Which Way Wednesday - 1,333 or Bust!

by: Philip Davis


That’s the number Art Cashin is looking for on the S&P as our breakout line. I’ve been using 1,332 but Art is right as the bottom on the S&P in March, 2009, was 666.79 so, technically, 1,333.58 is a 100% gain on the S&P off that low, not 1,332, which was my lazy rounding off 666. “Everyone’s got this psychological area of 1,333 (on the S&P 500) they want to prove that we can double where we were from the panic lows,” Cashin told CNBC. “So later in the week, the bulls are going to circle the wagons and take another shot at it and that will tell us whether it’s a rest and recoup or not.”

Well, that pretty much sums things up. Have a good day everybody ...

We had a good day yesterday with our bullish positions really starting to fly and our $25,000 Portfolio is up to a virtual cash position of $26,240 in day 12 with a fairly even mix of winners and losers in our still too-bearish mixture. The mixture on the Nasdaq yesterday was also bearish and you wouldn’t know it from the down 5-points finish (0.17%), but declining volume yesterday was 1.35Bn vs. just 637M of advance.

Fortunately (by some amazing coincidence that could not possibly have anything to do with IBanks masking their selling by pumping the top of the Nas while selling the rest), this 2:1 bearishness in volume did not scare off the after-hours crowd, who immediately popped the Nasdaq futures from 2,382 to 2,391, right back to Monday’s highs as if two days of selling never happened.

The Dow is just as excited with 80 points worth of gains since 3:30 yesterday and the S&P is, of course, right up on its 100% line, as are the Transports (see Dave Fry’s chart), which we’ll be watching as they test the 95 mark on IYT. I had mentioned to members in Chat yesterday that the Transports were the key to breaking the S&P over the line and we discussed FedEx's (NYSE:FDX) amazing action in yesterday’s post that seemed like a Gang of 12 effort to manipulate the Transports ahead of Cashin’s predicted run at 1,333 – NO MATTER WHAT!

We agreed and we were so bullish on yesterday’s dip that we even bought Netflix (NASDAQ:NFLX)! Now that is bullish! Just a short-term in and out but you know the market is idiotic when NFLX sells below the $240 line and we decide it’s a buy. We had a half-dozen other long-term bullish plays including, I’m happy to say, Deere (NYSE:DE), which had a nice report this morning.

We had a long conversation at the end of yesterday’s chat about building a more bullish portfolio as we are resigned to bringing more cash off the sidelines on the bull side if the market does get through our levels. We’ve been adding bullish positions for two weeks, beginning with our Breakout Defense Portfolio ("5 More Trades that Make 500% in a Rising Market") from the 5th, which is already up ridiculously.

For example, one trade idea was a short sale of the SPX March $1,215 puts for $6. Those are already $3.30 for a nice 45% gain in 11 days. That was paired up with a bull call spread that is still working so I can’t talk about it here (our net was just .60 though, so imagine the gains as the S&P goes up and up!) but you get the idea – members of the top 1% investing class can use leverage to make bets like this (that the S&P won’t fall below 1,215 by March expirations) and make 45% in 11 days to keep us ahead of inflation while the bottom 99% suck wind. I don’t think it’s fair – I think it’s the worst thing in the World and I say so pretty much every day but that’s the game and we’re not going to play to lose, are we?

I do my charitable bit, of course. Go back and read our totally free "Secret Santa’s Inflation Hedges" that I published on Christmas Day and see if this kind of trading would have been helpful to you for the past six weeks. If so, I would STRONGLY recommend not missing the next round IF the S&P breaks the levels Art and I are watching because this runaway inflation train may have, as Ian Anderson tried to warn us: "No way to slow down." The POMO train left the station yesterday at 11:12 and TradeBot 3000 reminded our members to buy the dips (as well as making a great call on oil!):

As noted by TradeBot, 82.50 is a significant point of resistance on IWM and that kept us short-term bearish ahead of the possible breakout. We are also still expecting a capitulation move on the NYMEX, based on the barrel count we’ve been tracking on the March contracts which close next week. With Monday a holiday, there should be a lot of pressure for the pump boys to get out of the front-month contracts ahead of the weekend. That, we reason, should knock back XLE and OIH and that then should knock the markets down a peg as well. If that does not happen, then we are wrong and we have a lot of short-term flipping to do!

With the NYSE being taken over by Germany, I reminded members not to mention the war and, of course, it’s not such a bad thing to have Germany take charge of such a vital part of the U.S. economy. Maybe they will actually regulate it for a change! Meanwhile, as time is short, here is a quick rundown of the bad news that "just doesn’t matter" this morning:

Does it matter? No, of course, not! As Art said, "they are circling the wagons" today to get us over the hump on the S&P so bad news will bounce right off the markets – until it doesn’t. And who, you may ask, are "they?" How about our friends at JP Morgan (NYSE:JPM), one of our favorite financial holdings, who just reported that they did not lose money on a single trading day in the ENTIRE 2nd HALF of 2010, making $76 million per day on the average for all of 2010, when they did have eight losing days in the first half that left their record at 252 wins and eight losses for a 96.9% success rate. Sure the odds are 3,768,943,762,399 to one against having that kind of winning percentage but hey – THAT’S WHY WE’RE LONG ON THEM!

If the game is fixed – it is smart to be on the guy the game is fixed in favor of, right?