Reality time!
Earnings season is here and, as I mentioned in the Weekend Wrap-Up the WSJ is runningan article titled: “Time to Brace for Trouble as Profits Debacle Starts” which pretty neatly sums up the market’s mood for the week. We went into the weekend 55% bearish and we would have been more so but we expected the strong dollar to boost the Asian exporters and they did as the rally in Japan continued with the the Nikkei testing 9,000 (but pulling back to 8,850) and the Hang Seng finishing up 450 points (3%) at 14,998 but that’s almost 100 points below the morning spike high. As usual for the past 4 weeks, the Baltic Dry Shipping Index fell 2.17% for the day – and there is no better leading indicator of reality than the FACT of whether or not goods are actually being shipped somewhere (they’re not).
We’ve been discussing the Baltic Index for weeks now and I know it gets boring, just like it got boring when I would say, week after week, that home foreclosure rates were a real problem. These things always sound like annoying trinkets of data until they get picked up by the MSM and suddenly become the most important things in the world – our goal is to stay SLIGHTLY ahead of the curve because being too far ahead of the curve is really just as bad as missing it – a bitter lesson we learned when we thought oil was at BS levels from $80 to $140…. Sometimes, you just have to go with the flow and just keep your eye on the emergency exits.
That’s been our investing strategy during this “rally,” we’re happy to play along but we’re also keeping our tray tables locked and our seats in the upright position and we’re wearing our Stock Market Parachutes the whole way up – just in case… Our just in case plays from last week (in addition to our usual hedgedDIA puts) were FXP (ultra-short China, good for a roll today), QID (ultra-short Nasdaq) and FAZ (ultra-short financials). We like to make those plays at the top of a good run as you get the best entries there and, as we saw on Friday – you don’t get too badly bitten when the market moves against your shorts as long as it stays below overhead resistance, which provides an obvious point to stop out or cover.
Hopefully we hold our levels…
