Post Market Courier 02/24/10

"Do you chop?" Is a common question often heard in a Texas Hold 'em cash poker game. The question arises within the context of when all of the players who have the option to call, raise or fold all choose to fold their two hole cards before the community cards are dealt. The action then comes around to the two forced blinds--the small and the big blinds. The money they have out as part of their blinds represents the only money in the pot. Usually, the two blinds will look at each other, shrug, and agree to "chop" their blinds by taking their respective money back and moving on to the next hand before the community cards are dealt.

The logic behind the chop is that, even if you have a great hand--pocket aces for example--there simply is not enough money in the pot to make playing the hand worth it. Moreover, you have the potential to usually win a small pot (if your opponent senses you have a strong hand betting your aces) or lose a big one (because you would be hard pressed to fold your pocket aces in a heads up pot. There is also the possibility the casino will take a cute (rake) out of each pot, and the winner is expected to tip the dealer. In sum, the reward is usually not worth the risk. (Side note: many poker pros NEVER chop for a variety of reasons. When I played poker full-time I always chopped if the person next to me did in order to portray an easy going laid back table image which I thought would benefit me in a large pot later on).

Applied to today's market, the concept of chopping is what the bulls and bears seem to be looking at each other and doing. The savvier bulls and bears both know right know that regardless of their long term thesis, the short to intermediate term could easily continue to stay in a tight range filled with false breakouts and phony breakdowns.

With the $SPX closing up 0.97% to 1105, the market is stuck between the 50 and 100 day moving averages. We have bounced off the 100 but were rejected at the 50. In general, this kind of action is bearish, as moving averages are bullish indicators when the market bounces off of them rather than churns on them. So, I am more apt to look at the bearish case in the short term. Rather than aggressively layer into outright short positions, I am stealing The Fly's idea of going long $TLT. Undoubtedly, any stock market selloff will lead to a flight to quality into treasuries. I will become more aggressive to the short side and when we definitively break below the 100 day m.a. at 1095.

I still have some long equity exposure with $CTXS (stop below $43). I also bought some $BZ today as an earnings play.

As you can see, $BZ is oversold technically. It is also a fundamentally strong company and cheap by almost every metric. Thus, I am willing to roll the dice into tomorrow's earnings. After a massive rally since March 2009, the stock has essentially been in a falling wedge since its October high. The stock could rally all the way to $6 even and still be within the trading range. So, I like the risk/reward setup here.

Most of all, I still have a sizable cash position and am content to be holding it so long as we remain in a choppy tape.