These blog posts originally appeared on RealMoney Silver on Oct. 23..


7:20 a.m. EDT

It appears that, at least on the basis of yesterday's reversal and this morning's futures bump, neither rain nor sleet nor structured investment vehicles can stop the equity market.

More significantly, nothing seems to be able to stop the anointed stocks -- those institutional favorites Research In Motion ( RIMM), Apple ( AAPL), Google ( GOOG), et al. -- that keep on leading the pack.

The admiration for growth has at its core a group of companies that have shown and continue to show an ability to innovate and take market share from weaker competitors. The profit growth demonstrated by these companies shines ever more conspicuously above the rest against a backdrop of slowing corporate profit growth.

The divergence between the heavy-lifting Nasdaq, which embodies many of the anointed ones, as contrasted with the lagging S&P (particularly of a financial kind), continues to "bear" watching, as a narrowing in the market leaders typically precedes a broader market decline.


9:05 a.m. EDT

A Hindenburg Omen?

I wanted to follow up today's opening missive by raising the possibility that we are setting up for a Hindenburg event.

As most know, I don't use technical analysis that much, preferring instead to dwell on the fundamental issues.

This is not to say that I totally reject the use of technicals (or people who worship at that altar), and I incorporate it, at times, with my analysis.

The "Hindenburg Omen" is a signal in technical analysis that attempts to forecast the growing probability of a market drop of meaningful proportion by gauging breadth measures.

In normal circumstances, "either a substantial number of stocks establish new annual highs or a large number set new lows -- but not both. When both new highs and new lows are large, it indicates the stock market is undergoing a period of extreme divergence. Such a divergence is not usually conducive to future prices. A healthy market requires some degree of internal uniformity, whether the direction of that uniformity is up or down."

According to Wikipedia, here are the criteria for a Hindenburg event:

  • The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day.
  • The smaller of these numbers is greater than 79.
  • The NYSE 10-week moving average is rising.
  • The McClellan Oscillator is negative on that same day.
  • New 52-week highs cannot be more than twice the new 52-week lows (however, it is fine for new 52-week lows to be more than double new 52-week highs). This condition is absolutely mandatory.
Here is a more thorough explanation.


10:24 a.m. EDT

Two Important Things I Am Hearing

I am very busy trading today, but there are two important things I keep on hearing:

    1. Merrill Lynch's ( MER) writedowns will be larger than many expect.

    2. Citigroup ( C) is seriously considering a spinoff of several of its businesses.

I am trading from the short side, with the expectation of a reversal lower during the day.

Today the Nasdaq is up 1%, but NDX breadth is negative. This could be Hindenburg!

Position: Short QQQQ


11:33 a.m. EDT

Private Mortgage Insurers at New Lows

The market is ill-prepared for a failure of a major private mortgage insurer.

I am short all of them.

The shares of private mortgage insurers, despite the rally of the last two days, are at new lows. And despite "value investors" all over CNBC during the last three months suggesting the group was oversold, they are not oversold.

They are failing institutions that lie at the epicenter of the housing problem.

Position: Short RDN, PMI, MTG and GNW

At time of publication, Kass and/or his funds were short QQQQ, RDN, PMI, MTG and GNW, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.

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