Volatility Returns To Wall Street - Capitulation Could Be Near

Just when everyone thought the market was finding its footing and becoming more stable, once again we see aggressive volatility back in the market. The lead up is much similar to the one we saw leading up to our lowest point back in mid October. This causes me to speculate a little and discuss some interesting concepts.

As we know, there is a lot of technical analysis that goes into analyzing market trends and movements and determining bottoms and capitulation. The vertical rebound we experienced Thursday, and the volatility of Friday has set up the perfect scenario for what many believe are the gates to capitulation. So I thought I would share what I have learned.

The "G20", consisting of major global emerging markets leaders, are meeting this weekend to discuss the global crisis and maybe some possible resolutions to slow the bleeding. Some expect a small band aide announcement will be made, causing a strong emotional rally on Monday. From there, many technical analysts feel that this is where we will see the bottom fall out. Some expect it to drop like a tank. By analyzing graphical trends, some believe we could reach anywhere from 6500-7500 by the end of next week and experience our first capitulation of this recession/depression. Bear in mind these are technical analytics that may not apply to this crazy market we're currently in, but it's good food for thought.

So what did I do with this news? Obviously, I am keeping my shorts. Thankfully, we saw FXP gain back a lot of ground it loss from Thursday. As expected, we saw a massive sell off the last 5 minutes before the market closed (probably from the mass hedge fund liquidations). All the other usual suspects for inverse ETFs did great as well. One new one I am adding to my list that I have been eyeing (probably picking some up on Monday) is EEV. EEV is an inverse ETF shorting the emerging markets sector. Now, with the "G20", involving many of these emerging market leaders, we should be seeing some good gains out of this as we continue to see these quick fixes fail. We see similar trends with this ETF as we do with FXP, but it seems to be holding up slightly stronger.

Considering that I feel we could be in for a short term rally on Monday, I picked up some DIG options on Friday, expiring in December as well as some more of my .QAADB April expiring Apple options. With this volatility coming back, I'm looking to play both sides a little bit more. I am not 100% sold of this technical prediction, but I feel good about picking up these options at these prices anyway. If we do indeed get this rally on Monday, I will look to liquidate all of my long positions, with the exception of maybe my GDX options and throw my profits into EEV and some SKF or SRS. I believe next week will be a pretty monumental week. I think we will see A LOT of activity go on. So stay on your toes and try and catch the openings and closings of the market. That is usually when the deals are. Thanks to those that commented, I enjoy your insights. I hope everyone has a good weekend and Happy Trading. We will see you Monday.

3 comments:

  1. monsieurstat Says:

    Liquidating long positions right now is a good idea! In this environment, no company is immune, no matter how good their fundamentals. AAPL is a GREAT company, and they will probably remain profitable through out this mess, but their stock prices will get hit just the same. Look for AAPL at around $30-40 in April... Only longs that have good prospects are OIL and GOLD (including silver). I am much more bullish with gold than OIL, but it is important to diversify. DIG is a great ETF, but I would cut the middle man and go direct with USO as I am not sure if oil companies will be able to maintain their stock prices during a capitulation. If they go down, DIG will go down as well even if oil goes up (although this whole scenario is unlikely, we are in untested territory now, so anything goes). My list for next week is something like this: EEV, FXP, QID, DXD, XRT, USO. I like GDX too, but word on the street is to get physical gold as the paper might have a few problem come December. Now I want to find an ETF that would allow me to short USD. Its time has come too.... That's what the G20 meeting is all about.

  2. Finance Fanatic Says:

    I agree. I don't see any long positions making me much money in the near future.

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