More Bad News In Wall Street Means More Bad Days To Come

You have to love Mondays. Everyday, more and more, we see the market struggle to find stability. This makes us more and more vulnerable for capitulation, which is why I have been slightly adjusting my portfolio to be ready. We continued to see 3-400 point swings throughout the whole day of trading. The market was never satisfied wherever it was at. Unfortunately, for those looking for rescue from their portfolio losses, may not find rescue anytime soon.

Today we had some more great news. Citigroup plans to cut 50,000 jobs and Japan joined the club by officially declaring their entrance into a recession. Who needs doom and gloom to bring down the market when the standard, normal announcements are doing just that. The market still wants to do another bear market rally, but can't manage to pull it off. You can see the tendencies throughout the day. The sell off is just too powerful. All in all, it was a pretty non eventful day for me as I wait to see where we head this week.

FXP continued to struggle today, mostly still due to the stimulus money that was announced last week. There is a lot of speculation of where the money will be spent, that is giving a lot of Chinese stocks undue stock appreciation. However, FXP was still able to fight into the green and close at $70. I am more than fine with FXP, as I still am expecting slow gains for another week or so, until this bailout high begins to fizzle. I did pick up some long options. Even though I believe we will net red this week, I think we will have a pretty strong bear market rally one day this week. So I bulked up on some GDX, DIG, and APPLE options, mostly expiring next year, to help give me a little pop during those rallies.

I would like to see a rally either tomorrow or Wednesday to lower EEV and SRS, so I feel better about getting into them. I just think all these inverse ETF's are going to be the money makers from Dec-April. It is funny how some speculate China to not be that bad off, because their consumer savings are much better off than Europe and the US. However, when your #1 lender (The US) shuts down, and your #1 customer (The US) goes away, then you will stumble. Everyone around them is experiencing pain, they just have been covering it up the past two weeks with this stimulus package. So don't fret about FXP. It is ROCK STAR status.

Tomorrow should be another day like today. Everyday now is a possibility for capitulation. News such as GM going under, or another bank failure, or more recession/depression news could put the market into an unstoppable tail spin. We are walking on ice and it is slowly beginning to crack. And everyday that goes by with uncertainty, like today, the market gets that much more closer to a downfall. However, the littlest good news, could send us flying into another short term bear rally. Whatever the case, we will be trending downward. If we do indeed get a rally tomorrow, I will try and get out of most of my options. Long options act as a great hedge for a strong short position, because you have more time flexibility, less downside risk, and more volatility. It has worked great for me while buying short. Whenever/If we have this rally this week, I believe the next day will be BAD, so I want to be completely short, that's right, COMPLETELY by that time. I think after this next rally, we are prime for capitulation.

Even if we don't rally, a majority of my positions are short and I will perform very well. For December QID, SDS, FXP, SRS, SKF, and EEV will all be Rock Stars. I just want to be in as many of them, at a good basis, as I can. So, stay on your toes this week and watch the bumps. It is a dangerous market to "day trade" in because of the volatility. Every five minutes looks like the market is either going to tank or take off. Either way, you get the most definition of the day within the last 5 minutes of trading. I would try to be in your short position by now, because any day could be the day. Remember, until Januray 20, 2009, we will not see very many changes in policy with the current division of the law makers. This also gives momentum to a pesimistic outlook. Happy Trading and we'll see you tomorrow.

6 comments:

  1. bruce Says:

    Your blog has become a "must read" for me at the end of the day. I have been trading for all of a month now and find it exceedingly useful. Thanks!
    I do have one question though. You have talked quite a bit about a capitulation. My question is 'Why are you fairly certain that it is coming?'. Granted, my experience is exceedingly limited, but I think I could almost convince myself that the market will just flounder like this for another 2-6 months, then slowly regain footing. I am curious to hear your thoughts.

  2. Finance Fanatic Says:

    Thanks for reading Bruce. As for capitulation, there are a few reasons why I believe it is near. First off, with the current government state, if we do capitulate, I think it will be during the remaining time Bush is in office, because of the stale mate with the balances of power. It is hard to get new programs and stimulus' passed. Also, the signs are here. Slowly increasing volume, high volatility, and sensitive market reactions. We are one large bad announcement (like GM going BK) away from a disaster. Some people feel that Financials are already capitulating. Nasdaq has been getting killed. I think we could very well see capitulation be sparked very shortly. However, who knows, it could come 6 months for now or never. But, I would be prepared. Because in the heat of capitulation, I believe it will be pretty nasty.

  3. Finance Fanatic Says:

    PS Shanghai is tanking right now. That should be a good sign for FXP tomorrow.

  4. bruce Says:

    Interesting. Two articles on CNBC today seem to support you on this. "DOW to 6700.." and "S&P to 765..".
    I'm tempted to buy and hold some EEV, because I am certain that my popping in and out of the market will ensure that I miss a big jump, but every time I hold something overnight I seem to get slapped. I may just be doomed to be a day trader for the near future. Thanks again.

  5. Andrew Says:

    Thanks for your articles! I am glad to see people out there with similar thoughts... Closed SKF position today by 190 limit order and missed the end of the rally. It would be nice to see some recovery to get ETFs at good prices, but I have no gut feeling if we will get bull rally in the near future or not. Well, let us see what Wednesday brings us...

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