Now What?

First of all, I want to congratulate WFC on $3B in Q1 earnings! On an unrelated note, I stopped marking my house to market, and it also is worth $3B! What a great day. It makes my small loss in GS look like unsalted peanuts.

Speaking of GS, I have analyzed the recent trade below (click chart to enlarge) to hopefully keep me from making similar mistakes in the future. I think it boils down to a poor entry, which equals a non-low-risk entry.
GS


GS (big picture)


Back to the overall market:
SPX



QQQQ

Goldman Sachs

GS has made a short-term double-top at 119.76. It has established support at 112.50. I'm looking for a break at this level (see arrow). If I don't get it, I'm out. If I do get it, I'll be looking for a target of 107ish. Things need to start moving lower in a hurry though - I don't trust earnings (14th).


Longer-term view:

CHARTS you need to know

Today we broke out - as seen on SPY and QQQQ below (click chart to expand).
SPY


QQQQ


This market is wildly overbought, not to sound like a broken record. The market has made it quite clear though that it is in bull mode for the moment and not even 8.5% unemployment can stop it.

The market should not be able to run above 87/88 before a much, much needed pullback, perhaps that will be brought on by earnings season (even though expectations are in the loo). I think the green line is the next likely price target before retracing to 81 or even 77.


Notice in the next two graphs how the 2000-2003 bear market interacted with its 50 & 200 day MAs. Compare that to now. In 2000 the 50/200 MA crossover would have pretty much kept you out of the woods. And notice how many times price climbed all the way to its 200 day MA only to be rejected. In this bear market, we haven't even seen the light from the 200 day MA. More or less the light from any 50/200 MA crossover.
2000-2003 Bear Market

Current Bear Market


This doesn't mean we don't run up to SPX 1070 before seeing new lows. The timing of this, as always, is the hard part. I still have to think that if you are getting long now, the market cannot reward you - you missed the move - you are dumb money. Regardless, upon continued strength, here are a couple of examples of breakout stocks worth looking at, that have low risk entries:
MA

USD


With regards to GS. It did in fact close above its 200 day MA but as long as it is overbought and within its channel, I feel okay holding onto my puts. Plus, I bought OTM puts = small delta, so I'm not risking too much, to let out a little line on this one. The lack of strength in XLF gives me further confidence of a pullback. This will be a day-to-day decision.
GS


XLF


Final thing to watch:
VIX

Interesting Close

The major indexes easily broke out of their range/channel today; however, where they closed was rather interesting. They closed on some much needed profit taking but more importantly, they closed right at, and in most cases beneath the upper bound of their range/channel (click on charts below).
NOTE: if you're using stops by placing them on the other side of resistance, for example, give yourself some breathing room - trendlines were meant to be drawn with a crayon.

It is becoming increasingly difficult to be bearish after the last 18 trading days - it almost reeks of stubbornness. But unfortunately, it's difficult to check my common sense at the door when analyzing this market.
NOTE: my time frame is an intermediate one and I don't trade counter-trend rallies (for no reason other than I haven't found a consistently profitable method of doing so).

We are overbought, resistance in the 830-870 range is going to get worse, and I'm still not convinced that the economy is recovering when unemployment numbers keep blowing estimates out of the water every month. Also, the financials (XLF) sold off ever since their gap up this morning, despite CNBC telling you that they were the ones 'leading the rally'. Dipshits.

Must Reads:
Debt-to-GDP (check out the debt tab!)
Large Traders Sell Into Strength
Best 2 Day Starts to a Quarter

SPY


QQQQ


GS

I'm still holding APR 100 Puts on GS. If it closes above 115, I will likely get out but I'll deal with that later.

Gap Fill

We had a perfect gap fill today on, oh, everything. This suggests to me that we can now resume our downtrend with the likely help of some terrible economic numbers this week.
SPY - look at today's candle and where we closed. This represents a rejection of higher prices which SHOULD resolve to the downside.


GS - at about 107.50, just as the gap was filling, I bought the GS April 100 Puts with a stop at 115 and a price target of 100...and eventually 82.


GS - easier to see the gap fill on the 5 min chart.


UPDATE: I hope the G20 can talk some sense into Obama Von Spendthrift.

UPDATE 2: And that Conficker.C takes over everyone's PC, opens their brokerage account and shorts the SHIT out of Goldman.

Unstoppable

This rally has been unstoppable. Fortunately, this silliness will come to an end - but remember that the market is operating on its own time frame, not yours.

In the very short-term the bias remains bullish. I am doing my part at least, to put an end to this - via voodoo magic blue lines, drawn for you, on the charts below (click charts to enlarge) - which will undoubtedly act as fiery hellstorms of resistance.

Keep the prevailing trend in mind. I will still be looking to add to my short position, via SSO, if SPY gets to its trendline, as drawn below.

By the way, as the govt is working tirelessly to 'loosen' the credit markets, read this: Bespoke

QQQQ


SPY


SPY - with fibs (drawn from the gap down on 10/03)


GS - resistance at trendline & 200 day MA


X - resistance at trendline & 50 day MA

Printing Money

Financials have been responsible for the bulk of this bear market rally (SPY currently sitting at a 19% return in 9 days). Fundamentally I don't feel that anything has improved, at least with regards to unemployment, housing, growth, earnings, inflation, etc. And even though the market is a leading indicator, I don't see any of these improving in the next 6 months either.

You might think that today was a positive - i.e. printing another $1,000,000,000,000 via injecting liquidity into the economy, via buying up Ts. And in the short term it clearly was positive for the market (granted, there was a fair share of short covering today). But there is nothing positive about an economy in distress adding massive inflation and debt to its list of problems. To be fair though, they have run out of ideas.

Anyhoo, I wanted to delve a little deeper into this financial stock driven rally (since March 6th, the most recent 'bottom').
In the last 9 days the following stocks have returned the following % (approx):
C 217%
BAC 164%
MET 124%
WFC 120%
USB 96%
JPM 81%
AXP 45%
GS 44%
*XLF 60%

That's great! Although smells a bit of short covering and dumb money chasing and doesn't seem sustainable but who cares!

I remain bearish but I won't be stubborn. This market is absolutely capable of going to SPY 105 and I have to be prepared for that. If necessary I will definitely take on some long positions but I don't think it's time yet. Mainly because:
*SPY hasn't conquered this level of price resistance
*Or its 50 day EMA
*Conditions remain insanely overbought.

SPY

Banks going lower

Trading the banks these days isn't my idea of stress free, nonetheless, over the last 18 months it has been rather profitable to short them every time (actually only 80% of the time) they get overbought. Eventually all the banks will be trading at zero so naturally this trade cannot last forever but I think it still has some room to run. I mean, BAC is still at 3.95! That is an insult to your intelligence.

Shorting strength in names like XLF, KBE, UYG, and even in some of the individual names like JPM and GS has performed nicely.

KBE


Unless you have done your homework, I don't recommend the inverse - buying oversold dips - as long as the banks are under their 300 day MA.

Charts

SPY


FXP/FXI





JPM/GS





USD

Running Out of Room

IWM, as well as SPY and QQQQ continue to remain perfectly inside of its descending triangle...but not for long. It's running out of room and will resolve itself next week (expiration week). I've been looking at some reasonably prices debit/butterfly spreads and will post, if any present an attractive risk/reward ratio.

Some I'm looking at involve ICE, AAPL, GS, OIH, PFE, BMY, AKS, the list goes on and on and all candidates have a common characteristic: overhead resistance is substantial. Bounces and oversold rallies aside, I will continue to favor the downside until given a reason not to.

IWM

Stops too tight?

Between the last post (11/26) and this one, note the dangers of placing stops that are too tight. As tempting as this can be to limit risk with tight stops, below are several examples (CVX, PPG, GS) of how this can be a costly mistake, despite trying to be conservative. Of course loose stops can be costly as well. Find balance.

CVX




XLU




PPG




ICE




GS

Super Wednesday

Here's a few for the watchlist... for the remainder of this short, delicious week.

A lot of sentiment in the news and blogosphere has turned bullish recently (as does it every time we capitulate). It is true that a lot of stocks have some room to run but invariably once previous levels of support morph into resistance like a wet gremlin, it will be time for you to get short.

CVX




XLU




PPG




ICE




GS

What I'm more interested in...

On a day when the market climbs 11%, I'm a lot more interested in the following:

1) Stocks that couldn't go higher on an 11% up day - (i.e. Goldman Sachs rose < 1%, while XLF rose almost 16%)

2) Stocks that moved more than 11%, after accounting for their respective beta - (i.e. MON has a beta of 1.17 but climbed 17% today)

Other overreactions may include SRS, SKF, and FXP (even though these are ultra shorts, they are down between 25%-35%)

I would like to see several follow through days to bring all stocks back to levels that make sense to get short at again.

For example, it would be very cooperative for AMZN to get back to the low/mid 60s for a great short setup...

GS

update: withing 3 days of this writing, Goldman Sachs hits 100.

Over the last several months, Goldman has been a great buy at 155.

No longer are they a bargain at 155, imho. A stock can only jump on the floor so many times before falling through. And there's no such thing as a quadruple bottom. With earnings upcoming, this is a bit of a wildcard but I definitely like GS to the downside.

Watchist 09-05-08

Watchist 09-05-08

QQQQ
LM
GS
FDX
BIDU
RIMM
MA
CME
AAPL

QQQQ

.
.
.

Goldman

For the record, I remain bearish on Goldman; however, these levels (155) have presented great buying opportunities lately. Either way, it presents a low risk setup - place a stop below 152.59.



Get rich on that - tomorrow I'll present a way to play the recent run up in the US dollar using credit spreads with a decent risk/reward.

OptionSpot