1000 pt up, 1000 pt down?..

Can this market pull this kind of extreme move in such a short time?   Yes it can and it's happening as we speak.   Well, at the end of last week, we finished a move that lasted a week and half and gained 1000 points on Dow.   At the beginning of this week, we have dropped about 600 points so far and it looks as though we are about to complete the round trip.     By all accounts, this is quiet scary.     It is interesting that this market rally failed at exactly the stiff resistance point noted Friday.    What's also interesting is that the coincidental bad news from the economic side and corporate earning side came just in time for the bears to help to cascade this slide.     Maybe this is the way it's meant to be.     Now we have to deal with the potential opportunities.

You might think that the easy thing to do is to throw your hands up in the air and give up on this market.   However, this is the kind of market that can be rewarding to a "two way" player.     What's working the last couple of weeks is to do the opposite of extreme reaction.    This time, it's no exception.   Our game plan for tomorrow is to watch for VIX carefully and if it challenges some extreme level coupled with the corresponding market action, we are going to be buying the dip.     This of course, is assuming we do get some kind of panic and extremely emotional action to the downside.   Notice the TRIN chart here and the comments about only 2 times the market finished in negative territory with a 2.00++ reading the day before, well today was a 3rd time and if its like the post reaction January 17th after the 2nd time...watch out!.    On the other hand, if this market does an orderly selling like on Tuesday, then we'd actually either stay on the sideline or pick some targets to go short.     One thing definitely seems to be in the cards and that is we are probably going to challenge the low that was set two weeks ago sooner or later.    To us, CSCO usually marks the end of the earning period in regards to sentiment and we are a month away from the next Fed meeting    Just ask yourself one simple question,  what have we got to look forward to the next three to four weeks now that the earning period is almost over.   Another rate cut intervention?.    Of course, we can always look forward to bad economic number that'd further confirm that we are in or heading into a recession.   

Bottom line here, we have to stay neutral and be downward biased during the next little while.     If you aren't comfortable shorting, then the only opportunity to go long is when this market gets extremely negative.    Otherwise, shorting on rally seems to be a stupidly efficient way to trade these days.

What to play?

As far as the long side goes, we'd be sticking to the recent eps winners that had strong positive reaction.    Plays like MA MOS POT .  are all good candidates to buy the dip when the market is in an extreme selling mode.    One thing we don't want to do in this environment is to chase breakouts and new highs.    This is the kind of environment where breakouts usually turn into a trap more often than not.      As far as the short side goes, anything that has had bad earning reaction would be worthy candiates again.    Oh yes, you know what they are.   Ok, everything from AAPL GRMN RIMM to GOOG are in that category.     Yes, you want to short the high P/E yesterday's growth names.   Trust us, when a recession comes, the last thing you want to go long is some high P/E growth names.

Tomorrow, besides the obvious CSCO reaction, we also have BG reporting before the market opens and CF reporting in after hour.   Both can have positive/negative effect on the entire chemical/agri sector so we'd keep our eyes closely on it.   The DBA Ag' ETFchart looks like it's quite extended, so potentially this sector might turn over. It's 50/50, long or short this bunch.