Oil Slick

Will Wednesday’s rally have legs? Perhaps. However, you must admit that this is not the first oil-into-banks sector rotation that we have seen lately. And the rally was also of the classic, very-sharp bear-market variety. However, the bulls were not as jubilant as they were during recent one-day wonders, so I will grant this rally a stay of execution for the moment.

While I made a lot of money day-trading XLF and SPY calls Wednesday, I am not holding a single long stock position now. The fact is that any rally based on falling oil is not the kind of rally that I am interested in.

There is nothing more fiendish to forecast than oil. The list of variables is mind-boggling:

  • Iranian missile tests launch oil
  • Israeli military exercises launch oil
  • The last two jobs reports launched oil
  • Poor economic data from Europe crashes oil
  • Demand destruction in the USA crashes oil
  • Nigerian rebels launch oil
  • Labor strikes launch oil
  • Prospects of more drilling in the USA crashes oil
  • Hurricanes launch oil (see new link in Blogroll at right)

But worst of all, oil is priced in dollars, and the dollar is toast.

Go and look at Michael Kahn’s dollar chart here. The pattern he has outlined is a bear flag, and the dollar has broken down out of that pattern. This is a very bad development for the dollar since it is very likely to take another leg down.

Also, the dollar’s strength during the March-to-May bear-market rally in stocks was very likely due to overseas money buying into that rally. Euros, Yens, Loonies, etc., must first convert themselves into dollars before they can buy US stocks. So, overseas money coming into US stocks automatically gives the dollar a boost due to increased demand.

So, no matter how much Larry Kudlow shouts shouts “KING DOLLAR!”, it is not likely to prove to be any more true than all the times he shouted “BUY STOCKS!” during June. The dollar’s rally from March to May was a sucker’s rally just like that of stocks.

So, the big question is: are overseas buyers (and retail buyers) ready to get fleeced again in another sucker’s rally? Well, I think that would require remarkably short memories.

If the dollar falls, oil could hold its ground, and even soar higher.

While oil has cracked its uptrend line, that does not guarantee that the move is over. USO bounced off of support at 107 Wednesday morning on heavy volume and stayed strong for the rest of the day.

Oil has not had its blow-off peak yet. Maybe it won’t have one, but maybe it will in order to draw the head-part of a head-and-shoulders pattern onto the chart. We will see.

However oil plays out, I would not bet that it has lost its ability to thrash stocks.

Massive XLF and USO Volume

Both XLF and USO racked up double their daily volume today. Alan Farley wrote in the Columnist Conversation at RealMoney.com:

“Today’s high volume on the ETF (USO) selloff raises the odds that breakdown is going to happen soon.”

…and Michael Kahn wrote in Barrons on Monday:

“Although the evidence for a solid bottom is sparse right now, there are a few technical factors to watch. The first is volume but not at levels that merely equal previous interim lows. Volume for the ETF (XLF) should run significantly higher to perhaps an average of 300 million shares per day vs. its current 50-day average of 179 million. That is a subjective view but there is precedent….”

We blew out Kahn’s target of 300 million shares on the XLF today by over 50% – 469 million!

Now, let’s put these two items together: plunging banks and soaring oil have been the primary dynamic of this market, and now we have an important indication that these trends may be beginning to change direction.

However, the moves in USO and XLF have been so huge, I don’t think we will see the dramatic one-day reversal that everybody has been looking for. Rather, I think that we will see traditional reversal patterns emerge. The top of oil, and bottom of banks, should be processes rather then events.

USO has a huge support area at $110. It would be very unusual for that to crack in a day or two. XLF put a knife into the hearts of the bulls today with a vicious intra-day pop-and flop. What bull will trust an XLF rally now? Even if a bull is able to catch some upside profit on XLF, he will probably be quick to take profits since they have been so rare for financials.

So, if USO were to bounce off of support and rocket upward, it will probably be making the head of a head-and-shoulders top. If XLF bounces, it might be making the left trough of a double-bottom. At this point, if you make a mistake trading, you will probably have time to get out alive as these reversal patterns form.

But the USO/XLF tango goes deeper! You’ve heard about banks selling assets to raise capital, right? But did you ever imagine that some of those assets might be oil? See Sharon Epperson’s post here.

I have been wondering where Bernanke’s “stimulus” has been going. What if, instead of making loans to businesses and individuals, our banker pals used the cheap money from Bernanke to play oil? And now that their real businesses are going to hell, they have to dump their oil in a panic?

In banking land, its panics as far as the eye can see! Can’t these bankers get anything right!?

First they wreck the real-estate/mortgage market. Then they take the very thing designed to help the economy and use it to send oil soaring which wrecks the rest of the economy.

Well, if they were dumping oil to buy their own shares today, they got a well-deserved beating.

However, let’s not forget that last week on Monday, oil fell and stocks did not respond. We thought, ah ha, falling oil is not helping stocks. But on Tuesday as oil fell some more, we got a giant rally. So, just because XLF didn’t rally off of USO’s decline today doesn’t mean that it can’t happen tomorrow.

But again, I don’t think USO will fall through support so quickly. On the other hand, today’s massive volume ate through a very large chunk of that support, so like Alan Farely said, it could happen sooner than expected, if not on Wednesday.

Also keep in mind that Calculated Risk says that “bank failures are a trailing indicator of financial problems.” However, a bottom in banks doesn’t necessarily mean that it will be THE bottom. The financial sector is likely to be dead money for quite a while just like the homebuilders with more declines to come.

Note: I have no position in XLF. I have a small number of USO calls that are deep underwater, and will ditch them into any bounce.

Note: Jeff Macke pooh-poohed USO’s high-volume drop on “Fast Money” Tuesday night. I think he is long and whistling past the graveyard.

Note to Readers

With things happening so fast, I haven’t been able to reply to comments. However, I am reading them all and you are writing a lot of great stuff, so keep it coming.

Tomorrow morning I will put up a post titled “Wednesday’s Trading” where I will post my thoughts throughout the day. Instead of posting in the main post area, I will post updates in the comments. Feel free to post comments too. I may not have time to reply to them, but I will be reading them.

Where Are the Bulls?

This morning’s big gap down, in an over-sold market, is the exact type of setup the bulls look for. And yet they are nowhere to be found. Look out below!

UPDATE – 10:15am – Looks like the bulls were waiting for Bernanke to speak, and for good reason! Bernanke isn’t doing a thing for the market! IWM has fallen to its March low. Q’s have lost their Friday low.

UPDATE – 10:25am – Q’s, SPY, and IWM all making bear-flag patterns. The market should move lower from here.

UPDATE – 10:41am – Looks like the excitement for the day may be over now that Bernanke has finished his statement.

UPDATE – 10:49am – With IWM at its March low, the market should be able to stabilize here. Ultimately, I don’t think that the low can hold, but we should expect it to take a little time for IWM to erode the support.

UPDATE – 10:55am – The short-term model that I use is flashing a buy signal for the S&P 500. In a normal market, I would be going long here and/or covering shorts. But this isn’t a normal market, so I am not.

UPDATE – 11:03am – Oil money rotating into stocks. Maybe the bulls will get their rally after all. IWM has fought back up into it’s gap…

UPDATE – 11:11am – USO just snapped-back hard off if its up-trend line on massive volume. Unless this is the big oil flop, oil shorts will probably call it a day, and that means no more oil money for stocks. You’re on your own stocks! Smoke ’em if you got ’em!

UPDATE – 11:16am – KOL did not participate very strongly in the little bouncelet that stocks just enjoyed. My coal short is looking better and better. I took a beating on the XLF calls that I bought yesterday afternoon, but the KOL short is making up the loss today.

UPDATE – 11:20am – Oil should not be back at its up-trend line so soon since the last visit. And it definitely should not be spending so much time there this morning. This could be the big crack. My KOL short is going to have to do double duty making up for my XLF calls and my USO calls. If oil cracks, KOL should too.

UPDATE – 12:08pm – IWM and XLF are green, but struggling to stay above yesterday’s lows. If the market can’t muster even a small rally today, while over-sold and with oil plunging, then it is curtains for the bulls. The ground-and-pound market will roll on with the only buyers being profit-taking shorts.

UPDATE – 12:36pm – IWM, QQQQ, and XLF are all green. Oil remains weak, so this bounce could have legs. SPY is lagging, but should be able to break higher along with the rest of the market. I have decided to play along with some July $123 calls (SPYGS). I am in at $1.27.

UPDATE – 1:02pm – SPY is green. USO is testing its lows from this morning; if it breaks down, stocks will certainly move higher.

UPDATE – 1:27pm – Oil bounced and stocks have fallen back, so I ditched my SPY calls. Stocks look to be completely dependent upon oil today, and the bulls look very, very weak.

UPDATE – 1:54pm – Stocks are hanging in, but have lost momentum. It took a lot of buying power to move off of the morning’s lows, and my short-term model is no longer reading over-sold. Once oil closes, there will be no catalyst for stocks. And since the bulls have failed to turn SPY green with a huge oil tailwind at their back, I’m thinking the market should close weakly.

UPDATE – 2:33pm – It looks like Pelosi’s mention of another round of tax-rebate checks is giving stocks a boost. This could be just the catalyst we need to produce another sucker’s rally. The Q’s now have an intra-day ascending-triangle pattern, which is bullish.

UPDATE – 2:58pm – The Q’s are trying to break out of their ascending triangle. Same for IWM. SPY and XLF have weaker symmetrical triangles.

UPDATE – 3:23pm – The market is holding up, but it’s taking a lot of buying power just to push SPY two points into the green. At best, this will be a Pyrrhic victory for the bulls.

UPDATE – 3:34pm – The XLF is rolling over! Kiss it goodbye bulls!

UPDATE – 4:00pm – My day-trading today was horrible – until the last 15 minutes when I made a quick killing on some SPY puts to finish the day nicely in the green. This is a milestone for me because until now, my strategic trading has been excellent, but my day-trading only so-so. I think I am improving. Yaay for me!

Bulls Load Cannons

The bulls have been waiting for that magical “puke point” where they could jump in on the long side and catch a sharp move up just like we had in January and March. They have been waiting for the VIX to get into the mid-thirties. And while there is some debate about whether or not the VIX is working right, the VIX is not the only indicator that they are watching.

Many bulls are willing to pull the trigger based on other indicators, both technical and sentiment-based. While there is no fundamental reason to buy stocks, I suppose one could appear in the form of a non-disastrous earnings report from an important company.

SPY, QQQQ, and IWM all closed today above their Friday lows and in a rough rounding-bottom pattern (which you can see on a 5-minute intra-day chart.) I think this is proof that the bulls are beginning to pull the trigger. A rounding-bottom is evidence that trader sentiment is slowly but surely shifting.

While I think a modest rally is possible tomorrow with a positive news-flow, I am skeptical about this bull campaign. What will be the rallying cry? Last time it was: “The worst is over!” What will it be this time? “The world is not ending today?”

Perhaps that would be good enough, but just because I can’t think of a potential catalyst doesn’t mean that one won’t emerge. What could it be? If you have ideas about this please post in the comments.

Here’s a potential catalyst: suppose Bernanke was appalled by the BKX’s 8.5% plunge today, and video of people trying to get their money out of IndyMac, and will announce another rate cut soon. Maybe a full percentage point. He may be under pressure to do this right now. That could trigger a major short-covering rally since it would extend the life of many banks by immediately slashing their borrowing costs.

More catalysts could be:

  1. A takeover of a US bank by a European bank
  2. A better-than-expected economic report

While I expect the economic and earnings news to be bad going forward, the stock market likes to play the better-than-expected game.

A potential rallying cry could be: “The worst is over for stocks!” See how that works? The economy is still weakening, but stocks have priced it all in.

It’s all BS of course, but so was the ideology of the March-to-May bear-market rally. Bears should not be counting on the market to act rationally!

Not Pressing Short Bets

Friday’s lows have been tested and held so far (1:19pm). Today’s action has also been low-volume in SPY, QQQQ, and IWM, and that means that the big bears are not pressing their shorts. If you look at an intra-day chart from Friday afternoon to today you will see a pattern that could be the first half of a rounding-bottom.

If the traders who went short this morning decide to take profits, the market could explode upward into the close. When a rounding-bottom turns, it can be very powerful. In fact, I recall sweating out the rounding-bottom that we had last Tuesday afternoon. I didn’t barf up any of my shorts, but I certainly didn’t enjoy the experience either.

UPDATE – 1:40pm – I just bought some XLF calls to play an afternoon rebound. That’s right calls. The Market Beast made me sweat Tuesday afternoon, and now its payback time. I bought some July $19 calls (XLFGS) at 38 cents. If volume picks up, watch out! Maybe I should have played the QQQQ, but President Bush was on TV talking up offshore drilling, so since oil money likes to rotate into XLF, I made the XLF play.

UPDATE – 2:07pm – IWM is making a bull-flag. That’s the leader!

UPDATE – 2:10pm – Q’s are almost green! XLF soars (haha) below -3%.

UPDATE – 2:45pm – Cramer comes on CNBC and knocks the market down by discussing bank failures. He can have a very big impact on days when traders are hyper-focused.

UPDATE – 3:12pm – Phony (FNM) is green, and Fraudy (FRE) is trying, so it looks like shorts are taking profits there. If the market goes out at these levels, a lot of traders will look at the charts and think: “short-term bottom forming.” This is a good place to take profits on shorts.

UPDATE – 3:33pm – The Dow is green.
UPDATE – 3:34pm – The Q’s are green.
UPDATE – 3:36pm – SPY is making a bull-flag.
UPDATE – 3:54pm – SPY lost its bull-flag.
UPDATE – 4:00pm – SPY, QQQQ, and IWM all held their Friday lows. So, a short-term bottom is still on the table. XLF went out at a new low, but there was a large surge of green volume at the close, so I held my calls. They are deep underwater, but it is a small trade, so what the hell.

The S&P 500 could make a last-hurrah rally up to the March low; perhaps on Turn-Around Tuesday. I would likely be shorting it heavily there as another failure at the level would persuade the bulls to give up and SPY would fall to its next support level: the Summer of 2006 low.

No Rate Cut From Fed!

The big news in this financial crisis is that the Fed has failed to come through with even a symbolic rate cut.

I agree with Jim Cramer when he says that the Fed should take rates to zero and let the banks suck off of a bigger teat. Let them make a wider spread between their borrowing costs and what rate they can collect on loans. An inflation problem is much better than a total financial collapse.

I also agree with Cramer when he says that we should bulldoze empty houses. It sounds crazy, but something dramatic has to be done to at least attempt to put a dent in plunging house prices. Why not start with Lehman’s ghost town in the California desert? Bulldoze it!

UPDATE – 8:25am – I have taken profits on my short ETFs in the pre-market, so I will begin the day flat (except for my tiny positions in USO calls and KOL puts.) SPY is still trading below the March low, so that looks like a large disappointment for the bulls. If the March low continues to prove itself as a strong resistance area, I may short against it later in the day. All those bulls who were waiting for the big whoosh down and the spike in the VIX probably feel robbed! Who knows, maybe they will stampede in at the open. We will see.

Paulson Peddles Freddie Notes

The treasury secretary spent his weekend scrambling around trying to put out the Fannie Mae (FNM) and Freddy Mac (FRE) fires. Paulson’s actions were especially frenzied because Fraudy has a note auction scheduled for Monday morning.

Between 8:00am and 9:45am, Fraudy will auction off $3 billion in notes. If the bond guys are antsy, their bids will be low, and the interest rate higher. The higher the rate, the worse it is. Fraudy would get a 2.5% rate under normal conditions, so anything above that would show a lack of faith on the part of bond investors. What will Fraudy do with the money? Buy more mortgages, of course!

Paulson also petitioned congressmen to amend the housing bill currently in the making to allow him to buy shares of Phony and Fraudy, and loan money to them. So, it looks like the nationalization is rolling. But don’t worry about taking on another $5 trillion in debt. Paulson sez:

“Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer.”

Yep, their will be special language in the deals, to protect you, the taxpayer, from any toxic stuff Paulson might purchase on your behalf. Does that “language” make you feel better?

I wonder if there is any such “language” attached to all the junk in the Fed’s vault. I lost the link, but there was a story a few days ago about how a block of mortgage bonds from the Bear Stearns bailout had already gone bad. JPMorgan is on the hook for those bonds and a few more, but the Fed is responsible for the rest of them. I’m not aware of any of the Fed’s collateral going bad yet, but it’s entirely possible that it could start to happen.

And that’s important because exactly how much capital does the Fed have left on its balance sheet to loan out anyway? I haven’t seen one of those balance-sheet pie charts lately, but the last one I saw a few weeks ago didn’t have many treasuries left on it, if memory serves.

In any case, the FOMC was working on the weekend also; voting to approve loans to Phony and Fraudy. This is only a symbolic gesture because Phony and Fraudy don’t have a cash flow problem, and the Fed is too small to bail them out of their bad mortgages. Only Congress could do that. So, for now, nobody can do anything. We must wait for Congress to act, and that will take some time, as always.

As I write this, the S&P 500 futures are up about one percent, so it looks like the market is somewhat relieved, but not rocketing upward as at the end of the January and March crises. The market will likely react to Fraudy’s auction Monday morning, but the machinations of Congress will likely be the primary driver.

Yet another bureaucrat, Shelia Bair, of the FDIC was working on the weekend too as she seized IndyMac. Ironically, the second largest bank failure in American history wasn’t even the top headline.

And there was no discussion of the Feds preparing to liquidate an i-bank. Remember those recent discussions? I guess there weren’t enough bureaucrats to go around this weekend! Lehman’s stock is going over the cliff, and nobody even mentions it!

I wonder what the capacity of the FDIC is? For example, how many banks could they seize in a week? Are they staffing up? What about the Fed? Won’t Bernanke need a whole new army of people to oversee all the new stuff he will be responsible for? Let’s hope there’s a Bureaucrat Boot-Camp somewhere training up a battalion of babycrats to man the trenches before things slip out of control.

Update: 10:45pm, Sunday – The futures are still trading below the March low, so this has to be disappointing for the bulls.

Update: 12:11am, Monday – The futures have fallen a few points. What’s wrong with this bailout picture? NO RATE CUT FROM THE FED! NOT EVEN A MEASLY QUARTER POINT! The market is not thrilled!

Iraq to Force Israel’s Hand?

That’s right, Iraq, not Iran.

Listening to the Democrats, you would think that we lost the war in Iraq and that it is another Vietnam. But that just isn’t the case. We won the war over a year ago. And now the soaring price of oil has strengthened the Iraqi regime, just like it has revived the Russians.

Nouri al-Maliki can now afford to pay a real army, and is so confident that he now wants American forces out of his country. The Democrats would have you believe that the authorities in Iraq cower behind the thick walls of the Green Zone. But now Maliki wants to tear down the Green Zone. See the story here.

I knew the war was won a year ago when the fashionable ladies of South Beach, who are all Democrats, started sporting camo caps, tee-shirts, and skirts. But this Green Zone news has totally taken even me by surprise. There was also an article in the Wall Street Journal about hedge fund managers strolling around northern Iraq (Kurdistan) looking at oil development. Didn’t the Turks just invade there?

I know it is an election year and we must expect a tidal wave of lies from both parties, but this is ridiculous. It actually looks like Iraq is a reasonably safe place ready to stand on its own, and gearing up to produce a ton of oil. (To find oil in Iraq, all you need to do is poke your finger into the sand. Compare that to what PBR has to do off-shore in Brazil, or what we have to do in Alaska.)

Now, if Maliki gives the USA the boot, where does that leave Israel? While the Israelis don’t have to fly over Iraq to strike Iran, their mission is made a million times easier if the USA is controlling the skies of Iraq.

A rapidly strengthening Iraq means that the Israelis might feel more urgency in scheduling a strike on Iran.

Dow Chemical’s Desperate Move

There was jubilation in the bull camp on Thursday after Dow Chemical’s astonishing bid for Rohm & Haas. However, instead of hard proof that the global economy is alive and well, it now appears as if Dow is just desperate to get out of its current business: From Barron’s:

“Dow Chemical wants to boost its higher-margin specialty chemical business with the $15 billion acquisition of Rohm & Haas’ coatings and electronic materials operations. These are a far cry from the commoditized chemicals whose margins have been squeezed harder by surging energy and feedstock costs.”

The premium that Dow paid can only be described as hysterical, and we will no doubt be seeing more of these oil-crushing-margins effects as earnings are reported.

Claus Cancels Christmas

Trivisonno.com is in possession of a pre-release memo from the North Pole. In the memo, Santa Claus informs the USA that there will be no Christmas this year. Reasons cited include:

  1. The USA has perpetrated a multi-trillion dollar real-estate Ponzi Scheme upon the world.
  2. The USA has debased the world’s reserve currency.
  3. The USA has built a giant highway system and a giant fleet of giant SUVs while simultaneously shutting down oil production – the greatest infrastructure blunder in history. A thousand Maginot Lines!

Mr. Clause is reportedly infuriated with the greed and stupidity of America, which the global economy is relying upon for leadership. Rumors of Clause’s wrath have sent retail stocks plunging through their March low. The memo includes this chart of the XRT:

Santa will also not be visiting America to deliver coal to stockings due to high coal prices.

(Note, my marketing-and-advertising expert friend thinks that this will be the worst Christmas ever, and the XRT is now agreeing with him.)

My Coal Short

Take a look at the KOL (coal stocks ETF) chart (click to enlarge):

KOL has plunged through its up-trend line (blue) on huge volume, and formed a classic bear-flag pattern (pink). The enormous down-side volume indicates that the big money wants O-U-T out of this ETF.

I am playing this pattern with some KOL August $50 puts (KOLTX). I am in at $2.75, so I’m under water at the moment. However, since I don’t know anything about the coal companies, I am playing very small. A 100% loss on this trade would only have a tiny affect on my annual performance, which currently stands at an incredible 72.66% (in my trading account where I have these puts.)

Why would I trade something I have no fundamental knowledge of? Because that’s what technical traders do! However, I am not a pure technical trader and prefer to do fundamental analysis also, but this particular trade is purely technical. I also did very well with my oil bull-flag analysis. When I made that chart, everybody just knew that oil was done.

These flag patterns are very reliable. Take a look at my Bear Flags Flying! post from June 21st. Here is a quote:

“Expiration? FOMC meeting? Who cares! The bear army is marching!”

How’s that for a prediction!

Flags are “continuation” patterns, which mean that they appear within a trend, as opposed to a reversal pattern which signals the end of a trend. So, in KOL’s case, the appearance of the bear-flag indicates that the larger trend is still down.

Of course, no indicator or pattern is infallible. For example, KOL could break higher if the plunge down was caused by margin-clerk selling after a big fund blew up. We will see. Of course, even if that were the case, no technical trader on the planet will be going long KOL while the bear-flag pattern is intact.

Capitulation Camp Won’t Capitulate

Last Sunday, when I correctly predicted that the market would continue to move down in No Bottom for Spy, I discussed the “Market is Due for a Bounce” meme. That meme grew even stronger during the past week, and now it is the market’s full-blown mantra constantly being repeated everywhere.

The big capitulation and whoosh back up is all anybody can think about; bulls and bears. And you can’t blame traders with so many indicators bent so far out of shape, (which I discussed in Sentiment Sinks but so Will Market back on June 21st.) But look what is happening: when the market falls, the bottom-calling bulls come in and buy in anticipation of the big snap-back, and shorts buy-to-cover for the same reason.

The market keeps threatening to crash, but this meme continues to keep the decline orderly. Everybody keeps looking at the January and March snap-backs expecting them to repeat, and then trades accordingly making such a snap-back impossible. Because of this, the ground-and-pound market will likely continue until the capitulation-seeking camp finally capitulates itself.

Friday afternoon, some genius took advantage of this meme to make some big bucks. He knew that the market was looking for the big “Bernanke Miracle Snap-Back Part 3”, so he loaded the boat with calls, which took huge balls as the world was seemingly ending, and then was able to inject his rumor into the media trigging a huge surge of buying. I hope his genius extended to taking profits into that spike because I think the chances for this market to snap-back as it did in January and March are about zero.

Last week was one of the most gut-wrenching weeks in market history. The issue at hand was whether or not the market should hold or lose the March low. After a maniacally fought battle, the bears won. If you think that the S&P 500 can just pop back above the March low without another battle of equal magnitude, you are living in a dream world. And do you think the bulls have the energy and firepower to mount such a battle?

The next bear-market rally could only hope to top-out at the March low. And for that to happen, the market will have to fall a good deal farther first. And indeed it should.

In January and March, we only had one bank blowing up. Now we have IndyMac, maybe Lehman, and of course the far, far larger Phony and Fraudy. The past crises were a walk in the park compared to what we have now. Instead of the shoes dropping one at a time, they are now dropping in bunches. Not good.

Now, who will be the first idiot to say: “The worst is behind us?” Any takers? What about you Kudlow?

Death Stars Align

I just bought some QQQQ July $43 puts (at 9:37am.) I wished I could buy them last night, but I didn’t figure it out until after the market was closed! Will be updating this post again soon. World ending…until Bernanke performs another miracle!

UPDATE – 9:59am: I just doubled down on my QQQQ puts (QQQSQ). My cost basis is now 32.5 cents.

UPDATE -10:22am: I have a bid in for some KOL puts. The daily chart is a classic bear-flag that is just begging to be shorted. The intra-day chart is in a bull-flag pattern, so it should be able to push higher. If it does, I will get my puts.

UPDATE – 10:29am: Nice work Paulson! KOL lost its bull flag so I bought the puts at the ask.


UPDATE – 12:38pm – The Q’s are in a descending triangle pattern. This pattern usually resolves to the downside. The other indexes have the same pattern.

UPDATE – 1:20pm – The Q’s are now making a bear-flag pattern. This is another bearish pattern.

UPDATE – 1:57pm – I just took profits on my QQQQ puts. I made a 28% return, which isn’t bad for a day’s work. The bear-flag that I mentioned above started to act oddly, so I bailed out.

UPDATE – 2:15pm – Death Stars hold fire. Planet Bull gets reprieve. There are still way too many shorts willing to take profits for this thing to plunge – not that there’s anything wrong with that. This dynamic is painting a beautiful down-trend channel onto the SPY chart for example. Even a chimp could make money trading that pattern.

UPDATE – 3:00pm – Bernanke has performed the miracle just as I predicted above. Weak-handed shorts are going up in flames. I still have all of my double-short ETF’s and will be holding them. People are expecting another big rally like we had off of the March low, but the Market Beast never makes it that easy!

UPDATE – 3:14pm – Bernanke miracle turns into a mirage! Market plunges! Saving money on caffeine costs….

Abu Dhabi: Buildings Don’t Lie

The Arabs are wising up! Instead of buying more freshly-printed shares in US financial companies, Abu Dhabi spent $800 million on the Chrysler building. Recently, Dubai bought a piece of the General Motors building. If this is a trend, it is not good news for the XLF.

GE is Scaring Me

GE is doing damage control, and it hasn’t even reported earnings yet. (Go back two posts and see what I wrote there.) I think some bad things will be coming to light soon.

After GE’s miss in April, the market opened down on a gap, but was then able to rally back up. The market ended today in rally mode, so maybe it could absorb another hit from GE. After all, a second miss won’t be as shocking as the first, historic, miss.

But what if oil keeps surging? That could be a toxic combination. And what about all the “everything is just fine” programming that GE put out through its propaganda arm (CNBC) this week?

My Spider Sense is tingling.

I was hoping to snooze through tomorrow’s trading, but now I have to stay on crash alert.

If the market manages to survive tomorrow, make sure to check back before Monday. I will be posting some serious analysis of the market over the weekend, and yes, it will be bearish.

Bear Market Over!

Ha, ha! Just kidding, but CNBC just flashed up a thing that said the S&P 500 closed above the official bear-market red-line of down 20% from its October peak.

CNBC is not only loud, but it is crazy. Not only is the bear market not even close to being over, but today was the third time that the S&P 500 has closed below the lowest point of March. That’s a very bad sign.

The market is doing a lot of work around the March low. It wants to be sure that it is going in the right direction, and it most certainly is.

GE to Miss?

Just before announcing earnings, GE has said that it is going to spin-off some divisions. Here is how I interpret the body language: “We are going to be raising some cash soon, so don’t be mean to our stock when we miss.”

I don’t have a bet down on GE.