Wednesday, June 30, 2010

Bull Suit

I got out of my short position and have gotten into my bull suit.  Now long.  There might be a little follow through selling tomorrow but the selling into the close seemed pretty panicky.  I expect a gap up.

Reverse By Close

We are getting the ugliness that I was waiting for.  I will cover and reverse to a long position by the close.

Delayed by Bulls

I thought the bottom would happen today but unless we fall apart in the last 90 minutes, we will continue to go lower tomorrow.  The lack of fear is preventing a bottom from forming.  They are delaying the inevitable, a strong breakdown of SPX 1040 and a close below it.  The longer the delay, the less confidence I have in a strong snapback rally.

Short Again

I can't help myself, the market looks ready to jump off the cliff.  I got short with a small position.  Looking to get out around the close.

Dubious Bounce

This bounce from the open looks fragile.  I would not be sucked in to buying hoping for end of month markups.  Instead, I expect the bounce players to exit in the 2nd half of the day causing chaos and a break of yesterday's lows.  1025 is a possibility near the close today.  I am contemplating a daytrade short here but am nervous to put on shorts at these levels.

P.S. - Cramer seems bullish today.

World Markets

The point of recognition comes at different times for different markets.  Europe was the first to realize that it was in trouble and it was the market that was the weakest up till early May.  Now it is an outperformer.  Next came the Hong Kong/H-shares China market which caved in and formed a bottom.  Along with the Hong Kong/H-shares China bottom came the bottom in crude oil.  Now the last stalwart of this bull market from March 2009, the US market, is falling on its knees.  It has yet to bottom.  But from the action in the overseas markets, it is only a matter of time before it does.  I don't see a big bad bear market.  The correction is almost over. 

I am waiting to get long, waiting for that one final push lower which I think we'll get today.

Sold Long

I have sold out my long position overnight and believe that we'll fill the gap and trend lower today.   I would not trust any intraday strength above 1040 for today.

Tuesday, June 29, 2010

Looking for a Bounce

I have covered my short and I am playing for a short term bounce and got long near the close.  I think I might be a bit early but I don't think there will be too much heat from these levels. 

Starting to Cover

I have started to cover my short position and will get out of all of my short by the close.  I will likely start a small long position at the close.

When to Get Long?

The classic view is that you have to wait for either 2 things:  1. capitulation  or 2. support holding and a rally.  The problem with #1 is that capitulation is rare.  There are many more bottoms than points of capitulation.  The problem with #2 is that you don't get in near the lows and have to pay up after the rally already gets started.

For the current situation, traders have been conditioned to buy at current levels.  This is the 3rd time that we are trading between 1040-1050.  The last 2 times yielded 65 points and 90 points from bottom to top.  It is very  tempting to be a buyer here and wait for another rally.  The problem is, most traders are thinking the same thing.  I think we flush out the weak hands by going under SPX 1040, stay under for a day or two.  From that point, I believe we can have a sustainable rally.

Busting 1040

If we bust 1040, that should open the floodgates and we'll likely have the give up that I am looking for.  The fear is starting to build and short term traders seem poorly positioned.

SPX 1050

The market made mincemeat of 1046 support and it looks like we are headed for 1036, which is SPX 1040.   The bad consumer confidence number should go a long ways towards putting the market towards more bearishness.  I will be looking to cover my shorts later today and may reverse to long at the close or tomorrow.

Gap and Go

We have a big gap down this morning due to weakness overseas, in particular China.  Euro is going back down again amid supposed pressure from the coming expiration of an emergency 442 B euro emergency funding program.  These don't seem like good reasons to gap down so much.  Which makes me think that it is more of a supply demand driven gap down, which I trust much more.  I am looking for a trend down day.  First strong support area is around 1050.5, area of a big gap, followed by 1046, which is SPX 1050.

Monday, June 28, 2010

Consolidating on Low Volume

Volume was very light today, after the selloff that we had over the past week, the inability to attract enough volume buying at these levels has to be troublesome for the bulls.  Seems like a bearish consolidation between 1067 and 1079.    There are a lot of weak longs here looking to trade for a quick bounce.  I am not so sure if the market will oblige them.  I expect a continuation of the short term downtrend for at least a few more days. 

Sitting on My Hands

The market is trading in a boring narrow range and I am compelled to just sit on my shorts and wait.  Nothing today has changed my mind about this week's outlook.  When I hear bad news and worries about FinReg passage, potential weak jobs number, etc, I will cover then.

Potential Pitfalls

Catalysts for a sudden drop in the market:
  • Failure to pass the current financial reform bill.  This would undo a lot of the rallies in the financials and build more pessimism.  
  • European bond default / failed auction.  Less likely than before, but still on the table.  
  • Earnings misses and weak guidance for blue chips such as GE.

I am looking for oscillations in early trade and then a resumption of selling in the 2nd half of the day.

Saturday, June 26, 2010

Big Wave

The last selling thrust is upon us.  Many traders are poorly positioned after the Russell Rebalance, renewed financials optimism after FinReg, and end of month markup expectations.  On top of that, a G20 meeting will only reinforce the lack of coordination between Europe and U.S.  Europe wants austerity, and U.S. wants endless stimulus spending.  Europe has been quiet for some time, I expect one last salvo which will put in a scare to longs.  We must anticipate the traders, and many are looking to sell into quarter end markups and ahead of a weak jobs report.  Thus I expect the low to be on June 30.

The important question is how low will this thing go.  1040 again looks like a convenient spot to stop the wave, there will be buyers lined up between 1040 and 1050.  If the market can somehow blast through all those buyers and get under 1040, then we'll likely see 1020 quickly.  That should be the bottom.

Friday, June 25, 2010

Not Enough Fear

If today was the bottom, that had to be the most fearless bottom I've ever seen.  Also the Russell 2000 rebalance buoyed the small caps more than it should have under normal market conditions.  The newly added components to the Russell will be inflated because index funds had to pay up to buy those new names, and there is a mean reversion when that artificial  demand is gone.  I expect a gap down on Monday.

Making Investments

The daytrade short has now turned into an investment, or swing trade.  I believe we'll have a gap down on Monday and will hang on for lower prices.  FinReg and oil spiking are providing bulls relief.  The relief should be temporary and I expect a trip back down to 1040-1050.

Daytrade Short

Took a daytrade short.  I expect us to go to around 1050.  Looking to close out about an hour before the close.


As we head towards retesting the lows at 1040, there are quite a few bullish divergences. 
  • European and Asian indices are outperforming the S&P.
  • Crude oil is relatively strong and will likely make a higher low.
  • Euro is not falling apart and hanging on to most of its gains from 2 weeks ago.

I see no bearish divergences on this downleg.  This doesn't mean we will not go down more, but if we do, I expect the market to bounce back quickly. 
I expect a couple more days of weakness and then strength starting late next week.  Risk reward favors the long side in July.

Thursday, June 24, 2010

Getting Out

This market is not allowing for a graceful exit, i.e., there have been no meaningful rallies since Monday morning to get out of longs.  I can sense the anxiousness of the bulls here.  They want to get out, but at a better price.  When they start panicking, that's when I want to get long.

Heavy Put Activity

Something doesn't make sense.  We are down only 1% yet the put/call ratios are through the roof as if we were down 3%.  We have likely seen the lows today and I expect a rally for the 2nd half of the day. 

No Strong Support till 1070 SPX = 1066 ES

I would wait to dip buy.  Market wants to go down quickly.

Giving Up the Ghost

The illusion of a self-sustaining recovery has disappeared.  There was hope that inventory re-stocking and pent up demand would drive the economy when the stimulus wore off.  Those hopes are slipping away along with stock prices. 

At some point, everything bad will be priced in.  That hasn't happened yet.  You don't get bottoms when traders think we're in a trading range.  You get bottoms when traders expect continuous selling.  We'll have our summer correction, bottom, and then go up.   I actually think we'll finish the year above 1200 because the economy is so weak that odds favor it getting better rather than worse.  Historically that is almost always the case. 

Today's gap down doesn't seem panicky at all.  It feels like a gap and go scenario to the downside.  I hope I am wrong because I would love to sell between 1090 and 1095.  We are in the middle of the down leg, so I want to short rallies, not try to bottom pick.

Wednesday, June 23, 2010

Weak Earnings

I am seeing some of the earnings come in for after hours and it is disappointing.  BBBY is guiding lower.  NKE came in light on revenues.  MLHR misses bigtime.  This is a preview of things to come for earnings season in July.  I don't think the market has fully priced in weaker earnings and there should be quite a few bombs coming next month. 

Bears in Control

Surprised to see that the rally was so weak.  Straight up and straight down.  We are trading in a range, but going to the top and bottom of the range in a straight line.  This market is being set up for bad news coming out of Europe that will scare out the longs.  I think the selling lasts till the end of the quarter.

Yuan News = Bull Trap

That was quite clever of the bulls to ram it to slam it on the China yuan news this week.  Its much easier to sell volume into a gap up than a gap down.  This selling spree is not done yet.  The persistency of the selling into the Fed meeting and on Fed day tells me that bulls are poorly positioned.  We might have a little rally into the close and then the sellers will likely return in full force tomorrow.

Selling Doesn't Wait

This is a very strong move lower because traders are ignoring possible Bernanke bullets and going straight for the sell button.  I do see some bull relief for the market later today but we could be in for some trouble for the next few days.  The down leg to 1040 is underway. 

Fed to the Rescue

We are short term oversold heading into the Fed announcement.  Odds are that we grind higher today into the announcement and then after the announcement, probably a selloff.  Breaking through 1100 so easily puts to question the sustainability of the rally.  I think we will keep selling off into the end of the quarter. 

Tuesday, June 22, 2010

Down The Slope

We hit the peak on Monday.  It looks like we are headed down the slope to get back to 1040.  Banana Ben will just be a speed bump for the bears.  We are going to head back down the slope at the same speed that we went up it.  Fast. 


The support evaporated like quicksand and no one wants to buy the dip.  They don't make it easy to short this market.  It goes down in one big swoop.  I don't think the selling will last past the FOMC but it is aggressive selling.

2Q Window Dressing

The techs are outperforming, today, particularly the portfolio manager favorites like AAPL.  The fund managers seem to front run the window dressing every year, so you have them run welll before the last day of the quarter.  By the last day of the quarter, they are done with their window dressing buys. 

Bear's Best Shot

I think that was the bear's best shot for busting to new lows for the day.  It will now be traders looking ahead to Bernanke's unlimited infinite eternal liquidity show tomorrow.  They will likely position long ahead of it.

FOMC Jockeying

I don't think anybody wants to be short ahead of the FOMC.  You can deduce the price action just by realizing that fact.  I am flat and will reshort later.

Housing Data

There will be existing homes data coming out at 10:00 AM, I expect there to be a soft number and a selloff on it.  After that, it will be jockeying for position ahead of the FOMC.  Any down move will have to happen in the first hour.  I am sure everyone expects nothing new from the Fed, and more endless liquidity.

Monday, June 21, 2010


That is what happens when you are at a top.  You gap up on good news and sell off all day and finish in the red.  Even if we go back up in the coming days, the price action will be conducive to top building.  I am eager to add to shorts on any trips back to the 1120-1125 area. 

Lacking Energy

Tech is underperforming and overall this has to be a bit disappointing for the longs after the bullish China yuan news.  It reinforces my belief that we are close to a top price wise.  A few more days of churning and we're going to be set up perfectly for a fall.  If the sentiment gets more bullish, I will be adding to my bearish bet.

The Chinese are Coming!

It was inevitable.  The Chinese revaluation had to happen, the currency manipulation by China was going to end.  Theoretically, this should help US exporters who can sell more cheaply to China.  It seems like political posturing ahead of the G20.  I have put down some bear bets here. 

Saturday, June 19, 2010

Fundamentals Are Bad

The fundamentals are getting weaker again and the bear side is well advertised now.  With the market still over 100 ES points from the year's highs, I don't see a big edge in calling for a bear market considering the risk of a continuation of the up trend. 

This rally that we had this week really has confounded a lot of traders, as the economic data comes in poorly, with a few earnings warnings sprinkled in.  Why did we keep going higher despite the bad news?

What gives?  Well, if you look at what the market was really worried about, you have your answer. The market was worried about a European debt crisis and that crisis has cooled off considerably with the euro going higher amid better news out of the Spanish banks and successful Spain bond auctions.

There is also BP fatigue.  I don't know about you, but I am tired of hearing about BP.  It is priced in.  

Isn't it interesting how the economic data looked great in April as the market was higher but now after a big correction, it looks horrible?  I think a jobless recovery is the most likely scenario.  Stocks are a rich man's game, and the lower-middle class struggling doesn't affect the direction of the stock market.  As long as the rich are fat, stocks will be supported.

The Cassandras are still plentiful and I find it hard to see a big plunge when that is the case.  Even if we have the double dip, the market will not likely fall much.  The liquidity is papering over everything and stocks are no longer overowned.

I am ruling out a visit to 990, and I even think breaking 1040 will be tough to do.  For dip buyers, 1060 is probably the lowest price they can hope for this summer. 

Friday, June 18, 2010

Dull Market

Volume was dead most of the day and we are back to a dull market.  There is a FOMC meeting next Wednesday.  I can't imagine we fall much ahead of it knowing how much Wall Street likes Banana Ben.

ES 1116

ES 1116 = SPX 1121 is a level that is stalling out the market, which is the 50% retracement from the October 2007 high to the March 2009 low.  I think it is too late to buy and it is time to start layering in on the short side.  A negative is that the crowd still seems skeptical about the rally.

Closed Short

Took a small loss on the short.  I don't like the price action today for shorting.  I will wait till next week.  It could selloff or it could go up, I am neutral for today.

Shorting Here

I believe we have a healthy pullback today now that options expiration is here.  I have put down a short position.

A Tired Market

The market looks ready to tip over and I expect a pullback today.  There is no economic data until next Tuesday.  Quadriple witching trading usually leads to higher than normal volumes in the first 30 minutes.  Yesterday's action has me more bearish. I am going to play it from the short side today. 

Thursday, June 17, 2010

Short Setting Up

Well the short squeeze at the end of day tells you which way the daytraders were leaning today.  I do think a good short is setting up, and today's intraday weakness before that squeeze is a preview of things to come.  But I will not be venturing on the short side for more than a day or two, the swing short trade will have to wait.

Selloff Looks Feeble

There doesn't seem to be a lot of energy behind the selloff today.  I wouldn't chase weakness here on the sell side.  In fact, I would not be surprised to see us get back to the flat line on the day.  Tech continues the outperformance which likely means fund managers are putting on risk.

Squeeze Continues

Euro is up again today with a stronger European market and despite bad economic numbers, we have a gap up.  I think we'll likely sell off a bit from the open because 1115 is stiff resistance.  It can go either way today, so I will just watch for now.

Wednesday, June 16, 2010

Tricky Juncture

There is something for the bulls and bears in this market.
Bullish points:
  1. Market has broken through resistance at 1100-1105 and stayed above 1105.  
  2. Sentiment has not gotten bullish despite the continued strength.
  3. Rallying on bad economic numbers and earnings warnings.
Bearish points:
  1. Lot of technical damage done from early May to now. Most since March 09.
  2. Fundamentals are clearly getting worse as noted by earnings warnings and Europe sovereign credit spreads.
  3. Q2 earnings expectations are still high and potential for disappointment.
  4. Bad news is always lurking from the PIIGS.

Impressive Strength

  • Bad housing starts and building permits numbers
  • Fedex and Nokia warns

If the above two things happened today after yesterday's big rally, most people would have expected a weak market.   But we are slightly up and tech is leading.  The market is going up on bad news.  It also did that yesterday with under consensus economic numbers and Best Buy missing estimates.   The prices are getting close to where I want to short.  But I will wait.

Cramer Indicator

Jim Cramer, esteemed market guru, hates this rally.  I view him as a contrarian indicator.  I am early thinking we are at a top.  I think I have to wait till next week to put down my shorts.

Tuesday, June 15, 2010

Europe: All About Nothing?

Action like today puts into question what the effect of the European slowdown will really be.  I am not so sanguine to say that Europe will have minimal effects on the US.  The US economy is very fragile and even a blow to just a few countries in Europe could carry over to the US and slow down growth. 

As for BP, its not a factor for me.  It affects consumer sentiment, but I believe that's just temporary.  

I am glad we got over the 200 day moving average and that will hopefully clear out a lot of shorts in the market.  That makes me eager to get short.

No Selloff Today

I am calling for continued strength today into the close.  The bears will be very reluctant to go home short for fear of having their face ripped off again overnight and the bulls will not want to miss the overnight creep higher.  For swing traders, tomorrow will be an exquisite opportunity to get short at high prices and wait for the bulls to panic again in a couple of weeks. 

Looking Bullish

If I had to choose sides for the rest of the week, I would pick the long side.  I don't think we'll go up much, but I do expect it to be up.  There is bad news fatigue and news like yesterday's Greece downgrade no longer have legs.  Just like it takes time for the bulls to become bears, it takes time for the bears to become bulls.  We are still in that transition stage from bears to bulls.

Europe Outperformance

Europe got so beaten down this year relative to others that it is bouncing back the strongest of the major world indices.  It doesn't mean Europe's bottomed, but it probably means this rally has more legs than those others over the past few weeks.  Of course, we have another gap up today, and panicky longs who sold at the close will look to buy back higher at the open. 

Monday, June 14, 2010

Intraday Reversal

That was as benign an intraday reversal as I've ever seen.  The market was hesistant to go higher so it went lower.  The 200 day MA has still provided strong resistance despite a surging euro.  If we do get above the 200 day MA, I don't think it will be for long before we go back down.  This is not February!

Back to Normal?

Looks like we are back to the usual dead intraday market, with the up move happening overnight.  I think we are pretty close to a short term top, and I am going to look to sell in the coming days.  For today, I will let the bulls roam.  I'm calling it a day.

Spain Not Greece

Funny that Greece is rallying but Spain is flat despite the strength of the tape overnight in Europe.  Hearing about funding problems with some Spanish banks.  This will matter again.  Keep it on your radar. 

Stealing the Move

This is a classic steal the intraday move by gapping up huge in the overnight market.  Ripping the face off of the bears.  The bears are scared to death of Mutual Fund Monday.  We will probably keep squeezing higher until we get to 1115.  I will probably do nothing today.

Saturday, June 12, 2010

Summer Projection

The market is playing out one of 2 scenarios.  A deep cyclical bull market correction down to 1020-1040 area, or a mini bear market that takes the market to 950.  If we close above 1115 in the next 2 weeks, that will invalidate the bear case.  If we fail to close above 1100 in the next 2 weeks, that will invalidate the bull case.  If we have a close between 1100-1115 in the next 2 weeks, but not above 1115, it is 50-50 odds of a bull/bear case.

The lack of investor interest and bad fundamentals will make it hard to thrust higher like in February.  Unlike February, the credit markets are telling a bearish story.  However, bear markets are usually bred from a long period of complacency, and that is not the case for the rally from March 2009 to April 2010.  So I am leaning towards the bullish projection.

 Bull Case

Bear Case

Friday, June 11, 2010

Waiting Game

It is a waiting game now for the bears.  Going long now is akin to picking up dimes in front of a bulldozer.  The market is broken, but in the short term, the bulls can put up a rally.  I don't even want to short at 1100 (September contract), I want to wait till we hit 1110 or even a bit higher.  The rally next several sessions will test the will of the bears, but eventually we will break back down.  If we don't go above 1100 next week, the bull case for the summer is shattered.

Risk On

The market wants to go higher.  The weak hands have been flushed out this week as the strong move off the gap down means we're likely to squeeze higher for today.  I will wait for the bulls to overextend themselves next week to put on shorts. 

Today's Close

If we close below the gap down open today, that is incredibly bearish for this market.  Like last Friday, selling can cause more selling as the day goes on.

Forget Quiet

The retail sales numbers were horrible and will affect the market, plus the fact that we went up so much yesterday on a short squeeze in energy tells me we will have another bad day in the market.  It is quite fishy to see the market down so much on a retail sales number which the talking heads are already dismissing as an anomaly.   I would not try to fade this gap down.  I think we're headed lower throughout the day.

Quiet Trade

After the big rally yesterday, I don't expect any fireworks today.  The market held support at 1040 and the paper napkin chartists will breathe a sigh of relief.  We may have some early weakness as traders reduce risk ahead of the weekend.  I won't do much until we go at least 30 points higher or 50 points lower. 

Thursday, June 10, 2010

Gap Down Signal

With traders unwilling to chase strength, I expect a gap down for Friday.  The bears have been maimed today, they can take a couple of these 3% whoppers, but 3 strikes and you're out.  We are going higher and likely to bust through 1100.  I am staying away from the short side for a while.

Turning Neutral

The bears blew it.  They could have really tried to take this market down but they don't have the ammo.  The time window for real pain was this week, but nothing serious happened.  Thus the bulls bought some time.  I don't think they can take the market above 1120, but I wouldn't rule out 1105-1110.  I will wait for an easy trade, the picture is too muddy right now.

Trend Day

Looks like a trend up day.  Who knows how high the bots will take this market, but I am not going to stand in their way.  I took the loss and will look to re-enter later.

Mixed Picture

With the big gap up and the strength in Europe, the picture has gotten more cloudy.  I am still bearish, but the timing of the cascade lower will be harder to determine.  I will have to see today's trade to determine what happens next.  Another close near the lows today would seal the deal on a collapse.  But if we bounce up strong intraday, then the collapse will be delayed for a few more days.

Wednesday, June 9, 2010

Getting Ugly

I have rarely seen such a strong downtrend like we've seen over the past month end with a whimper.  An old trading maxim is that the last move is always the biggest.  That's what it looks like is going to happen.  I might be too optimistic with my 1020 target, we could get to 990 depending on how bad Europe gets.

We Need Capitulation

These bounces only serve to renew bullishness which slows down the necessary steps to form a bottom.  The ECB meeting is tomorrow, I expect them to disappoint the market by not coming up with anything substantial.  They could do to a rate cut to juice the market higher, that could briefly spike the market higher but it would do nothing to solve current problems.


I believe Europe will selloff big tomorrow, and thus will keep my short position.  I will likely add to my position about an hour before the close. 

Credit Markets Flashing Red

Unlike all the other dips since March 2009, this time we have credit markets notably weaker.  Yesterday, despite the rally in equities, credit spreads widened.  The credit indices are at 1 year highs while the equity markets are whistling past the graveyard touting backward economic data. This is the main reason why I think we will have a flush out.  The European sovereign bond spreads for the PIIGS are getting worse, not better.

Getting Shorter

Position is getting larger as I add to my short.  I still have room to add more intraday.  This market is broken and the only way to fix it is to get a flush out and start from a lower base.  This is a position that I will be holding till we get to 1020.  It might take a few days, but I don't think the market will go up much in the meantime as I wait. 

Tuesday, June 8, 2010

Now Short

I have put down a short position at the close.  I am expecting a gap down.  Price target is 1020.

Tempted to Short the Close

This looks like a short squeeze/bull rush that takes the market too high.  I will be looking to short if we get close to 1065 at the close.  I will then expect a gap down for tomorrow, some backing and filling and a continuation of the downtrend.

Bounce to 1067

I am giving this rally room to go up to 1067.  There was no capitulation whatsoever so this touch of 1042 will only be temporary bottom.  In fact, instead of price, time might be a better indicator of when to sell.  The close today or mid day tomorrow should be the short term top and then we'll go lower to break 1040 and get to 1020.  The selloff has terminal velocity and nothing but capitulation will stop it at this point.

1040 Ahead

I am mixed about how the market will perform on a retest of 1040, since we are short term oversold, we should bounce strongly off of 1040 and take us back to 1060.  This will get the talking heads bullish about a successful retest and then we will likely go down in earnest to 1020 and below. 

Psychology Test

Recency bias is something that distorts human thinking.  We put more weight towards recent events.  Thus, the overshoot this year above 1120 in January and in March/April have traders thinking 1050 is a bargain.  You see, a 160 point discount from 1210 to 1050 seems like a much better deal than a 70 point discount from 1120 to 1050.  Even though the price is the same 1050.  Funny how we thought 1050 was expensive last September but think it is cheap in June when the charts look much worse now.

For today, I think we will continue our slide lower, we can have 1% rallies here and there, but I doubt we see those 3% bounces like the last 2 weeks.  Bounces will just delay the inevitable trip down to 1020.

Monday, June 7, 2010

Panic Coming Soon

We will hit 1040 sometime this week, and at that time, we're likely to have panic selling when the widely touted 1040 support fails.


Made a mistake to cover that short.  Looks like the cascade has begun.  We shouldn't be trading this low if we are to rebound today.  The market is in deep trouble.


I have covered my short and will just watch from the sidelines in the final hour.  I think we'll have a little rebound into the close.

Bearish Action

After the drubbing that the market took Friday, we should have rebounded at least a bit today but the attempt was weak and now we are nearing intraday lows.  The price action is bearish.  Now it is a matter of when, not if we go down to 1040.  Only thing preventing me from calling a close near the lows is all the bears on Fast Money Halftime.  But at this point, sentiment is not negative enough in the face of such a strong downtrend.

China Rolling Over

This may be the straw that breaks the camel's back.  The Shanghai Composite is rolling over and is going deeper and deeper into bear market territory.  As I have mentioned before, China often moves ahead of the US and European indices.  I would be more confident in grabbing falling knives if the Shanghai Composite and China H-Shares Index trades relative strong to the US.
Shanghai Index

H-Shares Index

Got Short

I put in a small short position looking for intraday weakness.  I expect us to get to around 1055 sometime today.

Saturday, June 5, 2010

Cascade Coming

After seeing the market for the past 2 weeks, I am convinced that we will eventually break 1020 and perhaps even get down to 950 this summer. A week ago, I was about 75% sure that we would get below 1020. Now I'm about 90% sure. The problem is where to get short. A good entry is essential to ride out the daily fluctuations before the market makes its real move lower. I was waiting for 1110-1115 to get short and the market didn't comply. I am begging now for one more short chance near 1100 to put down my bet and wait. We could bounce one more time to over 1100, before we cascade lower under 1020 and as far down as 950. Or we might not. 1120 and above are out of the question.

It takes time for investors to adjust to a new market. The shift from bull mode to bear mode hasn't been this swift since August 1998. It has happened so quickly that it has caught a lot of traders off guard. At first Europe was ignored. Now Europe is a factor, but still considered minor when it comes to affecting earnings of the S&P 500. When Europe is considered a significant factor in lower earnings estimates for the S&P 500, you will have that cascade lower. We are not yet there. But earnings come out next month, and the outlook for many companies will disappoint. China is slowing down quickly. Europe is going back to recession. The US is running on government fumes that is wearing off. The second derivative of GDP is now negative. The convergence of all these factors will lead to a selling cascade this month. Get ready.

Friday, June 4, 2010

New Closing Low

This was a new closing low for this move. I know it has been a pattern for the market to gap up after selling off hard on a Friday, but one of these days that pattern will not work and we'll have a big gap down. I don't think we can keep going under 1070 and bounce back higher. Eventually we'll stay under 1070 and bust through 1040.

Low Volume Selloff

I know its not what the textbooks say, but I think low volume selloffs are more bearish than high volume selloffs. Today is a low volume selloff and instead of fear and panic, the selling is just dreary and slow. If we close below 1067, that makes it a new closing low for this month long selloff. We could have panic next week if we bust through 1040.

No Time to Sell

Weak markets don't give you much time to sell after rallies. Strong markets will give you all the time in the world to sell but very little time to buy. The more I see this market trade, the more I see this as a market that gives you plenty of opportunities to buy low but very few opportunities to sell high. The likelihood that we close near the lows is high. It looks like a trend day from my viewpoint.

Currency Crisis

Euro has no bid. This is turning into a currency crisis, and a cascade decline cannot be ruled out. Playing the long side is extremely dangerous except for deep oversold buying. Since the past 2 days have been up, I think we have a lot of room to go down now. The bears have reloaded. I see 1020 and perhaps 990 by the middle of the month.

Further Weakness Ahead

This is bad price action after a big gap down. Add to the fact that it is a Friday and we're weakening, I see a possibility for further downside today to 1070. This is an extremely weak market that can't string together much of a bounce even after falling so much the past several weeks.

Total Collapse or Back to Even

I put the odds of a total collapse today at about 10% and the odds of getting back to the flat line at over 50%. The rest of the scenarios I see will put this market higher than the open but not quite filling the gap. Hungary problems are in the news, and the euro is getting pummelled again. Europe will be a potential threat to any rally at anytime, which makes going long so dangerous. But for today, the market should be able to shrug it off as it has shown strength the past 2 days. The nonfarm payrolls is always hyped up but I think traders are more focused on Hungary and the euro than jobs. Look for an intraday rally today.

Thursday, June 3, 2010

Nonfarm Preview

I am not going to come up with any forecasts but I've noticed that nonfarm payrolls usually mark a short term top or bottom. Since we are heading up into the report, it is more likely that we form a top on the number than continue to trend higher. My gut tells me we rally when the number is released. I will look to sell a pop on the jobs number tomorrow.

Recurring Pattern

After the up day, we get weakness the following day and collapse around mid day. We are following that schedule, but this market is stronger than it was late last week. It is these drops out of the blue that are warning signs that the bull firepower is absent. I don't think we'll collapse today, but the odds intraday are in the bear's favor on most days. After the nonfarm payrolls on Friday, I don't see any bullish catalysts for this market.

Two Consecutive Up Days

We have not had 2 consecutive up days since late April. I think we are due for consecutive up days. I would wait to short this market and only the nimble should attempt to buy today. The ADP number slightly disappointed, and we've priced in a very strong nonfarm payrolls number with yesterday's rally. I expect early weakness followed by strength later in the day. Tomorrow looks like the day to put on short positions.

Wednesday, June 2, 2010

Going to 1110

This market has found solid support at 1070 and we're likely to test the upper bounds of the new normal, which I believe is around 1110. I think we're likely to continue this strength into tomorrow as bulls get excited and get ready for a blockbuster nonfarm payrolls report (consensus 500K). I don't think we can go much above 1110. Any shorts taken from 1105 to 1110 should be comfortable to hold for the next few weeks.

Give the Bulls Today

I don't think this market will drop much today. The market has spent too much time above 1078 intraday. I am waiting to sell any rallies that take this market to 1105-1110. This market can drop at anytime so I feel uncomfortable buying anything but deep selloffs.

Quiet Trade

I don't expect anything dramatic today, we should stay close to the flat line.  The move in energy stocks will be digested along with the general weakness in Europe.  This market should test the 1060s today but I don't think we'll be going down dramatically.  Traders will start lining up for the nonfarm payrolls on Friday which will limit the downside.

Tuesday, June 1, 2010


The gains from the big rally on Thursday have been taken back in 2 days.  Even the positive first day of the month couldn't stop the bears from taking this market down.  The bulls have to be petrified after today's action, looking good early and then fading when it counts at the close.  A gap fill on the futures at 1061 seems inevitable, and I wouldn't rule out a revisit of the lows from last week.

Automatic Money

There is money that comes in consistently every month that is done automatically, regardless of price.  That is what happened at the open today as we had that automatic money piling in and inflating prices quickly in the first hour.  That effect should fade away soon. 

Don't Get Fooled

We will have ISM data coming out for May at 10:00 AM.  Don't believe the hype.  The economy was stronger last month than it is now.  Same with the nonfarm payrolls coming up on Friday.  Look through the windshield, not the rear view mirror.  I think we will be weak all day today and probably close near the lows.  Target prices are 1067 and then 1062.