Curtain Call

Sorry my intrepid rats but once again I have sad news to report. Our favorite bearish scenario – Soylent Green – suddenly expired this morning. It was found unconscious in its West Hollywood mansion and unresponsive to revival attempts. After it was rushed to the Sinai Cedar hospital in Mole’s black stealth helicopter medical staff attempted to revive it for close to an hour but in vain – time of death was recorded at 6:30am local time. The cause of its demise is yet unknown but investigators are not ruling out the potential of heavy handed market meddling.

RIP Soylent Green – we bears shall miss you…

Okay, today was not a fun day for the bears. My only consolation has been that I’m a suspicious son of a bitch and thus foresaw something like this would happen whilst most bears were popping the Cristal close to the H&S neckline (see my Sunday report). I smelled a rat but then decided to load up on some SPY puts yesterday evening close to top of that session. This backfired big time right after the Intel earnings report, which in my mind is nothing to write home about, but I’m not going to start arguing whether or not a stock should rally on a particular report or piece of news – it’s a waste of time.

What I’m seeing is almost a perfect motive wave since the 869 low of July 8th. Which means, that we should see a pullback in the form of a zigzag (or similar corrective wave) most likely starting tomorrow or if we go sideways on Friday. How far this pullback will get us is anyone’s guess but I have poked around today’s chart a little bit and found that this 5th wave is almost identical in length to its preceding 3rd wave. Thus, assuming we don’t bust higher into 937 (or hell forbid beyond that) tomorrow the fibs indicate that 912 might be where we find some support. Which is where I would dump my puts – and that would get me damn near to break/even since yesterday morning as I was crazy enough to add to my short positions at today’s top (yeah, that’s how I roll).

The blue scenario is still in play, however after today’s 90% NYSE up day I am giving it less credence – maybe 40%. In order for it to regain its former glory we would have to start dropping like a rock tomorrow and not look back – then breach through 900 and continue downwards after a little courtesy bounce.

So, the game plan for tomorrow, my doubt infested and bulltart handled rats, would be this:

• Watch the momentum – if we bust higher and we see a lot of participation on the Zero in the morning pushing us towards 937 we might have to cut our losses there. A bit doubtful on an OPX Thursday, but I wouldn’t put it past those rabid Goldman boys to tighten those thumbscrews a bit further.
• If we don’t go anywhere in the morning look for opportunities to short an impending drop – I would suggest the ES, NQ, or YM futures. If we start descending start scaling out of your puts around 917. I will most likely be completely in cash around 912.
• If we somehow keep dropping hard and push past 900 (fat fucking chance) – wait for a bounce and then load up on puts. Then go to your local drugstore and bulk up on sleeping pills as you otherwise won’t catch more than a few night sweat drenching hours.
• If we don’t go anywhere and just go sideways for the next two days cut all your August puts by Friday – you will thank me later. If you have July puts – well, you should have cut them today, although this was probably one of those times where you should make an exception. You will see a lot of theta burn starting tomorrow, so if you have a deity, pray to it and wish for a quick resolution to the downside.
• If you were long going into today’s session – you are an asshole – but we owe you our deepest respect. Good job and have fun counting all that money.

That’s pretty much it – I hope you guys didn’t panic today and tried to chase the tape at the top. Tomorrow might be our chance to walk away from this with merely a few bruises, so let’s be sharp and use it.

Alright, now it’s Karl ‘No Slave To Fashion’ Denninger time!

Enjoy!

Mole