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by The MoleSeptember 29, 2008

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.

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.

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.

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.

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.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Ukla the Mokk

    I very anxiously await a bounce. I will load up on a small position, since I don't have much to play with. I'm not gonna put it all on the line. That is stupid. Incidentally, was trading halted at all today? The intraday chart on DIA and IWM looks messed up right around vote time.

  • molecool

    I think trading was halted in Brazil today. And yes, if you don't feel comfortable keep your position size small.

  • tomo

    The EFFECTIVE Fed Funds Rate:

    09/17/2008, 2.80
    09/18/2008, 2.16
    09/19/2008, 1.48
    09/20/2008, 1.48
    09/21/2008, 1.48
    09/22/2008, 1.51
    09/23/2008, 1.46
    09/24/2008, 1.19
    09/25/2008, 1.23
    09/26/2008, 1.08

    A cut in the TARGET rate appears likely.

    However, the money markets are more caught up in the default risk of counter-parties rather than the cost of money. So the PPT might want to keep those last few arrows in the quiver.

  • molecool

    YOU ARE THE MAN!!!

    1+ wish I could give you 10

  • http://www.slopeofhope.com Tim Knight

    Molecool, thanks for the shout out. Your site was actually a key reason I got out of my index puts near the close today; I appreciate your hard work, your participation at Slope, and your excellent charts. Here, let us raise a glass to a SURGE UPWARD and then a RETURN TO THE ABYSS!

  • toad37

    Excellent info as always guys. Thanks a ton…

  • Fergie

    Molecool,
    Interesting that you are not bearish on gold like Tim. I've got puts on gold (ABX, KGC and GLD), but am going to have to go back and revisit those charts. It was such a modest increase like you said despite all the craziness so I'm thinking it'll drop once the Bailout package is approved.

  • tomo

    I have my own helicopter. Tell me where you live and I will swing by and drop money on you.

    Coincidence. That's Hilarious. I just fell off my chair laughing.

    BTW. It is short for 'Tomodachi' or 'Friend'. Same as the character, or rather the avatar. Me, I'm EVIL….:-)

  • toad37

    fwiw, I'm bearish on precious metal stocks, but not the metals themselves. That will change when the bear market ends in 3-6 months. Then you will have wanted to load up on the miners, stocks and calls… hyperinflation will put rocket boosters under those babies imo

  • toad37

    point up Mole… I'm pointing up all you posts to get some of those lost points made up… ever find out who did that? That was BS….

  • Bartholomy

    URGENT :

    Be advised that the Chicago Mercantile Exchange Inc., Clearing House Risk Management staff approved raising the performance bond requirements for their Interest Rate futures and futures options products (ZB, ZN, ZF and ZT). The rates are effective on the close of business on Tuesday, September 30th, 2008. For details please read the CME notice which is available at the following URL.

  • Bartholomy
  • molecool

    Credit where credit is due – and I drink to that, Tim :-)

  • molecool

    Yes, actually that is a possibility, which is why I'm extremely cautious. But I wasn't ready to switch back to bearish just yet.

  • molecool

    Hajime mashite, Tomo-san. Dozo joroshku.

    Tried to learn Japanese a while back – my favorite language by far. I'm a HUGE fan of Japan and its culture – also studied Aikido for a while…

    ??? (matane)

  • gagelle

    Molecool, I keep thinking about Tim's comment that we shouldn't underestimate how low the market can go. There may be a bounce. But i sense a feeling of intense distrust for the FED and I wonder how effective anything they do will be. Well, we shall see. When the whole thing was at its low in 1933, wasn't the market down something like 90%. This drop today was frankly a bit frightening to me even though I was making money. I just hope there's time to get out of my index puts without too much damage if there's a rally tomorrow. Tim's shorts were going down even during the rally on Friday and I think your trade was brilliant. So I think I'll just lower my stops on them.
    Thanks again.

  • molecool

    Requires me to sign up – can you please post the text?

  • molecool

    You know, I even wrote to info@disqus.com and they said they would look into it. Never heard back – waste of time anyway. Someone out there hates the bears I guess… no surprise there.

  • molecool

    Yes, I have been talking about this subject for months now – I am very familiar with Gold as I have been trading the futures. It'll be a timing issue – get Gold while it's down and before hyperinflation kicks into overdrive.

  • gagelle

    Aikido is wonderful. I haven't been practising lately but would like to get back to it. I really like Seibukan jujitsu. The school in monterey CA offers Aikido also, and they have great mats. (important if you're over 25.) http://www.seibukanjujutsu.com/

  • toad37

    point up… keep fighting the good fight. ROAR!!!

  • Ukla the Mokk

    CME Globexes are up substantially.
    INDEX PRODUCTS
    CONTRACT LAST NET CHGE
    S&P 500 DEC08 1126.10 A +730
    E-MINI DEC08 1125.75 +700
    E-MINI MAR09 1127.00 B +675
    NSDQ100 DEC08 1522.25 +1025
    E-NASDAQ DEC08 1523.00 +1100

    Futures are up modestly.

  • Ukla the Mokk

    Aikido is my favorite art. Envy that Steven Segal (say what you will about him) just packed up and moved there to study for decades. Very graceful, very powerful. Very in tune with the laws of physics and nature.

  • toad37

    McHugh's newsletter. Enjoy guys…

    https://www.technicalindicatorindex.com/newslet

  • tomo

    Believe me, everything about Japan Rocks.

    Let's go. Let's all the readers of this blog make many Tens of Thousands of Dollars (worth even more in the deflation) in the downdraft and meet for a party in Tokyo. Ride the Shinkansen around the country for a week.

    Why not? We can even trade on the road.

    BTW. When I saw the Elliott Wave Codes on your charts I understood that this was the home of genius. But don't let it get to your head. That's when the market will strike you down.

    Chin Chin.

  • Ukla the Mokk

    I didn't read the whole thing, but I did skim most of it. Fascinating read.

  • molecool

    Thanks for the update, buddy.

  • molecool

    Now THAT'S some good stuff – thanks for sharing.

  • toad37

    I figured you would like that. 😉

  • molecool

    Sounds like a plan – I'm in!! :-)

    BTW, Shinkansen – I remember that word – subway, right?

  • molecool

    I studied under Kensho Furuya, who died last year. He was as high ranking at Steven.

  • molecool

    Meh, REAL evil speculators practice their ukemi on concrete! 😉

  • http://www.FinancingIdea.com Fork_Master_Serg

    FINAL VOTE RESULTS FOR ROLL CALL 674
    http://supportedthebailout.org/Rollcall-674.htm

  • Hansons

    I wonder if Bush and his bag-man (Paulson) will declare an economic national emergency and bundle that $700 billion onto palates and ship it off to the needy on Wallstreet. Just a thought, but I'm sure they are considering it!

  • Fergie

    Okay, I'm ready to ride the paper loss for a few days and possibly load up on more contracts if this market turns. Since so many hedge funds are in on gold right now, it's going to be a fast and furious drop when they start transferring to rising equitities.

  • Dave_San

    toad37 – as a subscriber to McHugh myself – I won't object to the occasional sharing. But Dr. McHugh has every right to his revenue stream from his news letter and his work. Please do not make it a habit to post links.

    Many of us object seriously when the Chinese and others violate Intellectual Property laws and rights. Dr. McHugh's work is worth paying for. So kindly respect those efforts.

    Thanks in advance.

  • toad37

    Dave, I am actually trying to get business for Dr. McHugh. Anyine can get his newsletter for free for 30 days. I'm hoping by posting his working every now and then I get him some new customers. I agree that his work is worth paying for, my hopes is that I get some new subscribers for him. I have emailed that and told him as much.

  • Dave_San

    OK – very cool – glad to know you're a white hat wearing evil speculator…

    <thumbs up emoticon>

  • toad 3,7

    Dave, I am actually trying to get business for Dr. McHugh. Anyine can get his newsletter for free for 30 days. I'm hoping by posting his working every now and then I get him some new customers. I agree that his work is worth paying for, my hopes is that I get some new subscribers for him. I have emailed that and told him as much.

  • Dave_San

    OK – very cool – glad to know you're a white hat wearing evil speculator…

    <thumbs up emoticon>