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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Materials were firmly rejected from that important long term level and have now spent the better part of three weeks regrouping.  We aren’t breaking through any time soon, but I believe based on this, and many of the daily charts, that you can buy this dip in materials with a close watch on the US Dollar.

The materials trade has not been one for the faint of heart.  It’s been a buy the dip market, traders playing breakouts have had their asses handed to them time and again, especially in the gold miners $GDX.  You’ve got to buy terrible looking patterns at their most bearish that stay within the intermediate term trend, which is up.  Remember that big big boys are playing in this space, and most mom and pops will lose money as their positions get whipped around.

The $USDX is threatening to break through the 200 day moving average which would be a very bullish sign for the greenback.  This is going to keep a cap on gold $GC_F and other materials, but I don’t believe it’s going to prohibit the materials sector from exhibiting strength.  This is of course unless the $EURUSD completely falls apart and we have a full blow European debt crisis on our hands in the form of a Greek default.  I don’t see this as likely.

I’ve posted below a bunch of charts from the materials space which are showing decent setups right now to the long side.  These come from my momentum watch list, but are not necessarily the strongest of the bunch, just the ones showing the best setups tonight.  Have at it.

ANR showed good strength today closing above the 20 day. I like the coal industry here as there is no chance in hell a clean energy bill is going to get passed, although I would like to see one. I think you can get long this name with a stop under today's low.

slammed into the 50 today but held, stochastics are in the basement, get long at the open with a very tight stop.

AUY hit the 200 day and bounced hard. That 200 day also represents an ascending trend line. You know the drill.

BUCY not in the materials sector but is very correlated. Great bull flag here above the 20 on light volume, get long and strong.

Backtest of the descending resistance line, looks real good here.

Very interesting pattern developing here, same triangular consolidation.

Trend line and 50 day, man up and buy the dip.

I don't see many great setups in the energy space, but this flag looks awesome, my favorite energy play right now.

Still in a big flag, buy the dip and run like hell on any further weakness.

Loving MEE here, nice wedge, nice trend line, get some.

Same chart as MEE.

Backtest of the breakout level, good support and on the 50 day, I'm adding to mine in the morning.

200 day, buy the dip, it looks ugly but it's the only way.

Nice flag above the breakout, going much higher.

Similar to PCX and MEE, I like it with a stop below the 20 day.

Pure momentum, love this stock, stop out below the 20 day.

If the trade had not been a system trade, and just a swing trade, I would have exited on 12/7 as $GLD broke through the 20 day moving average after putting in a major reversal candle on huge volume the day before.

Anyway, let’s take a look at where gold $GC_F stands tonight.

I’ve placed on this chart the major support levels where we may see a bounce in gold.  Remember that the gold trade must be viewed through the prism of the inverse head and shoulders pattern which was fulfilled when gold broke through the all time high of 1029 back in October.  We topped out a few weeks ago at 1227, shy of the 1300 target measured move off the inverse head and shoulders pattern.  I’ve pounded the table going back a few months now that we need to see a retest of the breakout level at 1029.  This retest will be where the real investors reload.  We could see a move all the way down to 988 as the market attempts to shake out the weak hands.  If this level fails to hold, oh boy, watch out for a complete unwind of the gold trade put on by Paulson and friends.  The 200 day moving average shown on the chart will also be an important level of support.

Strength in the $USDX was the obvious catalyst for the sell off in gold.  It will continue to be an important asset to watch in the gold trade.  I feel we’ve seen an end to the turn off the bottom in the US Dollar as it now find resistance at the 200 day moving average and major overhead levels show on the chart.  The dollar needs to consolidate and test the 50 day moving average.  This should provide a short term respite for gold.

Volume By Price

I want to give a big thank you to @VPgradient who posted this chart on Chart.ly for me this afternoon.  It shows the significant levels of support in $GLD by measuring the volume traded at each price.  As you can see, the 104 level will be a major test for gold, below that and we are looking at 98.

For short term traders, you can buy the bounce by legging into a long position between here and 104.  For longer term investors, I still believe we need to either test the breakout level at 1029, or the 200 day moving average.  Be patient, more investors will lose money playing gold next year than will make money, it’s now a battleground asset, gone are the days of the boring yellow metal.  I still love the gold miners $GDX as an investment.  Names like $EGO, $RGLD, IAG, and $GOLD should be in your investment portfolio for both diversification and growth.

Both shows had financial journalists as guests tonight, hocking their newest literature.  John Stewart entertained Andrew Ross Sorkin selling his book Too Big to Fail, Steven Colbert with Matt Taibbi talking about his much ballyhooed piece in Rolling Stone on Goldman Sachs.  The tv is entertaining no doubt, but leaves me frustrated.  The shtick that Stewart and Colbert have going is all about bashing classic idiocy and hypocrisy perpetrated by people in power.  But the financial crisis was really the first major go around for these guys in terms of the economic world.  As the crisis developed last year, I can picture both huddling with their writers at some point and saying, “guys, i need all the classic knocks on banks, economists, analysts, the fed, treasury, and anything else i can make fun of, thanks.”

This economic clusterfuck taught us all many lessons for sure, but no one learned more about how to bash everything and anything economic than these two guys.  It’s been entertaining to watch as they felt their way through.  But now it’s starting to become annoying, it’s turned from interesting to watch them learn how badly this financial system is fucked, to sad how they talk about the current system like it used to be all butterflies and fairies.

Not only them, but Sorkin and Taibbi hock their stuff acting like the greed and corruption on Wall Street only became prevalent in the run up to the financial collapse.  Taibbi isn’t as bad as Sorkin, his piece on Goldman Sachs outlined how they have helped to create and profited from many past asset bubbles.  But both still speak like Wall Street used to be a place where our financial system worked for the little guy, the joe schmo.

Look people, Wall Street has never, ever, ever, been in the business of helping the little guy.  The same shenanigans that go on today, happened yesterday, 10 years ago, 100 years ago, and will continue to take place tomorrow.  The only difference are the tools they use to screw you.  Wall Street only cares about America as a whole to the extent that it helps make them money.  I’m convinced that some major players in the short financials game last spring only covered because they were afraid if they didn’t there wouldn’t be much of a market left for them to play in down the road, kind of like what J.P. Morgan said to Jesse Livermore in Reminiscences of a Stock Operator.

I love Stewart and Colbert to death, but if they want to be relevant in the conversation regarding how to fix our financial system, they’ve got to grow up and recognize what motivates and will always motivate Wall Street.  In fact, when they realize that the heart of Wall Street is never going to change, they’ll probably have some really great material to work with.

As for the market, we continue to churn above major support levels.  I still believe we are set to test the all important 50 day moving average.  At the close today, the market was trapped below the 5 and 20 day moving averages which are both moving in the negative direction now.  A failure to recapture this level tomorrow and I believe we could see a break of the trading range into the end of the week.

The fact that we haven’t pulled back more the past few days with the bloodletting in gold and crude is amazing and testament to the fact that there are strong stocks and sectors in this market.  If you are still trading into the end of the year in this chop, you should be focusing on areas of relative strength instead of the averages, there are stocks to be found which are moving out there.  Playing the ranges though seems to be the better trade right now than taking entries on breakouts.

Crude is coming into a major level of support right above the 200 day exponential moving average.  The contango in $CL_F is starting to get ugly though making $USO a sub optimal way to get long energy.  Remember, when $USO has to roll into crude contracts that trade above the spot price, it negatively effects the price of the ETF.  Watch those stochastics for a bounce, they are very oversold.

Gold is getting closer to stopping me out, all be it with large gains.  This is a system trade for me, so I won’t spend time over analyzing it.  I’ll stop out on a violation of that lower yellow 20 day donchian channel.  Interesting though, that level does correspond very closely to the location of the 50 day moving average, coincidence, I think not.  If you don’t have a position in gold and want one, now is the time.  Take your shot with a tight stop.  If you are looking for longer term gold related positions, look more towards gold miners $EGO and $RGLD.