today’s tape

The stock market is in serious trouble. Yes, again. I warned of a sustained drop in equity prices on Wednesday, and, to these eyes, the price action indicates we may be headed back to the January 52-week lows.

First, energy prices are hitting new highs everyday. So far, we have only seen record oil crush the airlines. You should always – always - be short somewhere, and shorting the airlines has turned out to be the best oil trade of them all. We are also seeing strong deterioration in the car manufacturers. GM and F have lost about 15% over the past 10 trading sessions.

This market has been able to shrug off oil at $100, $110 and $120. But oil above $130 is really starting to drag on the US economy. It will soon cost over $100 to fill your car will gasoline. Airlines are charging extra fees to check one bag on flights. The high price of oil is going to hamper other parts of the economy soon. We’ve already seen the airlines and car manufacturers get taken down. Next up, it’s retail.

I had been somewhat impressed by the price action in retail names like COH, KSS, and the RTH in general, but we are starting to see this group turn over. Most notably, the bears are trying to end the run of WMT. If WMT can’t perform given the current state of the US economy, when every shopper is likely flocking to their stores, no retailer will.

Restaurant stocks were thrashed this week, and we saw dramatic drops in casual dinning eateries CAKE and PFCB. But we also saw 5% drops in fast food chains. Again, if MCD and YUM – two of the cheaper places you can eat outside of your home – are rolling over, you can’t expect the sector to do well.

Although high energy costs will pressure the market, it won’t cause a full on panic like a potential financial crisis. Here, of course, I’m speaking of another Bear Sterns. And on that note, let’s take look at LEH. The stock has given up 17% in 5 days. Almost as compelling is the heavy short term put buying. Over 17,000 puts at the June $22.50 strike (priced at 55 cents) traded hands today. From the stock’s current price of $36.11, there is heavy speculation that LEH could drop 37% in a few weeks. This is exactly the type of price action that happened before BSC went under. I’m just saying.

The bond insurers are racing back to their 52 week lows. I don’t know why many on TV had said the catalyst for shorting these stocks, the banks and brokerage houses is gone. As far as I can tell the price keeps declining; that’s all the catalyst I need.

To be sure, there are still pockets of strength to be long; and you should always be invested in equities that  outperform.  The DOW and S&P 500 were taken down by the financials last week, but the NASDAQ is holding above its 30 day moving average.  Technology  stocks like AAPL, RIMM and INTC are still right to own.  Coal and steel withstood a rough week to remain in prolonged up trends.   And if you could only invest in one country right now, it should be Brazil.  I wrote about the country’s market on May 15th.

With such a robust uptrend in place, the key is now finding the best of the best in the market. And for that you need to invest south, in Bazil. Look at where PBR, RIO and SID are trading. This is why the EWZ (Brazilian ETF) is one of the few international markets at a 52 week high. Don’t go looking for other countries trying to play catch up. Stay with the leader.

Shorting the S&P 500 and staying long the EWZ should be profitable for the next few months.

Any bounce we may see in the financials next week should be sold (shorted).  The credit crunch may not have swallowed its only victim; the dollar is weakening again, causing gold to rally; and the economy is only getting weaker.