VIX Got Crushed.

The big news of the day was the 10%+ drop in VIX when the indices were near flat. With November OpEx nearing and markets already having corrected about 80 points in 40 days, there does not seem to be an imminent danger of collapse. More so because politicians of different hues are talking of finding a common ground for the fiscal cliff. I think it has also to do with the short term oversold position of the indices. The rubber band is too stretched and will snap back somewhat before we can see any more selling. If the VIX action is any indication, most likely we will see the weakness to resume by the 4^th week of November and continue till mid to end December.  How far it will bounce is debatable but anything is possible and the actual QE3 starts from tomorrow.  If you remember I am not short yet.

Come to think of it, so far we have had only 80 points correction in SPX and SPX is actually closer to the top than to the bottom. And already we are oversold and the sentiment is quite negative.  Despite the drop in VIX, the put call ratio is high, which means most likely retail is short.

A perfect recipe for a bounce.

I have written in the past that action in the Forex does not confirm with the market perception. If Euro is about to break down, why it is still holding 1.27 line? The ”mad as a rabid dog” rant  blog tells us the Greek is about to go out of Euro Zone or be thrown out. Money is going to run out on November 14^thfor the Greeks. Then why their stock market is trading near the top and not near the bottom?

(Chart Bloomberg)

On the weekly chart of SPX, till we see SPX break down below the rising trend line, it is still a correction, not a collapse.

 As of now that line in the sand stands around 1330-1340 and I do not think SPX will go down below that any-time soon. Even that 1330 may be tested only by the 3^rd week of December, if at all. There is a chance that I may be wrong and everything is going to hell in a hand basket but instead of shorting the market now, I am looking for other opportunities. I am long Nat.Gas and will continue with that long position for a while. I am long gold for a quick trade till November 23^rd. I see crude bouncing but I do not want to touch crude now. I see copper bouncing and JJC close to a short term bounce which will be an opportunity to short copper. So you see, there are plenty of fish to catch and instead of getting hung up on the market correction a la 2008-9 type, look for opportunities elsewhere.

Overall, I continue to look for a bounce between 1400 – 1430 SPX. So not a big bounce. By no means the selling is over and I will short the market by way of out of money puts or calls but I will wait for the November OpEx to pass.

That’s all for the Monday evening. Thanks for sharing my thoughts. Do remember to disable Adblock and watch out for Amazon link.

Oversold Markets and Cliffs.

The following two charts are from Bespoke. The 1^stone shows that on a daily basis S&P 500 is 2.5 standard deviation below its 50 DMA.

The last time it was in such a situation was in summer when it got an oversold bounce and then tanked again.

The 2^nd chart shows that % of stocks above its 50 DMA.

Even that is close to extreme.

Yes trends are down but few things are not lining up yet. For one, gold and silver is showing some strength even when US$ is up. Since 2008-9, when Bernanke started his QE, all risk assets have moved together and gold and US$ have moved in opposite direction. Now we are seeing that both gold and US$ is moving in the same direction. Is this a temporary anamoly  or beginning of something more problematic?

Secondly, crude is up for the last few days even in the face of rising dollar and falling stocks. Are commodities diverging from equities?

Third, Euro did not break down 1.27 and Euro/Yen held the all important 1.00 line. As you can see the correlation of Euro/Yen and SPX, unless that line in sand is broken, I do not see stocks going down any further.

And the cycles for Euro/Yen, although close to a top, have not topped yet .

So will we see an oversold bounce soon and if so how far it will go?

I think it is quite possible that a good bounce is due but I do not think it will close anywhere above 1440-1450 in SPX. If we get there, it will be an excellent opportunity to reduce the long positions and add some short positions.

Pandits are talking about the grand bargain and compromise. But I do not think that will come till the last moment, which is by end of the year. Remember how these wise guys played Russian Roulette with debt ceiling? Why it would be any different this time? So definitely we would look for a good sell off and no bottom can be expected before the middle- end of December. This by the way would be a good buying opportunity. Keep your buying list ready.

In the mean time, I have started scaling in Nat.Gas and will most likely scale in short position in equities after the oversold bounce. The expected top around Mid-November seem to have inverted and will most likely be a bottom (short term) but we are not done with selling yet. If anything, it will be a good opportunity to sell.

Do keep in mind the time scale. This sell off will possibly last till 3^rd week of December and it’s a rainbow trip thereafter for few more months. The real cliff is still few months away.

Thanks for sharing my thoughts and thank you for your donations and supports. Please remember to disable Adblock and if you plan to use Amazon for your Holiday shopping needs, remember the link here. Have a great weekend folks.

Wall St.'s Hissy Fit.

Are We Closer To The Cliff?

Is it a repeat of 1987?

I have problem believing and following Analogs but I seriously do not like the market price action. In any case I am looking for a market correction of 15%-20% and my target date to short was around Mid-November. But what if the Christmas has really come early?  I will see the price action overnight and take a call tomorrow about when to go short. My cycles are up for few more days but the market price action does not support that and when the short term cycle tops in few days, maybe we will see the waterfall we are waiting for.

Today both VIX and Indices were down. May be we will see bit of bounce tomorrow. Today US$ was up marginally while gold silver and crude was up substantially. Nat.Gas is moving in a range and its cycle is close to a bottom. I have started scaling in Nat.Gas and I expect higher prices going forward. I think as of now it is a safer bet.

By the way, does anyone of you remember my call for Apple at $500? At that time it sounded ridiculous. But now it seems Apple may go down below $500. And Galaxy S3 is the most popular Smartphone in the world.  Some are calling for a bounce and maybe we will get a bounce but it is too early for bottom fishing. Like trying to catch a falling knife. I would stay away from Apple till we have a definitive bottom which we do not have today.  I just do not understand who those folks are selling Apple at $ 550 when they did not sell it at $ 700.

Coming back to market, gold and silver are showing some strength and although I do not think we will see the bounce from here, gold and gold miners may be good for a short trade. The strength in gold is another reason I have difficulty in accepting that there is panic in the market.

Apart from Natural Gas, there is another trade of the decade which I want to draw your attention. That is 3D printers and 3D printing technology. In the next 10 years, this technology will change the business world like PC and internet did 10-15 years back. Two stocks, SSYS and DDD are up even in this down market and may be something we should keep an eye on to add to the portfolio by the end of the year.

Today reader PM Hana sent a huge donation and my special thanks to him. My sincere thanks to all of you for donating to the blog. I cannot thank you enough for all your help and support.

Thanks for sharing my thoughts and reading the blog. Trade safe guys.

Movers Did Not Show Up.

The movers did not show up and the Wall St. is screaming bloody murder. They might as well because the screw is about to get tight for the next four years. These folks have invested millions of dollars on Romney win and Obama is not going to forget that in a hurry. The TBTF banks can expect more lawsuits and regulations going forward.  And this is preciously the reason I was not long and was asking readers not to chase the bus. But it seems that today’s 2.5% sell off is not the biggest. In his 1^st term Obama encouraged a 5% sell off on the day after winning. Some interesting fun facts from Schaeffers:

And as you can see from the table, we cannot make any prediction about the rest of the year based on this statistics. Question is, did Christmas come early for the bears?

I am waiting patiently for shorting the market and so far I think it is still bit early for the party. Apart from cycles, let me show you few other things. Let’s start with VIX. Despite SPX making a lower low, VIX is still in the teens and did not make a new high.

The 2^nd contrarian move is coming from the currencies. AUD did not break down and EURO held 1.27 levels well. Even EURO/YEN cross is holding the crucial 1.02 and the cycles for that cross does not top for another two weeks.  A correlation of SPX with EURO/YEN is as follows:

Going short is the most difficult trade in this day and age of unlimited money printing. You never know when a short squeeze will come because so much free money is floating around. Therefore, as much I want to short the market, I would rather wait to make sure that the ducks are in line. For that if we miss few points at the beginning, it is worth the sacrifice. And when I am very much certain that this is just going to be a correction, in the range of 15% -20% and nothing more, not a repeat of 2008-9.  

What is the trade then I would be looking for? I think I would adopt a long short strategy here. Instead of shorting the market in all asset class, I would rather long some sectors and short some. One sector I am planning to go long is Natural Gas. If you remember, in the past we have discussed that Nat.Gas is going to be the trade of the decade. And it has so far refused to go down below $3.40. So why not start building up a position in Natural Gas futures. I do not want to get into the stocks of companies dealing in Natural gas because those shares will be affected with the general market weakness. The best bet is to concentrate on futures. I found a list of ETFs for Nat.Gas and here is the list.

http://ca.finance.yahoo.com/news/comprehensive-guide-natural-gas-etfs-155852002.html

 May be I would buy BOIL and sell LEAPs covered call to cover any downside risk.

And I would start buying some reverse ETFs after the OPEX.

Once again, there is no rush. If this is the big correction we are looking for there will be plenty of points to run for. But we have to make sure it is not a head fake.

That’s all for tonight. My sincere thanks to those of you who have sent donations. Your help and support is more important than ever. I hope we will be able to make money in the coming days but more important than that, we should not lose money. Stay frosty folks.

Who Will Ruin America.

Tomorrow we will know who will ruin, I mean rule America for next four years.  MSM is speculating the reason for the rise in the stock market today. Each has own spin as to who is going to win and the regular folks are caught up in the heat of the debate. Little do they realize that it does not matter who wins, the kleptocracy always wins. All they are going to get is four more years of bullshit. Even when the bull changes, the bullshit remains the same.

I have been writing for quite a while that we are going for a bounce before we can see any meaningful correction. And I am not sure how many ways I can spin the same story every day, because the theme has not changed, despite all the news and noise. Folks forget that it is the price action which creates the news not the other way around. You can give any reason to the rise in stock prices but irrespective of the reasons, it was to rise anyway.

So no new charts today to show you anything important. I am sure you will be watching the talking heads with their fancy presentations to find out about the winner.  But instead of congratulating him, maybe we should pity him because cycles are saying that he has very rough roads ahead. In comparison, the last 4 years would appear to be walking in the garden. Again, it does not mean the world is going to end tomorrow. Not even in the next few months for that matter.

For me, the most important news of the day is not who wins the election. It actually came from down under. A court in Australian has found S&P guilty of misleading investors. This is a watershed moment folks. There were many parties responsible for the 2008-9 financial meltdowns. No doubt banks were at the front and centre of that fraud but I think it could not have happened without the active participation of the rating agencies. These rating agencies gave AAA ratings to toxic papers and should be held accountable as such. Australia has shown the way and I hope courts in UK and Europe follows through. I do not have much hope that justice will be served here in America but at least somewhere in the world these crooks are being served the punishment. Way to go Australia. You are the last hope of the free world.

Coming back to market, if MR wins, the stock rally will be attributed to that win, however absurd that may be. Give it any name you want but such a rally has been on the cards for a long time and I should short such a rally. If you remember my earlier call, get out of the long position on the coming rip.

Many of you have sent donations at the start of the month and my sincere thanks for each of you. Although I am not very active in the Twitter during the day, the blog has remained focused despite the setback from google and your help and support is more important than ever.

I hope we all will be able to make some money in the coming months. Just shut out the noise and remain patient.

Monday Musings.

Very soon the uncertainty as to who will guide America to bankruptcy will be over.  Some pundits are calling for a win for Romney and in the support of their prediction, they are showing the strength of the sectors which are supposed to be Republican friendly.  I suppose there is confirmation bias everywhere. I am sure Democrats are seeing signs of their victory as well. Irrespective of whoever wins, the market’s path has already been defined. If I may draw your attention to the fact that despite the sell- off of last Friday, the lows of September 26^th is still intact. SPX cash is grinding up and will most likely continue to grind up for till Op.Ex.

While we have an initial sell signal (not confirmed) the indices are oversold on s short term basis and odds are high that we will see a bounce.  We do not have a negative divergence yet for calling the top but we are coming close. The following chart shows the SPX position short term.

(H/T Lance Roberts).

Another 50-60 points melt up in the next 7-10 trading sessions are quite likely and possible but I am not risking my money to chase it.

NYSE Bullish Percent Index is showing a topping pattern.

As you can see, it takes time for this divergence to play out and therefore do not expect indices to roll over tomorrow. But warning signs are there.

While I am expecting a correction, I am not looking for the end of the world here, not yet. I expect a correction in the magnitude of 15%-20% between Mid-November to Mid-December.  If we get that, it will be time to get long again. And I have decided to stay out of Nat.Gas till this big correction plays out. The time to go long commodities will come by end of the year and that includes precious metal as well.

So right now I am in cash and cushy. I am not chasing the upside because I am not sure how far it will go. And it is better to wait out 7-10 trading sessions than to suffer heartburn.  Hope you guys are keeping your powder dry and doing your research.

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One Swallow Of Fall.

While it is true that one swallow does not make a summer, we have been calling for this bullish action for quite a while. It will be foolish to say that from now on prices will go up and up but it does look like the making of a short term bottom which the cycles have been calling for. SPX closed above 1425 which earlier was acting as a resistance. Let us see whether it holds tomorrow. Only folks who seem to be unhappy today are from our beloved rant blog. I shudder to think about the plight of anyone who was short after reading / listening to those unending rants. Few more times like these and when the time comes to really short, folks won’t have any money left to trade. Only GS and JPM will be able to short the market then. Brilliant plan indeed!

Tomorrow is a NFP day. Few have any idea if at all about how good or bad it will be but in reality, it does not matter. Most likely, markets will go up anyway to test the highs in the next few days/weeks, with occasional dips in between. So it does not matter if tomorrow is red or range bound, which is very likely, so long the red is not huge red. Only fly in the ointment today was that US$ was higher which resulted in gold and silver selling off from their morning highs.

But the silver miners like SLW and CDE have started to breakout even in this weak market.  I think both gold and silver will also move higher and test their respective high of the year. And all these should happen in the next two weeks. We will have to wait and see if gold is able to break through $ 1800. If not, we will get out of PM sector for a month and re- enter by mid or end December.

The next two weeks will possibly be good for swing traders. So far as investors are concerned, it would be a good idea to reduce the long positions on any strength and reduce the risk. And the risks are real. The fiscal cliff will not be sorted out before next year and there is no clear indication as to who is going to win the election. These are known unknowns and in times like these, cash is king. 

But from the swing trade point of view, I would probably buy out of money November calls for SPX that are cheap and get out by 12^th-14^th November.  But everyone has own style of trading and no one size fits all. So please do your due diligence.

Today QQQ was up almost 1.5% while Apple was up only 0.2%. Yesterday I wrote that Apple most likely has bottomed short term. If that is indeed the case and Apple is to test its 50 DMA it would mean a move of about 7%. That would definitely positively impact the Qs and other indices. The last high was on September 14 which was almost 45 days back and yet we had a tiny 5% correction. So we did not miss much by staying in the sideline. Also in all of those 45 days, we had two up moves and three down moves without any clear direction.  I had suggested not to short and hopefully it would have saved you some money.

Thanks for sharing my thoughts on the market. I have been busy with studies and waiting for the market to show its hand. So far things appear to be on script. I hope it will be interesting going forward and you will be able to make some much needed money.