Shorts Are Suckers

This is a raging bull market.  What was I thinking that a pullback would last more than 3 days?  Tuesday to Thursday and that's it.  It is now back to a creep higher to new highs.  I am canceling plans to sell short today, since we have that guaranteed up day tomorrow. 

Relief Rally

This is your rally for oil not spiking even higher.  It is well known now that the 1st day of the month is always up, and funds don't want to underexposed to the long side ahead of that guaranteed up day.  So we're getting some front running ahead of that, and also bouncing from short term oversold conditions.  I will consider the short side for Monday morning if we get a gap up. 

Bullish Fridays

It seems like almost every Friday we go up, take away the one Egypt incident and its been almost all up days.  It used to be Bullish Mondays, but the front runners are buying a day early now.  Could it also be that ahead of the bullish first day of the month, traders will be buying ahead on the last day of the month?  If so, then everyone will be loaded long for the first day of the month. 

Maybe the pullback is already over, which would frustrate the bears, and we'll just go straight up from here.  That's not normal.  But this isn't a normal market, so tough to treat it like one. 

Weak Market

Don't be fooled by the V shaped bounce today.  If someone told you that crude oil would trade from $99 to $96 (4 PM close prices), for a loss of $3 on the day, would you have expected the market to be flat?  Probably not.  I am expecting more weakness tomorrow, with 2/3 chance of a gap down.

Expecting Weak 2nd Half of Day

Look out for the sellers starting from the afternoon.  This is a different market now, for the time being, you can't chase rallies.  Unlike the Egypt situation, Libya's problems have caused supply disruptions for crude, and that does have a real effect on the global economy.  Iran and Saudi Arabia even being in the conversation for revolutions is enough to keep a firm bid for crude oil. 

Taking the Loss

Getting out of my ill timed long.  I think we've got more room to go to the downside.  It feels a bit early to be fishing long here.

Watch Oil

I don't think we'll see much of a selloff for oil ahead of the weekend, so that means we likely won't be able to rally strong until next weeek.  So even though I am a bit long, I don't think it pays to get aggressively long here unless we have some panic selling.  But next week should see a relatively strong bounce.

Today is day 3 of the selloff, usually this is when you get the give up and the dumb money throws in the towel.  I don't know about intraday reversals, but the spring is getting coiled. 

Action Jackson

The ES is back with a vengeance.  It is tradeable again.  I don't know how long this volatility will last but its good to see it come back.  I am leaning long, and keeping positions small.  The support at SPX 1300 held and that will be defended heavily by longs.  Watch crude oil when daytrading.  The top in crude was very close to the lows in the ES.

Long Side

I am taking a stab at the long side here at 1311.50.  This is a swing trade, expecting to hold the trade till next Tuesday.

Early Consolidation

Looking for the first two hours to consolidate the losses by trading range bound from 1310 to 1315 and then we should move higher into the close.  This will not be like the Egypt selloff which lasted 1 day.  This looks more like a consolidation after an overextended up move, transitioning to a range bound market.  We should get some better trading and volatility on both longs and shorts over the next few weeks.  Crude oil will likely retain its premium as a flight to safety for Middle East revolutions. 

Trend is Getting Late

This is buyable, but you have to realize now that the trend is very late.  This drop is a big sign of turbulence ahead.  Just like in April 2010 when we started getting more volatility after a super strong upmove.  We formed a right triangle on the chart, an uptrend that was unsustainable followed by a sharp drop that eliminated the gains from the past 2 weeks in 1 day.  Usually these formations lead to a few days consolidation at the lower end of the 2 week price range.  Don't expect a scream higher in 3 days like last time, but we'll likely work back up to 1340 by next week.

Libya is Not Egypt

Libya exports oil and is more important for the overall market than Egypt.  Plus you have Iran which is an even bigger deal.  The dominoes are toppling, but the US market still wants to overlook it.  The emerging markets and Europe have taken notice.  But the US equity market is the strongest of them all.  The dip buyers are already starting early and taking us well off the overnight lows.  I wouldn't bet on a big drop, it just doesn't pay to bet that way in such a strong trending market.   I am now flat and out of my ES short.  Buy the dips. 

Middle East Fear

I've never been a believer in fear trades even though I like to short.  I prefer to be short when there is little fear and the market goes down on no news.  If you are buying oil or selling stocks because of Middle Eastern revolutions, you better have a quick trigger finger.  I am a bull on gold and silver, but these moves can't last long because they are based on fear.  When the precious metals go up without geopolitical fears, but with fears of an imploding dollar, that is the real move.  I am not even that positive on commodities because the funds are all in.  But I would much rather own gold or silver than stocks for the next 6 months.

I have lightened up on my ES short this President's Day, and will likely cover the rest on any intraday weakness on Tuesday.   I don't think this dip will last long either. 

Teflon

Nothing can touch this market.  China raises bank reserve requirements, ECB emergency funding request shoots up, and the market yawns, and goes right back up.  There is a huge underlying demand for stocks.  It feels like the 1990s again, except this time rates are at zero forever.  We are in the best of both worlds, free money and a recovering economy.  A perfect environment for stocks.  Retail is catching on and coming in, but you can't play short for more than quick pullbacks, or just go long!  There just isn't enough weakness showing in the charts for a big pullback yet.  The demand for US stocks is insatiable, yet the emerging markets are being kicked to the curb to make room.

Remember, it takes time for the herd to get all in on US stocks, it wasn't but a few months ago that emerging markets were the best place to put your money.

Are We There Yet?

Market is ignoring all kinds of warning signs.  The lack of volume at a new high, lots of insider selling, low equity put call ratios, and overbought readings here and there.  Retail is getting into this market and that's what I've been waiting for to get more interested in the short side.  It doesn't mean we top soon, but it makes us more vulnerable to selloffs now that Joe Schmo is interested in buying stocks again. 

Everyone knows about commodities and inflation, so hedge funds are likely to be all in on the commodities trade.  As for stocks, they are nearly all in.  I am still looking at March for the big drop of 5-6%. 

Adding Short

Adding short here as we are going parabolic.  I wouldn't be surprised to see an intraday reversal and a close near the lows of the day. 

Inflation in the Spotlight

Core PPI came in much higher than expected, as did the headline PPI.  The market doesn't care.  The more important CPI numbers come out tomorrow morning, and the market should care but I don't think it will stop these bulls.  In fact, I expect there to some worrywarts waiting for the all clear sign after the CPI comes out to start buying.  Thus, I am targeting a top for Thursday morning.  The higher the better for a short entry. 

I don't believe inflation is much of a problem in the developed economies.  There just isn't enough wage growth and loan growth to support high inflation.  Commodities inflation by itself will not be able to push the CPI high enough for the Fed to raise rates. 

Oh Well

Was hoping for a gap up on better than expected economic data but that didn't happen.  Market looks heavy short term and I'll be lucky to add to my position at good entry points.  I don't want to chase on the short side here so if some how we can get back to 1330, I'll look to add short there. 

Short Term Top Soon

Market is on an unsustainable path short term.  I am looking for a top tomorrow that lasts at till options expiration.  Not expecting much downside, but the market is sprinting and using up all its energy reserves too quickly.  Like a runner hitting the wall sprinting the first mile in a 5000 meter race.  Very good risk reward for a short tomorrow.

$104

The price of a barrel of Brent oil is well over $100 now even though WTI is still trading at $90 for the same month futures.  This the highest price ever for this time of year, including 2008.  There has been a decade long secular bull market in commodities, Bazooka has only squirted lighter fluid on top of the flame.  Technology and services are being devalued and raw materials are being revalued.  One is increasing in supply, the other is not.  When you see no supply response to higher prices, it means everyone is already pumping / planting / mining at max production.

Still Talking Egypt

Is there something going on that was a huge surprise last night?  Those who reflexively bought oil a couple of weeks ago got rewarded, but this time the market already seems numb to the Egypt news and crude is reversing hard to the down side.  Egypt just seems like a distraction from what really is going on:  funds moving their money from emerging markets to the US.  This decoupling of emerging market weakness and US strength  is usually a bad sign going forward.  We'll see if that's the case this time.  I think it is, but we might have a bit of a delay in the reaction to this signal. 

Dips Don't Last

I managed to get out of some of my short on that dip in the AM.  Still holding some.  The grind continues, there is probably more bear meat out there to chew up.  Perhaps the top will be around 1340 to 1350.  I still believe the action in the emerging markets is an omen for the ES.  The weakness in Hong Kong and now Korea is in contrast to the super strength of the Fed led liquidity run into US equities.  Eventually the ES will fall under the weight of global equity weakness.  But I don't see it happening in February.

China Pressure

The market when it pullbacks 5% will likely be because of China.  Right now, there is an inflation scare and also fear of higher rates in the emerging markets.  The Chinese markets have lagged the US badly since the QE2 announcement.  I don't think the formation of this market is set up for that 5% pullback right now, but within a month, I see it happening.  Probably in March.

10 Yr Treasury Auction

How can Treasuries really selloff when the Fed is in there buying huge chunks every day?  It is a surprise that it has sold off this far already this year.  If we don't have QE3, Treasuries will gradually go back to being a natural market.   And that probably goes for the equity market as well. 

Ag Bubble

We have hit new 52 week highs in wheat, corn, and soybeans.  Cotton, sugar, and the other softs have been parabolic.  We are back to 2008 bubble levels.  Brent crude oil hit 102.  The weakness in NYMEX crude oil, which isn't a good global measure of crude oil prices right now, is masking a brewing commodity bubble.  At some point, the Fed will have to admit that inflation is ramping up.  If they keep their head in the sand and yell that there is no inflation, they will lose all credibility. 

Bazooka Ben on the Hill

The Republicans will be bringing out their pea shooters in front of Bazooka Ben.  Ben will laugh it off, repeat the mantra of low inflation, high unemployment, loving the higher stock market, commodities don't really matter to us, etc.  Nothing new will come out of it except a few good sound bites from Ron Paul.  We are very overbought so looking for some back and forth trading in the coming days.  If not, this market is just trading on another planetary system that I'm unfamiliar with. 

Big Opportunities Ahead

We are building up a huge reserve of downside fuel as the market creeps higher every day.  It will not manifest itself right away, because these kinds of super strong trends take a long time to die out.  But when they do, the market convulses and forms broad tops.  These broad tops will have a number of big up and down swings and then we'll go back down for good.  It is probably at least 5-6 months away.  By that time, the ES could be around 1400.  We'll probably have a 5% correction in March sometime and then keep going higher to 1400 by summer.

Overextended

Adding to my short on the rally today and expecting some weakness in the middle of the week.  I got caught short and the market never gave me the pullback to get out.  The market is even stronger than my previous bullish expectations.  There is still that wall of worry that the market is climbing with ease.  Those looking for a correction since the beginning of the year have been completely wrong. 

Theory on Inflation

The CPI numbers always underestimate inflation because of hedonic pricing, but they aren't a complete fraud.  The inflation numbers have been contained in the US because wages aren't rising.  Essentially, in a global world technological differences are narrowing quickly between developed and developing countries.  Thus, wage differences also need to narrow.

A big part of inflation numbers is housing costs, and rents are not rising as quickly because of the weak housing market.  It is easy to point to the cost of grains, or energy or softs and say we have rampant inflation, but that is only a small part of the average American's expenditure. 

 In any case, we probably won't be getting any big inflation numbers anytime soon, so the Fed will have an excuse to remain easy.  QE3 is very much possible.  Those betting on continued bond weakness due to inflation will be fighting the Fed who will institute another bond buying program if rates go too high.

Dollar Weakness

The dollar has steadily and quietly been getting back to its lows right around the QE2 announcement.  Although the euro hasn't been rallying much against the dollar, if you look at the chart of the AUD, or CHF, or even JPY, they are all showing clear uptrends.  The dollar got a bounce after the fiascos in Europe, but it looks like a dead cat bounce.  This dollar weakness is a megatrend that has all the fundamentals going for it.  It doesn't matter if the US economic data comes in good or bad, because the Fed has telegraphed that it will remain easy come hell or high water.  Banana Ben is sticking his head in the sand and ignoring inflation so he can pump more money.  US deficits are endless as far as the eye can see.  And even with QE2, Treasuries can't find a bid.  Imagine how weak Treasuries would be without the Fed going in there everyday bidding.

I believe this dollar weakness will manifest itself the most when investors see the big picture and rush for alternative currencies such as gold.

Bad Number But

We're not going down.  The market wants to believe that the jobs report was a lot stronger than it actually showed.  So we're not getting much movement either way.  I will just hold on and wait for weakness.  It is useless to game the economic data.

Riding It Out

Although I believe we'll probably get a strong jobs report, I will hold my short till the froth dies down.  We may get a spike on a good jobs number and I will want to add to my short in that case. 

Calling for Continued Intraday Weakness

I think we're going to continue to trend lower today, not covering here. 

Bears Need a Down Day

The window of opportunity for the bears to strike is now.  Ahead of a likely strong nonfarm payrolls report, the bears need to operate today.  If they can't get this market down more than a couple of points, they are going to get blown out of the water after the nonfarm payrolls come out tomorrow.  There is still stiff resistance at 1307.  Egypt will be a total nonfactor by next week so bears need to get working.

Pre-Crisis Levels

We have been trading at pre-fall 2008 crisis levels for the past month.  The range in July to August 2008 was between 1200 and 1310.  So this 1310 level will be hard to crack on the first attempt.  The market has a memory.  The only downside to being short is that the bad news is already out of the bag, in terms of Egypt.  I would prefer to have a short without any Middle East jitters.  Don't know about the gap, but expecting intraday weakness tomorrow. 

Back to Egypt

CNBC is showing the riots in Egypt and its back to pre-market weakness in the futures.  We overshot to the upside yesterday and things got a little frothy.  I am expecting weakness today.

Squeezed

Well that is what it feels like to get squeezed into another 52 week high.  I picked a bad time to try to top tick the rally, but I will stay short and cover on weakness later this week.  Perhaps on a move down to 1292.  You know what they say about bad trades.  They become investments.

P.S. - Got a moderate gap down signal for tomorrow.  

Shorting This

Too much too fast.  I shorted on the ISM number and expect to see lower prices in the coming days. 

Tempting to Short

Today's gap up to 1291 is very tempting to short, I have a hard time picturing a gap up and go scenario which means we'll fill the gap down to 1282.  Perhaps the market will spike up on the ISM number and that could be a good entry point on the short side.  The bears have been abused again looking for that elusive 5% pullback that never arrives.