I had a friend come into town yesterday that I have not seen in years, so I am going to go ahead and publish tonight’s post now, and potentially do some editing real time if need be, so I can jet outta here at the close. There is not much to say here. We’re up, the financial markets survived another day… Markets are near term overbought (intraday) and at resistance levels. The stage is set for a big move tomorrow.
Like Mole said yesterday, the market completely crashed. We know there are a few things we should expect after a move like that. One is a “volatility crush,” which the $VIX is gladly giving any poor sap that trades options. Another is a bounce, and we have got a nice bounce today.
More, more, buy signals galore!
The two same options remain on the table. The odds are fairly split, and gobs of evidence can point to either solution. However, rally or no rally, we maintain that the larger trend remains down.
Still more to come...
I also want to encourage everyone to step back and play the charts. Yes, there is looming news, but I can’t trade based on the reactions that I can’t predict about news that I may or may not know is coming. I would much rather grab things at support or resistance, and take small positions due to the massive IV here.
Gave a nice entry...
Looking at the ripples, I can make a very strong case for a complete or almost complete wave 4, meaning we should get another decline very soon. I wouldn’t be surprised to see us move down tomorrow morning and bounce back up after the vote. The chart below shows the $SPX on a 10day 10 minute timeframe. If this timeframe is not what you trade, simply understand that the market is setting the stage for a decline rather than a rally on this scale.
Could be done
And here is the $SPX on a daily timeframe…
Daily $SPX chart...
And as annoying as it is, we need rallies like this so we can continue to play down our favorite stocks. As Mole said, no matter how many 300 point rallies we get, the trend is still down. We might have a week or two of pain in front of us, but the resolution will ultimately be lower prices.
God gives us bounces for a reason...
As it stands right now, the markets have retraced between 38.2% and 50% of yesterday’s delcine. These are typical targets for a retracement. Things that were down huge yesterday, and up huge today make easy targets for those willing to take some risk right here. You guys know me, I can’t help but grab puts on Tech, and after yesterday, maybe you understand why I have that urge. 9% drop in an index is one day is a pretty big move. In case you forgot, a list I am keeping my eye on includes BIDU, GOOG, FSLR, MA, CF, CME, ISRG, CCJ, AAPL, OI, and a few more.
As Mole likes to say…”No balls, no babies!” But make sure your risk is managed, we don’t need anyone castrated… Finally, I will leave you with a beautiful illustration of our financial debacle, as illustrated by Mark Slavonia as displayed by tech crunch. I want to see US Congress vs. Queen of England… or WFC vs. the Federal Reserve…
Financial Madness. Who will be the winner? Not the taxpayers...
Overnight the London interbank offered rate (LIBOR) reached an all time high on the failure of the bailout plan, and the market sell off.
“The money markets have completely broken down, with no trading taking place at all. There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.”
-Christoph Rieger, a fixed- income strategist, Dresdner Kleinwort.
Berk and I are watching the markets right now and keeping our powder dry. If we are lucky the Senate will be foolish enough to pass some compromise of the bailout on their end, hoping to invigorate an agreement over at the House. If that happens, expect a major bounce – Christmas time for us nefarious bears. Well, one can dream – I for one am encouraged to see the Dow retrace 250 points overnight.
We’ll keep you folks in the loop with thoughts and ideas while we watch this sideways action today. I frankly don’t expect much to happen here as today is a Rosh Hashanah (Jewish New Year). Use this time to pick your new victims – watch our for retracements back to previous support lines. Remember, despite the focus on the averages, this is a ‘market of stocks’.
UPDATE 12:03pm EDT: For a good laugh point your browser here.
UPDATE 12:51pm EDT: Courtesy of our friends at TechCrunch – end result: The United Singularity:
UPDATE 1:16pm EDT: We’re planning to grab some R calls around 62 as risk can be managed very easily:
I’ve been saving this video for a special day – crank it up and enjoy it while you count the insane amount of money you’ve made today – this one goes out to you, Tim Knight!
I’ll get right to business, because frankly I’m completely exhausted and I also don’t want to bore you with breadth stats and other technical mumbo-jumbo. The market completely tanked today, we all know that. So, let’s solely focus on the one question on our mind: What will happen next?
SPX targets and variations in paths.
The boys over at the PPT (and the market) weren’t prepared for the curve ball (i.e. no-confidence vote) Congress sent them this morning and wound up taking the ball right where you feel it most. Ouch – that oughta hurt. So, what’s next? Don’t expect Hanky Panky and Helicopter Ben to take this abuse laying down – can you say interest rate cuts? Which frankly, wouldn’t make much of a difference technically as sources tell me that the true fed funds rate behind the curtain has already been around 1.25% – 1.75% for about a week now. But it would make a statement and I’m sure the PPT feels compelled to do ‘something’ as the alternative is to embrace the abyss which I have been predicting for months now.
So, my trusted chart above shows the variations we can come to expect going forward. Frankly, I intently hope for a rate cut because I’m sitting on a mountain of cash which I would like to put to work before wave 3 of 3 runs out. But there’s no way I’m buying a massive amount of puts while Mr. VIX is getting comfortable around the 45 mark – too much risk frankly. I also think that the market is shot to hell right now, but obviously that doesn’t mean much in a crash scenario. A lot can happen overnight, as our friends over at the Feds, the ECB, the BOJ, the Swiss Bank, etc. are surely sticking their ugly heads together to come up with yet another scheme to save their smelly behinds. We will just have to wait and see.
PPT Panic Line breached.
I posted this chart earlier today, and we have dropped to 10365 since, however the point I was trying to make remains. We are pushing through the lower boundary of a channel which has been the trigger zone for PPT panic action, that’s why I call it the PPTPL. Again, another indicator that ‘something’ might happen over night. It was also the reason I went completely into cash before the market closed. Tough choice to make, but we all know what happened on the evening of September 18.
There is the possiblity that this market doesn’t look back and keeps on dropping, due to the lack of short sellers taking profits. Talking about a dumb idea backfiring on the market – I hope this lesson will be remembered on Oct 2nd when this hare brained rule finally expires.
Trannies finally caving in.
I do have some good news for you bearish evildoers this evening. It seems that the ‘trannies’ finally broke their trendline and are pushing towards those January lows. A close beneath those lows is needed in order to confirm the bear market signal that was triggered in November. Not that anyone in their right mind would doubt the validity of this bear market at this stage – maybe Beanie would. Just kidding Beanie – we all love you – hope you didn’t lose your pension today.
Incidentally, this is something I posted a few weeks ago about the DJ Transportation Index:
The popular belief is that the Dow Tranny Average’s June all-time high and relative strength vs. the DJIA’s October high is a bullish market signal. This is not necessarily the case. At 259 weeks, the ride above its 200-week moving average is longer than all but four similar trips. Those episodes culminated in 1929, 1957, 1987, and 2000. The closest parallel to today is 1929, when the Transports remained relatively strong versus the Industrials. In the fall of 1929, the Transports peaked with the Industrials on Sept. 3rd, but declined only 32.6% to Nov., quite a bit less than the Dow‘s 49% crash in the same period. A counter-trend rally in both indexes lasted through April 1930. But then the Transports’ break of their 200-week MA in May confirmed an across-the-board stock decline in which they led the charge lower, falling 93% to a 1932 bottom, the largest decline among the Dow averages.. The Industrials erased ‘only’ 86% over the same span. The Transports‘ months-long defiance of the downtrend now many signal an even more extreme downside fate soon.
So, I’m open to any transportation related plays you had your eyes on – time to give back you blood sucking leeches!
Gold was a non-event today.
So, as the market relinquished 777 points today, Gold gained a whopping 30 points. Say what? Seriously, I’m not sure what to make of Gold right now. Obviously, the bullish trend is a non-brainer but we should have seen a 60-80 point rally at the very least. Something fishy is going on here and I think that some serious amount of TOMO/POMO repos are being used to put a lid on gold. After all, the Dollar actually surged today and certain people continue to do their very best to discredit Gold as a safe haven from a crashing market, plus perhaps even an alternative currency in those dire times. Frankly, I would be very careful with Gold long positions at this point – we should have seen Gold go bananas today and this tape is nothing but a wimper. I’m still bullish Gold, but don’t see a good entry here – if you feel adventurous I would caution you to at least keep your position size small.
These are exciting times for the bears, and many of us banked some mighty coin today. However, for the record – things didn’t work out the way I hoped. I would have preferred a rally before such a massive drop as most of us never had a chance to seriously load up on massive puts or short positions. At some point I expect to get a violent bounce back, which would be typical for a wave 3. If that happens, you must not hesitate and immediately load up on puts, the long term trend continues to be towards the downside. You know what to do – keep it clean and don’t get greedy or emotional – both will kill you in this market.
Not going to waste your time with any chatter on how sweet this move was. Yes, it was more than any of us had hoped for going into the weekend. However many of us didn’t catch much of this one, but that’s a story for another day. Something I NEED to caution you guys about as we’re nearing the closing bell is that we’re dangerously close to the PPTPL again. Take a look:
Back to the PPTPL.
If you’re holding any puts, 3:55pm EDT is a good time to close out. We don’t know what the PPT will come up with overnight, they are surely holding emergency meetings as you read this. Perhaps we get a cut of the fed funds rate to 1.5 or below – although for the record you should know that inofficially it has been already lowered to between 1.25% – 1.5% behind the scenes. So, it would not make much of a difference at this point, but that won’t stop Ben and Hank to do ‘something’. Be prepared for a bounce tomorrow – which would be good for us bears anyway. I’ll be back later.
This is a potential H/S top on DLTR. IF it is not a H/S top, it is a double top, and should be heading lower either way. IF the H/S is correct, we can target 32 for an exit. This accounts for about a 15% drop from here. Not bad. We need this to break lower before we jump in, unless you are feeling aggressive in this market, in which case today’s strength would be good for a slightly better, but pre-mature, entry.
DLTR has very nicely priced options. I really like the price of the Oct 37.5 Puts, but with a potential move like this, the Oct 35 Puts for about $.65 could get a nice price explosion. For those of you looking for a little more time in this market, be wary as the time value you purchased today will literally be burning a hole in your pocket. To me, the Nov 35s are reasonably priced also, but I don’t want to overpay for that time value as of yet.
UPDATE 10:01am EDT: I love to hear the sound of screaming bulls in the morning. A little warning to my legions of revenge filled bears however – don’t try to catch a falling sword – wait for a bounce (IF we get one).
It’s interesting to see the market drop 200 points through 2 pivots without even so much as looking back. As I’ve said – that short sale ban is really backfiring on the bulls now. Anyway, here’s a little chart I cooked up over the weekend:
Of course, right now might not be the time – at least wait for a rip before you load up (VIX on a steep rise).
UPDATE 10:25am EDT: The yen is simply exploding this morning, despite the Dollar painting a gap up.
The inverse relationship remains to be a valid indicator – keep watching the Yen if you want to know where the market is going.
BTW, I want to strongly discourage folks from ‘buying the dip’, hoping to ride up the bounce – unless you’re trading index futures of course. The VIX is at 39.71 right now, so the market makers are going to charge you a huge premium, the bid/ask spread is insane, plus you get killed by a drop in IV on the way back up. Our plan at this stage is to wait for a bounce to load up on puts, although I’m a bit worried as I do not see any buyers step in despite the Dow having dropped 300 points in one hour.
UPDATE 10:50am EDT: I just came across a new Fed press release. The interesting part (among others) is this:
The Federal Reserve announced today several initiatives to support financial stability and to maintain a stable flow of credit to the economy during this period of significant strain in global markets.
We will continue to adapt these liquidity facilities as necessary and will keep them in place as long as circumstances require.
Actions by the Federal Reserve include: (1) an increase in the size of the 84-day maturity Term Auction Facility (TAF) auctions to $75 billion per auction from $25 billion beginning with the October 6 auction, (2) two forward TAF auctions totaling $150 billion that will be conducted in November to provide term funding over year-end, and (3) an increase in swap authorization limits with the Bank of Canada, Bank of England, Bank of Japan, Danmarks Nationalbank (National Bank of Denmark), European Central Bank (ECB), Norges Bank (Bank of Norway), Reserve Bank of Australia, Sveriges Riksbank (Bank of Sweden), and Swiss National Bank to a total of $620 billion, from $290 billion previously.
Mole here again: These ‘swaps’ basically mean more ‘cash for trash’. The Fed has made its priorities clear at this opint: It’s more important to save failing banks even at the cost of the complete destruction of our currency and the solvency of our nation.
I was hoping that by postponing our weekend post until Sunday evening I would have something interesting to post, potentially regarding the bailout. As it stands right now though, futures have just started trading, and are down inconsequentially. The bailout wording is supposed to be presented later tonight, no doubt in time for Asia to benefit from it.
I don’t believe there is much to review as far as wave pattern, or current options as far as the markets are concerned. We are in a wave 3 decline, and most likely a 3 of 3 decline. As you can plainly see by the weekly chart, the trend is still down.
We are almost all expecting a rally of some sort at this point. The bailout will go through in one form or another, and it IS actually needed. Considering the wording as I see it thus far, it looks like the rally will be short lived. However, Congress is being clever by leaving it open ended as far as the funding, keeping the random PPT rallies a very real concern for the bears.
Mole and I have been suggesting the people without the nimbleness required for day-trading keep plenty of cash on the sidelines to play with. I, personally, have been trading a select few high beta stocks. My current list accounts for about 10 stocks that I have been trading back and forth with a high degree of success. You are all familiar with the list, BIDU, GOOG, CME, FSLR, CF, MA, LVS, OI, and CCJ to name a few. As you can see, these stocks have been moving around 5% a day for a few weeks now, offering for some very easy profits so far. Also, by focusing in on a select group, you tend to get a feeling for their movements. You notice how the stocks move, in relation to themselves and the markets, allowing for you to get very good entries and exits if you pay attention.
Inverse H/S or break-down?
OI giving a nice entry at resistance here…
Entry @ Resistance here
And GOOG nearing that precious breakdown…
Looking for 350!!
Finally, the $VIX has given 3 confirmed buy signals this month. I have noted many times that “it is often the second or third buy signal that is the real one.” That said, the $VIX is fickle on the buy side, but this is the most CONFIRMED buy signals I have seen through my trading. Since we have failed to get a close above the 9/17 close, this is adding credence that this rally might have some ground to gain. But, this rally should be fierce and swift, as the abundance of buy signals is another confirmation that wave 3 down is indeed underway.
Buy signals galore!
I am really looking forward to this week. I will not make many bets until the dust has settled. I maintain that the larger trend is down, and strong rally or weak rally, we will see lower prices in the future. The internals continue to be weak and/or weaken as these “rallies” continue. As far as classic trend opinions go, lower highs and lower lows constitute a down trend. IF we rally with some continued strength, look for the elections to stop the rally dead in its track. I don’t expect to see it go that far, but the government has been working very hard this weekend, and anyone can guess what we will see. Tread lightly and keep your powder dry, plenty of opportunities await us in the near future.
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