Honor Thy Bear

Futures are mixed this morning (although this is being written pre-GDP). Yesterday the market whipped around a fair amount in response to various news items, but overall it was more or less a rest day. Normally I would expect a test of the downside today, a probe, if you will, of the bull market perimeter by the bears. I say "normally" because of course, this is the magical day of the month when the fundies like to make their stocks levitate (with their investors' money, of course) in order to insure that they might have a job for at least the next month. Therefore, I am counseling restraint today where I normally might be smacking some bids. I did unload most of my short-term longs yesterday.

I receive a fair amount of correspondence from TM readers and subscribers to our alert service and one of the questions I get a lot is this one:

You write in your daily and intraday commentary that “this looks good, that looks good, I think this sector is going higher, etc.” but all you ever do is recommend bearish strategies, or look for places to get short. Why?

The answer is that this is a bear market! Until proven otherwise, we must honor the bear by being skeptical, building longer-term bearish positions as the market moves into resistance, all while realizing that in the short-to-intermediate term that this market may have some legs to the upside. Some have difficulty balancing and separating these mind frames, but I do not.

I actively daytrade stocks and futures in everything, and I use these trades to follow the short-term activity. I use options and option spreads to build positions in the direction of the long-term trend (yes, I too am a "trend-following moron" in that respect).

This is why on one hand, I can be raving about how bullish the BTK /BBH looks; while I am simultaneously buying put spreads in Amgen (AMGN | Quote | Chart | News | PowerRating). I am simply daytrading the (BBH | Quote | Chart | News | PowerRating) and biotechs from the long side in the short–term, while honoring the bear with a short long-term position.

Enough of my babbling. One sector that I am very leery of is the semiconductor sector. While other sectors have put together some very nice runs, the semis have merely staggered up off the canvas and are still wobbling around the ring. One stiff jab and they’re back on the canvas. The daily bar chart of the ($SOX.X | Quote | Chart | News | PowerRating) index (below) shows that they are just now getting back to the area of last September’s lows, and are setting up in classic Landry-type “pullback from the lows” fashion. I would avoid longs in this area for now.

Be careful, it’s mark-up day.