Dow Rallies On! Massive Sell Off Could Be Near

I found this clip to be closely related to what is going on in the market right now, with about the same strength of foundation. The bull rages on! Wow, there is some serious momentum behind this thing. Unfortunately, the volume is not there to make me believe it is the big “flushing of funds” from the sidelined institutions that everyone one has been waiting for to get back in the market. I believe it is a speculative, end of the year rally that has no foundation to maintain its ability to continue upward. In fact, I believe we are at risk for a massive sell off soon. It could be as early as tomorrow, depending on all the bailout circumstances. In 3 trading days, the Dow has gone up almost 600 points without selling. In a bear market recession/depression, that is unheard of. I can’t imagine investors leaving these profits on the table for very much longer. Heck, even in the little long position I am in, I was tempted to sell out of them today, because of the huge profits I have made off them. But I am going to hang on to them for the time being, just in case we continue to run. I have plenty of green waiting if the market goes down.

I do not think that the sell off this week will be the beginning of the next round of bottom testing, as the bull is well alive. I just think a profit taking day is due, and I am being careful on picking up anything long tomorrow or Wednesday. My IRA account killed it today. As I discussed in the What to put in my IRA post, all of the equities we discussed have been doing exceptionally well. Energy and commodities have taken such a beating and should have the biggest rebound, as far as profits go, when the market turns around. At least I will have some good money when I retire. If you don’t have an IRA already, this can be a good time to set one up and put some good long equities in there. At the levels we are at currently, it doesn’t matter whether we go down another 20%, they are bound to go up. These can be tax sheltered, which is great. You can sign up for an IRA and get free trades monthly at Zecco.com.

I cheer the market in its successes, but unfortunately, I still feel it will be short-lived. I still can’t get that horrific number that was reported on Friday out of my head, especially when there is no signs of it getting better. I mean LA Times, Chicago Tribune, and The Cubs all filed bankruptcy today. No, bailout for them. I believe this recession will have it’s different phases and when the unemployment factor kicks in, it’s going to be brutal. I also can’t stress enough the kind of foreclosure disaster we are going to experience next year when the commercial loans start becoming due. Most of you probably drive by a little Starbucks corner center every morning. Well, most of those centers are most likely paying unbelievable rents (Starbucks was know for signing very high rents, not anymore), which in most cases will not be sustainable. I’m sure that same center has 1 or 2 vacancies. Next year, it will probably be 4 or 5.

At any rate, we discussed on Friday the good possibility of this rally pushing to the 9200 region and beyond, which seems to be true. Bulls in a bear market can be fierce, and the best thing to do sometimes is to get out of the way until it gets burned it out. And it will.

So, wow, discount day on all the shorts. I can’t believe it. $35 FXP, $78 SRS, $101 SKF. Are you kidding me? It felt like yesterday they were all at $200+. They sure can move. My favorite of them all is SRS. Wow, I had to pick some up today at these prices. I never thought I would see the day when it was below $100, let alone in the $70’s again. Like I said before, FXP has been put to the back burner until China becomes more exposed to the rest of the world about the massive problems that are coming their way. Although we could be bull for a bit longer, these are DISCOUNTED right now!

I will be keeping an eye out for a sell off day that I believe is coming soon. Oil and Gold are ones that I would actually go long in right now. Oil should not stay long at it’s current lows. Solar and alternative energy (STP) have been killed with the demolishing of oil prices. They are also a great one to consider as Obama’s energy plan is very favorable to alternative energy. I am actually invested a couple of penny stock companies that are in their R&D stage for that reason. Carbon Sciences (CABN) is a company with the technology to capture carbon emissions and make fuel, building materials, and other useful resources. Also, Origin Oil (OOIL), is a company developing the technology to make oil from self generating Algae. Much more effective than ethanol. Being in the R&D stage, they are in the pennies now (both just recently went public), so they have a ton of upside if they products hit the market. Obama is looking into requiring carbon emission capturing with some of the big plants. Check them out.

At any case, fundamentals will return to the market. Watch out in your longs. I am always hedged on the short side whenever I am long in this market. I hope you have a good night, Happy Trading and we will see you tomorrow.

10 comments:

  1. Osvaldo Says:

    I was wondering if you could briefly describe how you hedge your positions. I have never understood the idea of hedging, since it seems like if something you use to hedge goes up while your portfolio goes down, won't the hedge also take away your profits when your portfolio goes up in value? Thanks for the help!

  2. Anonymous Says:

    Hedging limits your losses by insuring your gains. When you hold several short positions, you can buy long options (typically at or near the peak of the short market).

    Assuming you don't make any changes to your positions, as the market rebounds, you will lose money in your positions, but your long call options will increase in value.

    if the market continues to push forward, the options become worthless, but you still hold your short positions, which are increasing in value as well.

    -- a more advanced trader may be able to play it so that he purchases long call options at the bottom of the market, and slowly sell off his short position and gain from both.

  3. Anonymous Says:

    *correction, if the market continues to fall (ie: it doesn't rebound) but you still hold your short positions, they will increase in value but your options will become worthless.

  4. Anonymous Says:

    i've been trying to find out...what the hell does fxp follow? it just seems to keep going down even when china was getting hit hard last week

  5. Finance Fanatic Says:

    Good hedging explanation Anon. Anon2, FXP follows the Xinhua China 25 index, or (FXI). They have received a big boost recently due to interest rate cuts and government cash injections. However, I still feel China is in a big mess. Good little article here at SeekingAlpha

  6. sunil Says:

    I like your blog and the analysis given in there. I am a starter in stock market. So I had a question to ask you.

    How do you determine if a stock has reached its peak/bottom? In your earlier analysis you picked up SRS at a right bottom. I always fail to determine that. When ever I think it has reached a bottom and put money on SRS, it starts to go down. For example yesterday morning, it was at 89 and slowly started to climb up to 90 and 91, I thought it was a bottom and put in money, as soon as I did, it started to go down, and it reached a low of 79 or so. (I had a stop at 85 which i moved to 84 and eventually it got executed). Same thing happened today too.

    If you could explain how you determine it would be very helpful.


    Thanks
    Sunil

  7. Finance Fanatic Says:

    Sunil, no one can predict the actual bottom, especially right now in this market. The best we can do is look at previous trends and go with your gut. A lot of times I miss the absolute bottom and end up having to buy more at lower prices, lowering my cost basis.

    Each stock is different for when I buy in. Knowing the facts of SRS, I just always considered it a great buy under $100, in this market. With the market momentum yesterday, I thought it would peak out during the final moments of trading. For me, waiting until the end of the day has been a great time to get the lows.

  8. sunil Says:

    Thanks Finance Fanatic.

    Also I saw your recommendation about IBD (inverstors business daily) and I would like to take its services. how ever as I mentioned to you earliear that Iam just now starting to trade, I am not so clear on what services in IBD I should subscribe. Any pointers would help

    Thanks

  9. Finance Fanatic Says:

    I personally like the annual subscription, where the link goes (I think they're running a promotion right now). They have a ton of tools and market alerts and they do a good job of taking out the fluff and sticking to fundamentals. They also have good reads on sector trends.

  10. Anonymous Says:

    One of things that never ceases to amaze me is market manipulation. The oil companies are manipulating the market with these temporary low prices in order to drive their competitors (biofuels and alternative energy) out. Only a sucker will invest in big oil this century.

    Latest reports I've reviewed are critiquing the horrible analyst still stuck in the ways and mindset of yesterday. Bulls = the people. Bears = the establishment. We're about to bring down the fake analysts, so get ready for the 'ride' of your life!

    No more negative energy! Gone with the scare tactics of those that are in power only because of rep and respect for their fake analytical prowess. I applaud your co as a new up-and-coming, too.

    Tip: Be balanced in your bears vs. bulls coverage -- make sure you cover the bulls, too.