Tuesday, November 30, 2010

Gap Up Signal

Despite the constant Europe weakness, I am expecting a gap up based on it being 1st day of the month, slightly oversold conditions, and the intraday trade for today.  I have closed out my shorts and will put them back on tomorrow or later in the week. 

Europe Falling Apart

Europe seems like it sells off every day.  The euro also.  Yet there is no panic.  It is a controlled selloff and weakness just doesn't last.  Traders are quick to buy the dip which is a recurring theme.  I am still bearish on this market.  The path to the bottom will be longer and slower than expected.  Not much of an edge either way so I will mostly watch.

Monday, November 29, 2010

Not Going Down Much

We have a couple of things favoring the bulls, which is positive seasonality on the 1st of the month and into the nonfarm payrolls report, and also we've got a bit of fear from Europe which means there isn't much more to go on the downside.  The best bet is to expect continued range trading for the rest of the week (slightly higher bias), and then we should have selling next week which will mark a short term bottom. 

Range Trading

We are staying within a range of 1175 to 1200 for the past couple of weeks.  This should last till the nonfarm payrolls report if there is nothing crazy coming out of Europe.  Europe will determine whether we break down ahead of nonfarm payrolls or after.  It looks inevitable that we go lower within the next 2 weeks.  If we get close to 1200, I will look to add to shorts. 

Friday, November 26, 2010

Heat in the FX Market

The non-dollar currencies continue to bleed.  The Australian dollar was a very crowded long and that is getting hurt the most.    It is surprising to the see the market hold up so well despite the strong dollar.  The crowded positions seems to be all short dollar.  Maybe the recent weakness in China is a warning sign that we're close to the upper limits on the risk trade.  Europe is certaintly not doing its part to keep the global market afloat.  This market remains vulnerable to a deep correction.  Maintaining my positions into the weekend and for the foreseeable future.

European Pressure

Spain 10 year bond yields continue to rise, we are making new highs.  The heat is coming, the bond vigilantes are putting Spain to the test.  This is giving us a healthy gap down on the futures.  Until the mess is cleared up in Spain, a cloud will be hanging over this market.  No strong feeling about the intraday action today, I will likely just watch.  I am leaning towards further weakness after the open.

Wednesday, November 24, 2010

Be Back Friday

Happy Thanksgiving.  I will be looking to reshort to a full position soon.

Whistling Past the Graveyard

The bond vigilantes are going hard after Portugal and Spain.  Spain is the biggie.  Thanksgiving Day gives the turkeys an opportunity to put their heads in the sand.  Ignore the current realities in Europe and stuff themselves and go shopping.  I wouldn't be so concerned about Europe if the market wasn't so complacent.  We are whistling past the graveyard.  Spain 10 yr bond yields are above the highs in May when we had widespread Euro panic. 

Wash Rinse Repeat

Are we repeating the weaken on Monday, selloff on Tuesday, stabilize on Wednesday, gap up and go higher on Thursday, and stabilize and edge higher on Friday pattern?  It is pushing forward the bullish Mutual Fund Monday phenomena that we had for so long to bullish Thursday and Friday.  The market continues to chop in this little range, 1172 on the bottom, 1199 on the top. 

Just out:  Better than consensus consumer sentiment.  I hope the positive economic data gets the traders bullish, I want to reload to a full short position at good prices. 

Weaker Open than Expected

Although we are gapping up, it is quite small and well off the overnight highs set during the Asian hours.  There is underlying weakness in Europe and it is weighing down this market.  The market badly needs a flush out to clean out the weak hands.  Everyone points to positive seasonality, one wonders if that is breeding more complacency.  What everyone knows in the market isn't really worth knowing.  Still believe we will see lower prices next week. 

Tuesday, November 23, 2010

Partially Covered

I still have a short position, but just lightening my position, as I expect there to be about 7 to 3 odds of a gap up tomorrow.  But I do expect lower lows intraday tomorrow.  We are not done with the downside yet. 

Looking for a Weak Close

Are we gonna get another stick save in the final hour to give holiday cheer to the bulls?  Will Bernanke push the buy button?  I am leaning towards a weak close near the day's lows.  Worries over Korea and Europe will have traders leaning on any bids towards the close.   Given the amount of optimism that was built up over QE2, I hesitate to go long.  I want to wait for the correction to mature some more before switching to the long side.  

Real Problem is in Europe

North Korea is a smoke screen today for the real problem which is Europe.  The euro is gettting crushed today.  I am looking at traders flocking to gold as a safe haven and that seems like mindless trading to me.  To some extent, the geopolitical tensions have kept oil from falling apart.  But when things in Korea simmer down and Europe continues to get worse, you should see capitulation. 

Of course, these are bad case scenarios.  The market is about calculating probabilities.  The probability of a sustained rise in the market is much lower than the probability of a sustained pullback. 

Reasons to Sell

Suddenly the market has found a lot of reasons to sell after ignoring potential bad news for so long.  North Korean attack on South Korea, European debt concerns, and the insider trading probe provide convenient excuses to sell.  I would have preferred us to gap down on no news rather than all these things to worry about, but I still expect lower prices after the open.  Last week's gap at 1177 and the lows around 1172 are natural areas of support. 

Monday, November 22, 2010

Gap Down Signal

I have gotten a gap down signal and expect lower prices tomorrow.  Positive for the bulls is the outperformance of small caps and the Nasdaq risk names. 

Ireland then Portugal then...

Be careful for what you wish for.  Ireland bailout was awaited by the Street to eliminate the uncertainty.  But I don't know anybody who thought the bailout wouldn't happen.  So it was an uncertainty that had a certain outcome.  Sometimes logic doesn't work on Wall Street.  All the Ireland bailout did was turn the focus to Portugal which will make traders nervous because Spain is next after that.  And none of the countries really matter until you get to Spain.  Of course Spain is less vulnerable because it isn't in as bad a shape as P I G.  But the market can make it more vulnerable. 

One thing I am noticing today is the strength in the precious metals despite the weaker euro.  The group looks sold out to me and will likely be the first to rocket higher once stocks stabilize.  We might get one last flush out as I do believe stocks and commodities are going lower for the next few days.  I would not be surprised to see gold go up almost every single day in December and close out the year well above the current YTD high. 

Full Moon Special

The full moon is out, and the wolves are howling.  I looked at some interesting data over the weekend.  The CBOE put call volume data for Friday was extreme.  It stood out because it was one of the 10 lowest put call ratios for index options over the past 7 years.   Looking back at those dates, the market had trouble going higher, and usually pullbacked within days.  It is also surprising because we traded mostly flat on Friday.

Investors have forgotten about hedging downside risk and are just letting it ride.  Combine that with the Investor's Intelligence bullish sentiment, anecdotal complacency, and the weak futures despite the Ireland bailout news.  I've continued to believe that you have to sell the Ireland bailout news, as it is very anticipated, and buy when we have further fears of contagion towards Portugal.  I am reshort the ES in the premarket.

Friday, November 19, 2010

Got Out

I covered at the close.  I'm looking for a gap up so I will reshort on Monday morning.

Weak Close

I am still looking for that weak close, we continue to trade below yesterday's close, churning below 1200.   Friday afternoon trading on a flat day is not something that excites me.  Just watching and waiting.

Weaker 2nd Half of Day

We should consolidate yesterday's gain by chopping back and forth in the first 90 minutes, but after that, I expect the downtrend to resume.  China tightening is going to make traders a bit nervous holding longs over the weekend.

China Tightening

China raises reserve ratio requirment, not the ordinary interest rate.  This shouldn't have a big effect on the market but we are up in thin air and after yesterday's rally, we can selloff on any sort of bad news.  Yesterday's highs looks like a good spot to add short.  Yesterday was a dead cat bounce.  Sell rallies.

Thursday, November 18, 2010

Running Up the Score

On big up days, after the first hour, strong markets tend to keep going higher and higher finishing with an uptrend into the close.  I am a bit surprised we are not trading above 1198 after the strong first hour.  It looks like the bots front run the day's rally immediately snapping up shares when they recognize a gap up and run higher day.  Then they unload later on in the day.  The bots are probably the ones selling here in the past hour.  Tomorrow should be flat to down.  We may gap up, but it should be filled quickly after the open.

Targeting Next Week

I will look to add some more short tomorrow morning.  I will also not be doing much covering until next week.  I still see this market as being very vulnerable to a sharp selloff.   I don't see a big selloff today, but I also don't see us going that much higher. 

Revisiting May

Maybe it is just too obvious, but this feels like the beginning of May to me.  There is bullish sentiment, the market is off the highs after a monster rally, and European problems are in the news.  It feels like a terrible spot to be long, so that is why I am short.  I hope I have the balls to ride this one down for a bit, unlike the last time. 

Ireland Bailout Coming?

There is a big gap up this morning, in part because there seems to be rumors of an imminent bailout of Irish banks.  Who knows when that news comes out, but I don't think it will be good for the market.  I have added to my short and will be holding till next week in all likelihood.  I am expecting the big drop after options expiration. 

Wednesday, November 17, 2010

Been Waiting For

This is about the best setup on the short side I have seen since early May.  The price action is everything the bears could want.  Commodities are selling off hard, sentiment is bullish, lots of complacency, European wildcard, and a double top formation.   The market probably will not accomodate traders with a bounce to short.  Too many dip buyers are looking to sell that bounce for it to happen before the flush out. 

Starter Short

Got started on the short side.  I will be looking to add more short exposure if we go towards 1190, but right now, I will be content with a small position.

Playing it Short

I will be playing the short side again, there should be some chop for options expiration which hopefully can provide a good entry point on the short side.  I still think we've got plenty of room to the downside.  1130 is a bit too ambitious, but 1145-1150 is very much possible by next week. 

Commodities Liquidation

There is a commodities blowout going on.  To get an idea of which commodities are mostly lopsided on the spec long side, check out the COT charts.  Crude oil, copper, corn, soybeans have very high speculator longs open compared to past history.  Surprisingly, cotton and silver are not near the spec long highs. 

It makes sense that commodities are getting crushed to a much greater degree than stocks.  The hot money has been piling into commodities, not stocks.  They are the first ones to pull the ripcord when things get hairy.  The key to the game is to determine where the hot money comes back to when the coast is clear.  I believe it will be in the precious metals, and not the industrial/ag commodities. 

Tuesday, November 16, 2010

Dip Buyers Galore

The market has been completely conditioned to buy any selloff.  There hasn't been a selloff like this in so long that traders are jumping at the chance to buy here.  We are not done with the selling yet.

Sweet Spot

This is the sweet spot of the selloff, about halfway done.  If you have been bearish, and suddenly find yourself bullish on this dip, the market has accomplished what it has intended.  You can only get a 100 point drop from top to bottom, like in January and April if you have the masses complacent.  QE2 did its job in getting the market complacent.  Even after a 50 point drop, you have reflexive dip buying.  I am not ruling out a bounce, especially since this is options expiration week.  But that bounce should be contained under 1190, today's intraday top.  After consolidating today's down move, we should be ripe for the final leg of the selloff down to 1130. 

Ireland is an Excuse

The Ireland sovereign debt problems were with us when the market was at 1220, it didn't just suddenly come out of the blue.  As the market starts selling down, traders grasp at anything to explain the sudden selling.  What really has engineered this selloff is the excessive bullishness and lopsided positioning of the Street.  Those that wanted to get long already have.  So the selloff should be commensurate to the excessive bullishness of traders.  Thus this selloff should last more than just a few days.  I am expecting lower prices from here, and 1130 sounds like a reasonable target, which is the 50% retracement from the August low to the highs last week.

Stubborn Dip Buyers

The dip buyers have been so well rewarded over the past 2 1/2 months, they must be chomping at the bit to buy this "dip".  This doesn't feel like those past dips because 1) we are much higher in price 2) sentiment has had time to get overly bullish and complacent 3) this dip has lasted longer than all the others. 

I believe options expiration will help to control the downside this week, so we shouldn't close out the week under 1175-1180, but next week could see us have the flush out after the moderating effects of options expiration is removed.  Expecting lower prices later this week.

Just a Correction?

The vast majority view this pullback as just a small correction before we get the year end rally.  There is little fear of a plunge like we saw in May despite sovereign debt concerns in Europe and the recently stronger dollar.  I think there is something more lurking in the waters for the rest of November. 

If we do get down to 1160, I don't think it will just stop there.  From 1160, I think a flush all the way down to 1130 will happen.  That flush will evoke fears of the flash crash and that will probably be close to the bottom.

Monday, November 15, 2010

Fading into the Close

We've had strong finishes for the past 3 trading days, we are due for a weak finish and today is a good setup for it.  Traders continue to be oblivious to potential downside as shown by the low put call ratios and the dip buying phenomena and the quickness with which bears take profits.  I predict more downside this week and expect at least a trip down to 1175.

Hot Potato

Buying stocks and commodities now is like playing hot potato.  Everyone is looking to rent, not buy.  Most traders are looking to dump on the greater fool.  With the complacency that we've built up over the past 2 months, we are vulnerable to deep pullbacks.  Today, I am looking for weakness off this gap up in the first hour and then we should stabilize.  But I won't be betting on any substantial bounces from here.  We've got a ways to go to get this market back on a more sustainable path. 

Saturday, November 13, 2010

Riding Bubbles

When I look at my quote screen these days, my eyes naturally move over towards gold.  Then silver.  And then to the other commodities.  The energy in the precious metals is building.  It has been building in the commodities, but the precious metals have had the longest uptrend and the most staying power.  It has the best story.  It is the theme of this market.  Currency devaluation and money printing.  The open interest in the COMEX Gold futures is the highest in history.  The genie is now out of the bottle.  The animal spirits are alive.  I cannot fathom it ending with a whimper.  The volatility coming out of silver is something special.  Are the Hunt Brothers pulling the strings again? 

I really haven't felt this way about something since crude oil in 2008.  This feels like a calmer, more stretched out version of the crude oil bubble.  I regret not being flexible enough to look beyond my specific niche.  This prevented me from being able to ride bubbles.

Riding bubbles doesn't come naturally.  We are naturally inclined to shy away from buying sharp uptrends and moves that are based more on momentum than fundamentals.  Bubbles do not come around often, but they are immensely profitable for those that can ignore the fundamentals, high prices, and can spot their end.  I realized this after piking around in the crude oil futures for a couple of dollars here and there.  I was missing the big picture.  Riding the big wave.  Crude oil had been in a long uptrend since 2002 and by 2008 was the highlight of financial news.  Fundamentally, crude oil over $100 seemed expensive so I was very careful when playing the long side.  I had to ignore the fundamentals but I didn't. 

Crude oil at $110 is similar to gold at $1400.  It is late in the game.  But it is well worth it to pay a higher price for the higher probability of a bubble forming.  There is a lot of upside left.  It will just come swiftly and that will be it.  The most likely time frame for the peak of the bubble is late January to early March.  Much like crude oil at $110 was entering the terminal stage of the bubble, gold is about to enter the same stage.

Pretty soon, after we get this little stock market correction out of the way, all lights will be flashing green for gold.  There will be nothing stopping it.   It will go up almost every day like the Nasdaq did from 4000 to 5000.  Like crude oil from 110 to 140.  It helps that the dollar is seasonally weak in December. 

I will know we are very close to the end of the bubble when the energy is manic, the buzz is deafening, and talks about a new paradigm emerge.  And when peripheral commodities start faltering and all the money only gets funneled to gold.  We are not there yet.

Friday, November 12, 2010


I don't want to be short over the weekend.  I think we go lower next week but I'm hoping there is a little bounce on Monday to short.  I was too optimistic about this market, I think 1175 won't be the floor and 1160 looks to be in play.  The commodity bubble has popped, and we'll probably have some more commodity weakness next week but gold is probably going to bounce again and make new highs in December. 

Have a moderate gap up signal for Monday, but I won't be playing it. 

Breaking Through

We have busted support at 1202 from yesterday and the overnight support at 1194, and with it being Friday with risk managers lightening up on risk, I expect weakness into the close.  Still short.


I have gone in for a short here.  The market is getting nervous and I expect there to be closing out of risk positions ahead of the weekend and possible Chinese rate hike news.  I'm also taking a cue from gold and oil, which are very weak despite a stronger euro. 

Looking to Sell

We need to sell any strength in the first hour as I see a bloody second half of the day today.  No one will want to take home overnight weekend risk and that will be reflected in the selling after the first 90 minutes.  We could have a slight rally in the first hour and I will use that opportunity to get short.  The markets are getting nervous, and dips aren't going to bought as aggressively as the past 2 days. 

Thursday, November 11, 2010

Intraday Dip Buying

It is two days in a row that buying the dip intraday worked out and you made good gains intraday.  Usually when you get these dips intraday and a bounce to close strong, its not necessarily a sign of strength.  I do believe we will have a positive Friday and a small gap up for Monday so I want to wait till then to get short.  I still don't want to chase the short side when we've had such a strong uptrend, even though I do feel like we have topped out for the month.

Did I Miss It?

Was that the top that just went by?  I wanted to get a short position and ride it down to 1170 but I don't think the market will accomodate me with an easy entry.  We aren't rallying and if we don't bounce by Friday, it could get ugly next week.  Everything is set up for a pullback, but usually you get more choppiness at the top.  It looks like we're just going straight down.

Rumblings from CSCO

This market is very vulnerable.  The CSCO news was enough to dump the futures and now we have the 1-2 punch from CSCO and of course Europe, the perpetual punching bag for traders.  Meanwhile, gold is strong and oil has made a new high despite the stronger dollar.

It would be a gift to get a rally to 1220 today, I don't know if we'll make it up that high.  The G20 is a nonevent so I am not even paying attention to that.  I am just hoping for another chance to short at higher prices.

Anectodotally, it seems like the bears are in hiding, and the bulls seem emboldened by this strong uptrend.  Sentiment is set up such that we should get a whack down sometime in November.  I am forecasting a 60 point whack down to 1164  before Thanksgiving.  When you see gold giving up and tanking hard, that will probably be a sign that the pullback is near its end.  They always get to the strongest markets last. 

Wednesday, November 10, 2010

One More Up Day

I am looking for a continuation of the strength into tomorrow, which is Veteran's Day.  It should be low volume trading, probably taking us to 1220.  I will look to reload short there. 

Out of the Short

I am expecting a bounce later today and tomorrow.  The choppiness should continue, I don't expect a plunge from here.  I will reshort later this week.

Commodity Volatility

We are getting the volatility that signals the potential turn of a trend, although I don't view this as the ultimate top.  We will likely chop around between the low 1200s and 1224 for the next few days before finding traction to the downside towards 1175.  I would not get caught up in the hype that is being fed by the media about inflation and commodities.  The buzz is getting too loud for it to sustain much longer. 

Tuesday, November 9, 2010

Making a Top

Today's action has confirmed the top of 1224 and we should now see more two way trading for the next few days.  After that, I expect a move to the downside, probably to at least 1175, but more likely to around 1162-1165.  We are probably getting close to a bounce, but it will likely be contained at 1220. 

Very Complacent

I have not seen the market this complacent since April.  Traders are not buying put protection and are going all in on the commodities trade.  Parabolic moves in gold, silver, cotton, and about every other commodity.  We are set up for a significant pullback.  The trigger is anybody's guess.

Bubble Ben

We are at the mercy of Bubble Ben and his endless flowing liquidity gun.  You'd think deflation was everywhere with the way he's printing money.  Inflation without food and energy and with hedonistic price adjustments is probably close to zero.  But then again, when oil was at $140/barrel, the inflation number was also quite moderate.  As long as government entitlements, TIPs, and quantitative easing are determined by the CPI, the CPI will always vastly understate inflation. 

I expect us to trade weaker off the open, with late day strength.  It should set up a decent down day for Wednesday. 

Monday, November 8, 2010

Topping Process

Tops last longer than bottoms in the stock market.  Just when it feels like the market will never go down, that is when it becomes vulnerable to a pullback.  Right now, we have released all the positive catalysts that the markets wanted: Republican victory in the House, QE2 beating expectations of $500B with $600B, and an above consensus employment number.  Plus Obama agreeing to negotiate on tax cut extensions.  The market needs time to digest this good news and the process isn't done in 3 days.  But what is important is that the market has more two way trading, not up days and flat days with no down days.  When there is more two way trading, you are building a top which often leads to a sizeable pullback. 

I believe we will get more choppy this week and have more two way trading.  

Final Blastoff

Gold.  It is the most logical choice among speculators to target as the best risk asset.  It is the next bubble.  The greatest benefit of gold is that it cannot be denied by fundamentals.

If oil prices get too high, OPEC will be tempted to bring out more supply thus dampening the price.  There is also demand destruction there.  Same goes for other commodities.  But gold trades on pure speculative fervor.  It has very little intrinsic or industrial value, a small portion is used for jewelry, which is based on perception.  There are many other elements rarer than gold which aren't used for jewelry.  The fact that gold has been used and sought after as money doesn't mean anything in this fiat world where money is not backed by gold.

The story sounds good.  Banana Ben is hell bent on continuing to print money to finance the Treasury budget deficit and to goose the economy.  Since printing money is a very inefficient way of lowering the unemployment rate, the Fed will have plenty of fodder to print more money as the unemployment rate stays high despite lots of QE2.  So they will print more, because if 600 billion is not enough, maybe 6 trillion will be.  If 6 trillion isn't enough, maybe its 60 trillion.  As long as the banks and the financial markets want it, they will get it.  We know Bernanke is the sugar daddy and he will deliver.  All this money printing of course encourages the search for other currencies, and of course, gold, which will be considered the best currency as other nations competitively devalue. 

The chart is beautiful.  It is a perfect example of a chart that is about to go parabolic.  A very long uptrend built over several years with momentum rising every year.  It reminds me of the Nasdaq in late 1999.  Crude oil in early 2008.

From looking at past bubbles, from the liftoff point where the market was basing usually was a move of 50%-60% to the top.  The Nasdaq took off on a relentless uptrend from 3000, going from 3000 to 5000 in 3 months.  Gold has been basing between 1100 and 1250 for the past year before starting its liftoff on the QE2 announcement taking it up to 1397.  Based on past analogs, we can expect a 50% move up at the minimum from that base, so a range of 1650 to 1875, on the conservative side.  If we get a 60% move, it would be a range of 1760 to 2000. 

The best way to take advantage of this is to buy gold, silver, platinum, or palladium.

 Nasdaq bubble

Crude Oil bubble

Gold bubble

Friday, November 5, 2010

Ceiling at 1224

The overbought thrust to 1224 this morning looks to be the ceiling for now and I expect weakness on Monday with a likely gap down.  Still need to see how the last 2 hours trade, but if we finish around these prices, I expect a gap down and then a run lower to eventually fill the gap at 1196.  European debt spreads are widening for Ireland and Portugal, it is ignored for now but that is probably why the euro can't find a bid on a day like today.  Something to look for next week.  Also the European markets have been lagging badly so there is obviously meat behind the story. 

Force Fed Rally

The Fed has put the fund managers into a corner and baited them into getting long risk assets at overvalued levels.  It is now a game of musical chairs and traders are going all in on the risk trade. The put call ratios are at very very low levels, something you see perhaps once every six months, last time I recall seeing such lopsided levels was in the middle of April when we were around 1210.  That was pretty much the top of the move.  Staying short here and will keep this one for a while.

Almost at the Apex

There should be one last push, probably in premarket on Monday as the pre-weekend sellers put a lid on further upside today and the Monday buyers push up prices for the Monday open.  I am staying short, but don't think we'll have much downside today.  I'm looking for the selling to start Monday at the opening bell. 

Nonfarm payrolls almost seem like an afterthought, economic data is now viewed through a double good lens, if its bad data, Fed will buy more assets, if its good data, the economy is recovering and earnings will be higher.  A doubled head coin with Bernanke calling "heads" on every flip.  What a market.  Rigged beyond belief and a complete Ponzi scheme.  Karl Marx has taught Ben well.   Comrade Bernanke will always look out for us! 

Thursday, November 4, 2010

Hyperinflation Talk

You know the commodities trade is getting long in the tooth when you hear traders talk about hyperinflation and the dollar going lower.  The euro has topped out after running up to almost 1.43.  We have gold looking like it formed a double top pattern around 1384.  The ES has formed a double top pattern from April around 1215.    The majority believes the Fed will achieve its inflation levels and stocks will go higher.  The sentiment is euphoric.  Yes, not just bullish anymore. 

If you don't get short here, I don't know when you will.  Once in a blue moon? 

Adding to the Fire

I have added to my short position, but with room to add more.  We are in the vicinity of the April highs and that should provide a good risk reward backstop for the short position.  We have a lot of euphoria this morning.  A lot.  I wouldn't be surprised if we are making the highs for this up move today or tomorrow.

Wednesday, November 3, 2010

Short Ahead of FOMC

I have put on a short position expecting immediate weakness off the announcement.  I have heard about there being too many looking for a pullback, or a sell the news reaction.  That is being contrarian just for contrarian's sake, and isn't supported by actual psychological drivers of market price action.  I still want to point out how the market has been conditioned to be bullish when the Fed pumps money, and that Pavlovian response is the linchpin for why we've rallied so much after 2 months. 

Once the anticipation is over, what is the next catalyst?  And at ES 1187, we are not going higher just because there aren't enough bulls.  The market fundamentals is not conducive to having a lot of bulls, because the stock market has a secular problem, not a cyclical one. 

Due for a Selloff

We are long overdue for a selloff, and today can provide a convenient excuse for it.  I am not going into any of the technicals or the price action, but just into trader psychology.  The past two months have completed transformed the positioning in the Street from bearish to bullish.  This is especially the case for commodities and non-dollar currencies.  While I do see traders positioned for a selloff in stocks, they are not many positioned for a selloff in commodities or a dollar rally. 

Aside from a totally ridiculous sum like $1.5 T or $2 T promised asset purchases, I don't see much surprising this market to the upside.  If we get below consensus or near consensus program, disappointment will ensue.  At least until Friday's job report.  So there is a window of 36 hours where we are very likely to selloff.  That is the window I want to be short for.  I plan on shorting right before the FOMC announcement. 

Tuesday, November 2, 2010


One more day till liftoff.  Get your space suits ready.  There is so much anticipation for tomorrow's report and bulls are the majority now.  It is going to take something spectacular from the FOMC to get this market to buy the news.  Can it be buy the rumor and buy the news?  That would surprise me, most fund managers have gotten short dollars, long commodities, and to a lesser degree, long equities.  I believe commodities will have the biggest selloff on the news. 

Another Gap Up

Who are the idiots that sell at the close and buy back at the open 10 handles higher?  We have been getting a lot of these gap ups out of the blue after the previous session had intraday weakness.  The pre-sellers have done their work and now it will be light trading ahead of the midterm elections and the Fed.  There is a very good chance that the Fed will meet market expectations and that should cause a selloff for at least 1 day.  So I will likely look to add short exposure before the meeting looking for immediate weakness after the announcement.  But I don't think that weakness will last long, probably not even past this week. 

Could we rise on the news announcement?  It is possible, but I would only have believed that if we had traded stronger the past 2 weeks.  We've only gone sideways, so I believe it goes lower on the good news.

Monday, November 1, 2010

Pre-Selling Good News

What is widely perceived as good news, QE2, and the midterm elections, a guaranteed Republican takeover of the House, we have selling.  Yes, it is pre-selling the good news, making it that much harder to game the actual news announcement.  They don't make it easy anymore.  The fools who like to buy good news and sell bad news are fewer and fewer.

I don't see a sustained sell catalyst because I am not in the camp that believes the economy of the developed world goes back into a recession.  We are already in one, and its probably gonna be much of the same over the next several months.   And if they can't rehash the same old Euro crisis story, than the bears have very little ammo to make this market go much lower other than overextension of the upside and overexuberance.  I see no such signs at the moment.

Stuck on 1180

For almost everyday for the past 2 weeks, we have been closing between 1178 and 1182 at the cash close 4:00 PM.  This is despite intraday trading as low as 1168 and as high as 1192.  This is a lot of back and forth action going on ahead of a perceived "good news" event.  Usually if you are a bull, you'd like to see strength ahead of perceived good news, not choppy trading.  Anyway, I think we're headed lower off this back and forth trading but it probably will be a spike low that doesn't last very long.  That is how I am playing it.  So I'd like to get short, unfortunately, I think I missed my chance this morning waiting for higher prices in the afternoon.

Eager Beaver Buyers Remorse

Well, it is the first day of the month and a Monday, what did you expect?   A gap down and rush lower?   Of course we got the typical gap up and thrust higher in the first hour.  But that's all this market has got.  This market looks dead tired, it doesn't have energy on the upside, all the up moves seem forced and they don't last.  The euro has also lost steam and that probably was a sign that hedgies were selling into the rally this morning.  It is probably a good time to position oneself short for the potential downside later this week after FOMC.  It seems destined to happen looking at the price action and complacency.