Friday, October 29, 2010


We've been trading from 1168 to 1186 for most of the past 2 weeks, aside from a couple of false break outs.   I don't know if it is churning or basing for a move higher.  It feels like we should selloff next week but its not going to be as easy as I first expected.  I will still be leaning more towards the short side next week, but it would be nice to short a market that is rallying into next week.

Expecting weakness in the 2nd half of the day today as funds lock up their profits.

Thursday, October 28, 2010

Unusual Weakness

The market is acting unusually weak despite the weak dollar today and strong jobless claims number.  This is just a guess, but it seems like funds want to pare down the risk on their books for the end of the month and ahead of QE2.  It would not surprise me to see us keep going lower for most of the day, but I'm not putting any money on it. 

Also, I've been rethinking what happens after the FOMC meeting, and I am less bearish about the post FOMC trade than before.  It seems like the uncertainty and the fear of a sell the news reaction is in the current prices.  That doesn't make me bullish for the post FOMC trade, but it just makes it harder to guess what's going to happen.  Nothing easy in this market with much of the dumb money gone. 

Dips are Fleeting

You can tell the strength of the market by the amount of time it gives you to buy dips.  This market just doesn't stay down for long before bouncing back towards the highs.  Yesterday was a classic example of this.  So was last week.  A strong market gets up right away after pulling back.  This is what this market is doing.  That makes me hesistate to short except for absolutely perfect highly overbought situations. 

Not much read into today, the action feels random but with a strong bid underneath. 

Lowering Expectations

The Fed apparently leaked news to the Wall Street Journal yesterday to lower expectations for the size of QE2.  It is going to make things trickier to trade on the FOMC announcement next week.  The consensus is moving towards a smaller program.  This could actually make the immediate selloff on the news more buyable.  It also would make shorting ahead of the news riskier because expectations are lower. 

What I noticed yesterday was the lack of sustained selling in the market despite the obviously stronger dollar.  This has been a continuing theme for the past week.  It looks like the short dollar trade is much more crowded than the long equities trade. 

Wednesday, October 27, 2010

Weak Into Thursday

We've got a gap down and run lower.  Due to the complacency, I don't expect us to bounce back right away, I expect us to get down to 1163 by Thursday, where the dip buyers will get aggressive again.  I don't expect any miracles from the bulls today, it is the bear's day. 

Tuesday, October 26, 2010

Waiting for the Waves

The volatility has died out, I don't have much conviction long or short.  But I think we have one more move up before the end of month.  Just watching and waiting. 

Front Running QE2

It is a possibility that we could top out this week as sellers front run the expected good news of QE2 and the midterm elections and sell before the news comes out.  If that happens, it will make the action next week trickier.  I don't see that much enthusiasm for stocks, but I do see enthusiasm for weak dollar trades and commodities.  The sell the news phenomena should hit the currencies and commodities much harder than stocks. 

Today I expect us to grind higher from the open.

Monday, October 25, 2010

Nothing Wrong

I don't want to read too much into one day, but the two most likely things are 1) The market has another up day tomorrow and tops out by Wednesday or 2) We keep going up slowly into Friday.  A big pullback usually doesn't come right away after days like Friday and Monday.  The bulls are doing nothing wrong. 

Bullish Market

I underestimated the strength of this market when I stated that we'd be in chop mode from 1156 to 1182.  With higher highs and higher lows after hitting 1156, it is not a top formation but a continuation of the uptrend.  The dollar has resumed its downtrend and last week was just another mini-scare before going to higher ground.  Today, I don't expect a big up day but I do expect us to be trading close to 1200 later this week.  Still no rush to short.

Friday, October 22, 2010

Gap Up Monday

Mutual Fund Mondays got moved over to POMO Fridays during this 2 month rally.  But we still tend to have bullish Mondays so I expect more of the same as we are eerily quiet just a few points from the highs of this week.  After the volatility earlier this week, it is odd and a sign that we need another push higher.   Expecting a gap up on Monday and a run to surpass 1186.

Note on Currencies

From the action this week, I've noticed that the speculators are crowded into 2 main currencies.  The AUD and the CHF.  They have been underperforming against the euro the and it is probably speculators bailing out ahead of event risk of the G20.  It tells me that the AUD and CHF are extremely crowded longs, and if you are going to play for a sell the news reaction to QE2, shorting those 2 currencies probably gives you the most bang for your buck.

Ahead of the G20

The G20 meeting is this weekend, and that can be viewed as event risk for those holding substantial currency positions.  Most of those speculators would be short the dollar so they have probably been paring back their short dollar positions.  I'm sure nothing will come out of the G20 like always and it will be back to more dollar selling.  That is why I can't be too bearish here because I think the dollar will continue the downtrend next week.

Out of the Short

I've gotten out of my short position.  Should have covered on the weakness yesterday but I was looking for a gap down that never came.  I don't see much of an edge today, but we're likely to go higher in the 2nd half of the day.

Failed Signal

We got a failed signal and that usually means there is strong underlying demand.  Another gap up pretty much seals the deal for a trip to new highs beyond 1186.  1200 looks to be in the picture for next week.  I'm still short but with plans to exit soon.

Thursday, October 21, 2010

Gap Down Signal

I am getting a  strong gap down signal based on the rally in the final 2 hours back to 1176.  I'm also expecting the dollar to strengthen tomorrow and the commodity players in gold and oil to throw in the towel tomorrow morning. 

Range Bound

I don't see this as confirmation of anything but continued choppiness.  Since we are still above the low end of the range, I remain short with a view for covering if we get close to 1156.  We may accomplish that tomorrow morning.  In any case, I don't want to stay short past Friday lunch time.  If we close around 1170, I expect a gap down tomorrow. 


This bull is on steroids.  I remain short.  Perhaps this is the breakout that takes us to 1200, but I am playing this as a false breakout of the range that can be viewed as a stop run.  We took out the stops and weak holders who bailed out on the break out of 1182.

Of note is the new high in the ES but the lack of a new high in crude oil, gold, and the euro, the mighty trio that has taken us up since the FOMC meeting.   Looking for weakness tomorrow, today is a crap shoot. 

Going Short

I have gotten short in the premarket, the choppiness over the past few days has defined a range between 1156 and 1182.  The risk reward looks favorable with a short at current levels.  I will hold on to the short till tomorrow morning or 1156. 

Wednesday, October 20, 2010

That Was It

We touched 1180 and that looks to be the top of this move up from 1156 yesterday.  We are set up for a down day tomorrow and I would be leaning short.  The downside should be contained to 1156, at the worst.  Choppy trading continues.

Story is Getting Old

Dip buying is working again and the bold bears are getting gored by the bulls.  I will only try to top tick this market, I will not chase weakness.  I will be a seller at 1180-1182.  Below that and I am just watching. 

Changed Market

Yesterday we saw hints of panic among traders and we've opened the door to future selling.   I expect early weakness and late day strength.  So I would look to buy dips early in the day. 

Tuesday, October 19, 2010

Watch 1156

We should not break more than a couple of points below 1156.  If we do, and stay under 1156 for more than an hour during US trading hours, we are likely to go down further to 1142.  I believe 1156 should hold and we should pop back towards 1173-1175 by Thursday.  

Chop Until FOMC Meeting

Today's low and yesterday's high will define the approximate top and bottom of the chop range that I see till November 3.  Yesterday's high was around 1082, and today's low is yet to be determined.  This chop will be very tradeable for the next 2 weeks, so that will be how will approach it. 

After the chop is over, I expect us to break down to the downside, although I don't think it will be a new downtrend.  It should just be a pull back, but a big one that will scare people.  We could go down to around 1100-1110 on that pullback.  But that is just something I am guessing way out there in the future.  For right now, we should take advantage of this chop to pick up a few dimes before the bulldozer rolls in. 

Dollar Bottoming

With the dollar forming a short term bottom, the market will have problems exploding higher.  It can still edge up, but I don't see the same explosive up moves off bottoms.  At the same time, the market has hardly had a down day and the trend has been firmly higher.  Until we get more two way trading, it is hard to be a bear.  But I think we're starting the two way trading this week, on the way to forming a top.  So I'm forecasting choppy up and down moves for this week, with swifter selloffs than in the past 6 weeks. 

Monday, October 18, 2010

Letting Out Air

Weaker futures after AAPL's earnings is better for the bulls as it gets rid of some froth.  Market apparently was leaning very long ahead of earnings today, as can be seen by the panic selling in the AH right now.  This is something we haven't seen in a very long time, the market going lower after earnings.  It is still a bull's market, so I wouldn't chase shorts, and dip buys will probably still work for 2 more weeks.


Earnings are coming up for the big boys and odds favor the market reacting favorably to AAPL, because that has been its history.  With AAPL always lowballing estimates, they will come up with another big beat and the pom poms will be out in full force.  That should lift the futures in the after hours.  Whether it can maintain that strength is yet to be seen, but this market seems hell bent on going to 1200. 

Yes, the crowd is getting more complacent but we're not at January or April levels in terms of bullishness.  And coming after such a big washout in May-August, stocks are in stronger hands now. 

Going to 1180

We've got a big turnaround in the overnight futures and resting near the highs of the overnight session, yet still below the futures close.  In general, this means we keep going higher for the rest of the day, plus we've got the Mutual Fund Monday working for the bulls and the rush to get long tech ahead of AAPL, so we're going to 1180 later today.  Strap on your bull horns.  We are going up today.

Saturday, October 16, 2010

Mapping the Apex

The calendar is set up such that we should have some interesting markets in the beginning of November.  The midterm elections are on November 2, and the much awaited QE2 announcement at the FOMC meeting on November 3.  Don't forget the always reliable Mutual Fund Monday combination with the first day of the month could set up an explosive final "all-in" rally on November 1 that should mark a short term top.

Here is how things are setting up.  First, with high expectations for a Republican victory in the midterm elections and the belief that will be a positive for the stock market, optimism will be at an apex.  The problem is that the Republicans will be in favor of less government spending and less stimulus, which is a negative for the stock market.  And winning the midterm elections is no guarantee of extending the Bush tax cuts.

No one will want to be short ahead of the midterm elections and the FOMC meeting where Banana Ben could light fireworks to the market with a QE2 announcement for $1 trillion.  I never like to bet the under with BB's liquidity gun.  Odds are we're more likely to get a $1 trillion asset purchase than $500 billion, which is what many are expecting.  However, going into the FOMC meeting, there will be almost no short base.  That doesn't mean we enter a bear market but the pullback after the meeting can be very sharp and quick.

We should see the ES top and the dollar bottom at the apex.  The cascade of selling not seen since May is very much a possibility.  This rally is at a mature stage and is ripe for a healthy down move.  Seasonality is usually positive for November, but that always takes a back seat to the charts, fundamentals, and sentiment. 

In the meantime, the market has something to look forward to and we shouldn't have more than a 2% pullback till the time comes for all this good news to arrive in November. 

Friday, October 15, 2010

Another Comeback

Another day with intraday weakness, another strong close, especially between 4:00 and 4:15. The futures traders seem to like to ramp it up after the stock market close.  Despite the weak financials, the techs have taken over to keep this market afloat.  AAPL reports after the close on Monday.  I'm sure they blow out the numbers again and ramp up the futures right after the release like it always does.  The pattern is so old and repetitive but it doesn't change. Looking for strength on Monday whether we gap up or down.

Bears Need Dentures

We have the dollar selling off significantly today and we haven't had much traction to the downside.  We are selling off again now but we're only down 4 points from yesterday's close.  It looks like this trend will last longer than I expected.  I thought we could ramp into the Fed meeting and then selloff and form a huge top.   But the lack of overt bullishness despite going up nearly every day for over 6 weeks has me second guessing that outlook. 

As I write, crude oil is dumping huge on the dollar suddenly finding buyers.  The dollar is the lynch pin for everything.  A dollar rallying for more than a couple of days will have huge negative ramifications for this market. 

GOOG and Bazooka Ben

The bears are getting whacked with a one two combo of GOOG and Bazooka Ben.  CPI came in less than expected and that will have everyone believing the Fed will have a giant QE2 program.  There is a lot of mileage coming from this QE2 theme, I don't know when it will end, but it is reaching extremes.  Notable is gold is actually lower today and the dollar is around flat.  Looking for some early selling today. 

Thursday, October 14, 2010

One More Down Day

Options expiration is having a negative effect on the market and I expect one more weak day and then we'll be back off to the races towards 1180 starting on Monday.  In this type of power up trend, selling anything but tops is dangerous.  I don't dare chase a short entry in this type of market.  Any downside tomorrow should be contained at ES 1161 or in the worst case, 1157.  This market is not ready for a big down day just yet. 

Out of the Short

I want to wait for a bit of a better setup before getting short.  Or at the very least, some more two way trading.  I expect the 2nd half of the day to be strong ahead of Banana Ben's jawboning due on Friday.  The weak dollar is going to help this market stay afloat today.  The only way I see this market having a big down day is if the dollar is trading strong.  It is not today, thus my lack of conviction on the short side.

Wednesday, October 13, 2010

INTC and the Market

Well, what I thought would have happened to the market today happened to INTC.  We had the gap up on ok earnings and then a drip lower all day.  That was what I expected for the market but we managed to pull a levitation act again.  It feels toppy, but the market was so de-risked over the summer that it is taking longer than I expected for everyone to get on board the risk train.  Bernanke has a speech on Friday, I'm sure he'll greet the market with more QE goodies to look forward to.  All but the oceans' worth of liquidity is priced in right now.

Put/Call Very Low

There are alarm bells going off in the options pits.   The put/call ratios are extremely low this morning.  I would consider this just a one off were it not for the complacent sentiment that I have seen on CNBC and the relief that came after the Fed minutes with QE 2 on schedule as planned.

I have repeatedly noted the strength of this market but today feels like a fulcrum day.  A day where the hesistant just say get me in and the shorts just throw in the towel.  We may touch 1175 a couple more times in the coming days, but I see little upside near term.  The risk reward on the short side is very compelling here. 

Watch the Dollar

The dollar is not selling off against the majors despite a healthy gap up in the futures.  This is a sign of exhaustion for the dollar down move, I am getting more negative on the market here and have put in a short position.  Yesterday on Fast Money, the complacency was quite thick after INTC came out with ok earnings and everyone was afraid to fight the trend.  A pullback is right around the corner.

P.S. - There was a Barton Biggs sighting on CNBC yesterday.  He was very bullish.

Tuesday, October 12, 2010

INTC Coming Up

Although I believe INTC will disappoint and earnings overall will disappoint, the market has had very few pullbacks and if there is a pullback on the INTC news, it probably won't last long.  A tough market to short sell in.  It will get easier, but right now, it's still a buyer's market.

Fed Minutes

The trade before 2:00 PM ET and after will be dramatic.  I don't expect any big moves but we should see some volatility when the Fed minutes come out.  The market is showing subtle signs of weakness, the dollar is trying to find a short term bottom.  With INTC coming after the bell today, I will be looking to be on the sell side today.  The question is timing it.  We can see weakness after the Fed minutes when the details are more vague than what the market wants. 

Monday, October 11, 2010

Columbus Day is this Slow?

The volume is very light and it feels like the week after Christmas.  I wouldn't put much meaning into a day like today, its is almost a nothing day.  Tomorrow should give us a better picture, but the market looks strong. 

Earnings Coming

This week earnings are going to distract from the QE2 talk, and that should bring some strength to the dollar and weakness to stocks and commodities.  I think INTC will drop a bomb on Tuesday afternoon and then from Wednesday we'll have some profit taking.  We may squeeze a bit higher today, 1170 should put a cap on any upmoves. 

Friday, October 8, 2010

Headlines Repeating

The Yahoo Finance headline: Stocks Edge Up on Expectations of Fed Move; Dow Hits 11,000 for First Time Since May- AP 

It is the same explanation for the past week on an up day.  The market is going up in anticipation of QE 2.  Well, the FOMC meeting is 4 weeks away.  Can they repeat this headline everyday for the next 4 weeks?  We have earnings coming up next week, and it won't help the market.  INTC is lagging the market ahead of its earnings.  The banks are all laggards. 

The market only cares about the techs and financials during earnings season.  INTC earning come out Tuesday afternoon, that will likely provide us with a gap down on Wednesday.  Until then, we can edge higher. 

March/April 2010

I am getting flashbacks to that time period.  But this time, we have less optimism.  The Fed is more willing to pump money into the system now.  The only difference is that we have proof that the recovery has slowed down.  In March/April, there was no proof of a slow down. 

I don't think we'll make new recovery highs in the ES.  1200 is a possibility by early November, but that would set up another good short opportunity which could be ridden down to 1100.  Those talking 1300, 1400, are not aware of the new normal.   In order to reach those levels, we need to reach escape velocity for GDP growth and I don't see that as likely unless Banana Ben goes crazy and prints an extra $3 trillion+. 

Weak Dollar Theme

Since the FOMC meeting on September 21, a clear trade has taken place.  Long commodities, short dollar.  Stocks are being swept up higher following this theme.  We need to delineate all stock market action as pre 9/21 and post 9/21.  Pre 9/21, stocks went up because they were oversold, pessimism was high, and funds were re-risking.  All gains since 9/21 are due to stocks following a weaker dollar and stronger commodities.  I want to emphasize that stocks going higher are not making the dollar weaker and the commodities stronger.  It is the other way around.

If you can grasp this concept, you can see why we had intraday weakness in the market on Thursday.  The euro made a short term top above 1.40, along with the ES making a top at 1163, and reversed hard but was able to stabilize above 1.39.  For a moment, the market was worried that the weak dollar trade had reached a top and stocks sold off in sympathy.  But the euro stabilizing helped the market to rally into the futures close.

Every 1-1.5% rally in the dollar till the next FOMC meeting should be shorted. 

Stocks are at the mercy of the weak dollar theme.  This will play out till November 3, the next FOMC meeting.  Everything else is a sideshow.

Thursday, October 7, 2010

Leaders, Followers, and Laggards.

List of what is strongest in order:

  1. Leaders:  Precious Metals, Agriculture, Softs, Emerging market equities, Non-dollar currencies, Treasuries
  2. Secondary Leaders:  US equities, Energy
  3. Followers and Laggards: European equities, Japanese equities

 When the European and Japanese equities start playing catch up, that is when we are very late in the rally.  The strongest sector, commodities and emerging market equities and non-dollar currencies will likely outlast the S&P in its uptrend like 2008.

Ahead of NFP

Expecting a quiet trading day ahead of the nonfarm payrolls with a slight upward bias in the 2nd half of the day.  Dollar continues to get dumped and it is setting up for a mini dollar selling climax either today or tomorrow.  If we rally on a stronger than expected nonfarm payrolls report, I will likely get short. 

Wednesday, October 6, 2010

Unusual Treasury Strength

We have an unusual scenario in which stocks and commodities have been rising strong, and so have Treasuries.  Usually Treasuries aren't near 52 week highs after stocks and commodities have gone up so much. 

I've looked back at past scenarios in which stocks and Treasuries rise at the same time, it is usually very bullish for stocks.  When Treasuries begin to selloff and investors take more risk, that should be the start of the topping process for stocks.  We are far from that now.


I don't like the price action and I've been looking at some things that suggest that we should rally for longer than many people expect (with corrections along the way). 

Looking to Cover Soon

I don't think we have much downside, but I think the market will have a hard time bouncing today.  So I will probably cover in the final hour.

Rigged Dice

So if the economy goes into a double dip, the Fed will rescuse the markets with QE2 and the markets will go up.  If the economy recovers, earnings will rise and the markets will go up.  This argument started with David Tepper and is almost considered fact now.  Whenever investors think it is that easy to make money in stocks, I take caution.

Dip Buyers Heaven

A very strong rally with hardly any dips.  The train left the station a long time ago and it hasn't slowed down enough to pick up many passengers along the way.  What few dips we have quickly disappear to give way to further rallies.  I will probably have to try to eek out of my short position with minimal losses, I don't think we'll have any dips greater than 1% unless we get some more euphoria.  This rally still hasn't been fully embraced by the investor community.

The incredible levitation has the full support of the Fed who wants to goose stock prices to stimulate spending.  This will be another play that ends badly but we can enjoy the party while it lasts.  The party in the gold section seems to have the most alcohol. 

Tuesday, October 5, 2010

Money Printing

The market is zoned in on the Fed and its plans to print its way out of high unemployment and "too low" inflation.  The dollar is getting trashed everyday and equities have an endless bid.  The FOMC meeting is on November 3.  Mark your calendar.  That will be the mother of all pivots.  The hedgies are going all in on the short dollar, long financial assets trade.  We still have 4 weeks to build up steam.  The higher she goes, the harder the fall.  Just make sure you've got parachutes ready in early November. 

Call Me Crazy

I am shorting today and like the risk reward at these levels.  This is a strong market but I want to take a shot and see if we can go lower later this week. 

Floating On Air

We have a "don't ask, don't tell" gap up in the futures, one of those gap ups out of the blue that nail the shorts.  That is why I don't like to press the short side when the intermediate trend is up and we have a down day.  You can get whipsawed and the market can squeeze you to death.

This is looking like the magic carpet ride that we had back in March and April of 2010 where the market hardly had a down day, and when it did, the next day was up.  The trend is up, and while I believe we are rangebound, I think it's a trading channel going up, we should keep edging higher into early November.

Monday, October 4, 2010

Continuation Tomorrow

We should get some further selling tomorrow as the bounce today has been weak along with the topping signals from last week.  Beyond Tuesday, it could go either way.  Gut tells me we won't selloff beyond 1117.  If we get down to 1117, that could be a spot for a dip buy.  I don't believe we're ready to have any deep corrections yet.  For the next 2 weeks, we should be trading between 1117 and 1152. 

Corporate Buybacks Retail Sellbacks

A lot of traders are puzzled by the resilience of this market, despite the weak economy and investor disinterest.  What is driving this market higher?  It is not fund flows.  We have had outflows every month since May.  It is not the Fed, because they haven't been expanding their balance sheet, just maintaining the current bloated status.  Share buybacks have helped the market maintain its bid.  "U.S. companies have announced $258 billion in buybacks so far this year, compared with $52 billion in the first three quarters of 2009, according to data compiled by Birinyi."

Corporations are borrowing debt at low interest rates to finance stock buybacks. So they are in essence selling bonds to investors buying the bond funds and buying stock from investors selling the equity funds.  Whoever talks about deleveraging is out of their mind.  Yes, the housing market is deleveraging, but the government and corporations are not.  The can is being kicked down the road. There is no coiled spring, it is limp.  

Ultimately, investors have to start putting money into the stock market, stock buybacks can't keep this rally going forever.  That is why I am pessimistic.  I just don't see the big inflows into stocks or the earnings growth that can ignite a big bull market.   The April highs are insurmountable.   At the same time, stocks are not overowned, so that eliminates any 2008 scenarios.  It is going to remain a trader's market, until valuations get low enough.  We are not there yet.

For today's trade, I am expecting a pullback lower.  I think it could continue till Wednesday.

Friday, October 1, 2010

Topping Process Continues

Not much to add, we are building up complacency, the weaker dollar is not helping equities at all which tells me we have reached a price level where supply is meeting the demand.  Energy shares are outperforming, telling me traders are reaching for beta and already own enough tech, and don't want to own financials.

Looking for a trip down to 1120 at a minimum next week to fill the gap, perhaps going down to as low as 1105.

First of the Month Madness

We are getting another deluge of buying on the first of the month.  This is getting to be standard procedure for this market.  The market is gapping up big and it looks like whatever weakness we had yesterday is being quickly forgotten.  The dollar is getting trashed again and I am hearing calls for Australian-US dollar parity.  The currency moves are getting a bit out of hand in the short term but in the long term, I continue to see dollar weakness.  I see no bottom for the dollar. 

Energy is always the last to the dance, this rally is maturing quickly.  I am looking to add to short exposure on any first of month rally.