In this vicious hedge fund unwind liquidation phase of the bear market, even stocks I thought might be enticing on a pullback have gone through my pullback numbers like a hot knife through butter. For example AMED is now around 48 and AFAM has pulled all the way back to its 50 day MA around 35. In the case of AMED it is now almost 30% off its 52 wk high, and AFAM is now in the middle of a 21% correction. Hence the dangers of trying to catch a falling knife. And a great lesson for those who try and play upside momemtum in a bear market. DON'T try this at home!

There was an article about hedge funds in Barron's this weekend and its the kind of article you are sure to see repeated by various media outlets in the coming months. Hedge fund investors want their money back before it evaporates completely especially in the poorest performing Hedge Funds. But Hedge Funds are changing the rules on them. They are putting a moratorium on redemptions to stem the tide of money out of these funds. So here is a valuable lesson about hedge funds in a bear market--they are like the proverbial "Roach Motel" you can check in, but you cannot check out.

In these troubled times it is difficult to search for the bright spots of the business scene. We previously pointed out pawn shops as an obvious choice. Here is another--Home Health Care. The aging population of the U.S. demands home health care services for the foreseeable future. The leader in this field is Amedisys, Inc. symbol AMED. AMED is very overextended. Do not buy this at its current $62 area. Wait for a pullback into the $53 to $57 area. Another company is AFAM, but I did not do enough research on this one yet. These companies are showing very good relative strength vs. the rest of the market, so the group is not a secret to professional money managers. But I do believe that this story has legs, and with the proper entry point, there is still good money to be made.

The market loves Qualcomm $54.24 (QCOM). QCOM holds many wireless patents. They just settled a long running patent dispute with Nokia (NOK). Immediately upon the news the stock broke above $50 and the buying pressure continues. The market likes the news. QCOM is a great way to play wireless. You dont need to anticipate who will produce the next cool handset: Nokia, Motorola, Apple, Blackberry, Samsung, etc. etc. QCOM rakes in the roylties regardless.

In a classic sell on the news, EZPW announced good earnings then reversed from its high over $18 to $17.24 on twice its normal average daily volume. Because we have over a 40% gain in little over 4 months, I would take 33% off the table, and manage the rest of the position. As a general rule of thumb whenever I have a 25% profit in a position, I sell 20% and manage the rest. If I have a 50% profit, I sell at least a third to 40% of my position. If I am lucky enough to have a 100% profit, I sell half and play with the house's money.

In a scene reminiscent of a 1930's Depression era run on the banks, Indymac depositors angrily lined up earlier last week to demand their money after the bank was taken over by the FDIC. Adding credence to the theory that money and brains are mutually exclusive, it was reported that at least 10,000 of Indymac's 275,000 accounts had in excess of the federally insured limit of $100,000. How can someone who was able to accumulate over $100,000 be so dumb and leave savings exposed like this? But the best part of the story carries a "What goes around comes around" plot. It is best summarized by the following commentary from the Huffington Post:

Hmmmm...no black people involved in this riot?.... Of course not! Not many people of color have neglected bank accounts with balances over 100 grand. I must admit to a wee bit of schadenfreude watching these very well-heeled, overwhelmingly white Republican Ditto-head supporters of McCain/Bush & Co. and their "free-market", no government oversight or regulation, every man for himself brand of capitalism, out there shoving each other around like a bunch of rowdy anarchists and whining for the government to step in now and give them their entitlement of the amount of their fortune that they knew was not insured. They have finally reaped what they have sewn!

Update on pawnshop operator EZ Corp (EZPW), originally recommended around $12 on March 23rd. As of Friday July 10th close it is now $16.36 having pre announced higher earnings for the quarter ended June 30th. Earnings are due out July 24th and there will be a conference call on the web. Unfortunately pawn shops are thriving in this very poor economy. This company seems to be a needle in the haystack of stocks which are suffering.

There are three phases to a bear market--denial, acceptance and capitulation. Last summer when Citi fell from 55 to 45 then to 35 analysts were pounding the table begging anyone that would listen to buy, buy, buy. This was the denial phase. Now we are hearing in the general media that we are in bear market territory down 20% on the Dow. Who ever came up with this stupid benchmark should be shot, but thats for another discussion. So now we are entering the acceptance phase, albeit reluctantly. Hey even GM was downgraded to sell by Goldman after making a 53 year low. You will hear the parade of talking heads on TV telling us "Don't Panic", there's "value" its close to the "bottom", yada yada yada. The same talking heads that thought that the housing sub-prime credit crisis was "contained" are now urging us not to panic. Funny isnt it???? After several months of acceptance we will be ready for the capitulation phase which will include more scandals, suicides and arrests, a forced liquidation of some more hedge funds that bet wrong, and stocks selling for seemingly unthinkable levels---Citi $5 anyone? Then and only then will the next fortunes be made. There will be light at the end of the tunnel and this time that light will not be in the form of an oncoming train.

The Dow undercut its March and then its January lows settling around 11,346. The Dow is down almost 1700 points since mid May. The transports have cracked 5000 though this index is holding up much better. Banks and GM are finally being downgraded to sell. Only weeks ago you heard the mantra, stocks are cheap, its close to the bottom and all that other crap. Now reality has set in. Some hedge funds which are highly leveraged and bet wrong have to be in trouble. The VIX is no where near panic levels. Barron's has resigned itself to the belief that the financials won't recover until 2010. Wall Street analysts are biased, and therefore worthless. The only truth is in the charts. While a rally could surface some time in July, it should be a bear market rally which should be used to sell stocks and originate new shorts. A Dow rally into the 11,800 to 12,100 area would be the sweet spot for this action plan.

We had our 800 point plus rally to over 13,000 on the Dow from the Bear Stearns panic bailout low in the low 12,000's. Now the Dow has dropped under 12,000 down over 1,000 points from mid May. We are teetering on the brink once more. The second half of this year in the stock market may very well be decided in the next 2 to 4 weeks.

Big Brown and the stock market. Before the Belmont Stakes everyone was convinced that Big Brown would be the first horse in 30 years to win the Triple Crown. When reporters questioned why Big Brown would succeed where others have failed they were told, "Big Brown is different". In 1999 when internet stocks without earnings were selling for 140 times earnings (if they had earnings at all) and some companies with no sales had market valuations 10 times that of General Motors, journalists were told, "this time its different" Well the lesson of Big Brown as the lesson of the stock market is that its never different.

Friday April 18th, the Dow closes over 12,800, the Dow Transports close over 5,000. At the same time new highs on the NYSE dwarfed new lows by 3 to 1. Bad new predominates, but the market does not care, it wants to go higher. For example HOG announced sharply lower slaes and layoffs, but its stock is in the same 37 area as it was a couple of months ago when we told everyone to cover their short. The market is sold out for now. Whether this up move is sustainable--only time will tell. We will not know this until Memorial Day. However, you cannot be short this market yet..... Trust the market, but as Reagan used to say, "verify"

April will be the most important month in the stock market for 2008. It will resolve the issue as to whether the rally of the past two months was the beginning of a new up move, or just a blip in an ongoing bear market which started in the fall of 2007. So far the first 10 trading days in April goes to the bears. Especailly because GE a company who has gamed earnings for years, missed its estimated. GE is a bellwhether of the economy because of its broad industry reach. The market is failing and failing badly at a key technical juncture. Every rally into resisitance is met with failure. Unless the Dow can break above 12,800 along with a move by the Dow Transports above 5,000 it is still a bear market.

In this horrendous economy who profits? Pawn shops and pay day loan companies. Any business that provides temporary relief to struggling every day lower middle class working stiffs down on their luck. Demand for cash is great, and the cost of capital is ever being lowered by the Federal Reserve. Check out Cash America International on the NYSE (Symbol CSH) and EZ Corp on the Nasdaq (Symbol EZPW) Both companies are the prime benificiary of the current economic crisis.

What little respect I had for CNBC I lost today. This morning when Warren Buffett told Becky Quick that we are in a recession, she looked at him incredulously. Two seconds later, the bottom of the screen flashed a red "Breaking News".....Buffett says we are in a Recession. Duh!!!!!!!!!!!! Do these people live in the same world as the rest of us? I am tired of listening to these nitwits tell an unsuspecting public that---1. The subprime mess would not carry over into the general economy;and 2. That those who sold stocks last summer were stupid "lemmings" (according to Erin Burnett). I have learned more about the market from Tori Spellings reality show than from the biased talking heads on CNBC. Becky Quicks ignorance has personified this today and this speaks volumes about the financial media in general--they offer absolutely no value to an investor and probably detract from the sum total of all knowledge. What I do know is that we will probably have a nice tradeable bottom from here which is around DOW 12,200.

Todays Federal Reserve emergency action cutting the discount rate 75 basis points inter-meeting (the first time since 2001 such an inter-meeting action was taken) is nothing more than the Bank America Bail Out Plan. Last week, BAC took on the rest of Countrywide (CFC) and now the Fed has helped them by softening the cost of taking on the carcas of this crappy company. Almost 6 months to the day, we told you to short Harley Davidson (HOG) in the mid 60's. Well this morning HOG opened at 34.75!!Because of the fed action and because we have over 30 points in the trade, it is now time to cover the short. I think, err.... I know that HOG is going lower, but take the money because you never know how long this fed induced counter trend rally can last. You can always reshort after the gittiness ends. HOG has already bounced to the 37-38 area off the lows. So take that great trade off now.......

THERE IS NOT ENOUGH PAIN YET! The market has shrugged off the potential housing crisis as if nothing has happened. Even our short HOG dropped like a rock only to recover to 50. But this cheerfulness should be short lived. Economists have no clue how slow the real economy is. Just look at the roads. There is less traffic where I live despite fantastic weather. And gas prices have hardly budged even though crude futures set record highs daily. I am no genius, but even I can figure out that domestic US gas stations are seeing less demand. World demand must be incresing to justify $85 per barrel. But certainly not here. If the oil cracks then we will have a worldwide recession. If not, the recession will be contained only to the U.S. giving further credence that we do not matter as much as we used to.

With the real estate market malaise that we warned you about, and with interest rates ticking higher and gas prices, its obvious that adults don't have the same amount of $$$ to buy expensive toys. Thus Harley Davidson (HOG) is exhibit A as the type of company that will struggle from future sluggish sales. Short Harley Davidson, up to 66, with a buy stop above 70. If we are right about this one, the downside is almost 20 points to the low 40's.

The disappointing retail sales for this holiday season can be traced directly to the decline in the real estate market as consumers can no longer tap the equity of thier homes to spend elsewhere in the economy. Wall Street economists are "shocked" because they can no longer relate to the real economy due to their mighty status as the elite of this country. How can a Wall Street economist accurately predict what the masses will do, if he or she takes home millions in bonuses? These economists just assume everyone is doing well. Its impossible to feel the pain of the average broke American conusmer.

For the first time in 2.5 years the price of gasoline is lower than it was 12 months ago. We thought this would happen and we posted this a year ago. But what was surprising was how long, the prices held up. We thought they would collapse a lot faster. But we will take what we can get.