Strong Trends

Does going up 10% qualify as a strong trend?  Well, we've gone up about 10% from the lows on July 1st in 1 month.  From my experience, strong uptrends end with good news and very bullish sentiment and strong downtrends usually end with bad news, fear, and very bearish sentiment. The rally up to 1130 ended with the Chinese yuan revaluation "good news" while the selloff to 1006 ended with a string of below consensus economic data culminating with a  weak ISM number.

The current juncture is a strong ongoing uptrend without the big bang of good news or bullish sentiment which usually mark the end of the move.  The fundamentals are getting worse.  So why doesn't the market go down?  In a word, liquidity.  That is a topic for another day.

Underlying Demand

I think that was it for the pullback from the 1118 high.  We pulled back about 33 points, which is shallower than the pullback from the 1095 high to the 1051 low of last week, which was 44 points.  There is an underlying bid forming despite the sentiment not being too bullish. 

I think we go higher before we go back down.  I also expect a gap up for Monday.

Further Weakness Ahead

This market looks uninspired, there isn't much enthusiasm on the upside or downside.  Summer trading is in full force, and volatility should dampen over the next couple of weeks.  After August options expiration, I expect volatility to pick back up. 

There is strong resistance between 1095.5-1096, which is around 1100 SPX cash, and also another barrier of resistance at 1097.5-1098.  I don't we'll be able to penetrate those levels today. 

Front Running Momentum

The bots have gone bananas again front running buyers and piling in betting on a trend day off a gap down reversal.  I am willing to bet that they will puke out their buys at the close.  The Chicago PMI and the UMich consumer sentiment numbers are providing the catalyst.  The GDP is backward looking so it is hard to understand all the selling off that number. 

I think we'll be drifting nowhere for the next few hours followed by some weakness at the close.

GDP Fear

The GDP number came in below expectations and we got knee jerk selling.  Once all the economic numbers for the day are out of the way, I expect us to drift higher.  This is a tricky market but I am still sticking with the theme that we are in an intermediate term uptrend.

Just a Pullback

I don't think this is the start of another move down just by looking at the speed of the decline.  We are on day 3 of the decline and we've only lost about 1.5% from Tuesday's close.  The hedge funds are in re-risking mode and with Europe off the table for the time being, there are few catalysts for a selloff.  I will look to buy weakness today, if we get it.  Next week should start off strong. 

Nervous Market

The traders don't want to be long ahead of the GDP numbers, so we got the late day selloff.  We might get a little weakness in the morning but I expect us to grind higher into early next week.  The overbought reading has been worked off without significant damage.  so the odds slightly favor the long side.

Stopped Out

The market looks weaker than I expected.  There should be some support at 1099 however.

Long Here

This is a very resilient market and I am going in for a quick daytrade on the long side.  I expect us to close strong today.  Just a rental on the long side.

Europe is Outperforming

Europe got so oversold and hated that most funds are underweight Europe.  With the European crisis more hype than substance, Europe is catching up with the US.  Thus, if we are going to get gap downs in the next couple of weeks, it will likely have to come from weak US data, not from Europe. 

I expect early weakness followed by 2nd half strength into the close.

Selloff Should End Soon

I think the selloff will not last past Thursday.  The sellers ahead of the jobless claims and GDP report have done their deed and there should be a lack of sellers from the 2nd half of tomorrow.  Liquidity will trump fundamentals for the next week or so. 

Nothing Day

It looks like low volatility consolidation for the rest of the day, I don't see much action either way.  Notable is the realitve weakness in crude oil over the past couple of days.  I'll probably just sit on my hands today.

Weak Economic Data

Durable Goods orders came in much worse than expected.  It seems more likely now that we'll see earnings disappointments in Q3.  Unless profit margins can somehow expand even more, we'll see declining earnings with declining economic data. 

I expect some weakness in the 2nd half of the day today.  There will be jockeying for position ahead of the GDP numbers on Friday.  I think there will be some selling of long positions ahead of that number. 

Gassed

The market is topping out.  Short sales in the next couple of days should work.  I am looking to short tomorrow morning, hopefully between 1115 to 1118.  There should be a pullback down to around 1090 this week. 

Covered

I don't want to overstay the short side here.  I covered my short and will stay on the sidelines. 

Fast Money Halftime

Most of the time, the Fast Money crew follows the market but today, on a flat day, they are all cautious into the close.  That makes me wary about holding my short into the close.  I will close out my short soon.

Is Everything Ok Again?

Prices are always highest when there is the least amount of perceived uncertainty.  With the bulk of earnings being positive and out of the way, the Euro stress test going off without a hitch, and fears of European meltdown diminished, we are over 1110.  At 1110, a lot of clarity, or "lack of uncertainty" is priced in.

I don't think this is the top of this intermediate move, but we are very overbought on most technical metrics so I am looking for a technical pullback.  I don't think the pullback will last long because it seems like this bull train left without many passengers on board.

Barton Biggs

He became bearish at the lows in July and has now turned bullish in a Bloomberg interview.  One has to wonder who gives this guy money to manage. 

In the short term, the McClellan oscillator and the cumulative tick say we are very overbought.  We are still in the middle of the migration from bears to bulls, so my short position is for the short term only. 

Not a Top

This doesn't feel like an intermediate top, so I will likely not be playing on the short side for long.  The volume was quite light today, and it probably will take several more days of non-fearful action to form a top.  Remember, tops are usually processes, while bottoms are usually points.

Fast Money Bullish

The Fast Money crew over the past few days have gone from bears to bulls.  Dennis Gartman and Brian Kelly, two commentators I prefer to be on the other side of my trades have switched to bulls.  I think we are late in this rally. 

Shorting Program

As originally planned, I have started to short as we have gone above 1105 and go towards 1110.  Even if I am wrong about this being the top, I believe we will get a pullback within the next few days.  I expect some weakness in the final 90 minutes of the trading session. 

Migration

Well, there was denial about the bottom in July and now there is migration.  I don't think we'll ever reach the panic stage.  The late bulls are jumping aboard the summer rally.  Trying to pick a top is more art than science.  I will err on the side of conservatism and wait for higher prices.  I expect early strength.

Event Days

Traders are always afraid of uncertainty.  It seems traders prefer bad news to the uncertainty of possible bad news.  It is just the nature of the trading beast.  This fear of uncertainty provides an edge for the trader that can game big important events.  Days such as the FOMC rate announcement, Friday's European stress test, and important nonfarm payroll reports.

On event days, the market more often than not grinds higher during the few hours ahead of the event or in the case of pre-market releases, the day ahead of the event.  Why is this so?  It is because traders are always anticipating, and forward looking.  And traders usually trade from the long side, not the short side.   Thus, if traders are fearful/nervous ahead of an event, it is very likely that they have closed out their position, which usually means they already sold, probably a day ahead.  If traders have already sold, they can no longer sell more unless they go short, and most traders are hesitant to take a short position ahead of an event.  Well, that means they are holding cash and awaiting their next move, which is to buy.  A lot of traders buy after the event.

Thus you see a tendency for Fed days and similar event days to be up days, with near term volatility right after the release due to the uncertainty of how the market reacts but an upward bias afterwards.  That is what happened on Friday around the big event, the European stress test.

Vice Grip

The bulls have laid down the gauntlet here.  It is the most annoying thing but I see how they tacked on 2.25 points from the cash close to the futures close just to punish those stock traders that don't want to hold overnight.  Now we are at 1101. 

It is time to look short, but don't be too eager.  Many have ignored the fact that we have rallied 95 points in 3 weeks and could have possibly made a bottom.  I have heard very few people mention that July low as a bottom.  When I hear more talks about a summer rally and "attractive valuations", I will become more courageous on the short side. 

Hedge Fund Scramble

"But the stress test wasn't stressful enough!"- random hedge fund manager

Who cares.  The market has spoken.  The weak hands all sold ahead of the stress test and now stocks are in strong hands.  We will not get a complete migration of bears to bulls for a few more days.  By that time, we will likely be around 1110, perhaps a bit higher.

You never trade in the direction of the news, always the opposite!

P.S. - I was one of those weak hands.  The market has shaken out all but the hardy bulls.  I think you need near perfect setups to short next week.

Yesterday's Rally

Although I have a bullish bias, I am not very willing to dive here on the long side because of yesterday's rally.  We are also close to the top of the move off the July low and that is just not a great risk/reward long.  I do think we go higher but it is risky to be long here.

Euro Stress Test Scenario

I am going to treat the stress test like an important Fed day, with the caveat that Europe will be closed when the announcement is made on Friday but the US market will be open at noon.  After the first half hour oscillation, we should steadily grind higher from 10 AM to noon.  After the announcement we will likely make a dip and then go back higher into the close and finish strong.

I expect the stress test to be passed with flying colors for the critical big Euro banks and they will likely gap up higher at the European open on Monday.  That should be the top for this move.  Hopefully it is around 1105-1110.

Late Mini Selloff

An odd trading day where we pretty much flatlined after a furious first hour rally.  There isn't much conviction or strength going up or down.  The bots went bananas in the final half hour there unloading their inventory. 

Its still a battle of the bots and they are trying to outwit each other but the ranks of their prey are thinning out.  I expect this rally to continue into tomorrow and up to 1105.  Beyond that, longs are pushing their luck.

European Stress Test

From the looks of today's action, it looks like none of the Europeans wanted to be short the market ahead of tomorrow's stress test.  We have hit the highs right at the European close and have been fading for the past 30 minutes. We will get the rosy results out of Europe tomorrow and that might be the end of the road for this rally.  Buy the Rumor, Sell the News! 

Ambushed.

That is how I feel from yesterday and overnight trading action.  Absolutely ambushed.  They shook me from the tree and have rocketed higher.  We are not looking back today.  Next stop is 1092.

Stopped Out

This thing looks like it will blast higher today to 1092.

Small Short

Going to test out this market with a small short here.  I am not very bearish, just don't think we'll have a gap and go day which means we'll need to test lower levels during the day, likely around 1070.

Moderation of Emotions

I know the market seems spastic but this roller coaster action tells me traders are moderating their emotions.  Tuesday got traders optimistic.  Wednesday made them pessimistic.  Continuous selling or buying will be harder to see in the coming weeks.  Add to that: earnings season will soon be over and you get a listless summer market with few catalysts. It will go up and down but end up going nowhere. 

I think we are range bound between 1050 and 1110 for the next 4 weeks.

One More Test

The fundamentals are deteriorating so the market is fragile.  Whenever there is something that reminds the market of the fundamentals, like the Bernanke speech, you will get knee-jerk selling.  I expect another test of the 1050 level soon, probably tomorrow.  Jobless claims and existing home sales data will keep traders from getting too bulled up in the overnight session. 

Free Falling

I have gotten out of my long.  I expect the selling to continue into the close, and may buy back my long at the close.

Nervous Market

This is a market filled with players that have a lot of cash on hand.  Nobody wants to jump in with both feet because the fundamentals are deteriorating as seen by the macro data.  On the other hand, earnings haven't reflected these bad fundamentals because they are backward looking.

Yesterday's trading proves that hedge fund managers are still underinvested and nervous.  You don't get a big gap down open and then reverse to finish up 1% if the fund managers are fully invested.  This is a sticky positive that the bulls have going for them.  Until we see more fund managers jump in and embrace this market, you will not have a great short set up. 

I am still long, but if we rally strong into the close, I will probably sell.

Banana Ben Defense

Are we going to get QE2?  Will there be more money printing?  Banana Ben is here to solve all our problems.  At least for 1 day.  I am looking for a consolidation day, with an upward bias. 

Fast Moves

The up move occurred faster than I expected, which too me is bullish.  I am going to stay with the long as  I like the price action here.  My holding period is till either Thursday morning or 1092.

Should Go Higher

The reaction to the bad earnings news from IBM, TXN, and GS hasn't been able to take this market down from the weak open.  There are many more earnings ahead but I have a hard time believing AAPL will disappoint this afternoon after its recent pullback due to Antennagate.  I've put on a small long position.  Will hold on for a couple of days at least. 

Covering Here

I don't like the price action so far being on the short side.  I am covering here and will re-assess intraday.  It feels like picking dimes in front of a bulldozer on the short side now. 

Batten Down the Hatches

It is going to be a rough ride today.  There is some serious selling in the overnight market.  Earnings were a big fakeout and the weakness of the economy is showing.  There will be another recession.  That is not priced in.  We are in the middle of a bear market. 1040 is very possible today.

Bulls Win

The bulls won the battle today.  With the low volume V bottom intraday, its not exactly a bullish setup.  I remain short, but not that enthusiastic about the short side.  Not much new information was revealed today.  I will reevaluate tomorrow. 

Another Trend Down Day

We are setting up for another trend day to the downside.  We got the eager beaver Monday morning traders buy the open and that buying has quickly dried up.  GS earnings and housing data are coming out tomorrow morning, we could see anticipatory selling today.  No strong feel, but it looks like we are set up for another trend down day. I am short.

Manic Monday

Where do these guys come from who are selling like mad on Friday only to buy like mad on Monday?  It can't be the same people, can it?  Those taking on risk over the weekend have steadily collected a seemingly risk-free premium.  I will be shorting this gap up and expect some downward pressure in the first 30 minutes.  The rest of the day feels like a crapshoot, but I still have a slightly bearish bias.

Holding Winners

"Hold your winners and cut your losses."

A trading maxim easier said than done. 
I don't have a problem taking a loss.  In fact, often times I am too quick on the trigger when it comes to cutting losses when I should give trades more breathing room. 

But I do have a problem with holding winners.  It is a habit that is hard to fix.  Hard wired into my brain is the belief that as the stock price goes higher, it becomes a worse long and as stock price goes lower it's a worse short. 

There is a mental trick to fix this problem.  It is to think of your positions not as day trades or swing trades, but as long term trades.  This puts one into the mentality of owning a position, rather than renting one.  Another trick which I have not tried is to not watch the market when holding a winner.  I am an active trader so it would be hard to do. It is something I have thought about trying in the future if I am in the money and riding a strong trend.

Only Missing Ingredient

The fundamentals are deteriorating and the technicals are in the bear's favor.  Liquidity is stagnant as the stimulus wears off and with no new QE programs.  There is only one thing that would make me very bold on the short side and ride it for a big swing trade.  That is bullish sentiment.  That is the only missing ingredient to having the perfect short chance in this market.    I hope to see the bulls get complacent in the next few weeks. 

Going Flat

I will look to close out my small short position at the close and reassess the situation next week.  The market should at least hold steady on Monday morning, so I don't want to press my luck. 

Not Like 2009

Well, I was thinking for a second there that we might be back to 2009 mode of very few dips but this market is noticeably weaker than the one we saw in February trading at similar prices.  With much of the good news out of the way, this market looks exhausted.  I am still looking for a move to 1115 later in the month but it is looking more likely that will be an exquisite shorting opportunity.  Still bearish here. 

Short Term Euro Chance

I am now fixated on the hyperbolic move in the euro and it seems like a move that will revert back down after today.  Many hedge funds hate to hold big losing squeezing positions over the weekend.  Thus, I am looking for them to capitulate on their euro shorts during the US session.  This should provide a great short entry for a quick down move.  I am not a long term bear on the euro, just trading a short term technical setup here.

P.S. - I did get short a little ES overnight.  Still looking to add more short around the open.

Hedge Funds Getting Squeezed?

A lot of hedge funds were short the euro.  I am not sure how many got out of their positions but it was the most popular position for the past few months.  I am sure there are many now questioning their decision to short the euro but euro bashing is still not out of style.  The ridiculous calls for euro-dollar parity are still out there.  This just goes to show you that you can never put too much trust in one fiat currency over another.  They are all shaky. 

Good News Overflow

We got a simultaneous bull rush of news with the GS settlement and BP.  It totally caught the bears off guard.  But now that we've got all the good news out of the way, I see very few positive catalysts other than late comer longs jumping on the bandwagon. 

I am bearish short term.

Too Much Liquidity

The action in gold, Treasuries, and stocks all point to liquidity overflowing asset markets.  Usually when liquidity is poor, you can't have stocks and Treasuries both performing strongly.

You have the 10-Year yield below 3%, and the S&P at 1090.  When you had the S&P at 1090 in October 2009, the 10-year yield was 3.5%.  That tells you there is a mountain of cash that needs to be invested, in both bonds and stocks.  This explains the strong rally in gold and the resilience of oil despite plentiful inventories.  The employment numbers don't matter.  Liquidity always trumps the fundamentals.  As long as Bernanke is at the helm, this market will be flooded with liquidity.  The Fed has singlehandely manipulated the asset markets higher with its MBS and Treasury purchases.

Covered

I think we've seen the lows for the day and we'll likely squeeze into the bell.  Disappointed to see such a weak selloff.  I do think there will be disappointment with the earnings numbers in AH and there should be a reflex selloff on that. 

Building Shorts

I am putting back on my short exposure and will add throughout the day.  1098 has provided tremendous resistance.  It is clear now that the analysts have lowballed estimates and the low hurdles have been jumped over easily.  The last minute bulls will be piling in today and they might take us up to the 1100-1105 zone.  Or we could roll over right from the opening bell.  Either way, I see us going back to 1075 within 3 trading days. 

Waiting

We are churning under 1100 here but unfortunately, I didn't get the euphoria that I was hoping for off an INTC beat.  I am going to wait to put on the short position till tomorrow morning. 

China Liquidity

As you can see below, China is performing much more poorly than the U.S. market, but its not just that.  It is performing much worse than its foreigners only market, the H-shares market traded in Hong Kong.  This just goes to show you that the same stock, traded on different exchanges, can trade at a big premium or discount based on liquidity. 

Obviously, mainland China has tightened up on the liquidity, as Hong Kong and the rest of the world has kept it flowing. 

This is an example of how powerful liquidity can be in the short-medium term in affecting asset prices. 

Shanghai Composite in blue, S&P in red, H-shares Index in green.

Selloff Delayed

I have covered for a loss and will likely reshort at the close.

Fading in Premarket

The glow from INTC earnings is fading away as reality is setting in that the S&P 500 is not 1 company.  I was hoping for a healthier gap up this morning but it looks like others are eager to sell the news here.  I will feed the remaining ducks in the water this morning.  Looking for a gap fill of 1076 soon.

Just Get Me In!

Caution is being thrown into the wind as traders are chasing the futures higher.  INTC had a big beat, and I would rather sell after that than after a big miss.  The buying is starting to get emotional and panicked.  I will add to shorts tomorrow morning. 

Where are the Bears?

The sentiment surveys seemed to have missed the cheerleaders coming on CNBC.  All I see on CNBC are a bunch of analysts expecting good earnings and higher stock prices.  Do they not invite bears on TV anymore? 

Anyway, I am looking forward to the INTC earnings, it should bring out some much needed emotion to this market. 

Countertrend

My short position is a counter trend position because it is counter to my weekly outlook.  Thus, I am looking for the down move to happen within 5 days and will not stick around past 5 days looking for a selloff.  On the daily, we are extremely overbought and there is anticipatory buying ahead of earnings.  Thus, the short position.  Overall, bearish sentiment is supportive of a longer lasting up move, perhaps 4 to 6 weeks in duration. 

Spinning a Top

We are coming to the conclusion of the monster rally off of 1006.  I doubt that we selloff much today as traders are going to want long exposure ahead of INTC. 

The thing about  earnings expectations is that they are usually inversely proportional to future market performance.   Since earnings expectations have been high for this quarter and for next year, future market performance is likely to be weak.  Again, opposite of what happened in 2009. 

Shorting the Excitement

There is a lot of excitement over Alcoa earnings and the anticipation of blockbuster Intel earnings.  Fast Money analysts all were bullish on Intel ahead of their earnings announcement.  I believe it will be a sell the news reaction tomorrow.  I am shorting here and will hold till we get lower prices. 

Up Thrust

The upthrust continues.  I want to play for the next 3%, and odds are that it will be to the downside.  AA earnings will mean little, what will matter is INTC.  INTC earnings should be the sell catalyst which gets the bears coming back out of their caves. 

Outlook Sidebar

I have added my personal outlook sidebar for the S&P.  The daily time frame is 1 to 5 days, the weekly is 1 to 4 weeks, and the monthly is 1 to 3 months.  I'll try to update it daily.

ISM Index Indicator

There is a simple trading system that has been quite effective in predicting the moves in the S&P 500 index.  It is based on going long a turn from a low in the ISM and going short from a turn from a high in the ISM.  Based on that system, we should be short as of the June reading. 

For today's trading, no strong opinion either way. Tomorrow is the time to put on shorts. 

Earnings Season

Next week will be the beginning of the earnings season.  We know that the 2nd quarter will not be that bad, because there have been few earnings warnings and the economy only started softening in June.  We also know that guidance is up to management to decide, and many will keep their mouths shut if they have nothing good to say.  One thing to keep in mind when watching earnings.  The market usually reacts to guidance, not the past quarter. 

In the chart below are the 4 past quarters highlighted.  What I can interpret is that the market usually makes its move in anticipation of earnings before the earnings are even announced.  Right now, the picture is a bit muddled because we had a huge selloff since April earnings, but have had a big rally this past week.  In general, it seems like traders are positive about upcoming earnings, not negative. 

I see very little room for a big rally now that we've already made a substantial move off 1006.  The strong thrust off the July 1 low means we'll likely not revisit those levels for a while.  There is probably a one month period of consolidation between 1040 and 1100 in July.   After that, a slow weakening of the market in August.  If the economy is weakening as we get to September, traders will be having 2008 flashbacks and we'll have panic selling in September down to at least 950.

Sell Setup

Today traded according to the thrust pattern off a short term low.  I give this rally 1 or 2 more days maximum before we take a big hit back down to 1040.  I will be looking to building short again either Monday or Tuesday. 

Gone Fishing

There is very little volume today.  It is going to be a dull day and I don't see us moving much one way or the other.  It already feels like lunch time trading and we're only 30 minutes in to the trading session. 

I'll do little today as I see very little opportunity in this kind of tape. 

Bulls Roaming

Tacking on almost 1% after a 3% up day is a sign of strength which doesn't wear off immediately.  I believe we will hold on to gains till Monday, at which point it will time to put on short positions.

There are quite a few layers of resistance from 1070 to 1090.  I am sure the hedge funds are putting on risk ahead of earnings season.  With INTC earnings on Tuesday after hours, the funds will likely add beta ahead of it.

As for today's trading, I see us grinding higher to make small gains.

Foot off the Accelerator

I will wait to re-add my short.  Hedge funds will likely be adding risk to their sheets ahead of earnings, which start next week.  Once earnings come out and guidance is weak, we should have the selloff that I'm looking for.  There should be a good short entry available next week.

Opposite of 2009

I've been thinking about this market and how different things are from 2009.   Back then, the rally had no fundamentals behind it but liquidity and earnings shortfalls were feared.  Now we've got a situation where earnings are no longer feared and embraced as a potential positive catalyst.

At the time, there was never any good reason for the rally last year.  We only found out later after much higher prices the reason for it.  It was the huge amount of inventory restocking and surging earnings.

I wonder if traders looking at the current fundamentals/earnings as a reason to buy this market will find out later the reason for the selling.  Probably only after we are trading at lower prices.

Covering Some

Playing for field position, covering some here which I will lay back out later in the day. 

Quick Embrace

The bulls are out in full force today and I have a hard time imagining we can grind higher with this much optimism.  Hedge funds obviously have come back from the July 4th holiday intent on putting on risk that they took off before the holiday.  I just don't think it will last for long before they change their minds.

The sentiment surveys say there is a lot of bearishness, I just don't see it as much as the surveys say.  I saw a lot more bearishness at the end of May when we were higher than currently.  I remain short.

Correction or Bear Market

Sometimes it is hard to explain, but last week didn't feel like a bottom, and yesterday felt like a short squeeze.  Obviously I sold too early on Tuesday, and started my short campaign too early.

But depending on whether this is a correction or a new bear market, the strategies and trading patterns are different.  I have rarely seen a correction go this deep and not turn into a bear market, or a correction of 20% off the highs, which would be around 970.  Corrections usually don't last more than 2 months, so this downtrend is past the limits of what a correction should be.

I believe we are in a bear market, and thus I am shorting the rallies.  Until I see price action to the contrary, I will stick with that thesis.

Adding to Shorts

Monster short squeeze and I am fading this move now shorting here.  It is a great shorting opportunity.

EU Bank Stress Test

Seeing some of the details come out for the Europe bank stress tests, and looks like minimal stress.  17 percent writedowns for the sovereign debt of the periphery countries, i.e., PIIGS.  Everyone will pass this test and everybody will be considered well capitalized.  The script comes straight out of the movies with a happy ending.  European bank stocks will likely selloff on the news later this month.

Trend Day

Looks like a trend day.  I will add to short positions at the close. 

Alfred E. Neuman's Back

As the markets slowly fall apart, the traders are whistling past the graveyard without a worry in the world. The sentiment puzzles me. We've had a string of bad economic data. Double dip or minimal growth seems baked in. But no capitulation. There are traders who are bullish and bearish long term, but almost all are bullish on the short term expecting a bounce because we've fallen so far in 2 weeks. The market is doing a fabulous job wearing off the oversold condition by going sideways without giving longs an opportunity to exit gracefully. There is no fear out there.

Short Term Trading Points

1. If the sentiment runs counter to the prevailing trend, stay with the trend or at least avoid going counter trend. For example, the prevailing trend is down, but the sentiment has not gotten as bearish as the downtrend would suggest. Avoid going counter trend in those situations.

2. Traders like to de-risk ahead of a 3 day weekend. They like to re-risk after a 3 day weekend. The buying that comes in after a 3 day weekend is often emotional, hurried, and irrational.

3. Weak markets do not give you much time to sell dear. Strong markets give you plenty of time to sell dear.

4. What you think is contrarian could be accepted market wisdom. The accepted market wisdom during this downturn since SPX 1075 has been that we are oversold and due for a bounce. Those who bought at 1075 are still waiting for that bounce. Playing counter trend doesn't make one a contrarian.

5. Staying with the trend and riding profits in an entrenched trend is much harder to do than to play for reversals in a deeply oversold or overbought market.

U-G-L-Y

The intraday pattern is very bearish. I can only reinforce the fragile nature of this market. I don't like to buy fragile markets unless I see fear. I haven't seen the fear yet. Traders are still hoping for an oversold bounce to sell to the next sucker. We will likely finish near the day's lows today.

Sucker's Rally

Typical post-holiday cheer after severe selling. I am shorting into this rally. We should be below 1000 later this week.

Falling Knife

I was premature in my bullishness. The market has gone straight down for 120 points, over 10%, in 2 weeks and we still don't have much fear. That worries me. I have sold out of my long in the pre-market and will wait for lower prices later this week to re-enter. We're not through with the downside quite yet. A piece of bad news and one more push down to 980 will likely mark the bottom.

In July

The prices that the market is trading at reflect a lot of bad news and a double dip recession. Trying to play it short now will be treacherous. I am pretty much done with the short side for at least the next month or so. As I stated last weekend, there would be a big wave this week, and it has come and gone.

I don't expect us to rocket higher, but there will be very few down days. There are a lot of stuck bounce players and recently converted bears who will be selling on the way up. I will likely be trading less and just ride it on the long side as much as possible. Enjoy the long weekend!

Small Long

Nibbled a bit on the long side. I think we could go even lower, but don't want to try to be perfect here.

Breaking Down

There is no one that wants to pay a premium for this market ahead of the July 4th weekend. Bounce players are still hoping for a rebound. We are likely to finish near the lows.

Sold Long

I am flat and will wait for lower prices to re-enter the long. We should go down to 1012 sometime today.

Euro Squeeze and Jobs

The euro is relentless squeezing the shorts. These are big moves in the FX market. Hedge funds have to be hurting here and contrary to what everyone says about the carry trade, long US stocks, long gold, short European stocks and short euro is still a popular trade. That trade has been a disaster for the past month. Hedge fund liquidation is still on the table for today due to euro strength.

As expected, the jobs number was fudged higher, I guess they didn't fudge it more otherwise they would fear losing credibility. I think we will go lower later today. I will close out my long near the open.

The Bounce

What is making me uncomfortable about the long side is the number of bounce players who still have not given up. Yesterday's reversal is actually not a good sign for today's close. I still believe we will go higher next week but I expect there to be a little shakeout today. The jobs number will likely be fudged higher by the BLS. It could still be bad, but it will be better than the current reality of the jobs situation. The revisions for last year's number was huge, which means they were fudging the numbers up the whole way last year and kitchen sinked it later with a huge negative revision.

Gold and Euro

We had huge moves in gold and euro today. The only way I can interpret this is hedge fund liquidation. Crude oil also took a big hit. It seems like the hedgies were hiding out in gold, crude oil, and short euro. As far as the effect on stocks, I remain short term bullish because despite a weaker stock market, the euro got stronger and gold got weaker. These are signals that the de-risking trade is near exhaustion.

After we get past this much feared nonfarm payrolls report, the bearish catalysts will have to be even more bearish because of how much expectations have been lowered. I expect a weak number tomorrow but I don't think we'll sell off much on it.

Staying Long

We started off the V rally too early and got too many piggy backers looking to unload into the close. So I wouldn't be surprised if we retested the lows from the morning but I will stay long. The wild card here is how much more hedge fund liquidation is left. Look at the euro to see whether hedge funds still need to liquidate. If it keeps going up, that means we probably have more liquidation to go.

Hedge Fund Liquidation

There are many hedge funds now that are in deep trouble. They are overwhelmingly short euro to so-called hedge their long US stocks position. Both are going against them. We all know that hedge funds use a lot of leverage to achieve outsized returns off such hedges. They are being forced to liquidate as their margin erodes. Remember, it is not retail or mutual funds moving these markets. Its hedge funds. The liquidation is showing up on your screens as the euro is screaming higher while stocks are in hell.

First Day of Month

The First Day of the Month. It’s probably the most important trading day of the month, as inflows come in from 401(k) plans, 1RAs, etc. and mutual fund have to go out there and put this new money into stocks. Over the past 16 years, buying the close on SPY (the S&P 500 ETF) on the last day of the month and selling one day later would result in a successful trade 63% of the time with an average return of 0.37% (as opposed to 0.03% and a 50%-50% success rate if you buy any random day during this period). Various conditions take place that improve this result significantly. For instance, one time I was visiting Victor’s office on the first day of a month and one of his traders showed me a system and said, “If you show this to anyone we will have to kill you.” Basically, the system was: If the last half of the last day of the month was negative and the first half of the first day of the month was negative, buy at 11 a.m. and hold for the rest of the day. “This is an ATM machine” the trader told me. I leave it to the reader to test this system.

Excerpt from  Ten Things I Learned While Trading for Victor Niederhoffer

Give Up

The bounce players are throwing in the towel.  They looked for 1040 to hold and for us to bounce to 1060-1070.  Many are throwing in the towel and I expect there to be volatility as the momo funds sell and the value funds buy.  Also today is the first day of the month, so there will be rote buying by institutions.  A negative is of course the reluctance to hold long ahead of the nonfarm payrolls which everyone knows will be weak.  I am staying on the long side.