Churn From Hell Zone

Berk has some business to attend to this evening (probably spending his ill gotten gains on his floozies), so I’m doing a quick update today:

The empty box said 'DANGER' - I didn't feel like redoing it again. Jing is so broken.

The score went to the bulls today after much whipsawing – the range on the DOW was a whopping 815 points and the breadth closed at 9:1 positive. I was actually pretty successful with a few daytrades early on, but took a step back once the churn range started to narrow and even ITM option profits got eaten by the insane bid/ask spread. My longer term short positions held up surprisingly well even as we were going up late in the day. For the record: this is exactly the kind of day I expected as the market makers were inflicting maximum pain in their favorite week of the month. In the end the DOW got pinned to 9000, which was the only thing that surprised me as I expected it to be 8000 after the early morning drop.

So what will tomorrow bring? Well the bad news is that things are not going to be easy going forward as we are probably going to trace out that dreadful triangle I suggested yesterday. We are now smack middle in the ‘Yellow Churn From Hell Zone’ I’ve indicated on the chart above. The good news is that this should calm down Mr. Vix a little bit. The worse news is that we might overshoot tomorrow as this market is desperate for any good news and this might lead to some monster rally. I just saw a positive earnings report from GOOG after the market closed and thus I expect a bit more upside tomorrow morning. I’m going to take on a little more pain but will start cutting my short positions once I see the 1000 mark breached with confidence, which would represent the upper boundary of the proposed triangle formation. If we slow down ahead of or bounce off the 1000 mark I will be tempted to start loading up on additional Nov puts. No balls, no babies.

One more thought: Let’s not forget that it’s option expiration week and in the last few months the MMs nefariously drove the markets up on Thur/Fri after which it dropped massively the following Monday. So, we might want to keep that in mind tomorrow. Of course everyone has a different risk tolerance, and I encourage that you trade according to your system and make no exceptions. At the same time, try your best to not yield to emotion as this exactly how you wind up selling at the top.

That’s it for tonight – hope you guys did okay today.

Cheers!

UPDATE: Here’s my favorite quote of the day, courtesy of Karl Denninger:

In truth the fundamental fallacy at work here is a belief that you can put a fox in with a dozen chickens at night and wake up to both fox and the same dozen chickens in the morning.  Anyone with an IQ larger than their shoe size knows what the outcome of such an experiment will be in advance, but we continue to allow the foxes in with the chickens and then are surprised when we wake up to an empty pen and a stuffed fox.

Please go and read his latest post – a rare voice of competence and reason in this dirty mess.