Huge Upside Day for Stocks

Big day in the market today with prices surging over 2%, across the board.

As mentioned last time, it appeared that SPY could surge as high as 207, another 9 points but there is some strong resistance overhead.

As seen here, there is apparent resistance around 200.  Should SPY surge beyond that, there is yet another target before 207.

Notice the "gap" from 202 to 204 occurring when the downtrend began.  This would be a likely "next" target should price break above 200.  Definite point to position yourself for some downside move.  Hard to say how low the next downtrend will go.

This could merely be a very sharp rally in a bear market, as many are predicting.  As we know though, when too many are calling for the same outcome, the masses are usually wrong.  I was very skeptical when sentiment turned bearish so quickly.  That got me thinking that we could possibly go to all time highs.  Anything is possible. 

Market Tests Successful!!! Now What??

In my last posting, I mentioned that the coming two Fridays would be "telling" in my world.  On Friday, January 29, we would be testing the August closing low on the monthly basis.  A successful monthly test of the lows is quite rare and could indicate a long-term basing formation.

The monthly line chart shows this successful test here.  The closing low for January was not below the August low.

What does this mean?  Simply this.  If you don't look at the market on a day-to-day basis, but only once a month, at the end of the month, it is my expectation that going forward, the market will be up.

While most seem to be guessing that the worst is still yet to come, I believe that there is a good shot for the Standard and Poor's 500 index and the accompanying Exchange Traded Fund (EFT), SPY, to go to new highs.  That surely would leave most scratching their heads.

The next important test was completed yesterday with the three week test of the low.

This, being a weekly indicator, in an intermediate-term signal, where the monthly test is a long-term signal.  I can recently remember that last year, we got a three month test of the HIGH, followed by a three week test of the high and then finally a three day test of the high before the market started going down.  It was as if the market just didn't want to go down and was trying every conceivable way to continue going up. 

This is the weekly line chart showing the recent test of the low.  If you look to the left, you can see that we previously had a similar formation, a three week test of the low that marked the bottom before a rally to the top of the range.

Of note, after the last three week test of the low, the market dropped significantly the following Monday but that was it.  The market then rallied for the next 6-7 weeks.

One must keep in mind but one important thing and that is that the weekly momentum is still increasing.

My general rule is that when the Volatility Levels are increasing, you need to stick with the trend. 

This chart is the 20 week volatility measurements.  It is at its highest point and expanding.  That is a troubling indicator.

But if I look at shorter time frames, volatility is decreasing.

This is the 20 day volatility level.  And even though it appears that market volatility has been high because of the large point moves, this can be deceiving.

How else can we look at this volatility level?

One way is by viewing a chart of the Bollinger Bands. 

Look at how these bands are moving together.  From this chart, we can expect that the daily fluctuations would range between 185 and 195 on SPY, translating to roughly 1850 and 1950 on the S&P 500 index.

The weekly volatility bands still reflect the extreme volatility level.

The weekly bands show that the realm of possibilities range from 185 (we are currently at 188) to a high of 216.

The all time weekly close high was 212.99 so there is some possibility that the market could go to all time highs here.  And if it did, it would happen in a hurry as the volatility levels are high. 

If we would see the market move higher at an orderly pace, then the volatility levels would diminish and the possibility of new highs would also diminish.

SO, I think that there are exciting times ahead.  Of course, I don't know and at this moment, I have positions both for the possibility that we experience a blood bath in the market.  But given the information that I just provided, there is the possibility that the market surges to the other extreme.

Many are saying that earnings are dismal, the Federal Reserve is no longer accommodative, etc.  But for the past couple of years, I have believed that the market would collapse because the reality of the market being an actual market has disappeared.  That reality has not returned.  The market is a casino, in my opinion, with the High Frequency Traders and institutions continually gaming the system.  Even Congress can trade based on secret information they receive.  Not too long ago, a vote came up to prohibit "insider trading for Congress" but that measure was soundly defeated.

You must realize that the cards are stacked against you if you wish to be involved in the markets.  You must buy low and sell high.  If you are not willing to be nimble, then I suggest that you shouldn't really be in the markets.

The risk of collapse is too great and when the collapse does happen, there will be no way for you to escape, unless you hedge your positions.

Think about it.  If you have other sources of wealth, do you not protect them with insurance?  Of course you do.  You determine a deductible that you can afford and protect the rest with insurance.  Your investments should be no different.  You can protect yourself.

Time For a Bounce?

The market fell today with SPY, a ETF proxy for the Standard and Poor's 500 index, fell 1.51% to 187.64.

I had been anticipating a harsher sell-off, testing the lows seen last Wednesday but the selling was moderate.

This is a common formation in my analysis.  I am always looking for 3 period tests of various time frames.  This is not to say that sometimes it doesn't go to four periods.  Or sometimes, the desired formation does pan out at all.  But as a trader by nature, I am always looking for some kind of pattern that I recognize to give me confidence to enter a trade.  Today's move gives me some confidence, on the short term. 

Should the rally begin, I would expect price to pierce the 20 day moving average, just as it has been doing during the past rallies.  Price could rise to 195-196.  Where we go from there, who can say? 

This indicator, which I call Size, appears to be reversing.  Still it's at a very high level but the reversal signifies that price will probably regress to the mean, which in this case, is the 20 day moving average, shown above in the price chart, and the target for price to move.

Another view that is of interest is a longer term daily line chart.

While it may not be too obvious what I am seeing here, price came down to the neckline and held above it.  A breakdown below this line will result in quite a nasty down move.  The target low should this occur would be around 160, or about 15% lower from where we are now. 

So the rule to follow in a downtrend is to sell the trendline.

Important support levels will be watched for over the next two Friday closes.  This coming Friday, the last trading day of January, I'll be looking for a Four Month test of the August low at 191.61.  The following week will be a three week test of January 15th's close at 187.81.  If we maintain support over these next two weeks, a substantial rally could happen.  But for now, longer term trends are pointing lower and frankly, should we get to 195-196, I'll be adding more Puts, expecting the market to break through the neck line and head for the 150 level.  I'll be buying more time, probably buying June or September puts.

Oil, China numbers Rattle Markets

Who would have guessed that the markets would finish the week up after experiencing tremendous volatility during the week.  China reported slower growth than expected, while Oil kept collapsing, reaching low levels not seen in years.  But again, world Central Banks did what they could to throw the market a bone.  China added stimulus to their economy while the EU jawboned the market up with the same rhetoric we've been hearing for quite awhile now from Mario Draghi, we will do whatever it takes!

As we can see in the SPY daily chart, we hit lows low enough to cause market panic.  Then just as quickly, the market recovered to close up on the holiday-shortened week.  SPY, an exchange traded fund that replicates the Standard and Poor's 500 index, finished at 190.52, up 1.41% on the week. 

Where we go from here is a harder call.  In the above chart, it appears that the 20 day moving average can act as a magnet and pull price up to it.  The trend is falling though and we all know, or should know, that the trend is your friend. 

My normal expectation in this scenario is to loo for a drop, probably as early as Monday, that would test Wednesday's closing low price of 185.65.  Should we hold that level, I would expect a move higher.

Another reason for some level of optimism is the Size chart.  It reversed ever so slightly.  My general rule is that as long as this Size indicator is increasing, you stay with the trend.  When the indicator is declining, prices tend to drift towards the trendline, sideways.  Still as we can see in the previous move to similar levels, there were a few bumps in the road before the indicator finally turned lower.  So I'm not convinced based on this.

I do see some trend line support, on line charts

As this weekly chart shows, we may be holding a channel, albeit a downward channel.  It does provide some reason for hope that the market will provide a decent rally from current levels.

Finally, we continue to remain within the long term monthly channel.

I had been waiting for a test of the August monthly low around 191.60 but it didn't happen in December, as I anticipated.  Yet, despite daily noise that has whipped the market all over the place, the monthly view shows that we are either testing the previous lows or at worse, testing the bottom of the long term channel.

If I wasn't exposed to all the noise or various market commentators, I'd say that the market is still in pretty good shape. 

I like to see test of low levels that provides support.  First level of support would be the daily view.  A successful test of the 185.65 close would support a short-term bounce.  And, a positive close on the week would provide support on the monthly basis.  Should Friday's (12/29) close be at 191.61 or better, I expect to be buying.  Should it fail, expect lower lows.  But I'm still not convinced that a major downtrend is in place until we break below the monthly trendline just below the 180 level.

ON THE BORDER

My morning commentary discussed how a 62% Fibonacci retracement would bring SPY to 195.48.  For most of the day, SPY attacked this level, often falling back.  In the end though, the Bulls managed to push SPY through that level, closing at 195.55.  But then as soon as the closing bell rang, after hours trading pushed SPY up.  No telling what news could have added more impetus to the already overbought market.

The next solid resistance comes just slightly above 196.00.  As we see, the level has been attacked (in after hours trading) but thus far, appears to be holding.

If you click on the chart to enlarge it, you will see that I added some small Roman numerals to indicate what some believe the current wave count is.  This move would be wave (iii) of Wave 5, the final wave, of this Bull Market move.  Estimates of the ultimate high (wave v of Major Wave 5) come in anywhere from 200 to 220.  To see some well done wave counts, I refer you to http://caldaro.wordpress.com/ or http://danericselliottwaves.blogspot.com/.

As the Stochastics indicator on the bottom of the chart shows, price action has been very strong and has been trying to roll over and fall.  If the wave count is correct, the fall will be very minor and will be a mere pause in wave (iii).  A breakout above the solid overhead line will probably mean that the market will test the highs and most likely continue moving much higher.

Part of the news today driving the markets was economic weakness in Europe.  There is no growth happening in Europe despite negative interest rates in Germany.  China's economy is also exhibiting weakness.  Based on this news, US interest rates fell dramatically today, indicating that the world will continue to be awash with cheap money.  Despite any perceived strength in the US economy, the Federal Reserve will be cautious to raise interest rates any time soon. 

The stock market is built on cheap credit and the cheap credit will be continuing indefinitely.  So hold on tight and make sure that you have some calls or other bullish position in your portfolio to take advantage of what is sure to be a quick move to new highs. 

That being said, keep a few puts on hand as well.  There are still a few in the camp that this current move is a mere part of the consolidation of the recent selloff and that the selloff will soon resume.

Good luck!

SP to Test . . . but what?

Stocks never did come down to make a test of the lows on Tuesday but instead, rocketed ahead, now rebounding up close to the SPY's 20 day moving average.

The average rate of change for the 20 day moving average is down .20 per day, so if the trend is your friend, one might consider adding some puts here. 

For Elliott Wave fans, while I am not an expert in this area, I do keep my eye on what the bloggers are saying.  Of course, there is no concensus and even the wave counts are all over the place.  It could be that we are in the process of making another strong wave down which could at the very least hit the 190 level.  My gut tells me though that we might break down even further to the 186 level before then turning up.

I myself am conflicted as where the market will be going.  I see the tried and true three-week-test of the highs developing and it seems that each time we have tested this, we broke through and made new highs.  Yet the case for the downside is convincing as well.  On a Fibonacci retracement, with a SPY coming in at 199.09 and the low at 189.61, a 62% retracement brings SPY to 195.48.  In premarket trading, futures rallied and SPY came close to this mark before turning around.

That being said, I am long term bullish and short term Bearish.

Comments welcome

The Writing Is on the Wall

Interest rates continue to stay low and are threatening to break through and go much lower. There probably won't be any worry on the street until the rates test the 2.0% level on the 10-year rate. Below that, many believe that we are in a deflationary state. In MY younger days, 3% to 4% was the NOMINAL rate with inflation tacked on. Times have changed.

I have shown in previous blogs throughout the years that interest rates and the stock market always come to meet each other. When we see the bonds rallying and the stocks rallying, you know, there is something wrong. This undermines the whole theory of diversification. When business is good, the stock market goes up along with the demand for money. Thus interest rates rise and bonds fall. When the economy is weak, the stocks fall as do interest rates as the demand for money is weak. We see INFLATION in general, with all asset classes rising as now, when the government pumps money into the economy.

Oh, they say that they aren't doing it. The banks aren't lending. The money is sitting idle. But one need only look at practically every asset class out there to see that all boats are rising as excessive dollars are looking for a home.

THE INTEREST RATE CHART ABOVE reflects our times. Not to mention that rates have been falling for years and years, look how dramatically rates fell when failing to get through the 4.0% level! I certainly don't believe that we are having the major test of the low. IT COULD BE but with the Fed ever present in the Treasury market, vowing to keep interest rates down, any upward move in rates is sure to be short-lived. What happens though if rates do break down again?

LONG TERM DOW CHART

Well friends, anyone who has passed Technical Analysis 101 knows the OBVIOUS HEAD AND SHOULDERS formation. I think that one of the keys to success in trading as a technician is being aware of the possible formations that are brewing. As a formation such as this generally is symmetrical, we can expect that the right shoulder, currently building, can continue topping out for another year, maybe more. This has been presenting incredible trading opportunities resulting in many 10-15% moves already this year. It's still possible to be making tons of money now without sacrificing a bias to the downside.

SHORT SHORT SHORT SHORT

What's wrong with this logic??? If you can be long stocks AND long bonds in a diversified portfolio, why would it be bad to be short stocks and short bonds in a portfolio? With both stocks and bonds rallying, it seems like suicide to continue holding the typical modern portfolio. Wouldn't you think???

While I like to trade for profit, on peaks and valleys, I add on positions to a core BEAR portfolio. I hold positions in DXD and SDS for a potential down move in the stock market and TBT for a move down in bonds.

THE TECHNICALS SAY

When we analyze the Head and Shoulders formation, the rule of thumb is that you draw a line connecting the neckline. I like to maintain the neckline at just shy of the 8,000 level and not a declining neckline as others might draw. But then you take the distance from the neckline to the peak of the move - 8,000 to 14,000 - 6,000. the market should fall by the same distance below the neckline as it rose above the neckline. OUCHHHH!!!!

I massage the data and look at the chart on a log chart but still. 5,000? 4,000? The risk is there.

Of course, if the market makes new all time highs, then this scenario is off. But let's look at the potential scenario politically. The Republicans make gains in the Congress in the next election. Gridlock continues for two years. A displeasing 2012 election, a bankrupt country, Tea Party grows and the fever is reminiscent of mid-1700s France! A DOW 4,000? I CAN SEE IT!

Can you? What are YOU doing to protect yourself? AND REMEMBER, the FLASH CRASH CAN HAPPEN AGAIN. No Stop loss order can protect you in a collapsing market. Ask any future trader who has experienced day after day of limit up or down moves. It really can get ugly out there. This is not a do-it-your selfer market.

Stock markets closed lower after rallying for most of the day. It might have been predictable that the market would grow weak at the end of the day as robust rallies continued to fade throughout the day. Markets moved into negative territory after Elliot Wave guru, Robert Prector, predicted that this is our last chance to sell with the Dow above 10,000. Bear Market & Beyond

Analysts with bullish views countered that China's rapid growth and recent moves to slow it prove that the market has further to run. But having rallied virtually straight up since March, Prector stresses that the indicators he follows show that we are in a position similar to recent market tops and that the next leg down may be dramatic.

Although the stock markets overall are down only slightly this year, it hasn't been a pretty sight for metals and other basic material stocks that rallied hard last year. In just the past two weeks, we have seen dramatic moves to the downside in many stocks. It certainly does look as if the liquidation has begun.

Market Rumbles, Is This "THE BIG ONE?"

As Earthquakes continue to rattle the Carribean region this morning, shaky bank earnings, rising rates in China and continued weakness in the EuroFX all shook the US markets this morning. Can this be the start of "THE BIG ONE?" You know what I mean. The equity markets have been running higher and higher, non-stop since last March. Just notice how far the SP Index has run in just a couple of months? If you believe that this is normal, the you may be seriously mistaken. We have been running on fumes for a very long time; or more government stimulus and promises of eternal low interest rates. Notice though that today's market move brings the price level down to a dotted line indicating the Wilder Parabolic mark.

WILDER'S PARABOLIC

This indicator signifies trend changes. Once the price crosses through the dotted line, the follower needs to Stop-and-Reverse, meaning, sell your position and take a short position. Notice how well this indicator has worked during the two major trends in this chart. The indicator does not work well in sideways markets though. Bollinger Bands are the preferred tool in consolidating markets. Following the Wilder Parabolic would cause you to constantly be buying the high and selling the low. Thus it's important to use other tools to help you navigate the market. Still, one needs to be looking at everything and knowing the implications of various indicators.

I don't mean to be crying wolf. After all, I got out of the market in June last year and now am just utilizing interest rate and currency trades, totally avoiding the stocks. As I mentioned yesterday, my year end studies showed me nothing but overvalued stocks. I had seen this before, most notably in 1987 when I sold out and went to the Carribean for three months. My guess was correct as shortly after I left, the market crashed hard. My only exposure was to the gold market (ABX) as I thought it could be a banking crisis that would be the market meltdown catalyst.

I doubt that gold would serve as a safety trade. Again, the world flocks to the dollar.



Is it already happening? With Greece's bankrupcy threat weighing on the Euro, and perhaps other events that remain hidden, has the flight to the dollar already begun? Interest rates also are down sharply this morning translating to rising bond prices. Strong dollar? Strong bonds? Weak market? I think that the ground is starting to shake. CAN YOU FEEL IT?

Size Reverses, Time to Retrench?

Stocks rallied on Thursday and Friday, despite continued rising unemployment levels. The late-week rally failed to move the averages higher on the week though. The S&P500 lost a bit more than 12 points and the Dow, a little more than 100.

What catches my eye is the reversal in the S&Ps weekly Size number. I wrote recently how the mid-term Size number was reversing and that it could be a tip-off that the market might be running out of steam. I also said that normally, I wait for the 10-week Size number to give me a more relevant signal. As the chart above shows, Size is reversing.

What Does It Mean?

In the simplest terms, Size shows how the stock price is acting against a moving average. When Size is rising, it means that the stock price is moving in a direction faster than the moving average is moving. It indicates strong momentum. When Size reverses and begins falling, it indicates that price is retreating to the moving average.

An Optimal Time to Sell Options

Sometimes when Size reverses, prices merely fall back to the moving average. This is especially true when strong trends are in place. Other times though, prices can suddenly move to an opposite extreme - and in a hurry. Depending on your risk appetite, should you wish to hold on to your stock for a long-term period, this is a great time to take some money off the table and selling options is a great way to do it.

Bank of America Example

Let's assume that you bought Bank of America stock recently for $12 a share. With the stock currently trading at 17.09, if you sell now, you would achieve a 42% profit. Not bad for a few week holding period.

Notice how your situation changes if you sell a January 2010 $15 call against your position. When sell the call, you are giving the call purchaser the right to buy your stock at $15 a share in the future. If the stock continues rising to $20 a share, then the call purchaser would have made a good investment. The call purchaser will pay you $15 for the shares and if desired, can turn around and sell them for $20 in the open market. You still come out looking pretty good though.

As you can see, selling the call option provides you with a cash inflow of $350. This allows you to take some money off the table but you are still holding your position. By receiving the $350, you are effectively reducing your cost basis in the stock from $12 a share to $8.50 a share. You will continue to hold the stock as long as it is not above $15 in January, when the option expires. If the stock is above 15, then you can either buy back the option and retain the stock. Or you could let the stock be taken from you at the price of $15. But as you can see, your percentage gain is now 76%!

What's more important than this outrageous percentage gain is the protection that you receive. As mentioned earlier, when Size is reversing, momentum is ending and prices will drift or change direction. By receiving the option income and reducing your cost basis, you have taken some profits off of the table and can more easily weather a downward move.

Don't Let Yourself Be Unprotected

If you have been participating in the market and have some gains, the time may be right to start taking a bit off the table or somehow protecting your gains. The world can change in a heartbeat and I don't want to hear you crying "could've should've.." Contact me to learn what strategies might best suit your particular situation. We are all different and do different things so no one idea is appropriate for everyone. One thing is clear though. You cannot take this Size Reversal lightly. While it's no guarantee that the market is going to turn as no indicator is perfect (especially when the markets are manipulated to the extent that they are). We always face the risk that the government or Federal Reserve will once again intervene in the marketplace and provide additional stimulus pushing the market still higher and higher. At some point though, this charade that many are calling the new bull market is going to come to an end. I suspect that the aftermath is not going to be pretty.

Don't Pull the Plug Yet!!

Treasury Secretary, Timothy Geitner, said that it's still too early to withdraw stimulus packages at this time. Markets reversed their early morning gains and appear to be headed lower.

I don't know if this is the top but I do feel very uncomfortable about the whole rally thing. It all appears to be manipulated by the government. It's pretty obvious to see that the market is all about perceptions. There is nothing new today or yesterday, last month or last year. How we are manipulated to react to the daily news is the only variable.

Unemployment continues to be a drag on the economy and retail sales continue to weaken. All of these "green shoots" that have been manufactured have only caused more money to flood the market and boost stock prices. But there is no real support. Businesses continue to slash jobs at an alarming rate and this is nothing new. Even in 2005 when I was writing the marketrealities blog, job losses were mounting. How can an economy grow when people are continually losing their jobs? Our government has actively sought to export our jobs for what purpose other than making the elite rich even richer is beyond my understanding.

When I worked at MetLife some years ago, there was a big push for diversity and I was a member of the committee. Growth was predicted at an unimaginable level. We don't have enough people here in the US to fill the expected job growth! Now, even the illegals are exodusing en masse as there are even no jobs for them.

There is no doubt in my mind that we will have still another crash. All of this TARP and other bail out measures have done nothing to solve the housing crisis that we face. Wouldn't have it been more effective to give the trillions of dollars to us little people who are drowning in debt and being overwhelmed by increasing taxes (I currently am living in Cook County, Illinois!! but higher taxes are going to drive me out).

Sure, the bankers and politicians continue to get raises and perks. Seems like we are in South Africa some years ago. It is not getting better and Obama's socialist ideas are just causing more turmoil. Nothing will ever happen here except more money being funneled to the elite, tapping the middle class as always.

There will be a washout in the markets. All markets as the rich will not be able to sustain the game. It will collapse and prices will be so cheap that you will be kicking yourself if you don't have any cash to pick up the bargains. I have been continuing to accumulate SDS and DXD, ultra short market positions and have a high level of cash.

I can't call tops or bottoms as the markets tend to be well beyond any level of rationality. Fundamentals, while important, are no longer realistic measures of what is happening. Companies can hide risk offshore in special entities and other accounting gimicks and consolidated financial reporting mask realities. As I have been saying over and over again, it seems to me that real, long-term investing is dead. The market is just a casino now. It's a game of the big boys with billions of dollars to play with. Long-term growth is a joke as over the past ten years, it doesn't exist anymore. Whether it is the markets that are a joke or the corporate system of greed or governments of incompetence, I can't say. All I can say is that if you are not protecting yourself against a total economic collapse then you could be in for a big rude awakening.

But fear not. If Obama gets his way, you will benefit much more from the system from being a penniless indigent than being a productive capitalist.

CNBC's Cramer says 'BUY THE DIPS'

OR...

LAST ONE IN IS A ROTTEN EGG ;->

Let's not forget that the market has rallied some 50% off of the lows. How long will it take you to get in? How much upside is left? Another 50%, 100%?

As some have pointed out, the stock market has been doing great, but for the average Joe on the street, people are still getting laid off daily. Yet, the perception that things are good because failing bank stock prices have skyrocketed, failed government entities such as AIG, Fanny Mae and Freddie Mac are soaring. Do you really believe that the crisis is really over? Are you really willing to buy after prices have soared 50%? Some even 1000%?

Please don't forget to look at reality. If you look at what has been happening in the shady world of bail out finances, banks with government backing have made some questionable decisions without even informing their shareholders. They are beholden to the government. They are controlled by the government. Can GE, the owner of CNBC be any different? GE also took bailout money and could be a government mouthpiece.

I don't know and I'm not saying that this is so, but I must tell you to be skeptical of any mouthpieces of government controlled organizations. The government has engineered this historical stock price runup. Changing the public's confidence is the key. As with any of these market crashes, had there been no news media mania, had things not been blown so much out of porportion, would we have had the disasterous crash that we have had?

And now look at the rebound. Was there really any danger at all? Or was it all engineered by bankers to line their pockets. Already we see that the banks are rushing out of the government bailouts so that they can get their multi-million dollar bonuses.

It's all a game. Get what you need from the market and get out! Don't be a hog. You will get slaughtered, I promise. The market volatility and risk is way too high to be involved if you don't need to. As I have been saying since June, I got 15% on the stock portfolio and got out. I've been playing with small positions for fun but do I regret that I didn't make more than 15% on my portfolios? No.

If you want to make gobs of money, be a politician, or an athlete or a banker or a salesman. Don't be so gullible to think that you will get rich from the market. Some do, no doubt, but really, now it's no different than Las Vegas. If you keep trying to make more, you are going to return home busted.

"Hunt"ing For a Put Play

I've been in this one for awhile, JB Hunt, a trucking company that is a prominent member in the Transport average. It's had a nice run from the 18 level up to 33 but now appears to be breaking down. After rallying recently to the 32 level and then falling back, it is falling back today more than 3%, possibly indicating that the upside is done with. The January 25 put is going for $1.50 now so we would be looking at 23.5 as a breakeven point and 22 for a double.

If you are looking for the market to test the lows, as I am, this one may help lead the way down. Maybe I'll buy a little more here....

DANGER AHEAD IN S&P!!!

INTERMEDIATE-TERM WEEKLY SIZE REVERSING

Perhaps it's nothing, an abnormal reading in the complex statistical universe, but Intermediate Size, that is, Volatility based on a 25 week period, is reversing. Normally, I review Size over 10 periods and when Size reverses after an upward move, it is a signal for me to either exit my position or sell options.

Currently, the 10-week Size is still rising so it appears that the markets will continue moving higher. In fact, I can see the S&P rising another 100 points even to perhaps as high as 1,130 over the next few months. But at some point, everyone who will be getting on board will be on board, large banks, trading institutions and Specialists will all be short and the market will back down to the lows like a hot knife through butter!

As the market moves higher and higher, and attempts at sell-offs fail, the bullish sentiment will rise to highs. Already, the Put-Call Ratio is at levels much lower than in last September, before the market began to plummet. While it's not really an indicator that I follow, Having seen it today, superimposed over a chart of the S&P 500, lead me to believe that I'm doing the right thing in buying DXD and SDS, Double-Short ETFs on the Dow and S&P markets.

I'll soon be offering portfolio reviews at a nominal cost. If you are interested in having your portfolio reviewed, I will provide a special, blog-reader discount before I offer the opportunity to the public. If you are interested, contact me at my e mail address listed on the blog. I'll provide my unique Trendsetter analysis on each of your investments if historical data is available, and give you ideas on how to protect your wealth.

Even if you disagree with me about the upcoming market sell-off, you might benefit from the insight that I can provide. I've been doing this for over 30 years and have used my personally-developed analytical system for more than 20 years.

Can't Keep This Market Down

Miscellaneous news pushed the market higher today. Boeing also popped more than a dollar and our September calls are now up more than 10%. I had been hoping to see the 42.5 level to buy a few more, after all, premiums are low and the potential volatility it extremely high.

One of the reasons I have been focusing on Boeing as of late, well, it's an interesting trade. At this point in the year, we are just having fun and looking for big hits. We got our 15% gain for the year and we are squirreling it away, not risking it much.

As those of you who follow me know, I always look for these three period tests as pretty solid profit opportunities. Next week, Boeing SHOULD attempt to test the recent highs, and should it bust through, it's a good play for the mid 50s as we continue to move within the pennant formation. No definitive breakout here in the offing but a move to the mid 50s makes our Sep 45 calls highly profitable. Should we fail, the long-term puts are in place.

There is no keeping this market down so you must keep a short-term long position in place. Bad banks are cooking. Not long ago, I told a client, heavily invested in Citi, that it was looking good. Don't know if he will ever make money on it but it certainly looks like a great play now.

I mentioned that I even bought some BAC but when it approached 17.5 and I was up some 15%, I sold the 17.5 calls. I'm a chicken on the long side of this market but try to strategically play it.

There is overhead resistance for sure and the downtrend will probably remain intact over time.

There is no doubt that this probably is the greatest upside run in history indicating that the downside could have been highly exagerated. But I don't think so. Over and over again, the Fed has tried to avoid the system cleansing that a real Bear Market can provide. They are certainly running out of tools and they are "all in" on the bad banks.

I don't know it all and I can't even guess. But the things that I have read make me very uneasy about betting my life savings in this market. The thing that probably troubles me most ( and that I have read about the least ) is that the FASB wanted to force corporations to post all of their off-shore entities on their books. I had been a high-end estate planner and know how off-shore entity tricks work. It could be that the banks have their riskiest plays in entities off-shore and are not disclosing them to investors. This totally sucks. How can you buy a corporation when risk is undisclosed. How can you even play in a system where the rules allow corporations to hide their smelliest shit in entities offshore and not reveal it in their financial statements.

It's no surprise that when the crap hit the fan last year, CEOs said that they had no idea about the amount of problems they have. It reminds me a lot of the movie Independence Day. When the president forcefully denies that there is no Area 51, his adviser states that this is not totally correct. Even the president hadn't been told about it because of, how did they put it? Plausible deniability, or something like that.

I thought that after ENRON, there had to be full disclosure and jail time for inaccurate accounting statements. Come on people, we are all being hoodwinked!!!! This is all a game to get you to put your money in the game. If you are not hedging yourself on the downside, you are going to be sorely disappointed when the last pennies you have disappear.

So I am playing the game and participating in the profits to the upside. But I never hesitate on huge moves up to add to my SDS and DXD positions. These are the Ultra Short market positions that skyrocketed to the moon when the market fell at the end of last year. Check them out on BigCharts or other free charting software. I am out of TBT in my personal accounts but keep a small position in managed accounts for the long term.

There is no way that we can have a strong economy and the TBT or short 20 year + bond position declines like a stone dropped out of an airplane. It's just the trillions of dollars that got pushed into circulation. No one holds cash at 0%. Big money doesn't anyway.

Enough of my rant for today. BA is as good as any to play for a big move either up or down in this market. If you have some stocks that you would like me to look at, COMMENT on this stuff. I'll look at whatever my audience likes. Perhaps you have some better ideas than me. I'm just making money.....