Who Wants to Go Long in Front of the Jobs Report?
Sentiment was indeed negative this morning, but that’s all changed now. The bulls chattered away all day in a state of euphoric-bliss about today’s massive 5-point “rally” in the S&P 500. One could say that this euphoria indicates that all the traders who were intending to buy at this level have already done so, and it is now time to fade this extreme in sentiment…
But I’m not going to make that argument. Instead, I will mention that the exact same thing happened only three weeks ago as the XLF tested its March low. The initial bounce off of the low was met with popping champaign corks in the bull camp. So, let me warn the bulls, yet again, as I did before the XLF flopped over:
“The birth of a lasting rally is met by skepticism, not jubilation in the bull camp.”
As much is I like to poke fun at the bulls here in this raging bear market, I have been looking out for them. In one of the earliest posts that I published on this blog, Bulls in Denial, I wrote:
“If you are a bull planning to ride out the recession, you have to seriously consider if you are missing an opportunity to sell here and buy your position back at a lower price in the future.”
If any bull would have taken my advice, they could be buying back their positions right now at a very nice discount.
The market did exactly as I expected this morning: As soon as the big-funds finished trying to prop things up to make their quarters look better, the bottom fell out of the market and we opened with a frightening gap down. Today’s bounces off of the lows were almost certainly shorts buying-to-cover and taking profits. I wasn’t one of them. While I have taken lots of profits recently, each time I did so was wrong. While I still have huge short positions, I also have way too much cash from said profit-taking.
So, if by some miricle, there are enough bulls to buy in front of Thursday’s jobs number, not to mention the ECB decision, and spark a rally, I will short into it with all of my cash. Then I will sail through the March lows with a full cargo of short stuff. But that is only a dream, and I need some bulls to help me fullfill it. So,
Who Wants to Go Long in Front of the Jobs Report?
Would any bulls like to come forward and announce long-side trades that you will make on Wednesday?
But before you do that, let’s review what happened after the last jobs report. You remember the 400-point drop on the Dow, right? And the $10 spike in oil, right? Pretty scary, right? Now stop and think about all the major industries that are practically shutting down: gaming in Las Vegas, auto-making in Detroit, iBanking in New York, Wacky-Banking in Charlotte, air lines, home-builders, etc. What do you think the outlook for jobs is? And just by coincidence, today is the day when governments across the country will be slashing their budgets - you didn’t forget this New York Times article, did you?
Now, let’s go back to that $10 oil surge. Why would a poor jobs report trigger that? Because it means that the Fed can’t tighten and the dollar is doomed, and that the world’s new reserve currency, oil, strengthens. Of course, surging oil leads to a heavier crushing blow to the US economy, which causes more job losses, which…you get the idea. Is this not the most astounding viscous-circle in economic history?
So yes, sentiment was very negative this morning. But that’s what happens when the wheels come off of America. American voters have chosen to not produce energy. American voters have chosen to roll back capitalism. This is what it looks like.
So! Let’s hear your trades for tomorrow you bulls!
July 1st, 2008 at 7:25 pm
Hi Matt. My Model says to be long here. Yikes! I’ll be getting my money candle out tonight and light it. (My daughter told me about how she uses it and money comes to her. double yikes.) Anyway, I like the key reversal to the upside candles today (not the money candle type,) so we’ll see how the rest of the week plays out.
July 1st, 2008 at 7:42 pm
Hi Timer,
If you look at the XLF chart from three weeks ago, you will see the same high-volume bounce off of its March low. It rallied for three days before flopping over. Perhaps SPY will do better, but I’m betting that it won’t. In fact, since traders have already seen the XLF movie, I think SPY will flop over much faster.
The model I use is neutral on the SPX at the moment.
Matt
July 1st, 2008 at 7:44 pm
My crystal ball says rally tomorrow. It could be small or it could be decent (~2%). My QQQQ calls are in place… However, unless there is a rally >5%, I will close my calls and begin to get short again.
I do have several individual names where I kept my longer term puts working.
July 1st, 2008 at 8:08 pm
Hi Small Cap Slingshot,
I tried the same thing a couple of days ago. I took a small loss on my QQQQ calls. It snapped my perfect winning streak that was literally two-months old. Two straight months of winning short trades, and I had to temp fate and play on the long side of a collapsing market. I’m not doing that this time.
Matt
July 1st, 2008 at 8:31 pm
Matt,
I’m not trying to get cute here. I am just following my QQQQ trading system (aka crystal ball). Yesterday, I had an extreme oversold signal and today was a confirmation day. I am not going crazy long (only about 5% of my total portfolio), but I did convert almost all my gains from option puts into cash.
Cheers, Chris
July 1st, 2008 at 9:51 pm
On tempting fate, I agree wholeheartedly. The only time I’ve lost money over the past few weeks is when I would make a trade in the opposite direction of my fundamental belief on the medium-term trend, to scalp a few extra bucks. Never again. I’ll wait out the rally, buy some more puts and more of the double-inverse indexes at better prices.
The double-inverse that I really like at this point is SRS, which shorts the REITs. The homebuilders and financials have crumbled but the commercial side has been relatively unscathed at this point. Not for long. Right now trading at 104, I think that around 100 is an excellent entry point.
July 2nd, 2008 at 4:13 pm
Hi Small Cap Slingshot,
Well, I hoped you bailed out early today anyway.
Matt
July 2nd, 2008 at 4:15 pm
Hi Morganski,
I hope you got your planned shorts on this morning before the market rolled over.
I was just looking at SRS a couple of days ago. I like it.
Matt
July 2nd, 2008 at 9:11 pm
Matt,
Nah. Still have my calls working. My individual stocks, where I have a nice bit of option puts, more than made up for my long QQQQ calls. Overall, my total portfolio bounced up ~12% today (without the QQQQ calls it would have been 14%).
The more we fall without a normal oversold bounce, the stronger that bounce is going to be. If you are still super short, I would be cautious.
Cheers
July 3rd, 2008 at 12:11 pm
Small Cap Slingshot,
In your previous comment, you said: “I did convert almost all my gains from option puts into cash.” So, how did you make that 12%?
Your crystal ball has a perfect 0-2 record so far. Care to try again for Monday?
We didn’t get the “normal” bounce because this is not a normal market. “Normally”, I would never go against these extreme conditions, but you have to know when to go against the models, and this has been one of those times.
You can continue to disagree with me if you like. That is harmless, but trading against me is definitely not a good idea.
Matt
July 4th, 2008 at 10:50 am
Matt,
Should have been more clear. I converted all my gains from my QQQQ option puts into cash. I still had a sizeable chunk of my portfolio in individual stocks using option puts.
“Your crystal ball has a perfect 0-2 record so far. Care to try again for Monday?” - I’m fine. My market timing isn’t always perfect, but I can live with that. Sometimes I nail it perfectly and other times I am off by several days. I thought there was going to be some more follow through on Wednesday and it didn’t happen. That’s ok.
“…trading against me is definitely not a good idea.” - Wow. You are getting awfully big for your britches. You get a couple calls right and you think you are a superstar. Keep it up and Mr. Market has a nice spoonful of humility with your name on it.
July 4th, 2008 at 11:28 am
Small Cap Slingshot,
I do the Vulcan Mind Meld with the Market Beast every day. I always know what it is thinking. Trade against me and you will be crushed.
Matt