Dead Cat Update

Well, last Tuesday was the very definition of a "dead cat bounce". Most of us thought there would be some positive follow through. Unfortunately the market continued to grind lower. There were some hopeful signs on Friday as a number of beaten down stocks closed up some after trading in a tight range all day.

For me personally the last month has been really tough. But I plan to sit down on Monday and re-group. Next week should not be particularly meaningful due to low holiday volume.

I have taken advantage of the pullback to add to beaten up tech positions in Apple, Google, EMC, Hewlett Packard, Dell and Cisco. In the energy sector I purchased Transocean at its lows from last week and added to my position in Devon Energy. I reduced my position in Cameco. In the infrastructure sector I added to my positions in Shaw Group and Jacobs Engineering.

I sold a number of positions that have stagnated and don't appear that they will do anything one way or the other in the foreseeable future.

After Tuesday's huge rally the S&P 500 closed at about 1481. On Wednesday the S&P 500 bounced along unable to break through major resistance at 1490 before heading down again on Thursday. Friday was slightly up but with options expiration it is hard to draw any conclusions from it.

If Hewlett Packard posts a strong quarter, which I expect it to, after the bell on Monday that may be the catalyst to get tech stocks moving up again. Analysts will be watching closely to see if HP reports some of the same domestic weakness, particularly in the financial sector, that was highlighted by Cisco. Certainly Google is at a much more attractive entry point right now. For the aggressive traders out there, the same is true for Baidu.

China has me pretty nervous right now. I will be watching closely in case China continues to break down. I have a lot of confidence long term in China Mobile. I am strongly considering reducing my China Life Insurance position in half. Too much of it's profits are coming from investment gains in an overheated market. However, same store sales were up 18% last month in China, validating two points: consumerism is on the rise in China; inflation is becoming a real problem.

Next week I am going to look at how to best set up for the rest of the year. I still believe the market will be higher on January 1 than it is today. I am considering setting up long option vertical spreads using January '08 expiration on the SPY and perhaps on the QQQQ. This will allow me to profit from a rise between now and then while not having to put up much capital.