Shadow on the Sun

This market is like a Shadow on the Sun. No reason to fight it. Live by the new rules.




I am P'Od that POT and MOS, after I covered my shorts, failed resistance and just got smacked again today. Never underestimate the de-leveraing of hedge funds. That's it... resistance areas:
POT
185 major resistance
160 current support

MOS
100 major resistance
95 substantial resistance
85 current support

When POT gets into the 180-185 region and MOS gets into the 95-98 region I am planning to short with stops over 186 and 101 respectively. I am tired of playing by rules that worked in old markets. These are great fundamental companies (AGU too... I actually like it a bit better than MOS) but in this market the deleveraging is so great that even Doyle and Co. can't stop it. Only a generous bail-out... the kind of bail-out that gives Paulson broad authority to be a crook (I mean shepherd of the people) takes the raw fear out of these hedge funds that levered 30:1 and higher and acted in a completely irresponsible manner. I am not going to pay for their mistakes. Instead...Screw 'Em. Usually the retail investors are the prey to the hedgies but now these greedy overleveraged bastards are right for careful picking...

Here may be the best strategy for success:

Short the overleveraged hedge funds.
We can't do this directly but when we find areas of the market that we know are heavily invested in by hedge funds we know we have a short opportunity (I always try to use stops to go along with this in case I am wrong to minimize loss). If POT goes back to 180-185 and we do not have a bail-out or other event I plan to play by the new rules and go short to nail these bastards.

Just don't forget the pendulum. All of this needs to be done with subtlety and care and never by fighting the charts. I probably will be very conservative as I hopefully learn how to win here

Short with the oil trade on overexhuberance

Same with techs perhaps

Same with anything I can find that has heavy hedge fund exposure.

On the long side perhaps I will take advantage as well though I never buy financials because who knows they could go bankrupt and in fact since I can't short 'em I may buy puts after this bail-out charade is over...

Medical stocks... this is the only sector I currently want to go long. I have a background in this field so I should be spending time on this sector... I am busy as heck right not though so only when I have time. I would love to dig deeper into some of these companies... Medicine will be te largest growth segment going forward here in my opinion. The possibilities are endless...

The one thing to look out for thoug are companies that need credit to expand. This makes many solar companies and clean tech potential shorts. Ditto with medical or other companies that need cash to grow.

Take it from Cuban on this one. A credit crisis is 'industry agnostic'.

The way to really do well in the market it seems as I learn more and more is to get into early trends while everyone else still has their head in their clouds...

Short the market (I am waiting for this bail-out pressure to subside... I like SRS though among others right now or on bounces)

Short commodities (uness they inflate insanely with the bail-out)

Short the dollar (UUP)

Short US treasuries (TLH, TLT)

Short technology

Short casino stocks (credit is needed) (BJK, PEJ)

Lots of others.

Perhaps long some medical stocks. JNJ did very well in the last recession. Lots of diagnostic companies look good as well. Look for companies with CASH FLOW and LOW DEBT imo.

On the other hand for shorts I plan to look for companies with high debt and low cash flow are flags...

I am not short any right now but at the right time, when the pendulum shifts upwards and conditions get ripe... there may be some very nice plays here.

MORE than ANYTHING I am starting to believe that this is a tremendous opportunity market. Cash is so big here that if it isn't just right there is no reason to get involved. On the short side... probably something juicy can be found at the right time and right place so why accept just anything. This is the market for discerning minds, care, and surgical expertise. That is why I try to gather ideas from those I respect and try to assemble the new rules of the jungle.

I know I know I said I wouldn't post as much but so far it has been a great way to let off steam amidst my other work...

BTW I said we are in the 5th wave of the 5th wave on Ell. I meant we finished the 5th of the 5th in October and now we are in a major correction that could easily send the DOW to 8,000 or lower before we are done in my opinion... At the very least we have much more downside to go regardless of the bail-out plan... Deflation or Stagflation? Perhaps the Fed does have the power to decide which one of the two by using methods that would normally smack of a cheesy movie.

One way to succeed is to have a Cuban
"Any company that is built around the need to add debt is in trouble," says Mark Cuban, owner of the Dallas Mavericks and founder of HDNet. He ranks 161st on The Forbes 400 this year with a net worth of $2.6 billion. "The process of deleveraging is industry agnostic. If I had the time, I would be researching every company that needs renewable and expandable debt to survive and would short the sh*t out of it."

Roubini
Correctly predicted the demise of banks, of investment banks of homes etc... to the tee. Next up on the list?

• According to Roubini over the next few years not only will 100s of banks go bankrupt but so too will many hedge funds. Many are run by people who do not know what they are doing and we will see a survival of the fittest here. People are already starting to pull money out of hedge funds and the credit crisis is forcing many of them to reduce leverage... as stock prices go against them they must reduce even further and we have just seen the beginning of this.
• Guess what... this means that anything heavily invested in by hedge funds on the long or short side is a potential target. Many hedge funds got toasted by the Fed's ban on financials short-selling... and it can be expected that terrible areas of the economy such as consumer spending and housing may go up as hedge funds are forced to liquidate their shorts in order to pay off liquidating personal investors and cover more stringent margin requirements.
  

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.