..July fools?

Last time we had such a market gain,  it was back on April 1st!.  Is the joke on us again?.  Maybe not for the next week, month or so,  maybe even a 500-1000pt run as last April to the May's highs is in the cards , but the chances are still greater we're going to test these recent lows all over again.   This week, we said everybody is waiting for the big capitulation fear day and it would not come unless the commodities-energies get a beating simultaneously.  That same day we had a market down big time at the open and soon after we saw a beating of crude in a volatile trade that took all of 10-15 minutes and than a significant market recovery.  Of course this takes Exploration & Production Shales, Coals which are all energy related down.  Wednesday, we had more of the same as Oil took it on the chin again.  Include favorable earnings from WFC and INTC and the market had all the ingredients to run.  Times are different and a big capitulation day may never come as expected,  maybe there was enough fear Tuesday morning with the Indices down sharply followed by a historic fast slide in oil that may be enough to trigger a nice move.  Not a nice move as in coast is clear for months to come, but just enough to get us through the summer!.

As we said before the Wednesday trade, you have to keep a closer eye on energy prices and sentiment.   We all saw the new found volatility Oil can give just the day before and the damage it could do on commodities in a very short time frame.   Right now, following a 2nd day of oil dropping,  the sentiment is definitely a lower Oil and you need to know the ramifications of such in specific groups.   If you got greedy and did not take the 5-10% gaps up on coals such as WLT, PCX thanks to the ANR deal, you probably blew it all once the oil/ energy inventories came out.  Two mistakes there were possible as a trader, one is you got greedy in the first place by not selling the gaps and the second is you weren't paying attention to oil, especially on the day of inventory numbers.     Simply, the sentiment changed and we're not going after the Shales, Coals, Steels the rest of the week unless Oil shows the same volatility to the upside.   Only Ag's are a possibility now until we see where oil stands in the next few days as we expect some news flow.    We are simply at the mercy of Oil even more now and we have to respect where the money flow, institution money is going this week.    We've seen in the past year how powerful a bank- financial rally can be for those individual names,  we have to keep this in the back of minds as to something we'd start to play heavy, but it doesn't mean we're gonna start this week.   Right now, we are going to concentrate on the earnings coming out.   Basically, we're looking for fresh meat to trade and freezing the other stuff we've played for now, unless a news flow catalyst appears.  Time to hit the books and get back to old DJIM basics for the time being....earnings.

DJIM #29 2008

It's quite simple what traders are waiting for this week, does the 4 day rally have enough follow through to signal re-entering the market?.  It's also quite simple of what are the main ingredients for this potential follow through and that is will Oil stabilize after a 16 dollar/3 day flop and will earnings continue to be better than expected, especially from the financial sector.  We've had the leading groups crumble last week and now is the time to look around and see what new group starts to lead the market.  Leadership is essential for any follow through and it's almost unimaginable to think the financial sector will lead for too long as markdowns next quarter are still a possibility.   Basically, we need a little bit of everything to sustain this move and we`ll wait it out to enter the broader market.   We hope this all leads to consolidation early in the week to trigger a higher move after a pause.    Cross you fingers.   In the meantime,  we`ll look for individual earnings surprises to trade one at a time in what is the busiest week for reports.

..bankroll'over'

Every sector returned to it's true colors and we actually enjoyed it as reality had to sink in sooner than later.  The amazing bank run of irrational exuberance exhibited the dangers of holding this junk overnight as the sector fell almost 7%.  If you look at a bunch of charts you'll see our alert note of a possible top Wednesday morning could have yielded a nice return so far no matter where you turned in the group.  Unfortunately, we're not big on shorting and prefer to have patiance and wait things out,  still we hope this has more leak as we've shorted a few banks for a quick flip.   This may be the easiest, safest trade in a difficult market ..opportunities are minimal and/or dangerous as we close out the month.   The only loop hole available is to trade what we've always preached and that is earnings winners at or near NCH's.  These are the only things we'd be comfortable holding overnight  in size.     AXYS, ILMN noted before Wednesday's open have provided such the last two days.   Simply, we/you have to be very selective in your picks now until leadership shows up in something other financials.   Only other option available to find an intraday play such as EQIX,  too bad though you won't find many that go up $4 in a few hours as it did. 

Staying cool, calm is money in the bank,  trading out of boredom is the demise of many a trader. 

.."cooked in"

......" baked in",  whatever we call it,  it's the main reason we traded these stocks in the first place in 2007-2008.   We're not disappointed or surprised by the lukewarm response to excellent earnings by the WLT, MOS, CF and probably more in the morning.    These stocks were not only hot because they just happened to be in the bubbling commodity space,  they were hot because they were going to produce excellent earnings in the Q`s ahead.    Basically,  our intentions, as always is to get in ahead of the herd and we've done it with the PCX, ANR, CMP etc..  We took advantage of the numbers we are seeing now from the commodity stocks in the weeks before!.   The point is to get to the party early enough.  We can`t be surprised to the reaction now,  we just need a catalyst such as a weaker dollar, higher oil to go with these stellar earnings now.    Simply, earnings won`t make these go by themselves as the playing field has shifted.    You now need to writedown a few billion less than expected as the banks/investment firms have to get upside off a report.   What a wonderful world eh!.lol.  Anyways,  the sentiment has changed and you can't hop on these earning plays just because of the headline.    You will most likely be holding a white flag after you buy too high, too early.   Beating well above consensus means diddly-squat initially,  just look at the numbers below.   At this point, we'd wait for the 'late to the party' to exit and for the CC's to be over with before even having a thought of re-entering.    This could be an excellent opportunity to get a piece at these prices or lower in the days ahead,  but we need an extra catalyst to hitch a ride.

Mosaic beats by $0.24, beats on revs ,Reports Q4 (May) earnings of $1.88 per share, excluding non $0.05 gain, $0.24 better than the First Call consensus of $1.64; revenues rose 105.8% year/year to $3.47 bln vs the $2.85 bln consensus

CF Industries beats by $1.42, misses on revs, Reports Q2 (Jun) earnings of $5.02 per share, includes as $0.92 mark-to-market gain, $1.42 better than the First Call consensus of $3.60; revenues rose 36.8% year/year to $1.16 bln vs the $1.21 bln consensus.

Walter Inds beats by $0.37, beats on revs Reports Q2 (Jun) earnings of $0.94 per share, $0.37 better than the First Call consensus of $0.57; revenues rose 24.8% year/year to $370 mln vs the $304.7 mln consensus.

As for the market, the easiest and safest trade discussed late last week is happening.  This stuff is radioactive and we're not swimming (buying this market) into the dirty bath water all around you.  Thank you, MER!,  you may dilute (shares) yourself by 45%, but now you're so transparent

One for the Economic data....

It's been quite some time since poor economic data played a role on this market.  Most of it is widely known and/or expected.   We have to admit, much of the focus in the past couple of weeks has been purely on the financial sector and crude oil.   Even the earning reports, by and large, have been muted somewhat by our standards.    So today, we get the data showing an increase in jobless claims number, an unnerving 2nd Q GDP and a late Greenspan blur spooking enough people to cause a 200 point slide.   By now, most of us have gotten so used to the up 200+ and down 200+ days that today's action doesn't surprise or cause a scare.    In fact,  this year is shaping up to be the year with the most triple digit trading days according to our memory, and yet we still have five more months to go.

Tomorrow is the key employment number that many traders may be basing their trading action on for the next month or so.   With the majority of the big reports out of the way, the sentiment is definitely being shifted back onto the economic aspect.   In our opinion, a lot of the bad earning reports will be reflected in trading action in the month of August.   If we do get a poor job report tomorrow,  it's almost sure that we will revist the July low sooner than later.

Commodity plays gave back some of their gains today due to the obvious market pressure and recent upside.   It'll be interesting to see if they get any sort of support next couple of days providing crude price stabilizes.   For DJIM traders, we feel we aren't in a favorable situation to build any positions at this time.    What we will do however, is to use any support/rebound action off the fast movers to make a few points here and there.    Following some of our favorite commodity plays does have an advantage here.    You can be almost sure that on a good day, many of our plays are capable of $3+ gain and they can be very forgiving.    The only thing we have to make sure is that we play these on a "good day", where the odds of making those points are substantially higher, not trying to find a bottom on a bad day.   Unfortunately, this is the only viable trading method for us at the moment until a clear trend is established among a sector or a group of stocks.    Trading a good theme is our favorite strategy, but the current environment simply lacks any theme.  Otherwise, we can only try to catch a quick move like in CEDC the past few days for some points and/or an EQIX as last week.   Simply, stick to the stocks you know/ traded or look for a set up elsewhere for a quick trade.  Take what you can get in these turbulent days.

In AH today,   IPHS released what looks to be quite the positive report, ($2.74 vs. consensus of .88).  The main reason is the Mexican profits quadrupled accounting for about $ 1.70 of the difference from the consensus estimates.    A lower tax rate assisted the earnings of about .30c..   More importantly,  the price realization outlook from price increases is positive.  Consensus estimates will likely at least double from the $4+ now as it stands.    Well,  judging by its after hour action, we wouldn't want to guess how this goes as the gains can be deceiving,  the volume was low.   If we had a large position going in, we could have pushed it higher easily AH's by buying small lots to create a mirage of sorts to sell into later.  Maybe someone else did.   Given the strength in Agri. stock lately,  this is in line with what could have been expected, you just don't know if it will react like IPHS did or like CF did the first day trading following a rosy report.  That's the tricky part in holding overnight into earnings, even if expectations are high given the rest of the groups reports,  you just don't know what the initial reaction will be.  Yes, this IPHS will be back on many traders' radar again.     What we do want to caution is that given its multi- week decline since early June,  there will be lots of resistance on its way up and many cashing in on the AH's prices in the morning.  We'd sell in AH's/ pre-mkt and let the exuberance settle to possibly re-enter if we had this stock.   Instead of buying a gap like IPHS in the morning,  we'd possibly look to get a piece of MEE off it's report,  the number is excellent,  but some may be deceived by the litigation number thrown in and so it may become a bargain.   Of course,  the strength/ weakness of the broad commodity market  and /or general market off the employment will play a larger part if we move into anything new before the weekend. ... Have a good one'!

Rattled...

This may sound like a broken record, but once again, market has been rattled by financial woes.    By monitoring some of the action,  you can't help but feel something in the group is about spring a leak.  The funny thing today, is that we can use a lot of old scripts, same scripts from last week, or last month to sum up the action.

Same issue, same worry, same problem and same reaction!    The thought and prospect of FNM/FRE being bankrolled by the government in the not too distant future is shaking everyone into a "wake-up" call on this otherwise slow summer day.     According to Barron's, government is ready to recapitalize (take over) FNM/FRE operation and effectively wiping out the entire common shareholder and perhaps the preferred shareholder's equity.    Also, it goes as far to say some debt obligation will be affected too.      That, folks, is a huge deal and a scary one.     The repercussion is huge if it actually happens.   Believe it or not, a lot of financial products are still tied to the FNM/FRE debt.      So, the carnage may not end with just the FNM/FRE shareholders.      The other message that the market is getting that "NOBODY is safe"!     Yup, there goes the confidence of seeing a speedy recovery in financial sectors.  LEH asset sale concerns also weighted in and will continue to affect the group this week.

The problem with the current administration/system is that even though they know the problem is deep within the financial sector,  it just takes time to resolve all of the issues.     You can't just bail out all of the troubled financial companies in just one week.   It may take weeks or months to find the troubled companies and it takes just as long to resolve the issues.   We are probably 2/3 of the way through write-downs etc. 

Commodity plays, on the other hand, are also seemingly on the cusp of further trouble.    The silly upgrade of Agri. by Citi lasted a good one hour before everything closed down near the low of the day.   Everything by Citi lasts an hour, we've seen this endlessly in their solar upgrades.  The commodity index, CRX, is in danger of breaking below 800 again and some of us may actually be looking forward to it.    Basically, there will not be a bottom in commodity plays until a panic induced bottom occurs.

Despite all the negative stuff out there, there's still couple of plays we are keeping our eyes on.   Both AFAM and FSYS closed in the green and held up really well in the face of an overall negative environment.   We discussed AFAM in detail last week, we got a nice pullback immediately after saying,...   "than look for a healthy pullback to re-enter or enter for the first time, if you missed the first leg as in AFAM".   There's a chance that AFAM can challenge its old high sometimes this week.  We're also adding USPH, CRL to our Shadowlist based on recent earnings, near NCH and the fact they are in favorable groups in this environment.

Bottom line, be selective and be very patient with this market.  We can't stress this enough and so we repeat and repeat.

Implications..implications

Seems like this market is endlessly at the mercy of this and that...Oil, FNM/ FRE (GSE's), the Russia-Georgia escalation and if this wasn't enough we had a countdown to something new and old.  There was something called the FDIC, no not the FOMC to analyze late in the day and a dude named Gustav heating up in the middle of nowhere and days away.  Unfortunately, all of this is not making for much of anything as the street is a ghost town and by Friday, we might not even be here in cyber town!.  This is ridiculous,  the odds of trying to find a trade and than winning on it is just not favorable.  To make matters worse, the idea (history) of this market picking up post Labor day may not even occur with all the possible implications abound this year.  Who in their right mind wants to come off the sidelines and stick their toes in this market environment. The excuse of low volume in part may be attributed to the holiday time of the year, but the fact it is something like 30% off last years and you know it is more than that!. 

It seems if you're hard up for cash,  we have a 'destruction' trade unfolding.  It was quite pathetic to see stocks of 2005 surface today waiting on Gustav to destroy peoples lives!.  Anybody...remember IPII (manufacturer/ distributor of building products), well this now worthless stock rose 70% today on speculation of destruction. The funny thing is this POS stocks business is primarily away from where the storm is pointing to!.   Even tough trading is based on implications of this and that in the world, we just can't put ourselves to speculate if people will be boarding their homes!.  One thing is to react to turmoil as a trader, another is to speculate to this potential risk arising and bet on peoples lives.

Anyways, hurricane season's potential implications almost guarantees Oil will stay above $110.  The impact on the energy markets will be in focus for days to come as this is the summer's first storm that may play havoc with the energy infrastructure.  A glimpse into the past shows Natural gas balloons in comparison to the price of Oil in such circumstances, our cheat/ tear sheet  will focus on the E&P stocks on our list to end the week.   Unfortunately, with the new high list so pitiful this week,  there is no other  potential "most wanted"  stock/ group in this ghost town as of today.

....not pretty

The broad markets produced a gap up and than what can only be called a 'negative' reversal day.  You can't slice it any other way, a strong open which saw DJIA up more than 240+pt at one point and close 27pts down is just ugly.  This type of action simply shows there was not a sufficient amount of buyers to sustain the initial move up.  Maybe, it was it too much to expect that a level of buyers necessary to sustain any move would all of a sudden come out on the first trading day following summer vacations.   If this wasn't ugly enough, it was even uglier on the sector/ group watch as the biggest downside was on the energy and materials groups.  The best trade possibility noted Thursday of going short the energy sec.(or at least selling out before) over the weekend if the hurricane did not live up to worst case scenario,  played out.   If all things come in 3's,  we should have remembered what we have seen seen the last 2 months and that is huge sell-offs in commodities in the beginning of a new month and played that into the weekend.  Unfortunately, we did nothing, we don't bet against a potential wrath from mother nature or bet that all things come in 3's.! . 

Does this action mean we are heading back to July 15th times?.  As long as the Discretionary stocks hold up, probably not....but, it does look as if traders/ investors may just be exhausted and have left not only for the summer, but are out all together for the rest of 2008!.   We discussed this possibility last week that the volume may just not return as expected come every September this time around.    Since one day is not enough to make this possibility come to fruition, we'll continue to wait it out. 

It's back to the drawing board as we said yesterday to start the Q, but after yesterday it just got muddier!.

..what's new?..

Oh well,   just another bailout with an injection of $85 billion of taxpayer money!.   Now what?....As expected the sentiment is mixed, if you've followed this closely you know this outcome was not going to rocket the market futures, but if it didn't happen,  it surely would have shot the market dead.   Basically,  it's another band-aid and all that will most likely happen is the negative bias will turn somewhere else and/or someone else.    We witnessed more of this today as MS was looking to be next in line for a run sell- off,  forcing the company to their earnings after the close to avoid more damage.     Maybe,  putting the the taxpayer on the hook will give the market some relief ( sounds ridiculous, but true..lol),  but we stand by what we've been saying and that is there is no reason to step in front of the bus!.  

At least,  we held the new support of SPX 1170, which may give us something to work from, reverse..bounce,  if we can just avoid another crisis in a financial firm in the next little while.   We had a huge volume/ reversal day in signifcant areas eg. DIA and if technicals can override the market turmoil, it should be now.  That's the 2 day outlook before the weekend, we'd still keep all trades on a short leash, number of positions to a minimum.

The market is under significant pressure, investors concerns have not changed overnight and will stay uncommitted as to getting in front of the bus.  To put it into perspective,  there is one trade and it is a stuffed cash trade!.   When we talk of needing sideline money to come back,  we are not talking a piggy bank savings here.   There is a hoard of cash in Money Market Funds that will eventually make this market rocket,  but it needs conviction and capitulation would get the ball rolling!.......unfortunately, we just can't roll as the Gov't keeps getting it's hands in the way.  

There has been nearly a ``trillion`` added to money markets since we started this crisis in August of 2007.   This is about $400billion more cash raised than the last bear market in 2000-2003.  When this ``trillion`` balance falls and it will fall in the hundreds of billions,  it will create an incredible Bull rush!!!.   So, do you want get in front of the bus now and risk not participating with the billions that will move the market because you blew your cash now!...Just something to think about if you`re frustrated, impatient day over day to make money by trading..investing.  

DJIM #38, 2008

We all knew this saga was going to come to an end sooner or later, we just didn't how or when!    For most of market participants' sake,  this financial crisis is better off ending now than later.    So, here comes the finally!    In addition to the transformation/ transparency of the financial model(s), trading rules, as we know it,  we also have the proposal to bail out the entire bad sub-prime assets!    This is being proposed by the current administration as we speak and it will cost around 700 billion!     To put this number in perspective, current U.S. deficit is around 10.6 trillion and this will effectively increase the deficit by nearly 7%!

The good thing about this rescue is that it will absolutely stop the bleeding of our financial market.   For most financial company executives, except Lehman's, of course,  they can breath a sigh of relief!    Chances are, with this bailout plan, we should not see any more big institutions go under anytime soon!    This will also cause an immediate stop to the constant selling due to the headlines regarding write-downs and capital injection etc.    In most eyes, this action may have finally effectively put a "short" term bottom in this market.  An opportunity for a fresh start is what we all seek.

Now, the bad thing you may say is this bailout plan is that it doesn't address any market concern other than the financial sector.    We also don't really want to get into the discussion of the sudden increase of U.S. deficit as they have been printing money for a long while now.   Hopefully, market's attention will slowly, but surely turn back onto the economy and earnings this upcoming earning season.

With two of the rockiest trading weeks behind us, we are actually looking forward to the rest of the month and beyond.    Whatever the opportunities or misses you think you could've played,  just leave those thoughts behind you now.  To be honest, looking at the DJIA/ SPX flat week close, if you took the week off...you didn't miss anything!..lol.   Without constantly having the market at the mercy of the headlines of financial institution fumbles,   we can finally and rationally make some logical trading decisions from this point on.     Also, with the stabilization of the financial market,  we don't expect that many more 400 point swing, so we can better manage our trading game.   Bottom line,  it's time to leave our gambling mentality and get back into trading zone.

Lot`s of work to do this Q, as we see below...

Equities            1-day/week/month/YTD
S&P 500   1255  4.0%   0.3% -1.8%  -14.5%
NASDAQ   1745  2.8% -1.2% -8.5%  -16.3%
DJIA         11388 3.3% -0.3% -0.4%  -14.1%
FTSE          5311 9.6% -0.1% -5.2% -30.5%

cRIMMed

We'll avoid discussion of the " Deal or no Deal", circus in Washington, like we said, GREAT!..here comes Obama/ McCain!.

So... is RIMM the sign of things to come in the near term?   Our beloved RIMM came out with earnings that simply met  expectation with guidance on the soft side.    For a company that taunts endless growth,  this is just not acceptable.    Well, this is also has to do with the fact that we are already in a very fragile trading environment.     Last time we checked, RIMM was trading at $78 and change and that's a drop of about 20%.     If this drop holds, effectively, RIMM is down about 50% from its high this year.

This, of course is a concern to us.    RIMM, along with AAPL, GOOG, BIDU...  are considered beta stocks to us.    They simply represent growth stocks, period.   If these stocks start to get hit one after another, market will be under more stress on top of an already overstressed environment.

For most of the market participants, there's simply more hiding than trading these days.    When the market stabilizes somewhat,  we wouldn't be surprised to see a steadier flow of money into this market.    For now,  we just have to let the market show us what to avoid and what has potential.    We have been looking and adding a little bit of commodity stocks lately and recently we have been concentrating a bit more on the natural gas related stocks.    The action in the etf UNG is showing an encouraging pattern and many "shale" plays on our screen showing some stability as well.

Tomorrow is the last day to this otherwise low volume week.    We are pretty sure that all of us are looking forward to the weekend already.    It'll be interesting to see if the bailout deal gets finalized by Monday. 

..revival or not

As we said, fooled once, fooled twice... and you become hesitant to enter into a market because of expectation number 3 that the bailout plan will happen sooner than later.   To us the 'bailout' trades have already happened.. up and down.   No matter,  if this rivival is passed....who cares!.    Well, of course we care for the longer term prospects, but as traders, the reactionary trade we `ve been seeing may no longer be there by the time the bill gets the vote.   The 5% reflex rebound erased the post vote losses and all it did was probably allow shorts to think if the markets extend higher,  they`ll get another opportunity.   We`d feel better if this move didn`t take a day,  we just allowed for a pullback.

As we've pointed out the last few months, biggest losses in the commodity sector happened in the first few days of a new month.  We are here again and with the probability hedge funds are faced with huge redemptions after a horrible September,  we think we may see heavy selling again this week.   We`ve been saying the steel trade is over for awhile and now we think the Coal trade maybe the next victim as things are deteriorating (including the critical China demand).   After today`s rebound, commodity stocks may have put themselves into a position to be sold off hard.    It could be argued that Monday`s 20% declines in commodity stocks was the sell -off,  but we think there may be more in store. 

There is unprecedented strain,  besides the obvious problems in the credit markets, equity markets,  we have signs from it spreading all over....resource companies bailing out on deals (eg Xstrata- Lonmin) , huge construction plans stopped in Moscow by a company.    Simply,  day by day, we are seeing a slowing down worldwide,  the noise is widening across every aspect of daily life. 

Is it a keeper?

Is the reversal the beginning of stock rally keeper?   Well,  it seems the only ones not giddy by the close were DJIM traders and Art Cashin.  Even the biggest bears in blog land seemed to have changed hats!.    Honestly,  it was quite disappointing to see the market rebound to do another 1 hour rally,  we've seen enough of them lately only to be tossed back to reality only a few hours trading hours later.    Before Friday's trade,  we said we may just get a memorable crying game come Monday and it was definitely that as panic spread all over the world.   Unfortunately ,  we basically moved more than everybody else being down 8% on top of the 400+ drop on Friday after the 'vote'.     What we did is basically even out our losses to the worlds by jumping back up 300-400 pts.   Now we wait for reaction across the world indices in the morning to see if anyone was impressed by the reversal here.   Probably not!.    Give us a co-ordinated worldwide rate cut by week's end and we can talk about a decent short term rally,  until than all that has happened is we're just a little more open to trading long possibilities this week.    We're not concerned about catching a bottom,  especially in times of incredible volatility...but , we are anticipating a massive rally sooner than later as the ' trillion' ++dollars  we've talked about starting to come off the sidelines.   The VIX reaching mid 50's implies the SPX could be 50% up or down over the next 12 months, it basically shows what the expected move could be and its quite a range of outcomes.  That's a potential massive rally.    Besides a coordinated global rate cut,  we need to see short term credit markets see reduced stress, improved liquidity after the TARP,  but we need to wait for this to show signs before we can have any rally of substance.    We also need to see leadership emerge and 1 hour doesn't do it!.    Anyways, we're closing in on a lifetime golden opportunity, but we're not there just yet,  just hold on some more before you get your Prince albums out and "Party like it's 1999" all over again!. 

..Melt- up..

The name of the game in this volatile environment is 2x ETF!.  Up and down!  Well folks, in spite the fact we got an extraordinary hearty gain today,  this was most likely more unhealthy action.   It is just another 6%++ intraday range,  not the -3% bottoming multi- day range we're looking for to get sidelined institutions or fundamental investors into the market.   It's still the wild, wild west and trading ETF's, especially the Ultra 2X`s is the way to go until some leadership is shown.   Let`s face it,  finding a winner that lasts a day or two is almost impossible these volatile days.   Most people will wonder, isn't it good that the market went up 10%?   Yes, getting the market to go up big in a bullish environment is good, but we`ve seen this movie before.   A huge relief bounce in a painful market environment should be considered somewhat of an evil.

What does it mean then?    It means that the downward pressure is being relieved for the time being.    But, the bottoming process will probably be prolonged.     Most traders we know, who are trading this market still, are only gunning for the very short duration of this uptick.    Today just happened to be a great day, if you went with the right set of ETFs.  The ones we prepped this morning, SDS Short, SSO long  up 20% with the underlying SPY were perfect.

Besides the `get your gloves`ready Journal,  we thought early in the day this might have fire power and alerted.   If this market managed to break through 870-( 880 SPX to be safer),  we might get a chance to do some serious damage to the upside.   After we pullbacked at 87.71 SPY,  it was set to go off when it reached this level again.    When the breakthrough came,  the rest is simply history.   Yes, today's gain probably made the history books too, but almost every day does such this month.     We have a Fed meeting tomorrow and a GDP report due out on Thursday and at some point we`ll get a pullback.   Instead of waiting for this,  it is only right to take profits near the close.    Both of these events (Fed and or GDP), can provide some very unstable action for the market.    As this market is approaching the previous resistance,  our money will be leaning toward the bearish side,  we may get some catch up money flowing in the morning,  but that will probably be hit by profit taking by Fed time.   It will be interesting to watch the post- Fed market action.

Lately,  due to the lackluster earning reaction and the volatility level of individual stock plays, we`ve decided to stick to ETFs until leadership emerges or say Oil shows signs of life.  Still, if Oil shows promise, we`d most likely trade the ETF (OIH) instead of individual plays.    Honestly, when market is swinging 6%+ in either direction on a daily basis,  the best plays to follow the trend  is the actual index ETF themselves.     The 2x ETFs, at this moment,  are our favourite.      The ones we currently track/trade include  SSO/SDS,  DDM/DXD,  QLD/QID,  DIG/DUG,  which are the pairings for  SPX,  Dow, QQQQ and Oil.     Hopefully,  when the volatility of this market comes down to a more reasonable level, we can begin to look at some individual stock plays.    For now, the name of this game is ETF.

Bottom line, it is still very very chaotic out there and regardless how you want to approach this market, "protection of capital", is still the number one priority.     There's no need to let the daily wild swings pressure you into making unwanted trading decisions.    Even for the most hardcore traders, it is ok to sit out for few days or weeks at a time.     We are not here to prove anything,  we are just here to make a living and give some sane direction in insane times.

Bottoms Up!?!?!

There's only one thing on every traders mind going into the late week trade....Is this a retest of 10/10 coming and will it be successful ?.

Here's some facts,

86% of bottoms have a retest.  75% of retest windows will pass by 11/23/08.   A large number believe the “low” was set on 10/10, when the S&P 500 fell to 839 intraday, representing a 46% decline peak to trough.   If 10/10 indeed proves to be the low,  a retest is almost a certainty.   Since 1900, retests are the norm, occurring 86% of the time.   Applying those past retest windows to the 10/10 “low,” we arrive at some dates that could be important.    By 10/26, we passed 25% of retests.   By 11/23/08, we should have passed 75% of retest windows.  The furthest out to see if 10/10 holds is to 1/22/09, which is the 2002 lows. Three bottoms had no retest, 1917, 1942, and 1949.

If history of retests can be used as a barometer,  it supports a mid/ late November rally.   This also coincides with the probable receding in the intraday hi-low ranges that is essential in calling a bottom.  Why?.....The surge in intraday volatility above 3% has been associated with the major lows of 1987, 1998 and 2002.  We've been in the 6% range since October and only recently have seen this drop off.  Is it enough to bring the institutions/ fundamental investors off the sidelines?.  That's the big question and we'll only know after a successful retest.

Finally, the 45-day redemption window for some hedge funds is 11/15 and this can play a role into any rally.   This issue has been discussed constantly this week putting fear in many.    Investors have been watching this window carefully for obvious reasons.  To the extent that funds have anticipated redemptions, this explains some of the selling we are seeing.   Additionally, no investor wants to add risk during a time when there is such an imbalance of sellers.  Thus,  investors are likely to wait for this window to clear before adding risk.   Unfortunately, a large number of hedge funds have 30-day redemption windows,  which means additional redemptions could be seen then.   Judging by the beatings taken by Solars and many material/ commodity today, liquidations are ongoing.

Let's hope history is on our side....