Unemployment statistics are due out this Friday. If this rally continues strongly this week, we expect that traders will need an excuse to take profits ahead of the weekend. The unemployment report is perfect for this.
We do not attempt to time the market, but we will react to it if this week plays out the way we think it might. If there is a rally election day and/or Wednesday, and it is formidable, we'll be selling our longs and adding FXP or EEV into it in anticipation of a selloff ahead of the weekend.
If it plays out this way, odds are the resulting pullback will be a buying opportunity rather than the next leg down. If the market rallies sufficiently this week, on top of the 1500 points it already has, it will be ready for a healthy pullback. It isn't until this rally persists for several weeks and gets closer to its 100 and 200 day moving averages that we'll be looking for a substantial drop that should not be bought heavily until fear spikes again.
We would not be starting any large new positions here, as we feel that overall the market is in neutral territory (mid range). A portfolio that is heavily biased to the long or short side here represents an excessive amount of risk. All positions should be partial positions, or hedged positions, until the market moves another 1000 points one way or the other.
You may have noticed lately that people are becoming more complacent about the market, as if the worst is behind us. The more this mindset sinks in, the more dangerous the market becomes. It's a good sign for prospective shorts to see that people are growing more confident that the bottom is in and it's all uphill from here. Given more time to saturate investor psychology, this perception will ultimately lead to a condition where we can begin a new leg down, or at least a very rapid return to the recent lows. We don't expect this to happen until complacency has really set in, which may not be for a few weeks, or even months.
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63 comments:
Hi Snot,
You are absolutely right. The market seems to 'discount' every bit of bad news (eg., ISM numbers today). Did you get a chance to watch Nouriel Roubini on CNBC on friday evening ? He was talking about S&P earnings to be in the range of 60$ and with a multiple of 10-12, he sees S&P index to hit 600-720 soon. That may be too far fetched but his predictions have been very accurate till now. Got to see whether his predictions come right this time.
The October 1929 crash had a very brief rally then a second leg lower by mid November. Not saying this would happen but it is not impossible.
BOSTON, MA, Nov 03, 2008 (MARKET WIRE via COMTEX) -- Direxion, a pioneer in providing alternative investment strategies to sophisticated investors, today announced their entrance into the ETF space with the Direxion Shares 3x Exchange-Traded Funds, slated to begin trading Wednesday, November 5, 2008. The new ETFs are a group of leveraged Bull and Bear index funds that seek 300% of the daily performance, or 300% of the inverse of the daily performance (before fees and expenses) of the four distinct Russell indexes they benchmark. There is no guarantee that the funds will achieve their objective.
The new Direxion Shares ETFs are designed to give investment advisors and sophisticated investors the ability to execute active trading strategies in all types of markets. The funds deliver increased market exposure via 3 to 1 leverage, long and short of their respective indices and afford investors the opportunity to effectively allocate capital to seek improved risk-adjusted returns. Direxion Shares ETFs represent the highest amount of leverage, currently available in the ETF space.
"These eight leveraged index Bull and Bear ETFs will give our investors the ability to achieve increased exposure to the diversified Russell 1000(R), Russell 2000(R), Russell 1000(R) Energy and Russell 1000(R) Financial Services Indexes -- critical investment tools for navigating changing markets," said Dan O'Neill, Direxion Shares' President. "We're thrilled to be the first to deliver portfolio solutions that track these dynamic Russell indexes using the power of leverage."
The new Direxion Bull and Bear 3x ETFs include:
Fund Name Symbol Benchmark Leverage
------ ------------------------- --------
Bull Funds
------ ------------------------- --------
Direxion Large Cap Bull 3x
Shares BGU Russell 1000(R) Index 300%
------ ------------------------- --------
Direxion Small Cap Bull 3x
Shares TNA Russell 2000(R) Index 300%
------ ------------------------- --------
Russell 1000(R) Energy
Direxion Energy Bull 3x Shares ERX Index 300%
------ ------------------------- --------
Direxion Financial Bull 3x Russell 1000(R) Financial
Shares FAS Services Index 300%
------ ------------------------- --------
Bear Funds
------ ------------------------- --------
Direxion Large Cap Bear 3x
Shares BGZ Russell 1000(R) Index -300%
------ ------------------------- --------
Direxion Small Cap Bear 3x
Shares TZA Russell 2000(R) Index -300%
------ ------------------------- --------
Russell 1000(R) Energy
Direxion Energy Bear 3x Shares ERY Index -300%
------ ------------------------- --------
Direxion Financial Bear 3x Russell 1000(R) Financial
Shares FAZ Services Index -300%
its starting to look more like a casino.
Added fxp at 85.29 today BTW
And as we speak HSI is already 5% down.
DJI needs to reach 50dma before it reaches 200dma. The 50dma is about 10200. If DJI reaches 50dma this week, I will sell all my longs and add short. 200dma is a long way to go, probably in December. It may be below 10200 already then. I do not believe this year the market will return to the level before $700 bailout, about 11500.
hk22, thanks for the heads-up on the 3x indexes. You're right, the market is becoming a casino.
Someday when they have 10x ETF's, we'll all be able to go bankrupt 10x faster like the big Wall Street firms do.
Anon, we're with you on the Dow not reaching 11500 this year. The 100dma at 10900 would even be a stretch.
hi snot,
those candle charts you post sure are pretty -- what service do you use for that? (unfortunately i bet it's a pay service...but still curious anyway.) i've really been enjoying your blog since finding it a few posts ago. thanks for sharing!
jf, we use TdAmeritrade's Strategy Desk software for charting. Free download for accountholders.
wow, I'm gonna buy some ERX the moment it lets me.
Looks like FAZ is the new SKF.
Did it occur to any of you that maybe the market has priced in bad news? Did it maybe occur to any of you that people/headge funds are sick of selling? Did it occur to any of you that maybe a new president signifies a new beginning. People may be looking into the future. One way to get out of recession is to make the money flow. By restoring confidence in the markets, people buy and banks give out loans. Too many people are waiting on the sidelines for the bottom. Bottom has been reached. Remember, by the time you realize we are no longer downtrending and no longer in recession, it will be too late and you have missed the boat! my .02
BTW snot, how do you see solar perform in the next few days, especially LDK?
That is some wishfull thinking,
Its way to early to turn pessimism into optimism.
Be careful out there, you are swimming in a sea full of sharks :-)
Here is an interesting article for you to read.
http://www.marketoracle.co.uk/Article7126.html
And regarding china and its economic boom here is another informative article:
http://www.latimes.com/business/la-fi-factory3-2008nov03,1,2982466.story
I think we're there. There should be a bounce downward from here. DDM @ 40, FXI @ 27
If not, its going to hurt.
Snot, have you bought more FXP yet? It hurts too much already.
Should be able to steal FXP around 70 by tomorrow or Thursday at the latest. Patience will be rewarded on this one.
I don't think this rally has leg any longer. This is too fast. We are still in the BEAR market. Traders or investors look past any bad news: Factory order, Unemployment... Today is last rally of this market will have and tomorrow will be different ball game for wallstreet when eveything set in... and market will sell on the news. Take SHORT here FXP is good start.
on the other hand, people are happy to excape october with at least some of their shirts still clinging to them. Money will be flowing back in, and you have all the inflation from all this new money being created.
FXP did not make new low when the markets made the last high. What do you think?
The most serious volatility of FXP and EEV has been in the last two months. Before that they were not given to such radical swings, since the market tended not to bounce up and down 300 to 500 points every other day. What is the possibility that we will return to a period of much lower volatility, albeit still a bear market, or maybe a frustrating sideways market, for a long period of time?
Hi Snot,
With all the upgrade for AG sector. Do you still think the stocks like MOS, CF, POT will head to teen... This sector has been very strong for the last 6 days and seem like they are on the broke out trade. Please give your thought. Thanks
Dont listen to the foolish analyst its call pump and dump scheme.
They upgrade so they can get out of the positions completely leaving you hang...
We haven't sold any more DDM or SSO yet, nor have we added another layer of FXP or EEV yet. We're waiting for tomorrow morning's Obama rally to move to a more neutral position. We're currently still net long. This rally sure can continue. Not because the economy is looking better, but because the market indexes were so severely oversold. The brunt of the upside move is over (or will be tomorrow). At that point, we'll either retrace a portion of that move (as we expect), or we'll have a very boring sideways or barely noticible continuation of this rally for several weeks until the market eventually gets back to the moving averages. Even if we have a buoyant market for many weeks, it's important to realize that the economy is not ready for a new bull market. The market may have corrected enough, but it hasn't corrected for long enough. If the rally takes us too high, we will come crashing back down. The reports on the economy will simply not support a substantial rally.
We're looking for the Dow to hit 10,000 this week. If we actually get to 10,000, we'll be net short by then. At 10,000, the market has simply come too far too fast on a short term basis. At that point, a drop of over 500 Dow points will be very likely. Not necessarily the next leg down, but just a retracement. If we can get FXP somewhere in the 60's tomorrow, we'll more than double our position in it. Just as a fun guess, our vote for the Dow's next short term top is 10,058.
As for questions about solar and ag, you can pick your spots, but we personally have no interest in buying individual stocks in a bear market. Not until a new group of leaders are established, along with a new bull, will we start looking at fundamentals and investing in 3 or 4 individual stocks.
My Vote for DOW is about 9786 or a bit higher but DOW will sold back from there. I will get ready for my SHORT position If DOW ever get back to that level...
9786? That's only 160 points away. We're making American history here with the first non-white U.S. president. Surely that's worth more of a celebration than 160 points! Getting one step closer to getting rid of Bush is worth 300 points alone!
CNBC is such a joke:
"It's a sense of absolute relief that some definition today will arrive," says Diane de Vries Ashley, managing partner of Zenith Capital Partners in Coral Gables, Fla. "People are expressing 'enough is enough' and things are not as bleak as they appear to have been and now we can get down to business."
Investors are tired of viewing bad news and were looking for any stimulus to start buying stocks again, she says.
The last sentence is just too absurd for my brain.
hk22, you know that statement actually has a lot of validity. As much as people would like to think that the market trades on economic data, it is far more a map of the human condition. Aside from the obvious (fear and greed), boredom is one of the factors that can turn the market around. People can only go for so long without change. This includes changes in the market, regardless of fundamentals. We believe that the market is actually that simplistic, which explains why none of the economists can figure it out.
Well, its done now. Obamas in thank god..
I wonder will the market take this as a sell the news opportunity?
Surely a democratic win will deserve a massive rally as joe average piles in to all the obama supported stocks like alt energy and Biotech.
i hope so as i'm all in on solar right now.. My portfolio has doubled in value over the last week and id hate to lose half it tomorrow...
Good article here from a guy I don't always agree with but he has some interesting points about how things actually may not be as bad as they seem.
http://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?ArticleId=NS20081103092214TheBigPicture
Looks like we'll follow Europe lower instead of rally this morning. We're taking the stance that the market is still in rally mode and will move higher, even if not today.
I confirm my prediction for the DOW max up is 9786 or a bit higher. 9786 was Oct. 14 high. We go to far from such ecomomic condition now. We are still BEAR market and all STOCKS are still way under water...Prediction for this NOV. or DEC. DOW will retest low and go under 7288 before go any higher.
Well, the cat's out of the bag now. As long as we have humans in the trading mix, it is going to be almost impossible to model market behavior. A month or so ago, if there was even a whiff of negative news from a particular stock or segment, there was a massive sell-off. Way over done. Just today we have all kinds off terrible market news (GM Res Cap, for instance) but barely a market whisper. What we need is a "Human Condition Index". That's all this is about anyway. If you are a very long term investor, sticking with the fundamentals will probably get you where you want to go, but in the near or short term our frail emotions rule the day. The trick is is to trade on others' emotions, not your own.
BTW, bought a little more FXP at 81.2. Not sure that was a smart move or not.
Told you! Sell on news! Market already priced in OBAMA won. Market will test low in NOV. or early DEC. 7288 is my target
Snot, is the election rally ended and the healthy pullback started?
Stay cash! Broke down!
Hi Snot,
Is it safe to add SSO now for the November BULL run?
Johnson
Base on CSCO earning tonight, I think market will test the low very soon. Sooner than I expected. Still target for DOW 7288.
"Hi Snot,
Is it safe to add SSO now for the November BULL run?
Johnson"
November Bull run?
I think Its too late and too risky to go in (SSO).
Nothing is safe in this market :-)
Just my 2 cents
I still think FXP is still at a good entry price.
So much for day-to-day timing. Congrats to all of you who went with the "sell the news" scenario. We're just keeping what we have considering we have about 1/3 less DDM and SSO as we had at the bottom, and now have some FXP. If we're going to revisit the lows, then we'll just have to replace those shares at a lower price and look to add more even lower. Maybe we can dump the FXP at 180. Wishful thinking probably. Even though the low is 7882, the support level that's been tested several times is just below 8200. It will be interesting to see if we can stay above that, which would keep this rally intact. Of course if we break the lows, we could be looking at that Dow 6000 scenario again. We may just pick up a little more FXP considering we have so little of it. Far as we're concerned, the market's still in neutral territory here.
Any guess who is next to go down (or about to, and of course till Paulson buys them)?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAGTKOMJO_Ww&refer=home
The single most important Cabinet member the new president can appoint is the Treasury Secretary. If Obama appoints a well-respected person, say Volcker (!?#), the foreign markets will gap up big. This could be the buy signal for FXP. Reasoning: There is no short term solution to our economic crisis. The world will lose confidence in short stead, and all hope will be lost. Keep up the good work, Snot. FXP at 60 would be a steal.
ak, that Breifing.com article is complete bunk. The idea that we're not in a recession because GDP numbers arent that bad is the root of it. GDP is heavily doctored. Auto sales are down to 1945 levels. That's a highly recessionary statistic. That's the kind of thing that happens because the GDP is so heavily doctored.
Hey, if I printed up 5 trillion dollars and sent a $50,000 check to the richest 100 million americans, I bet I could keep the GDP from showing a recession too! That's basically what Alan Greenspend did. It amazes me that we still have central bank shills running around trying to spread the same old nasty propaganda. Dick Green from Briefing.com is a great example of a banker shill.
Iconoclast,
As you may already know, the inflation figures are a work of fiction, too. Our best estimates are that inflation is close to 13% when you include things people actually have to buy to sustain their families.
Auto sales down to 1945 levels? That's scary stuff considering a household was among the lucky to have even a single car back then.
We couldn't resist buying some EEV yesterday in after hours, paying about what it is right now, 92 and change. Our portfolio is still long, but if the market crashed, we'd break even because of the enormous moves of FXP and EEV. If it goes up, we'll break even. If it goes down, we profit. Is that even possible? Our rough math says it is. If so, it's a good position to be in, but really only works in times of great volatility like this one. If the market moves 1000 points one way or the other from here, we could pick a side to bet on, either long or short. But in this 9000 area, a neutral portfolio just seems to make sense.
DOW will be down to 8750 today
Couldn't resist buying a slug of DXO right here @ 4.90. No way is OPEC going to let oil stay around 60 very long. All they have to do is hint at cutting production (again) and we'll be back at 80 before we know what hit us.
I'm ready to buy more @ 4.50 and again @ 4, so keep selling all you cash raising 'fraidy cats!
Oil's selloff is definitely getting overdone. It's hard to believe it could go much lower, although there's nothing bullish whatsoever about that chart.
I know Snot, the chart of DXO looks terrible, but those poor bastards only started that ETN 13 trading sessions before oil's all time high so it's pretty much only traded in one direction so far.
I thought the same thing at first, that DXO's chart is headed to 0.14 cents, but the world's dependance on oil isn't going away anytime soon so I think the risk/reward down here has got to be worth taking a plunge.
One bad story out of the Middle East, one perceived production disruption somewhere...something's going to push oil back up here sooner or later.
USO under $50.00 is in a sweet spot too. Definitely will find support on any dip below that 50 level.
Pullo,
Don't get us wrong, OIL is a safe bet long term. There's no way we're relieving ourselves from our dependance on oil for many, many years to come. Buying OIL is like buying the indexes, unlike stocks, they have a floor.
When you posted your comment about DXO, we immediately went to the chart to see where it was because we didn't think oil could go much lower. No doubt it's oversold now, but like the indexes, who knows where the bottom will be.
We would feel completely safe buying oil here, knowing that at the very least if our timing was way off and it went much lower, we would be able to break even on it at some point in the future. That's the worst case scenario for oil. Any other outcome is good for your portfolio, so it's a no brainer if you have patience.
Anon, looks like your target is going to be hit today (8750), nice call!
I been trading for the last 18 years. I am currently up 63% YTD. I think DOW will retest low very soon so be prepare.
Just sold half of the EEV we picked up yesterday for 102.6
The 10 points we made on it helps cushion the blow of this selloff. We're hoping to return to the lows with a lot more capital (and confidence) this time around. Trying to maintain a long bias in this market is swimming upstream for sure. The lower it goes, though, the more comfortable we feel going long. We still have some EEV and some FXP to sell off into the decline, and still have quite a bit of DDM to replace before getting back to the 40% DDM / 60% cash portfolio we had before the market launched this little rally on the 28th.
There's absolutely no telling which way the market will go next, so we're not comfortable holding the amount of EEV we went into the day with.
I have been called DOW retest low and will make new low this month or early DEC. SAVE YOUR CASH...Target DOW 6300 to 7200. Middle will be 6800 will be the bottom for this market...
Anon, did you also say we are going to 7288 before going higher?
I'm looking for SPX to hit 883-895
I bought some TNA.... small cap triple long Direxion. I only bought it because it had the most volume out of all the triple longs. Its brand spanking new... doestn even have a chart.
Wow, going long a triple index during a crash? That's ballsy! Hope you have some dry powder. If it works out for you, you'll have some profit on that!
Iconoclast,
I agree with you. I was trying to elicit response and you came through, thanks. I try hard to read Dick Green's view with an open mind because the rest of the site is well done and has a lot of good data. He does come across as a shill - maybe a step above Kudlow. However, it is interesting that, as he states, when you strip out Oil and Financials (the biggest industry deviations on the high and low side), you have earnings that thus far have come in fairly even. Pretty amazing heading into (being in?) a severe recession. The fact that he tries to equate this with an economy that is doing better than people think may be a stretch, but they are interesting figures anyway. Bottom line is that I guess earnings are very lagging and the market discounts them well in advance.
sorry, but i'm new to some of this jargon, so i thought you clarify if you wouldn't mind: when you say dry powder, that's for sweat, right? like, gold bond, maybe?
thx
"Keeping your powder dry" means don't spend your whole wad in one shot. Keep some cash for better opportunities down the road or averaging down.
http://www.investopedia.com/ask/answers/08/dry-powder.asp
ah, gun powder. thanks for link. well as concerns dry powder then, i for one recommend a 50/50 allocation of gun powder and gold bond.
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