The Kirk Report

Dead Cat Bounce

A very nice relief rally today. I say enjoy it while it lasts and use the strength to reposition your portfolio appropriately. If you're brave, you may even want to catch a couple of momentum trades created by heavy short selling.

Tomorrow the bulls will have a number of challenges facing them, including several economic reports that will likely continue the general negative trend. Today the market was able to shrug off bad news, but frankly I would be surprised if that continues. The market needs good news for stocks to maintain a move we saw like today. Otherwise, its smells to me like only a dead cat bounce is at hand.

Short covering can certainly power stocks higher for a day or two, as well as oversold conditions, but any sustained advance requires something more real. Stocks only maintain upside traction when there is growing confidence that better times are ahead and market dynamics such as supply and demand are situated that strongly favor upside moves. At the end of the day, I'm not sure anything has dramatically changed in that department from last week to today.

Hard Work Does Pay Off

As a trader, I have to draw my inspiration from various people in my life, including at times, various sports figures. While Vijay Singh is not one of golf's more popular personalities, he proved once again that hard work always pays off in the end by winning the PGA Championship. Here is a guy who works on his golf swing a minimum of 10 hours each and every day and who is known by all tour professionals to be the first one at the golf driving range in the morning and the last one to leave at night. While we all want to admire how far Tiger Woods or John Daly can hit a golf ball, at the end of the day hard work always gets the job done.

Investing and trading is the same way. I know traders who never are able to make a profit because they always look for easy outs. They don't want to spend their evenings listening to conference calls, running stock screens until they are blue in the face, and spend time figuring out the gaps in financial statements that would bore even the most inspired accountant. These folks do little to improve their skills but instead frequently look for the easy road by following the stock recommendations of others.

I've always said that trading doesn't require any unique skill or emotional ability. All it really requires is a ton of hard work, dedication, and constant drive for improvement. Just like Vijay Singh proved, being a winner is achievable to anyone willing to do the work. Can you imagine how good of a trader you could become if you practiced your skill 10 hours every single day?

Insider Buying & Selling

I always pay more attention to insider selling and buying reports during major market moves than anytime else. The reason? Studies have shown that insiders tend to be relatively emotional and usually act in ways show show a higher amounts of greed and fear which are more telling.

So, what companies are seeing greedy insider buying these days? Here are some of the more notable: Chesapeake Energy (CHK), Midway Games (MWY), Popular (BPOP), Watson Pharmaceuticals (WPI), and Curative Health (CURE).

How about fearful insider selling? Here are some of the notable: Amazon.com (AMZN), Countrywide Financial (CFC), Phelps Dodge (PD), Juniper Networks (JNPR), International Steel (ISG), Ryland Group (RYL), and Fair Isaac (FIC).

Bear Trap or Window of Opportunity

The bears are out suggesting that this rally is yet another bear trap that should be shorted. On the other hand, the bulls believe we have a short window of opportunity in oversold conditions between now and the start of the Republican convention. The fact that the Olympics are so far "terror-free" is also helping out, even though oil remains stubbornly high.

So, what am I doing right now? I've put a little money to work again this morning, but nothing incredibly significant. While I think a short-term window of opportunity now exists, I also see a number of economic reports that tomorrow and Thursday that could kill off this new-found optimism faster than you can say "sell." No one really paid much attention to this morning's Empire Manufacturing Report, but they may pay attention to weak reports later this week. Trading volumes remain on the light side, as expected. Be careful out there.

Intrade

If you're tired of speculating in stocks, there are other ways to make and lose vast amounts of money other than visiting Las Vegas. Intrade is one of a number of new exchanges that allow you to speculate on events in the future. Some of the more popular contracts include when Osama Bin Laden will be captured to who will win the Presidential election. In fact, you can even speculate on whether Google will close higher than its opening price on the 1st day of trading. VISIT

The Coming Pension Crisis

Whenever the stock market falls on tough times, it isn't unusual to start reading stories about pension shortfalls. The concern is valid. Back in 1999, more than 50% of companies in the S&P 500 had overfunded pensions. Now only 51 do and most are well in the red. Jack Ciesielski, author of the Analyst's Accounting Observer, recently highlighted 13 companies in the S&P 500 that are at a substantial risk. READ

No Terror Bounce?

It is not surprising to see stocks in the green following no major terrorism during the Olympics. Now comes the hard part for the bulls - to maintain this upside momentum. There are buyers lurking at higher levels, not to mention a fair amount of short-sellers who will cover on strength. Sectors showing the most buying interest so far include precious metals, retail, airlines, and biotech. Stocks on my trading radar include NVEC, BMHC, RTP, WSBK, CUNO, TZOO, PD, EBKR, CIPH, SIMC, LMIN, and ALKS.

Overvalued vs. Undervalued

As long as we have a stock market, there will be constant debate on whether the market is overvalued or undervalued with solid opinions on both sides of the spectrum. I, for one, don't believe either one is a great leading indicator to overall market performance. In my experience, I've see huge rallies in so called "overvalued" markets and huge losses in "undervalued" markets and at the end of the day I only care about profits - I don't care how undervalued or overvalued a market is. I leave that to the gurus and economists who don't have to live off making money in stocks.

That being said, a number of analysts are trying to spin the best data they can to encourage investors to buy stocks at these levels upon the belief that the market is now undervalued. That may be, but before you agree with that view, you have to evaluate both sides of the coin. For what it is worth, Mark Hulbert provides the view that stocks still aren't cheap despite this year's poor performance. READ

We're Oversold, But...

As I wrote earlier, we're now in oversold territory. Still, we're not at ultra extreme readings as some may think we are. In sum, we're moving in the right direction:

A Different View on Oil

I'm sure you've already heard that all but one of the recessions since World War II have been preceded by a dramatic increase in crude petroleum prices. Still, not everyone is convinced that higher oil prices this time will lead us into a recession. James Hamilton at the University of California outlines his view why this time may be different. READ