Rate issues come to the fore

I took a look at the TLT chart, where it looked like 90 was powerful 2-year support. I wasn't willing to stand in front of a steamroller to pick up a few nickels, so I covered 1/3rd of the bond short on Wednesday afternoon late.

Debt issues back on the table

I came into the week net short, which, of course, was painful on Monday. I think we hit an inflection point with the crushing Cali referendums, then the Japan sovreign downgrade and Britain being place on negative watch. Of course, the killer was that the language in all those S&P analyses applied directly to the US's situation. It's hard to see a scenario that's bullish for treasuries in all this.

The ultimate outcome in California's situation might be a reverse-Okie phenomenon. Given the shabby treatment bondholders have received lately, it wouldn't shock me to see muni debtholders get crammed down. So, of course, Cali muni debt is up over 1% today.

I was up to 60% cash from the trailing stops that were all hit last week. I put some of that back to work in some golds. I picked up the second half of a position in BVN at 24.50. So now I have on 800 BVN with a basis of 24.73.

I picked up another microcap I'd traded in the past - AGT. It did a bull wedge back to support at 0.40. I put in a bid at 0.39 and got hit for 12K shares. That .50 level is really important, going back a couple of years.

Longer-term, I do like the way MEE is forming up here again - pennant with a base at 18. Many coals and coal-related stocks have a similar pattern - CNX, BTU, ANR - but MEE is the most prominent. But at the same time, natural gas can't get out of its own way and it's diverging wildly with oil. So, at best, we're getting some mixed signals in the energy space.

Pretty good week

Lost a lot of things to trailing stops.

MEE, out at 22.10.

BHI, the last half of that's gone now at 38.25.

SU, the last half of that's gone at 31.40.

HL was setting up some negative divergences and got turned away at its 200DMA, so that tiny speculative position is now gone.

Where I sit right now is long some PMs (DGP, BVN, GBG), short real estate (SRS) and treasuries (TBT), short indices (SDS). 57% short, 43% long, but around 60% cash after everything I sold last week. I'm in the hole on the index short, but up 6.1% for the year right now.

Major indices are getting into slightly oversold territory. S&P should find some good support 850-ish. Nasdaq getting pretty oversold, but still overextended. The rule has been that the upside and downside have both gone on further than I've expected, every time. Still, some weakness on Monday would be a good place to start unwinding shorts.

I don't know if you'll see it, though. LOW earnings Monday are probably going to be interpreted as more green shoots to smoke.

In a quick chart review, the the defensives played well this week, but the only real long-side setup I see is MO's nice ascending triangle with a base around 17.45.

On the short side, one that I missed last week... utes getting killed here. I don't know if it's the same bond rollover issues that got them last year, or some political nonsense about cap & trade. SDP did a nice double-bottom at 40.

Lots of retail looking tasty on the short side. Of the trendline breaks, I guess I like JWN best on the short side. AN and CHS are also like this.

Trendline breaks

Looking at the markets simplistically, every index has broken a multimonth trendline. Naz, you could really have gone short it on Monday. It fiddled with the trendline resistance for a couple of days; now it's decisively broken.

A caution, though... In thinking about this last night, I re-read Magee's chapter on channel lines and discovered an interesting observation. The amount (of points) by which the chart fails to reach the top of the channel by (in Nasdaq's case it's about 40 points) is usually the amount by which it falls from the lower trendline before having its first snap-back rally.

In the present case, we broke the channel at 1700 and closed last night at 1664 so at 1660 we'd be pretty close to that 40 point target.

Expiry week, so be careful of the snapback. I'd still be a seller of the snapback rally.

I lost all my remaining (small) energy positions to trailing stops the last two days.

Still have on the gold... played in the microcaps GBG, NXG. Lost NXG to a stop yesterday. GBG still hanging in there. The ETF DGP is still hanging in there.

I got a half-position of 400 BVN on at 24.96 the other day. Still have him with a stop at 24. Some foreign golds (South Africa) are the best charts I see on the long side - not saying much.

What I'm watching - a couple of bad days from now, could get a primo entry short TLT around that 100 resistance.

This jibes with my intermediate-term theory about municipal debt guarantees. Short story, Cali (and a number of other states) are about to have a funding crisis. I suspect the FDIC will wind up guaranteeing its debt, as it did for banks and financials. If one state's debt is guaranteed, then all states must be, else there will be capital flight. So you might as well go long the junkiest muni debt from Inland Empire GO bonds or Detroit Sewer bonds over short the long end of treasuries and reap the coupon. This could be a double-digit trade for years.

Weak CRE stocks

Noting the weakness in a number of the REITs after their big (possibly artificial) runup over the last 6 weeks.

One that jumps out is the trendline violation on big volume in CLI. Other REITs - SPG, AKR, HOT, BXP - confirm the same pattern.

I put on a position in SRS starting from the 22.50 range last week. This thing trades like nuclear waste, so stops are in at 24.

On the long side, the coal group generally looks strong. Still like MEE best in this group, have some on, put some more on Friday to bring me up to 2K shares with a basis around 11.45.

Also on the long side, I want to put a bid in on gold around 850, playing for something in the mid-900s.