Crocs Earnings and New Market MoMo

Today was an interesting day with broad indexes advancing on mixed volume. I am not going to post data on where the major indices finished but would like to rather comment on the seemingly new found momentum in the stock market. But if you dig deeply through all of this, you will see that the new leadership stocks are not what you want to be seeing leading this rally. Techs have been lagging lately in what seems like a sector rotation that began middle of January 07. When you look at Bellweathers like Google, Cisco, Microsoft, Apple, in corrective or sideways meandering phase, you have to wonder where this market is headed. IBD's 197 Industry Group list has as its top 5: 1) Steel-Specialty Alloys, 2) Transportation Airline, 3) Auto/Truck-Tires, 4) Chemicals- Fertilizers, 5) internet ISP. This is not the groups that you would like to see leading the market right now. What does this mean? It may mean nothing but just a few months ago, many techs lead this group as well as financials and cyclicals. These groups tend to lead when the market is healthy. So, the question is, is the market really making a new leg up or are we going to run into a correction in the near future? I think all we can do is keep notice of this and be on guard. It is getting especially tricky to make money based on stellar earnings anymore, which might be a sign that the market is tired. It is almost impossible to satisfy wall street right now and nothing less than perfection in revenue growth and profit growth won't do.

I am slowly raising cash at the moment and have began taking small bearish positions right now and I may intensify my activities as the market dictates. It is just too hard to stay long in this market. I usually have a methodology that relies on company earnings for my quick options plays. Right now this strategy is not yielding satisfactory win ratios in my trading, which tend to signal that the market is tired. I will continue to watch the market action.

If the market is to turn bearish today, which stocks would I target? Obviously, you can't just target the companies that have too much "froth". Ideally, you would like to see the stocks that are making new 52 week highs and have began to pull back towards the 50 DMA and those who have broken the 50DMA and is staying down. Also, I like to target stocks with more than 35 million shares outstanding. Below that it is just too difficult to stay short. The higher the stock multiple the better. Thus I have targeted Baidu (BIDU), Chicago Mercantile Exchange (CME), Apple (AAPL), Google (GOOG), Crocs (CROX). But would I? Not yet. I do have a small 120 contract position on $90 Baidu short position right now due to expire in June 07.

Another case in point is Crocs today who reported earnings and blew away analyst consensus estimates for revenue, eps, and forward guidance yet the stock which traded up as high as $3 in the after hour only finished with a pathetic $.46 gain. Yes, I do think the market is frothy. The market at this point should be approached with caution. Only small short trades not more than 2 weeks from now on. Slowly build short positions using option (puts) with more than 3 months in time value on the candidate stocks. Be careful out there.