Aaaaaand this is where things got interesting.  Materials have been slaughtered during this sell off and there are some monster players out there who still believe in the gold / hyper inflation trade.  It was only a matter of time before the decided to step in and buy what they must see as value.  Gold $GC_F was the first to make the turn having bottomed out in a capitulatory move before noon.  Crude was also down a ton before noon as it failed some important support levels.  After a little bit of churning the volume picked up and major players came after the gold miners $GDX.  Gold Corp. $GG ended the day up greater than 6%.  This was major buying but guys with deep pockets, they sent in orders to the institutional desks and told them to keep buying until the close, it was relentless.  The $SPY closed green and we now have one major hammer candle to think about this weekend.

Is it time to go all in and buy what you perceive as value, no I don’t think so.  The longer term technicals of this market are now quite ugly.  The 20 day moving average has crossed below the 50 for the first time since the March 09 low.  This is a sign that rallies should be sold into until further notice, just as a 20 day moving average trending above the 50 is a sign to buy the dips.  There most likely is a bounce coming though, and it’s possible that we could go into a period of several months where the market does not trend but chops around.  Until the 200 day moving average is broken, I believe you should be playing mean reversion now, do not be buying or shorting breakouts or breakdowns respectively.  Below the 200 day moving average and all bets are off, we could see a complete meltdown, I’m not kidding.  Look for the US Dollar $USDX to pull back in the coming weeks, it’s overbought after breaking through that big bull flag from a few weeks ago.

I stayed above 40% cash for most of the week as I did not trust the rally attempt on Tuesday until that major level of resistance was broken.  I did sell a few things on Thursday at the open but should have sold more in order to pick up more alpha on the downside.  I dipped in Friday afternoon as the market turned, buying positions in $ANR $TIE and $NTCT as well as more $DV.  This is a little bit of style drift for me, $TIE and $ANR are both support plays off very oversold conditions, not momentum moves.  I will most likely be selling into any major strength in these two names over the next week or two but believe there is a nice bounce in store.

Over all I made up some good ground through my large cash position and I’m poised to take advantage of any further strength in the market next week.  It’s very important to be extremely nimble in this environment unless you have chosen to move primarily into cash in order to play for a further sell off.  I think we are going to see some tradable bounces and will be quick to sell into them.

Stocks that I own and still look very nice to the long side with good momentum include $DV $CMG $NTCT $CREE $ALGT $VRX $PEGA.  I will be looking to add to $VRX and $PEGA on any strength next week.

I’m stalking a few other stocks including $PFCB and $GRA for entries.

The food service names have held up amazingly well through this sell off, frankly I have no clue why.  Possibly because of lower commodity prices, but who knows, they still show great momentum and I’m very interested in adding another name or two.

The major theme here is that if the market has found an intermediate term bottom, I don’t believe we are set to rocket back up to the highs.  The market needs to to base out and collect itself.  Wait for stocks to show good basing patterns and give good risk reward entries before you load the boat back up to the long side.  If we fail Friday’s low, run for the hills.

As you can see below, investors took materials and tech to the woodshed.  The trend in most, but not all momentum names is busted now, it will take some time for issues to base out and give goo low risk entries to the trend.  If we see a quick bounce back from the high momentum names, I feel it will be shorted into relentlessly.

Some stuff I sold out of this week: $NFLX, $AMZN, $AAPL, $IBN, $IAG, $MHS, $RHT, $RGLD, $CERN, $EGO, $CTSH, $ATHR, $LZ, $ANR.

The Netflix sale is really the only one that haunts me, not holding into earnings was a huge mistake and an emotional decision based on the overall market and my portfolio, not the fundamentals or technicals of the individual issue.  I fell victim to the emotion of just not wanting to be exposed to risk, when I should have traded the stock.  This should be a lesson to you all, not to be overwhelmed by the performance of your portfolio or the overall market when making a decision regarding an individual issue.

Some stuff that I still like.  The education names have held up very well, $DV even had a monster breakout this week.  I’m holding $CPLA and believe we could see a massive breakout on the weekly chart imminently.  $V still looks good and I’m happy to own this name until the weekly chart breaks or the government takes their candy away.  I don’t see either happening in the near future.  I’m looking to add to my $SBAC position on any strength.  The tower operators may not be the best businesses in the world, but hedgies are chasing them to the ends of the earth off the idea that $T and $VZ need to jack up their networks to deal with the onslaught of mobile devices requiring massive amounts of data transmission.

My cash position is now above 40% and will likely stay that way for the next few weeks.  Stocks need time to heal, and catching falling knives is not my game.  I’ll also be limiting the number of positions I have on, there are still some good trends out there, and new leadership, but I don’t believe I can spread myself out to 30 positions in this market while momentum names are getting picked off one by one and shot.

This is a long / short market now, trade accordingly.

I cast aside $NTAP, $TSL, $HL, $CGA, and $RINO this week.  Notice that three of those names are China plays.  The Chinese market isn’t acting right and it’s better to step out of the way while that deleveraging plays out.  The small cap Chinese market was overheated and too many people were making too much money, someone needed to be punched in the face.  I took some pain by not taking profits while they were there.

$LZ was on fire until Thursday when it was obvious that it could not buck the market trend for any long, I took nice profits and reduced the position to 1/3 size.  Winner of the week for sure.

I took some profits in $CREE, how could I not.

I bought the dip in materials this week by adding positions in $RGLD and $ANR.  I’m not feeling too much pain and believe we are going to see a major bounce there.  I also added to $RBY.

I started positions in $PEGA and $SBAC and added to $AAPL, $ARUN, $CPLA, and $RAX.  I love the education sector here, it’s relatively uncorrelated to the market and institutions are making big bets on the government pouring money into retraining people through online schools.  I’ve also been begging the market for a chance to step into $SBAC, a cellular tower company, I’ll add to it on any market strength, I want a big position if the market allows.

Business service stocks like $RHT got slaughtered this week as investors sold the excellent $IBM earnings.  I still like it up here.

I’m loving the international banks here as investors flee US banks in fear of government regulation.  My pick $IBN is still squeezing into the apex of a large triangle.  A failure and I’m out, but I believe it breaks north and catches fire.

Next week is huge with $AMZN and $AAPL reporting, as well as the Apple tablet announcement.  Look for support on the weekly charts after a puke like the one we had this week, step into solid trends, the market isn’t just going to fall apart and collapse.

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