Million Dollar Question: WHERE ARE WE HEADED?

There was something very odd about the last rally in todays trading. The day seemed like a manufactured pump in stocks across my watch list. I call this an engineered rally, because I believe it was primarily based on the fed cuts. With cuts come change of models/irrational exuberance.

But, many pundits keep calling these economic conditions similar to the late 1970s -- there could be some validity in that. Although we could just be jumping to conclusions. I think we're seeing the first sign of painful inflation for days to come -- not too mention the beginning of a plausible credit Armageddon.

More importantly, my short-lived economic brain can not make you money. But take a look at these important fib levels to figure out where our market could be headed. Many think a bottom is in, I think otherwise should be looking to re-enter shorts in a big way.



Will look to buy OTM money on many high PE Flyers that I think will get flushed. It's Russian roulette at this point. AMZN, YHOO, GOOG, AAPL: Who will be next to step up to the plate?

Solar Stocks Tumble

What a day. Shorted FSLR at 159.3, covered at 147.2. Shorted a small portion of my account on HLCS at 14.5. The market had a nice afternoon rally to sell into. I bought April OTM calls in RYL, flip the chart upside down and it looks like a head/shoulders, dangerous b/c they report earnings tomorrow, so I only bought half the calls I normally would have will load up on more if earnings go as planned.

They flushed most of the high PE Flyers today (see APPL, FSLR, GOOG etc). Could be good for some short term bounces. However, I absolutely refuse to trade a bear market long. I will wait for re-entry points and then short.

We are experiencing an afternoon rally from early morning lows. On the lows today we were experiencing light volume, so it was rather obvious there would be a reversal. There is an hour left of trading, we might have a key reversal day, if we can manage to close in the green. My friend has a theory that might bode true-- since we missed out on the capitulation day yesterday via the fed, we might get a huge rally (as bear markets tend to have some good short term buying opportunities) followed by a major day of capitulation. Once the media starts saying a bottom is in, over and over, this is probably a good sell point.

Will make a new post either later in the day or tomorrow.

Fed Cut- avoided capitulation

This morning the volatility index rose to 37.57 (the highest reading since October 2002) many buyers/traders were able to jump in the market with long positions at this level. Perhaps this was a notion of psyche, as we finally got the well needed VIX spike to indicate a market bottom. Tomorrow AAPL reports earnings could lift the markets. Look out for a high volume reversal day.

But bear in mind, today should have been a day of capitulation. The FED clearly panicked. You can't solve the economic problems with cheaper money. Fighting fire with fire, ultimately will cause more problems down the road. The only chance we have to escape a bear market is positive economic data and readings that indicate we may not be in a recession.

Would I rather trust the Fed or the free markets? I was utterly surprised and somewhat disgusted to see the FED interfere with the free markets. You should allow things to work themselves out.

They did keep headlines from being inked "Black Tuesday" around the world...but they may have created more hardship later on. The fed made 08 more painful then it had to be. Imagine if Ben "The Helicopter" Bernanke didn't waste all that ammo last year and was able to gradually cut rates. Ultimately the market would have looked much healthier technically and inflation would not have been such an issue. George Soros might be right, this is the worse he has seen the financial market since pre-1944.

We will see how this plays out. I'm loving this volatility. Covered my HLCS short at 14.32. Edit: Covered my FSLR intra-day short at 171. Sold my MELI calls for a reasonable profit (the FED cut saved me and many others who were trapped). Good luck. Now i'm in CASH waiting for the charts to show me something worthwhile.

2008 Market Crash, Black Tuesday.

STAY IN CASH. The indexes around the world gave an indication that the US is in fact in a state of recession. Look for a large day of capitulation tuesday. After the crash in 01' the indexes ran up 20% or so, before heading back down, we could see a potential similarity. Tonight, the overseas indexes are going to tell quite a tale. If there is a continuation, you will surely see panic.

The "Blood" Diamond Follows Through

If you had read my post a few weeks ago you would have seen the Diamond Pattern formation on the S&P, followed shortly by a bloody mess! MAYBE chart patterns do work.

In the bull market of the 1990's, four of every five market leaders were new companies that went public during the 1980s and early 1990s due in part to the lowering of capital gains tax rate. This acted as fresh blood for mutual funds/institutions. They had innovative product lines just as First Solar has. But MIND YOU- true market leaders (ala FSLR in 2007), the ones that doubled/tripled, Fall by an average of 72% (data compiled by IBD). I covered my most recent short position on FSLR, as it might get an intermediate bounce before heading back down. We really need the S&P to confirm we're in a bear market, if we are, FSLR might be looking at a 72% correction from its 180 high.




As far the S&P index goes, we could be looking at a near term rebound. Next week we have a slew of earning reports that I believe have the potential to be blowouts. Followed an interest rate cut the next week. These events could act as a catalyst for a big move up or down. We might see a capitulated week where the US indexes are in for a rough time. I, however, think we'll see a bounce off these levels.



This is a completely absurd speculative play on my part. I bought calls in MELI yesterday. MELI is suppose to be the EBAY of Brazil. The growth opportunity there is tremendous. As long as the S&P turns back up, this thing could ride on some real momentum this week.



Take notes of the RSI on all the charts. The RSI might be giving a reading of the behavioral tendencies in the marketplace. I believe they overshot previous lows because of investors expectations. People tend to overshoot reality. Perhaps the selling was a bit outlandish. It's dangerous to be a bear in this market as this could cause a major whiplash. Either way, some real money will be made, be nimble.

Presidential Speeches, Talk of Blood Baths

Well if any of you have ever studied any great American stock market crashes -- you realize that everyone perceives everything to be safe and sound -- until someone pulls the plug. My thoughts are that we probably won't be in for a crash anytime soon, however, this could be a slow and strenuous downward trend of our various stock indexes. We must keep our eyes locked on the major market indexes, for our trading schemes.

Anyways, today was a very good day for a short in the market. If you look at the returns in January for momentum stocks, it's a month in which they seem to topple, possibly because of institutions holding for tax purposes into the next year. Booking gains with covered calls and unloading. Almost all momentum stocks on my watch list traded down, even as the S&P turned up.

Solar took a beating, SOLF and CSUN, were both hammered. You can almost be assured about 3/4 of these Solar jokes will be trading on the pink sheets someday.

My favorite to watch is FSLR. Her handlers are very keen. She has the ability to make the move back to 252 early tomorrow. However, I feel as though it will close down. The MACD looks very bearish.

Diamonds in the Rough

Let's briefly recap the days events.

*Turmoil in the Japanese markets followed by much of the same in the US marketplace.

*A flight to quality. Bond yields decreased as prices went up. Will the fed step in Monday? Doubtful, but they may call an emergency meeting this week if equity prices keep falling. From my brief analysis, the market will not crash unless we have another 10% drop off from here, then things will get interesting to say the least.

*INTERESTING THING TO NOTE: This fall in our markets came with a very tame VIX reading. What does this mean? A tame VIX, falling markets, are we truly in a bear market?

The momentum stocks finally were taken for a ride down today. The solar sector which has been blazing hot finally came to a halt. Led by the streets favorite: FSLR. They had FSLR pegged against the S&P all week, but due to increased short confidence and lack of covering, they had to set it free today. Where we go from here is an interesting question. If the S&P breaks below the triple bottom, FSLR and other momentum stocks will surely follow suit. The decline could be fast and furious.

On the other hand if Helicopter Ben decides to throw some more bones out there, the market could have a 300 point pop when he decides to do so. But even with that slight recovery, I feel as though the bears have taken control for now. With all this "TALK" of recession, it might mean we're actually in a recession. The market has not confirmed a recession yet. We need more consecutive down trading days to follow suit with William O'Neil of IBDs thesis.

Good luck next week: stay on top of the news.

what may come of 2008

In 2007 we sailed some turbulent waters, it looks as more of that is to come in the beginning half of 2008. Tim Knight has pointed out that the DOW/S&P are forming a very rare and bearish diamond top formation.



Due to the January seasonality effects and poor market conditions: Momentum stocks could be in for some sharp drops before I would recommend reentering. All traders should have their triggers ready.