Honor Thy Bear

Kevin Haggerty is on vacation for two weeks. During this time, we’ve asked
Joe Corona, Senior Trader for Tony Saliba, to write the lead morning piece.
Kevin will return on August 12.

Futures are
mixed this morning
(although this is being written
pre-GDP). Yesterday the market whipped around a fair amount in response to
various news items, but overall it was more or less a rest day. Normally I
would expect a test of the downside today, a probe, if you will, of the bull
market perimeter by the bears. I say “normally” because of course, this is the
magical day of the month when the fundies like to make their stocks
levitate (with their investors’ money, of course) in order to insure that they
might have a job for at least the next month. Therefore, I am counseling
restraint today where I normally might be smacking some bids. I did unload
most of my short-term longs yesterday.

I receive a fair
amount of correspondence from TM readers and subscribers to

our alert service
and one of the questions I get a lot is this one:

You write in your daily and intraday commentary that
“this looks good, that looks good, I think this sector is going higher, etc.”
but all you ever do is recommend bearish strategies, or look for places to get
short. Why?

The answer is that this is a bear market!
Until proven otherwise, we must honor the bear
by being skeptical, building longer-term bearish positions as the market moves
into resistance, all while realizing that in the short-to-intermediate term
that this market may have some legs to the upside. Some have difficulty
balancing and separating these mind frames, but I do not.

I actively daytrade stocks and futures in everything,
and I use these trades to follow the short-term
activity. I use options and option spreads to build positions in the direction
of the long-term trend (yes, I too am a
“trend-following moron” in that respect).

This is why on one hand, I can be raving about how bullish the BTK /BBH looks;
while I am simultaneously buying put spreads in Amgen

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. I am simply daytrading the
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from the long side in the
short—term, while honoring the bear with a short long-term position.

Enough of my
babbling. One sector that I am very leery of is the
sector. While other sectors have put together some
very nice runs, the semis have merely staggered up off the canvas and are
still wobbling around the ring. One stiff jab and they’re back on the canvas.
The daily bar chart of the
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index (below) shows that they are
just now getting back to the area of last
September’s lows, and are setting up in classic Landry-type “pullback from the
lows” fashion. I would avoid longs in this area for now.

Be careful, it’s
mark-up day.