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

Copied from my CAPS blog:
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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.