Not so fast!

Are we having fun yet? I checked in at the slope various times today and from what I was able to gather plenty of bears were getting mghty nervous there. I have to admit that I didn’t expect this rally after the Fed kept their benchmark rate at 2%. As a matter of fact I was hedged quite nicely and dumped my QQQQ and IWM calls a minute or two after the announcement. But then again – it’s expiration week and the market makers are having fun. Nothing like a end of day short squeeze after all.

Well, some of you leeches will be surprised to hear that I was smiling all the way up despite my account taking a battering towards the close. Berk and I actually added a few puts here and there just to spice things up. Why would we do such a thing? Mainly because we’re demented but also because we don’t believe this rally for a second. I’m not going to regurgitate the fundamental reasons as to why this market is doomed, this is getting pretty old and I hate to sound like a broken record. So, if you’re looking for some lamenting on why the bulls are full of crap, please go somewhere else. I for one prefer to stick with the facts, which  revealed themselves in a tea leaf reading I had my local gypsy perform for me today (she also gives great lap dances). This is where we are:

SPX continuing to produce a series of 1,2.

Looking at the wave count I’m actually getting a bit giddy, as the probabilities point towards yet another 1,2 series, at this point at the submicro degree. I first thought that we had painted a 3,4 but then realized that we closed above the bottom of {1} of subminuette ii. Thus, unless I need to adjust my drug dosages yet again, it seems that we are tracing out YET another 1,2. Which would indicate that we probably will test the area around 1220 tomorrow and then roll over.

If we keep pushing up beyond 1220 I would probably protect myself with a hedge. Again, as mentioned this morning, Berk and I have suspended our stops as we don’t enjoy keep getting kicked off the horse just before a major sprint. The name of the game here remains to accumulate puts (or short contracts) in anticipation of the continued trend down. Nothing in today’s tape indicates that we are not in wave 3. Breadth in the SPX closed at buyers leading the sellers 2:1, the NDX was most stubborn at 3:1 positive, while the INDU decided to close at a measly 1.5:1 positive. Nothing to write home about when compared with the massive negative breadth we recorded yesterday. Let’s also not forget that the VIX is still hovering around 30 – I actually expect it to be a LOT higher before we see a ‘real’ consolidation rally. However, if we keep rallying tomorrow and into Thursday we would of course have to re-adjust our assessment, but as of right now everything is in line with our initial analysis.

Gold at fork in the road right now.

I’m a bit suspicious about the precious metals frankly as neither moved much either way today. Gold closed right at the 50% fib line after going sideways all day, giving me little indication as to what may come next. I’m still long Silver, which actually decided to drop a little but I’m starting to look for a reason to exit. There is a possibility that we are not done yet with completion of wave 3 and that we might indeed see $720 in Gold and $9 in Silver. It is very much possible that this might have been yet another bull trap and that we may see a massive drop in a very short order. Tonight’s action might point us in the right direction, until then I will hold my relatively small PAAS and DBS puts. However, sensing any weakness I would have no compunction about turning the ship around here. Sorry about the 50/50 vote – I hate having to do this, but I unless I see a sign here I remain on the fence.

Dollar in consolidation mode.

The (now not so) mighty Dollar appears to be tracing out a standard a,b,c corrective wave. Nothing much to say here. I really doubt that we’re done going down at this point and would expect an ensuing drop to lead us to the 77.75 area – just enough of a ‘token consolidation’ before central banks worldwide continue to push our currency higher in this pre-election rally. Unless of course the Chinese aren’t so happy about the ‘backdoor bailouts’ planned for AIG and the remaining investment banks (three at last count). There was a major sell off of treasuries abroad on Monday and Tuesday – perhaps that was the proverbial warning shot across the bow. Keep bailing out everyone and we pull the plug. Very interesting dynamics at work and plenty of conspiracy theories. I however stick with the chart and so far the pattern looks pretty standard. The weakness in the Dollar shall pass fairly soon.

You guys know the drill I take it – use your remaining dry powder to sell the rips. In particular if we see signs of a drop tomorrow. However, be warned – it’s expiration week and those market makers just LOVE to squeeze the bulls and bears alike. Especially if you’re holding front month options (I have none at this point) – if you’re not ITM by tomorrow afternoon I would recommend cashing out of them, as Thursday/Friday of expiration weeks are notoriously flat. Of course anything can happen in this market if we get yet another news tidbit about some kind of failure or bailout.

Cheers!