Why Governments should Like Gold

Consider why governments should like Gold:

1) Gold acts as the perfect sponge for money/liquidity. Money put in gold does not really affect the broader economy like money going into oil or treasuries does; money put into Gold goes absolutely no where except into Gold. This is the primary reason governments do not like Gold in deflationary periods because it acts a dampner on their money printing purposes.
2) You can easily assess the value of another nation's currency by how much gold they have. If I have 400 tons with $1T in circulation and you have 800 tons with $1T in circulation, it's pretty easy to determine that your currency should be worth more than mine. With floating fiat currencies, determing actual, absolute levels of trade on a global basis is difficult at best.
3) You can always trade your gold to another nation for goods or services required. For example, a war or some oil.
4) Whether we want to admit it or not, ultimately a nation's status is based on two things -- what they have already and what they can produce. We can talk all day about intangible things like "free speech" and "rule of law" but at the end of the day, and I admit only over the short run, what a nation has and what it can make are most important in determining its next 5 years. Gold is something that productive, wealthy nations should have. Gold is something that Gold producing nations can extract. The value of their nations [currency] is intrinsicly higher than those who have not. That value ultimately largely determines who would be victorious in any sort of battle -- whether it be trade or military.

My country, The United States of America, at least on paper (if you want to believe some of the consipiracists who say the Gold out of Fort Knox has been moved or sold, be my guest), has the world's largest Gold reserves -- far and away. I also find it interesting that the United States in the past 60 years has not really been a net seller of gold either. What does that really tell you about what the US Government truly belives about Gold?

When push comes to shove, the precious metals are one of the most tangible things a nation has in its economic arsenal for trade in times of last resort. Our government knows that. Do you?

Another classic CNBC quote: “Dollar back to normal pre-crisis levels”

So the dollar broke below another critical support level at 75 and set another 15 month low at 74.7 intraday today… It closed back above support at 75 but that is not the point.

The folks on CNBC actually had some bear on and he was talking about the dollar crisis. After he got off the air all the CNBC cheerleaders, oops I mean commentators said… “I am not sure why people are worried about the dollar just getting back to “pre-crisis” levels.” I heard the same thing on Fast Money a few days back.. When Tim Seymour was asked what he thought about the dollar falling he said it is nothing to worry about because all the dollar is doing is getting back to “normal, pre-crisis” levels at 72.

So that is the manta on CNBC now… When anything bad is said about the dollar falling it is ok because the dollar is just getting back to “normal”. These pump monkeys must think we are all idiots.

I have highlighted some charts to illustrate CNBC’s idea of “Normal levels”. Notice my red circles. First the 10-year US dollar index chart:
http://img687.imageshack.us/img687/7430/10yearsdollar.png

Now the 30-year US dollar index chart: http://img39.imageshack.us/img39/1893/since1981.png

(Note: If you cannot make out this chart it starts at 1981 and the peak in 1985 is at an amazing 164.72)

72 is NOT the NORMAL level for the US dollar. It is the ALL TIME HISTORICAL LOW.

Do these pump monkeys have short memories? Why was oil at $147 in 2008?? It is simply because the dollar broke below 72 and looked like it had no support and people PILED into every ANTI-dollar trade. Sorry peak oil folks, this is what I strongly believe. Why is oil over $80 now even though we have ran out of places to store it in the U.S. and demand is next to nothing? Because the dollar is at 75 and people are piling into the SAME ANTI-DOLLAR trades.

If the dollar were to break 72 again Oil would be back to $140 even without any demand. This is not a healthy situation and it sure as hell is not "NORMAL".

PS: If you are curious about my opinion of the stock market even though the dollar has been turned into confetti my bearish view remains the same. The Russell 2000 peaked WAY back in September and still has never taken out that high. Even as the S&P, Dow and Nasdaq make new highs every day on thin volume and narrow leadership the Russell is actually FALLING away from its CLEAR double top. If IWM (Russell 2000 index) breaks out I will be a believer for the short term yet again. The top 2000 stocks is a much better index for charting breakouts and breakdowns because it is the real measure of “the market”.
See the chart below:
http://img32.imageshack.us/img32/2833/iwm.png

Copied from my blog at
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=292310&t=01001808419327792238

Only 2 Billion of government treasury purchases remain.

Ironically the start of this bear market rally was kicked off when the Fed started its “Quantitative Easing” program. In layman’s terms this means the government printing money to buy treasuries. It is one of the only times in our monetary history that we have done such a thing and if you have been reading this blog for a long time you know that I call this the “Big Red Button” or the “Nuclear Option”.

I said for a few years that they would only use the “Nuclear Option” if their backs really got against the wall and there was no alternative. I also said that at some point they would do it even though it would be horrible for our economy. Well in March that is exactly where they were and as I expected they hit that button.

In all, the program was somewhat successful in holding rates down for the short run. The 10-year bond was trading at 3.00% when the program was announced. (up from 2.00% at the lows) Even with the massive rally in stocks which would usually cause a large flight from bonds the 10-year today is only trading at 3.40%. This is because the Fed was pouring in billions in purchases every week from today since March.

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib-wRSpEUe8bXyGLpqf9rQCIUL68hhhSzBO6ZOKNTdHbIEi_uMZJHPNd7GArux1iTsfbTukPQ_atCi86JZA54d56Eu17roT-mOkxCHHt-K-P-F9vmkFl5YTd_gpmzx1k2qkLRbqGNWY2g/s1600-h/FedTreasuryPurchases.jpg

Now I see this story on Calculated Risk which says that with the Fed’s 1 billion in purchases yesterday they are left with only 2 billion of the initial 300 billion.

http://www.calculatedriskblog.com/2009/10/fed-treasury-purchases-just-2-billion.html

Back in May 2009 I wrote a blog here called:

“Dollar or the bond market Benny, your choice…”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=198854&t=01001808419327792238

This is what I said at that time, this is when rates started to rise and the dollar first really started to fall.
"
The people selling the bonds were selling to force the Fed to buy more. Whenever a market participant makes a bluff like “Paulson’s Bazooka” from last year the MARKET CALLS THE BLUFF. That is why the yields are rising.

The people selling the dollar on the other hand, were selling because they are AFRAID that the Fed will print money to buy more.

So now the Fed has a choice.

1. Buy more bonds now and continue the dollar obliteration but hold down yields a bit..
2. Don’t buy more bonds and watch the dollar strengthen but yields rocket higher.

Because I think they are going to chose #1 I covered most of my shorts in real life… I went heavily short at 888 back on April 30th and today we closed at the same exact level (888). I still think stocks could be headed a GREAT DEAL lower but I thought the more “sure thing” at this point was gold and gold stocks yet again. Plus those ultrashorts BLOW and I don't like using puts. I bought a lot of gold on the break of $930 a few days ago and some of my favorite miners at the same time.
“
That worked out well, unfortunately I did not have the conviction to hold all of those positions till today but I always hold a good amount of gold.

Anyway….

So now we are at an interesting crossroads. Really I should have saved the title “Dollar or the bond market Benny, your choice…” for today’s post. When I wrote that post the Dollar was trading ABOVE 80 on the USDX and the 10-year bond rate was only 3.20%
Today the dollar is down below 75 and even with all the billions in buying from the Fed rates are just a bit higher at 3.40%. On one had the dollar crash has to be getting out of hand even in the Fed’s mind at this point. We have Oil well over $80 even though there is practically no demand for it because of this dollar issue. On the other hand the real estate market has not turned and higher rates at this time would still be disastrous for this economy.

Because of these issue I believe the Fed will wait before this issue a second Quanitative Easing program. They are going to spend their last 2 billion next week and see how the auctions go without them buying. I think the auctions will go poorly but if stocks were to roll over a bit the “flight to safety” could keep the bond market from outright crashing.

Either way if the Fed does not issue a second program yields are going to go higher unless stocks crash (down more than 30%). Even with a stock market crash I don’t see the 10-year ever getting to it’s December 2008 low yield mark of 2.00% where I called the bottom.

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=120472&t=01001808419327792238

The only way that is going to happen is if they hit the “Big Red Button” again. If they were to do that though I believe we truly would be at the endgame for our currency. Seriously if they were to issue another 1 trillion MBS/Treasury purchase program I would be joining the camp of the hyperinflationists. Currently I am still solidly in the camp of the stagflationists (the guys who are winning).

Because I think they know at least as much as I do I believe they will hold off on a second Quantitative Easing program and we will get to see the TRUE treasury market over the next few months.

Let’s hope we don’t have to see what happens if their back gets to the wall again.

Outside Day! Bears take over?

Outside Day:
"Outside days can occur frequently on daily charts. The secret of the outside day is the bigger the better and it has more meaning if found at the end of a trend.

The outside day (OD) should completely encompass the previous day. It must have a higher high than the previous day and a lower low than the previous day.

One of the most important things about this pattern is that the bar closes in the opposite direction of the trend. If the trend is down the close on the OD must be near the high or in the upper part of the bar. The opposite is true of the up trend. The OD may still work if this is not the case but my research show that it is more effective if it does close in the opposite direction."

Stole this from definition from:surefire-trading.com

We even went slightly above all the levels everyone was calling for as the top to hit their stops. Classic market action.

Today's outside day has a range from 1101 to 1080, which is a MASSIVE range. Not to mention we were at key resistance in October (traditionally weak time for stocks) and over 20% above the 200 day moving average AND to top it all off we closed near the lows.. I have not even gotten into the fundamentals but from a purely technical standpoint today was the “waterloo” day for the bears.

The only thing that could have made this better is if we closed below support at 1080… (near where all the bears were calling the top. That old resistance is now support.)

We held this support level into the close. Also volume was not as high as it should have been given the way the market traded.

Still, this massive an outside day, taking into account all of the other factors already stated make today’s reversal look VERY SIGNIFCANT INDEED.

New portfolio allocation %'s

36% stocks
35% bonds
29% cash

Some more longs

Bought MCD @ 57.27
Bought WMT @ 50.2
Bought WM @ 29.78
Bought DUK @ 15.78
Bought BP @ 54.44
Bought CAG @ 21.11

All yielding ~3% or greater, all have a PE of less than 20.

All are off at least 20% from their 5 year high, and 20% off their 5 year low.

Averaging down on Verizon (VZ)

Bought some more verizon at $28.98, lowering my cost average to $29.70. Wrote some covered calls on it, too.

Getting more long oil

Covered my Exxon naked put for a 75% gain, bought BP Amoco (BP) outright at $54 and $56.

Mistersoftee looks pretty soft

I'm out at $26.22, a 9% loss (ex-dividends and option writing).

Out of Constellation Brands

Sold it at $16.7 for a 49% gain. Very nice indeed.

I'm the proud owner of 200 JNJ

Assigned, as expected (and requested), on my Johnson&Johnson put options. I'm now the proud owner of 200 JNJ shares.

Cost basis is $61.30 net of option premiums collected.

Alcoa Top, Procter Toppy

Selling Alcoa (AA) at almost $15 for a 64% gain, and Procter & Gamble (PG) at $57.53 for a 14% gain.

I'll buy these back at lower levels.

Covered Puts, Wrote More

Covered my coke puts for a 75% profit. Wrote Jan $60 Exxon Puts for $1.1 (XOMML). Exxon would have to decline 15% to a new 3 year low below $59 for me lose money on this one.

Wrote MCDWK put, McDonalds Nov 55 Put for $1.4.
Wrote JNJVM put, In-the-money Johnson&Johnson Oct 65 Put for $4. I want to own Johnson & Johnson here.

Will sanity finally be making a return?

On CAPS alone today there are about 10 players calling the market top. In the blogosphere in general the top calls are everywhere. Of course its many of the same people that have been calling tops the whole way up but a 20 point reversal when we are this far away from the moving averages on the S&P makes it a pretty easy target. I think I agree with the consensus here even though I usually love to be a contrarian. The last retail sheep has probably already bought at this point.

Unlike the other internet folks though I can be honest on how wrong I had this market because I have nothing to sell you and no agenda... I started dumping longs at 850 and got aggressively short at 888. We went higher at first, then back below 900 and when we broke back above 900 I covered everything and went 100% cash as posted here in my last post in early July. I thought I was covering the at THE top selling FAZ in the 5’s (before the 10-1 reverse split) and SRS around $20, not to mention all the put positions… Thank god I did what I did….Had I been stubborn and NOT covered I would seriously be broke at this point. (in the trading account)

Brings me back to a saying I have heard many times… “Its not how many times you are right or wrong its how long you STAY wrong”

Of course I have done the check of how much money I would have made had I held all the longs I bought in the 600’s and 700’s all the way up to 1080, but I take solace in the fact that my 401K is up this year and up over the last 3 and 5 year periods… Not too many people can say that. It is because I had the balls to buy this market near the bottom like mad when no one else was buying and I knew NOT to be in during 2007.

Going back in time to when the market was in the 800’s this spring and EVERYONE was saying to short the market (including yours truly), I remember vividly listening to and interview with Robert Prechter. One of those Fast Money idiots asked him “Is it time to sell this bear market rally”.

His response was classic…. “As long as you are calling it a bear market rally it is not time to sell it yet, when you start arguing that it is NOT a bear market rally THEN it is time to sell”.
How true did that turn out to be. As I have been out of this market for months watching it go higher and higher every day I saw more interviews and now if someone says it’s a “bear market rally” they get laughed at by the same people.

I could go on and I have seen many things I wanted to blog about over the last few months but my life has been very busy recently and I have not gotten around to writing a blog.

One thing I did want to blog about is how the Stagflationists have the winning ticket in the “What will happen to the market in 2009” sweepstakes.

I remember back in October 2008 when I posted: “I’m the last man alive in the stagflationist Alamo”

This is what I had to say then:

I realize we are in the middle of the biggest deflationary panic in my lifetime. I also realize every single stagflationist has had their CAPS score go below zero, mine is right there.Stagflation is “an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.”This is exactly what we are getting in the longer run.

In November I reaffirmed my belief in Stagflation with:

“The speed bump on the road to inflation” and said you needed to buy
SLW at $3.70A
UY at $4.75
GDX at $ 21.35

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=107406&t=01001808419327792238

I also called the bottom in oil at $33.50
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=121461&t=01001808419327792238

Anyway, the point of all of this is I was ranting about stagflation when it was NOT cool to be ranting about stagflation (late 2008) and stagflation is EXACTLY what we are getting. Official unemployment near 10% (with real unemployment near 20%) yet even with the economy at a standstill. Gold is over $1000 and Oil is in the 70’s. Plus the dollar gets the crap beat out of it every day and is back near its all time lows.

Of course if the market is to reverse here like it seems it might we are going to get a pullback in oil and gold and the dollar will rise… But we have seen the lows in these commodities and the high’s in the dollar. Stagflation is here to stay and although I may have been “the last man alive in the stagflationist Alamo” the Alamo held!

Anyway, I will try to muse about my market and more importantly my economic thoughts on a bi-weekly/monthly basis like have been for the last few years again in the upcoming months.

Continuing to accumulate high quality assets

Bought FDIC insured CDs for 2.7% and 3.2%, respectively.
Bought some Phillp Morris (MO), yielding over 7%, at $18.25.

Still holding a ton of cash, and will continue to do so.

Get your tax refunds in IOUs!

(Bloomberg)

President Barack Obama announced a streamlining of rules and procedures....

The changes would streamline the process for small businesses to automatically enroll employees in savings programs, to let employers put payments for unused vacation time into retirement savings and to provide an option for individuals to have federal tax refunds paid as a savings bond.

Full article:
http://www.bloomberg.com/apps/news?pid=20603037&sid=avMh2QzDt59g

Am I the only one that's bothered by the government not giving me cash? I realize it's just an option, but an option no doubt designed to relieve the government's immediate cash flow issues.

Closing my naked puts for a nice big profit

Closed my AUYVL (Yumana Gold $9 puts) for a 50% gain.

Out of cyclical and high beta names

Sold remainder of VMW, UNP and SU positions for -45% ($29), +12% ($6), and -13% ($5) respectively.

I am Worried about another deflationary bout this fall, and these positions would fall much more rapidly than other, less sensitive names.

More Gold

Adding to my Yumana Gold (AUY) positions in seveal accounts. Average price today: $9.60

Buy & Sell

Sold Ford (F) down to just 100 shares. Up 40% on the ones I sold.

Bought some Sara Lee (SLE) @ 9.94. Solid, dividend food stock (4.49% yield) with a trailing Price/Earnings ratio of 18.99 (hardly frothy). I like this for $12-$14 in a few years.

Writing Puts

I know, I know. Before the plunge. But I like the prices I got:

Yumana Gold (AUY) Oct 9 Put @ 0.65
Coca-Cola (KO) Nov 45 Put @ .78
Wal-Mart (WMT) Dec 47.5 Put @ 1

More yield

Bought Tennessee Valley Authority (TVA) 2042 (yes 2042) 8.25% bonds in my IRA. If you can beat that yield with the explicit government guarantee, be my guest.

Bought 2012 1.7% US Treasury Bonds in another IRA.

Buying yield

Bought some ultra-safe MSFT bonds @ 2.95% and some EXELEON @ 3.45%. Zero chance of default on MSFT, and in the utility space, recoveries are high in any potential bankruptcy (which I compute at nearly a 0.02% chance of occuring). I hedged my inflation/interest rate risk using LINE, a great master limited oil partnership.

Closing some "Other Picks"

UNP - recommended buy on 11-26-08 for $50.74, recommended sell today @ $61.51 for a $10.77 profit or 21.2% (still own it in one my accounts, though)
EP - recommended buy on 1-3-09 for $8.31, recommended sell today @ $9.97 for a $1.66 profit or 19.9% (no ownership now)
DXO - recommended buy on 1-3-09 for $3.13, recommended sell today @ $4.88 for a $1.75 profit or 55.9% (no ownership now)
DE - recommended buy on 1-3-09 at $41.61, recommended sell today @ $45.63 for a $4.02 gain or 9.6% profit (no ownership now)

Coca-Cola

Bought a couple hundred Coke (KO) shares today @ 47.89. It's only 15% above its 5 year low, has a 3.5% dividend yield and is depression "safe".

Rotated out of CHK and into PG

Rotated out of CHK (Chesepeake Energy - natural gas producer) for a 44% profit and into Procter & Gamble (PG) at $52.10. Still very bearish at these levels, but PG is near its 5-year low so it seemed like the risk/reward was good.

Stopped out of SSO short

The bulls are still in the drivers seat, and my market short was closed for a roughly 10% loss.

I maintain Yumana gold (AUY) and Financial Bear 3X Leveraged (FAZ). I am covering my eyes. I removed my stop on AUY. Let the chips fall where they may; I have a bunch in cash.

Covered my oil (USO) short...

I think there is more pain ahead for oil, but I made some money and I don't want to see it evaporate. 12% gain. Updated my FAZ prices for the reverse 10:1 split.

If Bernanke were a CAPS poster he would get zero recs a post by now

Copied from my CAPS blog:

I think his whole “Subprime is contained” speech would have lost him his last readers… anyway…

This is not another “I told you post” from a bear. An “I told you post” would have been in order if on top of getting in near the bottom of the crash I would have said to hold all your longs until 950, THEN told you to sell… Oh well.

Either way, the market has given up the all of May and June’s gains and more impressively took out the lows from 2 weeks ago at 888.

Personally I am not trying to profit on the decline anymore.

I sold FAZ in the low 5’s back in late June, since the XLF has been DECIMATED yet FAZ only trades at $5.35 today. I sold my put positions back then as well and I look at them now and the quotes are only slightly higher then for what I sold them for because of the time value/IV crush even though the stocks are much lower.. WYNN is the only one I am kicking myself over.

Bottom line is it is tough to profit on a decline unless it is steep and exactly where/where you call for it to happen. It is much easier to profit in a bull market as you can buy a stock and be wrong for quite some time and EVENTUALLY be right. I am starting to think if you really want to profit on the decline of stocks you need to just be straight short the stock but really I am also starting to believe what a friend (Dawgs) told me a while ago that shorting is gambling and not investing.

I never though I would type those words but back in mid-April when the market was at the same levels I did say…

“I am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws….”

After some juggling I guess now I just believe my words more!

So where are we now on the market? The P/E of the market is still high, earnings and earnings growth are still horrible. The economy is still getting worse, not better. House prices are still falling, we are still losing jobs, blah blah blah…. I could write a book on this but that’s why you have all the other CAPS blogs…

The long-term timing signals for a LONG TERM buy on the S&P are still VERY far away from being triggered… From eyeballing the long-term chart I would say if the market stayed exactly where it is today it would take AT LEAST 8 more months to get the long term moving averages in a place where you could tell your Grandma to buy. That 8-months also assumes that the market does not drop back down into the abyss and that is not an assumption I am willing to make.

So bottom line is even with the market pulling back 8% from it’s recent highs, it’s not a good time for an investor to be buying much. The market is probably headed lower in the short run and even more so in the longer run (multi-month) but lots of people are piled on the short side yet again so the chance for another “get shorty” ramp job up back to 950 or 1000 always exists.
California IS the short term:

Really in my opinion the short term performance of the market is NOT dependant on the “Head and Shoulders” on the S&P or some MAGIC Elliot wave pattern, it has 100% to do with the situation in California right now.

If California were a country it would have the 10th largest GDP and would be ahead of Italy, Mexico, Spain and Canada. It has been paying its debts in ponzi-notes for the last week. Banks came out yesterday and said they would not accept the notes anymore come FRIDAY OF THIS WEEK. So you have this behemoth that is a good portion of the ENTIRE United States GDP that is completely bankrupt, starting printing Monopoly money and now they are saying the Monopoly money is no good. I think a 6 year old would understand why this is a huge problem for the market.

So it comes down to this… Do the men in the smoky room who knowingly or unknowingly control the market (in the short run) let this situation in California go on or do they throw a few billion their way and band-aid the problem.

Letting the situation get worse and talking down the economy at the same time would continue to hurt the stock market which would get more votes in congress for the second stimulus bill that everyone is talking about now. The more 200-300 point down days we have the more chance this bill has to pass…

So maybe that is the route they go, personally I am tired of making investing decisions based on what some folks in a smoky room decide. I realize that this has been the short-term market since 2007 or so, but at this point it has gotten ridiculous.

So I wait in cash for the buying opportunities that will be presented to INVESTORS in the future. I have been closing out my CAPS picks over the last week as I do not intend on following the market as closely again for quite some time, until the investors can come back. From looking at the volume of the market over the last few months I can see quite a few people have probably made the same decision I have.

Understand for me that means only reading about it for 10 hours a week instead of 50, but still… :)

FAZtastic times upon us again, soon?

Must read from Denninger:

http://market-ticker.denninger.net/archives/1177-BOOM!-More-Obfuscation.html

Taking a look at the data myself, these outliers have occurred only a couple times before... and all were in the September / October 2008 crash timeframe. I bought some more FAZ in my trading account this time to hedge the risk.

Out of my shorts where I got in....

I sold FAZ and SRS for the price I paid for them... EEV for a bit less.

I also covered all my put shorts, most stocks were in the same place but I had over a week of time value that I lost which cost me a bit... I also added retail as a short a few days ago and that is the only one that really cost me to cover.... Lucky I covered PALM today as it is up 14% in the post market on their "Earnings".

We probably will pullback on Friday with all the bad news after hours but I didnt like the fact that we were pushing back toward my short 920 entry again going into the quarter end.

We could be making a head and shoulders top on the S&P but frankly I am tired of this market. The dollar looks to be breaking down yet again and the Fed extended most of the lending programs into 2010, both positives for this market.

I didn't want to be short if we were going to retest the highs at 956 or go even higher as I am tired of losing money shorting and wanted to get out before it got brutal again.

I said the last time I covered at 920 that I was taking a break but I am serious this time. I am not buying anything long as there is NOTHING I like here long but I am not shorting anything. It's hard to believe we have been in a narrow 30 point range on the S&P for almost 3 months now....

I realize they are probably just marking the market up for quarter end window dressing, like I said I am just weary of the whole thing at this point.

Futures are already off 30 dow points right now... here is to a down 300 point day on Friday for Dawgs. :)

More positioning

Taking a more bearish tone.

Sold VLO for a 40% loss. ouch. I'll get this one back in the low teens.
Sold AA for a 20% profit.
Sold GDX for a nasty 25% loss after the put options I wrote last month got exercised.
Lightened up on AUY/UNG a bit.
Short SSO.

My spec account is now "hedged".

Interesting futures data

Futures data often belies ... well, the future.

Let's take a look at the commitment of traders. Unlike most markets, futures markets are truly zero sum games, at least from a paper perspective. Thus, you can accurately guage who is long or short (big brokerages, producers, retail investors) and by how much by using this report.

The hyperlink is: http://www.futuresemail.com/cot/cotp1.htm

Notables:
retail investors and brokerages are long crude oil, and producers are short (Normal)
retail investors and PRODUCERS are long natural gas, brokerages are short (Abnormal)
retail investors are massively short the S&P, but brokerages are long
retail investors are short all duration goverment bonds

While this report isn't conclusive in and of itself, it does tell me a few things:
1) The street and the average investor believe oil is going higher
2) The average investor and nat gas producers believe nat gas is undervaled
3) The smart money is long the s&p, and the "dumb" money is short
4) The investing public wants nothing to do with treasuries

Bears have another chance….

When we broke 920 to the upside back on the first day of June I said I was standing aside on the short side.

We traded all the way up to 956 but now we have been bouncing around the 200-day moving average that was broken at the start of the month and we stand at 920 again.
My reasons for standing aside were that the dollar was in a freefall which was rocketing commodities and stocks higher.

The dollar has recently found support and bounced near 78 and is now holding well above 80. The S&P is holding support at its 200 day moving average but a break of that level would leave it very vulnerable.

The MACD, McClellan summation index, Put/Call ratio and stocks above the 50-day moving average have finally clearly rolled over to the downside…

Although they were all VERY extended for quite some time seeing them finally roll over is a good sign for the bears. Really instead of selling my longs when I saw all of these indicators overextended I should have waited until I saw them roll over. Overextended just kept getting MORE OVEREXTENDED until the last 2 weeks when they finally broke.

Friday is quad-witching day which has been positive 5 out of the last 7 times so we could have an “options pinning” up day on Friday but the bears have another real chance to take the market lower here. I have shorted some weaker names that have already rolled over… (WYNN, AMZN, PALM, COF, etc) Also if the market is going to roll over the emerging markets are going to take a big hit with the MASSIVE run they have had. EEV (ultrashort emerging markets) even though it is a ultrashort is probably a good play at $22. Even the old SRS and SKF might have some life but remember with ultrashorts you are playing with fire.

Really if you are playing it safe the best thing to do here is just to scale out of your longs and see what happens in cash at these levels. Of course I have been saying that since the mid/high 800’s so what do I know… :)

Like an old FB

Just like an old FB, I'm going back to the well and bought some FAZ in my IRA. Just 300, and with a stop at 4.2.

BTW: This pig of a market looks to be finally rolling over.

Out of Berkshire Hathaway & Susquehanna

Not that I don't believe in Warren anymore, because I do. But BRK.B has simply become a proxy for the market, thanks to the put options he wrote. I'm hoping to buy BRK.B back when the market tanks. 15% gain.

Susquehanna -- I grew up banking with this company. However, they seem to have acted like a big bank with their lending practices. 45% loss. I'll be buying this one back in the low single digits.

Back in AUY, AGQ

I agree with Dawgs that silver and gold are hitting the uptrend line. A break here would mean very bad things for gold and silver but I bought thinking the uptrend lines would hold.

I have wanted to be long these things on a pullback anyway and we got a nice pullback.

AUY at $9.25
AGQ at $43.90

I saw AUY traded into the 8's and wish I would have got a better entry but so be it. If they go much lower Tuesday I probably will dump them both. (I probably will set my stops right below today's lows)

Inflection Point: Gold vs. S&P

$$$

The ratio of Gold to the S&P has been steadily climbing, as the S&P deterioriates on a relative basis against Gold. In the past few weeks Gold has been testing the 1:1 ratio. I beleive the ratio will make a double bottom here at 1, and catapult Gold back to the driver's seat. This means relative strength for Gold and absolute weakness for stocks.

Hedging

Bought 10 SOJRZ (June 26 SSO Puts) for ~$0.45 each. Sold short 200 USO (Crude Oil ETF) @ 38.69.

Sold my remaining commodity plays out of my 401k, now up to 97% cash.

More position changes

Added to my UNG (natural gas) position since it is forming the final end of a bullish wedge, 1000 total now.
Sold my ACI (Arch Coal) position for a modest 15% profit to make room for the UNG.
Sold my DGP (Double Long Gold) for a modest 5% profit.

I am taking a bath right now on my additional AUY (Yumana Gold). But I am holding strong.

NYMEX Crude Reversing Contango

On the news of dwindling stockpiles of crude (hardly) but a real dwindling of gasoline futures (really), the NYMEX crude futures curve has flattened out dramatically. NYMEX July Crude for delivery is up $1.25, but NYMEX crude for delivery in July 2010 is only up 10 cents. The one year variance for crude is only marginally over $7, or about 10%.

I'm not saying we're going to backwardation overnight, but it will be interesting to see what happens. This could portend higher prices on the spot, but lower relative prices on the back months which means DXO (2X crude - 6 month) might not go anywhere but USO (1x crude - front month) may ramp.

Sold Sprint

When this next leg of the bear market begins, even if its 200 S&P handles from here, I don't want to be owning questionable companies.

You know it is getting later in the cycle when....

This website exists.....

http://isthisthetop.com/

Not that I am going to short the gap down we will probably get on Monday or anything... just saying....

Out of AGQ....

Small profit... they gapped away most of my profit though.

More action

Wrote four June 42 GDX (Gold miner ETF) puts at $1.2 a piece.

Sold a single lot of GDX to make room in margin.

Added another lot of UNG at $13.89.

Added another 200 of AUY at $11.20.

Another dabble in SDS

200 @ $54.50, S @ 52.30 (just below yesterdays absolute low).

Bought another couple lots of VLO

Tip the hat to RVASpeculator for the hint, a series of higher lows. Lowered my cost basis by $6.

Continue to add to my gold miner positions

Unfortunately, I have raised my cost basis in one account to 10.2 on Yumana Gold (AUY).

"Don’t Be Complacent’

“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds,’” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.” Yu said he is scheduled to meet Geithner in Beijing today.

Bears will know if they are wrong in the next few days.

Copied from my CAPS blog:
--------------------------------------------

We FINALLY hit the 200-day moving average on that ramp job in the last few seconds of the day on Friday (5/29). Everyone said it needed to happen and it appears as if everyone was right.
Personally I am glad we got it over with, but what now?

I was away from the market Thursday and Friday and unfortunately I got stopped out on my FAZ at $4.99 (few penny loss) but the rest of my shorts are still on although they are a little bit underwater. (I put these shorts on during the 200-point rally on 5/25, as noted in the comments section)

Here is my plan. If we break down here or very close to here I will get more short, hold the rest of my shorts and prepare for the pullback. If we ramp higher and clearly break out above these resistance levels I will just go back to cash. 8600 on the Dow, 930 on the S&P should not be taken out and we shouldn’t close too much above these current levels as of today (8500 on the Dow, 920 on the S&P) IF the bear case is still in play.

There is a reason I have an IF in that statement. The dollar index is trading down to 79.2. It traded right around 79 in December 2008 and that was its low since the dollar rally began in earnest. If that low were to fall I would think the dollar will probably go back to it's all time historical lows at 72 and you wouldn't want to be short anything if the dollar continues it’s crash.

In my opinion the dollar crashing is the only thing holding the market up right now. Think about this…

Way back on April 30th when I wrote that I believe the market had topped at 888:

The Dollar index was trading at 86…Now it is at 79.2 which is an 8% loss in only one month.

Oil was trading right below $50 and now is $66.50 or a 25% gain in one month.

Silver was $12 and now is $15.70 or a 31% gain in one month.

The CRB (commodity index) was trading at 217 and now is trading at 253 or a 17% gain in one month.

Even the laggard Gold is up from 890 to 980 (10% gain which seems weak in comparison)

This was the reason I first covered my shorts when we blasted back through 900 after the first pullback a few weeks ago (but put them back on back at 910 on 5/25), the dollar crashing scares the HELL out of me as an equity bear.

As someone who shorted the market in 2007 while the dollar was crashing I learned the hard way it is tough to be short when companies can produce "earnings" via a weak dollar and energy is a very LARGE portion of the S&P these days....

Stocks can have ALL the fundamental reasons in the world to go down but when the dollar is losing greater than 1% every day it is hard for stocks to go lower in that environment.

Bottom line is this…. Since April 30th (1 full month) the market is up from 888 to 919 or 3.5% and in that same time period the dollar has lost 8% of its value. Look at the gains in EVERYTHING else during that time period! Is it good for the market to be up 3% and in the same time period oil to be up 25% and the dollar to be down 8%?

Of course that is HORRBIBLE news but you won’t here that on CNBC. What the bears need to be careful of though is the dollar crashing can continue to lift equities upward reluctantly if it keeps happening.

With the market sitting right at the 200-day moving average and having the dollar right near support makes it worth while to try to short again, but you have to be ready to pull it all off again if it looks like the market wants to keep going higher above these key levels.

Watch the dollar for clues on what the stock market will do, if the dollar breaks lower get to the sidelines but if the dollar can stabilize or rally the bears have life again…

Dollar debasement is all this market has right now but it is a powerful force.

Natural Gas Double Bottom

Looks like a very nice double bottom on natural gas, with the second low being made about 0.5 cents higher than the first. Target on UNG is $20.

Short the phonebook again....

Sold my GDX and UGL for a nice profit... (gold miners and double long gold)

Bought large positions in SRS, SKF... smaller in FAZ

Lets see if they can crush me again.

If I lose it all, at least it will be something I believe in...

bought 1000 AUY @ 10.71

Liquidating some market longs

VMW, MSFT get the axe from the trading account.

VMW was a $2 winner, MSFT a $2 loser. I am even on the trades, and a little bit up when considering options.

Inverse H&S on Gold Weekly

Since this is large, long-term pattern, I think it is quite bullish for the yellow metal.

If we measure the neckline to the head, we get about a $280 difference, which means that a current target should be roughly $1200-$1250 on Gold.

Long (live) commodities

The dollar has broken. As I indicated before, that means commodities are off to the races.
Backup the trucks boys. Gold, Silver, Oil. All the good stuff. Why limit yourself to the physical commodities? The stocks are going bananas too.

The market will go up, until it doesn't

So my call for the S&P to peter out around 875 was wrong. I am thinking now that the S&P will make a double-top at the 930 area. However, so long as the sheep are willing to go along with the green shoots idea, the S&P could trade to a little bit over 1000 or greater. Sheep in this case are dumb mutual fund managers who have to keep up with performance.

One must remain nimble and defensive and not get married to one idea. While we know the economy is screwed in the medium term, the sheep have not caught on yet and may not for months.

Covered all shorts when the S&P sliced through 900

Dumped FAZ at $5... SRS at $21.. Bad losses on both of these.

Still up decently for the year but my averaging into these suckers cost me pretty big.

Now the market is sure to crash! :)

Im taking some time away from the market. I feel like I may be "on tilt" right now.

Rotated out of PFE into WMT

Sold PFE for a 35% loss. Rotated into WMT and wrote some covered calls on it.

Covered AMZN short... Covered DIN short

Both of these have been DESTROYED since I went short.

I think they have more downside but I am sitting in May puts on these two. (only 2 days left)

Covered AMZN at $75.2

Covered DIN at $26.6

On the AMZN puts I made just over 300%.

On DIN I only made 60% (I paid WAY too much for those puts)

I would have rolled the profits forward but they want over 100 IV for the June strike and I am not paying that much.

I think the breakout on Gold is at hand

Volume in GLD is heavy, almost 14M with 3 hours to go, and it's trading up $4 with the dollar flat and the market down ~ 3%.

Maybe I'll jinx it again, but I think it's off to the races.

up to 78% Money Market...

in my long only 401k. Preparing for the pullback, trimming positions in energy and eliminating the position in tech I took at the March lows.

Out of GE

Out of GE @ 14.25. 92% profit in 9 weeks is nothing to sneeze at. I'll buy this one back lower, in the upper 9s - low 10s.

More on natural gas

Take a look at this chart. This is chart of the crude oil / natural gas (NG) ratio. Whenever the ratio gets near 14-15, natural gas outperforms oil. Whenever the ratio gets below 7, oil outperforms natural gas.


We recently registered over 15 two weeks ago, at 15.41. This signals that natural gas will outperform oil on a relative and likely absolute basis.



Let's take a look at the other inflection points:

15.75 in Sept 06 to 6.78 in Nov 06: Oil ~0%, NG +105%: NG REL/ABS OUTPERFORM
6.78 in Nov 06 to 15.92 in Aug 08: Oil +146%, NG +54%: OIL REL/ABS OUTPERFORM
15.92 in Aug 08 to 6.01 in Dec 08: Oil -72%, NG -52%: NG REL OUTPERFORM
6.01 in Dec 08 to 15.41 in Apr 09: Oil +35%, NG -46%: OIL REL/ABS OUTPERFORM
15.41 in Apr 09: NG will outperform on a relative and likely absolute basis

The play? I like being straight long Natural Gas (UNG). If you want to be hedged, short crude (USO).

In TBT

bond yields are skyrocketing.... they are "breaking out". This is what we've been looking for. The real breakout. I took a small position, 1 lot, in TBT at 52.11.

On a day that the Dow is currently down 1.5% and bond yields are up 2.5%, that is rather amazing. This might finally be "it" for the bond market to start the long trend back up in yields.

Short Capital One (COF) at $27

I cannot believe Capital One is up over 20% today and is now up almost 400% from 2 months ago when credit card debt is the next shoe to drop (along with commercial real estate).

This was a $7 stock and I believe that is a fair price for it! Couldnt stop myself from shorting it today (with June puts)

The FAZ nightmare is over

Never will I use these 3X instruments again. 50% loss.

The dollar is the key

The dollar is testing its trendline, and as you can see in the chart, there is a support "bottom" at 83.

Should we break significantly under this 83 level, say 82 or 81, that should be the green light for equities and commodities to power higher. I will cover all my shorts and go full long on commodities in this instance.

If the 83 level holds and we move higher, as we could be forming a "W" and move to 89 on the dollar, I would expect a major market selloff.

I'm calling the bottom in nat gas...

...and thus, I bought some UNG @ $14.2o this morning

Interesting Weekend Reading at Barron's

Unions Prevail over Wall Street in Chrysler Deal -- P33; Obama is paying back his UAW masters

Sizing up the Swine Flu -- P34; "...like the 1918 virus, the swine flu, with a similar genetic lineage, emerged at the tail end of the flu season.  As in 1918, there was only a blip of [initial] fatal cases.  But in 1918, mutations of the original strain resulted in a subsequent surge of deaths."  Who's to say it won't happen again?

Casual Dining Stocks: Overcooked? -- p22; two good short ideas, CAKE (Cheesecake Factory) & PFCB (P.F. Chang's).

The Other Shoe -- p19; Why everyone needs to short real estate, still. ;)  Use SRS if you dare.

Market Symmetry

666 low…

When technical analysis said "if we broke 680 we were going to 500 on the S&P."

888 high…

When technical analysis said "if we broke 875 we were going to 1000 on the S&P."

I joined dawgs in SDS right at $61.8. Lets rock.

In UltraShort S&P 500 (SDS)

200 @ 62.12 w/ stop @ 60.5

Closed some "other picks"

3.02 on 11-26-08 to 7.69 on 4-28-2009: SLW 154%
5.49 on 11-26-08 to 7.90 on 4-28-2009: AUY 44%
17.27 on 1-4-09 to 19.88 on 4-28-2009: CHK 15%
18.99 on 11-26-08 to 25.88 on 4-28-2009: VMW 36%
63.12 on 1-4-09 to 74.44 on 4-28-2009: DO 18%

I still have many of these in my real accounts, but I just thought it was time to take "paper" off the table.

The Yellow Metal

Gold is behaving very nicely. It bounced off its 200 day MA and formed a nice, fairly large double bottom (shown in Yellow). With the expected market weakness coming up, I see Gold finally breaking through the $1000 barrier "for good" in the coming weeks.

However, the descending trendline is a barrier of resistance which needs to be broken for the breakout to commence. Gold at $940 would be a signal to jump in with both feet. I will be using the Double-long gold (DGP) ETF as I already have miner exposure.

Chart of the "week"

Speaking of "hanging mans", this chart of crude is full of them. Beware of this commodity! It looks ready to head back to 40, despite all my prior bullish calls on it earlier this year.

I will be getting out of the rest of my energy longs monday.

Sold EBAY @ $16

A nice 12% profit.

Short AMZN at $86

$88 was the high from all of 2008 and 2009.

It traded near $87 today and I got some May puts when it was at $86.

This stock was trading at $35 just 5 months ago.

In 3000 DXO @ $2.56

Let's daytrade the DOE report. 2.45 S, 2.9 target. At the channel bottom.

Gut-wrenching volatility

I woke up this morning, S&P -4. 5 minutes later, S&P -8. 10 minutes later, S&P -4. Now S&P
-11. Did anyone really make money there?

On to the 3x short financial short (FAZ). Up to 13 and change in the AM, closed at 9 and change in the PM. That's a 31% intraday swing.

Yesterday we retraced 50% Monday's move and closed exactly at 850. The trendline is still broken, but the bears need to close this thing much lower today.

The last 2 trading days shows the problems with SRS and FAZ…

Copied from my Motley Fool CAPS blog:

Say on Friday you were thinking IYR (the Real Estate Index) and XLF (the Financial Index) were headed lower.

IYR was trading at $33 at this time.
XLF was trading at $11 at this time.

You wanted to short these indexes but you did not want to use options or short common to do it.
You find that there is an index FAZ that is “triple short” the XLF and an index SRS that is “double short” the IYR.

Say you bought SRS on Friday at $26 and FAZ at $9 (the prices that correspond to the levels on IYR and XLF above.

If you didn’t watch the market on Monday you would check IYR and XLF on Tuesday:

You would see that the IYR was off from $33 down to $31.4 or a 7.8% decline.
You would see that XLF was off from $11 down to $10.60 or a 3.6% decline.

If you didn’t know any better you would think. “Since I am double short IYR and triple short XLF, I should be up over 10% on FAZ and over 15% on SRS, I am so smart.. where will I spend all the money”

In reality SRS closed at 27.2 and FAZ closed at 9.15. So you would have only made 4.6% on SRS and a pathetic 1.5% on FAZ…

Really even though you are supposedly “double” and “triple” short these underlying indexes you actually didn’t even MATCH the 2 day decline in these things, not even close to matching the declines actually...

This is because in order for you to make money, not only do the indexes have to fall, but they have to fall EVERY SINGLE DAY. On the triple indexes a one day, 20% plunge is almost completely negated by a 10% bounce the next day. The double and triple indexes have one huge enemy, math.

I understand this fact which is why I created the Ultrasuck portfolio in CAPS to track the destruction of these ETF’s over time, but that being said…. Even though I understand it, it still pisses me off when I finally try to buy these silly wealth destroyers to hold for a few days…

What people buying these things need to understand is if the path of the last two days continues in the same way: (market down huge on day 1, market up half as much as the day before on day 2), these ETF’s will only be up marginally and the underlying indexes will be ZERO...

So you will have successfully shorted Financials and Real Estate to zero and will have nothing to show for it except for a sob story about how Direxion ripped you off!

Rant over….

PS: I am still holding some SRS and FAZ, but I am not happy about it....

Back in FAZ @ $9.99

Out of FAZ in trading account

I sold rather nervously near the open at average price, $12.70. I late got stopped out at 11.50 of the remaining 300.

I will buy back in the 10s.

S&P percentage gains on a per week basis during this rally…

Copied from my Motley Fool CAPS blog....


Look at the “percentage gained” over this 6-week rally and see if you notice a trend…

Week of: Start End Points Percentage
13-Apr-09 856.91 869.6 12.69 1.48%
6-Apr-09 839.75 856.91 17.16 2.04%
30-Mar-09 832.98 845.61 12.63 1.52%
23-Mar-09 803.24 832.98 29.74 3.70%
16-Mar-09 758.29 803.24 44.95 5.93%
9-Mar-09 680.76 758.29 77.53 11.39%

Gains have been getting weaker and weaker. Most of this rally all took place in the first 2 weeks.

Also some must view links for this upcoming week:

1. Percentage of stocks above the 50-day moving average, multi-YEAR high:
http://stockcharts.com/h-sc/ui?s=$SPXA50R&p=W&yr=3&mn=0&dy=0&id=p24812634319

2. Retail is now OFF THE CHARTS bullish because we eeked out another measly 1% rally on the week.
http://www.sentimentrader.com/

3. Put-Call ratio is 0.56, multi-year low. Traders are gorged with calls…
http://stockcharts.com/h-sc/ui?s=$CPCE&p=D&yr=1&mn=0&dy=0&id=p79337359546

4. Since the rally started on March 9th, there have only been three 2-day corrections and ZERO 3-day corrections. A big run up with no pullback lead to “weak longs” and the longer the rally goes on the more momentum, non value driven, short term traders get on board. These traders are fickle.

Although I cannot tell you the day this bear market rally ends, I can tell you that we will wipe out all of the piddly gains over the last 3 weeks of this rally in just a few trading sessions, what happens after that is more up in the air.

Richard Russell: The scariest declines in bear markets are typically the ones when investors think they are making progress and recovering their losses, only to see stocks go into a new free-fall.
“That cycle of decline, followed by hope, followed by fresh losses, is really what ultimately puts a final low in place. The final decline of a bear market tends to be based on “revulsion” – a growing impatience among investors who conclude that stocks are simply bad investments, that the economy will continue to languish, and that nothing will work to help it recover. Revulsion is not based so much on fear or panic, but instead on despair and disillusionment. In a very real sense, investors abandon stocks at the end of a bear market because stocks have repeatedly proved themselves to be unreliable and disappointing.”

Good analogy for what is going to happen to this rally below:
http://www.youtube.com/watch?v=uHz2xCV64n8

Short Retail (XRT)

I'm thinking of going short the Retail sector. From a low of ~ $18, the XRT ETF that tracks retail is up to $26, or 45%. I know the space is heavily shorted, but goodness, does anyone practical think people are going to just start going to the malls again and spending gobs of money on their credit cards they don't have?

Might use options on this one.

Out of SLW and AA.. 255% on SLW!

Sold AA at $8.52 (cost was $5.42) (this got called away from me at that price)

Sold SLW at $8.65 (cost was $3.4) (It closed right below my call strike, but I sold it anyway)

255% gain on Silver Wheaton in just a few months and it was a pretty large position. I'm pretty proud of that one.

This is probably my biggest gain in a stock (not an option) in my trading career... it is hard to let something run this far without taking profits, but I am glad I was able to do it. This is the reason I didn't hold onto the stock even though I could have (since we closed below $7.50), I believe I have gotten enough out of this one...

1st thing Monday..

I am going to be out of US Steel (X). $12 a share appreciation in a couple months, or about 70%, is good "enough". Again, don't be greedy and stupid. Take profits!

No more OIH

OIH is at the very top of its channel. I'll buy it back if it really breaks out.

11% is not bad, and i was capped anyway.

I'm not a hog

I sold the remaining HOG at $18.91, for a lovely profit of $7.91 per share. I will be a buyer again in the low teens.

Rosetta Stone

RST pricing at $18 today, trading should begin around 11AM.

I plan to buy a couple hundred shares in my IRA. Nothing too crazy.

Hopefully they make RST optionable.

Las Vegas Bomb

Take a look at these year/over/year statistics for Vegas for February:

http://www.lvcva.com/getfile/ES-Feb2009.pdf?fileID=37

Convention attendance down 34%
Average Daily Room Rate $ down 23%
Overall Visitor volume down 8%
Room supply up 3.9%
Gaming Revenue down 17.9%

In short -- SHORT the gaming stocks. Once this bull move is over in the market, these stocks are going back down, again.

Oh, and visit vegas. We are -- paying only $140 a night to stay at the Bellagio -- a STEAL!

X marks the spot

Taking profits on X, selling half. The stock is up $9 from where I bought it, for > 50% gain. I'm greedy, but I'm not stupid.

Back in SRS, FAZ....

SRS @ $31.43

FAZ @ $9.77

The destruction in these guys is amazing.

They are off at least another 20% since I got out on Thursday.

Goldman Sachs is trading near $130 and Citigroup is up another 15% to $3.50. Unreal.

Nearing the end of the current bear market rally, BUT….

Copied from my Motley Fool Blog:

It’s been a while since I wrote a long post on my thoughts on the market out here.

--------------------------------- Background
When this whole rally started in the 600’s I bought in with both feet. I loaded up on Citigroup, UYG, GE, SSO, Alcoa, TAN, DXO and I sold all my gold and silver miners near the peak after the Fed announcement of Quantitative Easing at GDX = $38 a share.. I even put 100% of my 401K in the market near the lows.

Well I finally have gotten rid of all my longs except for a few I sold in the money covered calls on for April that will probably get called away from me.
I even have dipped my toe into shorting the last few days but I have kept it VERY small and actually have been stopped out for now as the “animal spirits” are really in the equity markets right now.

That being said we are nearing the end of this bear market rally. I am not smart enough to tell you if it is today at 856 on the S&P. I am always early on predicting market moves and luckily I have adjusted my trading to fit my “always early” timing.

For instance I was finally getting bullish on this market again when it broke 750 to the downside on February 22nd when I posted:

“You want to see what irrational panic looks like, look no farther than today.”
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=149024&t=01001808419327792238 2/22/09

But I noted in my post that I was just STARTING to nibble on long side candidates when I said..

“I am FINALLY adding some NON-gold related longs to my real account.”

This is the number one lesson trading these markets has taught me, you are never going to catch the exact top or the exact bottom. I started buying things at 750, bought all the way down to 666 and started selling above 830…

I have made great profits this year and am not as concerned with making all the money that will be made on the downside as shorting is stressful and dealing with Ultrashorts or put options is like juggling chainsaws…. Look the single day, 50% loss in FAZ Thursday for a good example. I shorted Lehman Brothers the whole way down with puts in 2008 and I believe I took 3 years off my life doing so. :)

--------------------------------- The BUT….
There is a reason I have a “but…” in the title of this post…. The reason is although this may be another bear market rally, 666 on the S&P could have been the REAL low.
But to me that does not really matter, in my opinion even if it was the REAL low we are NOT just going to go straight up off of a V bottom like what is happening right now. We are up 28.5% from the lows in exactly 1 month’s time. A 28.5%, 1 month rally is NOT the way a market bottoms. So selling here makes sense if you believe 666 was the ultimate bottom OR you believe the real bottom is lower.

Arguing if that was really the low or not matters very little as it is 30% away from where we are now. Do you want to hold even if we only retrace half of the rally? (15% decline) I know for sure I do not.

--------------------------------- The Reasons….
Anyway, if you want more proof that we are due for a pullback of some sort, or maybe something more sinister (like new lows) I will offer up some proof from a technical perspective and from others. Really I probably should have just limited my post to this info.

1. The “dumb money index” at http://www.sentimentrader.com/ has swung to positive in the short run AND the long run.. First time this has happened since September 2008.

2. Corporate Bond spreads, although off the all time record levels of January 2009 have not improved substantially and are still sitting at levels that would have been unthinkable in 2008.

3. This chart, which needs no explanation. (C-RSI over the last 8 years)
http://www.stocktiming.com/Tuesday-DailyMarketUpdate.htm

4. Mutual fund inflow finally have started to surge. Trimtabs reported 11.9 billion in Mutual fund inflows last week. The previous week there was only 3 billion of inflows and that had been the trend through much of March. Mutual fund money is “the dumbest of the dumb money” and you always see a surge of mutual fund money coming in when the market tops.

5. At the same time Equity ETF’s had outflows for the second consecutive week. So pro traders are selling to mom and pop mutual fund holder.

6. A great deal of credit indexes are STILL HITTING NEW LOWS. The ABX indexes all put in new lows. What about the Public Private Purchase program? :) The CMBX spreads are still above the levels where they BLEW OUT in November 2008. Triple A CMBX spreads are at 600 basis points and they were at 200 during the stock market crash in October. So right now CMBX spreads are 3 times worse than October 2008 and ABX prices are at their worst levels ever. Yet the market continues to rally.

5. Although unemployment is a lagging indicator it is surging at an increasing and mind-boggling rate.
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35EYd0kRByWIt7YAX8IPRMmjj1C5lHzDg2wy3Me6K3Mg4WZ75QUTyRwnNRQnk-2EaIhsCkJMMkFicJi5sQTA0jlFbTJJre2VDnLQXpYlOe7oAiTq7WYMM3S5F2mBCxgtC5lrwJdVBofhx/s1600-h/Unemployment+Rate-2009-03.png

6. The bottom at 666 had no capitulation associated with it.
“in January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse, domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline.” Rick Ackerman from www.rickackerman.com One of the best investors I read.

7. The trailing P/E of the market is 100… you won’t find that stat on CNBC.

8. World trade has fallen off a cliff and has not recovered during this market rally. The Drybulk index has been down 21 of the last 22 days yet the market has rallied this whole period. Here is a graphical picture of world trade.
http://www.advisorperspectives.com/commentaries/images/jm021309image001_0F6C5DDE.gif

9. The big money was DUMPING hardcore into the financial run up on Thursday.
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html?mod=mdc_leader

10. Jim Cramer called the bottom for the 10,000 time at 856 on Thursday.. (29% off the lows) Also he is still on TV and I have always said I believe the real bottom comes when his show gets pulled because no Cramericans have any money left.

I think that is enough for now. Something I realize is FACTS ARE NOT SHORT TERM TRADING INDICATORS but they should still be kept in mind when trying to determine the longer-term picture. For instance some REITS are paying their dividends by issuing more stock which is the “ponziest” thing I have ever heard, but that being said SRS which shorts REITS was down 24% on Thursday.

One thing I learned from 2007 is being right on the macro level is not the same as being right trading the markets. Still all these things are to be kept in mind as eventually FACTS MATTER.

Thanks for reading this extra long post. Please rec and comment.

PS: Quote of the day: “Buying our own treasuries: Paying other people interest to loan ourselves money we don't have.”

Exiting DXO

DXO is trading favorite of mine (2X Crude Oil). Today we made a dogi (usually a sign of a trend change) and hit up against this 3.2 area which has been a resistance area. Volume continues to decrease, and RSI is decreasing -- which is very bearish.

Bottom line -- I took some OIH out, I'm out of DXO in most accounts, and intend to liquidate in my others. I will buy DXO when it gets to ~ 2.6, as I think we will break this uptrend trend line but find support at the 50 day.

Forced to dump all the shorts....

Took my lumps....

Sold at 3:30 and feel like I sold the top, but don't want to get run over too much. Losses are still manageable here.

Out of 1 lot of OIH

Capped out my profits at 6% -- freed up my margin. Still have one lot left.

More FAZ at $14.00

All this rah rah and cheering and yet the Dow is only back to 8000 again. Whoopdie do....

This is why if you are going to fight the tape like I decide to do a few days ago you start with only your small toe in the trade. (which I did)

Knocked my average down to $16.

Things I "should" do today

1) I should be getting out of my GDX trade today (breaking 200day MA)
2) I should be getting long on the market again (financials breaking out PM)

The contrarian in me wonders if this is a big fat nasty trap.

I think the market may be up Thursday, but I am short....

It's the last day before the 3-day Easter break and how nice would it look to be able to say we have had 5 straight weeks of gains.

That being said I am still holding SRS, FAZ and TYP.

So if the market goes up Thursday, I will say "I told you so"

If the market goes down Thursday, I will make money.

Win - Win! :)

Seriously though, what would scare me from the short side is if Thursday is so bullish that we take out $9.70 on the XLF and 845 on the S&P. (the highs from a few days ago)

The funny thing about this rally is even though it still SEEMS LIKE it is going full steam I sold my 401K 2 full weeks ago at 833 and even with all this "rally" we are currently trading at 825. The "real" portion of this rally all took place in the first few days.

Thursday could blow this out of the water though as I expect a gap up of some sort, the question is "will it hold?"

Adding Tech to my list of shorts.... Bought TYP at $34.58

Picked up a decent sized block of TYP (Triple short Technology) at $34.58

1600 on the Nasdaq is a brick wall and a lot of the momo's are up a huge amount today.

If 1600 falls I have an easy exit point without too much pain.

PARABOLIC

It's not often I skip for joy, but the move in VMW has simply been parabolic. As you can see, this move today has busted its 200 day MA, as well.

Very bullish, but the move is not sustainable at this rate of change. I am taking a full lot off (100) and writing options on the rest (35 strike).

Oil Markets

The Oil markets are always perplexing. I've long been an oil bull, and remain so even after the bubble burst. Price action again, like last year, defies supply/demand logic. As RVASpeculator would point out, this is indicative more of currency devaluation than fundamental production or demand issues.

Today, more builds in oil and gas stocks. And DXO was down to 2.83, and now it is positive and at 2.99. A simple trade that has worked for the past few weeks is to buy pre-EIA stocks release at 10:20 on Wed and sell on Fri of that week. I'm sure it won't continue forever, but something I am taking note of.

Bought back GDX calls @ 1.4

Made a quick 22% profit. I am now back, fully unhedged on GDX. Gold looks to bounce here and the market looks like it wants to roll over further, which should drive gold and GDX up.

Unloaded DXO premarket

at 3.05. I'll buy it back at the 2.7 level again, once we get back there.

Still long term bullish on oil, but getting out of the "trade" that is DXO in my major account (still have a small position on my IRA). Still long OIH, XLE, SU, LINE and many other energy names.

Sold DXO, TAN... added SRS, FAZ

Sold DXO @ 3.18 (cost was 2.39) (This position had gotten HUGE)
Sold TAN @ 7.45 (cost was 5.90)
Sold PAAS @ 17.14 (cost was 12.10) (I got rid of the covered calls I sold for $0.85 for $0.15)

Metals look to be breaking down HARD so all I have left is SLW and AA and both are 100% covered right now so declines do not hurt me.

I also added SRS at $40.25 and FAZ at $16.30.

I am not positioned back to the dark side where I belong.... FINALLY!

Dow 8000 seems a good a time as any to be pointed that way.

I know I spend alot of time on Gold, but...

Is this a bullish descending wedge, or a breakdown about to happen?

Bought SRS, FAZ

SRS at $46.19 (Ultrashort Real Estate)
FAZ at $17.30 (Ultrashort Financials)

Amazing Day

3 hours to the close, and my accounts are "breaking out", owed mostly too my mega-long energy positions. Even with OIH being partially covered up and GDX being down big today, my trading account is up well over 10% today, and the rest of my accounts are all solidly in the green!

I don't want to jinx it...

Added more DXO at $2.63

I talked about the trendline on DXO in my last post.. We got another test of it today and I couldn't pass it up.

I raised my average from $2.31 up to $2.39 with the purchase but added 40% to my position.

If the trendline breaks I am out of the whole position.

More option writing

Wrote GDX covered calls, April 41s at $0.75. If they want to take it at 41 from me that will be an 11% profit in three weeks.

Trading/Investing Bloggers

I am tired of bloggers out there bullshitting their trades. When these traders have a good idea but it doesn't go their way, they blow smoke up our asses about how they "got out of that trade" or intimate that position size wasn't as big as they first indicated. My favorite is "averaging down" or posting 2 hours after the move was made that they "got out in time".

Listen, my trades blow up all the time. But at least I am honest about it. Maybe that won't get me 10,000 comments on each my blog posts like others, but you sure know what the truth is.

Most bloggers have great ideas, but I think the need to keep readership (and ad revenue) high ends up affecting the truth too much.

Just come clean. Say you lost $100,000 today. We can all relate to you at least some point in our trading career. Pride is a powerful thing!

Thoughts on DXO and the market...

Here is the chart for DXO.... This trendline has been intact since the middle of February when I bought my large chunk… there have been at least 5-6 tests of it along the way. Currently we are sitting right on the trendline. I thought about selling it in the $3’s but because all those calls I sold against other positions and the FAZ I bought were offsetting my DXO losses I decided to give it the benefit of the doubt and see what it did when/if it got to the trendline. I grown attached to DXO. :)

We are at the trendline now and it is “do or die” time for Oil and the DXO. I think it continues higher but if the market shows me otherwise I will book my profits. I did not add more as I am not 100% sure which way this one will go.

As far as the overall market goes as you can see from my trades I have been getting smaller and smaller as time has gone on. I went from almost being 100% margined when I was mega-long the gold and silver miners AND a bunch of market longs (20+ positions) to having no margin and a big pile of cash currently (5 positions and 3 are covered). I was very bullish on the stock market but sold my 401K at 832 as posted here. I was bullish on the financials but they rallied from $5.8 to $9.5 in just a few weeks.

So keeping in mind that I am not invested heavily in this forecast, what I see is:

A pullback in the short run (day to few days) followed by a bit more of rally into the intermediate term. Today was the end of the quarter which is always positive because of window dressing and tape painting. The first of the month has been a negative market day for countless straight months so April 1st should be red, but calling what happens tomorrow is a fools game. Anyway this rally in the intermediate term could take us only to 850 but it is possible that it runs all the way to 900 and beyond.

Either way I do not see a new bull market at this point and I think the rally runs out of steam as soon as we get overbought and the confidence indicators are showing LOTS of bulls and we finish off the last of the stubborn bears out there. How high we go depends on a combination of how stubborn the bears are and how dumb the bulls are! I’m not riding the upside but I am not shorting here either….
When you don’t have a big opinion on the overall market direction it is a traders market and you need to stay small, try to pick short-term winners and take profits quickly. This is exactly what I am doing along with not being a very active trader in this whipsaw consolidation days.

Ugly Day

Today's closing price action didn't really excite me. We closed under 800, after being up another 1% earlier. The bulls clearly couldn't hold the momentum. We will probably sell off into the unemployment number on Friday.

However, I bought 200 OIH @ 76.09, and wrote an OIH 75 at $4.15 and an OIH 80 at $2.20 (Aprils!). My cost basis is 73. I am happy to get long OIH with a cost basis at 73, but I'd much rather sell OIH at 75 and 80 and make $1K.

Sold FAZ at $21.40

Bought at 18.66... sold at 21.40.

Would have been better if I had sold it at $24 yesterday but I want out while I am still up 15%.

Two Long Energy Ideas

RIG, stop 54.70

OIH, stop at 72.5

Pivot Day

The GM/Chrysler issue could really blow up this rally -- immediately. Futures are pointing to opening below 800, which is a substantial area of support. The other area of support is the 50 day moving average at 792. Closing below there would be a substantial blow to the bull case may warrant liquidating bullish trading positions and becoming short term bearish.

RVASpeculator is already short financials -- it may be time to short the market in my account, today's outcome dependent.

Half of DXO

Following the script I laid out earlier in the week, I sold 1000 DXO at 3.04. I have set a stop for the remaining lot just below where I bought it, at 2.69. The dollar seems to be rallying rather strongly here and it may be troublesome for DXO and other commodities.

Sold the 401K, bought some FAZ

I realize this rally is probably going to 900 on the S&P like everyone is saying but I am out of my 401K at 832. (today’s close)

The way I see it is even if we go all the way to 900 on the S&P that is only 8% higher from here. The downside risk is greater than 8%. Plus because I got 30% of my money in almost at the exact bottom in the 600’s I am up for the year now in my 401K and I want to keep it that way.

I will not be putting my 401K money back into the market until the 50 week moving average crosses the 200 week moving average to the upside which cannot happen for quite some time (probably 10 months at the minimum). No more gambling with the long term money.

I also bought two chunks of FAZ (triple short financials) near the close of the day on Thursday. Financials hit their peak last week and the market has continued higher NOT taking the financial sector along with it. To me this is telling that the financials will lead the way down again when the next downturn comes.

UYG (double long financials) has hit the 3.00 – 3.05 level three different times since March 18th…. On March 18th, March 23rd and again today on March 26th. If UYG can break out and go to 3.10 I am going to use that as my cue to get out of the FAZ and see how high this rally can go. I can see a possible scenario where the market goes higher and UYG does not break out and I also can see a scenario where all hell breaks loose and the momo buyers jump ship, so I will hold the FAZ until the market tells me not to.

With the way this rally has been going I may get taken out of that trade on Friday but I hope to hold on to it longer than that.

I love ETF's..... Selling more calls.

ok... TAN is up 9% today, so I forgive it for yesterday now.

I sold April AA $7.5 calls at $1.02
I sold April PAAS $20 calls at $0.85


Now have calls against everything but DXO and TAN.

I hate ETF's: Part CCXLIII

I buy TAN a few days ago because I figure this solar crap is going to go higher if oil keeps rallying. I check the components of TAN and they are all large solar companies.

I notice all the large solar companies were up HUGE today. TAN was up 0.5%

Here are the top 10 holdings of TAN:
ENER +5.43%
FSLR +4.02%
LDK +7.29%
WFR +7.09%
QCE.BE +11.54%
REC.OL +4.10%
SWV.BE +0.81%
SPWRA +0.38%
STP +1.82%
YGE +1.72%

Explain to me how TAN can only be up 0.50% when this is what it holds?

Is the other 40% of the fund that is not listed invested in tulip bulbs or fake dog poop?

Added to my VMW position

200 @ 24.57

Into the GDX fire

Bought 200 GDX at 37.52. No stop, yet. Will buy more on a pullback, and then set my stop.

How high can oil go?

As an owner in a large position of DXO, the double long crude ETN, I've been trying to figure out how high crude can go, and carry me to fat profits.

The basing pattern we've seen November - March has been impressive. I expect this to be the base of the next bull market in oil. Unlike the equity market, oil made its low in December, and has been climbing higher ever since.

40 is the absolute nominal floor for oil now. But again, how high can oil go, now how low.

We will bump up against nominal long term resistance at ~ $58. I think we get there tomorrow on a bullish inventory report, and I will take some profits on DXO (3.35-3.40 area), perhaps taking 50% off the table, just to buy it back on a pullback ($3).

Above $58, there's really good, solid resistance levels around each major round number -- $70, $80, $90, and $100. Interestingly, above $100, there's really nothing until the all time high from July. We won't be there again for a little while.

I guess my summer target for crude would be $70-75, which would put DXO around $7. It will be a choppy ride.

Another look at GDX?

I'm not bullish yet, but man if we can close near the moving averages...and when the 50 crosses the 200..we could be off to the races. I moved my buy up to 34 on this one, and my stop will be 29.

Near perfect retracement to the breakout point

Back to 806 on the $SPX. I thought we would retrace to the 805 support level, and 806 is close enough. I expect to rally tomorrow. Energy is the wildcard -- what will the oil inventories report bring? If we get a surprise bullish number, I think the whole market rallies again, strongly. If we get a bearish number, oil could pullback to $50 and the market could levitate in between today's close and Monday's highs.

Sold TBT at $44.50

Fed announced they would buy Wednesday and it started to tank. It was still above where I bought it on Wednesday during the panic and still above my old $39 average.

I didn't want a winning trade to turn into a losing one.

I will short treasuries again but I am all about keep profits these days. It looked like it might take out $44 and if it does that it is probably headed back to sub-40's

Bulls on Parade........

http://www.youtube.com/watch?v=-58-36lSqG4

This market may scare the crap out of me here, but man is it powering higher. Everyone's favorite 900 target is in sight now.

As you can see from the right of the screen I am making bank on this move but when the market is up 25% in 10 days all you can say is "wow" and try to stay nimble... Maybe my problem is I am a constant contrarian. Everyone is screaming buy now and I am seriously considering liquidating my 100% long 401K Tuesday and putting stops under all my positions… (except DXO which I am taking to my grave)

FAZ (the triple short finacials ETF) lost 45% today… 45% TODAY! I almost bought some; it is actually on my radar at these levels. The biggest problem I constantly fight as a trader is pulling the trigger too early, bears are getting killed left and right and the last bear gets the honey.

Bought TAN at $5.90

TAN is the solar ETF... I didn't do enough research to pick an individual company.

If oil is going higher all this alternative energy BS is going higher too. I hate to buy something when it is already up 6% on the day, but so be it.....

The fact that Gold is just flat tofday...

...with the market up 3% is very encouraging medium term for gold. It looks like the "scare trade" is gone and now its the "inflation/quantitative easing trade" for Gold.

Finally out of my gold related names...

I held these positions since November of 2008 so it was hard to let them go...

I sold calls in February against AUY, GDX and MFN. AUY and GDX were my 2nd and 3rd largest positions.

All of these just got called away, but lucky for me I made money on most of the calls.
GDX and AUY settled right near the strike price I sold at.

GDX called away @ 37 + $2 for the calls I sold= out at 39 (cost was 21.8)

AUY called away @ 9 + $0.85 for the calls I sold = out at 9.85 (cost was 4.32)

MFN called away @ 5 + $0.70 for the calls I sold = out at 5.70 (cost was 3.52)*

*I should NOT have sold calls against this one as it closed at $8 a share.

I also sold calls against GDX, AUY and SLW in February and all of those went out just about worthless and I am not figuring that into the gains for these stocks because I am lazy. Even though selling calls cost me big on MFN it still has been a very profitable tool for me since I recently started doing it. Currently the only calls I have outstanding are the ones I sold on Friday against SLW.

I now have no margin and a sizable portion of cash on the sidelines. I will be looking for more opportunities tonight and into next week. I’m thinking this bear market rally has some more gas in it and will probably be jumping back on some high beta plays early.

Tonight I have actually been looking at some solar stocks. (gasp!) I know it’s a busted bubble and a lot of the companies are scams but it still could make some money if oil keeps going up, especially since they are all off about 90% and sitting near their 52 week lows. Thoughts?

What kind of 'flation?

Deflationists says that inflation can't occur with 8%+ unemployment. Deflationists say that the debt deflation occurring now is wiping trillions off the private sector's balance sheet, and the fed hasn't thrown enough money at it yet.

Inflationists say that deflation can't occur with monetary stimulus the likes of which we have never seen. Inflationists say that the doubling of the Fed's balance sheet in the last year and the quadrupling of it by the end of this year can't help but lead to inflation. They are both wrong, and they are both right.


The US government has succeeded in preventing a deflationary depression. They have not succeeded yet in preventing a hyperinflationary depression.

A deflationary depression occurs when the money supply is contracting and growth is contracting simultaneously. A hyperinflationary depression occurs when the money supply is expanding and growth is contracting simultaneously.

We witnessed a mini "deflationary depression" for the past six months. I believe on Wednesday we witnessed the beginning of a mini "hyperinflationary depression".

Take a look at the chart above. The dollar began its rapid ascent with the deflationary episode beginning with the crack in crude prices in July 2008, which is expected in a deflationary episode (fiat currencies become more valuable). Now, last week, the dollar began its descent, which is expected in inflationary episodes. The dollar is currently resting near its ascending trendline, depending on which trendline you use. Should the dollar break this trendline, it will confirm the beginning of the inflationary episode, which may eventually become a "hyperinflationary depression".

While $4 trillion may not be enough to really get hyperinflation going, the fed has signaled that it will continue to inflate the money supply to counteract the forces of deflation. They will not be able to pull the plug once they release the hyperinflationary genie in earnest. This too is also a feedback loop -- as more defaults occur, more money inflation will be required to makeup the difference. This is where the "hyperinflationary spiral" may occur.

I realize that the dollar is the "reserve currency", and that will not be changing. That doesn't mean that the US can't experience 15% nominal inflation rates coupled with 8% unemployment. Just look at what happened in the late 70s and early 80s.

I am long lots of crude, and I want to be long Gold on a pullback.