Free-Fire Zone
I don’t pretend to know what bureaucrats will do, however if we get the widely expected jobs-disaster, and ECB-disaster tomorrow morning, the market will likely gap down through the March low.
What happens after that? Probably something like what the XLF did after it broke below its March low on June 20th: it plunged, reversed, and then rallied back up to briefly re-capture the March low three days later. Then it flopped over and plunged even harder.
If that scenario plays out with SPY, I will open fire with both short-selling barrels when SPY rallies back up to $126, perhaps on Wednesday.
(Note: Just like with XLF, many shorts will have stop-loss orders placed just above $126. When the brokers run those stops, SPY will likely spike a bit above $126. So, keep an eye out for that.)
If enough traders read this scenario, it won’t play out, so don’t tell anybody!
July 2nd, 2008 at 6:07 pm
Hi Matt.
You and I are on the same page every day - except when you went long.
Why do investors feel they need to go long all the time? Is it a patriotic thing? This has been a bear market since January 22nd. The only way I’m going long is to do a few calls on some flyer stocks after a big market drop. But in no way should anybody risk serious $ during this current period.
What happened with the selling of material and energy stocks today? If I were a bull I would be officially freaked out. Thanks pal and keep up the good work.
Crash
July 2nd, 2008 at 7:29 pm
Hi Crash,
Wouldn’t you know it, but those calls were my only losing trade in two months! But it was also my smallest trade, so I barely got nicked. I just wanted to see if I could catch one of this market’s brief bounces. It would have been a good trade in a “normal” market. But with momentum accelerating to the downside, this market is far from normal.
Coal (KOL) got it much worse than materials and energy today. This is what happens in a real bear - there is no place to hide. And of course, when margin clerks sell stocks, they don’t pause to consider which sector they are in.
Matt
July 2nd, 2008 at 9:46 pm
Matt, Coal is a forebearer of what to come in oil and shipping. The Baltic Dry Index (bulk carriers) is rapidly down from ATH of almost 12,000 to 9,100. I’m guessing it will be below 5,000 second week into the Olympics.
I still haven’t figured out where all this dumb money will go when oil pops. Treasuries and bonds I assume?
BDI:
http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm
July 3rd, 2008 at 11:34 am
Hi Larry,
I agree on the BDI. Here is what I wrote about it on May 29th:
“…the Baltic Dry Index, which may also be rolling over. It looks as if these two indicators took their initial dives around January when it became clear that the US economy was slowing down, but then mysteriously rallied back. I’m thinking that the first move was the real move, and that the bounce back was the fake move caused by hot money fleeing stocks for a new home in commodities.”
Matt
July 3rd, 2008 at 8:31 pm
Matt,
Just an updated chart on what the Big Boys have been up to… or down to since my last post:
http://www.trivisonno.com/whitney-gives-big-dogs-a-beating#comment-1041
Here is the latest chart showing them arriving on schedule:
http://www.aandasoftware.com/images/QQQQ-07-03-2008b.jpg
I am expecting a bounce off the horizontal line marking only the half way point of our trip down for the Q’s.
I get a lot out of your blogs, very good info, but what ever happened to the daily withholding taxes chart?
Keep up the good work…. and don’t stay a bear for ever ;o)
July 4th, 2008 at 11:12 am
CDAfuture,
I still don’t understand your chart. Maybe you could provide some commentary.
I think the Qs will test, and fail at, the March low just like everything else. And just like the IWM, they will do some quick catch-up work on the downside.
Matt