It's war

Trading this market is like being in a war. This monster is brutal. Everyday we're taking enemy fire, you try to hold your ground, then have to decide whether to retreat or not. How about today - Dow +889, NYSE +536, SPX +91. Who can explain this? Technical analysis. Is the answer in the charts and those multitude of indicators? Hardly. Sorry John Murphy. If you haven't figured it out yet, technical analysis is a joke, a crutch, something that is utterly useless. Even though I know this, I still use it occasionally. Why - who the hell knows. I guess you've got to "believe" (sort of, kind of) in something. Even magic.

But when it comes to trading, especially sort term moves, I don't look at any indicators. Just the price. It's the action of the tape that I care about. That's it. You have to really watch it carefully - the ebbs and flows to get it right. That's all I care about really and strong money management techniques. That's what you have to have in this dreadful market that has claimed so many - good money management techniques. One, don't take mega sized positions relative to your account. Two, get out of or systematically cut back on your losers, and wait for better opportunities. Three, the winners take care of themselves. That's all there is to surviving, but for some reason many people can't do it. They can't take those loses.....the pain is too great. But that's how it has to be.

When does today's huge snap back action mean? I haven't the slightest idea and i don't think anyone else does either. I'm putting my money on vicious bull rally in a bear market. I won't get any where near a bullish stance until Dow Theory gives a clear cut bull signal. Let me say this - those Dow Theory signals given in 2007 were fantastic and on target..... From here on out, I will never, take those signals lightly. Instead my portfolio will be structured around those bull bear signals so as to avoid this from happening again. I would have liked nothing better than to be sitting in 70% cash and watching this debacle from the sidelines. But I guess I was too smart to listen to the market and Dow Theory, I decided to do it my way. Next time I'll do it the smart way. I believe that you don't learn how to make money in the markets until you've experienced both extremes a few times anyway,. I also think that it takes about 2 decades to develop the proper skill set to do this for a living. That includes enduring two decades of hell as well. Many can't take it and quit after the first few rough patches. I know a bunch of clowns that wanted to be traders. After getting whacked for their first 5 figure lose, they couldn't take it anymore. Eventually they gave up. -

Bottom line - do it the easy way. Get an MBA from a top school and get in with the investment banks, hedge funds and other highly leveraged players who make outrageous bets with OPM. Then at the end of the year you'll end up w/ a huge bonus. If things don't work out, at least it isn't your money, its some other saps that believed your firm knew what they were doing. Oh yeah, the investment banking industry doesn't exist anymore. Think about another career - this one is a lot harder than it looks. Trust me.

Will it

ever fucking stop? Who are these sobs' that sell this market non-stop? I suppose the selling will burn out someday just like the plague did in the 1300s. There just weren't any more hosts left to carry the plague - that's when it ended. That's probably how this selling will end. I'm lost when it comes to the ferocity of this kind of selling. Where is it coming from and who is doing it. At first, I thought we were dealing w/ forced liquidation and dopey foreign selling. But now I just don't know. You figure these hedge funds are sold out by now - it doesn't take 2 months does it? I doubt that it's the pension funds. Where the hell is it coming from. I mean this week it was constant - except when the US Gov't interceding and ran up yesterday's close.

Now a days holding a position longer than 1 hour is long term. For me, that's the only thing that is working. What ever happened to bear market rallies that last longer than 15 minutes? Anything between (-100) - (-199) is like having an up day on the Dow. My trading has been fantastic in this chaos, but it's no match against the constant downward crashing value of positions that are being held. I'm lucky that I sold out of CME in the high 300s last week because today it hit 240. WTF!! I haven't been so lucky with some others. I have 55 shares of FSLR. That's right $55 shares that I sort of forgot about. I mean how much harm can 55 shares cause, right? 55 shares are a joke! Well let me tell you, those 55 shares are contributing nicely to the massive hole being bored right through my portfolio. 55 stinking shares!!

I'll tell you one thing, I feel bad for the folks that don't "play" the market like we do, because they saw it as a savings vehicle for their retirement years. We live and die by the sword and can take it, or at least expect it. But those people have gotten completely hammered by this. I don't thing those folks will ever come back and who could blame them. As for me, when I approach 60 (god willing), there is no way I'll be anyplace near stocks for "retirement". Maybe 15% - tops. The rest gov't fixed income securities 5yrs and shorter. Why take the risk? By then, be satisfied with what the hell you've accumulated and enjoy those years. At that stage I won't be any place near a monitor. Trading/Investing will be in my past, and just like I quit my law career several years ago, my trading/investing days will be over. I'll become a greeter at Wal-Mart or something. Bottom line no matter how bad this market is and its destruction to my wealth, it still beats the hell out of being a lawyer.

That's how bad law is. I could have handled this disaster better, in hindsight of course, but at least I'll get out of this thing. I know a few people who are already finished. Too leveraged and unwilling to size down was their undoing. How much more can we go down - 20% from here? That brings us to 6800 Dow - a 50% decline. 60% is 5600, 70% is 4200. My fair value est is around 9500 - 10500 based on earnings of $700. Will it surprise anyone it we're down 700 points on Monday, how about 900 - what's the difference. The sick thing is we're getting used to it. At this point, a 6000 handle on the Dow seems very feasible.

What about the recession? Isn't that priced in? The S&P is down 45% for God sake. Where one piece of bad news, on top of scores of others, knocks the Dow down 500 points in minutes calls into question the soundness of the entire system. I don't know what to say or think, maybe the whole damn thing is just broken. The economy cannot be man handled by these morons in Washington - that's clear. The economy is like a runaway freight train that will cascade lower into the trough of the business cycle, no matter what the policy makers do. Home prices need a 25% haircut - that will stabilize the market and bring the buyers out.

Turns out Mr. Market is a Nasty Drunk

Who knew. Ben Graham knew, that's who, and he warned us. Many of us didn't listen or want to know the truth. A lot of newbies entered the markets setting up shop as day traders, private partnership managers, hedge fund managers and so on. Now they are learning some lesson. That the market is a real f**ker!!

Now the market is claiming victims. It's claimed a few of my friends, and others that I heard about second hand. Blew em up!! That's what the markets do. It's really hard to win at this game, really hard....

Many forgot the tech disaster and plowed forward. Always in the back of the old timers mind though is how in the end the market will rip your lungs out. It's always been that way I guess -- going back to the Panic of 1907, and, of course, the 1929 crash. No one escapes unscathed from this type of decline... this one is touching everyone in same way, shape or form. Whether it's through tumbling stock prices, falling house values, or loss of a job. If there is any doubt that house prices are not going down another 25%, then someone is kidding them self. Yet I still see those outrageously priced capes for $400K and basic bi-levels with asking prices of close to $1 mil. Go ask your realtor now about the great investment in buying a house w/ no money down and 2 mortgages when price doesn't matter. The realtor and mortgage broker would ask some naive purchaser, how much can you pay each month? Wrong metic. Graham talks specifically about "price" mattering in Security Analysis, within the first 50 pages or so, that he penned back in 1932.

The trick in investing is to go where the crowd ain't. Turns out these hedgies aren't the sharpest knieves in the draw, but they are creating a lot of pain for inocent bystanders. You don't want to follow them now. I believe now is the time to break out your Graham and Dodd. This is the environment that it works best. Not when the hedgies are buying the exact same stocks and pushing them to the moon, like some of those commodity names we've heard about all summer. Those are the stocks that are killing those guys not to mention their 10/1 leverage ratio.

The stock market is falling off a ledge caused primarily by what I believe is forced liquidation by hedge funds, skittish foreigners, and other loony institutional investors. This is indeed the scariest stock market drop I have ever witnessed. I was around for the '87 crash, '92 recession, '98 long term capital/ Russian crisis, and tech bubble bear markets. I thought that 2000 - 2003 would be the worst decline of my lifetime. I was wrong - this one wins.

But it's no worse than the various commodity market implosions I've seen, and been on the wrong side of, over the years. This market is acting very much like one of those highly speculative commodity future implosions where the selling never seems to stop. In those markets, the rapid never ending declines are essentially exacerbated by trend followers liquidating their positions. In my mind this has all ear marks of one of those commodity market liquidations. I don't think its anything more except the dollars in this stock market panic are enormous compared to anything else in history. The final 2 hours today, and we get a 600+ point Dow decline. That is simply not a natural occurance dictated by rational thought. I think it's caused by having a gun to one's head or blind fear. The redemption issue is adding fuel to the fire -- look for a moratorium on hedge fund redemptions to be sponsored by the SEC.

If you aren't already totally freaked out, this is the bargain buying opportunity of a lifetime of high quality businesses (the best the US has to offer) being trashed by the stock market. There's a huge for sale sign down at the NYSE due to the recent economic problems we've encountered. If you don't know how to value a business and compare it to the prices being offered in the market, then for heavens sake do not participate.

Out of Whack

There is something terribly out of whack -- either this is the new paradigm as we enter a new world order with central control (a la Orwell 1984), or this is simply an unprecedented mass liquidation -- The Great Unwind as the media has coined it. These hedge funds are toast and this appears to be their Waterloo. It's probably best for the average 401k investor to to go away for a few months with no contact with the financial markets. I can't see this persisting. I really believe this is selling for the sake of selling. What are we down 15% in 10 days. The stock market is now trading like the silver market. It has gone absolutely crazy!! Take a look at some of those Dow stock quotes - IBM - $91.00, AXP 26.50 (i bought in 10 points ago thinking that was a great price), BA 47, T 25, TROW 43, AB 29 PGR 13.8 CAH 43, TGT 42, MET 28 (so long its balance sheet doesn't blow up w/ toxic debt instruments). There are bargains out there. Businesses selling for well below their intrinsic value. This is text book Ben Graham. I'm looking for money to start finding its way into these bargains eventually.

Today The Market Crashed!!!!

Point of Maximum Pessimism

The time of maximum pessimism is the best time to buy - John Templeton.

Are we there yet? Difficult if not impossible to say in this mess but I believe we are close.

The Dow Transports completely collapsed last week taking out the prior low benchmark set on 3/10/08 at 4398.97. The transports have held up relatively well until free falling on Thursday. Recall, according to my interpretation of Dow Theory that the Transportation average gave a bullish signal on April 3rd -- closing at 4999.33. The Dow Industrials gave no such signal and has remained in Bearish territory since November 21, 2007 w/ a 12799 close. Dow Theory has therefore been bearish since November 21st of last year regardless of the Transports divergence the past several months. Of course the Industrials continue to do their part by setting another new low Friday at 10325.38. Dow Theory is firmly entrenched in a downward primary trend.

Nevertheless some of these moves are so extreme that I'm actually betting on a huge rally soon (possibly even next week) that'll carry the DJI above 11,000.00. Are you an idiot? Sometimes I am, but I'm not crazy and I'm well aware of what's going on in the world. Remember I watch the markets basically 6 hours per day. Sure it makes me sick, just like the guy busting his ass who is watching his 401k turn to dust. Part of what I do is reading the tape. The tape is telling me that fear rules. Fear is out of Control! It's insane and taking over like an epidemic. Like in that episode in The Twilight Zone when the neighborhood in middle America thinks they are being invaded by aliens. Claude Akins starred in it. People essentially lost their wits and started acting like Barbarians because they were afraid of the unknown. These hedge funds are run by a bunch of monkeys who are losing their shirts. These men and women, it turns, out do not really know what they are doing and are now completely out of control. It is clear that they will now sell anything at any price without giving it any thought whatsoever. Part of it of course is forced liquidation, but a large part of it is fear, and the inability to think independently.

A couple of facts: 1) traders will look over the rescue plan this weekend and come to the realization that the government will do what it has to to break this credit jam. This didn't happen back in the 30s. In fact back then, Andrew Mellon, the Fed Secretary did everything wrong and almost single handily led the country down the road to depression. That's not going to happen today. 2) Libor is at around 4.5%. Give me a break. If this credit clog was as bad as the media is saying it would be a lot higher -- probably around 15% or so. 3) There are lots of bargains out there. Citi and Wells are basically in a fight for the honor of buying Wachovia. What's up w/ that. I thought Wachovia was a bust. 4) Buffett is putting big $ into financials (enough said). 5) Banks are indeed lending $ to qualified borrowers. 6) 3 month t- bills are yielding .05%. The Vix is over 45. People are in a frenzy and essentially pricing in Armageddon. 7) The world isn't coming to an end.

Yes the economy will slow. Yes we are in a recession. Yes there are more job losses on the horizon. However, exports and manufacturing activity is still doing ok. I'm not going to get into all the pluses and minuses here - I'm just saying that the markets have over reacted to the down side with fear, panic and negativity thus throwing out the fundamentals and facts.

Just look at these charts.




A super oversold chart of the Composite Index - see circled indicators. Wow!

SPX weekly reads like the world is coming to an end. Insanity rules!

Cramer is super bearish. He's a very emotional ape who is always wrong at turns. I thought this was supposed to be the year of Nat Gas. Oh well.





Stocks below the 200d sma. Incredible.






SPX monthly fell off a cliff. When was the last time it was this negative? Look how far below the BBand std deviation it is?

I bought a bunch of cheap OEX calls on Friday.

Look, I'm not saying that a bull market is about to begin. It's going to take the market time to regain its confidence and shake off the fear and shock we experienced. I'm just saying that I believe a massive rally to the upper BBand on the daily chart is highly probable.