Answers to quell market panic...

1) Public Company Accounting Oversight Board has dropped the ball on Sarbanes-Oxley. We need to enforce this act ASAP. Many companies' books are completely opaque.

2) Bring back the short-sale uptick rule ASAP. Shorts can short indiscriminately causing market volatility.

3)Ban naked short sales. Shorts MUST borrow shares sold short.

4)Create a SWAP exchange via a consortium of banks which will enable clearing, settlement, and marking of swap positions.

5)Allow employees to sell or hedge company stock. Many people lost their savings because of this inability to diversify their future.

Banks are the market's engine....

An old adage on Wall Street, as goes financials, so goes the market. I think of big money center banks as the engine on the train that is the market. They were the first to go down and will be the first to come back up again. We are currently seeing money center bank strength as evidenced by the recent strength in the BKX (PHLX KBW Banking index). Whether this is massive short covering or real buying, I do think that this sector points to higher market levels in the future. If it is simply massive short covering, maybe its duration will be long enough to get us through the other side. I guess its always darkest before the dawn.

What About Deflation?

The financial media is all about inflation, but actually we have seen the forces of deflation in action. Houses, stocks, and now commodities are crashing in value. Wages are probably next on the list. Inflation makes these go up, not down. Maybe we are simply seeing a decline in the standard of living instead of inflation. I am starting to rethink my bearishness on the long bond. The long bond has been the place to be of late, as the forces of deflation creep into our lives. A rate cut would keep the forces of deflation at bay.

Pullback into a double bottom? Maybe....

A double bottom is a chart pattern that technical analysts use and it is usually a bullish sign. I am hoping this recent pullback in the market will form one of these. In which case, I will deploy more long positions, especially if the vix continues it's upwards march. C'mon double bottom.....

7 Reasons I'm a Little Bit Bullish

1) Fannie Mae / Freddie Mac just set higher loan limits which should be good for the mortgage/housing market.

2) US dollar strength causing people to get more constructively bullish for the time being, although many think this is just the weak Euro causing the $ rally.

3)When I look at moving averages of Financials & Consumer Discretionary groups, I see 21 day averages about to pierce through the 50 day on the upside, which is indicative of an impending pop.

4) Very strong Health care action, specifically in Bio tech and Devices, in a down tape.

5) Commodities have come off their highs which can possibly put downward pressure on already high inflation going forward.

6) I have read that there are more people betting against financials now than there were people betting on Technology in 2000, and we all know what happened to Tech after Y2K. Can you spell "Short Squeeze," please?

7) This past Tuesday, a very large put trade went off betting that the Vix will decline. Someone is making a very big bet that stocks will rally.

Only time will tell if my reasoning will bear any fruit, but I am waiting patiently for them to ripen.

Rotation Continues...

Since my last post energy has sold off and healthcare has taken off. I am taking my victory lap and reducing my biotechnology exposure and have started nibbling on energy again. Biotechnology seems overdone on the upside and energy seems overdone on the downside.

Why I Like Healthcare

I really like health care investments (pharmaceuticals, biotechnology, devices) in this volatile trading environment. Inevitably, people need to re balance their sector exposure when one sector performs well and becomes overweight in their portfolio (read: energy companies). I think the petro dollars made by re balancing away from energy will eventually find their way into health care companies. I think people will shun away from the long bond (a traditional safe play) because of inflation concerns. Who wants the coupon when it won't even fill up your SUV's gas tank?!?! Health care is traditionally a defensive play so it should do well in this tape. Furthermore, demographics should support health care companies going forward with the aging of the baby boomers. Demand for artificial knees should be high starting now!