Brief Summary of Last Week's Trading

Monday night my watchlist was ripe with short candidates. Monday had been good to me and Tuesday was great. Still net short when Wednesday news of the big mortgage bailout started to gain traction. I got plowed and took down a lot of risk. The bulls had gained the advantage and bears like myself were on the run. By Thursday I was almost flat. If not flat, unlevered and market neutral. That was the day the bulls gained a significant advantage in that we catapulted through all of the key resistance levels on the DOW and the S&P.

Big week for the bulls. Apparently the market is convinced that the bailout will make us all whole. We may have to throw out two hundred years of contract law but as long as the bull remains intact it all be OK. Sure. As a seller, this all leaves me feeling pretty demoralised. Hence my decision to basically go flat and sit on my hands after the big ramp job Wednesday.

Not thrilled to be net long. Not in any meaningful way but it's more or less a reflection of having covered nearly all my shorts. Good thing too. Nothing more dangerous than a wounded bull.

The short side was the right trade and I feel like I got de-balled by some bullshit bailout. But this sort of thing is to be expected if we are undergoing a trend change (and that's not a certainty at this point). The bulls will pull out all the stops to keep the run alive and staunch the selling. The averages will gyrate back and forth through the 200-dma until the psychology changes and reality sinks in. Don't underestimate our government's ability to dream up half-baked bailouts. This is two bailouts now (including the SIV bailout proposal).

Net-net I didn't make much of anything this week. Some beer money. Had I refused to acknowledge that the bulls had gained the advantage I could have lost myself a small fortune. Wednesday alone I gave back the equivalent of Zambia's GDP. So discipline won out over emotion and from that alone I derive comfort. I actually have some longs I'm excited about.

At some point I decided to ease off until year end and reflect. Unlikely that will stick but it sounds appealing after all of the nonsense last week. The market has unhitched itself from reality but that doesn't mean we can't go higher still. The consensus is that we will rally until January. Seems too cute and convenient to me but I'm in no mood to take the other side of that trade right now. It's been a phenomenal year. No sense in getting gored.

Dennis Gartman on Mortgage Bailout

"We wonder who it shall be that will make the decisions involved as to which mortgagee shall be helped out and which shall be left behind. What shall become of those mortgagees who had paid up their mortgages; accepted the newer, higher rates; and have been consistent in meeting their obligations? Are they to be sacrificed, while those who've been late or moved to foreclosure shall be given aid from the government? Are we about to shower benefits upon the profligate, while denying those who've followed the rules?

"Are contracts no longer to be viewed as law, but rather are to be viewed as nothing other than mere whim? If we are to allow mortgagees who are in trouble to stand down and have their problems taken up by taxpayers, what then of contracts anywhere? Can we demand foreign governments, or foreign companies, or foreign individuals to stand by their commitments to Americans if Americans will not stand by their commitments to one another?

"No one wants to see people put out from their homes. No one wants to see the television photo-op of poor people pushed from their homes at Christmastime, or in the depths of winter. No bank wants to take delivery of a foreclosed-upon home when it could be left in the hands of the former home owner, with the mortgage shortage to be worked out over time. But to have the government step in and mandate that homeowners be allowed, under penalty of law, to remain in their homes and for banks to be forced to accommodate is legal and philosophical madness.

"This is a country of law, which believes in the sanctity of contract agreed upon by those who've consented to the binding nature of that contract. If the parties involved wish to change the contract, and if agreement can be reached to do so, then it can and should be done. But to have government force the issue -- and worse, to mandate [that] taxpayer funds be used to do so -- is morally wrong, with implications that shall redound into any and all other economic concerns."

Watchlist Indicator

Screaming short! Developing...

1-800-Hail-Mary

See the animals in the stream. That's the bulls right now. They haven't been burned yet but how are they going to take this market higher with the hills around them set ablaze? They should be frightened. We all should be cautious.

Today was modestly red. Financials were weak. That may be the tell again. Yen was strong against the dollar. Mo-mo names were weak led by RIMM. The real action though was the unveiling of the big "keep 'em in their houses" campaign by Treasury secretary Hank Paulson.

1-888-Give-Me-Break

All we really needed was a hotline and a rate freeze although that part is a little vague. The idea being that if you bought a house you can't afford you just need to talk to a debt counselor. The banks are in on the plan. What's in it for them? Something I'm sure. Maybe it's just a matter of getting the message out to pay what you can rather than mailing them the keys.

Couldn't bring myself to watch the whole charade on CNBC. We got a little rally off of it but that didn't hold. Apparently, the plan is not to use taxpayer money. Yeah right.

The reality is that house prices need to come down. Period. Anything that delays or inhibits the natural clearing of the dead wood is detrimental to those who acted responsibly. Any bailout is a penalty to those who were most conservative and responsible. Just like all this rate cutting again punishes savers. You can bet the big plan benefits the big players.

I suppose there is also an element of political posturing going on here. Elected officials want to be out front of this and show their constituents they are doing something. However vain. Expect more pounding of the bailout drums.

Gold...Hmm?

Right up front. I'm concerned about a potential dollar bounce. Metals are sitting right at key levels. If they hold I may get optimistic but right now I still remain cautious. I'm concerned short term and perplexed long term. Find myself in the process of reevaluating my view based on new information. Right now I hold an insurance policy position in the trading account aside from what's in the vault. Short term I want to be long cash. As in, cash in my wallet and under my mattress. Better than keeping it in some shady bank who could potentially be insolvent.

There is more to say on this and other subjects but I'm losing all ability to function at 1:56 AM. Good. Night.

And the Week Begins Anew

Friday was a big ramp job in the morning followed by waning enthusiasm as the day wore on. Whether or not we have seen the bulk of this run is undetermined but I used Friday's strength to go back to work on the short side. We shall find out soon enough if that was wise.

Going through the watchlist this weekend left me feeling sort of agnostic in regards to near term market direction. The bulls have the potential for myriad exotic bailouts on their side and the bears have reality on theirs. Either can win in the short run.