Back to Earth

It would have been almost impossible for me to be any more wrong last week. Looking for more downside I got ran over by Bernanke and the bulls. That bearded hack cut 125 bps in like eight days. The S&P was up almost 5% which is huge in the span of a week. Needless to say I did some serious damage to my accounts.

Turning points are always obvious in retrospect. This one I actually expected but failed to respect. The idea that after the waterfall sell-off we've had the market would bounce for only a few days is just as silly as the idea that after several years of a bull run the bear is over in a couple months.

This personal correction was necessary to check my growing arrogance. When you spend the greater part of seven months being right you start to get a bit too cocky. Consider me sufficently humbled. Going forward the object is start winning again. For now that means a market neutral approach.

Short-term we could trade higher and I do see stocks to be long. However, over the intermediate-term the path of least resistance is likely to be down. This bear market is not even close to over in my opinion but I have learned my lesson about getting too dogmatic. Nonetheless here is what I expect.

The government will continue to attempt to bail everyone out and encourage more consumption. The Fed will continue to attempt to inflate it's way out of our problems. Bulls will continue to reflexively buy the dips. Executives and regulators will continue to collude to hide the dead bodies. Regulation is completely non-existant.

The housing-ATM is broken. Most people will not be able to refinance. Credit will continue to tighten as sane lending practices slowly return. The economy will continue to deteriorate. Eventually more dead bodies will float to the surface.

Something like that- although I'm over-simplifying and leaving a lot out. Big picture I intend to profit one of two ways (hopefully both). Either the Fed succeeds in re-inflating and I win with precious metals (or commodities generally) or the Fed fails and I win by shorting everything that moves (and probably still win with gold).

The new year is still young. It's likely to get even more interesting. Fasten your seatbelts.

A Recent Idea Revisited

You may recall my recent BKS call in which I caught the breakdown. It was a beautiful trade, I must say. Covered my short near the lows. Now this dog has rallied right back to the break point. It doesn't get much better than this: major top, breakdown and (now) rally back to point of prior break. I re-entered BKS on the short side yesterday and will be increasing my position here.

One other idea, real quick. GM. I'm licking my chops. I feel like GM is way, way overvalued. Or another way to say it is that I think GM is doomed. I caught a good part of it's recent breakdown but closed it out way too early. Now with a rally back to $28 I'm very excited to get another crack at it. GM is going much, much lower from here.

A Quick Dose of Reality

Just a quick word on reported Q4 GDP which came in at 0.6%...if we were using a realistic (as opposed to completely fucking bogus) inflation rate GDP would already be a negative number. Contraction currently underway- that's the reality.

The consensus in the marketplace appears to be that we've had a bear market for a couple months and now banks, retailers and homebuilders are a buy. The bulls are so arrogant and they'll be proven wrong. There is no way this all over. No way. We are in the early innings and have a long, long way to go before this plays out.

I came into this week extremely negative on the market. I put my money where my mouth is in a big way. Took too much risk and paid the price. Now we may be about to get hammered, just as I said, but early equals wrong. I accept that. It's hard to put your hand back into the fire after having been burned but that is exactly what I'm going to do. I feel very strongly that we have another leg down coming very shortly.

Holy Whipsaw

Wow. Often the first reaction on Fed day is the wrong reaction. Sure enough on today's crack distribution we rallied 200 pts then turned around and gave it all back (and then some). These markets are nuts. The volatility is insane.

I'm net short again (after getting whipsawed). My line in the sand is 12,500. We'll see what we get now. I feel much better about shorting this market with the crack dealer out of the picture. If we can't go higher from here it is about to get ugly. Potentially really ugly...but I'm not getting ahead of myself this time.

Bernanke Packs the Pipe

Well there you go. 50 bps more. There should no longer be any doubt about Bernanke's willingness to bail out the markets. Do you realize we've slashed 125 bps in a week? Insanity. Obviously you can't be short this market here. It's not the first time Bernanke has de-balled the shorts.

In three days I have given back half of my spectacular profits for the month. Needless to say I'm a bit hostile. Easy come, easy go. I was wrong to lean on the short side. Lesson learned. Time to move on.

This is not over though. The bulls are now in control but those who think that our problems have been solved by the Fed don't understand our problems. There is a whole closet full of shoes left to drop and the bearded one is blowing through his ammo awfully fast.

Bernanke won this round (for now) but I will have my revenge (sometime this year). Mark my word.

Boom!

It's been great while it lasted but my hot streak has come to an end in spectacular fashion. Yes, I blew myself yesterday- losing a mind-numbing amount of money. It always hurts no matter how great the hot streak that proceeds it.

Now it's time to pick up the pieces. I still have a substantial profit for the month and a handful of positions. I'm wrong, I'm gone. It hurts to be wrong (even in the short term) but I'd rather admit it and get out of the way of the Fed than sacrifice more gains at the alter of my own arrogance.

Nothing more dangerous than a wounded bull. Make no mistake, she is wounded and eventually going down for the count...but that's not the business of the day. We're still in rally mode and I'm still not buying it but am forced to respect it. My intention is to protect my remaining equity and live to fight another day.

Trying to Calm Down a Touch

This week is going to be nuts and despite my urge to do so it's not time to do anything crazy. You can bet I'm big seller coming into the week but I'm not willing to blow myself up. The market is going to be there presenting opportunities next week and the week after.

Plenty of time. (I think) We are still in the early innings of an extended bear market.

Stay in the game.

Not Calling For A Crash...

...Only because it's a sucker's game.

BUT...I think we are going to get hammered right here and now. Looks like we might have one more wave down which would likely be more violent than the last. If that is the case it is going to be incredibly UGLY...soon. Honestly, I think we could trade to 11K on the DOW- which is 10% lower from here. Consider the implications.

Why the crazy bearish sentiment on my part? Simple. My watchlist. Going through the list (of like 500 stocks- haven't counted lately) almost EVERY chart looks the same. Broken support/trendline, rally back to previous support/trendline- which is now resistance stopping the advance! I swear it's uncanny how many charts look EXACTLY the same. I have NEVER seen anything like it. I ran through about 80% of my list Saturday and I've had a nauseous feeling ever since.

If the market opens anything but down big on Monday I am going to sell the hell out of it. I'm scared of the risk but I have to do it because the potential opportunity is so huge. Worst case, I'm wrong and get hammered. Getting aggressive with any idea is particularly frightening ahead of the Fed on Wednesday. The risk is much higher than I'm usually willing to take but my intention is to go all in this upcoming week.

The problem is there are so many opportunities that my head is swimming. I want to short chemicals, commercial real estate, financials, transports and oil stocks. I'd short tech too. You could just about throw a dart at the stock tables and hit a good short candidate. They are EVERYWHERE. The key though is financials which have been my market tell ever since last summer. Last week they were strong, hence the general market rebound. Now that they've all rallied back to support (now resistance), well, you can guess what happens next.

It's also worth pointing out that my upside target was hit- 12,500 on the Dow Friday morning and we've been down ever since. I was hoping for 13K but no such luck. Unless I'm wrong and we rally through 12,500 next week as Bernanke's helicopter buzzes overhead, in which case I'm gone.

Not Hard to Believe

Lennar's $1.25 billion fourth-quarter net loss contributed to a full-year loss that topped $1.94 billion and wiped out earnings from the two previous years combined.

ReadMoreHere

Funny. I rent a Lennar mini-mansion. They make a shitty product. We like to walk through the community and count the for sale signs. Speculation was rampant here and the speculators have a hard time selling when the builder is still selling new units- slashing prices and running full page ads in the local newspaper.

New Rules

One great thing about trading markets is that you are always learning and refining your technique. Even the greatest traders feel that they could improve. I learned a lot this week via sub-par performance. Rather than discourage me it serves as motivation to improve my skill set. Along those lines I wanted to list a couple rules that will help me in the future.

These apply to stocks, that's what I trade.

1. When the opening bell rings and you are up 3,4,5% instantly- get the fuck out. Now! Don't sit there thinking how right you are. Don't sit there thinking "wow, maybe I'm going to be up 10% today" because that shit ain't gonna happen.
2. When you are standing on the train tracks and you start to feel a vibration (even if it's barely discernible)- move! Take on foot off, get ready to run- trim positions or hedge.
3. Don't love your positions. Instead love your equity and don't ever let anyone take her away from you.
4. You don't need big positions to make big profits. It's tempting to think that with a big enough position you could make hundreds or thousands of (worthless) dollars in minutes or hours but you could lose it just as quickly. Therein lies the problem. Your plan must allow for you to be wrong because you are not always going to be right.

That's all for now. Eventually I want to compose a comprehensive list which is task I've never completed.

Sending Out A Test Balloon

Initiated five fresh short positions into this morning's strength. Trying to ease back in ever so gently. We'll see how it goes but if I'm wrong, I'm gone.

Let's see who wants to be long going into the weekend.

UPDATE: Damn I'm good. Took a little nap and woke up richer.

Hibernation Waning

Seeing an awful lot of opportunity again. Despite my plan to stay on the sidelines I'm starting to like the set-up here. My watchlist, nearly empty yesterday, is again teeming with shorts.

Futures trading higher tonight. We get a higher open and I'll likely start selling a bit- especially if it fades. If we open and stay strong all day I may continue to wait. Feel like waiting is the smart play (and we should run higher) but when that nice set-up happens I have to take it.

I went to bed last night with no risk. Took none today. Nice break and now I'm ready to start cracking some skulls.

Don't love the idea of putting too much on the line ahead of the Fed. Although it seems disappointment is a distinct possibility.

Broken Routine

On my seven month winning streak I have settled into a now familiar routine. Lately at least that partially consists of finding stocks to sell and cursing bulls.

Now I sit on the sidelines feeling like I have no purpose or utility. Spent the morning watching cartoons and "The Cosby Show" and "A Different World" with my infant son. Always liked Dwayne Wayne. Sinbad is cool. Had some leftover pasta for lunch.

Keeping an eye on the market as it yo-yos back and forth wildly and without any direction. Trying not to watch too much. As much as I want to be out, looking at it makes me want to trade it.

Historically I'm not too good at sitting on the sidelines. No matter what my instincts tell me. Couldn't resist entirely and shorted some LAZ- low risk with a stop just above $35. See.

One parting observation: Jon Stewart desperately needs his writers back.

UPDATE: Closed LAZ short for quick lunch money profit. Bet it goes lower from here but I'm not putting any money on it.

The Gameplan

After closing it down and going flat yesterday afternoon the market proceeded to completely and utterly de-ball the bears. We ended up a couple hundred points on the DOW. The range for the day was something like 630 pts (or 5%-ish)! That's ridiculous. If you can trade this market, you can trade any market.

I was laying on the beach with my profits safely on the sidelines. Life is good.

You would think as a bear I would be rooting for the market to go down hard immediately. You'd be wrong. I don't want to see this thing crash or go down all at once. I can't trade that. We need this rally (bulls and bears both) to calm things down a bit. Frankly this last week or so has been very stressful and we need to take the edge off.

12,500 on the DOW seems like a good short-term target but I'd really like to see 13K. Think of how many bulls we could sucker back in on a rally of that magnitude. For us to see 13K Bernanke is going to have to give the market another hit off the pipe (50Bps is what they want). Not sure that will happen but he is the market's bitch so anything is possible. I'll probably try to sit tight until the Fed announcement on Wednesday, then re-evaluate. I could see a scenario in which the bearded one disappoints the market and we go down from there but hope to see something more sustained to the upside.

Worth noting: the metals have held up nicely.

Sweet Jesus

We've lifted a good 200 pts off the lows now. The volatility is insane! I have cut my largest positions back to a more manageable size and put on a hedge. I still remain net short- 10 shorts, 2 longs (added one this morning) and a hedge which will come off by day's end.

UPDATE: Make that 300 pts. Unreal! Back to flat on the day. I took off my hedge too early (for a nice profit) and covered a couple other things. Still net short, but to a lesser degree. Stops are in place. Today could have gone better for me as too many profits have been returned to the market gods- like yesterday. But I'm up. A bounce would be just fine with me. Let's all just calm down a bit.

UPDATE II: 400 pts now. I'm gone. Basically flat. Not pleased with today's P/L considering where I was this morning but I'm still up (some). Now that I'm off the train tracks I hope we rally 500 pts from here. Go Bulls! Sometimes the hardest thing to do is admit when you are wrong and at least for this very moment it's wrong to be short just about anything. Hopefully we rally big thereby offering better entry points from which I can further emasculate these bulls.

Off to the beach. Have a nice day.

Now What?

We've tested the lows- trading just now to 11,644 on the DOW. The dip buyers are out, calling a bottom I'm sure. I want to get out of the way but I love my positions and I've decided to sit tight.

Only thing I did was to take off my long position in REW which is a 2x short technology ETF (up 16% this week). Considered covering my DECK short- seeing as it's down $16 today- but I think it's a trend line break and likely to trade much lower eventually. See if I can stick with it.

Bulls better hope these lows hold.

Goddamn It...

...I hate this fucking stock. I short it and it goes against me. I cover and it reverses.

BXP- one day you will break support and I will be waiting. It might actually be done bouncing higher here but I'm a little bit gun shy considering my recent experience.

Courage in the Face of Uncertainty

I could probably count on one hand the number of times I've been as lopsidedly short as I am right now. After the action yesterday morning (potentially a key reversal), to stand in there in the afternoon and be a major seller was perhaps one of the ballsiest moves I've ever made. Sure I was uncertain (even taking down some exposure into the close out of fear) but I stuck to what has been working. Stuck to my discipline.

Now, I intend to be paid for my foresight.

Must say- I've talked a lot about the potential for the "shorting opportunity of a lifetime" and (not looking at the indexes but just individual issues) I'd have to say it is more or less right here right now. Technically yesterday afternoon, and I nailed it.

Whiplash!

Well we opened today as the futures indicated- down about 460 pts five minutes after the bell. How much worse would it have been without the panic 75 Bps emergency inter-meeting Fed cut? Anyway, from the lows we then proceeded to rally 430 pts- virtually in a straight line- erasing most of the losses.

As a bear this is a gift. Not only does the market now present you with better entry points but in the process Bernanke used some heavy artillery. That shady bearded bastard only has so much ammunition. Now the inter-meeting cut is out of the way. We know the addict will get even more crack when they meet next week.

Today the dip buyers were out in full force in the belief that we have been saved by the Fed. Oh and the "second half is going to be really great." I tend to disagree. We are in the early innings of this unwinding. There is a whole closet full of shoes waiting to drop.

I sucked today. Really did. First bad day of the new year. I KNEW LAST NIGHT EXACTLY WHAT WOULD HAPPEN and still botched it somehow. Didn't cover (as I intended to) my shorts into the weakness this morning. Looking a gift horse in the eye. My broker's website (those dirty hatfuckers) CRASHED (which I actually had considered also ahead of time) and was down for two hours as the market shot straight up. After that I generated a bunch of commissions as I had no idea what the fuck I was doing- changing my mind every 10 minutes.

Bottom line. Once I settled down and ran through the charts on my watchlist I saw a bunch of appealing opportunities on the short side. Started selling and by the time I stopped had an awful lot of exposure- risk. Problem is, I could see the DOW rallying a good 500 points higher from here. Scary. Perhaps ill-advised. I'm willing to risk it because I feel it's the disciplined move to make. I have been successful by making low risk trades and cutting my losers. The charts I see are beautiful. There are a bunch of near-perfect set-ups. If I'm wrong I'm gone.

Either I am wrong- in which case I go flat-ish into the Fed meeting securing a great month based on what I did early on. Or I'm right and win big. I should know real soon.

AAPL disappointment should help.

Dislocation!

Today is going to be nuts. DOW futures down 500 overnight, S&P futures down 60. Bernanke cuts 75 Bps in an attempt to delay the inevitable. Paulson out banging the table on a stimulus plan.

Usually avoid watching CNBS but I couldn't resist this morning. Funny shit- I really think Jim Cramer's head might spin right off his shoulders. Gotta get back to work. Much much more to say on all this later. Good luck out there.