Market Outlook

Sorry for the lack of communication, been very busy with various things at work, so here are some of my viewpoints:

As for the market, the quarter ends today and I believe we should press downward one or two days this week, primarily in the NASDAQ. I am very close to adding short exposure but due to weak volume, I am a little hesitant. In addition, insurance through options are relatively inexpensive, which makes me believe we can also head higher. I would refrain from being short individual names during this week. Two years ago, Hilton got bought by Blackstone and it was the only merger run that actually came true in my career. The action and the options were on fire the day before the 4th as the market closed at 2pm and the deal was announced at 5pm. Cool stuff.

Going forward, the question remains, shall we take some profits now since the quarter is up? Or are we heading higher via a next leg up. Keep in mind we have bank earnings next week with JPM, C, and BAC. We know what happened last time banks reported, they killed it and the market shot way higher. I think the “smart money” is buying broad based financial etfs , like the XLF, now ahead of earnings and if banks blow out the numbers, they make a 5-15% return –OR- if earnings tank, the losses will not be as bad since it’s so diversified. Right now, financials are my favorite sector but still have some uncertainty. My bank bets are not trades, rather are investments with 1-2 year time horizons. As for the economy, we still have some serious problems that will hamper the market and the consumer:

• I believe that corporate tax rates and as well consumer tax rates will be both rise to pay this terrible debt
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  Credit will be more difficult to achieve, both from the consumer and business fronts, as banks will lend more conservatively
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  Job losses continue to increase
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  The dollar will continue to lose strength, unless fear comes back in the market. If fear rises, the dollar will rise because it’s really the only “fear trade” as treasuries are rather bloated.
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  Personal savings rates are at 15 year highs, which will hurt GDP and economic growth. Consumer spending makes up 2/3’s of GDP.
• Higher energy costs

Near-term: Over the next two weeks, I will raise cash and place more aggressive derivative bets. As for the next few weeks, we could rally as money managers have to start putting money to work in 3rd quarter. For the accounts that I manage, I have about a 50% cash position in them now and long the other 50%. I believe we will hit 1050+ this year and stand by that but will probably go next short in November and remain that way throughout 2010.

For the long-term: I just don’t have much confidence in our economic growth plans and believe the national debt that is being issued will reap dangerous consequences. I say there is a 10% chance we retest the 666 S&P low this year and 25% chance we retest it next year. I will say this (my opinion), if we do retest, we will blow through it and the market will be toast because the market confidence will take years to be restored. For the long side, I will look at emerging markets and may some precious metals via the actual metal etf or gold/silver miners.
As for current trades, I am raising cash but bought a trading lot of ENTR yesterday. My goal is to ride It up to $2.50-$2.70 by the end of the week and made a quick $300-500 bucks for some play $$. I will probably sell more stuff today but will feel out the market. Frankly, I anticipate a green or up open,then a selloff around 9:45 or 10a as the shorts try to come in on thin tape. I hope they get murdered and the longs wins!