I tell you, the girls over at Dutch Brothers (a drive-thru coffee joint here in Oregon, which hires shockingly good looking people) not only know my name by this point, but they’ve also figured out exactly what I love to drink, and what car I drive.

They have my coffee ready for me by the time I drive up to them! It’s fantastic. But it goes to show you how much time I’ve spent getting coffee this week in order to cope with this flat market.

After all the excitement of Monday’s rally, the rest of the week was flat, flat, flat.

Dow Jones Industrial Average

Just look at that. The Dow Jones stayed in a 33 point range for most of the week.

A big reason why the market was so flat is that investors were posturing for today’s Bureau of Labor Statistics employment report. At the start of the week people were throwing around all sorts of optimistic jobs numbers. I even saw Zero Hedge –- the most bearish blog I’ve ever read in my life — point out analysis calling for a jobs number surpassing 300,000 due to seasonal fudge factors.

From ZH…

An analysis out of Stifel Nicolaus points out that due to various seasonal adjustments, an NFP print of up to +100,000 could be expected (which incidentally does not reflect anything favorable at all about the actual employment picture as it is due exclusively to seasonal fudge factors). In fact, Stifel argues, a print of +316,000 is theoretically possible

Alas, the positive number never came. Instead the employment report showed an 86,000 job drop.

A couple things you should be aware of regarding the employment report…

• Bernanke said himself that it would take 100,000 new jobs a month for the unemployment rate to start dropping.
• When trying to look for a bottom, it’s best to look at how many hours the average work week is. Right now it’s at 33.2. Once employers start feeling better about the economy, we’ll see this number increase. That’s because an employer would rather give an existing employee more hours rather than hiring a new employee.
• There are 2.5 million people that have no job and want one… yet are still not counted in the unemployment report.
• In February the BLS will make revisions to the 2009 unemployment numbers. Analysts are expecting a HUGE decline as the BLS accounts for fewer jobs created at small businesses. Calculated Risk, who is very good when it comes to predicting economic numbers, has calculated that revision to lead to 824,000 more jobs lost. This would most certainly shock the market and lead to a higher unemployment rate.

So while the jobs report has certainly been improving, we’re not out of the woods yet.

As for the market…

The three major US indexes are at or near 52-week highs and overbought. Investor sentiment is at extremely bullish readings. And the VIX is at a 52-week low.

Even the commodity companies I love so much are sitting at 52-week highs. So what does that leave for us, the guys who profit off of short-term market swings?

One rout we could take is getting into some bearish credit spreads. In other words we sell call options in hopes that they are never profitable for the buyer. But honestly I just don’t feel comfortable going against the dominant uptrend right now.  Nearly ten years of playing the stock market has shown that type of play to be a painful one.

What it comes down to is good old fashioned stock picking.

One stock I’ve recently loved up is Google, mainly because of the Android operating system for mobile phones. It’s really started picking up market share after Motorola’s recent release of the Droid for Verizon.

Admittedly I think the Droid is a hideous excuse for a phone. But everyone seems to be eating it up. Most of that love is because it runs on Google’s OS.

In just the last year the Android operating system has picked up 12.4% market share in the smartphone sector, mainly at the expense of the iPhone and the Blackberry.

And with a slew of new Android devices hitting in the first quarter of 2010, I fully expect that market share to hit 20% or more by the end of the year.

This is great news for Google, and so I expect GOOG to be a low risk way of riding the Android OS higher. Another way to take part is to get into Motorola itself. The company has picked up pace ever since the release of the Droid. Analysts expect 1.4 million Android devices sold for Motorola in the 4^th quarter alone. In all, Motorola sold 12.5 million handsets for the year. For a company everyone expected to vanish by 2010, that’s remarkable.

Motorola isn’t sitting on its ass either. It’s gone ahead and released another phone, the backflip, for AT&T. It also plans on introducing more new Android based models this year.

At this point Motorola has good exposure to AT&T, T-Mobile, and Verizon Wireless. That’s good in my books. All it needs to do now is charge for the European market and sales should beat expectations.

Just be aware that positions in these companies should be held over the mid to longer-term (about 6 – 12 months).

Take care,

Charles Delvalle

The Dow Jones, Nasdaq, and S&P all broke under the 20-day moving average. The 50-day is in the line of sight. Will all three indexes plunge below the 50-day? I may not have a crystal ball, but I do have technical analysis.

Dow Jones Industrial Average

This is what the chart is telling me right now

• The Dow Jones saw significant resistance at 10,500. It even tried six times to break above 10,500 with no success.
• Huge spike in buying volume followed by selling might indicate a blow-off top.
• The RSI and Slow Stochastic are both in neutral territory. This signals more downside left (I’d like to see these two oversold before buying).
• The Dow broke under its 20-day average but is still above its 50-day.

It looks like we might have a few more days of selling. But I expect buyers to come back in as soon as the major averages hit their 50-day moving averages. If we see a decisive break UNDER this average, it could signal a change in trend.

In other words, buying now might be a bit silly. But getting heavily short right now is equally as silly. It’s kind of like betting against the Yankee’s in the first inning because the Red Sox barely hit a home run. It’s just too soon to make that bet.

In times like these, you want to use these small downturns to hedge your portfolio.

Yesterday I recommended you get into January VIX out of the money call options to hedge your portfolio. If you had done what I said, you would probably be in the green (the VIX is up over 6% today!).

Until the trend becomes bearish, I simply won’t get heavily short this market. And that won’t happen until the 50-day is breached on all three indexes.

In a speech Ben gave today, he told us what we already knew: that the US expansion would be slow and that there were significant headwinds ahead. Why this shocked the market into a decline is anyone’s guess. After all, the market is supposed to be efficient. And it should have priced this in already.

It obviously didn’t (another loss for the efficient market corner).

You can get a transcript of Ben’s talk here: http://www.ritholtz.com/blog/2009/12/chairman-ben-s-bernankes-frequently-asked-questions/

In the meantime, we have to determine what this means to the stock market and most importantly, to our own portfolio.

With Ben saying that inflation will drop, investors got out of risk (commodities, emerging markets, and US stocks) and into treasuries and the dollar. The yield on two-year treasuries alone dropped 7 basis points today (0.07%) and the buck rose 0.3% against the Euro.

This, of course, is the second straight day of dollar gains (Read Friday’s post to see what I said about it then). And if you’ve followed my writing for some time, you know that I’m expecting a dollar rally in the next few months. But whether what we’re seeing today will transpire into the dollar rally I’m looking for isn’t clear.

The Dow, S&P, and Nasdaq are all above the 20-day moving average. If that support line fails, I expect to see support at the 50-day averages. If we see the markets penetrate the 50-day, then i’ll take my ramming bull horns off and put on a stinky bear outfit and go hibernate.

If you’re heavily long, you should probably put on a little hedge by buying an out of the money January call option on the VIX.

I didn’t learn that from a movie, I learned it in Florida. After dealing with so many hurricanes, you begin to appreciate the calm right before the hurricane’s effects are felt.

With that knowledge in mind, it’s pretty easy to tell when the markets are too calm. Typically, the VIX index hovers in the low 20’s. And if you are savvy enough to buy a call option at that point, then you’ll be rewarded when a sell-off pushes the VIX back up to around 30.

That’s what I did during the last sell-off, and made a pretty penny. It’s also what I’m doing now to take advantage of the next sell-off.

Oh, and if you really have balls of steel, you can buy a put option on the VIX once it’s around 30 and make some cash as it drops.

Now you see why i love the VIX so damn much. It’s almost as simple as credit spreads.