Daily Archives: August 27, 2010

Harder and Longer

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In my video from just a couple of days ago, I made a couple of points:

+ There were a lot of interesting set-ups, but they were too battered in price to make the risk worthwhile;

+ I had covered a variety of positions at a profit simply because it wouldn't take much buying to wipe out their profits

Well, both of the above points were absolutely right. Take a look, for instance, at DLLR. Today alone, it climbed almost 27% (and it wasn't from a buyout; they simply had good earnings). Looking at the chart now, it is a gorgeous short. But imagine stomaching a rise like today's with a position like that!

I'm getting a leg up on my chart reading, and I've done A, B, C, and D already. From that list, I've got 45 short candidates and 9 long candidates. I suspect this ratio will be roughly the same once I'm done with the whole alphabet. Certainly there are a lot more delicious-looking shorts now than there were yesterday.

But the longer the S&P bangs against 1040 and lifts higher, the harder that support is going to become. That's a two-edged sword, however. At the moment, this level is a bull's best buddy. It is the line that "guarantees" a safe buy point.

But if…….and I emphasize if……..that line is plainly violated, 1040 will be as formidable a resistance level as it is now a support level. If we get into the magenta level, shown below, there's still a chance 1040 could be beaten, just as it was early in July. If we get down into the yellow, the bulls are going to be freaking out, because no one is riding to the rescue. And if we get into that green tint – – as God is my witness – – I am covering all my positions, as this is my long-intended target.

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As I've mentioned, there are some calling for a drop between 875 and 900 (including no other than Goldman Sachs). Perhaps. But I've set a very specific goal for myself, and I have no intention of getting greedy.

Anyway, this was a good week until today, and I felt the need for one more post. I'm done now. See you Saturday sometime.

Bonds Tiring, Gold Moving Higher (by Mike Paulenoff)

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What might Bernanke's speech have said or implied that triggered the market response that we have witnessed so far today? How about: Don't fight the Fed…The economy is anemic, and the outlook might be uncertain-to-poor, but the Fed will pump, buy, and do whatever it takes to turn it around. The Fed will keep short rates at ZERO for a long time, and force companies and investors to take risk….

If anything expressed above proves reasonable and accurate, the risk trade is where investors have to be make any return at all! Cash will continue to be trash and treated as such indefinitely. It is as if Bernanke held up a big sign that says: "Buy stocks, buy gold, buy commodities, buy houses, and, perhaps as a corollary, SELL BONDS — and take the money and put it into riskier markets…

With the foregoing in mind, let's have another look at my updated comparison chart of Bonds and Gold, two markets that could provide the most insightful reaction to the GDP data and to Bernanke's speech, are gold and 10-year bonds. Purely from a price perspective, the bond market is showing signs of exhaustion since its mid-Aug peak, while gold prices appear poised to continue higher towards a retest of the June highs at $1263/65. If my perceptions about the technical set up reflect "reality," then my sense is that Bernanke is "desperate" to create inflation, which argues for higher gold, and lower bond prices ahead.

I don't know exactly "why" bonds are weak and gold is firm, but I do know that the technical set-up coming into today's session suggested that such a scenario was increasingly likely. Right now, bonds appear to be heading for a test of the rising 50 DMA at 124-15, which amounts to another 0.50% on the downside. If the equity indices strengthen into today's close, we could see the bonds at 124-15 before the end of the day.

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Originally published on MPTrader.com.

A LULU of a Short

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I wish I spent more time in the comments section than I do, because some of the best ideas are in there. Yesterday, I happened to stumble over someone mentioning LULU, the purveyor of overpriced athletic wear for affluent women. It was a beautiful chart, so I shorted some. I'm glad I did – – it's one of my few bright spots today!

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Weak Treasuries

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Well, not a good day for me in the least. I'm down 1.74% as I'm typing this, and the overall market is up 1.2% (by "overall market", I mean an average of the SPY, IWM, and QQQQ). I definitely got snookered by the brief selloff after the Bernanke speech. It turns out that was a fantastic place to buy the bounce.

One of the few bright spots for me is my TLT short, which I entered earlier today. Please take note of the gap and circled areas on this multi-year graph.

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