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"It gets late early out there."
-Yoggi Berra
This business never ceases to amaze me. The behavior of certain classes of group-thinkers is becoming increasingly more predictable. My spending so much time observing this behavior is as critical a factor in my process as it has EVER been.
Whether it's Goldman getting all bulled up on China this morning, or whoever they have left on Fast Money talking down Yahoo's turnaround last night, we should all be thankful for their having an ability to actually have an influence on market prices. Without their help, I at least, couldn't sustain my batting average.
Of course, over time, the Dylan Radigans of the world go away (did he retire?) - but as sure as rain, CNBC will find another market yahoo to start chirping about whatever it is that a journalist who has never traded a market chirps about (sorry Mellissa Lee), and we go on, and on, and on... embarrassing the American flag with these non-sensical entertainers being YouTubed by everyone from China to the Middle East...
Seeing them be late is something that we market operators who get up early pray for every night before we go to bed. Afterall, it's a lot harder to pick off passes from competitors who are proactively prepared. Study these people while they are sleeping.
Understanding that it's a lot easier for even those with sleep jammed in their eyes to see that China's growth is real AFTER their stock market is up +40% year-to-date, we really need these yahoos at Goldman to stay in the game. 1-800-Hank Paulson - keep these lifelines open!
Having sold our long position in China means that I need to buy it back now - the only way I can do that is if there is a price disconnect versus expectations. On the heels of Goldman's renewed proclamation of faith in that place that they levered up long on at the top of the mother of all Global Equity Manias in 2007, then again via "Chinese Oil Demand" in 2008, what is a local Chinaman to do? Buy more? Uh, apparently not...
The Shanghai Stock Exchange took the "news" of America's Secret Government Society being long and ran for the exits. Chinese stocks closed down an abrupt -2.9% overnight, and broke what I had been monitoring as immediate term price momentum support. That breakdown/breakout line on the Shanghai Composite is 2503. Even the Fast Money folks know enough about a chart to understand that when a support line breaks down like this, its becomes formidable resistance.
No, this doesn't mean I am bearish on China all of a sudden. This simply means that I am bullish in my conviction that the yahoos are going to get plugged buying China into the vortex of an immediate term top. I see no reason why the Chinese stock market cannot correct at least -9% from the YTD high that it locked in earlier this week. When and if that happens, the only thing that will have changed is price and the level of frustration for those who chased it.
Within the construct of a multi-factor global macro risk management model, both price momentum and yahoo behavior are an interesting factors to study. So why not spend a minute using this 2-factor model looking at an American internet company with the ticker YHOO?
On this day in 1993, per Wikipedia, "the first version of Mosaic, created by computer programmers  Marc Andreessen and Eric Bina at the National Center for Supercomputing Applications of the University of Illinois at Urbana-Champaign, was released, becoming the first popular World Wide Web browser and Gopher client."
Only 2 years later, a company called Yahoo was founded in Santa Clara, California. And 16 years after that (which is hardly a long time for those of you who understanding the scope of history), the once loved internet mo-mo stock has seen its price pounded into the tar sands.
On this day of 2008, YHOO's price was $28.54/share. Some simpleton math marks that price +98% higher than last night's close. Now I have seen stock markets from Russia to China collapse 70-80%. I have even witnessed peak-to-trough declines in somewhat more tangible American assets like, say, oil, fall even further... but down from $104/share when the likes of Blodgett had people mark this baby up into year-end of 1999 to $14.38 yesterday? Hoo-wah! Now that's a fall!
Being bearish on YHOO's price at this point is a place that we have reserved for the yahoos who sell low and buy high. Yahoo was the first stock that my Partner, and our new head of Technolohy Research here at Research Edge, Rebecca Runkle, had me add to our virtual portfolio back in February. We have a time stamp and price on this ticker of 2/24 and $12.53, respectively. No we didn't buy the bottom. But we think the stock is going a lot higher from last night's close... and we'll be thanking the fine folks at Goldman whenever they find enough rear view price momentum to upgrade it.
You see, whether it's selling China high, or buying YHOO low - it's all one and the same as not having chased Carl Ichan into YHOO high (like Fast Money did last year) or shorting China low in November. "It gets late early out there"... and that will never change.
It's never too late to buy low and sell high. My SP500 range is as narrow and trade-able as I have seen it since 2003. I know, I know... the yahoos want you to believe that we're overbought the whole way up here... and no one wants to buy anything every time the US market is selling off to a higher low... so make sales at the SP500 line of 877, and buy things that are on sale as we get closer to the 822 again... and thank your lucky stars that the yahoos on the other side of your trades are always going to be late.
Best of luck out there today,


EWG - iShares Germany-The DAX is up 8.9% month-to-date. We bullish German fundamentals, especially as a hedge against financially levered and poorly managed Switzerland. While the automotive industry is ailing, the strength of Germany's labor unions will preserve jobs and maintain a slower rate of sequential acceleration in unemployment. Compared to most of Western Europe, Germany has a positive trade balance and will benefit from Chinese demand, especially if the Euro can stay below $1.32. The ZEW index of investor and analyst expectations for economic activity within six months rose to +13 in April from -3.5 in March, the highest reading since June 2007. We're bullish on Chancellor Merkel's proposed Bad bank plan to clear toxic bank assets and believe the country will benefit from a likely ECB rate cut next month.  

EWZ - iShares Brazil- Brazil continues to look positive on a TREND basis. President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt -leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. The Central Bank cut 150bps to 11.25% on 3/11 and likely will cut another 100bps when it next meets on April 29th. Brazil is a major producer of commodities. We believe the country's profile matches up well with our re-flation theme: as the USD breaks down global equities and commodity prices will inflate.

XLY - SPDR Consumer Discretionary-TRADE and  TREND remain bullish for XLY.  The US economy is showing faint signs the steep plunge in economic activity that began last fall is starting to level off and things are better that toxic.  We've been saying since early January that housing will bottom in 2Q09 and that "free money" for the financial system will marginally improve the US economy in 2H09, allowing early cycle stocks to outperform.  The XLY is a great way to play the early cycle thesis.

EWA - iShares Australia-EWA has a nice dividend yield of 7.54% on the trailing 12-months.  With interest rates at 3.00% (further room to stimulate) and a $26.5BN stimulus package in place, plus a commodity based economy with proximity to China's H1 reacceleration, there are a lot of ways to win being long Australia.

XLK - SPDR Technology - Technology looks positive on a TRADE and TREND basis. Fundamentally, the sector has shown signs of stabilization over the last six+ weeks.   As the world demand environment becomes more predictable, M&A should pick up given cash rich balance sheets in this sector. The other big near-term factors to watch will be 1Q09 earnings - which is typically the toughest for tech, along with 2Q09 guide.  There are also preliminary signs that technology spending could be an early beneficiary of the stimulus plan.

TIP - iShares TIPS- The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%.  We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

USO - Oil Fund-We bought more oil on 4/20 after a 9% intraday downward move. We are positive on the commodity from a TREND perspective. With the uptick of volatility in the contango, we're buying the curve with USO rather than the front month contract.  

DJP - iPath Dow Jones-AIG Commodity -With the USD breaking down we want to be long commodity re-flation. DJP broadens our asset class allocation beyond oil and gold.
GLD - SPDR Gold-We bought more gold on 4/02. We believe gold will re-assert its bullish TREND as the yellow metal continues to be a hedge against future inflation expectations.

DVY - Dow Jones Select Dividend -We like DVY's high dividend yield of 5.85%.

VXX  - iPath VIX- The VIX is inversely correlated to the performance of US stock markets. On 4/20 the VIX shot up 15.5% intraday, an overcorrection we want to be short as we believe US indices will make higher highs and the volatility is currently overbought.

LQD  - iShares Corporate Bonds- Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.

SHY - iShares 1-3 Year Treasury Bonds- If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yield is inversely correlated to bond price, so the rising yield is bearish for Treasuries.

EWL - iShares Switzerland - We shorted Switzerland on 4/07 and believe the country offers a good opportunity to get in on the short side of Western Europe, and in particular European financials.  Switzerland has nearly run out of room to cut its interest rate and due to the country's reliance on the financial sector is in a favorable trading range. Increasingly Swiss banks are being forced by governments to reveal their customers, thereby reducing the incentive of Switzerland as a tax-free haven.

UUP - U.S. Dollar Index -We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. The Euro down up versus the USD at $1.2939. The USD is down versus the Yen at 98.0620 and up versus the Pound at $1.4570 as of 6am today.

EWJ - iShares Japan -We re-shorted the Japanese equity market rally via EWJ. This is a tactical short; we expect the market there to pull back when reality sinks in over the coming weeks. Japan has experienced major GDP contraction-it dropped 3.2% in Q4 '08 on a quarterly basis, and we see no catalyst for growth to return this year. We believe the BOJ's recent program to provide $10 Billion in loans to repair banks' capital ratios and a plan to combat rising yields by buying treasuries are at best a "band aid".

XLP - SPDR Consumer Staples- Consumer Staples continues to underperform the SP500, yet the TREND remains positive. This group is low beta and won't perform like Tech and Basic Materials do on market up days. There is a lot of currency and demand risk embedded in the P&L's of some of the large consumer staple multi-nationals; particularly in Latin America, Europe, and Japan.