Market Watch: Time to Stick My Head in the Sand

by: Leigh Drogen

You haven’t really heard much from me on this site lately. The primary reason for that is the fact that this market just isn’t worth spending too much time on right now. We have no discernible trend in equities save for the miners, which I’m long, and certain international markets which I wish I was long but have avoided due to the action state-side, a mistake.

We’re seeing quite a disconnect between certain emerging markets, notably Brazil, Argentina, Colombia, India, anything in South East Asia, and Taiwan, from China and the western developed world. It really all comes down to the consumer, and the divergence between large cap China and small cap Brazil tells the story. The Chinese are having a hard time getting their people to spend money while the Brazilians are spending liberally. Consumers in the western world have throttled back their spending for an obvious reason, they are broke and trying to repair their balance sheets. They also don’t have jobs, something that isn’t changing anytime soon.

Another big theme playing out, as I’ve been mentioning for a while now, is the long/short trade going on in emerging market banks vs. domestic banks. I think this pairs trade continues to work, look for Banco Bradesco (NYSE:BBD), ICICI Bank (NYSE:IBN) Grupo Financiero Galicia (NASDAQ:GGAL), Bancolombia (NYSE:CIB) to outperform BofA (NYSE:BAC) Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM) tremendously for the next few quarters at least. I’ve been an idiot not to put this trade on in size, though I do have a good chunk of IBN.

You know my thesis on the miners, gold and silver, I won’t rehash it. Stay long and add on pullbacks.

Although many are starting to say that retail looks cheap here, I think it’s a trap. Retail and the homebuilders are oversold for sure, but I think they’ve got at least one more leg down, focus there for your short exposure.

The tech M&A frenzy continues unabated. This isn’t ending anytime soon either, the funny thing is, the rest of the market really doesn’t care. Only in the past few days has the M&A news really started to move stocks with pin action. Software is running wild and anything having to do with security or cloud infrastructure is on fire. This is going to continue for at least another couple of quarters or until the market takes a significant dive. I feel like a broken record when I say, do not be short small/mid cap tech. Be short big cap tech like Yahoo! (NASDAQ:YHOO) DELL and RIM (RIMM), three companies that are in secular decline.

Despite the market not being ripe for my style of trading, our performance has actually been excellent. We’re up 4% for the quarter only trailing the market by 200 basis points. Remember that we began the quarter at the very bottom around 1031 on the SPX. Given the chop fest and lack of trend, I’ll pat myself on the back, a lot of swing/position traders are getting worn out, I’ve avoided that. You can always find a complete look at my positions and performance on the Trading Book page of the site.

I believe quarter 4 will bring about an end to the range, in which direction I have no clue, I’m completely agnostic. I think a lot of it depends on the Fed, everyone is waiting to see if they will go for QE2. The people smarter than I who I speak with think that the Fed may be getting too much credit for actually having a plan. This could be true, and I think if the market gets a whiff of that meme, and the feeling that the Fed isn’t willing to flood this market with money, we have a long way down to go. Personally, I think the Fed panics into the fall elections and throws money at the market. The White House is going to be screaming at them to do something, anything. That said, it’s ok to have a macro view, but you’ve got to trade what you see, let the price action be your guide for the fundamental story. The economy is not the market and the market is not the economy, they are two completely different things, act accordingly.

The other reason you haven’t seen much from me on this blog is due to all of the other content I’ve been putting out around the internets. Make sure to be checking and StockTwits for real time trading ideas, I post all my trades and some market insight throughout the day. I also make two appearances a day on StockTwitsTV, once at 9:00 AM and again at 1:00 PM. The morning show is a rundown of news as well as a review of different markets and commodities. Although I do throw my opinion in there I try to keep it fact based for the most part. The goal is to get you up to speed on what’s taking place in 20 minutes. The afternoon show is a little more free form, I do a little more market review, and run through some of the tickers on my momentum watchlist that are moving in both directions that day. I also cover interesting stories from around the financial web. We also began TV last week which I am really excited about. You can catch the show live Mondays at 9:30 PM.

I will be completely out of touch all next week trying to get some rest, sun, and generally time to turn my brain off. Tight stops will be placed on all of my positions, long and short. The universe is conspiring against me with this damn hurricane, but I won’t have my first days off since Thanksgiving ruined by some wind and rain. They canceled all boats out to the island after 3PM today because of the weather, so I’ll be skipping out of the office early. It should be an interesting ride across the Great South Bay just as the hurricane moves toward the island. Saturday and Sunday though are looking set up for some epic surf once the wind turns offshore.

Have a great weekend, I’ll see you back here on the 12th.

Disclosure: For a complete look at my positions and performance, click here.