Long Picks for Monday

The major index charts remain in solid rising trends for now. On a fundamental level, I continue to think this rally has been built on TARP money, short covering, and unrealistic hopes on the economy. Although corporate earnings have exceeded estimates, in the end earnings remain poor. Overbought sectors such as retail, restaurants, real estate, and financials need to contend with a still-deteriorating economic picture. That being the case, I am choosing to remain patient with a majority of short positions while actively trading the long side as long as the rally continues.



During the past week, I was finding more charts I like for long trades, considering so many have broken out on earnings. Here a some that I am watching for Monday:

- MXIM: A number of semiconductor companies are looking good. I started a position Friday morning, and will look to hold with a stop below the 50 day moving average.



- TBSI: The shippers are getting a lot of attention from traders. TBSI is among the less extended charts, and has good volume coming out of its base.



- SQM: If this rally continues, more money will need to flow into commodity stocks. SQM has a clean rising trend, with the 50 and 200 day moving averages also serving as support. The volume pattern looks good, and the chart is forming a cup and handle.



- IDTI: Another semi company, breaking above support with heavy volume.



- WLT: Coal stocks were on fire on Friday. I will be looking for a break above Friday's high with volume.



- VSEA: Again semiconductors. The past two days show very heavy trading volume, and price held its lower trendline.



- PMCS: Breakout on earnings, and now falling back to support.



- VSR: This chart looks very promising to me. Check out price action after similar volume surges in the past.



- ACI: Another coal company. I will be looking to start a position over Friday's high with volume.



- FCL: More coal.



- RIO is breaking above some resistance.



- TECH: Nice breakout and retracement to support.



As an FYI, I am still short RTH, XLY, EAT, AZO, DLTR, PSB, CMTL, OMTR, MET, CAKE, CBRL, WHR, NTRS, JWN, RSH, and CRMT.

Some reading:


- Barry Ritholz says our rally may be the natural reaction to earlier forced selling, which produced a deeply oversold market. He talks about a a "rotation to quality from the junkier leaders of this rally," which is how I'm playing things here.

- Bonddad Blog has some excellent overview of GDP and associated numbers, including graphs. Scroll beneath the weekend dog photos.

- Mike Morgan asks, Is Goldman Sachs Running the New York Stock Exchange? Is Goldman Sachs robbing us all blind? I think so. What seems clear is that despite egregious financial misconduct, Goldman is likely to emerge from this crisis considerably more powerful than before.

- Michael M. Thomas with more on GS:

On Monday morning, my mood wasn’t helped by a squib on Bloomberg.com: “Goldman Sachs Boosts Risk-Taking at Fastest Pace On Wall Street.” Your TARP dollars and mine at work, I reflected. But, of course, Goldman plans to pay back its TARP money, which raises the question: Was TARP (and correlatives) supposed to be a crucial economic initiative, or merely the Wall Street equivalent of a flag of convenience?

I WASN’T THE ONLY ONE bothered by what was reported in Sunday’s Times. Paul Krugman had quite a bit to say in his Monday column. Among other things, he reiterated something that we whose public capital is being shamefully, greedily exploited need to repeat to our mirror a dozen times a day: “I’m not just talking about the $600 billion or so already committed under the TARP. There are also the huge credit lines extended by the Federal Reserve; large-scale lending by Federal Home Loan Banks; the taxpayer-financed payoffs of AIG contracts; the vast expansion of F.D.I.C guarantees; and, more broadly, the implicit backing provided to every financial firm considered too big, or too strategic, to fail.”

In other words, imagine a publicly owned casino whose management has worked it out that every player except the house, every grifter, sharpie, shark imaginable, gets to play with the house’s—that is, the stockholders’, which is to say, our—money.