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[Note: This article posted on my personal blog at www.thestocksurfer.blogspot.com at 12:04 p.m. EDT.]
I don't know what was more irksome yesterday, Uncle Sam's adoption of the FM twins, the fact that I couldn't trade it because of my "real job," or the Vikings loss to the Cheeseheads on Monday Night Football. Perhaps you, reader, are also irked because you were short the market, you are a renter, you are a capitalist, you are a taxpayer, or your football team lost. Whatever the reason, let us not let irkedness prevent us from making money. An article from Bennet Sedacca made some great points along these lines. We (and I especially include myself in this exhortation) need to focus on making money, not on being "right" in our theories.
FINANCIAL JUNKIES?
That said, here comes a big, fat statement of stubbornness that may make you think I'm still trying to be "right." I held my Ultrashort Financials (SKF). Why? This market has proven time and time again that you will lose money if you panic and sell as something gaps down, or panic and buy as something gaps up. SKF gapped down yesterday, but is up over 12% since then. I still think the burden of proof lies with the financial bulls. Consider the action today:
Lehman Brothers (LEH) is down 30%.
Washington Mutual (WM) is down 18%.
AIG (AIG) is down 12%.
The financials, despite a big pop yesterday morning, are not rallying on the most significant government intervention since the Great Depression. Here's a question: What happens when government interventions of increasing size and scope fail to spark rallies? It's like a junkie who needs more and more drugs to get a high--when the high no longer comes, he's just an addict on the way to self-destruction. Has the market become addicted to bailouts? Please read this article by Kevin Depew on the next stage of the credit crunch. [By the way, I think Depew has used the "junkie" analogy in the past--giving credit where it's due (pun intended).]
TRADING IDEAS
While it's interesting to talk about the financial sector, it's very difficult to trade it. It's become crowded and prone to manipulation. Where else can we look? Here are some ideas I'm considering, for quick trades only (that's the only safe type of trade in this tape):
Research In Motion (RIMM) / Google (GOOG): These stocks have really been crushed, and may be ready for a bounce. Both have PEG ratios under 1, which is a sign of good value. RIMM at 100 and GOOG at 400 would be worthy buy spots with tight stops.
Celgene (CELG) / Gilead Sciences (GILD): These stocks, once part of a nice biotech rally, have tanked. They are not reliant on credit or the consumer. CELG especially looks like it may have support around 65.
Continental Resources (CLR) / Ultra Oil and Gas (DIG): CLR has been my stock of choice to play any bounce in oil. DIG is another way, a bit less volatile. Crude is close to 100, and while this fits with the deflation theme, nothing goes down in a straight line.
Just ideas that I may or may not pull the trigger on. The point is that with this volatility, there are some great short-term trades out there if we're ready for them. But if you can't day trade, isn't doing nothing and staying in cash still a good idea here?
Disclosure: Long SKF.
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