Dow Up 550...REALLY?!

* Economic Summit: Major Problems, Modest Hopes
* More Americans Struggle With Loans, Credit Cards
* Kohl's, Nordstrom Cut Year Views As Holidays Loom
* Why Should You Worry About Weak Holiday Sales
*Obama Bounce Is Crushed By Worries About Economy

These are the headlines you will see on the front page of cnbc.com. Yet, we see the Dow close over 550 today. Amazingly classic. Well, lets discuss the facts. Since last Friday's unemployment announcement, there has been nothing but bad news looming on the economy, and the past few days we have seen the market react to that, but not by much. GM is border line bankrupt. Almost every retailer posted bad earnings. Then today, we started to see another down trending day, until about 10 AM, PST (see the regression difference at the turn around point below). At that point there was a huge dump of buying into the market. I couldn't believe my eyes looking at all of the sectors turn green. Then we see us close above 8800 with the volume far greater than the average. What does this mean to me? Market manipulation.

It is days like today why I went in and bought my Apple, DIG and GDX options yesterday and this morning. Even though it didn't kill the pain for me, it numbed it a bit. Plus, if I can get a quick return by playing long, I'm happy. Even though I have zero confidence in wall street right now, we still experience these aggressive bear market rallies with the help of some market movers once in a while. Do you think it is any coincidence that the big deadline for people to redeem their hedge funds is this Saturday? For some hedge funds, this is the last day until the following November. Think how many people are taking their money out this weekend. Are you? Are your friends? Next week, I believe the amount of money needed from the hedge funds to liquidate will be very large. In turn, they will then have to liquidate several of their positions, as we have seen some do already.

So, Yes, I took a bath today with my FXP. But, I'm honestly not worried (some of you may think I'm crazy). Like I said when I first bought it, FXP is very volatile. It can give you a heart attack, but I've been playing it enough and know enough about both our markets to feel very comfortable holding it for a while. This go around, I was planning on a 2 month ride. So if we hit January or February and we are still lingering around these prices, I can start sweating. China won the lottery this week, with their $600 billion bailout and this nice, strong, hedge fund driven rally we had today. We saw a similar trend with SKF back in September, when it was hovering under $100 and continually being beaten down below $100, only to shoot up close to $200 within a month. Remember, I said in previous posts that there was a good chance of seeing a rally before this weekend. I just thought if it hadn't started by Wednesday, it probably wasn't going to happen.

The good news. We may see SRS and SKF get back into buying position again. Either of these below $110 gives me confidence in buying them. Both have reached "rock star" status in my book. The bad news, we are probably going to see another strong rally tomorrow. Expect Asia and other foreign markets to go off tonight. Look for FXP to probably take another beating. If it gets near the low $50's, I'm loading up more. Hedge funds want the market as high as it can be in case of forced liquidations. If that is the case, tomorrow, I will probably begin selling off most, if not all of my long options I bought yesterday. I already saw big gains from them today (Apple Option up 34%, DIG up 20%, and GDX option up 50%), and I never like to push my luck going long. From there, I will put a lot of my gains into SRS, SKF and FXP. I attended a conference today where Bank of America doesn't see the lending markets BOTTOMING OUT for 2-3 years! Real Estate REITS loss half their value in the month of October! This is why I don't get nervous going short. Call me a pessimist, I like the term realist.

I've been expecting a day like today all week, but I was starting to think that maybe the hedge funds didn't have the muscle to pull it off, but it looks like they did. After 10, volume shot up and kept darting up into after hours trading. The higher they hike, the harder they fall. For the bearers of the inverse ETF's, cheer up and lick your wounds, because there should be a lot more up days like this for us then down. Just maybe not turn on your computer tomorrow. Have a good night and Happy Trading.

5 comments:

  1. monsieurstat Says: This comment has been removed by the author.
  2. monsieurstat Says:

    HAHAHA - Yes indeed you had seen this rally coming, and I had too. For the first time in months, I bought some DDM call options last Friday in anticipation of this rally that I thought would occur last Monday or Tuesday at the latest. How do you think I was feeling at 1.00 pm today when those options had lost over 80% of their value? Like you, I continued playing FXP, but also EEV, and some puts on GS for quick profits. But I never held anything (except those long options) more than a few hours fearing this rally.

    One good thing about this late rally was that it forced me to be more active and aggressive this week. But now that it looks like I am going to make money on both sides, I am going to take it easy tomorrow. Just liquidate those damn DDMs and maybe pick up some safe bargains for next week. FXM and EEV are bullet proof, as is most anything else on the short side. Only thing is time, so if you play the options, just pay the extra premium and buy a bit more time. They can skyrocket next week or next month, but unless someone comes up with a miracle, there is no easy way out of this mess.

    Sorry for the LONG comment! Just wanted to share my experience.

  3. Finance Fanatic Says:

    Good Calls monsieurstat, I couldn't agree with you more. Looks like we're riding this train together.

  4. Finance Fanatic Says:

    And by the way, we could maybe even see those hedge funds sell offs come as early as tomorrow before close. The liquidations have got to be monumental.

  5. s Says:

    Hi everyone

    Yeah , you're probably right I just want to get out of stocks , even though I like Dell , and get on the ETF's.
    I will probably hold on to Dell for a while.Got in at 12.50 so ...Let's just hope it gets high enough so that we all can get out :).

    Sorry for the email confusion C.
    Green for everybody wherever you may be.