Waiting Until You See the Whites of Larry Kudlow's Eyes

Submitted By Trader Mark
I'd be very careful here. This has a very similar feel to it to multiple episodes in 2008. We bounce, reverse, draw in some "bottom callers" and then smash them. I should know because I was smashed once or twice in '08 by thinking "hey - darn market is down 12% in a straight shot, gotta rebound here soon". I am going to err on the side of caution and wait until I see the white of Larry Kudlow's eyes.

It seems improbable we could fall further - these banks seem way oversold right?

No, it can get worse. Too many bottom callers out there. Too much hope. Too many people wanting to catch a turn. And the "leaders" of late have yet to be shot. We call these the generals. A downturn usually ends after the generals are shot. Who are the generals? Unlike most periods there is no 'sector' - just a group of individual names. Unfortunately the stocks that populate our portfolio are those names - i.e. the stocks that have held up the best. So when I start to see our stocks take 10%+ hits in a day, then I'll become more bullish and apply this boat load of cash.

Once S&P 820 broke, bulls were done for - simple as that. I was hoping we'd get at least a more than 24 hour bounce so I could short some of the worst individual names but we never got the opportunity so I'm stuck playing with these evil Ultrashorts. (that said, these vehicles work only in this type of environment - but when the markets reverse they will tear your head off)

It is WAY too cute to expect two reversals (last Thur and today) back to back. I think S&P 750 beckons and by the time we get there you will not want to be buying stock - you will hate the market. So will all the current "bottom callers". Who want to buy stocks here, but will be in full blown panic another 7% lower.

Once more, will those folks who paraded on CNBC talking about "bottoms" and "it's all priced in" (from 2-3 weeks ago) please show up today and say "once again, for the 12th time in the past 18 months I am wrong."

No .....they won't - they get a free pass, and claps on the back - and they will parade the same tired voices out in a month to repeat the same folklore. Remember, the "sirens" are damaging to your portfolio.

Me? I'm going to make some small purchases here and there, expecting to lose money on the first batches, and rebuilding some positions that I've cut back. My goal is to be where I want to be in position size by S&P 750. And I don't think 750 is the bottom for the year or close to it. But nothing in a straight line. I will be using any last hour shenanigans (almost guaranteed) or an "up" open tomorrow to balance the book with more short exposure now that S&P 820 has been violated in quite spectacular fashion. Earnings season will reinforce to the "whistle past the graveyard" folk that their 2nd half 2009 recovery will soon be nothing but false echoes of their "2nd half 2008" recovery talk. (that's my poetry for the day; sorry not half as good as Obama's)

I love the smell of mustard seeds in the morning....

EDIT 3:30 PM - I cut back Emergent BioSolutions (EBS) despite my affection for the name in the $23.20s. This is my only position in excess of 3% of the portfolio but if they come attack "the Generals" - she will be smashed with a vase over her head. Support is $22... I want to buy what I just sold @ $20 if the Obamas...err Gods of the Stock Market allow. It's down from a 5% stake to just under 2%. If I'm wrong and the huge rally of 2009 commences tomorrow, I'll pay up to get my position back. I also cut back AeroVironment (AVAV) down to a 1% stake, and Life Partners Holdings (LPHI) to a 1.2% stake for similar reasons. Nothing else makes up more than a 1.3% stake on the long side at this moment as I go into protective (anti siren) mode.

[again as a reminder this is our transition week as I move from one portfolio tracking system to another. I'll be posting the full portfolio every weekend, starting this weekend - under the 'Performance/Portfolio' tab - for this week only I don't have the info in the "old place" (sidebar) or "new place" (new tab)]

Long all names mentioned in fund; long Emergent BioSolutions, Life Partner Holdings in personal account

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