Tuesday, January 11, 2005

I'm in cash and not expecting much

I stopped out of ESMC @ $7.62 and SIRI a couple days later @ $7.21. I have a saying: "If you can't make money going long, something's probably wrong." So I haven't traded since I stopped out of SIRI. I've been playing World of Warcraft. Great game. Since the last time I posted, the market still hasn't shown a good bounce, but the volume has remained high. You can see LOTS of high volume distribution and churning going on in the market averages right now, which only happened during 1 of the brief but sharp corrections all year long in 2003's bull market.

There are a few things that concern me right now. You can't see it on the nasdaq composite chart, but there is already a head and shoulders top on the QQQQ. I wasn't watching the cubes close enough to notice this at the time. I was watching for a lower high on the composite to make a head and shoulders there. It probably will still happen on the composite, so I'll have to wait until then to start going short.

There are non-technical things going on right now that would be giving me the shivers if I was long in anything right now. The inflation fears recently expressed by the federal reserve members are probably a precursor to 50 basis point interest rate hikes in the near future. As I understand it, many bull markets have ended when the fed pushes the panic button because they can't get the interest rates high enough fast enough to check inflation. I also don't like how the earnings expectations are so high now compared to how they were two years ago, or even one year ago. Can our economy keep growing at a rapid clip when we have to maintain a relatively large military force overseas? Can people sustain their current debt load? If people begin defaulting on their debts, it starts a feedback loop that probably won't stop for months.

I also don't like how high flyers like TASR and AMD are getting shredded. TASR has lost over 50% since I stopped out on January 3rd @ $29.38. Even AAPL is having problems staying up. When I buy the stocks that have been leading the market higher and I can't make money, something is wrong. Market leaders act as leading indicators by setting the direction before the rest of the market. The stocks that moved up before the rest of the market in 2003 and 2004 are now going down before the rest of the market. As a side note, there are plenty of reassuring articles on the web written by analysts about how we should see these stocks that are correcting rally back soon because the declines are really "just from a lack of buying" (they are really under bigtime distribution). We can't have you stop buying now can we?

This could be the bottom of a nice little correction. I don't know. I may get crazy bullish tomorrow, but don't count on it. If we rally I'll probably be salivating over a great short entry point.

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