The government released its advance estimate of GDP in the 2nd quarter, and it came in rather light - - - plus unemployment seemed to bump up, thus causing the market to take a nice 200+ point tumble on the Dow today. What was interesting wasn't so much the estimated Q2 2008 figures, but the fact that the U.S. government revised the past several years - all downward! - since they somehow magically discovered their earlier pronouncements were too high. Indeed, Q4 2007 - which, let's face it, was some time ago - went from a positive number to a negative one. Thus, the commerce department actually managed to confess that the economy is indeed shrinking. Big freakin' surprise.

There seems to be a widely-held notion (particularly by the likes of Cramer) that energy and indexes are inversely related. In other words, if oil can only manage to go down, then it's going to be a party for equities. This simply isn't the case. Witness yesterday when energy went up and indexes went up too - - or today when they both went down. More broadly speaking, I am positioning my portfolio for a substantial drop in both energy and indexes. Cheapening oil is going to be a symptom of a weak economy..........not its salvation.

The Russell, which is where my index puts are focused, wasn't as weak as the Dow today, but it did lost six tenths of a percent. I am setting my stop-loss very tight, at yesterday's high, since I don't want to get caught up in a surge just in case the S&P does indeed find its way up to 1325.

Speaking of the S&P, it fell more than twice as much as the Russell. The boldface retracement you see here remains my "line in the sand" for this particular market.

Now that July is behind us, I thought I'd take a look at the year to date performance of the big indexes so far. The Dow is a big loser, having fallen over 12.5%.

The $NDX is down about 10%, having been breakeven back in late May.

And the Russell is down merely 5%, having actually been positive in late May. Even on a percentage graph, you can plainly see the head and shoulders pattern I am playing (which spans May into part of June).

I remain cautiously bearish on banks, both commercial and investment. Wells Fargo is one example, although I have no position in it now.

And Bank of America is another, in which I do have a big position, since it's a cleaner chart.

First Solar's explosive earnings after the close yesterday propelled this stock twenty dollars higher earlier today; it ended up three - count 'em - three shiny pennies. This failure of a bullish breakout is encouraging for this put-holder.

Late yesterday would have been a good time to re-enter some energy shorts. HES did a nice retracement.

And OI sported a very impressive 12%+ tumble.

I re-entered my Priceline position today as well; it could go a little higher, but the horizontal line you see below is my stop-loss, so the risk is pretty small.

I tripped across some stills from a 1975 IBM Presentation. It's pretty awesome. If you want to check it out, click away.

A good trade doesn't have to be based on something like Google or First Solar. Hum-drum stocks work too. Check out Colgate Palmolive (symbol CL). My stop's going to be at 75.34

I mentioned in five different posts that Akamai (AKAM) was an attractive short. Today that prediction seems to be fulfilling in a big way. If you scroll down to the AKAM reference in this post, it provides a nice example of how the "Original" the "Present" tabs in the charts work.

First off, I was relieved this morning to see the pre-market indexes swoon at the sight of the employment and GDP figures. I really wasn't in the mood to have the market keep climbing. We'll see if the swoon sticks. The September e-mini S&P (@ES0809) has done a 15 point turnaround in the span of half an hour as I'm typing this.

Second, I wanted to make a mention of MyTrade, a firm my employer (thinkorswim Group) acquired at the end of last year. This is a pretty cool social networking site for investors - - I've always described it as like Facebook for traders. The feature set is still relatively nascent, but it's a very cool way to organize the blogs you read, track people, add your own stuff (videos, images, notes). Here's a link to my own page, and if you're a thinkorswim customer, you can just use your existing username and password to sign in (otherwise, you can register, and it's free). Give it a shot!

The reason for the title of this post is that I've received a number of very thoughtful and cohesive arguments from readers postulating that Monday will be the end of the "c wave" we are in and will kick off the "wonder to behold" wave 3. In other words, folks think the market is going to keep fighting its way higher (and the past two days have been fairly brutal, let me tell you!) until sometime on Monday, at which time things are going to fall absolutely to pieces for our bull friends.

On the surface, the market looks terribly strong; I had thought mid-day we might enjoy a reversal, but it was not to be. The Dow closed at its highs for the day, causing havoc to bearish portfolios everywhere.

Looking at the Fibonaccis, however, is a little more encouraging. The retracement I've put in bold appears to be decent resistance. I will note that those calling for Monday as the reversal would surely put the Dow's target (and, thus, the DIA's) at a higher level than this. "S&P 500 to 1325" has become virtually a cliche lately.

Crude oil's strength today held the Transports back so that they were actually in the red, in spite of the Dow's nearly 200 point jump (adding to yesterday's 250 point jump!)

I am somewhat chagrined to have written about DUG yesterday. I had a pretty big position in this - 2,000 shares - and early this morning I decided to sell it. Thank goodness, because I scored a very healthy profit, and by day's end it was actually a loss. I consider the red line I've drawn to be important support; if we seem to ease around the $32 level, I'll probably re-enter. You have to be nimble in a market like this, and when I saw this morning that we were not making new highs this month, I wasn't confident enough to hang on. My intuition was right this time.

Looking at the EUR/USD, we're at an important decision point - - the price is right on the fan line, yet it is also positioned for a potential breakout (see red horizontal line). My money is on the fan line being broken, which would naturally result in a drop in energy (and, thus, a rise in DUG).

Another arrow in my "energy bear" quiver is the USO, which is approaching the underbelly of its broken fan line.

As for OIH, can you see the three high prices around $212.50 in late June and eaerly July? I don't think those are going to be breached. That's my stop-loss level.

I bought puts on the $NDX (which were actually in the green during the middle part of today, in spite of the Dow's strength.......) and the $COMPQ seems to be bumping its head up against its lower channel line. Naturally my stop price on my index puts is set to the highs set on July 23rd.

As for my best friend the Russell, this is by far my largest put position, and my stop is set to 726.27 (if memory serves). If we begin to seriously fall within the coming week, this could turn out to be a once-in-a-decade opportunity to be short this index. A push above May's highs would completely wreck that prospect.

Now, in no particular order, a few favorite shorts of mine. Although I won't comment on these individually, I will point out that I am ga-ga excited over Bank of America. Just take a look at those retracement levels, particularly the one I've boldfaced.

Tomorrow morning's GDP report (8:30 a.m. EST) is going to be vitally important. That will probably dictate whether "the fall" begins Thursday or if we're going to have to stomach a push higher (much the same can be said of Friday morning's unemployment figures). The past two days have been no fun at all, but I think relief is coming soon.

I expanded my $RUT put position this morning, based on the market's strength. So far, so good. I've got a stop at 726.27, and the failure today to match the prior recent high (see tinted rectangles) is quite encouraging.

This, to me, is a beautiful graph. Contingent stop set at $34.50 (today's high).

A glance at MarketWatch this morning tells you all you need to know about the new United Socialists of America........

So, in one glance, we have:

• The assumption of trillions of dollars of risk by the Treasury in order to protect FNM and FRE (whose senior management make millions in salary every year)
• The broadening of "emergency" loans by the Federal Reserve
• The banning of short-selling on many widely-traded stocks by the Securities and Exchange Commission (with another "emergency" order)
  

Perhaps high school civics classes should be changed to courses like Learning Parts of the Federal Government Vis a Vis Bullish Crutches. This is all ultimately going to be just as effective as the umpteen other things the U.S. has done to prop things up since last July. It's amazing what happens when you get a Wall Street insider running the controls, helping all his drinking buddies out back in Manhattan.

The big news today was the strength in financials. Across the board, banks and related firms powered higher. Personally, I got out of my RKH, JPM, WFC, BAC puts (and a host of others) as well as my SKF position early this morning. All these positions were profitable, with the exception of WFC, although obviously they were more profitable at yesterday's close. Just for the heck of it, I drew a Fib retracement on MER (who wrote down billions of dollars after yesterday's close) from its lowest point in 1974 (!) to the peak in 2007, and the levels line up remarkably well with the support/resistance of the price points. Let me repeat - - this retracement was based on a price 34 years ago! I think that is simply remarkable. (exact span: 9/16/1974 to 1/18/2007).

Another thing powering the equities was continued weakness in energy. Remember how just a month ago everyone was running around screaming about $200/bbl oil? This market sure has gotten squishy fast. You can imagine all the poor souls who thought they'd be crude oil bulls in the futures markets; I'm sure a lot of newcomers got their heads handed to them. I continue to believe we could be in for another leg down on the OIH to about 165-170.

Looking at the intraday graph over the past 120 days, it's challenging to interpret what today's strength means. For the $INDU, I've drawn a thick dotted line to show a suggested support/resistance zone. The highs set earlier this month are obviously of great import.

The S&P 500 re-approached its important retracement level at 1267.86. The upper limit, as I've said, for any "c" wave higher is about 1,325.

Focusing in specifically on RKH, you can see how powerful the "outlawing" of short-selling has become. The darlings at the SEC engineered a boost of about 50% in a matter of just a few days. As I type this, the restrictions on short-selling have ten hours of life left, and I'd appreciate it if folks in the comments section would give a heads-up as to when the extension of these restrictions is announced, and what the particulars are.

Lastly, the $VIX has, having hitting the 30-ish level, eased its way back down to "the new normal" of the very low 20s. Continued strength in equities would get this back into the teens.

So it was a pretty brutal day for the bears, but it certainly shouldn't come as a surprise to anyone following the markets. All eyes are on Friday's jobs report at this point; let's see if today's strength is going to be the theme for the rest of the week. I wouldn't be surprised to see more strength, and if we get a lot of it, I will view it as simply another good shorting opportunity.

There are ample plausible arguments that there's plenty of life left in this bear market rally - - maybe even over 6% more to tack on to the S&P 500. But I'm confident enough of the $RUT at these levels to be buying puts, with a pretty generous stop at 726.27.

I've trimmed a huge number of positions, particularly in the world of financials (BAC, LEH, WFC, JPM, and so forth). For me, it was time to take profits.

I am still nuts about energy shorts, though, and I just doubled my long position in DUG.

It can't be an easy job doing the Marketwatch headline pre-market every morning. Now and then, there's something really exciting to feature. But there are many mornings, like this one, where there just isn't a damn thing going on. To wit:

Whoo hoo! The S&P futures are up four one-hundreths of a percent! Party time! It's the bears' last stand!

I think I would prefer just "SSDD", "Good Luck!" or "Sun Rises" instead. Not every day is a market event, folks!

Today was kind of rough. I don't mean that I lost money. On the contrary, with the Dow dropping 240 points, my portfolio went up in value handsomely. The reason it's rough is because this is one of those times when I'm torn between (a) the prospect of the market bouncing strong; and (b) the prospect of leaving profits on the table by closing positions too early.

One of the symptoms of these times is that I get very jumpy with index puts, and I bail out of them and - - God, forgive me - - even buy calls. I was in 'n' out of index positions all day, sometimes for a tiny profit, and sometimes for a larger loss. It was pretty much a grand waste of time. Just leaving everything alone (which I did with my gazillion other positions) would have been the better choice.

Last Autumn, when the Chinese market was soaring (remember that?), the "rationale" was that their market would be strong until the Olympics. Well, sports fans, that's just a week away. When that's all over, what then? I've actually not touched China, long or short, in a while. The spread on the options is too wide, and the market is pretty weird to interpret. If I had to go long one country, though, it sure wouldn't be the middle kingdom.

One of the reasons for my skittishness about indexes is how a number of major indexes or ETFs touched their retracement levels today. The DIA is a superb example - - even moreso since last week it did a beautiful job touching its (smaller) retracement, shown below in red.

Energy has been sort of pausing at its fan line, but frankly I'm expecting a break down. The OIH could head to the 165-170 range given that prospect.

Of all the indexes, the one I find easiest to interpret and trade these days is the Russell. We are smack dab in the middle of retracement levels right now, which I always find to be an unhappy spot. I am far too uncomfortable with the general trend of the market to be buying calls, so I'm either going to be long puts or out of the position altogether. You can plainly see that, should we eventually crack the 645 level, we've got a ginormous head and shoulders pattern on our hands.

Looking closer, you can see we're precisely in between the retracements. There's a skosh of support in the 695 area. It would take something pretty nasty to provide the strength (errr, weakness) to get $RUT to break that lower level. We shall see.

The S&P 100 also approached its retracement level today, almost perfectly touching it. I keep getting the feel that, barring shocking news, the selling pressure is really going to abate. But I am not convinced enough of that prospect to close out positions; it's simply too likely I will leave profits on the table. I'd rather align myself with the broad trend, which I have almost no doubt is firmly in place.

My chart of the S&P 500 doesn't reveal any rock-solid answers either. We are diddling around the ~1260 retracement. I have seen 1170 cited in so many places as the obvious support zone, it makes me wonder what the market is going to do to prove us all wrong! It just seems too easy an answer.

I want to make one last comment on contingent stop orders. A fair number of people have written me about putting stops on their options positions - - that is, the option instrument itself. In my opinion, that is really the wrong way to go. Options are far too thinly traded, their spreads too wide, and their trading too volatile, to justify such an action.

I think by far the better choice is to have a contingent stop. For those who don't know about this, it simply means that if the underlying instrument does something or another, then your option order goes through. Let's say you have puts on AAPL, but your hypothesis will be broken if AAPL crosses above, let's say, $190. A contingent stop would simply assert that, should AAPL cross above $190, an immediate order will be created to sell your options position at the market (you could use a limit order, but I think that too would be foolhardy).

If you use stops - and I hope you do - I cannot recommend strongly enough making use of contingent stops as opposed to the "normal" stop orders. I am pretty sure most brokers offer this, but if yours doesn't, that probably is reason enough to change your firm.

I think I'm going to hang up my keyboard for the day; thanks for stopping by, and many thanks for the marvelous comments section and all the fantastic contributors there!

In spite of this notice, I get several emails a day from people asking me for advice. "Should I buy this stock?"; "What stop should I set?"; "Do you think this is a head and shoulders pattern?"; and so forth.

Folks - I will not give anything even resembling personalized advice. Because none of you pay me, I believe I am "off the hook" anyway, but out of an abundance of caution, I will offer no opinion at all. The easy thing to do would be to ignore the emails, but I'm the polite sort, so I always reply. But please save me some time and stop asking! You're always welcome to throw the question open to the group on the comments section, but please don't ask poor ol' Tim. Thanks!

I don't normally suggesting buying into a pattern that hasn't completed yet, but if you want to jump the gun, here are a couple of candidates.

They are both formative H&S patterns, and if they complete (ahem, IF they complete!!!) they will be pretty righteous.

You may find this hard to believe, but when I was in college, I had aspirations of becoming a professional stock analyst. I had a strong interest in stocks, and the little bit I knew about analysts suggested to me they (a) were highly paid; (b) were very intelligent; (c) got to apply rigorous criteria to the universe of stocks to carefully select a handful of winners.

Little did I realize that analysts are little more than shills for the investment bank division; paid lackeys to puff up virtually all stocks so that more services could be sold to them. I also fell in love with technical analysis in my late teens, and that was enough to dissuade me from fundamental analysis, which these folks purportedly use as the basis for their decisions.

When I saw CROX got zapped on Friday, I didn't even have to look at the historical recommendations of the analysts - - I already knew what I would see. Something like this:

Buy, buy, buy. The world is full of bulls, and it's also full of analysts to prop up their hopes. What a bunch of crap.

So if we look at any given rating vis a vis the chart, particularly when the stock gets wiped out and they change their rating, it resembles this:

Gosh, D.A. Davidson. I guess you mean the really long run.

And don't assume these geniuses only screw up in the eyes of bears. They can be just as inept the other direction.

So you wanna know a secret? I don't want to do what they do for a living.

And so ends my week at Stanford Sierra Camp - a week in which your host:

• Stared down a wild black bear at fifteen feet (seriously!)
• Water skied for the first time in his life (cruising along Fallen Leaf Lake for over 30 seconds.....)
• Shot an egg - yes, an egg - with a bow & arrow at a distance of 40 feet.

It's been a great trading week, and even though I worked for most of this "vacation", I've enjoyed it tremendously.

I'm not sure if I'll do a post before Monday, since I've buried you guys with ideas all week long, but perhaps I will. In any event, enjoy the weekend, and thanks for a great week of terrific commentary!

Here are a few charts I pulled in the wee hours of the morning for you to ponder.

And the one I suggested on July 8th - - when it was $45! - -

I have, since 6:30 a.m., been cutting back on positions and taking profits.

I get a lot of emails from readers with all kinds of opinions. Many of them are very well constructed, and many of them contradict one another. Added to this, I read a handful of sites that I respect. There really is no consensus at all right now.

Generally speaking, what I tend to agree with these days is that we're going to head into a "C" wave upward to as high as 1325 or so on the S&P. At that point, all hell is going to break loose to the downside. (Many have tried to talk me out of Elliott Wave, but I'm still a believer). So I'm positioning myself for that, which means I'm taking profits wherever I think there's a risk for a bounce, and I'm tightening up my stops everywhere else.

So I'm sitting on an increasingly large amount of cash, and there's definitely a part of me that would like to see the S&P get strong and make its way higher.

It's nearly midnight as I am typing this. A few minutes ago, I encountered a wild bear.

Nope, I'm not making this up. Let me explain. As regular readers know, I am at Fallen Leaf Lake near Tahoe. Tonight I decided to do some star-gazing, since everything is so clear here - - you can easily see the Milky Way, and Jupiter is almost painfully bright. So I went out on the boat dock, did the star thing, and started heading back to the lodge.

A couple of guys were staring at something, and since I'm the curious sort, I hunched down to see what they were looking at. It was a brown bear, probably about five feet long, staring back at us, maybe fifteen feet away. Even though I heard a story yesterday about a woman whose arms were both taken off by a bear (in Alaska, not around here), I didn't feel nervous. We made some noise, and he galoomphed away. He was really very beautiful, and I was glad to have seen him. Although the thought did occur to me how ironic it would be if I was maimed or killed by a bear, of all things. I think he could sense I was a kindred spirit, so he left us unharmed. Had I been Abby Joseph Cohen, he surely would have attacked, in spite of the smell.

I had compiled a ton of charts tonight, but my connection is rather slow, so I'm actually going to make this quick. I had a very, very good day today. I'm not sure if it was my best percentage gain ever, but it was awfully close. I was blown away how well things went. Even though energy has slowed its descent, my energy puts did terrific, and I'm still wondering if OIH is going to break beneath its fan line to start the next act of this play.

I am extremely short banks, and I find the huge rally provided by the bulls a few days ago to be a tremendous blessing. It made things cheap for bears.

In all the tumult, there are a couple of ways to play it - - either play the bullish side by taking advantage of battered prices, or play the bearish side by taking advantage of pullbacks. CAL is an example of the latter, since I shorted it after it rebounded hundreds of percent in just days.

Whereas CROX was the opposite. I bought a bunch of this when it was at about $7.50, and I sold it all at about $9 a couple of days later. Thank goodness I made this an opportunistic trade, because the opening bid should be around $5 or so tomorrow. That was one close call.

I have puts on RKH, which, in addition to my puts on stuff like LEH, WFC, and BAC, is a great way to play the "cascade" we're witnessing.

I'll belabor my $UTIL short again, but at least this time I'll post a target, which I've tinted below. If we break the neckline, my target is about 370-380.

I am still long DUG, and this has been a fantastic trade. I started accumulating this when it was in the high 20s, and let's face it, this is a very bullish looking formation, particularly with the volume surge.

I'm going to leave the mountain of charts I had pulled for you unused. I'm going to bed now, hopefully avoiding any nasty dreams about bear attacks. Since he just headed off in a different direction, I'll remember him as cute instead of fearsome. Kinda like another bear you know! G'nite.........

Another nice opportunity.

I can't believe I missed this! I was hoping CNH would retrace to its neckline. I've been so busy shooting eggs at 40 feet and attempting to water ski, I haven't been diligent about my charts. But I see now that yesterday this sucker exploded higher, perfectly touching its neckline.

Thank you, Jesus!

A lot of people over the past few days have been buying Bank of America. I think these people must be clinically insane. I, on the other hand, am simply piling on more and more puts into this position. This chart is tres magnifique.

Lord knows that I've never been completely on top of fashion trends, but I base my decision on charts, not clothes. So here's a shout out to all  my Slope homies, just to say that ANF looks like a very safe short at these levels, with a stop-loss at $65.01. Word.

I have to say, I'm both disappointed and angry. The gigantic bailout that the Federal Government is shoving through the system creates a series of winners and losers. Specifically:

Winners

• The CEOs and other executives of FNM and FRE, all of whom pull down seven-figure and eight-figure salaries and have pulled one of the great corporate heists in business history
• The lower-middle class blockheads that gobbled up real estate at sky-high prices, thinking they would be the next Donald Trump, who are going to simply walk away from their "investments"
• The shareholders of FNM and FRE, who have been spared a $0 stock

Losers

• All the citizens of the United States, particularly those who pay taxes
• Honest, hardworking people that got mortgages through honest means, pay their payment promptly each month, and have received no help or favors from anyone (I am pointing not-so-subtly at myself right now.....)

So the honest and hardworking folks are the fools. And the charlatans and crooks are the winners. And the entire country slips that much closer into oblivion with this travesty.

Gee, Tim, how do you really feel about this?

I have some s'mores to make, so this will be short (as a side note, no one makes s'mores like me - - - I am a zealot about the marshmallow being just right; God help you if you are with me and your marshmallow goes up in flames; that means instant death). Below is a great which screams "more drops to follow"; don't you think people figured the worst was over at each one of those tinted areas?

The indexes might have a little more upside left - - in the coming weeks, maybe an S&P as high as 1325 or so - - but at the moment, the DIA is up to its 32.6%.

The $UTIL is on a fast track to a massive H&S pattern. Amazing.

My energy puts had a dynamite day. OIH is pushing that fan line. Could it crack to the next level below?

I have been buying puts on brokerages and banks. I hope this graph helps explain why.

The Russell hit its Fib perfectly today. I lost about 10k on $RUT puts early in the day, but I re-entered the position at almost exactly the top, and those are in the green now. Not enough to compensate for the loss, but hey, the trade is only a few hours old!

USO has cracked its fan line; the energy market has really fallen to pieces quickly, as I had hoped.