Nothing But Buying Today - But Don't Be Fooled

Citi bankIt seemed as many of you made some good money on today's big rally, as I noticed quite a bit of donations coming from many of you, I guess as a "tip". 10% right? Ha, but I do appreciate the contributions and promise to always strive to find new ways to make the site more interactive and beneficial to the readers. The chat is working out good it seems. Anyway, on to the fireworks.

Well, it came a bit later than I expected, but it came with force. The market shot up before trading even begun and never looked back as the DOW closed up 5.8%. This is that "vicious" bear market rally that has been worrying me since I sold out of a lot of my shorts. I got caught in it once and didn't want to see it again. Volume shot out of the roof today as it seems many of the institutions got off the sidelines today and made some trades. The most impressive part of the rally was its closing. I was waiting to see if there was going to be some profit taking right before close, but in fact, it continued to go up. This could indicate that maybe we'll see some more green tomorrow. Let's be honest, we needed it.

My FAZ put option (.FAZOL) closed up 165%. My DUG put up 70%. My BAC finally weathered the strong increase I've been waiting for, however it has a bit more to go for me to be satisfied. It sounds very good, but I had some losses to make up for, so my in pocket profits wern't that crazy, but good enough for going long. Both these options are expiring next week which is the reason for such the volatility. So, if indeed the market is down tomorrow, they are bound to take a big hit. I shaved some profits today and have some room for losses after the big gains today.


Gold dipped below 900 today which caught my attention real quick. Gold may continue to go down a bit in March, but it is almost low enough for me to get in and sit on for a while. Although, we are still a little while away from inflation, when it comes, it will most likely hit hard. I wouldn't see surprised to see gold shoot up to the 1300-1400 range. So, anymore below 900 and I expect to pick up some DGP and September expiring GDX options. GDX has a Market Club report score of -60, which I think there is some good upside to it (get your own symbol analyzed for free, all you need is a name and email, Click Here).

Believe it or not, but this rally is aligned perfectly with the models in creating an environment for a market crash. I mentioned this in another post. My recent long plays are very, very short term. Just to earn a buck or two on the quick bounce. My real hopes for the rally is to get the shorts in a much better position for a heavy load up. We saw today SRS and FAZ get killed. Well, if this rally goes as strong as I think it will, we may see some steals for these down the road.

We are heading into dangerous times that, I'm sure many will get hurt. Psychologically, bear market rallies can mess with your head. Already, we are hearing from money hungry analysts that we've reached the bottom and it's time to get in. This is after one day of a strong rally. Imagine the sentiment out there if we spend most of March climbing back up to near 8000 levels. There will be a lot of people out there buying thinking that the worst is over. As for me, I'm calling this what I believe it to be, a vicious bear market rally. The bear is still very much alive, just catching up on some zzzz's. So don't count me in as one preaching "We're at bottom", as I am ready and waiting to load up on short.

Another scary sign which fits right into a capitulating market are the recent credit tightening signs we're seeing again. Whitney talked a lot about today and had some good words to say about it. Having the markets slow up on credit will greatly contribute to the already existing deflation problems we have. We will be getting inflation/deflation data in the next couple of weeks, so it will be interesting to see where we are at these days.

So before everyone gets excited to see if this indeed the rally (or just spurred by Citi's fudged numbers), we need to see what it does tomorrow. We could very well give back half if not all that we gained today during tomorrow's trading. However, if the market has another strong day of trading, I think it would be safe to say that we are in for a bit of a bear market rally. I am not going to try and play this rally much, mostly what I already have, as it can change its face at anytime. Here are my general targets for some shorts I plan to BEGIN to load up on:

SRS - low 60's
FAZ- Mid 40's to low 50's
EEV-low 40's
QID-High 40's
SDS-60-70's

These will most likely change as time goes on, but as for now that's a rough sketch. So once again, I look for what tomorrow will bring. If indeed we rally big again tomorrow, I will be looking to exit out of some of these longs and take more profits. I also will be looking to buy some shorts as well. At any rate, I plan on making some moves with my Zecco.com account.

So I will be up early and waiting, I'll try to catch you on chat. Have a good evening, Happy Trading and see you tomorrow.

14 comments:

  1. Anonymous Says:

    Can you elaborate on the "September expiring GDX options" trade you mention? I often wonder which one to buy. Getting charts on the options can be difficult too.

  2. Boogy Says:

    I play SDS all the time and for SDS to get in to 60-70 range that means we have another 30% to the upside in this fake rally. I think the high 80's would be the lowest SDS will go and if that is the case SRS should be in the 40's.
    Thoughts ?
    SDS @ 100 on the close
    SRS @ 69 on the close

  3. Newbie Says:

    Wow... if SRS got down to the 40's I'd probably have to put my entire life savings into it seeing as I think the market will go much lower in the future.

    I for one am convinced we will continue the rally on Wednesday. Silly as it may be I even picked up some more FAS after hours.

    I'm suprised there is no mention of FXP. I think mid 20's would be a very good entry point.

    Thanks for the post FF.

    Happy trading all!

  4. Finance Fanatic Says:

    Anon,
    I will look tomorrow, but probably a $35 september option.

    Boogy,
    Ya SDS may not get that low, but I'll keep my eye on it, inverse shorts may go lower than we expect especially with people worried about uptick .

    Newbie,
    FXP is back on the radar, I just hope China becomes exposed to their problems more. Ya if SRS gets to $40, I'm all in.. It may get there, who knows. We'll see how long this rally lasts.

  5. newbie Says:

    China announced a huge, bigger than expected drop in exports. Trade surplus at a measly $4.8 billion. Analysts were expecting $20 plus billion trade surplus. True they have the best stimulus going, but wow that is a huge drop.

  6. sc Says:

    I think gold might take a big hit in the next couple of months when the IMF sells its gold reserves to raise cash. They own the third largest amount of gold reserves in the world and they will be running out of cash soon due to so many countries requesting bailouts.

  7. Boogy Says:

    So Finance,
    Do you think the pressure on short ETF's is a real concern ?
    Just thinking out loud, but I don't think the up-tick rule will stop inverse ETF's that go against S&P or even DJUSRE. Right ? Someone has to play the opposite of the bull side.
    Now I was very tempted to get back into SDS & SRS with the lack of conviction to the upside. I traded in and out of both for quick profits. When are you getting back in ? Are you looking for a certain price ? S&P resistance of 781 ? Thanks.

  8. Finance Fanatic Says:

    Boogy,
    I fear that you are not reading my posts :)...I lay out my plan with much detail in them.

    SC,
    Remember to that India has not been buying gold much at this point, when they do begin, it should have a a pretty big bounce, but sure, there is still some downside risk, I'm in it for a long term play.

  9. James Says:

    Here it is, 1 year later...

    SRS- Low 7’s
    FAZ-Low 17’s which is actually $1.70 before the inverse 1/10 split
    EEV-Low 10’s
    QID-High 18’s
    SDS-30s

    If anyone stuck with these stocks they would need 100-2500% return just to break even. I’m worried about that newbie jumping in SRS at $40... sure hope he didn’t. I’m not mocking anyone here- I’m just saying this was the worst advice FF had ever given. I will admit from October to March5th FF was godlike. He was right 9 out of 10 times when it came to market situations. Then when an obvious rally was taking place he announced NOT to take the reins and ride the profit wave. In the beginning the only thing that was evident was a market rally and thats all I wanted to capitalize on... My long term trades were suppose to be AAPL, BRK.B, GOOG, LVS once a bottom was established, which I was a strong believer anything below 7000 was bottom enough for me. My beliefs were skewed by everyone else’s negative sentiment. I even wanted to invest in BAC and C short term when Meredith Whitney was saying banks will have a good strong quarter. All my thinking resulted in head shaking and laughter because those decisions I wanted to make were more than foolish apparently they were hysterical.
    The problem is that no matter what happens in the future, these predictions will still be 100% wrong because of one major thing. They lose value over time. Buying 1 or 2 year puts on these puppies are anyones best bet on making an honest buck as long as the puts aren’t priced too high.

    My picks on march 10 would be worth this today:
    AAPL- 88.62/208.85 135% Gain
    BRK.B- 55/81 47% Gain
    GOOG- 308/541 76% Gain
    LVS- 1.66/17.11 933% Gain!
    BAC- 4.79/16.46 243% Gain
    C- 1.45/3.40 134% Gain

    Bottom line the only person I can blame is myself. To be honest I actually owned shares of BAC, C, AAPL, and LVS in early March but after reading FF’s comments and other doomsday scenarios I couldn’t sleep at night. I kept telling myself that when the market breaks 7000 (or basically erases 10 years worth of gains) there can’t be a better sign to get in. My own voice was overshadowed by hundreds of others, most with PHDs in finance and have been in the market for years shouting from every corner not to listen to the government talking heads and that we are nowhere near the bottom. We must remember that our government is here to help us and try with all its might to avoid catastrophe. If disaster in the market hits some time 1 or 5 years in the future at least I would have already made my profits and used them to purchase several undervalued properties around the world that would be appreciating in value. But that is just the sound of me venting, losing 50% during the largest market rally in recent times instead of nearly 200%. I’m sure there are many in my boat...

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