Marz Bonfire

When Rules Get Broken

2012-02-17T08:36:00.005-05:00

Some traders mock Elliott Wave theory. I pity them. If you ever want to see the market make a rip that seems to come from nowhere, study some Elliott rules in Frost and Prechter's classic Elliott Wave Principle. Many large players use Elliott trading principles, and when an Elliott rule gets broken, you can feel them scramble. It happened, yet again, at yesterday's low which was not a new low. The market exploded the moment traders realized the move was corrective rather than impulsive. It never ceases to amaze me.

I was half-way expecting it after the way the S&P acted on Wednesday. I got long some SPY 135 calls to test the waters, but didn't yet have high conviction. So I hedged them using SH, an inverse ETF, at about 1345. When the S&P rolled over and made a sharp low that didn't take out the previous day's low, that was the signal. Suddenly the entire move from Wednesday's high was not an impulse wave down anymore; it was corrective, and new highs were on the table. I bought SPY 134 calls and then dumped the SH. Boom.

All I care about now is either the May 2011 highs (1370.58) get hit, or they don't. Hopefully I can identify the difference. Today is option expiration. It's as good a day as any to shoot for it.

Levels Of Bear Fatigue

2012-02-16T08:38:00.004-05:00

I've been keeping an eye on the 1337.35 lows of last Friday. The equivalent futures price is 1333.75 on the e-mini. I notice that the futures had a rough night after what was probably a short squeeze at the close. I also notice that 1333.75 was not broken. So it seems the market agrees with crude technical analysis. Which is nice.

I will not castigate myself for owning puts at pretty much the top tick of the market yesterday and selling them soon after because I wanted to eat a stress-free lunch, except to repeat what I said on Twitter, which was that it was probably not the first time that food has clouded my judgement. It won't be the last, either. I'm certain.

No, for me, the real work wasn't going to start until the S&P took out 1337.35. In fact, it already started to show some bear fatigue yesterday. So yet again, I'm on guard for a bear trap. Anything over 1349.61 will seal their fate once more for at least another few days.

Make no mistake, I'm still a bear at my core until the average S&P dividend yield is over 10%, in line with true, multi-year, bear market lows. But I'm a trader, and my job is to make money in all markets, sane or otherwise.

If I see any more "bear fatigue" today I will be use SPY 134 calls and maybe even OEX 610 calls to take advantage of it.

Quick Plan

2012-02-15T07:51:00.002-05:00

Having some trouble today with my trading platform. Downloaded the latest version and it trashed my primary indicator which was custom made. Very exasperating.

As long as the S&P stays above 1337.35, new highs above 1354.32 are projected. The ideal target is 1370.58. As mentioned yesterday, the longer that level remains unclaimed by the S&P, the longer the non confirmation remains between the S&P and the Dow, NASDAQ, and Russell, thus adding to the risk of a significant correction.

The Prospect For Disharmony

2012-02-14T08:33:00.005-05:00

A few days ago I mentioned non confirmations. As of this morning, we've still got a great big one. The S&P still has not confirmed the Dow and the NASDAQ by getting above its May highs. The longer we wait, the more the pressure builds. 500 large cap stocks are saying they're tired at these levels. Futures made a run for the 1350s last night, and only made it to 1352. 1352.25 is still sitting there, untouched. This is the biggest thing on my mind right now.

Another thing is that I often have a bad habit of only looking at the Dow, NASDAQ, and Russell charts from a daily perspective. I totally missed the Dow's beautiful 5-wave pattern down last Thursday morning, which was unconfirmed yet again by the S&P, and part of the reason why I was still looking for another high and dumped those OEX puts that would have made my weekend.

Until there is harmony in these markets brought on by 1370.58 in the S&P, the prospect for disharmony is very large. Anything below Friday's lows will start sounding like heavy metal.

Another Shot At the Highs

2012-02-13T09:14:00.004-05:00

Looks like we'll get another shot at the highs. Futures look like they're on the way to a date with destiny at 1352.25, the overnight high from Thursday. I did not think the pattern was complete and that it needed another down-up subdivision. The market seems to agree so far.

OEX puts will not be priced right this early in the week. I'll be using SPY puts to accumulate a spec short position, and will trade against them with the e-mini, SSO, and UPRO, depending on which account I'm using.

The cost of the Greek bailout is now roughly $425 billion. I do not think the ECB can afford Spain, Portugal, Ireland, and Italy with a current burn rate projecting to $2.1+ trillion. So the fact that the futures are up because of the latest Greek bailout deal is meaningless.

The Super Bowl Half-Time Rally

2012-02-10T16:18:00.006-05:00

I thought about not posting this, but I figured it's more important to see it and study it. Simply put, I thought Madonna's half-time show felt like a modern day Nuremberg rally.

Hitler wrote in Mein Kampf that

In Berlin, after the War, I was present at a mass-demonstration of Marxists in front of the Royal Palace and in the Lustgarten. A sea of red flags, red armlets and red flowers was in itself sufficient to give that huge assembly of about 120,000 persons an outward appearance of strength. I was now able to feel and understand how easily the man in the street succumbs to the hypnotic magic of such a grandiose piece of theatrical presentation.

"What captivated Hitler's interest most of all was his interest in hypnosis or the occult powers of 'fascination.' Witnesses of the Nuremberg rallies claim that people there were in a trancelike state, glassy-eyed and open mouthed with awe." By Steve Mizrach, The Occult and Nazism Re-Examined

All this blatant, in-your-face, occult symbolism and the only comments were about MIA and her middle finger.

Hitler achieved an almost hypnotic state of devotion from the German people through the masterful use of propaganda and ceremony. I doubt he achieved what he did because he flipped the bird.

Instead of trying to guess whatever it was that Madonna was trying to accomplish, I'll try something different. The morning after the Super Bowl, I found that the best reactions came from Twitter, and was very encouraged to find that some people still have eyes to see.

Madonna is this a high school pep rally show or the super bowl?

This new Madonna song makes me laugh..wtf are we at a jr high pep rally?

Watch GOLD rally tomorrow #Madonna #GOLD

Did the NFL pay for Madonna's music video? And why is a 54 year old woman in a music video involving a high school pep rally #wtf #superbowl

World peace from Madonna who called john mccain worse than Hitler

i really think hitler was less of a megalomaniac than madonna. enough. #SuperBowl

Madonna is the Hitler of music. Demanding people love her.

So Madonna at the Superbowl... it was a good show...mind you the Nuremberg Rallies were a good show weren't they ?

Why did Madonna's dancers borrow their costumes from Springtime for Hitler?

Madonna is Satanic.

Madonna's satanic crown

Madonna shit always got a satanic overtone to it..

Shouts to Madonna and Cee-Lo doin the Satanic High Priests swag right now

Satanic worship... Of Madonna. #scary

Madonna was a little satanic though #illuminati ?!?...

This is clearly a satanic ritual. Madonna is stealing your soul to stay young.

Madonna partying with high priests of a funkadelic Satanic mass.

Madonna's whole performance was extremely Satanic

This years superbowl halftime show was one big satanic ritual performed in front of the whole country... #madonna

Great performance by Madonna but that was the most blatantly Satanic 1/2 time show Ive ever seen.

On Being Too Cute

2012-02-10T08:17:00.007-05:00

Yesterday I spent the day accumulating OEX puts and hedging them with SSO longs. Made money on both sides. Only problem is, I sold the puts at the end of day thinking we were in a choppy market that would eat up my premium (I was using weeklies that would expire this afternoon). I kept a small SSO position. Futures are down 12 points this morning. Ugh.

I call these cute trades. They happen when I get "too cute" and think I know what the market is doing. I don't know why I call it cute, I just do.

Last night, I watched a little of Larry Kudlow's show. We've gone up in a straight line since mid-December and he was calling for an 8% rally. Blackrock's Bob Doll, Citi's Tobias Levkovich, and Chicago trader Jack Bouroudjian were all in agreement. I knew then that I was doomed.

I still do not think the pattern counts well, meaning I feel there could be another high yet to come. I started to make allowances for this yesterday and marked the 1336 area on my charts. I could see the S&P basing there and then making another run for higher highs. In fact, that's where it looks like we'll be today.

At this point, only below 1292.66 would be a clear indication to me that the game has changed for real. I hope to narrow this as conditions change.

I'll add that there is one pattern that is very clear, and that is that when I take the time to post all my trades on Twitter, for whatever reason (probably fear of being wrong) I seem to become timid, hesitant, and second-guessing. For me to dump a nearly free put position is inexcusable. Trading is hard enough. I don't need to make it any harder.

The bright side is that at least I wasn't buying because I was bullish. As I've said before, the time to be bullish was back in October.

It's Thursday, Another New High

2012-02-09T09:26:00.002-05:00

Well, very likely a new high, that is. I was impressed by the market's grit this morning, waking up to see the futures up after last seeing them down over 6 points last night after the Chinese inflation numbers came in hot. Evidently traders think "no hard landing -- China to the moon!"

I don't care what the numbers say. First of all, they're highly suspect. Secondly, news does not make the trend. The mood of the market participants makes the trend. And for now the trend is still up.

Betting on the trend to stay up is not what I consider to be good odds at this time. I do not think we've seen the top tick yet, but that does not concern me.

The S&P looks like it's concluding a rising wedge. I'm looking for one more down-up sequence to the final high. If I'm correct, it should happen later today. A sharp break should come of it. We've been up on air for quite some time. A break of 1335.92 would be the first shot across the bow. I would then be very encouraged should the market eventually get below 1292.66. It would be a whole new ball game.

It's Wednesday, Another New High

2012-02-08T09:34:00.004-05:00

I scooped up some SPY 134 puts yesterday afternoon, got out of half at the close, and just dumped the rest at the open. I was expecting a large down move this morning, and it looks like the market doesn't think so. Not yet anyway.

My feeling is that the S&P is now the last major index that remains below its May highs. I think it may either want to confirm the others, or fail and send a huge message of non-confirmation to the markets which would be very bearish.

The wave pattern looks mature. I'm not yet seeing good spots to enter for long plays, though that could change quickly. Instead, I'm watching for a Fib target at 1351.49. If the market blows through there, 1356.48 and 1370.58 (May highs) are the next targets.

1300 and 1292.66 loom below.

Super Bowl Commercials, Decoded

2012-02-06T10:53:00.033-05:00

This year's Super Bowl had the largest audience ever as well as the highest average price for a 30-second commercial ($3.5 million). The question which this post attempts to answer is:

what was this largest audience ever exposed to?

I believe this is an important question. The Super Bowl has become such a social phenomenon that it's now three events in one.

Not only does it attract such interest and fascination that it's broadcast in over 200 countries and over 30 languages around the world, but it's also a showcase for high-production TV commercials, and a rock concert, all in one night.

This confluence of different industries (sports, advertising, music, Hollywood, etc.) combined with a mass audience makes it a highly influential communications medium.

Therefore, it is incumbent upon you to be an active participant. In other words, you must watch and listen closely. You are being imprinted with thousands of sounds, images, symbols, messages, and suggestions that have been carefully crafted. It is up to you to decode them. Only by actively questioning what the messages mean will you avoid becoming a passive recipient of them (and thus open to manipulation). You must decode them as you are watching them.

Let me expand a little on what it means to decode. There is one extremely important thing to realize about advertising: there is nothing, absolutely nothing, not one frame or word or piece of music or prop that hasn't been planned, discussed, poured over, analyzed, and tested before you see it.

That is why it is of the utmost importance to be fully CONSCIOUS whenever you see or hear advertising or watch television or even listen to the radio. Please. I used to earn my living creating this junk until I learned that everything is carefully aimed at your UNCONSCIOUS mind. Then I couldn't do it anymore.

You must stand outside of the message in order to remain disengaged. The more you can ask WHY you were just shown or told something, the easier it is to understand what is really being said.

An example of what I'm talking about would be during a typical prescription drug commercial. Drug companies are mandated to describe side effects but do so over a beautiful montage of all the great things you'll be able to look forward to if you take their drug. So while the voice-over is saying "side effects include heart failure and increased risk of stroke," you subconsciously retain the images and emotions of the the warm vignettes and pleasant music.

The corollary is that whenever you are shown agitating images, it is easier to link negative words and messages to your subconsciousness. Remember this later on in this post.

Another thing to remember is that these messages work by repetition. There was a stunning amount of this. More on this later too. For now, let's move on.

I started paying attention and taking notes during the Kickoff Show. I laughed out loud when it was "kicked off" with a rendition of Joan Jett's "Hate Myself For Loving You" which was re-written for the purposes of announcing the show. All I could "hear" was the original riff and wondered how many millions of people were secretly hating themselves for loving their $2,500 flat-screen TVs with their $120 DirectTV bills inside their homes that were worth less than what they financed them for while their $30,000 Chevy trucks sat depreciating in their driveways. Maybe someone on the production staff has a sick sense of humor. It was pretty much the last time I laughed all night.

Then I saw Hyundai's "Rocky Theme" ad and I wrote down DERIVATIVE. It reminded me of this:

Dogs barking "The Imperial March" theme from The Empire Strikes Back. Humans humming the theme from Rocky. Same basic idea. The first of many such instances.

There is an old saying in the ad biz that if you're ever in a jam and need something that both the clients and the focus groups will love no matter what, just use sex, dogs, or babies and they'll love it.

Sex, dogs, and babies were well represented during this year's Super Bowl ads.

Next up was Kelly Clarkson and her bangs, straight out of the 70s. Another blast-from-the-past-style to keep your eye on. She did a great job singing the national anthem and played it straight.

Image Credit: Chris O’Meara/AP

From here on, I'll share my notes taken in real-time during the Game, and then delve into the themes after. A review of Madonna's half-time show will come later in another post. Another thing: I'm not commenting on every single ad, just those with standout social themes.

Many of my notes centered around these terms: Derivative. Reaching. Recycling. Exaggeration. Brand Swapping. Rap. Repetition. Campaigning. Symbolism. They're not compliments. Nor was this a very fun post to write. It actually got me a bit depressed. I make it a habit not to watch or listen to advertising much anymore, and in viewing and studying all these spots, I felt a gloom come over me that was very unusual. So I don't think I'll be doing many more of these posts.

Suzuki. Sled // is this the misogynistic side of RAP music influencing indigenous cultures? guy dumps his sled for a new car without any discussion with his wife. her feelings don't matter. but it's all good because he's satisfied his urge to consume

Bud Light Platinum. // 6% alcohol. using precious metal and cobalt to appear upscale? or as cheap booze?

Audi. Vampire party. // Twilight DERIVATIVE. Echo and the Bunnymen "Killing Moon" ...forget that it's about vampires. a dude kills all his friends then himself all because of some cool headlights. everyone vaporized. just like the MF Global money... even though the cutesy tagline is "so long, vampires" ... the lyrics are saying "Fate, up against your will"

Pepsi. King's court. // Sir Elton in golden, platform shoes (just wrote about platform shoes here). creepy masonic, black and white chequered floor. rampant with SYMBOLISM. "on-trial for your life" theme. "pepsi for all" feels like a nod to Occupy. all this just for water, color, and sweetener

Hyundai. Cheetah Attack // primitive violence for a laugh. "trust us"

Best Buy. Phone innovators // this is an old trick: a brand putting itself along side the great ones, in this case the brilliant minds that made the mobile experience what it is, in order to grant itself equality. it's called REACHING. but all this is really saying is that best buy is a better way to consume. there are two kinds of people: producers and consumers. which one are you?

Coke. Polar bears // this polar bear concept was cute for about 5 minutes ....over 20 years ago. RECYCLING

Chevy. Silverado "2012"// more sad 2012 disinformation.

(by the way, barry manilow is what makes this spot. dialogue is what kills it. never, ever, let account people or clients insert "marketing language" as dialogue. all this spot needed was "where's Dave?" then a glance around and a shrug when they all realize it was their chevy trucks that "saved" them, then one of the guys offers a dusty bag of stay-puft marshmallows and they're PERFECTLY white inside the bag. but no. they dis the only car company that didn't need a bailout, and then eat an indestructible twinkie, also from a freshly destroyed, bankrupt company. too easy to shoot down. i would have told this ad team to keep working until they got it right.)

Go Daddy. Heaven // zzzzzzzzz. same old RECYCLED subject matter for this company.....sex

Celebrity Apprentice. Attack // "when famous people misbehave, we all win." like when jon corzine steals $1.8 billion and walks away? more gratuitous violence (REPETITION), DERIVATIVE of kill bill films

The Dictator. Movie trailer // suddenly the idea of a dictator is not so funny. SYMBOLISM

It wasn't until this Lexus ad that I started to feel the grand theme emerge. It said "change cannot be contained." Suddenly the patterns were getting a lot clearer. "This is just the beginning," it said. It sure was.

Battleship. Movie trailer // "the battle for earth." "we're looking at an extinction-level event" .....on the heels of chevy's 2012 apocalypse (REPETITION), this spot only serves to turns up the fear level. "no one can get in or out" -- nod to martial law. noticed a huge full-screen reptilian eyeball (SYMBOLISM) to keep the stirring up the david icke crowd. UNDERDOG theme

Budweiser // each one of their commercials felt DERIVATIVE of the other as well as RECYCLED. their "over the decades" was yet another spot that fell back on RAP to seem cool

Doritos. Man's best friend // for the price of a bag of chips a guy keeps quiet about the family cat getting snuffed

It was after this spot that I felt myself shift from trying to analyze each ad to merely finding the root message of each one and how it fit into a larger pattern.

Chevy. Happy grad.// guy thinks he gets a brand new camaro for graduation and his girlfriend wants to marry him IMMEDIATELY. consumer culture gone wild

GE. Turbine // starts off great, then goes horribly wrong: it panders to Bud drinkers. "without you there'd be no Bud? we like you." BRAND SWAPPING. GE takes heat for paying hardly any corporate income taxes. so it appeals to the middle class through beer drinkers. CAMPAIGNING.

Disney. John Carter movie trailer // "our world is dying. you are the only one who can save us." "you will fight for us" notice the RECYCLED Schoolly D RAP take on Led Zeppelin's Kashmir from Bad Lieutenant. heavy duty david vs goliath theme. more UNDERDOG

Tax Act. Feel the free // what does letting it go in a pool have to do with tax software? nothing EXAGGERATION (inflated payoff)

VW. Dog strikes back // love the story and fractured time frame structure (later bar scene) of this spot, but it says absolutely nothing (and neither did the original darth vader spot) substitute any other car and it works the same. it's just cute and funny and features a dog. RECYCLING

H&M. Beckham // this is the 2012 version of marky mark in calvin klein skivvies. DERIVATIVE. RECYCLING

GI Joe. Movie trailer // remember the reptilian eyeball from the Battleship trailer? there are two more in this one, on banners hanging from the White House. REPETITION

Samsung Mobile. Street party // "i don't know what i believe anymore" "i do" .... he believes in phones, which results in a huge street party, which is EXAGGERATION. it's just a phone people. skateboarder skates over another masonic-style chequered floor. REPETITION.

Awake. Trailer // "the reality is you can't tell whether you are asleep or awake" very true for millions. are you CONSCIOUS or UNCONSCIOUS?

Avengers. Movie trailer // "the world has changed." "we are HOPELESSLY outgunned" riddled with REPETITION of SYMBOLISM.....inverted pyramids, pentagram, tony stark's "black sabbath" t-shirt. notice the embedded command -- "assemble" i.e., occupy. UNDERDOG

Skechers. Mr. Quiggly // another cute dog. REPETITION. RAP

Doritos. Sling baby. // another baby, now being fed junk food. and we wonder why the government wants to mandate health insurance. REPETITION

Oikos. Head butt // more gratuitous violence (even if it's against john stamos) for a laugh. REPETITION

Century 21. Smarter // oh yeah, don't forget to buy real estate

Pepsi Max. Cheating heart // DERIVATIVE. RECYCLING

Bud Light. Here we go dog // yet another dog. remember alex from stroh's?? DERIVATIVE. RECYCLING.

Lest you think I don't have anything good to say, several spots just focused on ideas.

Chevy Sonic. First time // not a bad ad at all.

Toyota Camry. Reinvented // not bad at all. great writing. funny.

Toyota Camry. Stories // not bad at all

My favorite commercial? Easy. Fiat. No contest.

Fiat Abarth. Fantasy // this was brilliant and easily my favorite spot. immediately it had an "i wish i wrote that" affect on me. well written, well shot, well cast, great track. taps into how guys REALLY see cars.

Lest you think I only like car commercials, I felt both the Seinfeld Acura spot and the Broderick Honda spot were really bad and felt recycled.

But nothing could help me get over this next one, which is why I've kept it for last. It's the one sparking the most controversy, so much controversy in fact that the actor who performed it and even helped write the script, Clint Eastwood, has had to clarify it publicly. Perhaps because it reminded people of other famous political ads, most notably the one from Ronald Reagan's 1980 Presidential campaign which declared that it was "Morning in America."

I don't engage in politics much on this blog. I prefer to engage in analysis. Yet that so many saw this ad the same way I did -- as a political ad -- concerns me very much.

The Hollywood Reporter noted that two members of the creative team that produced the two-minute minute spot for ad agency Wieden+Kennedy donated their personal time in 2008 to make pro-Obama art.

CNN asked: "Were politics buried inside Eastwood's 'Halftime' commercial? ....Some political watchers think so."

CBS News noted that "Eastwood seems to also be sending a political message in the ad, saying the 'fog, division, discord and blame make it hard to see what lies ahead.'"

If it is true that this ad has political aims, it is deeply unsettling. Consider the following:

As early as 1970, Zbigniew Brzezinski predicted the emergence of a "more controlled and directed society." Linked to technology, this society would be dominated by an elite group which would impress voters with its allegedly superior scientific know-how.

"Unhindered by the restraints of traditional liberal values, this elite would not hesitate to achieve its political ends by using the latest modern techniques for influencing public behavior and keeping society under close surveillance and control. Technical and scientific momentum would then feed on the situation it exploits," Brzezinski predicted.

Now let's play back some of what the largest audience ever was exposed to:

"Our world is dying"
"You are the only one who can save us"
"Pepsi for all"
"Trust us"
"CHANGE cannot be contained"
"This is just the beginning"
"Ya, it's halftime in America, and our second half is about to begin"

"The battle for earth"
"We're looking at an extinction-level event"

"When famous people misbehave, we all win"
"You will fight for US"
"I don't know what I believe anymore"
"The reality is you can't tell whether you are asleep or awake"
"The world has changed"
"We are HOPELESSLY outgunned"
"ASSEMBLE!"

Do I for one minute think that all these ad agencies got together and colluded to make these messages intentionally blur together? Not a chance. I think it's nothing more than group think. The collective unconscious. But it kind of makes you wonder. I strongly feel it's a result of continual repetition of symbolism and messages that are so similar to each other that they begin to echo in our psyche. And now it seems these thought merchants have set out to "impress" voters, too. A scary thought.

After all, we have no idea just how far the latest modern techniques for influencing public behavior have evolved since Brzezinski's 1970 "prediction" (or was it a promise?) for a more controlled, directed society.

It feels as though the collective group think is beginning to sense it. In the words of Clint Eastwood's Halftime commercial:

"And we're all scared because this isn't a game."

The Day After The Super Bowl

2012-02-06T09:38:00.005-05:00

I hope everyone enjoyed the Super Bowl with the first-ever Nuremberg Rally posing as a half-time show.

I was going to post some comments about the Super Bowl commercials, but to me, Madonna's "performance" was the most disturbing thing I think I've ever seen. So it looks like I'll have to do 2 posts. And definitely not right now.

Right now, it's all about the S&P, which has opened sharply lower from closing on its highs last Friday. I never did buy those puts I was speaking about. I knew I should have, but I guess I wanted a relaxing weekend without thinking about premium decay or wondering if I'd just done something stupid.

I also wanted some time to think about other scenarios just in case the Dow and the S&P confirm what the Russell and the NASDAQ have already done, which is to exceed their May highs. I do not think that would mean a new bull market was under way. But I would think that sideways action between 1000-1400 could continue for a while. This would frustrate both bulls and bears and would likely only benefit Obama.

For now, I'm a bit on guard. On guard for scenarios that prolong the push and pull between opposing sides. Only if the S&P were to get below 1300 for whatever reason -- and even better, 1292.66 -- would I be more inclined to get very aggressive to the short side.

I'd like to think I wouldn't have to wait that long, though. Perhaps a downside Fibonacci extension of greater than 161.8 or 261.8% sometime today or tomorrow might be enough. Until that happens, too much hope is in the air.

Today's Real Numbers

2012-02-03T08:15:00.007-05:00

Back on January 17th, I mentioned that I'd go long the Baltic Dry Index as a hedge if it could actually be traded. The index doesn't trade, thank God. I'd have lost 33%.

I mentioned back then that it felt like a false low, that I would have liked to see it a lot higher at this juncture. Well, obviously I was way wrong, and I hope I would have done a spec trade with calls. But it just shows you how bad the world economy really is. The index is back below its 2009 lows, never having even remotely challenged its 2008 high of 11793. After the most massive, globally coordinated stimulus that the planet has ever seen, it only managed a meager 4643 back in November 2009. It's been downhill ever since.

Since this index doesn't trade, there's no way to push it around with leverage. It is as close to raw data as you can get. All it measures, all it is, is an assessment of the price of moving the major raw materials by sea worldwide. That's it. View a 5-year chart of it here.

So while Wall Street is going nuts today over numbers, think of the numbers behind the Baltic Dry Index and what they're saying. They seem to be cautioning us that this is a hollow recovery around the world.

As I wrote this, the employment numbers came out better than expected and sent the market on a moonshot. I took off all my longs at 1336 on the futures. I had been in SSO since Monday's big down day. I'm not mentioning ETF symbols anymore on my Twitter stream because there are so many bots out there now that send me "helpful" messages like this one:

"@marzbonfire $UPRO MFI is bearish and falling dojispace.com/stock-picks/pr…"

So basically it's saying I should have either shorted it or taken a pass back there at 1312 or whatever. Thanks son. I'll stick to my own plan and take a pass at these levels.

Now I'm looking for places to get short. I will wait to see how the S&P acts in the regular session. With volatility at relatively low levels, I will be looking at put options to begin speculating to the downside knowing full well that the May highs (1370.58) are the target now.

Facebook's Advertising Model . . . Uh-Oh.

2012-02-02T09:07:00.003-05:00

CNBC's Julia Boorstin reveals that Facebook's numbers are "pretty staggering."

They sure are.

"Ad revenue grew 69 percent to over $3 billion last year, less than half of the 145% growth the company's ad revenue saw between 2009 and 2010. Now the company has to face the fact that more people are using Facebook on their mobile devices where the company still does not serve ads."

The Facebook Top

2012-02-02T08:09:00.003-05:00

Facebook's Form S-1 is out. The big news is that the obsession may have already peaked. Its monthly average user additions has slowed from 2010-2011 by 4.44%.

Google has broken down, leaving behind a 49 point gap. AAPL is languishing at all-time highs with a fraction of the volume needed to sustain its momentum. All the market needs now is for investors to peak under Zuckerberg's kimono and get spooked.

The Facebook IPO needs to go off huge. Anything less may cause a cascade of selling on the news inspired by the perception that Facebook is the merely a publicly-traded MySpace.

I think we could be just hours (maybe days) from a top. Today's stop is clearly defined: 1321.41 on the S&P cash. A very clear impulse pattern has formed from Monday's 1300.49 lows. Below 1321.41 would cause an overlap which would automatically disqualify it as an impulse wave. We'd then be looking for the triangle that I mentioned yesterday morning. In that case, 1305 could be a target area (wide) but 1300.49 would be the hard stop. Below that and we've got more downside.

Anything above 1333.47 and it's all out. Flat.

Getting Into The Chess Of Trading

2012-02-01T08:56:00.005-05:00

With the break of 1320.06 yesterday, I went to work as soon as the market backed off from the high. Maybe I jumped the gun a bit (the first buy was at 1317) but it was part of my plan. In fact, I was half-expecting to see the futures down this morning for a retest of 1300.

Instead, another magical 2 am spike in the futures has occurred. Oh joy. Even though I'm currently positioned to take advantage of it, it smells like manipulation. But I don't get into complaining about that stuff.

I get into the chess of trading, and anticipating what the wave patterns suggest the market may do before it does it -- the reasons take care of themselves. I'm not always right. But no one else is, either.

Today it looks like the cash S&P will follow through above 1320.06 once more should the futures hold up. Since we could be tracing out a triangle of some sort, there is nothing to stop it from probing to 1305 or so. The hard stop for true bulls (those who think the action since the October lows is a new bull market) is 1292.66.

Here's the challenge. It may be possible to get under that 1292.66 level and still lack an impulsive pattern down. It won't feel good for me if that happens, but it would still suggest above 1333.47, and that it would be the shorting opportunity of a lifetime if it gets there.

It is the market's job to shake out and confuse everyone. So don't be surprised by anything. Just try to be prepared for it.

Expecting New Highs

2012-01-31T08:34:00.003-05:00

S&P futures took out the 1320.06 cash area overnight, which exceeds the high of Friday. I mentioned yesterday on Twitter that 1320.06 would project new highs soon. True to form of late, the market has chosen to run higher.

I think the Facebook IPO is the hook that is keeping investors content to keep pushing the buy button. I think this is not a company but a phenomenon. It is possible to use it for 10 years and never pay a dime. Same with Google. Both business models can be replicated by a teenager with a laptop and a good supply of Mountain Dew.

Just as the news media sold the Bin Laden "killing" as a euphoric event, Facebook's IPO feels like a distant but intense echo of 1999/2000. Back then it was the whole market that was manic. Now it's just Apple, Google, and Facebook, and they're about to tear each other apart.

I'm anticipating new highs over 1333.47. I'd expect non-confirmations between the Dow, Nas, and S&P. Listen to the news, there should be ebullience everywhere. But the time to be bullish was last October.

Taking The Stairs Up And The Elevator Down

2012-01-30T14:29:00.004-05:00

This weekend's homework took me to the mall where I quickly discovered that the bright, vibrant colors noted in the The Socionomic Implications Of September Vogue have gone mainstream.

In that post, I noted that bright colors were being used primarily as accents (as opposed to the main focus). All that has changed. Bright colors are now leading as virtual billboards of optimism.

I now owe a big apology to the editor that I maligned in that post:

“Palette Cleansing—out with tedious black. we’re clamoring for scarlet, shamrock, and tangerine.” …really? haha, every year someone declares black dead, and every year it comes back. this chick is high on kool-aid.

She was right. And I was the one drinking the Kool-Aid. The proof is in these pictures. It seems that the mass retailers are clamoring to sell color to the public (at a deflationary 40-60% off). Keep your eyes peeled to see if people actually wear it.

Then came part 2 of my weekend homework. Ever since my trip to Georgia a few weeks ago, I've been devouring The Mania Chronicles, a mammoth 700-page real-time account of the great financial bubble from 1995-2008.

I kept coming across page 256 for some reason. Now I know why. An entry published in October 2006, notes the following (emphasis mine):

Designers have been churning out darker themes for some time. Of course, the public has yet to embrace them, but the stark contrast to, and steady movement away from, the colorful and revealing styles of 2000 when the NASDAQ and S&P reached their all-time highs is a powerful sign that the bear market is laying the groundwork for broad public acceptance of mostly longer skirts, darker colors and various body coverings of the last few years.

The one whimsical item mentioned in the [September 19 fashion article from the Washington Post], platform shoes, fits right in with the stock market transition from a bear market rally to a renewed downtrend. Back in May 2001 when Japan was enjoying a major platform shoe revival, we showed a pair of our own vintage platforms and said:

The bear market is still in mid-trend [in Japan]. One cultural clue is the emergence of 'super-platform' shoes. Last year, platform soles of up to nine inches became popular among "girl fashion gangs" and women who want to emulate the gangs' look. A similar excess for men hit the U.S. footwear market in 1973 when the bear market in inflation-adjusted terms was only about half over. For the Japanese market, then, this appears to be cultural confirmation that the bear market has a ways to go. The message for people who remember 1970s relics, don't buy stocks on the Nikkei too soon.

The Nikkei promptly fell another 40% by October 2002. An internet "History of the Platform Shoe" records that other than the last bear market of the 1970s, the only "in" phase for platform shoes was the 1930s. So, the style coincides with the two most bearish decades of the last century.

According to one couture writer, platform shoes are "dangerous to say nothing of gaudy," which is why they've always been a fashion faux pas in uptrends. But they go great with downtrends because, as EWFF [Elliott Wave Financial Forecast] noted in September 2002, "Poor taste is a hallmark of a bear market." At the end of a rally phase of a bear market, the fashionable literally lift themselves back toward former heights with several inches of corked footwear. Another possible aspect of social mood status is touched on in this observation from the New York Daily News: "Platforms uncover women's inner fierceness. Can't the world use a little of that right now?" Of course it can, because as EWI's cultural studies attest: "Women gain dominance in a bear market." What better way to express this than platform shoes? If history is any guide, soles will rise as the Dow falls.

Cue this Sunday's New York Times Styles section -- inside, there was a giant, full-color Bergdorf Goodman ad for platform shoes by designer Christian Louboutin. Bergdorf's website refers to them as an "exuberant wedge sandal," but the message is clear. These "powerfully feminine" shoes -- their term, not mine -- are indicating a rise in female power.

While we may be at four-month highs in the stock market, people unconsciously know that we're still well below the all-time highs, hence the fashionable literally lift themselves back toward former heights.

Also notice the On The Street section (again, emphasis mine):

"The signature high-fashion look for this winter is now clearly established: leggings or narrow trousers; ankle boots with chunky heels and platform soles that give weight to the base of the silhouette; and a short jacket or fingertip-length coat. The look was established by the wearers rather than a single fashion designer, and often has a haberdasher or tomboy feeling. You can see it in profusion on the sidewalks in the early morning on women heading to work."

If indeed "women gain dominance in bear markets," they may be indicating that the rally off the October 2011 lows remains just a bear market rally. Notice the nod to "tomboy feeling" and the fact that these women were spotted on their way to work, not shopping. They're gaining dominance in a tough economic environment and feeling very comfortable with it.

There is a saying that the markets "take the stairs up and the elevator down." As we've slowly labored higher on extremely low volume, bright colors reflect mass optimism and perhaps the hope for a brighter future inspired by a Dow that is firmly above 12,000, while the emergence of platform shoes suggests we may be getting ready to take the elevator to the ground floor.

Not Convinced Yet

2012-01-30T09:23:00.005-05:00

Here are the levels I'm looking at today: 1303 and 1292.66. The first one is a shot across the bow for the bulls. The second one will likely sink them. (Can you tell I've been playing Battleship with my little nephew?)

I mentioned that Thursday's price action felt sloppy to me. Well, Friday's was even worse. I want to see a definitive, unequivocal down day before I commit. To have just the S&P and the Dow down on Friday, unconfirmed by the Nasdaq and the Russell, is not my idea of a big market turn. It's going to take a little blood.

Stop. Go. Stop.

2012-01-27T07:58:00.005-05:00

I stopped out twice yesterday trying to execute my trading plan. Seeing the market close above my hard stop (1316.63) makes me think I had the right idea but the wrong play.

This happens. It's part of doing business, and for me, it's part of how I test the market. Every trend stays in force until it doesn't. I look for the market to prove to me when that point occurs. Sometimes the market shows me that proof can go poof! in an instant, especially when I pick the wrong proof.

By the way, I don't enter stop orders. I take them manually, and only use them when and where I am most certain I'm wrong. I call them hard stops because I get the hell out immediately, no questions asked.

Yesterday's decline looks sloppy and has far too many overlaps for me to feel comfortable that's it's the sort of decline I expect at this juncture. It can always continue down and subdivide and get really scary, but I'm already thinking that unless 1303 is broken, the S&P can float higher.

Above 1325.30 would be the first tell. I will continue to buy weakness.

Bright Colors and Apples

2012-01-26T08:52:00.003-05:00

Finally the market tipped its hand. It turned out to be a strong, impulsive move up, really quite beautiful to see in real time. I waited until I felt reasonably certain of the pattern and, more importantly, where I'd be proven wrong, and took a shot (long) at the 1314 area and got off the train just after the market made new highs above 1324 around 3:20pm EST.

Sure I've left money on the table. Even though I still think 1340-1350 could be tested, this wave patterns looks and feels mature. I'd rather get in on dips with hard stops. Meanwhile the gap at 1289.09 still looms.

Did yesterday make me bullish? No. Did the Fed's actions make me bullish? No. Did Apple's earnings make me bullish? No.

Regarding Apple,@PipCzar had a great comment yesterday. "I'm an FX trader, and AAPL is on my screen." That says it all for me.

I'm thinking we're somewhere in an echo of late 1999 or early 2000. Bright colors are in fashion, tech stocks are a source of fascination, and the Fed is going to save us. Only this time, the bright colors are worn as accents, the tech mania surrounds just three titans (Apple and Google and one that hasn't even IPO'd yet -- Facebook), and the Fed is out of bullets and has resorted to "communication" as a policy tool.

But Apple Beat Their Earnings . . .

2012-01-25T08:39:00.003-05:00

Apple posted the most blow out earnings ever and the futures are down. Futures were up a total of 5 points at their highest last night. Now they're down 5. Maybe it's a State Of The Union hangover. I wouldn't know; I was watching Goodfellas. I'll read the SOTU transcript later.

The S&P hasn't really done anything yet since the 1322.28 highs except make two perfectly symmetrical down legs (of equal length). Unless we get an extension today or tomorrow, and preferably on an increase of volume, the market could easily grind higher.

But here's a pertinent comment from @NicTrades that sums up the situation well:

Bull rallies don't end on bad news they end when market stops going up on good news. Let's see what the Apple rally does today $$

Good advice. I'll add one thing. Remember that gap at 1289.09 on the S&P?

Either we get another new high or that gap gets filled. That's my bet.

Hard Stops Are Easy

2012-01-24T08:51:00.004-05:00

Yesterday the wave structure of the S&P was able to give me an area for a new hard stop. As the market reversed from 1322.28 and made an impulsive-looking move down, I was flat UPRO at a break of 1313.62 without any hesitation.

Whether the market gathers steam here and makes a new high is immaterial. The point is I stuck to my plan. The only way to be right when you could be wrong is by sticking to your plan.

I also mentioned yesterday on Twitter that if the S&P bases around 1307 it could make another new high. I still feel this way. If this break is for real, there should be no question about it.

1322 is "close enough for government work" to the 1329 Gartley area. The Dow has gotten into the equivalent 1340-1350 S&P area, but that is no guarantee that the S&P will confirm it. Rather, we should be on the lookout for non-confirmations here.

I will play the current juncture by continuing to slowly accumulate TVIX. Also, if the market gets back to the 1318 area but looks wobbly doing it, I will take a shot there to the dark side.

Subdividing Higher

2012-01-23T10:07:00.002-05:00

Last week, I offered these comments:

We'll need a pullback first before I consider more longs. But I will be looking. Unless the markets roll over enormously from here, 1340-1350 could be the next zone to watch. I also came across a very interesting Bearish Gartley analysis that put the target at 1329.

I stuck to the plan. Friday's pullback with price staying above 1307 (and well above 1303, my hard stop) allowed me to take a shot on new highs with UPRO. I scaled out of most of it by end-of-day, but held a flyer. Right now I'm trying to be patient for 1329 or 1340-1350. The S&P looks like it's subdividing as it heads higher. I will try to ride it until it gives me an impulse down or starts gasping for air on low ticks.

Watch What Happens In Davos Very Carefully

2012-01-23T08:45:00.010-05:00

Read these quotes carefully.

"Capitalism in its current form has no place in the world around us."

"Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole."

"We are in an era of profound change that urgently requires new ways of thinking instead of more business-as-usual."

The quotes are from Klaus Schwab, the host and founder of the World Economic Forum which is meeting this week in Davos, Switzerland.

It is very concerning when 1,600 economic and political leaders, including 40 heads of states and governments, get together to privately discuss what capitalism's replacement might be, especially when the majority are socialists.

It is also doubtful that US Treasury secretary Timothy Geithner will stick up for capitalism and national sovereignty behind his closed-door meetings.

Schwab sounds like he's gearing up to propose something radical, like what George Soros had in mind when he called for a new, international currency and a new, international central bank in The Alchemy Of Finance. You can be pretty certain they've met once or twice.

If Schwab doesn't like capitalism, that's fine. But let's be fair.

Capitalism is not really capitalism when it is forced to coexist with central banking.

If capitalism is so bad, why is the United States of America the world's most generous country, according to the Charities Aid Foundation's World Giving Index 2011.

Central banking has caused the value of the US dollar to shrink by 95% since the inception of the Federal Reserve in 1913. No wonder why food, housing, education, health care, and just about anything else we need costs so much.

Schwab contends that new ways of thinking are urgently needed. I shudder to think what they are. I'm not a fan of communism, socialism, or fascism. Nor am I a fan of letting the types of people who led us into this mess continue to "lead" us. So here's an idea for Klaus Schwab:

Why don't we get rid of central banking?

The Businesses Behind $300+ Stocks

2012-01-22T17:19:00.010-05:00

A quick look at the businesses behind the most actively traded stocks currently priced above $300 per share:

Searching for stuff on the internet...................................Google (GOOG) 585.99

Bidding for stuff on the internet.....................................Priceline (PCLN) 518.58

Robotic stuff for an aging population................Intuitive Surgical (ISRG) 445.68

Stuff for doing stuff on the internet.....................................Apple (AAPL) 420.30

Eating stuff........................................................................Chipotle (CMG) 356.39

Replacing worn out stuff on cars
so that buying new cars can be
postponed........................................................................AutoZone (AZO) 347

Charging it all on a credit card......................................Mastercard (MA) 340.66

Priceless.

Waiting For Histrionics

2012-01-20T09:14:00.005-05:00

Today is options expiration and I'm surprised to see the futures lower. The way price had ramped up this week, I was on the lookout for a crazy gap higher into 10am as the S&P options expired and then a collapse. Wrong.

If the S&P gets to 1307 I may try some longs there. Much below the 1300 level and I'll start getting worried that a top may have occurred without me counting its formation correctly. I doubt this is the case yet. Instead I think that volatility will increase and things will get a bit "messy" first, and then a final lunge or two will mark the top. I'm not really getting any signals yet but for % issues above their 50 and 20-day moving average -- these indicators are showing some rot. But several others are still making up their minds.

Regarding 1300, there is a confluence zone (an area of agreement between two separate Fibonacci measurements -- 38.2 and 61.8%) there that the market may or may not be attracted to. These are usually quite powerful. That is why below that level would be a signal that all was not well.

European policy makers get together in Davos next week. Let's let the bureaucrats have some fun and make some announcements that may cause some histrionics. I'm sure there are still a few hopeful bulls out there.

Altitude

2012-01-19T08:32:00.006-05:00

Not surprised to see the futures up this morning. Yesterday's close just over 1308 suggested the run may not be finished. I'm not a buyer here, though. I never buy highs. The air is too thin.

I dumped my long SSO position at 1304 and 1307 yesterday. Had a nice run from the 1284 area, now out.

We'll need a pullback first before I consider more longs. But I will be looking. Unless the markets roll over enormously from here, 1340-1350 could be the next zone to watch. I also came across a very interesting Bearish Gartley analysis that put the target at 1329.

China's PBOC just injected 183 bln yuan via reverse repos on Thursday, and Brazil lowered interest rates (to 10.5%, plenty of room for more). I find these coincident moves interesting because I feel these countries are joined at the hip economically.

ECB Response Intensifies Depositors' Risk

2012-01-18T08:37:00.003-05:00

Reuters reports that the ECB cut the reserve ratio by half in order to free up cash for banks. The old ratio was 2%. The new ratio is 1%. Both should be unacceptable to depositors. This means if you have $1,000 in the bank, they're only required to hold $10 on hand available for withdrawal. It's even worse in the US. In some small banking institutions here, the Fed requires no reserves against deposits. Simply and bluntly, depositors are set up to be screwed.

There are banks in Switzerland and Liechtenstein with 100% reserves and higher. If everyone showed up for their cash, they would be paid. That is a real bank.

Fractional reserve banking is not real banking. It is slight of hand. And it is dangerous to a free society.

Reuters further reports Recovery at risk as Americans raid savings.

More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.

There is much more to the article. It is well worth a read, if only to pierce the illusion that everything is just fine.

Everything is not fine, and this latest move by the ECB just shines a brighter spotlight on it. Lowering an already low reserve ratio in order to free up $100 billion signals desperation for the entire Euro Zone banking system. It also signals that the central bank may finally be nearing QE-style money printing in order to literally paper over the problem of too much debt choking the EZ. It won't work. It will wreck havoc.

The only thing that will work is growth, and government bureaucrats are doing absolutely nothing to stimulate it.

If everything isn't fine, can the stock market still go higher? Yes, of course. That is the paradox of the market.

For today, the price level I'm watching is 1287.04. If that area fails, I'll be out of my long positions from yesterday afternoon (posted on Twitter). There is a gap at 1289.09 that may want to be filled, but 87.04 is the hard stop I'm using.

Back To Work

2012-01-17T08:57:00.005-05:00

Back from a great trip to Georgia and ready for work. I thought I had egg on face after my last post that was expecting higher prices on the S&P only to see it implode on Friday. But I must say that I continue to feel higher prices may come.

Yes, 1281.95 was taken out to the downside, but there may be another pattern in play, one that cancels out the one I was counting. The way I see it, the S&P would now have to collapse in the next day or two below 1242.82 if Friday's break is for real. The way Friday closed just didn't feel like the real thing. Neither does the overnight action thus far. At a juncture such as this, you will know it when the market turns. You'll feel it. Just like it felt in March of 2000, or the March low in 2003, or the March low of 2009. It's like a sudden, massive mood jolt.

Hmm, what might this say about March of 2012? Let's see if we get through January first.

For now, I still have my eye on 1308, the 78.6% retracement (the exact number is 1307.28). But there is also a huge shelf in the 1340s that may want to be tested if the market fails to break down.

Found this on Zero Hedge this morning:

The apparently critical-when-its-going-up-but-ignore-it-when-it-is-falling index of the cost of dry bulk goods transportation has 'crashed' in the last few weeks to its lowest level since January 2009 (back below 1000 according to today's levels). Whether this is seasonal output differences or weather impacts, it seems clear that lower steel output in China and a decline in European imports is having its impact on global trade. The index has fallen for 19 days in a row, down almost 50%, its largest drop since the harrowing period of Q4 2008.

I truly wish the Baltic Index was higher at this juncture. It feels like a false low, and if I could trade this index (it's not able to be traded), I would buy it here as a hedge.

Road Trip Recap

2012-01-16T17:55:00.023-05:00

Had some great meetings down in Georgia. The only hard part was that it was colder down there than it was in New England when I left, so every stop for gas was a chore.

I'm not really in road-trip mode lately, so it was still an afterthought to take the camera with me at all times. I never know when something is going to pop up, so it's important to always have it with me. Especially when I head into a restaurant.

Right off the bat, I left it in the car at my first stop. I was in Connecticut and was hungry for some lunch. I wanted a sub, but wasn't in the mood for Subway. I checked the GPS for a small Mom & Pop style place. I found one, but when I "arrived" at its address, it was nowhere to be seen. In a huff I turned into a parking lot to do a U-turn. That's when I found the Glenwood Drive-In. Score!

This not the first time something like this has happened. I swear the Road Gods watch out for me. At the very least, it shows just how strong the power of intention is.

The Glenwood Drive-In is the real deal. They serve grilled foot-long hot dogs and let YOU put on whatever YOU want at their hot dog bar. 3 different kinds of mustard, 3 different kinds of relish, and a big, steaming vat of sauerkraut. Amazing. All these years I've been blazing past this area near Wallingford, CT, and I never knew this place existed.

It wasn't until I left Georgia that I pulled out the camera again. This time, I was on a personal mission: to pick up some moonshine in Tennessee. After my meetings, I drove from 5 pm until about 9pm from Georgia to Hendersonville, North Carolina so that I could spend part of the next morning in Ashville for the first time. I've always wanted to see it. What a great vibe it had. I can't wait to go back.

From Ashville, I was able to take some great back roads over the Appalachian Mountains to a little town called Greenville, Tennessee, which is one of the few places that you can buy Popcorn Sutton's legendary moonshine. Since his death, it is now produced legally by his apprentice who must be raking in the cash. Two bottles of Popcorn's likker cost me $72.00! But since a lot of folks from home are keen to try it, I wanted plenty to share.

I thought this place called Momma's Kitchen looked great, so I pulled over and took a picture. The roads were a driver's paradise.

This one's for my Chicago peeps. Downtown Greenville, TN.

Picked up my first moonshine here.

When I was little, I wanted to be a moonshine driver. Well, in this short video I finally made it. Fresh from my moonshine purchase, I blasted up some more back roads on the way to Interstate 81. Found an ultra corny AM radio station that was cranking out some real classics that were making me laugh out loud. See if you can notice the speed of the car getting faster and faster as the tunes and the corners roll by. Great roads. No wonder NASCAR is such a big deal in these parts.

Truck stop randomness in Virginia.

An homage to one of my favorite films of all time . . . Repo Man.

"Find one in every car. You'll see."

Friendly reminder in the Poconos of Pennsylvania to pull over when the "check engine" light comes on (not my car!!!). By the way, you would not believe the number of copper-colored cars I noticed on this trip. It reminded me of the '70s. I think there is some heavy duty socionomics at work here. Remember the '70s? The Dow Jones was below 1000.

Swung through New Haven on the way home and finally tried a real Pepe's pizza after all these years. It didn't disappoint. Had to wait out the long line (avoided the frigid cold) by heading over to the nearby IKEA. Yikes. But it was worth the wait. I absolutely loved the fresh taste of the tomato sauce and the way my fingers got black from the ash on the dough from the super-hot coal-fired ovens.

Forgot to take the camera inside with me yet again and missed getting a close up pizza shot, but snapped this instead.

And finally, about to try moonshine for the very first time. Notice I waited until I got home. Haha.

It's pretty good, too.

A Botched Reversal And A Good Omen

2012-01-12T20:37:00.006-05:00

I must admit I was encouraged that the market had reversed this morning after being up solidly in the pre-market, but looking at the chart now, not so much. There was a beautiful, textbook, 5-wave impulse down in the S&P. Alas, it was entirely reclaimed by the close. Secretly, though, I'm relieved. I hate when it makes a big turn without me. Somehow now I think it won't. I feel the Dow and S&P will hold up until the Nasdaq confirms their price action by getting above its own Oct. 27 high, too. This means 1308 is still on the table. Keep in mind 1281.95 as a stop.

This afternoon as the sky was dark and looked about to storm again, I was about to cross the border from South Carolina into Georgia when the Georgia Satellites suddenly came on the radio. Then, the instant that I saw the Welcome To Georgia sign, the sun broke from behind the clouds and filled the entire sky and everything in it with a brilliant golden light. What a cool omen, I thought.

Waiting For A Signal

2012-01-11T21:35:00.004-05:00

1281.95 was not violated today. If the market won't back down, it might want to test 1308, the 78.6% retracement from the October lows as measured from the May highs. But it could turn lower at any time, and the odds do not encourage new long positions at these levels (at least while I'm on the road). Nor has the VIX given a sell signal yet. I would love to see a classic "gap and crap" to suck in the last few buyers on some sort of "news." For some reason the market feels ripe for a false breakout of some sort.

Slow internet connection tonight here in Virginia, perhaps due to the brutal storm outside. It got so bad I decided not push it anymore. I wanted to post about the amazing place I found for lunch today -- completely by accident -- but it's taking too long. I'll follow up about it soon.

No post either Thursday or Friday morning.

Target Achieved, Now What?

2012-01-10T17:27:00.002-05:00

1292.66 got taken out, at long last. I was getting tired of typing it. Price hasn't yet accomplished anything of note to the downside yet, but that could change. 1281.95 is the level I'm watching now. One tick below that, and it's likely over for the bulls at this juncture, and possibly for long time.

There will be no blog post Wednesday morning. I'll be leaving early for the drive to Georgia.

It's About Time

2012-01-10T08:28:00.003-05:00

I sold the SSO position this morning in the pre-market. It was a long swing trade from December 28th that I've added to along the way. A nice win for big week. Tomorrow I head to Georgia for some meetings on Friday. I'll spend 2 days on the road, and my head will be a lot clearer without this position occupying my mind while I'm away from the screens. As I said a few posts ago, it's hard to be a bull in a bear market. I'm getting out while the getting is good.

(For the record, I'm actually a bear until people tell me "not to put a dime in the market because all it does is go down." Until that happens, there is ample optimism to trade against, bullish swing trades not withstanding.)

I may very well have left money on the table. While the oft-mentioned target of 1292.66 should easily get dusted off during today's regular session, 1308 is a viable target too. But I don't want to be too cute here, nor do I want to get caught up with greed, especially while I'm on the road. The downside could be considerable once this up-thrust is completed.

Yesterday's 1274.55 low looked like the e-wave of an a-b-c-d-e triangle. I posted a chart of it on my Twitter feed. It seems to have worked well so far. The wild card is how high. This week, my mind will be on other things. The only thing I'm looking for is a VIX close below its 2 standard deviation band. We haven't had one since April of 2011. It's about time.

Same Plan, Different Day

2012-01-09T08:44:00.003-05:00

It didn't take long.

In How George Soros Helps Us Truly Understand Things, Part 1 , I mentioned:

. . . notice this morning that both the dollar and the S&P futures rallied strongly on the NFP number. So much for the perfect correlation between the two. Economists will now say a strong dollar indicates the economy is getting stronger.

Then yesterday, this post appeared on Zero Hedge, The Fed's Balance Sheet Expansion Is... Bullish For The Dollar!?

While I don't feel the writer has got it quite right, it was certainly interesting to see it appear so quickly.

And while I'm quoting from previous posts, my trading plan remains the same today as Friday:

I'm still waiting for 1292.66 on the S&P (and possibly higher to 1308). I am long from lower levels. I will not alter my strategy today unless 1265.26 fails.

How George Soros Helps Us Truly Understand Things, Part 1

2012-01-06T10:42:00.014-05:00

Found a most interesting article this morning from Reuters: Soros says EU break-up would be catastrophic. I couldn't agree more.

An EU break-up would certainly be catastrophic . . . for globalists like George Soros, that is. It would mean their fantasies of world government would go Poof! overnight.

As I've said before, there's a reason why the EU is called "the European Project." It really is a project, an experiment. And if they can make it work, its architects would like nothing more than to implement it over here with the result being a North American union made up of Canada, USA, and Mexico. Then Asia, then the Middle East, then South America. Dream on, lads.

I'm not a fan of George Soros. I keep a quote from his thinly-veiled globalist manifesto The Alchemy Of Finance on this blog for a reason. It's to remind me to keep my eyes open and not be fooled by "events" created to manipulate public opinion. I saw his book to be nothing more than an exercise in Hegelian dialectic (problem-reaction-solution) in which Soros attempted to guide our thoughts to a predetermined solution. (Part 2 will be a full "book report" in a future post.)

His solution? Markets need a single, international currency and a single, international central bank.

Imagine the Fed or the ECB regulating financial markets around the world. The ECB can't even manage the EU debt crisis without seeking help from the IMF, while the Fed has erased over 90% of the purchasing power of its Federal Reserve Notes (which are otherwise known as the US dollar and just so happen to be the world's reserve currency). Currently, the Fed is now pushing on a string despite record amounts of stimulus. Do either of these institutions sound up for the task of controlling the world's money supply?

Failure to understand how individuals such as Soros use the Hegelian dialectic to shape our opinions encourages implementation of their goals. And that is why:

"Many momentous historical developments occur
without the participants fully realizing what is happening."

Thank you, Mr. Soros, for helping us understand.

As for the markets, notice this morning that both the dollar and the S&P futures rallied strongly on the NFP number. So much for the perfect correlation between the two. Economists will now say a strong dollar indicates the economy is getting stronger.

I could care less about the NFP number, and I still don't know what it was. Of course I wish more people had jobs, but my point is that this is a great example why news doesn't matter. I would trade (or not trade) the same way no matter what the number was.

For example, I'm still waiting for 1292.66 on the S&P (and possibly higher to 1308). I am long from lower levels. I will not alter my strategy today unless 1265.26 fails. That's all I care about. Not rumors, not GDP forecasts, not analyst estimates. Just price.

Speaking of quotes, here's another one for you:

"The market's gonna do what it's gonna do when it's gonna do it."

Hard To Be Long In A Bear Market

2012-01-05T08:22:00.007-05:00

I was not enthused by the futures market this morning, but it seems things have turned around. ADP's job numbers -- a whopping 8 standard deviations above the estimates -- may have stopped the overreaction to the news that Italy's largest bank, Unicredit, was halted after trading down over 10%.

The market was ready to correct anyway, but in the thin overnight futures session, almost anything can happen. As long as the cash S&P stays above 1268.10, I'll feel confident that 1292.66 (or higher) is the target.

News, at most, has a short term affect on the market, but it does not affect the overall pattern in force. Still, it's hard to be long in a bear market. The surprises are usually to the downside.

I raised the stop on SSO from 1264.12 (I only use cash S&P levels, not the prices of whatever ETF I'm trading because they're just derivatives) because yesterday looked like the S&P hammered out a definitive 4th wave low just below the confluence level I mentioned. Maybe there is some other pattern in play, but I would not feel good about price getting below 68.10. I can pull the rip cord there and still walk away with a little profit, but no loss at all. Below 64.12? Forget it. I'll have a tiny loss but more confidence that something else is going on.

Did I mention it's hard to be long in a bear market?

Confluence

2012-01-04T08:55:00.005-05:00

There is an area of Fibonacci confluence surrounding the 1270-1272 (S&P cash) area. The way the futures are looking this morning (down), it seems the market may want to test this zone. I added to my SSO position yesterday around 1276.50 and will add more if we get to 1270. The stop for this trade is now 1264.12.

Tonight is the season finale of Moonshiners on the Discovery Channel. It's rare that I watch TV, much rarer that I look forward to a TV show, but I just discovered it last week and find it fascinating. (When I was little I wanted to be a Moonshine driver.) Of course, I also love the socionomics of it, too. It seems this country is harkening back to its wild roots in many ways. So be it. I think our government has vastly underestimated just how deeply we cherish our Constitution. And judging by the record number of FBI background checks that were initiated due to gun sales this December (1,500,000), a vast number of people are prepared to defend it. It may be a bumpy ride moving forward.

Bulls On Parade

2012-01-03T08:22:00.005-05:00

Happy New Year. A surprise bump in China PMI is being touted as the reason why the futures were up a full 20 handles when I woke up this morning. But even though it was a difficult trade, we were long already. The action in the futures merely confirms that the S&P will likely test 1292.66 and exceed it. This should set the bulls into overdrive.

1308 is the 78.6% retracement of the move from the May 2011 highs to the October 2011 lows. I suspect that's where the market wants to go. But as soon as it clears 1292.66 (if it does) I will be watching A/Ds, volume, ticks, and a grab bag of other market internals to alert me when it might be ready to give it up.

We will likely hear "risk on" until it sickens us. We will probably hear "the bull is back" and that "1400 is next!" They might be right. They might be letting the market jerk them around too.

Find a method, develop rules, and follow them. Sure you might get jerked around here and there, but at least you'll know it. And you'll avoid being part of the madding crowd.

Staying With The Plan

2011-12-30T08:13:00.003-05:00

It's the end of the month, the end of the quarter, and the end of the year -- all together in a thin pre-holiday market. The bias is higher.

Yesterday I struggled to stay with my plan:

I tweeted that 1250 looked good on the e-mini futures, and it got hit overnight. That corresponds to the 1254 area on the cash which I think will get tested today. If 1292.66 is in the cards, the market should have little problem getting through that level, so use 1254 as a tell.

The problem was that I was not seeing the signs of a strong impulse. It took nearly all day for a +1000 tick burst to show up. But 1254 was indeed the tell, for me. The market blew through it with no trouble at all. I took off half of the SSO position at 1257. Content now to ride this.

1269.37 and 1248.64 are on my radar now. Above the former suggests 1292.66. Below the latter suggests that I look for opportunities to add to short inventory on rallies.

Risk/Reward Is Here

2011-12-29T08:43:00.005-05:00

Yesterday took us to within 6 points of 1242.82. The risk/reward there required me to get in the game to the long side, so I went to work. It took a few tries (one in the 1253 area too early) but I eventually got a position on that felt OK with SSO.

The target remains 1292.66 until and unless 1242.82 breaks. Today's jobless claims and PMI could have some near-term influence (lower), but for now the trade is to the long side.

I tweeted that 1250 looked good on the e-mini futures, and it got hit overnight. That corresponds to the 1254 area on the cash which I think will get tested today. If 1292.66 is in the cards, the market should have little problem getting through that level, so use 1254 as a tell.

Repeat

2011-12-28T09:50:00.004-05:00

Repeating from yesterday:

At some point, this market is going to need a rest, too. But I don't see it coming under 1242.82 before getting up to, and possibly over, 1292.66. There could be a small retracement somewhere, but I still feel the S&P will confirm the Dow which broke above its Oct. 27th high last Friday.

The market is doing today what I was looking for yesterday. A possible area for a test is 1254 on the S&P. Much below that, and 1242.82 will begin to loom larger. Below 1242.82 would spell doom for the bulls.

I notice President Obama will nominate Harvard economist Jeremy Stein to an empty seat on the Federal Reserve's board of governors. That's a Harvard guy for you, running to another Harvard guy when the chips are down. Once there, Stein can report to another Harvard guy, Ben Bernanke.

I find it humorous that my friend Chris in Chicago has had a "no Harvard" policy at every company he's worked for since the 1990s. Every single one.

Resting And Waiting

2011-12-27T08:22:00.003-05:00

It has felt great to rest. And I'll probably take it easy this week as well. At some point, this market is going to need a rest, too. But I don't see it coming under 1242.82 before getting up to, and possibly over, 1292.66. There could be a small retracement somewhere, but I still feel the S&P will confirm the Dow which broke above its Oct. 27th high last Friday.

The big news of the day, for me, is that Italian yields are up above 7% again. Looks like it was a very short Christmas in the Euro Zone. Hope you enjoyed yours.

'Twas The Day Before The Night Before Christmas

2011-12-23T08:45:00.004-05:00

I had my eye on 1252.77 yesterday. By my read, it looked like a break of that would spell trouble. It did break, then hit a new high. I may have counted the waves incorrectly -- this happens often. It's just the nature of the business.

I still expect the 200-day moving average to get hit (1259.38), but it feels as if the market is trading heavy. Just as the Federal reserve act was snuck though Congress on Christmas Eve many moons ago, this day before Christmas could see a stealth high today amid the light volume and the holiday cheer. Try to pay close attention.

Merry Christmas to all!

The Winter Solstice And The 200-Day Moving Average

2011-12-22T09:36:00.003-05:00

1259.35 is the 200-day moving average. I see this spot as either the resistance area that stops the rally, or the point that ignites the afterburners on Santa's sled. Should the latter happen, 1292.66 would be next, and possibly 1308.

That said, the S&P is feeling a little sluggish so far. I'll want to pay close attention.

Happy Winter Solstice. It occurred at 12:31am EST this morning. Now the sun starts climbing in the sky again, and I'll start to feel my energy return. I really enjoy this day each year.

Higher Prices, Unless

2011-12-21T08:47:00.005-05:00

Just now in the pre-market, S&P futures retraced a portion of yesterday's rally. I'd like to see more of a retracement in the regular session. The 38% level is 1227.

I was a little quick to cash in the SSO yesterday morning, but the UPRO position did great. I like these because you can fine tune their delta in scale in and out much easier. You can use them as a futures replacement, or not. I like to save the futures for hedging.

I don't know how we get there, but I see the rally heading to test 1292.66, and therefore has more to go. Watch 1202.37. That's my hard stop for this scenario.

If this rally truly is heading to 1292+, I would not be surprised if 1227 is not reached at all. I'd be pretty happy if it was, though. Should prices decide to head lower, 1217.82 would be the first indication that I should be considering a more bearish scenario.

S&P Impulsively Higher

2011-12-20T09:27:00.005-05:00

1202.37. That's as close to 1200 as the market got yesterday. (For me, the S&P is always "the market") I had a funny feeling about it and mentioned on Twitter that it closed just above the 62% retracement level on light volume (calling the market a "beguiling minx"). I did buy a little there: SSO for one account and UPRO in another. I'm already out of the SSO this morning in the pre-market.

I think the market is gunning for 1231 today. Depending on its internals (advancers over decliners are running 10:1 right now), this could end up being the grand fake out up to 1292.66. We'll see. I may be buying dips soon. It's an impulsive looking move. Obviously or not, 1202.37 is the hard stop for that strategy.

Since I'm writing this after the open, I notice that 1231 was just taken out. The Street will be giddy. Maria Bartiromo will be squirming with pleasure over this Santa Claus rally. Let's not get carried away. Focus.

Enjoying The Holiday Pace

2011-12-19T09:37:00.006-05:00

Another late post. I'm really enjoying the slower Holiday pace, while continuing to trade and post. Last year, I took a two week vacation from posting. This year, I'm just posting later so I can sleep a bit more. Next year, I may post less but try to add more about hedging, though I haven't really decided.

This morning, the S&P is opening at another 62% retracement level, just like it did last Tuesday, the morning after getting home from Chicago. I didn't trade it then, and I'm not going to trade it now. Here's why. The market is "in the middle." That is, on an hourly chart, there are targets above and below that I'm more interested in, and I'm willing to wait for the market to test them.

The action since Wednesday is telling me to be patient, as it is looking inconclusive thus far. Is it coiling, or triangulating? I will simply wait for a clearer picture and better odds. My ego has no need to be right. Take your ego out of your trading and your performance curve will reward you for it.

What are these elusive targets? The 3 scenarios I'm using are these: the market fails immediately from this morning's 62% retracement level. The market tests the 1232-1235 area. Or the market flops around and heads lower, testing 1200 or possibly 1195.

If I'm wrong, and the market heads to 1292.66, that's fine. That's what I've been waiting for anyway. No stress, just chess. A lot of possible moves, only one of which will be the market's true reality.

And sadly, Vaclav Havel, the Czech Republic's first president after the Velvet Revolution against communist rule, has passed away. I was always inspired by this man, a poet and playwright, who had the courage to say what was in his heart even if it risked imprisonment. And I loved the concept of a Velvet Revolution which proved once and for all that the pen is mightier than the sword. My sincere condolences to his family and to the people of the Czech Republic.

Trainspotting

2011-12-16T09:12:00.003-05:00

1231.47 was never taken out yesterday, much to my joy and surprise. The S&P opened strongly and fizzled yet again. This keeps the pressure on the downside, even though the futures are up once again this morning. So maybe I didn't miss the train yesterday. Maybe the schedule changed. Maybe not.

I've drawn what amount to converging trend lines on my charts which have me thinking triangle now. I'm also thinking 1200 is therefore still in play, plus perhaps a little lower. I'm noting the 1195 area, which includes the opening price of 1196.72 from 11/30, the huge up day. Breakouts love to get tested.

Europe continues to smoulder. I've grown tired of thinking, talking, and writing about it. Others do a better job than I do. It is not over, though. Not even close.

The only cure is real GDP growth. And it is thwarted each day.

Moonlight Drive

2011-12-15T12:24:00.008-05:00

On the way out to Chicago, I posted a video from Amish country and titled it Riders On The Storm. So it's only fair to use another Doors tune on the return.

Often when I return from far away, I like to head straight to the ocean. Monday night was special because I could do so under the full moon (actually, it was just starting to wane). It was low tide, and the salt air smelled great and fresh. I shot this at The Wall at Hampton Beach, NH, a great surf spot. It's jammed in the summer. On this bright night I had the whole place to myself and could hear the waves breaking on the sand.

Then I drove along the coast (it's pretty short) and again had the twisty corners and curves overlooking the ocean all to myself. An absolute rarity.

Don't expect much in this video. What you see is what you get, plus only a distant sound of waves. Really just practicing posting more vids because it hasn't worked at all for so long.

Oops, May Have Missed The Train

2011-12-15T09:25:00.004-05:00

Futures are up over 1% this morning, and I have the nagging feeling that I didn't buy enough stuff yesterday when I went shopping. I tried some SPY calls and sold them. I tried some e-mini contracts and sold them. So I'm not happy seeing the market leaping higher. Yesterday's low was 1209.47, way above my target. This could be the run I've been so patiently waiting for.

If so, 1220 should be dusted off in short order. Then 1231.47. The target remains 1292.66 and possibly 1308.

If I've indeed missed the train, I will need to switch my strategy and be an aggressive buyer of pullbacks.

Following Rules & Relaxation

2011-12-14T09:40:00.003-05:00

So far, the S&P has been doing a great job of obfuscation while also rewarding patience. Yesterday would have been a great short from the 62% level, but I was too tired to think clearly. I did the right thing by standing aside, even though I would've been correct. This is a business where correct play is not always determined by dollars, but, like piloting a plane, by following rules. Rules are there to protect you. The money takes care of itself.

Back to patience. With the S&P below 1225, 1200 has my interest now. However, I'm noting this morning that price is moving lower with marked tick divergence. The market can reverse anywhere it likes, and it just may.

I'd rather be a bigger buyer at 1200 than a smaller buyer above. Until 1158.66 goes, that is. That is where my assumption of a new high above 1292.66 will very likely be wrong.

This is a slow time of the year for me. The approaching winter solstice feels like front month option decay in my energy level. When the sun turns around and resumes its ascent, I start feeling better. I'm letting myself relax more so I can enjoy this mystical time of the year. Expect more late posts.

Taking It Easy After A Long Drive

2011-12-13T09:35:00.003-05:00

The market has opened at the 62% retracement of the fizzle from Friday's highs. Ordinarily this is a sell zone for me. Today I'm just too tired to wake up and start work. Yesterday was a loooong drive. Plus it's a FMOC day. I have no problem taking it easy and waiting for price extremes today.

I was encouraged by the price action yesterday. The 38% retracement level at 1225 was missed by just 2 points or so. But the move from the low until around 2:40pm EST looks sloppy as hell and very much like the signature HFT footprint of (High Frequency Trading) machines buying and selling to each other until price can be made to levitate. I've seen a lot of these in the past several years. I've been duped by a good many of them while waiting for "another low," when instead the sloppy action was the first sub-waves of a new move higher.

I will reserve judgement until more information becomes available. If this is the start of the upthrust I've been anticipating, 1258.25 should be exceeded without much effort. Then 1292.66 would be the target, and possibly 1308.

I continue to see the downside as 1200 for now -- but much lower once the market's work is finished creating the illusion of safety.

Getting Off The Highway

2011-12-12T08:29:00.009-05:00

Friday was the pop but not the fizzle as I expected. It looks like the fizzle, if it occurs at all, may be in the works now. Futures are down hard this morning, and today will likely tell the tale while I'm on the road home.

If futures manage to find support and the cash S&P is able to stay above 1250, I'll expect 1292.66 to remain the upper target. Below 1250, risks 1225 and 1200. 1225 (the 38% retracement) was never hit on Thursday, so that may have been the tip off.

Heading home from Chicago I started to miss it a lot. I always meet so many great people when I visit, and I already miss my friends there too. I always have a blast with Chris and his family.

I was taking some back roads through Indiana as my mood was darkening. I got saved by one of the best burgers ever at Schoop's. Since 1948, this place has been cranking out good, honest burgers that are examples of what I love about this country.

The classic diner look in Portage, IN

The bun was just the right size. The meat was full of flavor. You could have made a side-salad out of the gigantic piece of romaine lettuce it was served with. The pickles were perfectly sliced. The tomato was deep red and juicy. No wonder it was called the Special Cheeseburger.

Holding this beauty was like holding the best of America in your hands.

I took Route 6 through some amazing farm country in Indiana and Ohio. Getting off the major highways is a breath of fresh air. Instead of feeling like an endless extension of a corporate balance sheet no matter which State you're in, back roads reveal the true spirit of America that even the government can't trample. The world may be awash with debt problems at the government level, but at the personal level, life goes on, and the spirit of hard work, ingenuity, drive, imagination is alive and well.

We should all get off the highway once in a while.

Pop And Fizzle

2011-12-09T08:45:00.003-05:00

So the EU made an historic change to its treaty to allow for more fiscal integration. Futures are yawning. Today has the feeling of a pop and a fizzle.

Yesterday afternoon's 1264.40 high seemed to be the target in the overnight session. We'll see if it can be hit in broad daylight. I have some SPY 125 calls to let go there.

If 1264.40 can't be retaken, the market will probably fizzle out and test 1225 or 1200. I'd rather be a buyer there than here.

I still look for highs above 1292.66 at some point. But today, market participants will likely be under the influence of tomorrow's full moon and total lunar eclipse. The way I see it is that yesterday's trend is down and may continue into the end of the day due to the pull of the moon.

This is outlandish only if you're unaware of how powerful the moon is. But I know you understand.

Attention Gold Bulls, Dollar Bears

2011-12-08T09:43:00.008-05:00

FT reports: EU Banks step up gold lending for dollars.

If you are a raging gold bull, this is probably one of the most important news items in the past 10+ years. (emphasis mine)

A dash for cash by European banks in a little watched corner of the gold market has accelerated this week, highlighting the continued scarcity of dollar funding even after a co-ordinated intervention in the market by the world’s largest central banks.

Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week.

It is very important to understand that until excess debt is cleansed from the worldwide monetary system, gold will be vulnerable to dollars during periods of deleveraging.

Recall 2008. It was not the perceived safety of gold that made it fall 65% during the Lehman disaster. It was not the perceived safety of the US dollar that made it go sky high during the same period. It was supply and demand. Investors sold gold to raise cash.

The massive overhang of dollar credits versus the amount of actual dollars is staggering. Widespread margin calls and debt deleveraging cause the value of actual dollars to rise with ferocious rapidity.

By way of explanation, consider MF Global and the great Wall St re-hypothecation scandal by Christopher Elias at ThomsonReuters. (again, emphasis mine)

With collateral being re-hypothecated to a factor of four (according to IMF estimates), the actual capital backing banks re-hypothecation transactions may be as little as 25%. This churning of collateral means that re-hypothecation transactions have been creating enormous amounts of liquidity, much of which has no real asset backing.

If you are a long-time reader of this blog, the quote above should not surprise you. If you are considering putting on long gold and short dollar positions targeting $3,000 gold and "the death of the US dollar," you may want to read the excellent article by Mr. Elias and consider it carefully.

Enormous amounts of liquidity with very little real asset backing cause markets to magically levitate.

It is not real. It is slight of hand.

The Old-School Chicago Experience

2011-12-08T08:42:00.008-05:00

Still no change to the trading plan: long bias unless 1243.35 is violated. 1292.66 is the target.

If 1292.66 gets exceeded, 1300 could be a psychological, round-number target. Also, there are Fib extension targets of 1283 (62%), 1294 (78.6%), and 1308 (100%). (Levels are on S&P cash index.)

Last night was a real blast with @Misiu357 and @chicagosean. They took me to some Old-School Chicago spots that were just superb.

We met at Devon first which was very swanky and had a round of drinks there. Oddly, the swankiness of Devon seemed like the catalyst for the rest of the evening.

Soon we were in a cab headed downtown to the Billy Goat, the home of "cheeseburger cheeseburger, no coke, pepsi" from Saturday Night Live fame. We orderd more drinks, Jackie took over the jukebox, and Sean and I started in on some double cheeseburgers. Then Jackie got going on a triple cheeseburger with bacon, and I just HAD to have one. So I did. It was amazing.

Then we headed across the street to Cal's, the bar next to Cal's Liquors. Oh my god.

It was the coolest bar ever. We had the whole place to ourselves. So out came the cameras.

Where else can you discuss hedging strategies with a bassist for a punk band while listening to R&B classics in a bar that looks positively unlicensed. Only at Cal's.

The place feels like it's been closed for a while, as if it's stuck in time. Some nights it doubles as rehearsal space for the bartender's punk band. Sometimes other bands play here. Loved the homage to punk rock in nearly every corner.

The fridge --

Set lists adorn the walls --

Stickers adorn the men's room --

And more drinks adorned our glasses until, sadly, it was time to go. Thanks for an awesome night Jackie and Sean!

A Big Bazooka Without Ammo

2011-12-07T08:46:00.004-05:00

Yesterday's plan seems correct so far. No change.

Below 1243.35 would be the first indication to me that the S&P is serious. Below 1203.67 would just about seal the deal. Unless these targets are taken out, I'm going to give it a little leeway to the upside. In fact, I'm looking at the 1292.66 high from October. It could be exceeded if the S&P remains above 1203.67.

If 1292.66 gets exceeded, 1300 could be a psychological, round-number target. Also, there are Fib extension targets of 1283 (62%), 1294 (78.6%), and 1308 (100%).

There seems to be a persistent news bid under the market ahead of the Euro Zone summit. I'm looking for a "buy the rumor, sell the news" event. The only thing that concerns me is that many others are too.

FT reported that Ireland is seeking better terms on its bailout. No one seems to be concerned that this will quickly spread to Portugal, Spain, and anyone else that needs help. Yes, that could mean France and Italy, too. There is no way this can succeed. There is not enough money.

Expect a big bazooka. Without ammo.

Funny Feeling About The S&P

2011-12-06T08:36:00.006-05:00

I'm a bit unsure of yesterday's action in the S&P, which also served as a reminder why I try not to "do lunch" anymore. As soon as I stepped out, the market tanked. And I was being so patient.

While I was anticipating a market breakdown, I've got a funny feeling that it was a fake. Maybe I'm just hoping it gets back up so I can get another shot at it. Who knows. I don't.

Below 1243.35 would be the first indication to me that the S&P is serious. Below 1203.67 would just about seal the deal. Unless these targets are taken out, I'm going to give it a little leeway to the upside. In fact, I'm looking at the 1292.66 high from October. It could be exceeded if the S&P remains above 1203.67.

Bloomberg reported a very odd quote from Angela Merkel that is raising eyebrows. Apparently she reminded a press conference that “The lesson of history is that we must solve our problems with words and not weapons -- and that’s exactly what drives us to seek compromise.”

Why would Markel suddenly dig up old war wounds when trying to address debt? Was it a veiled threat? A friendly reminder? A Freudian slip? Whatever it was supposed to mean, I doubt it bodes well for future discussions.

Riders On The Storm

2011-12-05T11:15:00.007-05:00

I was ahead of schedule on the trip to Chicago, so I got to take some back roads this time across Ohio and Indiana. I was really glad I did. Not only did I avoid some onerous tolls, I saw some great country, even if it was dark and stormy.

This video was from Dutch country just East of Lagrange, Indiana -- I didn't know there was such a thing. That's the cool thing about getting off the major highways: you always see something interesting and learn a little too.

If you listen closely, you can hear the clip-clop of the horse's hooves pulling this Amish buggy to town. Well worth slowing down for.

A Super Dawg In A Super City

2011-12-05T08:37:00.008-05:00

Pulled into Chicago last night and headed straight to Superdawg even though it meant sitting in extra traffic (it helped that I was pretty hungry). I didn't really matter since it always feels good to be in Chicago no matter what. I just like it here, traffic and all.

I've wanted to try Superdawg since seeing it on a food show about the best hot dog places around the country (still want to try The Varsity in Atlanta). It looked quirky and fun. It was. It also was a really great dog.

"Dawg is my co pilot"

I felt they wrecked it, though, by stuffing into a small box beneath fries and a giant pickle, all of which seemed to fuse together. Not a fan of bright green, artificial-food-coloring relish, either. But it the dog itself saved it. It was really good.

Good thing I only ate one. When I arrived at Chris' house in the 'burbs, we all had a huge feast there too. The kids thought he was kidding them that I was truly visiting. When I walked in the door, they flipped out. It was pretty funny.

Today in the S&P, it looks like Friday's plan will take place now. I still see the 78.6% retracement level at 1261 and the 200-day moving average at 1264.96 as targets. The S&P only got to 1260.08 on Friday. I got a little piece of it with the SDS then traded the ES against it to the long side as the market sold off. I kept my head down and concentrated on a new 377-tick chart set up that worked very well. I closed both sides at the end of the day, but the real gains were made from scalping ES longs in the down tape -- it's a lot easier when you're short against it.

There are high expectations for something definitive this week from Europe. I don't share them.

Happy Friday

2011-12-02T08:15:00.004-05:00

Futures up well this morning, so it looks like the S&P is happy it's Friday and is finally getting some follow though, even if it's in the pre-market. The important thing will be to see how it acts in the light of day.

The 78.6% retracement is at 1261 and the 200-day moving average is at 1265.43. I'm looking to get short at these levels. We'll see what the open looks like.

I don't follow NFP numbers (or any other for that matter). There was a spike higher then a sell off after the number, but futures are still up over 1%. The market might close out the week and start the new month looking strong. But these are levels which need to be considered for shorts.

The S&P never got below 1230 yesterday, so that was a tell for higher prices. It also looked like it was tracing out a rising wedge. Both suggested not to get over zealous and be patient, which I agreed with.

I won't be too aggressive today. I'm packing for a trip to Chicago, and will be leaving early Saturday morning. And I always like to arrive in Chicago a winning trader. Looking forward to seeing some old friends, and new friends such as @chicagosean and @Misiu357.

I'm happy it's Friday, too. Happy Friday.

Are You Protected?

2011-12-01T08:19:00.006-05:00

Judging the way the Dow, Nasdaq, and Russell charts look, the S&P is lagging. All three have reclaimed their triangle breakdowns and are back inside the previous range. The S&P isn't.

That is not to say that it won't be soon, but it may be the first tell that all ain't so swell.

At some point today or tomorrow, at the very least, I see the S&P dipping below 1230. I would look to be a buyer there as I don't think this run is over. In fact, the way the Dow, Naz, and Russ charts look, I'd say the markets are gunning for the October highs and possibly higher.

I'm not at all optimistic that this "bounce" is just another deep retracement on the way to much lower lows. If that were to be the case, I'd be very happy of course. But I don't see it that way. Yet.

Below 1197.35 would probably change my mind though.

However, that is the market's #1 job: obfuscation. A job it does better than even governments and politicians. I just happen to love the market. The fact that it cloaks its intentions only deepens its mystery. I can deal with that. I simply prefer not to deal with deliberate manipulation.

Meddling, manipulation, and intervention are sad facts of life in the markets as long as there are governments to regulate them.

As painful as it is to see people wrong-footed badly by Wednesday's coordinated intervention (one S&P trader on my stream lost over $10 million because he was short 2000 large contracts at $250 a point -- do the math), in my opinion the market hadn't yet given an all-clear signal to be short. That is why traders must have rigorous methods and rules to apply at all times, and, even then, should embrace hedging or similar ways to buy protection.

The market can do anything at any time.

Coordinated Desperation

2011-11-30T09:19:00.006-05:00

I was looking for the market to go higher, but this is ridiculous.

The Fed, ECB, BOJ, BOE, SNB, and the Bank of Canada lowered swap rates in a coordinated action. Even China lowered reserve ratios. All on the same day. The S&P is up over 30 points.

Look this action straight in the eye. It is desperation.

Just as large players often muscle the futures markets to gain the upper hand (jamming it higher in order to get short, for example), the world's central banks are likely trying to achieve the same end.

"These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013." (emphasis mine)

Note that this action is just another temporary fix. It also adds to the argument that there is a worldwide shortage of actual US dollars (as opposed to dollar credits). This will eventually have dramatic implications moving forward, and will be bullish for the US dollar when (not if) debt liquidation occurs.

Not today though. And probably not for a short while. The dollar is down hard today, as you would expect.

With today's S&P action, the opportunity for new highs above 1292.66 has been reborn. It does not make me bullish. But it reinforces that I must always be a pragmatic trader and be ready for both sides at all times.

Still More Work To Do

2011-11-29T09:26:00.003-05:00

Futures shot up to the equivalent of 1208 on the S&P cash early this morning. Undoubtedly something likely occurred in Europe that magnified an imbalance in the thin market, but I'm not concerned with finding what it was, because it doesn't matter. I'm looking for price to get to 1208 anyway. The "reason" will take care of itself.

1200-1208 is a confluence zone of two different 38% retracement levels and is also where the market found support on the way down. The 50-day moving average is at 1205. All together, it's why I'm looking for a retest of this area.

1223.91 is the 61.8% retracement of the last leg down -- there's no reason that can't be retested, but at this point it would be a little deep in my opinion.

So far, the market action since the close of Friday feel like a burst of short covering -- almost all gap. Today will tell the tale a bit better.

Also take note of the downside should the market choose to fill in the gap a bit. 1182.60 is the 38% level, 1173.40 is the 61.8% level.

Finally The Bounce

2011-11-28T08:35:00.002-05:00

It didn't feel so great all weekend (the best trades never do), but when the S&P got pounded into the close on Wednesday, I added to the SSO position that I had so heavily scaled out of earlier. The only reason why I did it was because the area that the S&P was "getting pounded into" was the 61.8% level on the daily chart, a big level. Big levels are what I trade.

While at our family Thanksgiving at my sister's house, I had no luck getting internet access Friday morning but was able to get CNBCHD (high definition) where I saw the futures ripping. I also saw a black cat peering in my window which freaked me out for a second and gave me pause. But suddenly the feeling came over me to just relax. So I did.

I'm glad I did. And when the futures opened up big last night, I just relaxed, and I'm glad I did. Futures are up twice as big now.

This morning in the pre-market, I just casually took off some SSO and UPRO to adjust my risk and will focus on the 1200-1208 area as I mentioned last Wednesday morning.

I have a lot to be thankful for. I hope you do too. Happy Thanksgiving.

Read This

2011-11-23T12:36:00.003-05:00

Found an interesting insight on Zero Hedge today that has far more implications for the near future than weak PMI numbers out of China. The largest communist country continues to divert attention from the biggest problem in the socialist world.

France.

"The euro came under pressure due to the surprise collapse in new Eurozone industrial orders which led to Germany failing to get bids for 35% of bunds offered. The German 10-year bund yield rose sharply from 1.92% to over 2.06%. This is one of Germany's worst auctions since the launch of the Euro with the Bundesbank having to pick up nearly 40% of the 6 billion euros on offer. . .

The bond auction in Germany is a disaster. If Germany has to buy its own bonds, it is frightening to think how other European nations, including France, will fare at bond auctions in the coming weeks."

Maybe this is why is why Sarkozy is squirming. Get a load of these:

SARKOZY SAYS EURO ZONE MUST FURTHER INTEGRATE
SARKOZY SAYS TROUBLED EURO COUNTRIES DIDN'T UNDERTAKE REFORMS
SARKOZY SAYS EURO ZONE MEMBERSHIP IMPLIES OBLIGATIONS
SARKOZY SAYS EUROPE'S FUTURE REQUIRES CONVERGENCE

This guy is screwed if the Euro Zone unwinds. So his answer is more federalism. But the markets have other ideas, as they always do. That is why governments hate markets.

What Bounce?

2011-11-23T08:08:00.004-05:00

I scaled out most of my longs yesterday and warned about 1175 being the next spot. When the market can't get up off the mat after being down hard, it is telling you to look out below. Overnight, the market agreed. Futures dropped to 1166.75. Dexia's bailout deal is coming apart and so is everyone's favorite savior, China. Their PMI numbers signaled contraction. But we knew to expect that sooner or later, didn't we.

My UPRO position is down 2% (the position, not my account) so I will not add to it. Today I'll use SSO and use the same heavy scaling tactics while bearing in mind that the S&P could attempt 1160 just as easily as it could bounce. I'm lowering my upper targets to 1200-1208 because price dictates that I should.

Year after year, the day after Thanksgiving, the market vaults higher on low volume, usually when I'm off somewhere in the country without internet access. If there is no bounce this year, the turkey will have the last laugh.

The Bounce May Not Be Finished

2011-11-22T09:00:00.003-05:00

Got the bounce yesterday, good for about 15 points in the S&P, but I don't think it's finished. I'm still gaming higher. However, I will not over "game" this -- the trend is down, and I'm not going to play with it. I'm just protecting and profiting from my short inventory.

Having exposure to one side of the market forces you to play the other side. So I got long yesterday in a strongly negative tape. By aggressively scaling in and scaling out as the market fell, I was able to end the day up .57% while the market was down over 1.5%. By yesterday's close I had taken profits and trimmed my long UPRO (I started with SSO, but switched) and hedged with SPXU. I'm now flat SPXU.

Today, even though I legged out of the SPXU hedge, I still feel there could be some lower lows -- possibly to 1175. If so, I'll add to my UPRO position. If not, I'll look for the market to head for 1220-1225.

Close To A Bounce

2011-11-21T08:46:00.005-05:00

This weekend I took a drive through coastal Maine and was stunned by two things: the number of homes for sale, and the number of homes where stonework was being erected. It seemed as though the "walls" were going up. Boundaries being delineated. Boarders being defined. Mini fortresses created. Lots of busy masons.

Of course I saw a spec house, too. No, that's not accurate. I went to check on the spec house. I knew it was there; I just wanted to check on its price. A contractor purchased a vacant lot and built a house on it, just like the old days of 2006. The price started at $2.225 million. Now it's $1.85 million. It's a beautiful, gracious looking home, fully landscape by an army of landscapers in a fleet of brand new, gleaming white, fully-branded white trucks. I bet it sells for $895K.

There's nothing like free money to get people to speculate. The problem is, they often speculate badly, creating what economists call malinvestment. It's interesting to see it happening again, although on a much smaller scale. The larger scale seems to be people wanting their investment back. Again, I was stunned at how many homes I saw listed for sale. It seemed like it happened overnight. Maybe I'm viewing it through my own bearish lens, but I wonder if this is the beginning of the dash for cash.

The dash for cash is affecting the asset markets, too. The indices are breaking down, foreign currencies are weakening against the near universally-hated US dollar, and even gold and silver are off their highs amid the growing European debt contagion. The reason is the simple math of self-preservation: assets with gains will be sold.

As for the S&P today, I think we're close to a near-term bottom and will have a bounce back to 1220-1225. With the breakdown of the triangle, I will be a heavy seller of rallies and only a tactical buyer of weakness until proven wrong.

Wrong But Still Profitable

2011-11-18T08:29:00.006-05:00

So the triangle did fail yesterday. The first tell was when it failed to get above the intraday 38% retracement. I hedged with SPY 124 puts just before that level and it turned out to be the top of the day. It also made my day a lot easier too. No, I didn't hold them all the way down. But I held them long enough for the profits to give me a cushion as the triangle broke. That is why hedging is a great tactic to add to your trader's toolbox.

By then, I was holding only a small SSO position. I can't believe I did this, but I held the SSO because the market started to feel like a wash 'n' rinse, a term I first heard from Joe DiNapoli who first taught me Fibonacci theory.

I tweeted that I was interested in the 1205-1200 area. The S&P only got to 1209.43, a large 38% retracement level on the daily chart. I added to the SSO there and bought RSU as well. I just took off the SSO in the pre-market this morning with a nice profit. I'm holding the RSU to get short against if we can get to the 1238-1240 level.

I'm glad that the S&P finally tipped its hand. There was no stress yesterday. I had no need to be right, only to know what the market's intentions were. I feel relieved now.

At this point the S&P is projected to eventually head much lower. That's good for me and my inventory. If it should get above 1244.34, I would get concerned that it had a few more tricks up its sleeve.

Same Plan, Different Day

2011-11-17T08:51:00.004-05:00

REPEAT (from yesterday):

I'm looking for the S&P to get into the 1238-1240 area, possibly lower, but not below 1226.64. I'm looking for a reversal there and a rally to 1300 where it will end. At that point the market would be vulnerable to a massive sell off.

This morning, given the events in Europe, the futures should've been down hard. There was a bad bond auction in Spain, Italian spreads continue to widen, the ECB is showing signs of panic, and Fitch warned of US bank contagion if the EU gets into further trouble. Futures did hit an overnight low of 1220.25 which would equate to my S&P cash stop getting hit, but they've since bounced hard.

I am playing this lean and mean, aggressively scaling in and out and trying to keep my basis low. I buy more than I want to hold then scale it out into bounces. If I'm eventually correct in my assessment, I will add to my longs on pullbacks as the market heads higher, something I want to get better at.

If I'm wrong, and the S&P gets below 1226.64, I'll lose very little (it will still hurt -- every loss hurts no matter how small) but in percentage terms it will be tiny. Therefore I will live to fight another day.

Don't Take My Word For It

2011-11-16T13:14:00.002-05:00

I have often commented on the sad reality that there are not enough real dollars to back up the amount of dollar credits in the global financial system.

It might therefore be of interest to read the following article in TheGuardian:

"Right now, this electronic money makes up over 97% of all the money in the economy. Only 3% of money is still in that old-fashioned form of real cash that can be touched."

I suspect the numbers are just as bad worldwide. Sadly the writer does not realize the larger problem: should large numbers of people suddenly want their share of these credits transferred into physical form, there may be a worldwide banking squeeze.

Yet another warning to have some cash on hand just in case.

Another Chance Perhaps

2011-11-16T08:57:00.003-05:00

Yesterday was a sly day. It didn't seem like it finished its pattern to the downside before ripping higher. I think the entire move was fake.

I'm encouraged by the futures this morning, which I feel add to my view. If however, the S&P rallies to a new high without getting below yesterday's low, I will most likely be wrong and won't have as much long exposure as I'd like. Too bad. Now is not the time or the place to be greedy.

I'm looking for the S&P to get into the 1238-1240 area, possibly lower, but not below 1226.64. I'm looking for a reversal there and a rally to 1300 where it will end. At that point the market would be vulnerable to a massive sell off. This is basic Elliott Wave here, nothing flashy. But if it's correct, the risk/reward at 1300 would be considerable. The same could be said if the S&P gets below 1226.64.

Long With A Hard Stop

2011-11-15T08:40:00.005-05:00

Found an interesting snippet on Zero Hedge this morning (emphasis mine):

Paulson & Co. sold a third of the their SPDR holding which is quite a large liquidation. However, Paulson remains bullish on gold as was seen in positive comments he made recently so it would seem likely that this sale may have been an effort to raise cash after his fund suffered sharp losses in the last quarter. Some hedge funds sold the ETF to cover losses during a rout that erased $7.8 trillion from the value of global equities since May.

Gold bulls take note. In a world where oil, gold, and equities float higher more or less together, do not come under the spell that gold will reward you should markets crash. If markets crash, so will gold -- just like in 2008. It is an asset just like any other, and the paragraph above illustrates how quickly it will be sold -- along with any other asset -- when cash must be raised. Keep that in mind.

Futures are down this morning into the lower end of the zone I'm watching. I'm slightly long from the 1246 area on the cash S&P. I loaded up on UPRO, SSO, and SPY 126 calls yesterday then dumped the calls and trimmed the ETFs in the 1253 area. I'll look to do the same today down to 1240. I'm willing to be aggressive to protect the short line I've been slowly accumulating.

The hard stop on this trade is 1226.64. Below there the S&P could accelerate quite fast, and I would be quite wrong.

A Retracement Inside A Triangle

2011-11-14T08:58:00.004-05:00

Friday cleared up one thing: the S&P got above 1251.82. So for now the triangle scenario lives. This does not mean it's clear sailing to 1300 though. Now we have the luxury of a possible retracement to 1245. 1252 looks like the first area of support.

I was looking for one new high on Friday before the pullback, and saw a nice pop on the globex open in the futures last night. But for now it's a toss up. All I know is that I'm a seller higher and a buyer lower. My target is 1245. The absolute stop is 1215.42, but I wouldn't even want to see it under 1226.64.

These stops are huge, I know. But this is a big, multi-day pattern. The swings are wide enough so that you can speculate with cheap weekly SPY call options and hedge eventual profits with either short e-mini futures, or the SDS, SH, SPXU, or other inverse ETF.

Anticipation

2011-11-11T08:23:00.003-05:00

I thought yesterday would answer the question whether we were truly heading higher, but the market decided to make me wait. The definitive number that I'm waiting for now is 1251.82, the 12pm high of 11/9. If the S&P gets above that number, it will effectively make the decline from 1277.55 a three wave affair instead of an impulse. Therefore it will suggest the S&P is tracing out a large triangle on the daily chart that would likely mean new highs.

Of course I could be counting incorrectly which happens often enough. But in this case it looks pretty clear.

One thing that I don't like about the pattern since the lows of 11/9 (1226.64) is the pattern itself. It looks very sloppy. So I'm wondering if the S&P can do two things: get above 1251.82 then slightly under 1226.64. Pure conjecture, but just throwing it out there. Whatever happens, 1215.42 should not be violated if the triangle is correct.

Back To The 70s, 80s, and 90s . . .

2011-11-10T09:00:00.003-05:00

Yesterday's bearish post ended with this comment (and I'm glad it did):

"What if I'm wrong? What if the S&P traces out a huge triangle at these levels? There is a spot up around 1343 that is made up of several opens and closes that coincides with a 61.8% measured move from what would likely be the widest part of the triangle. Just throwing it out there. For the time being though, my money is on red."

Futures are up strongly this morning. 1215.42 was not violated yesterday, and it looks like 1239.58 will be exceeded. This is great news for me and my inventory; I got a little aggressive with my hedges yesterday. Waking up to a down market heading for 1215 or lower would not have made me happy. I pretty much got the top tick on Tuesday with the SDS. I didn't want to see it go to waste by having to dump it to salvage an overly aggressive hedge.

I do think the S&P is now tracing out a large triangle to new highs above 1292.66. 1300 is as good a target as any. Nice round numbers get the public and the press giddy. Could 1343 happen? Of course it could. Anything can happen.

Above 1251.82 will close off any further bearish behavior (new lows) and suggest that dips should be bought. It looks like Santa will bring a rally for Christmas. But the bill will be due soon afterward.

Until then, enjoy the rock 'n' roll.

The 70s Are So Over Now

2011-11-09T08:18:00.007-05:00

The 1276 Fibonacci confluence zone nailed the high yesterday. The S&P peaked at 1277.55. Futures are down over 2% this morning. The 70s are so over.

I often mention zones because I don't always expect price to achieve a perfect hit. It can and does happen, but it doesn't have to. There is art and there is science. I'd much rather cultivate art.

Some would rather build complex models that seek to trade the markets like a machine when markets are simply outward psychological expressions of our inner moods.

Leave science for the lab coats. Trading is more about psychology.

Today's psychology will most likely be centered on fear. Large players will notice several things: markets are down hard after hitting the 200-day moving average, good numbers from China, a rally across Asia, margin hikes on Italian debt, and widening French bund spreads.

I don't care that the latest hook is that "portfolio managers are keeping a bid under the market because they are chasing performance." The market is infinitely larger than a group of PMs who got short at the October lows and very long this week and last week. When their minds adjust to the prospect of losing assets rather than simply under performing relative to an index, they will sell en masse.

To this point, take note of the VIX. There is plenty of room for fear to manifest until it becomes extreme.

Targets now are Monday's 1240.75 low, the 50-day MA at 1220, and the 11/1/11 low of 1215.42.

What if I'm wrong? What if the S&P traces out a huge triangle at these levels? There is a spot up around 1343 that is made up of several opens and closes that coincides with a 61.8% measured move from what would likely be the widest part of the triangle. Just throwing it out there. For the time being though, my money is on red.

Back To The 70s

2011-11-08T08:29:00.004-05:00

The market seems to be reaching for the 200-day moving average. There are two spots I'm looking at. One is just shy of the 200-day MA, the other, just beyond it.

The first target is a 61.8% Fibonacci extension at 1268, the second is the 1276 area, a confluence of two separate 78.6% zones made up of a Fibonacci retracement and an extension target. The 200-day MA is at 1273.05. So you can see, there is a good deal of potential work to do at these levels.

Should the market (always the S&P in these posts; that's all I chart) get to the 1270s, I will be very keen on being short with inverse ETFs such as SDS, SH, SPXU, or RSW. I like using these for positions instead of futures. I like to save futures for hedging which requires quick hits. The ETFs I let ride with the trend.

The reason I will be keen for shorts in the 1270s is that the risk is then less than 20 points to 1292.66 for this particular pattern. The payout could be much, much larger. Back to the 1160s or perhaps even 1074.77. It's too soon to tell, but let's just say I like the potential risk/reward.

Let The Markets Decide

2011-11-07T09:28:00.005-05:00

Last Friday, I tweeted that my bias had flipped to the upside for the next several days. I also added the caveat that "it must be subject to change as market patterns release more and more information. Let the markets decide for you."

Judging by the way the futures acted last night, the markets look like they could decide for us sooner rather than later. As always, I'll reserve my judgement until I see how the S&P cash index opens because it doesn't trade. The futures can be pushed around and moves can be exaggerate in low volume overnight sessions, especially when leverage is employed.

I've gone flat at the open just now, dumping the SDS and a small SSO position from Friday afternoon. I'm more content to stand aside on Monday mornings and let the pent up emotions from everyone's weekend reading play out. I'll be watching the 1263.21 level for a break. The 200-day moving average may be in focus again, sitting at 1273.

However, the market can roll over and play dead any time it wants to. My read is that any failure to power higher at this point could cause a mass exodus -- or -- maybe some sloppy weakness down to the 1150-1160 zone before one last upthrust. That would complete the 3-leg move I've been looking for.

The markets are slowly deciding that Italy is the next problem. I don't think this is priced in at all. But only the markets will decide when it should be. Until then, I am patient.

First Order Of Business This Morning . . .

2011-11-04T09:13:00.002-04:00

First order of business this morning is to see the S&P under 1250.74. If that can happen, I will feel better that the rally is not an impulse but rather an upward correction.

Futures are down in the pre-market on the heels of the NFP number. All this means to me is that the S&P will open lower after hitting a 61.8% retracement of Tuesday's 1215.42 lows.

Should the market gather itself and head higher today, 1273, the 200-day moving average, could be in focus.

Miraculously, the SPY 126 calls I was using last Monday (yeah, duh) were back in the money yesterday. I thought they were going to be worthless, but they turned out to be ideal to hedge against. So I did. Right now I'm long these calls with the SDS inverse ETF against them.

Without a break through 1250.74 today, I will leg out of the SDS and probably get long either calls or SSO. I could also do this while keeping the SDS, getting bigger in it, or dumping the whole trade. There is still political risk in the market, so I may do the latter. Rumblings that the IMF may deepen their involvement into a bazooka-style shock-and-awe Keynesian misadventure could rattle the shorts. It will not solve a thing, though.

Change Of Seasons, Change Of Guard, Change Of Time

2011-11-03T09:35:00.004-04:00

Another late post. It's the change of seasons, and I find I need more sleep each year during the change from autumn to early winter, usually like clockwork from October 15 until just before Thanksgiving. Don't know why, just do.

There is a change of guard at the ECB. Jean-Claude Trichet is gone and Mario Draghi is now President. Interesting that we've now got a fellow from Italy running the central bank and over at the IMF, we've got a lady from France. Kind of suggests to me where the problems lie.

This weekend is also the change of time. We'll fall back an hour, so don't forget to set your clocks back and get some extra sleep this weekend. I know I will.

Today it looks like we'll finally fill that 1253.30 gap on the S&P. The market still has loads of political risk in it due to the up and down emotions tied to the Greek referendum will they or won't they coin flip. Again, I don't really care either way. (Actually, I'd like to see the Greek citizens repeat what the citizens of Iceland did and say Up Yours to the EU bureaucrats.) I only want to find the big levels where the big players play. All else is noise.

Don't try to watch every tick. Try to watch the ticks that count.

I want to put on new shorts after this gap fill. It remains to be seen if this is the correct play, but it's what I'm trying to position for at this time.

Fed Day: Trick Or Treat Or Leftovers?

2011-11-02T09:16:00.004-04:00

The upper levels from yesterday have not changed for me: 1240-1245. Another spot, 1253.30, is a gap from yesterday that may act as a magnet, too.

The S&P never got to 1209 which is the 38% retracement from the 1292.66 high. Dare I say it is still in a technically bullish formation, but it would have to do a lot of work to convince me.

No, I think it sent a clear message yesterday. I think it has sent a clear message since 1292.66. I think it's saying that we're in for a long bear market and it's just starting.

Regardless of what I think, the market does not go down in a straight line. Any weakness today would probably target 1200. Somehow I feel today's surprise could occur to the upside, though. Bernanke and the Fed are likely quite scared and could attempt to hint of goodies left over from their Halloween party.

Recall that in his latest testimony to Congress, Bernanke basically admitted that jawboning made up 50% of their remaining bullets.

Game Over

2011-11-01T09:20:00.003-04:00

I have to laugh at the title of yesterday's post, Still Technically Bullish. Although, as of yesterday's open, it was still the case. As of this morning, not so much. Futures are down over 30 points in the pre-market.

It is the S&P cash action today that will tell the tale. We will likely be left with a 3-leg structure that I was looking for, but maybe not the look I was expecting. No problem.

I was probing yesterday with calls and they'll be almost worthless. But now I feel the market has tipped its hand. So I don't feel so badly. I will play them again today, too.

Let me repeat this from yesterday:

However, any weakness could morph into more weakness at any time -- Friday's pattern left the market with some interesting options. But unless the S&P quickly heads below 1265 and fails at the 1245-1248 area (61.8% retracement zone) I will continue to look for 1300-1306, but will play it very cautiously. The EU debt deal is precarious at best, and is symbolic of too much lingering hope. When hope is finally displaced by outright FEAR, people can do extreme things.

Futures down over 30 points is what this looks like.

Structurally, it looks like game over for the bulls. That does not mean there cannot be a bounce, or even another wave of bullishness that takes us to recovery highs. It just means that structurally the market has created a bearish signature and that it should be respected until proven otherwise.

At best today we could see perhaps 1240-1245 or perhaps a close of this morning's gap. Below is the 38% retracement from Thursday's 1292.66 high measured from the October 4th 1074.77 lows. It is roughly 1209.

Still Technically Bullish

2011-10-31T08:56:00.005-04:00

Friday I mentioned 1265-1270 as strong support. We never got there, but we could today.

Friday was an inside day with low volume, which is technically bullish. So 1265 would give the market a needed breather at the 38% retracement of the move from last Wednesday's 1221.06, the day before the big up thrust.

However, any weakness could morph into more weakness at any time -- Friday's pattern left the market with some interesting options. But unless the S&P quickly heads below 1265 and fails at the 1245-1248 area (61.8% retracement zone) I will continue to look for 1300-1306, but will play it very cautiously. The EU debt deal is precarious at best, and is symbolic of too much lingering hope. When hope is finally displaced by outright FEAR, people can do extreme things.

Greek CDS Shennanigans -- Via Zero Hedge

2011-10-28T15:28:00.002-04:00

I came across this cool post on Zero Hedge that poses a great question regarding voluntary investor participation in the bail out (emphasis mine):

Guest Post: Greek CDS Shennanigans

Submitted by Finance Addict

We now know that private holders of Greek bonds will be “invited” (seriously–this was the word used in the EU summit statement) to take a write-down of 50%–halving the face value of the estimated $224 billion in bonds that they hold. This will help bring the Greek debt-to-GDP ratio down from 186% in 2013 to 120% by 2020. The big question–apart from how many investors they will get to go along with this, given that they couldn’t reach their target of 90% investor participation when the write-down was only going to be 21%–is whether this will trigger a CDS pay-out.

Great question. Not enough investors volunteered at 21%. How many will at 50%?

Weird Moments In Television

2011-10-28T10:14:00.004-04:00

Larry Kudlow had an exclusive interview last night with Charles Dallara, managing director of the Institute of International Finance, Inc., a global association of 400 or so financial institutions.

Dallara was lead negotiator for the banks and the private creditors involved in the Greek debt deal.

At approximately 8:52 in this video, a weird moment occurred.

KUDLOW: Let me ask you. At the end of the day, when people look at this deal, is it really backed up ultimately by the EFSF? And I want to ask you if this emergency fund is going to be levered up four to five times to at least another trillion euros or more? There's confusion about this. There's no specific statements. Part of the original money from the EFSF has been sequestered for emergencies to Italy, Spain, Portugal, and other countries...

DALLARA: (starts to laugh)

I found it unsettling at the time, and I still do, that Dallara should laugh during one of the most important questions that was posed to him by Kudlow. But that's just me.

Judge for yourself.

This Is Sad

2011-10-28T09:16:00.002-04:00

Bloomberg reports Norway Oil Fund Lost $52 Billion in Quarter as Crisis Roils

Norway’s sovereign wealth fund lost 284 billion kroner ($52 billion) in the third quarter, its second-worst quarterly drop, as stock markets slumped on concern Europe’s debt crisis would derail the global recovery.

Very sad.

I discussed this fund a while ago in Investing For Infinity . . . Or Insanity? when I was calling attention to the fact that back in September of 2010, it invested heavily in Greek, Spanish, Italian, and Portuguese bonds.

What the Bloomberg article doesn't mention is that this sovereign wealth fund is actually the Norwegian government pension fund.

It is exceedingly reckless, as a steward of pension obligations to its citizens, that the fund should be so cavalier. $52 billion, gone.

A Breather, Then Some More To Go

2011-10-28T08:50:00.003-04:00

I view yesterday's rally as incomplete. I will be positioning myself to be long into weakness today with a target of 1300-1306. The first level is simply a round number, psychological target. 1306 is the 78.6% retracement off the 1074.77 lows measured from the 1370 highs of May.

The 1265 area could provide support.

I was somewhat successful with two shorts yesterday, but would have made far more if I just hedged the first short with an e-mini or equivalent delta in an ETF. Hindsight is 20/20, and my business is about looking forward.

The rally occurred on strong internals, reflecting broad participation and aggressive buying. It must be remembered that the most face-ripping rallies occur in bear markets. Bloomberg noted that the S&P is having its best month since 1974. Recall that was during one of the worst bear markets in history.

Yesterday's rally felt anxious. I don't think the true angst is out of the market just yet. But I do think it can go higher.

A Deal, A Rally, But Still Some Nagging Questions

2011-10-27T09:24:00.003-04:00

Yesterday before the open:

Today at the open:

That's a news-driven event for you. The best thing to do on a day like this is relax and let the market settle in and not trade in a knee-jerk way. If that means waiting until after noon for it to tip its hand, then so be it. Trade small. The 200-day moving average is at 1274.25, and we're there.

There is no answer how the European banks are going to recapitalize as the terms of the EU deal. Also, I've yet to find a mechanism in the deal to prevent Portugal, Ireland, and Spain from seeking 50% haircuts for their bondholders. The longer these questions remain, the more chance this rally could fade.

The Truth Is Slowly Seeping Out

2011-10-26T14:35:00.003-04:00

FT reports on their live blog from the Brussels Summit:

13.15: Angela Merkel is coming under fire in the Bundestag, says Quentin Peel, our Berlin bureau chief, as the chancellor’s opponents seize the opportunity to voice their anger ahead of a parliamentary vote on expanding the firepower of the eurozone rescue fund:

“One of the best speakers in the Bundestag is Gregor Gysi, leader of the far-left Linke party, and he never misses an opportunity to taunt his more worthy rivals in big debates with embarrassing insights.

‘Why don’t you tell the German taxpayers the truth?’ he demanded of Ms Merkel. ‘They are being asked to pay for the losses of the French banks’. The chancellor looked pained and irritated."

Back Inside The Top

2011-10-26T09:25:00.004-04:00

Remember this chart?

Here's the update.

Futures are blasting to the moon this morning, which is apropos, being a new moon today 7 hours from now -- right in time for the close. A new moon usually brings change: change in weather, and sometimes change in market direction. The question for today will be whether this change blew in a day early, or if it happens today.

About all I'll venture at this point is that I would not be surprised if the upper trend line gets tested. A breakout above it would argue for new highs. A failure would bring 1190 into focus, and fast.

Close To The Real Deal

2011-10-25T09:06:00.002-04:00

Was not feeling all that great yesterday. Feeling a little better after a good sleep, but still a little groggy. Every once in a while I still get a friendly reminder that the mercury that's still in my body needs to be removed c a r e f u l l y. Slow and steady, like so many things in life, wins the race.

I slept in this morning, and it was great to see the S&P made a gorgeous impulsive decline. This could quickly develop into the real deal. The way I see it, staying under 1249.98 keeps the structure very bearish.

This morning's low of 1233.14 should be breached also if this move is the real deal. Failure to do so would be the first indication that this morning was an over-reaction.

It remains to be seen whether there is a 3-leg move from the October 4th lows or if yesterday was the final high. Pattern tells all. A few more days ought to clear things up.

Otherwise, I'm taking it easy today.

At The Top Trend Line

2011-10-24T09:30:00.002-04:00

Last week we were here:

Now we're here:

Are you a buyer or seller? It depends what kind of trader you are. Many do very well buying momentum and break outs. I buy low and sell high.

I'm not a buyer here. I will either need to enter a shallow retracement if the upper trend line becomes support. Or I will wait for a failure and for the upper trend line to become resistance.

Possible upside targets are 1255-1260. The 200 day moving average is at 1274.56 today.

The downside is considerable. 1195 would be the first target. There could be lower ones too.

A Market Out Of Control

2011-10-21T09:27:00.003-04:00

The markets are moving this morning. Forex is going nuts. The yen is finally breaking out of a consolidation since July. It's strengthening, suggesting safe-haven buying. I wonder why. Everyone else is so bullish that we'll get some sort of great news out of Europe.

S&P futures are sharply higher. The euro, the Canadian and Aussie dollar, the Pound, and the Swiss franc are all higher against the US dollar.

I almost forgot: it's also options expiration.

The S&P is in the middle of what is starting to look like a broadening top -- a market out of control. Risk on, risk off, risk on, risk off, EFSF pass, EFSF fail. Until it breaks out, risk is high. That's it.

As usual, I'd like it go as high as possible on low volume and weak internals. The higher it goes, the harder it falls.

Picking Up Some Clues

2011-10-20T08:46:00.005-04:00

Still trying to decipher what Tuesday's action meant. Yesterday added a few clues. Two things that jump out at me are a Last Engulfing pattern and a Broadening Top. Both are bearish.

Last Engulfing is a candlestick pattern that "is found after an extended bullish trend [and] represents the bulls final attempt to drive the market higher. If one is long and a Last Engulfing Bullish pattern forms, one should identify a protective stop level near the lows of the Last Engulfing Bullish pattern to protect any profit in the trade." Definition here.

A Broadening Top means one thing to me (the only thing I ever remember about it): a market out of control. With the amount of political risk in the market surrounding the EFSF nonsense, this feels right on.

As I said yesterday, I'm still positioning for a 3-leg move off the 1074.77 lows, so neither event changes this stance. I'd like to be a buyer under 1175 and a seller higher (as internals weaken). No need to get more in depth than that at this point. Not feeling an edge either way.

Below 1175 may be a little much to ask for, I realize. I'll be watching the area just below 1191.48 too, which is the lower trend line of the pattern thus far.

Your Subconscious Mind Knows Everything

2011-10-19T08:53:00.004-04:00

Your subconscious mind knows everything. You just need to listen to it.

I say this because of the textbook Turnaround Tuesday action that occurred yesterday. A part of me "knew" it was about to occur. The other part was lazy and on autopilot, stubbornly waiting for lower levels.

In the meantime, curiously, my bias is higher over the next several weeks. Yes, I think we retrace a bit lower. I may have to change my 1132 target. But I'm inclined to be a buyer of a washout on this decline. I think we can get under 1174 and over 1230. I'm starting to look for 1250-1275.

More will need to unfold over the next few days. But I'm reading the current decline as a "sloppy" one so far. These are exceedingly difficult to trade, but that is their purpose -- to wrong-foot as many people as possible and then reverse. Be ready. Ideally, have a method that allows you to participate on both sides in a risk adverse way.

Get used to being wrong if you want to be in this business. And have a method that can keep you out of trouble. I was very wrong all day, did 12 different short orders, and didn't lose. (I didn't make all that much, either.)

I am proud of one thing yesterday: knowing when to get out. My last short was covered at 14:59pm EST. The EFSF "news" hit the market at 15:00pm EST.

Yesterday is gone. What now?

On the daily charts, there is clear air up to the 1255-1260 area. The 200 day moving average is currently 1275.48. Now, do I think we head to 55-60 in a straight line? We can, but the way I see the current structure, it could complete an impulse before there too.

I'm still looking for a 3-leg move from the 1074.77 lows. Yesterday's action merely tells me that we are still in the first leg.

There will still likely be a deeper retracement (this is what I was looking for yesterday) that will be the 2nd leg. The 3rd leg will likely be the one that takes us to 1275 or even higher if it really gets going.

The terminus of the 3rd leg is where I want to be out of longs and exceedingly short. It will probably be a scary trade.

French Fries

2011-10-18T09:51:00.004-04:00

As far back as December 2010 I've been calling attention to weakness in French Banks. It started when I came across a little nugget that blew me away. I wrote about it here: J.P.Morgan Weighs In On Europe.

Some interesting comments from J.P. Morgan's Michael Cembalest (Eye on the Market) . . .

GDP figures can be misleading indicators of risk. Greece, Ireland, Spain and Portugal (GISP) are small in GDP terms relative to Germany and France. But their banking systems grew to be very large (e.g., a 20% haircut on French bank exposure to GISP countries would wipe out French bank equity).

Now it seems that the snowball is gaining speed down the hill.

Zero Hedge posted this yesterday. Moody's Announces That France's Debt Metrics Have Deteriorated And Are Now The Weakest Of All Aaa-Rated Peers

This is not what Europe needed, 6 days ahead of the G20 ultimatum's expiration for Europe to somehow fix itself, and hours after Deutsche Bank said the rating agencies may go ahead and put France on downgrade review. Just out "Moody's notes that the government's financial strength has weakened, as it has for other euro area sovereigns, because the global financial and economic crisis has led to a deterioration in French government debt metrics -- which are now among the weakest of France's Aaa peers." As for the timing... "Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures, while taking into account any potential adverse economic or financial market developments."

Moody's notes that the French government now has less room for manoeuvre in terms if stretching its balance sheet than it had in 2008.

In case you missed that Deutsche Bank also warned about a downgrade, here is the Zero Hedge post about that, too:

Deutsche Bank Warns France May Be Put On Downgrade Review By Year-End

First we have Credit Suisse saying 66 European banks will fail the 3rd stress test, and will need hundreds of billions in fresh capital, something the market ignored entirely last week but may want to reevaluate now that the idiocy appears to have subsided. And now, inexplicably, we have Deutsche Bank warning that France may well be put on downgrade review by year end. "We highlight in this note that the French corporate sector is already financially stretched, with poor profitability and large borrowing requirements. We consider that the deterioration in economic conditions is now creating a distinct risk that France could be put under “negative watch” by the rating agencies before the end of this year. We think that France has the wherewithal to react to such an outcome and could avoid an outright downgrade by taking corrective measures quickly, but this naturally would be a very sensitive political decision a few months before a major election." Why either Credit Suisse or Deutsche Bank would jeopardize their own existence by telling the truth, we have no idea. If either of these two banks believe they can survive a vigilante attack on French spreads, and the subsequent shift of contagion to none other than Germany, we wish them all the best. Yet that is precisely what will likely happen, especially now that the market can no longer pull the trick it did for the past two weeks, and stick its head deep in the sand of complete factual avoidance.

I do not think things are getting better in Europe. I think it's only a matter of time before reality dawns on investors and markets. This reality, which seems to become more and more obvious to more and more participants, is that French banks are fried.

Wasn't a 50% haircut just mentioned with regards to holders of Greek debt? Wouldn't that merely set precedent for Portugal, Ireland, and Spain? Wouldn't that be more than double the haircut that J.P. Morgan warned would wipe out French bank equity?

Interestingly, this feeling that "it's just a matter of time" is the same thing that the fiscal and monetary authorities in Europe are thinking: that it's only a matter of time. If they have enough time, they say, they can solve their problem. Only there is too much debt and not enough growth, and all the time in the world cannot fix the two. Only psychology can. And the paradox is that the results of extreme ebullience of positive mood can only be cured by an equal extreme of negative mood. Only then will investors step in and take risks again.

In the meantime, curiously, my bias is higher over the next several weeks. Yes, I think we retrace a bit lower. I may have to change my 1132 target. But I'm inclined to be a buyer of a washout on this decline. I think we can get under 1174 and over 1230. I'm starting to look for 1250-1275.

More will need to unfold over the next few days. But I'm reading the current decline as a "sloppy" one so far. These are exceedingly difficult to trade, but that is their purpose -- to wrong-foot as many people as possible and then reverse. Be ready. Ideally, have a method that allows you to participate on both sides in a risk adverse way.

Primed For A Correction

2011-10-17T08:50:00.004-04:00

As someone who added to short positions after the 4pm close last Friday, I was as surprised as anyone to see the futures in the red this morning.

Watching them climb steadily during the Asian session last night (ugh), I went to bed trying to remind myself to stick to my plan: to accumulate even more up to a test of 1230.71 on the S&P cash.

Last night, I must admit, the plan seemed crazy. This morning it looks a lot more sober. The futures rolled over from 1230.75 and dropped in an impulsive thrust to 1215.

I added to shorts Friday based on pattern alone. If my count is correct, 1224.61 should not be exceeded by much. In fact, after such a reversal, I'd be surprised to see it exceeded at all.

This is a market primed for a correction. And once again, Forex trumps equity. While Asian equity markets were gunning higher, the euro was starting to roll over, along with the Aussie.

This morning, the dollar is higher, and is shaking things up in FX-land. The aforementioned euro and Aussie are still red, and joining them are the Pound, the Franc, the Kiwi, and the Loonie. Try to watch all the moving parts for tells.

Another tell was last Friday. As the equity markets hit new highs, NYSE volume contracted to the lowest since July 26. Yet another reason why last night's reversal should not be taken lightly.

Levels: 1190.58 should be the first to go if this reversal is for real. Then 1167 will attract my interest. My eventual target is 1132 in the next few days.

Should the market gather itself and decide to head higher, I will probably dump my latest short and reassess. 1230 would be the immediate target. 1250-1260 could be as well, but I doubt it.