Sunday's Notes From The Trading Turret: No Exit - No One Gets Out Of Here Alive 10/28/2007 6:10 PM

I believe the stock market is ready to go into an accelerated spiral to the downside in the coming few weeks. The bursting of the correlated bull market bubbles in the commodities and currencies should turn at the same time putting us into what I expect will be one of the greatest "overall" bear market declines of all time.....Look for the nose dive next week, remain 100% short. Look for the nose dive next week, remain 100% short.  -- Commitments Of Traders.com

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The IBD 100, which serves as a proxy for the action of leading stocks, advanced 1.8%. Strength and breadth among highly rated stocks has been a recurring theme the past two months. Dozens of leaders have galloped to new highs after staging powerful breakouts.....The market picked up one distribution day of higher-volume selling. Tuesday's session met the basic definition of a decline in heavier trading than the day before. But the major indexes rebounded well off their lows and many leaders turned positive. Indeed, the market bounced off its lows and closed near its highs every day last week. It was a welcome sign of institutional support at a time when an earnings miss or weak data report could jar investors, if only for a few hours.  -- Investors Business Daily  10/29/07

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I'm actually grateful that they keep me locked up in this Trading Turret during the weekend to ruminate on the state of the markets because based on all of these calls for a market crash, I'd be heavily into the shrooms and blotter acid by now, trying to ease the mental anguish.

I must admit hearing the same calls around this time 8 years ago, and although I don't read Uncle Al's column at all anymore, frankly don't even skim it, Bird tells me by e-mail that it's the same routine, quoting wrongway bears, and it's deja vu all over again.

In this business if you know the price of everything and the value of nothing you're going to be wrong a lot, and it's a bit embarrassing to watch.

Are there are pockets of utter maniacal, bubbling abuse in China and many other sectors?  No sh**t.  Sorry, but that's my response.

The idea is to make money in these things while you can, as long as you remember to get out in time and don't let them take back the paper gains.  That second part the public always forgets, but I don't and won't, and neither should you.

"In a bull market and particularly in booms the public at first makes money which it later loses by simply overstaying the bull market.  The talk of 'bear raids' helps them overstay."  -- Reminiscences Of A Stock Operator

Sure, the Street Stra-Tee-Gerist Grifters are going to try to keep you in the market past the appropriate time -- blaming bad action on "bear raids" for example-- by every means available, but if the Yenta comes at you with a Glock 19, consider responding with an XM 8 Assault Rifle, and possibly some form of low-end grenade launcher.   

By the way, before he retired in 2000, do you know what Jeff Vinik was buying for his hedge fund in late 1999?  Right.  All that crap that was egregiously overpriced and bubbling back then -- Internet/Tech/Telecom.

And so was Stan Druckenmiller, although he made an ill-timed late bet in that stuff in mid-2000 and lost.  Yes, timing is everything because you can't afford to get left standing when the music stops.

The other thing to consider is that the outfit who's been right for at least five years on equities, BCA Research, continues to be bullish, although they allow for huge volatility as this long cyclical bull market heads into the final innings.

Two other factors to consider that are quoted elsewhere on the site -- Hulbert's Sentiment Index, and Seasonality.

I'm actually stunned by the bearishness of newsletter writers, and it fits into the mindset of that market commentator from Friday who so misread the action that a 65 point rally in the DJIA, fresh Breadth, and effervescent animal spirits was ignored in favor of a predisposition to view every glass as half-empty.

True, there are dozens of things to worry about and I never stop worrying, so that's why I'm always hedged in some way, either by carrying large amounts of cash, or doing something with put options or, more recently, Vix calls.

Are things getting a little more intense, a bit more volatile, even verging on out-of-control at times?

Yes, at least it feels that way.

One of the best "tells" for that -- if you follow, or are even acquainted with Mark Fisher's Logical Trader methodology -- is the number of days recently where the opening range makes an "A Up or A Down" (a confirmed breakout/breakdown from the opening range) then later action carries the index or stock all the way to the other side of the opening range where it makes a confirmed "C Up or C Down."

We saw very few of those days most of the year and now they're becoming fairly common.

The other thing to be aware of when reading that quote at the top of the page is that BCA Research came out with a report a week ago really extremely bullish on some of the agricultural commodities, so take that howling warning for what it's worth -- possibly something, but more likely not much of anything.  However we will see, won't we?

I could go on and on tonight, including how the Big Macro (Subcribers)  potential tells aren't telling us anything dire right now, but that won't keep me from wearing my Insecurity Analyst hat and worrying about everything.

Tonight I plan on getting to bed early because it's going to be a wild week with both a Fed meeting and the Jobs Number.

Here are a few other things I'm watching (Subscribers), and I'll see you before Monday's open.

Stephen

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