Prepare for Whipsaw Unless You're "Quickdraw McGraw"

Good Morning.

The stock market is up today thanks largely to strength in the Semiconductors. Small Caps are lagging and breadth is even on the NASDAQ and slightly positive on the NYSE. Oil and Gold are trading flat. Durable Goods came in much stronger than expected at +3.3% (+4.2% ex transportation) and Oil Inventory data showed a lighter drawdown compared to expectations.

It appears to us that the stock market is undergoing a relief bounce primarily due to the strength in Semiconductors. Should Small Caps start to participate, we would be more impressed. However, the artificial cross currents from end of quarter markups are helping to whip this market around with significantly more volatility than we have seen in the recent past. Traders find themselves whipsawed as downward Cliff's suddenly appear only to be follow up by sharp upward Spike's. The trading environment is particularly tricky and trying to find an edge is somewhat futile.

Indeed, there are good prices to be had in some names. However, becoming too aggressive at this point does not offer an attractive risk/reward ratio. The current lurching nature of the market is better suited for range bound traders with extremely quick fingers. Trend followers are guaranteed to be disappointed trade after trade. In an environment like this, unless you have severe performance anxiety, defense is probably the better bet. Therefore, we are comfortable with our approximate 30% exposure and may only consider quick intraday long-side trades in the NASDAQ 100 Trust (QQQQ). We will also be watching some of our favorite names to pick them up if they hit downside air pockets.

Good Trading Baba Looey!

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