European Rate Cuts and Poor Earnings Dig Deeper Hole For Dow

If your long in the market, you're probably hitting your head against a wall wondering why you didn't sell two days ago. It's amazing how one extra day can kill you in this market. And tomorrow looks like it's not going to get better. Earlier today, we saw the market react to negative earnings reported by a variety of big retailers, which I expected. Wal-Mart was the one of the few that actually beat market expectations (because now even the rich people are shopping there). In addition to that, there was a vast array of rate cuts all throughout Europe, many of which were disappointing, which ending up crushing commodity markets like Gold and Oil. Our trading volume has increased since earlier in the week, which makes me think even more people are selling than before.

If you are long, don't jump off a bridge quite yet. With a strong need of a short squeeze before next Friday (hedge fund redemptions), I believe there is a very good chance of a pretty strong rally early next week. So even though tomorrow may be worse than today, stick in there until next week. Our inverse ETFs performed great, as always. We saw FXP close above the $100 threshold already. For those that followed me in getting into it has seen a nice 15-20% gain in a few days, and we still got a ways to go.

Unemployment numbers are set to be announced tomorrow and it looks bad. Analysts are expecting to see a loss in 210,000 non-farm payroll jobs for the month of October. They are also expecting to see a rise in the unemployment rate from 6.1% to 6.3%, just this month. If the numbers announced are worse than these (which I believe they will be), good night. We could be in for another 500-600 point loss again. This shouldn't be bad news for those of us who loaded up on FXP and SRS, but not too good for those going long.

For tomorrow, stay with your shorts. We should see strong gains from all of them. SDS, the Ultra short ETF for the S&P, has been performing great. That is one to be following as well in this mess. Now depending on where we look to close tomorrow, believe it or not, but I am going to look to get into some long option contracts. Like I said, I believe we're in for a pretty healthy rally before next Friday, and I wouldn't mind riding part of that train back up again. I will be looking to get back into some DIG January contracts, probably around a $37 strike price, as well as some GDX and UYG options for April. I will only be doing these if we see a pretty down day tomorrow. The options give me the flexibility to win back any losses I may get next week a lot quicker, because of the leverage. But that sword cuts both ways, so watch out.

Now, if by some miracle we report better employment reports than expected, this could propel this rally to begin a day early, sending the market way up. So keep that in mind. We could see this short squeeze rally take us near 10000 before next Friday. I don't plan on selling any of my FXP (unless it hits $120 tomorrow, which then I will take some profits out), because after next week, FXP should be trading in the $120-130 range. The most important times of the day are at 6:30 am (PST) and about 1:45 pm. Like I have said before, the market has been know to swing 400 points in the last ten minutes of trading, so try to catch those times. Tomorrow should be a good day for FXP, SRS and SDS, which makes it a good day for me. There's good money to be made out there and I hope your tapping into it. Happy Trading and we'll see you tomorrow.

5 comments:

  1. seizure Says:

    good stuff man. I've been riding the FXP with you. You've been spot on so far

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  3. Anonymous Says:

    Finance fanatic,
    I have been following your posts since Nov. Just wanted to know if you have changed your position on FXP. I am long at 59 after avg down. I am in FXP pretty heavy. Would you recommend hanging in there or cutting my losses and getting out. I know i have to make my own decison. Just wondering if you were still holding onto yours.

  4. QUALITY STOCKS UNDER 5 DOLLARS Says:

    Europe is a basket case.

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