The last time I felt so annoyed with the market was in late 2006 and through July of 2007.   I encourage you to read through my archives if you cannot remember.   But here is a sample from February 2007 that sums up a few of my current frustrations.

As I mention in that piece, it’s important to know what your trading biases are and the weaknesses of your style.   Some of my trading challenges from when I wrote that post over 2 years ago are still with me today and the biggest has to do with technical breakouts.   Personally, I don’t feel like it’s possible to permanently remove my weaknesses (with stocks or in life) but instead, I spend a lot of time making sure I am able to identify them when they pop up and stay focused on managing their consequences.

So this week, as I went through the charts I continued with the painful process I began after Labor Day…giving UP signals to stocks that either broke through or were about to pierce big resistance levels.  Many of these signals were only a few weeks old and I hate having to reverse something so quickly, especially when the technical analysis pattern is the one I struggle with the most.  Regardless, it is what you have to do.   Here is a snippet from another 2-year-old post about Exiting At A Loss.

Many investors have big difficulties admitting when they are wrong. I do too. What makes it easier for me is being objective about the prospects for being less wrong going forward. Capitulations occur out of desperation. Exiting a position at a loss is not the same as capitulation if you are focusing on what will happen to the stock next, not what happened to the stock in the past to cause the desperation

Whenever breakout patterns conflict with my personal view of the market’s risk profile, I struggle.   When you couple those factors with the ridiculous fundamental valuations and ignorance of macro economic realities that I believe exist, it’s over the top for me.   However, it is always important to remember that no one gets to decide what is right or wrong about stocks or markets.  They will do whatever they want regardless of your assessment.   So I made about 500 signal changes that I find to be absurd and I look forward to reversing them (very quickly) if and when reality ever sets in again.

I know last week hit the index hard and of course, if you are into following index support levels, it has not been good.

As for me….I am getting more bullish.   I saw massive improvement in technicals of many individual stocks that I feel are more important to analyze than the index.

Mid-January, I issued the First Warning of 2009 telling you to watch your portfolios.  Now I am starting to head the other direction.

If you are short or if you do not have your buy list prepared, please pay close attention.  As always, I don’t tell you what to buy or sell…do your own homework.

Last week, significant damage was done to the technicals of approximately 1150 stocks (about 1/3rd of all the stocks I cover at HEDGEfolios.)

For the last month or so, I have had minimal difficulty going through all the charts.   That changed.  This weekend has been one of the most challenging I can ever remember and rivals a few weeks during 2008.

Since mid-October, I have been bullish on the short term.  Now I am very cautious.   Unless the bulls show up in convincing fashion in the next few days (if not hours!), this could get ugly.

PLEASE PAY VERY CLOSE ATTENTION TO YOUR PORTFOLIOS.

Regardless of volatility or whether the market went up or down over a given week, I usually do not notice anything out of the ordinary.   It’s always tough, so a particularly rough week does not confuse me or rise to the level of concern.

There have been less than 5 weeks in the past 6 years I have been doing HEDGEfolios that I saw something I have never seen before.   On those occasions, I made mention of them on the blog and said that I had no idea what they meant at the time, but I was watching them to see what happens so I’ll recognize it if the situation ever reappears.

This weekend looking at the charts and doing my fundamental work was one of the 5 weeks of confusion.  In fact, if I had to rank them, this was the worst.

Stocks that looked great for months, now look like crap.  Stocks that looked strong last week, now look like crap.   Stocks that had started to find support or head higher, now look like crap. In summary, the top fell out and the bottom fell out at the same time.  Strong stocks got weak, and weak stocks got weaker.

I am not a supporter of the capitulation theory that says you need to see a capitulation to find a bottom.   Commentators like Pisani have mentioned the “C” word almost every time they want to call a bottom and they have been wrong.   So since I don’t call bottoms or crashes or capitulations or things like that, I am not suggesting last week was a capitulation.   I am not suggesting that we are set up for a crash.  All I am saying is that I have never seen anything like it.

Of the 1443 UP signals I had going into last week, 669 of them declined by more than 10%.  It is rare for me to get hammered like that.  Of the 1910 DOWN signals I had going into last week, 1026 declined by more than 10%.  More than half the stocks I covered declined in excess of 10%.  If you are an optimist, you might want to call this a capitulation event.  I just call it devastating and since many of these stocks just started to fall last week, I have a tough time assuming that the slide began and ended that quickly.  What catalyst do you see for a positive reversal?  Another $700 billion government bailout?  Another Fed rate cut?  A bottom in housing?   Strong retail sales?  A great earnings season?

The S&P 500 declined about 9.4% last week.  Many people commented about how bad this was.  Usually when they say stuff like this I think they are exaggerating or maybe I even see the opposite.   This time though…IT WAS SO MUCH WORSE IN MY OPINION.

Last week, I said that HEDGEfolios had become Less Negative. Since it was brief, here is the whole thing…

As I hinted this weekend, I gave quite a few UP signals this week (461) versus 98 new DOWNs. I was asked whether this meant I was calling for an intermediate term rally. The short answer is “NO” - not because I don’t believe it could happen but just because I don’t like calling bottoms or tops. It’s all about the probability of market direction and right now, I am still bearish. However, based upon the strengthening technicals I saw in so many stocks, I have become less negative in the short term (especially on those individual stocks). Obviously, the fact that the market has dropped another 2% since I decided on these signal changes doesn’t seem to validate my declining bearishness. Fortunately, I don’t measure performance based upon a few days and I am willing to give it some time to play out.

I gave it some time to play out and the rally reappeared. I only wish I had been even more aggressive last week.

Despite my opinion that I don’t think the impetus for the rally was earned by the bulls, when I went through all the charts this weekend the reversals were overwhelming in both stocks and ETFs. So while the bulls may not have started it, they sure are providing a lot of momentum to keep this thing going. I don’t like rallies begun through government interventions or short squeezes or crappy earnings spun as beats or crappy earnings ignored in exchange for positive guidance from execs who have been consistently wrong with the same promises in the past or many of the things that are going on right now. But they are what they are regardless of what I like.

This week’s signals are the strongest bullish reversal ever recorded at HEDGEfolios. I gave more UP signals than I have ever done in 1 week. 1056 new UPs. And the ratio of new UPs to new DOWNs was also an extreme I have never done. 21-to-1. Normally, I try to avoid making a lot of signal changes through earnings season. Obviously, I made an exception this time.

Additionally, I had a massive reversal in ETFs with 188 new signals (183 new UPs vs 5 new DOWNs)

If you missed what these things mean to me, please read my take on Measuring Volatility. Additionally, you might want to see what is going on with the HEDGEfolios Timing Indicator and it’s move to a bearish bias. The reversal from an extreme bearish reading to an extreme bullish reading in a matter of a few weeks is something that I have never seen before. So until I have had a chance to think this occurrence through, I am not going to speculate whether it has any additional meaning other than this is one strange reversal.

For the record, I don’t expect this bear market rally to last BUT I do expect the volatility to continue. Remember, next time it will be painful in the other direction.

In the meantime, if you are long….enjoy the fun while it lasts. For all the shorts, good luck!

Last week’s negative headlines and 1.85% decline in the S&P would lead most people to expect that my negative positioning of 72% DOWN signals would be proper. And then I did my analytical work!

One of the reasons that HEDGEfolios has been able to consistently outperform the benchmark is that I ANALYZE FIRST and then make an assessment.

Too many investors allow their bias to overlook what is happening…either with the market as a whole or individual stocks. That goes for negative and positive impacts.

Regardless of how the market responds to the US government bailout of the GSE’s - Fannie and Freddie, I saw a lot of stocks that had significant improvement in their technicals and I will not ignore it.

Today’s CPI number is entirely unbelievable. However, it is a trading opportunity. The market is dominated by traders and not investors. So stop asking why this bogus inflation number is being believed by the market or suggesting that the market’s rally in response somehow validates or certifies the number as being appropriately bullish. It doesn’t matter whether the number is right or whether it fairly represents the consumer’s experience with rising prices. Traders do not need to believe in the long term realities - only the short term opportunities. If the CPI data would have not been manipulated or somehow had shown up as much hotter than expected, it would have been a trading opportunity for the downside. Regardless of how the CPI data is reported or used by the market, it does not change the real inflation rate being experienced by consumers. So for today, traders are exploiting the number….it doesn’t matter whether they believe the unbelievable number…it only matters that they believe they can trade the unbelievable number and make money on it. Can you imagine that today’s data would come out and traders would say - “We don’t believe the CPI and even though we could use it to make money, we are just going to skip the opportunity.”

Since mid-March and the Bear Stearns bailout, the market has been remarkably strong…until now. There was a lot of damage done last week. Unless there is some positive catalyst or an unexpected show of force by bulls looking to put on new positions and defend the rally, I am less optimistic than I have been for the past few months. Good luck this week.

First - the “Away” part. Portfolio management is an all-consuming and ever-present process for me. I rarely take any time away during the trading day and if it happens, it’s usually not two days in a row. Other than skiing or beaching, there isn’t much that I prefer doing more than actively participating in the securities markets. However - “All work and no play makes Mike a very dull boy.” I need to get my life in better balance and I am “working” on that.

On vacation, you meet people and inevitably, as part of the small talk, you are asked what you do for a living. I hesitate to answer that question for several reasons. First, I am on vacation to be on vacation. Secondly, I do not give individual investment advice. The moment someone hears I am in this business, the requests for stock picks begin. Then I have to find a way to politely tell them I don’t give stock picks. It’s all a bit awkward and usually puts people off to the point where they go away. I am not much fun to have around. I really should come up with an alternate and dramatic and fun career to lie about in certain circumstances so that it’s a bit more enjoyable. I am “working” on that.

Last week, I was asked what I thought of the economy and the markets in general. Good questions, but really…. do you think my sunny disposition about the economy and our screwed up markets are going to make people happy while they are relaxing on a beach or at the bar? I know it’s not making me happy. So I have another choice - maybe I should just lie and tell them what they want to hear. Of course I cannot do that. I usually just say “it’s bad” and try to change the subject to the weather or sports or some other useless topic. I can talk about most things but oddly enough, unless I am here or in an appropriate environment, I don’t like to talk about what I do.

Being away from it all last week was much needed and it’s been tough to get back into my normal rhythm and routine. Other than the research I had to do to get the signals done this week, I haven’t been motivated to analyze what I missed. Consequently, I have very little to say.

When I hit the beach, I thought the market was ridiculously bullish. I kept thinking “Up Up and Away!?!” When I got back, despite the GE miss and poor trading action, I wasn’t seeing an end to the rally that was being mentioned by some commentators. In fact, this week’s signal changes were not dramatic at all. I only gave 111 new DOWN signals and while that was much more than the 19 new UPs, it’s really not remarkable. So I keep wondering “Up Up and Away!?!” That is yet to be determined.

I won’t be traveling much for a month so I won’t suffer from being out of touch and away. Sooner or later, I’ll feel like writing more often. Until then, I’ll be working on other pursuits.

In the last two weeks, I have found it much easier to do the fundamental and technical analysis that determine the signals on all the thousands of stocks I cover.  I am not sure how long it will last or whether it means anything for the market’s direction, but I am enjoying it compared to how ridiculously difficult it has been since November.  However, now is no time to take a breather and relax.  Stay on guard at all times because not much has changed regardless of all the efforts by the government.