Saturday, May 29, 2010

New Normal

You need to throw out the patterns that worked from March 2009 to April 2010.  They will no longer work for the next few months.  The market tends to reinforce a pattern on the majority and then changes the pattern.  We were so used to the dip buying pattern that I got caught a couple of times with my hand in the cookie jar.  Dip buying will be treacherous now.  The fragile trust that was slow rebuilding in the market has been shattered.  It will take a while to regain it.

I have heard more than once about how we need to wait for higher prices to short because of what happened in February.  This is a different market.  In February, you didn't have these skull crushing moves in the final 30 minutes like you do now.  That is vintage October 2008.  The European crisis is getting more dire and building energy.  The ECB is notorious for being late in their moves, the market will force their hand again to make bolder moves in quantitative easing.  By the time they feel the urgency, we'll be below 1000 on the S&P. A level closer to 950 reflects the European problems.

It is funny how when the market was going up, the wall of worry was about the rally being liquidity driven, high unemployment, and the stimulus going away.  Now I hear more talk about how the economic data is looking good.  Remember, economic data is always backward looking!  We need to look through the windshield, not the rearview mirror.  And the windshield reveals an ugly picture in Europe affecting global growth which will bring down earnings estimates. 

Technology has the biggest exposure to Europe.  Nothing will scare this market more than when the earnings warnings in tech start streaming in during mid to late June.  Meanwhile investors are whistling past the graveyard. 

Friday, May 28, 2010

House of Cards

This market has no liquidity and any motivated selling drives this market down with ease.  The last hour just shows you how thin the market is.  You never had this kind of craziness in February. I think too many traders are still caught in bull market uptrend mode.  That has been thrown out the window.  Look for more weakness in the coming weeks, with very limited rallies.  I think we see 1020 before 1120.

Squeeze Into the Close

The weak hands have sold, there should be minimal selling going into the close.  With the lack of liquidity, I think they could ram it up as high as 1100 in the next hour.

Spain Again

Its not the news that is important, but the reaction to the news.  Well, that was a pretty bad reaction to a Spain downgrade that everyone saw coming.  Sell the rallies.

Weak Market

This market doesn't give you much time to short.  I am not in the minority when I say that I am waiting for slightly higher prices to sell or short.  That is the problem.  The market is dripping down today and showing a lot of weakness.  And I don't think its because of pre-holiday profit taking.  The buyers are just not eager anymore and more and more investors are realizing the seriousness of the European slowdown.

Holiday Trading

Memorial Day is on Monday, so we will probably have dead volume for the 2nd half of the session.  I think today is the top of this run up.  I expect early weakness down to 1095, and then a slow grind higher back up to around 1107.

Thursday, May 27, 2010

Looking Short Now

I will be looking to grab a short position soon.  These reflex bounces off oversold conditions usually breakdown within 2 days.  So tomorrow should be some range trading and then early next week we'll likely head back down to fill the gap at 1065. 

Very Little Resistance Till 1100

Remember, it is an airpocket up to 1100, so now is not the time to go short.  Let the bulls have their day, and market will be ripe for another downturn.  The higher it goes, the more bear fuel there is.  Resistance starts from the 200 day moving average around 1100 and then at  1107.  I doubt we can top 1107 on this run up.

Bears Absent

The first 20 minutes can tell you a lot on these big gap days, and the signs are pointing to a trend up day.  I wouldn't fade this upmove today.  Let the bulls take it up.  I am waiting at 1107.

Fade This Gap

I expect intraday weakness off this big gap up.  Ahead of Memorial Day weekend, traders will not shy away from selling longs into this rally and I expect pressure straight from the opening bell.  I expect us to trade down to 1065 today. 

Wednesday, May 26, 2010

If We Gap Down Big

I wouldn't bet on the market pulling off another low near the open and high near the close trade.  This is no ordinary selloff.  The persistent selling in the face of so many dip buyers is a strong signal of weakness.

More Weakness Ahead

Very weak market.  We need a total flush out and capitulation.  None of these weak open strong closes.  We need weak open and weak closes to get this market to value levels.  With the European slowdown becoming more and more clear, the earnings estimates in tech are way too high.  When tech starts to reflect the slowdown in Europe, you will get earnings warnings and that will torpedo this market lower.  Feels like 2002 all over again.

Down 1% in 4 minutes

We went from 1076 to 1065 in 4 minutes from 3:23 PM.  There was no news.  That isn't a flash crash, but it shows you how little liquidity there is in this market.  Lots of volume, little liquidity.  Nobody wants to stand in front of the freight train because stocks are just lotto tickets, the fundamentals aren't supporting this market.  The credit markets are telling a grimmer story than equities.  Usually the credit markets are right. 

Bounce Players

Fast Money halftime report was all bulls.  There was absolutely no hesistation and the confidence was frighteningly high.  That coupled with the market well off the day's highs sends a warning signal to me.  With broken fundamentals and a Europe slowdown all but in the bag, we are in trouble.  We are going to have another selloff very soon.

Euro Not Cooperating

The euro is not joining in the fun this morning and it is down a cool 1% today.  Also, European markets are underperforming since the European opening bell.  I think tomorrow should be a strong selloff if we hold above 1080 today. 


The sellers are going to take a break today after doing a lot of work the past several days.  I am going to step aside and look for a short entry Thursday.  The technical damage is the most severe since March 2009, so I doubt this market will be able to get above 1107 anytime soon.  Another selloff is looming on the horizon, likely to take us to at least 1020. 

Tuesday, May 25, 2010


I don't think that was the bottom.  We will likely trade in a range tomorrow and traders will de-risk ahead of the weekend by selling on Thursday.  The selloff still has more time to go, I see weakness at least till the end of next week or the 2nd week of June based on cycle analysis. 

Too Calm

I've never seen a lasting bottom occur when things were so calm despite continued weakness.  On Fast Money Halftime Report, I didn't see much fear, traders were looking for bargains and happy that 1040 held.  Maybe we can go up a bit from here.  But if we go up from here, I think it will be another rally that is sold, probably around 1070.  1015-1020 needs to be tested before we get a sustained bounce.  If we fail at 1015, then 980 is in the cards. 

Market In Trouble

This market is getting ready to do some deepsea diving later today.  The initial trading reeks of weakness and we probably need to get down to 1020-1030 before we can bounce sustainably.  Any bounce from here will be sold the next day. 

First 10 Minutes

If we jump up in the first 10 minutes of trading, the day can be salvaged and we can rally off the weak open.  If we can't go higher off the open in the first 10 minutes, then the market will be in deep trouble today. 

Monday, May 24, 2010

Selling Overdone

I think the selling in the last 10 minutes were daytraders that were hoping for Mutual Fund Monday and they didn't want to hold overnight.  I expect a gap up tomorrow.

Bad Price Action

This is pretty bad price action if you are long.  The market needed to stay in the green in order to close strong.  Now you will get the worrywarts out in full force as we go lower.  Looks like a weak close.

Bull's Toughest Test

Since the March 2009 low, this correction will be the toughest test for the bulls.  From high to low, 1217 to 1051, we went down 166 points.  That is over 13%.  The technical damage sustained from such a correction will not be easily overcome like in July 2009, October/November 2009, February 2010.  We will not go straight up off this correction like the others.  So we need to throw away the playbook from the previous corrections over the past 2 years.  This is something new, more vicious than the prior corrections, but not a repeat of 2008. 

We will likely continue this short term rally into Tuesday.  I remain long.

Europe Dropping

Europe brought down the futures again, and its a pretty big gap down after Friday's positive action.  This complicates the picture if the market can't go back into positive territory today.  If we don't close positive today, this market is in trouble.  If we go positive, I expect follow through into Tuesday with a strong open. 

Sunday, May 23, 2010

Friday Revisited

Traders suddenly got flashbacks this week to the wild days of the fall of 2008.  In particular, on Thursday and Friday, we had levels of fear that I haven't seen since March 2009.  Quick drops, high VIX, high put/call ratios, bears on TV, and wholesale liquidation.  A key predictor for the reversal to the upside on Friday was the currency market, as the risk currencies were making higher lows as stocks were making lower lows.  That was a signal that the markets were nearing selling exhaustion and a reversal was at hand.

Psychologically, holding above the lows from February and successfully retesting the flash crash lows built up confidence into midday Friday.  But panicky short covering and overeager bargain hunting forced the market to go higher than it was ready to support.  Then you had traders anticipating a trend day higher till the close get nervous as the markets steadily goes lower.  These traders steadily exited after lunch time.  Thus you had the drip drip weakness into the final hour. 

The last 15 minutes of Friday trading seemingly came out of nowhere and to many it seems like manipulation, but I disagree.  Right now, the stock market isn't about fundamentals, but about confidence.  As the gloom started to set in during the drip drip lower move in the afternoon, thoughts of Thursday's nasty close and Black Monday populated the heads of traders.  These thoughts only reinforced the selling, but most of this selling was fast money that targeted a weak close to close out shorts or to rebuy longs cheaper.  A sharp rally higher starting with about 15 minutes left caught a lot of daytraders off guard.  The fear dissipated rapidly and switched to greed on anticipation of the recent pattern of Monday strength.  When fear turns to greed that quickly, you get a moonshot higher.

Friday, May 21, 2010

Mini October/November 2008

Like those crazy days of 2008 we had another classic one way panic move in the last 30 minutes.  Yesterday we had it to the downside.  Today it was to the upside after sucking in the bears with the drip drip lower move.  There are no more market makers, no axe, just black boxes going bananas at the close.  I hope we see more of these one way closes because they are kind of predictable and easy to ride.  We've seen a short term bottom.  My initial price target is 1115. 

Final Hour

Since today is options expiration day, I think we'll have some crazy move in the final hour.  Based on the chart for today, I believe it will be to the upside.  The market is so oversold that the odds favor a bounce in the final hour ahead of a Monday which traders will anticipate positively.  The currency market supports my belief that the liquidation for the short term is complete.

That Was the Bottom But...

We will likely retest at least 1060 during the day.  If it wasn't Friday, I would think differently but there will be risk reduction continuing throughout the day and those underwater will use this rally to get liquid.  I think we'll have a whopper of a snapback rally on Monday but for today, the upside will be contained.  I would not chase longs here, wait for 1055 to 1060 zone to be retested.

Fundamentals Don't Matter

We have gone into primal emotions of survival and fear.  The greed is thrown out the window.  Investors are going into bunker mode and will not reach for stocks until the coast is clear.  By that time, we'll already be well off the lows.  The key is to pick the bottom.  Those saying bottom picking is dangerous don't understand that buying rallies after a correction is even more dangerous.  I think the time to buy has come.  The futures are gapping down again, but unusually, Europe is outperforming the US again.  This tells me European equities is sold out.  The bears have already stationed there.  They are trying to station US equities now.

Thursday, May 20, 2010


This is the new buzzword in finance.  The fear is getting close to a crescendo, but there is a good rule, the last move is always the biggest and fastest.  The last move down is always the sharpest and quickest.  The woes in Europe are priced in.  The question is how much forced selling is left.  I think most of it is done. 


This is pretty close to capitulation.  CNBC guests are mostly bearish and it seems like we are going to bounce.  I think a bounce can happen at anytime.  I think we've seen the lows for this down move.  The euro is bouncing hard above 1.25 which tells me this late day bounce is sustainable.

Intraday Upside Reversals

There have been 2 reversals to the upside in the past 3 days.  Today doesn't seem to have that same feel as those reversal days.  Despite the higher VIX, the markets aren't fluctuating as rapidly as they were on Monday or Wednesday.  Maybe its because we started with such a big gap down.  In any case, I think we'll probably close weak today but nothing explosive.  Market feels heavy but not as panicky as I expected.

Panic Mode

Everyone is getting in their bunker and the new buzzword is derisking.  The market gapped down big and unlike past instances, it just kept selling off.  This is a definite change and an indication of a scared market.  I don't think anyone wants to take home risk overnight and we'll likely see further weakness.  I think an intraday reversal seems less likely and the more likely scenario is just selling throughout the day and a very volatile Friday.

After 1075, I see support at 1068 and 1062.5.

Panicky Action

The futures took a nosedive like you rarely see except during panic periods.  There is no telling how far we can go down today.  But the fact that there was no reason for the huge selloff makes it even more scary.  I think we are close to the point where buying will work, but the question is how far are we going down today?  I think today feels like it could be the bottom. 

Wednesday, May 19, 2010

Rising LIBOR

The LIBOR rates are at 9 month highs.  We are nowhere near the fall 2008 levels, but it is a sign that the problems are getting more serious in Europe.  I do think a bounce is around the corner, the only problem is that there are many others looking for the same thing. The put call ratios were very high today so there was some fear out there in the options market.

Euro Government Intervention Rumor

There is a dubious rumor about government intervention in the euro and that is why it turned around from under 1.22 to above 1.23.  I don't think you get bottoms in a currency from rumors of government buying or from government buying.  This is only delaying the inevitable flush out.  The euro is a crowded short, but the momentum is so strong that we probably need a panic bottom before we get a sustained turnaround.  I think the bottom will take longer than many expect.  We may have short term bottoms that last a day or two, but I think we need to really shake the bulls and test those depths from Thursday May 6 to get a sustained bottom.

Euro Up But Market Weak

The euro is rallying here in the face of a stock market selloff.  This is a change in character which needs to be noted.  It seems like the traders are liquidating their "dear" assets such as US stocks which has been less scathed than the popular hedge fund punching bags like the euro and European stocks.  Notable is the outperformance of European stocks over the past 1 1/2 weeks while the market has sold off from the initial euro bailout euphoria.  Bottom looks close.

Intraday Weakness

The market is coming back from the abyss in afterhours again.  The volatility in afterhours is off the charts and the fear is starting to percolate.  I don't think we're there yet, the bottom.  We probably need to touch base between 1090-1100 before we can go higher.  I think this market has one last whoosh left it in.  I expect us to get back down today and fill the gap left on Friday May 07 at 1107.

Tuesday, May 18, 2010

Gap Fill Coming

The market has to shake out more bulls before going higher.  There are too many dip buyers waiting to unload on any rips.  The market needs to flush those guys out before it makes a strong move up.  Any rallies from this level will not last more than a day.  This euro weakness will eventually cause some meltdown, as currency havoc often leads to fear.  We aren't there yet, but we could be in a couple of days.  1090-1100 level is a good spot to try a dip buy.  Right now we're still too high.

Germany Bans Short Selling

This is big news.  I think it is an admission that they need to manipulate the market to maintain low credit spreads for the PIIGS, as well as trying to protect their banks.  I think this only puts pressure on the related instruments that will be shortable, such as DAX futures.  I think Europe will view this negatively when their markets open tomorrow, the opposite of what these regulators intended.  The euro is already selling off.

Trend Day

This market has built a lot of momentum off the gap up open when there was optimism that the euro had stabilized and we were back off to the races.  The bulls are jumping the gun eager to get a rally going and the market is not cooperating.   We need to consolidate more before having a sustained run higher.  I expect weakness to continue and for us to close near the lows.

Panic is Over

I believe we've made the lows for this downleg yesterday and we'll go higher for the rest of May.  Levels below 1125 were soundly rejected on Friday and Monday.  There could be a few days of consolidation this week between 1125 and 1155 this week but next week we should be trading back towards 1170-1180.  Risk reward favors the long side now.

Monday, May 17, 2010

V day

Looks like a V-shaped recovery today, it is looking like there is not enough sell pressure.  It is not that common of a pattern, but if the market was going to go down hard today, it wouldn't be bouncing so hard from the lows.  If I had to choose sides for the next few days, I would choose long, but I will wait for an easy trade.

Going Down

The market is gapping up to my surprise.  There was a furious comeback during European hours coming backf rom down 15 on the futures right before European markets opened.  Euro has also bounced back from 1.22xx.  I expect the market to fade in the 2nd half of the day, this seems like eager beavers thinking that Monday will be up because Friday was down. 

Saturday, May 15, 2010

Euro Bashing

It has become fashionable to bash the euro, European economies, and their financial markets.  I hear a lot of talk about 1.15, 1.20, and parity between the dollar and the euro.  Yes, Europe's governments are a big part of their GDP and any sovereign debt problems weigh heavily on their economies.  And Europe will likely grow slower than the US.  But let's not forget that the value of a currency is not based on nominal GDP growth rates.  Otherwise, Zimbabwe would have the strongest currency in the world.  And Japan would have one of the weakest currencies.  But that's not the case. 

If you look at past history, the euro has been strengthening versus the dollar.  Historically, the ECB has a tighter monetary policy than the Fed.  Europe has a trade surplus and the U.S. has a trade deficit.  In the long run, under those conditions, it is hard to have the U.S. dollar sustain strength versus the euro.  The same goes for the U.S. dollar versus the yen and the yuan. 

The investment community is quite illogical when it comes to the ECB and the Fed.  The ECB is doing a tiny fraction of the debt monetization that the Fed has already done and yet the euro gets hurt on the theory of debt monetization.  If the financial markets are predicting further ECB debt monetizations on economic weakness, they are making a bold bet.  Even during the depths of the 2008 crash, the ECB refused to do quantitative easing.  Currently we are nowhere near that kind of dire economic situation. 

Let's not forget what happened in 2008.  When the euro was trading between 1.55 to 1.60 versus the dollar, dollar bashing was quite fashionable as commodities soared.  That ended up being the historical top for the euro.  Today is a mirror image of the spring of 2008.  In fact, the fund community is probably more short euro now than they were long euro in spring 2008.  The euro is not likely to make a sharp move back up any time soon, as it takes time for sentiment to change.  In order to confirm that a bottom is being made, I would want to see the bearish sentiment stay in place while the euro does not make new lows for several weeks.  Then I would ride the euro and look for a sharp move higher, probably sometime in fall.

Friday, May 14, 2010

From Expectation to Disappointment

The emotions should change from expectation of more European bailout goodies to disappointment come Monday morning.  That furious rally in the last 20 minutes of trade can be attributed almost exclusively to expectations of possible European "positive" news.  I even heard on CNBC that selloffs on Fridays have led to Monday rallies.  You know the pattern is known to all traders when CNBC catches on.  I am expecting a gap down for Monday.

Another Europe Surprise?

I think the bears are probably more nervous holding short over the weekend than the bulls, as weird as that sounds on a down 2.4% day.  But I doubt Europe will do anything drastic over the weekend and I bet the bulls will be sorely disappointed.  If the EU does nothing over the weekend, look for things to start getting nasty on Monday right from the European opening bell.

Most Advertised Retest

I must say, this has got to be one of the most advertised retests that we are seeing.  It surprises me that so many people predicted such a retest.  But sentiment is not concrete and is just one of the factors to look at.  Often times following the herd is the right thing to do.   The euro weakness is trumping everything right now, and provides an easy excuse to sell. 

One thing I have noticed is that gold is weakening today, which tells me all risk assets are deflating.  I do expect continued weakness today because we have broken through 1141 and we should test the close of Thursday at 1121.  Beyond that, it is very possible that Europe panics on Monday and we gap down to fill the gap from Friday down to 1107.

Europe Weakness

Europe is dragging down the futures again.  The euro is the story of the day, as it is breaking new lows.  And gold is breaking to new highs.  It is getting close to a climax of euro bearishness and gold bullishness.  I am not playing it either way, but I see it as a poor trade to go short euro here.  As for the ES, it is getting whipped around by Europe but the demand for US equities seems pretty robust despite the weak futures.  Shorting current levels is not a good risk reward situation. 

Thursday, May 13, 2010

ES 1172

The top of today's intraday range should be a good point to get short, with a stop above 1182.  I expect Friday to be an up day as shorts cover and people front run mutual fund Monday.

Now Back to...

Your regularly scheduled programming! 
Its obvious what's gonna happen in the next 5 1/2 hours isn't it?  

Euro Weaker Again

The euro keeps getting pounded.  It is not that common to see such negative sentiment for a currency and to see it get continuously pounded with few bounces.  It is the opposite of 2008 when the dollar was continually getting pounded and the euro was around 1.60.  I think we are getting very close to a bottom in the euro price wise, time wise, it could mill around between 1.25 and 1.30 for a few more months. 

I expect intraday weakness today in the ES and I would sell at the open to cover at lower prices intraday. 

Wednesday, May 12, 2010

Waiting to Short

It is too dangerous to short right now.  Although there is a lot of resistance at 1170, once that is clearly penetrated, there is an air pocket to 1180.  The investors are just getting comfortable with this new market and it will take another up day before a good short setup shows up.  CSCO earnings are out and there isn't much of a reaction.  Too late to go long, too early to short. 

Squeezing Shorts

This market has been designed for one purpose, to squeeze shorts.  I think we'll go to 1180 by Thursday.  The world governments have banded together to squeeze the market higher and print out trillions to do it.  That is why the pullbacks will be hard to find.

Huge Overnight Reversal

The overnight range was crazy.  We hit a low of 1141 and a high of 1160.  A 19 point range in overnight trading is not normal, so there are definitely some nervous hands right now.  I expect this gap up to be filled rather quickly in US market hours.  I am fading this gap here. 

Tuesday, May 11, 2010

Rats Have Jumped Ship

There is no real demand.  The rats, umm, bots, have jumped ship and unloaded their inventory and have found no bidders underneath.  That is what happens in a bot driven market.  The market keeps going higher until the uncle point for shorts and then reverses and goes straight down until the uncle point for momentum buyers and then real buyers come in.  Everything in between is bot driven.  I still think we will go to 1180, this is just a detour. 

Going to 1180

The bears are toothless here.  There are no sellers in this market.  The bots have such a huge market share that they can buy and ram this market higher.  With the dearth of liquidity, there are no sellers to get in their way.  I see 1180 by the end of the week.

Feels Like Bots Trading

There is no real demand, it is a bunch of bots going to war here.  They see that its a gap down, and the bots put in the buy orders, and they see an opening range breakout to the upside and they pile in again.  Investors have lost confidence and see this market for what it is, a ponzi scheme.  When the suckers don't play, it is bot vs. bot.  The sheep have been taken to the cleaners.  There are none left. 


The increased volatility over the past week has unnerved investors.  The market has been revealed for what it is, a big casino with valuations too high to be supported by insider buying or value players.  It is a big momentum game right now.  The momentum is still to the upside with a rising 200 day moving average, but there are huge cracks now.  The only problem is that a lot of people already see them.  We will likely make an attempt at filling yesterday's gap this week.  Today if we trade below 1140 for more than 30 minutes, I think we'll likely go down to test Friday's intraday highs of 1129.  But I wouldn't get too greedy on the short side, the bulls still have a lot of life in them.

Monday, May 10, 2010

Tomorrow Will Be Critical

The bears need to eat away at today's gains starting tomorrow at the opening bell.  If there isn't much selling tomorrow and the ES stays above today's low at 1144, the market will likely bust through to 1180 by the end of the week. 

Euro Fading

This is a bad sign for Europe.  The plan doesn't seem to be inspiring much confidence in the euro currency.  Its been dropping steadily during the day.  If it starts making new 52 week lows, the carry traders are likely to go bananas and start selling off risk assets.

Feed the Fish

You rarely get such a golden opportunity to fade a gap and today is one of those days.  4% up on the futures and on news of a EU bailout. Reminds me of TARP.  Once the euphoria wears off, we will likely see lower prices.  Maybe then, it will be time to buy.  The open is a time to sell.

Money Spew

Well the Europeans have drawn a page out of the US and tried to support their bond market with more money.  It is funny how they say they will defend the euro with more euro printing.  But the European financial markets have been exposed for what it is, a bunch of overleveraged banks and bloated governments looking for bailouts.  Sounds like the US in 2008. 

I expect the gap up to be faded hard in the US open as stock holders breathe a sigh of relief that they can get out of their holdings at inflated prices and rush for the exits.  

Saturday, May 8, 2010

Shock to the Heart

The slow torture of endless up days with no pullbacks came to an abrupt halt this week. The market did its best to ignore the European contagion and it finally gave in after getting too high.

When there is a shock to the system like on Thursday, the market gets nervous in the short term, and that nervousness plays out on the price screen.

I'm happy to see that there are finally intraday moves greater than 5 points. The volatility is terrific, but I don't think it will last for long.   This kind of high energy trading is hard to sustain.  We'll be back to sleepy markets with no intraday volatility sooner than you think. 

We've put a ceiling on this market around 1205-1210, which will be hard to break through anytime in the coming months.  This selloff has been more abrupt than any other since the March 2009 bottom and investor sentiment is more like shock than dread.   Investor sentiment hasn't had much time to catch up to this new market, and that should put a lid on any quick rallies for the next several days as more traders jump on the bear bandwagon.

How should we play it?  With the uptrend still intact and staying above the 200 day moving average, I think you have to play it with a long bias.  Looking into Monday, I am looking long.  But I think any 2 day rallies can be shorted for next week.  I think shorting is now getting dangerous.  Intermediate term, the market will likely go back up and fill the gap left behind Monday night at 1198.

Friday, May 7, 2010

Capitulation During European Hours

I think traders will capitulate during European hours on Monday. I am leaning towards a gap down because there are still traders hoping for the ECB to come up with a rabbit out of its hat and I believe the ECB will disappoint the market again.

Extreme Volume

The volume today and yesterday are extreme, off the charts. Even the most volatile days in 2008 didn't trade this much volume, even though the volatility was more extreme back then. The machines are running amok and to me, it seems like there are a lot more quants trading now than back in 2008. That probably explains much of the huge volume. The action today is kind of bearish, but we are very close to a bottom. Either today or Monday.

That was It

I don't think we will be going lower today. I think that was the bottom, we've reached a pinnacle of fear intraday and we will likely finish higher from here.

Surprisingly Complacent

Maybe its the stabilization of the European market or the jobs report, but it is surprisingly complacent from what I see on the news. I think that spells bad news for today. I would be careful buying. I'm beginning to think more and more that we're going to have a big gap down on Monday.

NFP is a Bull Trap

I think we're going to test lower levels before going higher. The nonfarm payrolls is a smokescreen for what really matters, Europe and the panic of yesterday. The futures are trading with a lot of energy and we can move quickly on a dime. I think there will be some sellers at the open and that will test the buyers. I don't see a trend day today in either direction, but there should be a lot of emotional trade today. I think Europe has bottomed, so looking out towards next week, I would be a buyer, not a seller. For today, we're likely to oscillate from -1% to +1% on the S&P.

Friday or Monday

Where will the post panic bottom be? That is the question. In overnight trading, I have noticed that Europe is outperforming the ES if you look at the close price at 4:00 PM and the current prices trading in the European session. Throughout this whole selloff before today, Europe was continuously underperforming the American markets. I think that signals that we have reached a point where the European sellers have exhausted themselves. The question is when do the Americans sellers go away?

Thursday, May 6, 2010

Futures Will Probably Selloff All Night

I think it is going to be one of those nights that we saw so often in 2008. Get ready for some deep red futures in the morning. Europe ain't gonna save us, they will just pour lighter fluid on the fire.

Eerie Feeling

I think we were in the process of crashing today and the PPT came in to save the day. I have no proof, but I think the accepted belief that it was a trading glitch is bogus. I believe positions were being unwound by institutions at the same time and the system couldn't handle it all at once and the bids disappeared. Tomorrow should be an ugly day. At this point, the downside momentum is a freight train in all risk assets. Europe is getting closer to chaos and mass sovereign defaults. No one will want to take home risk over the weekend which will likely mean a weak Friday. I can just feel it in my bones.

Wild Market

I think that was probably a huge fund that liquidated their positions and program trading took it down as the bids disappeared. I would have to say that this is pretty much a panic bottom, although the issues in Europe still linger. The effect of today will last for a few weeks, I think the risk premium just went up substantially today, and that could affect trading for tomorrow. I would expect the market to get back to more normal conditions next Monday. There should still be some jitters tomorrow if we stay weak, which is a definite possibility.

We have gone from a ordinary selloff to a confidence shaker.

Market Wastes No Time

The market dropped earlier than I expected, but its all the same. We are likely to close weak today and tomorrow should be a wild day. Surprisingly, today seems more like a methodical, cold-blooded selloff, rather than the emotional gap down opening yesterday with the Greek riots on TV. SPX 1150 should be tested and will likely fail in the face of euro destruction. The euro has solid support at 1.25 and that should stop the trend. The end of the tunnel can be seen.

Looking for A Weak Close

Another gap down open tells me that we are probably going to have a weak close today. Unlike yesterday, today's gap down seems less emotional and more supply/demand driven. I think the plug will be pulled before noon and we'll trend down the rest of the day. 1150 is definitely within reach.

Strength of the Bounce

It is a bit too early to tell how strong this bounce is, but yesterday gave us some clues. We should have stayed around 1170 after strongly rejecting the early lows of 1155, but we faltered in the 2nd half and closed at 1163. That is coming after a big down day the previous day, which gives it more meaning. The action speaks for the market to consolidate between 1160 and 1170 for the next few days. I still believe we will be going higher by later this month, but we will likely spend some time at these lower levels.

Wednesday, May 5, 2010


I think this market will consolidate between 1155 and 1175 for a few days and I foresee breaking out of that consolidation to the upside. There is strong support around 1150, and with the euro already pummelled beyond recognition, I don't see that going down more to pull this market down. A stabilization of the euro and the European market is the likely catalyst for this market to go higher. I expect a gap up tomorrow.

Panic Bottom

The pictures of the Greek riots and the euro near 1.28 is probably about as close as you will get to a panic bottom in this market. I think we have seen the lows for the near term and we're going to grind higher, albeit slower than previous bounces into 1200. I think shorting for more than daytrades is dangerous here. I do think though that today's action will be capped at the overnight highs of 1175 so if we get there, it could be a daytrade short opportunity.

Euro Capitulation

The holders of euro are totally capitulating today, and I see it as a long standing bottom. I don't know what that will do to the market, because the correlations are getting weaker, but I think we're near a bottom price wise, if not time wise. I am frankly surprised at how quickly traders have gotten bearish and are looking for more downside. Funny thing is, they are just looking for a few percent. Yet from their commentary, you would think the market has to get to 1000 before bottoming. I think its too late to take any short positions for more than just daytrades. The euro panic seems to be signaling that we are almost done with the selloff.

Tuesday, May 4, 2010

Futures Rallying in After Hours

One thing I've noticed is the lack of follow through selling into the after hours, and we are up nearly 9 points from the bottom in regular trading hours.  That doesn't seem like a market that will collapse to me.  Combine that with the sudden bearishness of the crowd on CNBC and I think the selloff is not going to go below 1160.  I am looking long in the next few sessions and will ride it higher into next week.

Support Broken

We are in a freefall after critical support at 1177 and 1170 was broken.  The sovereign debt fears in Europe are lingering, and the Spain equity market got crushed, taking down Europe with it.  It looks like the market is hell bent on getting to 1150 as quickly as possible.  I expect us to trend down the rest of the day, probably going to 1160. 

Trading Range Forming

We are consolidating the gains with a trading range here.  The range is forming around 1215 to 1175.  I would be a buyer in the lower end of the range and a seller near the top end of the range.  That would put us slightly below the middle based on the current futures.  I don't see a big selloff quite yet or another rally to new highs.  Traders should get ready for range based trading in May.  That is how I'm going to play this month.

Monday, May 3, 2010

Where are the Sellers?

The sellers disappeared over the weekend and now its back to the same pattern, dip one day and then rally for several days.  We should not be trading above 1200 if we are to go back down below 1180 this week.  So I am back to watching and waiting.  The patterns are different from those in the past.  

Euro Getting Pummelled

I  know the link between euro weakness and market weakness has gotten much weaker, but the weakness in the euro is sticking out like a sore thumb.  Down near its 52 week lows and off 1% today.  That is a big move in FX, and it tells me that risk is being taken off the table.  The hedge funds are having a field day today since they're favorite position right now is short euro.

We're Going Down

I wouldn't be fooled by the gap up or the initial strength which I see as being very possible due to first of month automatic inflows and "relieved" bulls piling in during the first hour.  Friday showed that this market has got more work to do on the downside before going up.  I am looking for a spot to short a bit higher from here.  I will ride it down to 1180. 

Saturday, May 1, 2010

Revenge Trading

"Revenge is a dish best served cold."

This week was kind of a roller coaster week.  I didn't make any big moves, but I did do some daytrading and I had a bad stretch from late Wednesday to early Thursday.  I was caught short and was trying to rationalize my position in the face of relentless overnight upward pressure in the futures.  I got out of my position early in the US session on Thursday because the market was stronger than it should have been after staying strong on Fed day the previous session.

Actually cutting the loss on Thursday would have been difficult for me to do perhaps a couple of years ago, when I probably would have just cannonballed (averaged up) on the short and pray for a reversal.  But I listened to my gut Thursday and got out.

Afterwards, I felt a strong need for revenge.  To get back my loss.  That feeling didn't go away.  The only way to get rid of that feeling was to make back my money that I just lost.  Personally, I have a very strong need for getting my money back right after I lose it, even if the opportunity isn't really there.  I will often force the issue.  Sometimes it works out, and sometimes I just dig myself a bigger hole and go into despair.  I would have wanted to get short again at higher prices, like 1200, 1203, or whatever on Thursday even on a mediocre setup just for a chance at getting my money back.  I resisted the temptation but the feeling remained.

I had to wait a day to get revenge.  I did get some revenge, as I was able to catch some downside on a daytrade short on Friday, where the risk reward was decent after 2 up days and persistent weakness midday. 

The point I'm trying to make is this.  You don't need to take revenge right away.  Also feeling a need for revenge while trading is not a bad thing.  But there is no need to rush.  The market will always be there.  Having the need for revenge and making your money back is a good thing as long as it isn't acted on hastily.  It is good motivation to look aggressively for setups and to work harder.

My best trading in the past has always been after deep drawdowns where I felt a strong need to get my money back.  Those are the times when I am the most motivated.