The first Blog Motto (shown at the top of each page under the title) that I put on this blog was “The S&P 500 Bear-Market Rally is Almost Over.” I put that on in early May.

Then, I updated the motto to “The S&P 500 Bear-Market Rally is Over. Look Out Below!” I announced that change in a post titled: I Called the Top on May 21st. Yep, I knew it was the top only two days after the fact. How did I do that? Frankly, I didn’t really do anything more than basic chart-reading with techniques that are at least a hundred years old.

Now that the March-to-May bear-market rally is clearly over, it is time for another motto update. This one I don’t expect to last very long:

“The S&P 500 Will Take Out the March Low Soon”

By “low”, I mean the lowest intra-day print on March 17th of 1257. By “take out”, I mean that the S&P 500 will close below that point. After it trades underneath 1257 for three days and confirms the break-down, I will update the motto again.

I’m posting this late Monday night because I think the low can be taken out at any day now, including Tuesday, July 1st.

On June 11th, when the XLF first approached the March low, it snapped back hard and rallied for three days in a vicious incineration of late-coming shorts. That bounce didn’t make a lot of sense because the BKX banking index had plunged through its March low previously. Why did anybody think the XLF would be different? Beats me, but we still had a lot of bottom-fishers at that time.

If you compare the current SPY chart to the XLF chart on June 11th, you will see that SPY’s bounce is being rather conspicuous in its absence. We should have had a strong bounce today. We should have had late-coming shorts running around in flames like you see in the movies. But it didn’t happen.

In fact, it looks like SPY was levitated solely by funds trying to get energy stocks onto their sheets before the quarter closed so that they could show their investors how smart they were this quarter. (Of course, if you look at the XLE chart, you will see that energy stocks are clearly being distributed as all the recent high-volume bars are red. So, don’t think that energy stocks will hold the market up going forward.)

It also appears that a lot of bears were keeping their powder dry until the quarter-end window-dressing was out of the way, and they rushed to get their short positions on before the close.

SPY’s bounce off of its March low has gone missing because traders have seen this movie before. The XLF bounce will not repeat because traders already know how such a bounce will turn out.

Bob Pisani kept telling us today how the beginning of July has historically almost always been positive, and that is certainly the case. But the beginning of this particular July is going to be tragic – for the bulls, that is.

In my last couple of posts I mentioned “late to the party” shorts. An example of this is Pete Najarian, who on Thursday’s edition of “Fast Money” recommended QID to short tech. If you took his recommendation and bought some QID in the after-market, or Friday morning, you are already under water on the trade, and may count yourself amongst the “dumb money” crowd.

Why are you dumb? Because you shorted tech at a moment when the market was very over-sold and sentiment was very negative. The only time that makes for a good Fast-Money style short-term trade is right before a true crash. And how often does that happen? Not very, right? If the market crashes on Monday, consider yourself lucky.

QID is at $44. The cost basis for my QID position is $38, and while I was building that position, I didn’t hear a peep about it on Fast Money. So, that makes me the smart money, and Fast Money the dumb money. Funny thing is that on the Friday episode of Fast Money, they put up an intra-day chart for Apple heralding a potential reversal. I predicted that traders would spot a potential reversal in tech in my last post which I published just before Fast Money came on the air Friday.

So now Fast Money got you to short tech on Thursday, and then warned you about a potential tech reversal on Friday. What should you do? I think the chances are very good we will get a short-squeeze rally on Monday. And the more late-shorts that piled on, the more potentially vicious the short-squeeze. If you want to remain part of the dumb-money crowd, you can barf up your QID at a loss and go long with some Apple. That would be really dumb.

However, if you want to get smarter, hold your tech shorts. Endure the pain until you feel like barfing up, and then add to your position. Yep, being the smart money is that hard, and few traders can do it.

Fast Money also had a guy on who told viewers to ignore oscillators. More dumb. Oscillators aren’t magic; they are just another technical indicator. While there are zillions of technical, fundamental, and sentiment indicators, and we must chose which ones we use since we can’t watch them all, none of them are evil – especially oscillators. In fact, I would hazard to say that most traders could dramatically improve their entry points by not looking at prices and blindly trading based on a sort-term oscillator.

In fact, I used an oscillator to top-tick tech on June 5th. That’s right, I bought a tranche of QID right at the very top. Pretty snazzy, huh?

Take that Fast Money!

Today’s drama was whether or not the Dow would close in “official” bear-market territory of 20% below the high set on October 9, 2007 of 14,164. The magic number was 11,331, and though the Dow dipped under that number, it was able to close above at 11,346.

This is important because the big mutual funds were desperate to prevent the giant “BEAR MARKET” headlines in the media over the weekend. There will still be headlines, but they won’t be as big and as highly-placed. So, the funds won a tiny moral victory after taking a brutal beating during a period when they are usually able to paint happy faces on the charts.

So far, it doesn’t look like the public has begun to pull its money out of mutual funds in a panic yet. They poured money into the market during the March-May bear-market rally, and will surely pull it out soon.

Over the weekend, we will probably hear stories about how a bear market was narrowly averted, and that the S&P 500 successfully tested its March low. That, of course, is BS, but it may be enough to hold back the tsunami for a few more days.

While it is illegal for funds to run their stocks up at the end of a quarter, they are allowed to bid underneath, at that is what they did today. When the market did not crack, some late-to-the-party shorts got nervous and bailed out. So, if you look at the charts, especially the QQQQ chart, you will see what looks like a nascent reversal pattern.

A good deal of traders will look at the charts over the weekend and conclude that a short-term bottom is forming. And with the big funds bidding underneath again on Monday, the last day of the month, we could get a short-squeeze rally.

The market burned off a good deal of its over-sold condition by going more-or-less sideways today, but it is still over-sold. In this state, the market looks for an excuse to rally. Late-to-the-party shorts with some gains are easily spooked, and when they buy-to-cover they push prices up frightening more shorts, and that’s how a short squeeze is ignited.

The big funds cannot push stocks up on Monday, but their support could spark a rally. Or we could have another sideways day like today. Of course, if the public decides to panic, then the market could dive on Monday as redemptions flood the mutual funds and force them to dump stock.

The SPY calls that I bought this morning (see previous post) are under water, but don’t worry about me. My large SDS and SKF postions kept me flat on the day. If the market is able to rally early next week, I will sell my SPY calls and use the cash, plus all my remaining cash to go fully short. The economy, outside of the tax-rebate checks, continues to decelerate and I don’t think it is possible for the S&P 500 to hold the March lows.

I just bought a few SPY call options to play a potential short-squeeze rally today. This is only for fun, and my portfolio remains dramatically short overall.

The market is very over-sold at the moment, and every trader “knows” that we are going down some more. So, this looks like a good time to fade the crowd. Also, don’t forget that the quarter is not over, and while the big funds cannot take stocks up here, they will bid underneath and that will discourage shorts.

With both oil and bonds up this morning, stocks should be falling, but they are not. That means the big funds are probably at work.

My trade was at 10:30am, and I bought the July $129 SPY calls at $2.56.

I don’t have time to write a lot now, so this will be brief. I may update this post later, so be sure to check back.

Basically, I’m looking for a replay of the XLF chart. When XLF approached the March low, it snapped back viciously to shake-out all the late-coming shorts and rallied for 3-4 days before resuming its descent. SPY should do roughly the same thing. There are a lot of late-coming shorts piling on now, and SPY is within striking distance of the March low, so we could see this as early as Friday.

Smart-money shorts will see huge profits on their screens, and will begin to take them. The shorts with the biggest balls will even go long. That will start the short squeeze, and since the market is so over-sold, the dead-cat bounce could run for a few days.

I have huge piles of SDS, QID, TWM, SKF, SPY puts, and QQQQ puts, and I may take a few more profits at the March low. Then again, just in case this things snaps completely, I might not. I have some cash on hand to short the peak of the expected short-covering rally, so I may not temp fate. But you get the idea, right?

At 3:30pm, I sold a small number of my SPY puts. I bought them at $3.55 three weeks ago, and sold them at $10. So, that was almost a triple, and the annualized rate of return is some insanely huge number.

The market is rather dramatically over-sold here, so perhaps it can manage a dead-cat bounce soon. I wanted to have just a little cash on hand to fire into any potential rally. I am still leveraged short with less than 10% cash.

With oil falling almost 2%, you would think that the S&P 500 could muster more than a 0.58% rally – especially during the quarter-end “mark up” period, but it couldn’t. Rather lame, don’t you think?

And did you see Jim Cramer during his “Stop Trading” segment on CNCB this afternoon? He was shot out of a cannon! I had no idea what he was babbling about, but it doesn’t take much to get the bulls excited these days. That’s how you can tell that the bulls are really suffering, and running on nothing but hope. Eight points on the S&P 500, and they are breaking out the champaign. Ridiculous.

On Monday, I wrote:

“Maybe the XLF can mount a throw-back rally up to the March low, where I’m sure it will be rejected.”

…and that is exactly what happened today. A rather dramatic pop-and-flop, no?

The bears are just pouncing on any sort of rally…

The model that I use is now showing that the S&P 500 is more short-term over-bought than it has been in several days. So, I bought some August $132 SPY puts. The trade was just before noon, and the price I got was $3.75. The last bid today was $3.90, so I already have a profit.

The model did not say that the NASDAQ-100 was over-bought yet, so I didn’t pull the trigger until just before the close. Today’s mark-up rally was so sloppy that I just couldn’t resist. I bought some August $47 QQQQ puts for $1.57. The last bid today was $1.62, so that trade is in the green also.

I used about 50% of my remaining cash. I will be keeping my eye on IWM and XLF puts as the month-end mark-up rally continues with the goal of having every penny short by the end of the month.

(Note: This post was updated since I first posted it around noon.)

The mark-up elves were hard at work today trying to paint the tape a pretty green color for their end-of-quarter results, but took a bit of a beating. Things were going well until oil began to creep up in the afternoon. I found it amusing watching them try to keep the short-squeeze going with their buy-programs.

In the end, they were only able to keep the major indices from being a route. They won in the financial sector since that is where there was the most shorts to squeeze, but even that was a close thing as the XLF almost flopped over in the afternoon. And though they tried to hold up the IWM, they took a major beating there, though of course, the Russell 2000 doesn’t make headlines, so that particular piece of ugly news won’t reach the investing masses.

Will they be back to try again tomorrow? I don’t know. It takes a lot of capital to run one of these mark-up squeezes, and if you can’t turn around and dump stock on the traders that you suck in and squeeze out, you might be looking at some serious losses instead of the usual slam-dunk profits. But perhaps they saved their biggest guns for the FOMC announcement. I sure hope so, because I really need that one last rally so that I can deploy my 17% cash to the short side at attractive prices.

On CNBC today, the anchors were reading some fresh BS off of their teleprompters: “The Dow is up double-digits!” A rather odd way of stating things when the Dow is up a couple of dozen points, don’t you think? If I didn’t know any better, I might think that they were trying to assist the mark-up elves…

Finally, somebody in the financial press is agreeing with me on an oil breakout. In the Columnist Conversation at RealMoney.com, Alan Farley wrote (at 4:54pm):

“Crude oil is setting up for a -very- big move. The US Oil Fund (USO) posted a NR7 inside day on Tuesday, in its 14th session within a tight consolidation pattern.”

As Farley mentioned, it looks like oil traders are geared-up for lovey-dovey talk from the FOMC tomorrow, which would sink the dollar and launch oil. The mark-up elves were also trying to steer the momentum for a stock rally on dovish talk, but they didn’t have as much luck as the oil traders.

I have a lot more to say, and a lot of correct predictions to crow about, but I have a cold and am about to flop over here, so let me start to wrap up. A few days ago, I pointed out the bear-flag pattern on the IWM chart, and said that the IWM was toast. Take a look at the IWM chart now; it’s a wreck! That was the last of the major indices to crack. My TWM did well today.

And finally, Jim Cramer is baffled:

“It is that kind of nasty market. No rhyme and no reason.”

No reason!? All I can see are reasons! The world is clearly ending! You can’t even count the reasons! Cramer’s attitude is an indication that the bulls have not even begun to contemplate capitulating, and that means that there is lots more room on the downside. The Vix actually declined a percent today!