VOLATILITY GALORE

Interesting week ahead of us..

1) Options expiration
2) Financials Report

Currently...

Asian markets are tumbling..but our futures are not off as much as I expected.

I see two different scenarios at hand:

1) too many institutions probably still have too much inventory on hand, so they may "prop" these markets up before the earnings

2) or they short this market (beginning of the week) prior to the earnings and then spike it back up (Reverse of what you might see in a bull market - buy the rumor sells the news - BUT a sell the rumor, buy the news), before unloading in May.

We probably won't see any "huge" crashes...they will relentlessly put a positive spin on "not-so-bad" news, but we know the overall market trend is down. We will make news lows before we make new highs.

Our RSW position should pay off in the long term and the intermediary we should not worry about the minor market fluctuations (the games the institutional trading floors have to play when unloading stock).

SOME IDEAS:

1) Creating some option spreads in the front month, on some of these volatile stocks that are reporting such as GOOG, BIDU, or a financial such as C.

2) SWC is poised to drop hard, ALL day tomorrow. Platinum, palladium prices are tanking in the Asian markets. Probably a good place to scalp some profits either with puts or a short position (if you can find shares).

3) I would like to buy up some SID on a pullback...it's a Brazilian steel company, with a very healthy chart and GREAT balance sheet.

Indecesion - Sector Rotation

Time to stick our wooden stick in the Sand, and wait for the tides, to give us a better sense of direction.


This is a bit delayed but my feeling Monday was that there are many "psychological reasons" to push this market higher

* bear sterns was the bottom
* people are seeing value
* Technically the chart might make an intermediate term higher high (it's been a while).
* the market has discounted all the bad financial, and real estate news
*The notion this recession will be short lived (economic data isn't very transparent)
*regulators won't be muddying the water until next year

But I still remain skeptical of these rallies.


An interesting option strategy idea:
buying VIX May calls at 32.50 and May 25 puts. I noticed some unique volume at these two levels intra-day...I believe someone was creating this spread. Seems like a good strategy on a risk/reward basis.

Time to look at some individual selections.

NLY -

1) huge GAP down from 22 down to 11.
2) retraced back to 17.25, formally a line in the sand, where there was a war between buyers and sellers, previously the buyers were victorious. Now it's once again acting as resistance and has rejected the buyers three times at 17. (volume is drying up)
3) Put stops above the 17.25 region.
4) My goal is to see an exhaustion gap back to around 12.50.

SWC -

1) on 4/1 one could call that a reversal candlestick but the volume wasn't quite there for an actual reversal today.

2) Todays up move was healthy in the construct of the supply/demand equation.

3) I suspect it will trade in a range from 15-19, while inventory is unloaded (or maybe accumulated - if that's the case will be bad for my position). It's temporarily poised to break out to around 19, which could create a great shorting/selling opportunity - under the premise that the volume is light. BUT I wouldn't be surprised if the price heads back into the falling the wedge and it fails to break out.

Also keep your eyes on some of the bigger solar names (ala FSLR) -- see if they break out to new highs. If they fail to produce newer highs, many of them might be short candidates again.

AZO - could be forming a very (rare) bearish diamond formation. Started adding to my short today.

AND LASTLY, we should keep our eyes glued to the homebuilders, namely RYL, really healthy chart. I would like to see it pull back some - then maybe buy some up. One of the best inverted head/shoulder patterns (very bullish)

The Great Crash

I decided to re-read Kenneth Galbraith's, 1929: The Great Crash, this weekend as I was starting to feel generally bullish on the market.

Here is an excerpt I thought I would pass along, my inclination is that you should be able to draw some parallels from this book...

"On Thursday October 31, 1929 well over seven million shares were traded*, and the market made another good gain. The Federal Reserve lowered the rediscount rate from 6 to 5 percent. The reserve banks also launched vigorous open-market purchases of bonds to ease and liberalize the supply of credit"

*New record at the time.

"As Goldman Sachs had done - In the last analysis, support of the stock of one's own company still seemed bold, imaginative and effective of course. Indeed, it seemed the only alternative to slow but certain death."

In summary, this book has great quotes, from all the figureheads of the time. Shows the framework between political figures (Hoover) - the bankers (Morgan) - the academics (Fisher) - the media - and the average investor in the Financial Markets. In retrospect I don't believe much has changed.

Anyone notice how they Greenspan can't be found quotes in any US Financial Publications anymore? You have to venture off to British publications.....In the Financial Times he said, "things will not improve until the housing market turns around"....I believe there is some great validity in that.

I'm keeping my own accounts in cash/shorts. I'm going to miss many of these decisive upward moves. But I still won't be able to bring myself to hold long overnight, only day trades.

Here is a chart of the pompous prognosticators, or our modern day talking heads, like Jim Carmer, on CNBC:

http://www.gold-eagle.com/editorials_01/seymour062001.html

Gift from the bulls to a bear

Coming into this morning I wasn't very happy with my short exposure. Luckily the bulls kept things-a-float before the potential flush comes.


Bought into SWC puts. April 17.50. Technically this could head to around 16.15.

My JASO puts were practically unchanged as the stock refused to break the 14.30 area with any conviction.

Me thinks that many of these solar stocks will become akin to the JDSUs of the tech bubble. Out of 100 solar companies -- many of these have billion dollar market caps purely because they were apart of the solar bubble. Sure the internet was going to change the world, but many companies crashed and burned in that bubble. Right now WFR and FSLR seem the most poised to dominate the solar sector, but of course where do you value these guys? The smaller JASOs of the world, seem like the better/safer shorts for now.

Still trading myself in and out of the homebuilders. RYL more specifically. I can almost gaurantee this is where the momentum will come -- the only question is when?

Will the ISM data tommorrow or the Job report on Friday be the catalyst for the market to test new lows. With how i'm positioned now...best case scenario we slowly drift lower into friday and on Friday we see some good ol' capitulation. Since the bears/bulls seem undecided in the short term we will probably stay range bound.

Great Quote

Barry Ritholtz:

“As we have seen time and again on the Street of Dreams, Wall Street pundits take months, if not years, to accept what is before their very eyes. Whatever you want to call it -- cheerleading or Cognitive dissonance -- it is a fact of life that the obvious takes much longer to be accepted than is logical. Hence, this simple numerical inflation fact, reflected in global food prices, record energy and both industrial and precious metal inflation, will be ignored for as long as possible.”

Great day in the wedge.

The markets are very confusing by nature. With all this day-to-day volatility my take is only the traders are making all the money.

You should probably wait until this "wedge" reveals itself on the dow.
The price oscillation is clearly tightening, and we closed a little bit below the wedge, but the problem with "wedges" is they don't give you any direction up or down, all we know is there will be a big move once it breaks out.

I didn't like the stochastic divergence as MOS rose, but it's a great hype play and you should never trade against the hype, just be careful in this market. Today might have been a good day to lighten your load, but not load up quite yet. I'd like to see this come down some and then trade sideways before I'd want to enter. But if you're gonna short anything energy look at DVN, all that upward momentum and zero news, not the best of breed company. This could have some big gap downs, but of course the overall market breath and oil need to retreat some.

JASO should retrace back to the 61.8% fib, at 15.15. Before possibly forming a bottom, if it breaks below that 15.15 level, short as many shares as you can get your hands on, but look out for a reversal. On the upside the next shorting point - crucial fib level - is 19.13. If it can't break that the ride is almost definitely over for JASO. STO looks poised to sell off this recent bounce. And turned down right
on the intermediate trend line. But cover it breaks the trend line on the upside.
Keep your eyes on the VIX, it should send us signals before the overall market will.

Nice close on AUY today, but once it breaks 17.50 (knock on wood, if it does) I'll probably be looking to sell it. I only have 10 contracts.

We will probably gap down tomorrow. Then they might fill the gap in the indexes and move us back into the wedge. So tomorrow morning might be an OK point to get rid of the q puts, especially if the VIX spikes upwards.

According to my fibs the low of the day on the S&P won't be below 1330. If we do break that then look for 1317.

Disclaimer: One shouldn't focus all their attention on these fib levels, they're more of a guideline to the market forces.

Before the Light of Dawn Comes Pitch Black

This is exactly why I didn't feel confident going long in the market. We never had our day of capitulation, aka, no bottom. This might have been on the back of most traders minds.

The market makers lifted the curtain today. That manufactured "rally" we saw last week, came to a fast and furious halt. I went into this week completely short. We're about to retest the January lows. This will be the deciding factor, whether or not you want to be long. I would not go long any stocks until after option expiration. The swings are vicious in this market.

Let me recap my current stance.

Puts in MOS. Fundamentally flawed companies, such as Mosaic, will be eaten alive by the 800 pound gorilla (DOW/S&P/NASDAQ). Growth stories can not support such elevated levels of valuation.


ILMN. Was up huge. I suppose there was some validity in the open interest in the march 80 calls going into earnings. I held my calls overnight, this is set up for $80. We'll see it's a gamble.

FSLR. Bull Trap might have been in play? They can't keep it supported with such horrible market breadth.