Sunday, March 29, 2009

The Schizophrenic Market.

I have been spending a lot of time this weekend studying the latest news, anticipated news and general market sentiment. Anyone who says this market has clear sentiment or clear direction is either heavily invested to that side or has a crystal ball.

This market is directionless right now and even though the recent rally would appear we are in an uptrend, one can easily see a news or data driven event changing that trend. Yet, one can easily see a news or data driven event causing an escalated uptrend.

This market is schizophrenic. It appears to have dual personalities of being a bear and a bull at the same time. Some would say it is a bull within a bear. Others would say it is a bear morphing into a bull.

I will not come on this blog and tell you I know where the market is going from here. I will tell you that I think our economy is not getting better and all the good data coming out are giving false hope for investors and consumers. I wish I could say that the economy is getting better and that my friends who have lost jobs are finding news ones. Instead I see more friends losing jobs and coming to me for help finding jobs for them.

The banks can say what they want. They can claim profitability and talk about how things are getting better. The media pundits can say the mustard seeds are growing and hope has returned to the market. But the reality is on the streets. People are losing their jobs, their homes and their future. Shopping malls have more lights off, more signs coming down and more empty parking spaces.

But the market is driven by sentiment and, as we know, news rules. So, where do we go? Using my best abilities reading charts and using the VIX as a compass, I believe there is sentiment leaning toward a downward movement in the market at least at the beginning of the week. Also, how much of the M2M relaxing rumor is priced into the market? It seems there is quite a bit already priced in yet, depending on what the news is, the market could rally initially on any news and perhaps fill a gap to the 900 area very quickly. Then again, due to some of the rumor being priced in, if the results are disappointing, the market can and will drop quickly and dramatically probably to the 740 level if not 690.

So, what to do? I think you have to be in mostly cash right now. Options are probably the best place to be to limit losses and be able to cash in on big moves. Financials and tech will have the biggest swings over the next 1-3 weeks. I think a lot of people will make out big in this market. Unfortunately 2 or 3 times as many people will get crushed.

I still like SRS of course. But even I hesitate thinking of which direction it may go in the short term. I think playing some May puts on tech is a great option. Not the April puts because many do not report earnings until after April OPEX. VMW is set up for a big fall. GOOG I have been bearish about but there is so much momentum, it is probably not a great entry point for another week or so. I will be playing a FAS straddle this week and likely to make quick moves on them.

Good luck.


  1. whats your opinion on VMW? curious...

    i agree w/ goog.

    its trading like everyone is totally pricing it in they will BLOW out ER. (which hey, they might very well)...but i think the risk reward is starting to look really good on some may puts on goog.

    if they beat er, i think it's priced in, i mean they are over a 25 multiple already.

    if they miss, i think they see 250 by end of the month.

  2. Erik, VMWare is way overpriced for what they can earn moving forward. Their price right now is assuming they will have great earnings. Look at their balance sheet. Shareholder equity is almost 2x net asset value. If they miss, shareholder equity should get more inline with net asset value so I look for a 30-40% drop in the price.