“Without leadership a nation falls”

-Proverbs 11; 14

Now, with the NASDAQ and S&P 500 down six of the last eight sessions, and the NYSE and DJIA down five of the last seven, it would be tough to get too aggressive here with shorts.  That being said, however, there are still some stocks that look short-worthy and that, should the market rally, might just fall anyway.  I’d be looking to short rallies at this point, but, having just lived through one of the most unique years in market history, it wouldn’t shock me if we broke hard tomorrow as people decide it’s simply not worth holding equities through the weekend.  There’s no telling what news might break.  Chances are the news won’t be that they’ve found a solution to all our problems, that’s for sure.  So why stay long?

There are also a number of things I’m seeing that, taken together, portend some more pain to come, not the least of which is that a few of the leading industries are now taking it right on the chin.  We were treated to the most obvious example of this today –namely, Investor’s Business Daily’s Commercial Svcs-Schools group.  Stocks like ESI, DV, COCO, APOL got hit hard.  This action reminds me of what occurred in the Transportation-Shipping group in late October, 2007, as the market topped.  This group had been one of the top industries throughout 2007, then on October 30^th the leaders got rocked.  Stocks like DRYS, EXM and DSX fell 13-20% on huge volume: the party was over.  Look at where those stocks trade today.  Perhaps this is another such inflection point.  Without leadership a market falls.

Another top industry showing some cracks is the Insurance-prop/cas/titl group, as evidenced by the recent action in stocks like MCY, SIGI, ACGL, PRE, STC, RE and WRB.  Today, TRV reversed and fell back below its 20dma on increased volume.  I tried shorting this thing on 2/10 but got stopped out.  While I won’t be giving it another go, I do think it’s ready.  My cut losses would be 39.35 (20dma), 40.00 (HOD), and finally 40.98 (50dma).  Again, bear in mind that this stock has now fallen four sessions in a row.

Another short idea is Jack-in-the-Box.  It should be no surprise that its entire group is weakening and this debt-ridden company with horrible earnings is no exception….Like yesterday, there is a small tail, so, weak as JACK looks, there was at least some support.  Something to keep in mind.  Yet this equity looks as horrible as the food it serves.  If you didn’t short the rally today, I’d place market and limit orders tomorrow morning: the market order (smaller of the two) just in case investors decide to drop this thing like a bad habit; and a limit somewhere within 3-5% of the moving averages (the 50 and 200dma are essentially the same price).  The moving averages would be my cut loss (both daily and weekly).

John Ward

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