The market without question has been very intense of late. There are a number of people making money, however most are a bit shell shocked. I have been reading a Yahoo CGMFX board. Some have been riding that fund down from 61 to a friday low of 38.74. They are not alone. I feel pretty fortunate to have been scraping out a few percent a week to the plus side. I think we have a very exciting monday. Probably downward pressure with many redemptions. The panic is palpable.
I think Fuel expresses what people are thinking of this market.
I would have loved to be more bearish from the Gov’t intervention. Unfortunately, I just got small with a slight upside bias. Fortunately, my downside hedges have worked out a little. As I mentioned then, it is one thing to fight the Fed, and another to fight the ill-informed law makers, SEC, and Treasury.
Two weeks ago, I spoke of a scenario of a rally above SPY 118 with upside bets off on a break below 118. Well, the catalyst of a poorly executed passing of HR 1424 (aka. The Failout) scrapped chances for that plan to succeed. Investor’s of US securities feel anything but secure at this point. Upon the break of 118, I started putting on some downside hedges, albeit not enough in retrospect.
We are approaching a point I have put on my radar since January, break of SPY 139.3. SPX – 1080. This is a 61.8% retracement of our move since the previous bottom Oct 10, 2002 (SPY 77.11), to the top on Oct 11, 2007 (SPY 157.53). The dates are eerie, eh?? And here we are… next friday Oct 10. Hmmm. Does it mean anything? Who knows.
S&P 500 (SPY) Monthly- Looking at the SPY level as technical support. Breaks below 106.70 could be very, very dangerous.
An unknown for me is this: Has the Gov’t/SEC intervention in limiting short selling short-circuited market functions that could create a melt-up as shorts cover?
SPY Weekly – A bounce from a projected low could lead to a bounce to Fib levels SPY 120 (23.6%), or 127 (38.2%). Both of these level match up with previous consolidation areas. With the large scale selling we have seen, this dog could run with no legs.
IWM – Russell 2000 – Now this is a dog of the indexes. For the longest time I couldn’t figure out why small caps could be relatively strong in the deteriorating economic environment. Well, the hen has come home to roost. Using a Elliot Wave Long tool, the target is 61 to 56 on the downside. Retracements from the 2002 lows are 38%- 65.01 (broken on Thursday), 50%- 58.81, 61.8% – 52.62. I believe this to be the weakest of the charts and furthest from support. Pair trade short IWM/long SP.
TRADING IDEA:
While I was driving to my PrePaid Legal event on Saturday I was thinking about Gold (GLD) a chart I reviewed on Wednesday.
Our current economic reality is uncertain and deflationary. Only 1/2 good for gold. Ben Bernanke being an expert in the Great Depression will do everything in his power to re-inflate the economy. My guess is that this weekend he has been on the phone with every Central Bank official to warn of “impending doom”. This includes Jean-Claude Triche and the ECB. The ECB is stuck in the same mindset the US had in 1930, “We can’t have inflation.” And added is the European memory that, “Hyperinflation was terrible for us in the past”. So they keep the rates high. If that happens, look out EC you are dead meat.
So what may they do? A coordinated Global effort to lower rates early in the week. In other words, attempt to re-inflate. The intent would be to create inflation to stimulate spending and stabilize prices. And using the “‘don’t fight the Fed motto”, I think we may see a magnificent pop in gold.
GLD Weekly – We have seen a 62% retracement, which is our defined stop. The uptrend is undeniable, however so is the double top. Play this one smart. Know your exits before you enter.
Here are two Podcasts worth putting on your listen list:
Daily – The Real Story w/ Frank Curzio
Weekly – The Disciplined Investor w/ Andrew Horowitz