Dr. Evil Applies The Defibrillator To the Market

At the close yesterday, Lewis Borsellino’s Teachtrade posted that Goldman Sachs and Merrill Lynch were big S&P futures buyers at the close. I scratched my head and wondered why they would be buying when the Dow and S&P indexes put in such terrible trading sessions and had formed very bearish candlestick formations on their charts. This morning’s events answered my question.

In a blatantly obvious and manipulative move by Goldman Sachs to produce a positive market environment for the two
IPOs it is bringing to market this week, Ms. Abby Cohen (The Ghost of Bubblemania Past), GS’s chief market analyst and cheerleader extraordinaire was paraded shamelessly on CNBC once again this morning. Ms. Cohen felt compelled to help us realize that unless we increased our exposure to equities, we were going to miss the boat. I hope all of you read my column from yesterday to recognize what is taking place here.

I actually recorded what Cohen said during her television interview and played it back backwards hours later. Although the words were quite muffled, I clearly made out the following message: “We shorted PALM, ENGA and CLIC in your fat faces as your greed drove them up! HAHAHAHA”

It seemed like Goldman and pals had to pull out the big guns premarket this morning because yesterday’s close made this market look like McGyver and a case of duct tape couldn’t hold it together.

I found an interesting post on a message board thread by a Mark L. that summarized Ms. Cohen’s track record for the past year:

– On April 6th, she recommended her SUPER SEVEN stocks for the long-term: CSCO, DELL, EMC, FDC, ORCL, PMCS, TER. As of yesterday’s close, that portfolio is down 46.2%. Long-term is right, because that portfolio needs to go up almost 100% to get back to where she recommended them.

Now, Ms. Cohen is trying to convince us to buy once again as she is increasing her exposure to equities from 65% to 70%. Hmm… how does the old saying go?…
“Fool me once shame on you, fool me twice shame on me,” I believe.

Very interesting record indeed, wouldn’t you agree? Amazing that she still gets television air time with such a dismal record. Fascinating still, is the fact that Goldman Sachs and Merrill Lynch could so blatantly front-run Abby’s premarket call this morning which caused an enormous gap up in all indexes. When a layperson tries to front-run, they end up in handcuffs and the judicial system makes ‘an example’ out of them. However, it is perfectly fine for the brokerage houses to do the exact same thing whenever they have the opportunity to. Isn’t it fascinating that the federal government wants to control virtually every aspect of how we act, work, love, and spend our time in private, yet the Wayne Angells and
Abby Cohens of the world can commit these acts of fraud without lifting a regulative eyebrow?

In fact, various brokerage houses came out today with lists of stocks we should “BUY
NOW.” They are telling us we should be buying equities right now because the economic environment will only get better with the Federal Reserve in a rate easing mode and a potential tax cut later this year. Let’s just say I feel a little differently.

Let there be no doubt here, the Titanic is going down but the band is playing as loud as it possibly can.

All week long we have heard portfolio managers and stock gurus tell us how “value is back in vogue” and how you had to buy “old economy” stocks here. However, they failed to specify which sectors they considered to be values. Let’s see, can’t be the healthcare sector because that is trading at historically high multiples… can’t be the retail patch because those are trading at ridiculously high multiples as well. In fact, you cannot find such a sector because such a sector doesn’t exist. As I stated yesterday, the Dow index and the various momentum sectors which have been created within the Dow are now experiencing the same parabolic stock moves and stretched valuations we witnessed in the technology sector when the Nasdaq made its blow-off move to 5100. This time, however, noone is warning us of the danger that potentially lies ahead. Rather, we are being told that the consumer will continue to spend and drive this economy out of this listless period. Is that so? 

What probably excaped the headlines late in the day as pure euphoria spread throughout the NYSE was the fact that January consumer credit surged $16.1 billion. A $5.3 billion rise was expected. If you don’t think this is one of the most serious problems in our economy today, please think again. This figure not only shows an absurd level of complacency throughout society but is quite disturbing in the face of negative personal savings figures and down equity markets. As the savings rate continues to reach new record lows, the conspicuous consumer continues to spend with or without cash. Further, the consumer credit year-on-year growth rate has been continually increasing since May, 1998. 

The consumer is tapped out. The analysts and brokerage houses who are trying to sell the argument of the American consumer being a soldier who will fight this economy back to the days of tremendous growth we experienced in 1999 and early 2000 are missing one simple fact: The American consumer cannot fight much longer because they are nearly out of bullets.

It is my opinion that the market is being manipulated here to drive the popular indexes higher in an event to suck in as much sideline cash as possible. There is no telling how long this will last but the only thing I do know is you must fade this move. The current environment does not support daytrading or scalping as moves both up and down are very abrupt and generate little follow-through. Rather, being a positional trader at this juncture is the only way I see you can successfully participate in the upcoming move. Accumulating positional short positions is not easy work, nor is it easy on the psyche. The fact that you will undoubtedly endure pain before pleasure is something you must understand and accept before you initiate your first order. Unless you have the intestinal fortitude and psychological strength to endure the silliness that is often generated prior to a major leg down, I suggest you do not attempt this strategy and take a seat on the sidelines. Today was one such day for me as many of my short positions went disgustingly against me. Although I felt like reaching for an airsickness bag all day, I continued scaling in and building my positions in the bloated pigs of the Dow Jones Industrial Average. 

A wise man by the name of Tim Mobley once said “you don’t sell them when you have to, you sell them when you can.” Tim, I’m there with you brotha’, and I’ll see you when our ship comes in.

As far as public enemy #1 is concerned, Philip Morris will succumb soon. It has two things working against it:
Its internals are tremendously diverging from its price action, and God probably wants to spare all of you at TM 2001 the displeasure of eyeballing my butt cheeks. That being said, it is always crucial to know your pain tolerance level so you have a stop in mind prior to entering any trade whether it be long or short. When stocks experience a “blow-off” run, they sometimes over-shoot all levels of resistance. The next area that
(
MO |
Quote |
Chart |
News |
PowerRating) could possibly test is the 52-53 area before it should collapse under its own weight. If this next level of resistance is too far for your comfort, use 1/4 pt. above today’s high as your “buy stop” point and re-enter the trade in the 52-53 area should it get there.

Have a good night.

Goran