what counterparty? Themselves? Who is operating the levers behind the IMF curtain? Al Green and the Repo Machine?

 

So many Alice in Repoland Rabbit Holes.

 

So many Circuits, Cables, Signals, and Charts everyone watching in real time.

 

Follow any of them through the incredible maze, and they all end up where they started.

 

Oh, the insanity of it all?.

 

 

Position Summary:

 

We are 34% short, 22% long, 44% cash.

 

Half Short:

 

INTU at $53

TGT at $34

MBI at $50

AMGN at $52

ROST at $44

 

Quarter Short:

 

FRE at $68

KBH at $49

LEN at $56

TOL at $27

COCO at $40

KSS at $66

NCEN at $28

LOW at $42

 

Full Long:

 

GG at $11

 

Half Long:

 

BGO at $1.31

HL at $4.10

PAAS at $5

DROOY at $3.35

GLG at $9

MDG at $16

GSS at $1.72

[wndysrf]

More Color Commentator Comments added after the initial posting...

 

Sorry for the delay.

[The End]

still 90% short. if we get to 904-890. I will cover some.

[bubbadropping]

Excellent post Marky, that says it all. I will be exiting the shorter term scene soon to pursue a life of sanity. Enough is enough. Much better probability trading off the Adam Hamilton screens anyway. I find the intraday and day to day just totally insane. There is no telling when one gets a rocket move or when the bottom falls out and it is because everyone is literally gaming the same screen and using all the latest bullshit equipment. In this enviroment one must trade as a Taoist Master would. Less is more. Fade away and trade infrequently and only at the large extremes, leave the rest for those who are devouring one another. Until we get a geopolitical bomb we don't get Market clearing, just more of 2002 in 2003. I'll never forget the Milton Friedman interview on Rukaiser last year. He said flat out that Alan has plenty of room to increase the money supply and will print as much is necessary. This kind of hubris means only one thing. Until a real shocker forces this reptile to back off his hand, the Pyramid scheming will continue indefinitely. If Bush were smart he would seek market clearing now so that he could claim a huge bounce into his relection bid. Thats what I would do. Fire Al Green, make a huge thing out of it, let the markets clear as they watch their impotent Uncle roast under the media headlights and then stage a comeback midway in the year. Instead we will get the slow burn and the cheaters shuffle. Where is Al Quaeda? Bunch of third rate, junior college dropouts,. Ponzi scheme has been teetering on edge for months now and these losers can't even manage to stick up a 7/11. Thank God for that anyway. All smoke and mirrors. May the innocent survive and may peace and sanity prevail.

[Slothrop]

Mark, you mentioned VRSN and MENT this am on IDS. Those 2 stocks were among the few in the green today. Nice move on MENT in afterhours too.

 

Good job.

[ShamPoo]

These guys should set your mind at rest Mark.

 

Some real clarity from Barfing.con

 

"Consumer Credit actually contracted in November after a weak October gain. Interestingly, consumption was reasonably strong in both months, so the implications of this number are ambiguous. It could be read as indicating a pullback in consumers is underway, though spending numbers don't support this. Or it could be read as an indication that higher incomes are allowing for more spending, rather than higher debt. Or the numbers could just be wrong (that wouldn't be a first). There are too many contradictory messages in the data to know what to make of this number."

 

Odd the ?good numbers? are never questioned like this by these pom pom girls.

Higher incomes!! Whos?

And this on the day NCEN is up 11.04% and COF up 9.97%

[Jorma]

The thing is Budda, this thing can't be cleared without devastation. One or two years is not going to be enough to clean up the mess. The cure looks worse than the disease. Next month worse again. Maybe in 2000 it would have been possible. Or 98, or 96. Now, as Noland says we have the worst possible case.

 

When Al made his first cut in Jan. 2000 and said with a straight facecut , cut taxes please, I'm afraid I will run out of bonds to sell, the deal was finalized. Pedal to the metal. No looking back. The only reason Bush would can Al would be because he isn't easy enough. Bush's crowd truely has no clue. Not that any politician in America does or would be willing to propose bitter medicine. Nobody likes bad medicine.

[wndysrf]

Sorry guys....

 

Impossible to keep an eye on all these trades.

 

Wasn't watching NCEN, FRE, COF today.

 

All appear to on their way to making new highs.

 

Reliquifaction Credit Bubble No. 2 is now underway.

 

Poor Doug Noland......

[summoner]

Oh yea! ...wasnt able to check the market intradayy as I was very busy at work...However, all positions working nicely: C short ,MXIM short ,and SPX 950 puts ALL up nicely...will hold all as I anticipate continued downside into next week....anecdotal story met a MSFT VIP today, asked him if he expected mr softie to establish dividend..his reply was the co and employees only care about stock price because of all their options...so no way on the div...tells me hes buying like crazy at these bargain prices...poor sap, reminds me of the ceo I told to buy gold 14 months ago...his response "It hasnt done anything in 20 years"...lol... TRADE SAFE... minor pop possible but wouldnt dare be long this weekend!!!!

[The End]

still 90% short. if we get to 904-890. I will cover some.

My mental stop is 915, just in case B is over.

[Direwolf]

geez Mark...between you and buddha, you've got this market nailed...absolutely stellar commentary this evening...in fact, I've shared it with some perma-bulls in hopes of enlightenment; however, I'm afraid those types are doomed...buy and hopers will soon be foiled again...kind regards...direwolf

[Direwolf]

oh yeh, one more thing...the primary trend was NEVER violated...that zealllc chart depicting the mother of all H&S patterns on S&P500 is still very much intact...market dundee in the long run....direwolf

[slinger]

Getting close to cover time. Have an exit point in mind, just in case we get a meltup.

 

 

courtesy of Paul Shread

[slinger]

Pullback is happening like clockwork, it appears. I posted the link to his site last night that mentioned we should have a pullback today since the Aroon indicator crossed up and we needed to work off the overbought indicators. If you missed last night's link, here it is again. If he is correct, tomorrow and friday should be up days.

[longOnUranus]

Ditto on the the kuddo's and Kudlows. This intraday stuff is an addiction like any other, and all addictions end badly. I follow the screen constantly out of fear; my greedy part needs a few well placed trades at longer intervals. You and Buddha have a brilliant way of driving home the message.

 

The liquidity issue is dead-center, Al's bid is much higher now than after 9/11. The result may be good enough to sail the USS POS to 10,000, but it won't be a new bull market. The ultimate cost will be Bush's undoing (unless he's lucky enough to run against Hillary). He can't crash the market because he wants to play with toy soldiers overseas. He/we will declare some sort of victory early this year, thereafter the market will regress. The cycle of recovery will not be in his, or his succesor's, favor. We are now living the Worst Case Scenario.