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Pitbull Trading
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Strongly believe in Nassim Taleb's theories. Have a strong focus on the market psychology and behavioral finance aspect of equity trading. Prefer longer term trades for best risk/reward profiles. Still believe Buy & Hold strategies can be relevant in the current market.
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  • How the Market is Telling us to Get Defensive 1 comment
    Feb 2, 2011 10:54 PM | about stocks: VXX, VXZ, AAPL, NFLX, AMZN, DCTH, NCT, HUSA, ATPAQ

     I believe that investors may be prudent to follow the markets benevolent gift of a clear signal to get out of the market. The S&P 500 and the Nasdaq have clearly formed a double top technical pattern, all the while taking out the 12,000 mark on the down and the 1300 on the S&P. This completes a roughly six month bull cycle with artificial government stimulation creating billions of dollars and propping up the markets indirectly through the 'Gang of 12' (aka Americas' biggest banks). 

    This type of one sided market reminds the retail investors and hedge funds alike of the good times; the tragic calamity of the financial crises of just two years ago is forgotten. Everyone is now long, bullish, and sitting on paper profits - fat and happy.

    The market has such strength and resistance to every pullback that negative news is ignored by the main stream media. The positive earnings surprises of major corporations outsourcing american jobs overseas are being extrapolated into the future indefinitely. P/E ratios are stretching to levels not seen since before the crash. People are becoming too greedy with the hubris to think that Uncle Ben has guaranteed this markets buoyancy until the bond purchases stop in June.

    I personally feel like we are reaching a turning point. The violence in Egypt and Tunisia symbolizes the angry peasants of many countries' poor, forgotten, and manipulated. Remember that the chain of events leading up to all this trouble was a suicide protest by an unemployed student in Tunisia. The 'butterfly effect' from this could awaken a deep underlying unhappiness and violent anger that seethes below the surface, edging toward a boiling point moment when it erupts into an unstoppable force. 

    And us in America turn a blind eye, turn up the music on our IPod, text our friends, watch our football, and forget that we truly live in a Global economy. While Egypt may indeed be a tiny slice of the global GDP pie, the chain reaction of events spreading through the Middle East could turn into something frighteningly more. 

    These risks are being discounted by those who are currently blinded to by greed and arrogance. Those rich Americans, laughing at the suckers in the soup line, or those asking if you need help with the lumber you bought at Home Depot. The markets are creating an inflationary bubble with the invisible hand of Bernanke providing endless support to our corporate overlords.

    A reminder to those who are feeling very complacent - Markets always go down faster than they go up. Remember the Flash Crash. Remember the program-trading black boxes that get turned off when stock markets get frothy, causing liquidity to vanish faster than the blink of an eye?

    Be Prudent, Be Cautious, Take your Money off the table and wait for a ripe opportunity-because they are currently hard to find.

    I recommend being in 60-85% cash, with some VXX, or VXZ exposure, and even opportune shorts on companies' whose trading price has navigated away from its fundamentals. Consider shorting AAPL, NFLX and AMZN, into strength and going long DCTH, NCT, HUSA, ATPG on corrections. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • pat45
    , contributor
    Comments (470) | Send Message
    VXX going down but bond rates rising and rumors of everything fine in Egypt and regime has stepped down are rampant despite what TV and newspapers report--time will tell but I believe a powder keg is in the making.
    4 Feb 2011, 02:56 PM Reply Like
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