Steel is a Dead Industry, Who Cares: Postmarket Update 9/9/09

I’ve been trying to think of a good analogy for how the market has been acting all day and I can’t come up with one. I think the best way to describe it is frustrating. We aren’t getting any follow through on either side, the bulls are making money by buying dips and selling rips, while the bears are losing money trying to sell weakness. The short side just doesn’t work here while everyone is afraid, yes afraid that the market could melt up any day.

So many stocks look like they are about to race skyward, there is so much clean air above many stocks created by the elevator drop we had last fall. I don’t think that there will be many sellers above some of these levels because there wasn’t much volume associated with that move last fall. No doubt that if we make it back to pre Lehman levels there will be a hoard of sellers, but if we break through some key levels here on many stocks I wouldn’t rule out a melt up. Because of this I am scared to sell the strength just like everyone else for fear of getting my nuts chopped of on a day when the market gaps up 3 or 4 percent, believe me it can happen.

For now I like my long book being full, and I’ll be very selective about taking short positions. The market just isn’t giving me any reason to go hunting on the short side right now, out of the 2600 assets that are in my universe, only 2 made new 50 day lows today, 2! I will point out something interesting though, with the SPY making a new closing high today for the year, only 530 assets made new 50 day highs. Is this telling us something about the breadth, or lack there of? Maybe, something to watch out for.

We were stopped out of our long position in TLT yesterday. The action in treasuries is interesting, I’m not quite sure why they were bid up above breakout levels. Sometimes it’s best to not try and explain why certain things happen and just go with the market.  In this instance I lost one, so be it.  The short in PETM was also stopped out today.

I took one long position today in GNA.  The SLX pierced the breakout level today and I’ve been waiting to get long something in that space.  I believe GNA is the best candidate in this space if steel rips.  X and AKS also look very promising.  Let me just take a minute to get something across though, in no way shape or form do I believe that real demand for steel is anything close to picking back up.  I’ve been reading stories about the Chinese shutting down steel plants because of over capacity.  People, there just isn’t any demand for steel, because no one is building anything.  Yes, Ford ordered a few cars, so what.  Do you see any more new buildings going up in Dubai, no, I didn’t think so.  Are there a ton of brand new airplanes that BA can’t sell sitting on a runway in the desert, hell yea.  No one is building anything, get that through your head.  So why am I buying a steel producer, it’s simple, the price action is telling me I should.  I think these things could go nuts in a melt up scenario just as fast as they fell when the world economy collapsed.

Oh yea, on a closing note, Doug Kass’ top call is now officially wrong, sorry Doug.

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