Can I get a Ute Ute?!?!

Every day we churn higher on lagging breadth and volume is a day closer to our long awaited top. Don’t believe me, check you local A/D line. Here’s mine from the leading index, the $COMPQ.

Notice how the rise leading into the June peak had 3 periods of lagging breadth. Here we are set up again to have 3 new highs on weaking market internals. Even the MACD is sporting a nice divergance. Not much else to be said. As long as the markets keep under their vital levels, or push ever so slightly higher, our forecasts remain intact. I don’t expect anything tomorrow, due to expiry, but a small few time indicators suggest a change in the next 2-3 trading days. Keep in mind that a large number of recent reversals occured within a few days of expiry. I’m keeping a close eye on all of our indicators, and we will pounce once we get our signal!

That said, aside from loading up on puts in an index ETF of your choice, I will outline a few sectors that are going to be very weak once the shit hits the fan…which should be very, very soon!

While shorting the banks, specifically C, is still a great trade in my book, I am focusing on things with a little less risk of being bailed-out. The first sector on my list is the UTES, excluding water utilities as these have a solid fundamenal backing. The $UTIL was supposed to be in a (non-Elliott) “supercycle expansion” that should have gained around 400%. This happens about once every 30 years, and we did jump from 162 to 555, sporting a healthy, but sup-par 340% gain. That should be enough to satisfy this cyclical move. I think as people start “going green,” (i.e. turning off their lights because they are broke) the utes are going to continue to get pounded. Also, due to the mass exodus out of homes and into multi-family housing, the utes should be taking it in the ear. Look at that beautiful H/S Top on the 2 year chart. Zoom in the the 6 month chart, and you can see that the right should is formed by a smaller head and shoulders top. Aren’t market fractals awesome.

And here is a close up of the right shoulder. Yes…one could argue it is just a confirmed triple top…

Some top names I have been watching in this area are CEG (which might be too far gone now), MIR, AYE, ETR, and FPL.

Another logical decline should be found in Advertising. Obviously, as companies have less money to spend, they will spend less on their advertising campaigns. Some top choices in this sector include FMCN, a nice China play, OMC, and MNST. I think that GOOG and perhaps BIDU could fit into the advertising category as well, considering GOOG gets quite a bit of revenue from those silly little ads. Either way, those two will be fantastic shorts in the near future. Going along with advertising I think we will see a nice slide in Publishing – newspapers, magazines, books…your choice. Publishing has been weak for some time, and many of these name are quite beaten down, but the are still some nice moves left in them. Specific names I am watching are GCI, PBI, MHP, MDP and NWS.

Recreational stocks should take a pretty big hit too, namely the casinos. I am watching MGM, IGT, WYNN, LVS, PENN, as well as a handful of others.

Homebuilders and the material sector should continue to fall, but I think the reward in the homies is less than in some other sectors, namely consumer discretionary. Big names there would be TIF, GES, M, BBY, GME, WFMI, SBUX and this list goes on, but I don’t want to give it ALL away. If you are not in the mood to single out stocks, be sure to pick up puts on XLY or XRT. Weight loss stocks will probably go on a diet themselves, as less income forces people to eat less anyway, sorry WTW, NTRI, and LTM.

It’s not that I don’t think most of the banking sector include FRE and FNM will not join BSC, ABK, MBA, etc, in the woodshed. Quite the contrary. I think that about this time, the government will be busy helping its friends and screwing the little guy, as usual. The little guy in this case is the local banks. Yup, the nice, quaint regional banks that offer you chocolate-chip cookies when you open an account. I think that they will take an axing, and you should certainly have some exposure. Just be prepared for the banking sector rallies!

Since Mole and Duuuuuude brought up targets and H/S tops, I have to put in this chart that I sent to DMS quite a while back. Just to note…I sent him this e-mail before the end of April.

I have several retracements and projections that target 6K in the $INDU as a very strong target. Obviously, we won’t just drop straight down, there are some very “reasonable” (in the credit bubble/perma-bull sense), targets on the way down that I will discuss as soon as we know wave 3 is rolling. And please don’t tell me we won’t break 10K…

That should give everyone a nice headstart on banking dough in this decline. I still have a post in the works about some specific trades we are eyeing. I will be sure to get it out when I can finally confirm that the big, bad wave 3 is in force!

Skol!