Market Rallies In Auto Bailout Anticipation - Are We Done With Green?

auto bailoutAnother day down which resulted in similar trading trends that we have been seeing these past couple weeks. With the anticipation of the bailout, traders (I dare not call them investors anymore, because the investments that are yielding profits right now are about as solid as junk bonds in my opinion) pushed the market into the green for most of the day. We did see the market dip down into the red, as people began doubtful, there being talks that the bailout could face some problems with the Republicans. However, you and I both know this deal will be done and in my opinion this bailout was factored in two weeks ago when they announced they would be meeting about it. But I am sure the market will have something to cheer about when it gets announced, but it may not last more than a day, there being no more bailouts in the current pipeline.

Emerging markets and China have been receiving UNBELIEVABLE amount of praise from investors. This weekend I will write a detailed post of why I feel FXP is getting killed so much, so look out for it. China is forking out money left and right into their airlines, banks and major business just to keep them afloat. Somehow, this is perceived in the market that this is a positive sign. I mean come one, how blind are these people. China announced yesterday that their Producer Price Inflation fell 2 percent from January to November. This is far more than predicted and is very scary for China. They have a major risk of inflation as energy costs begin to rise and global economic problems persist. Yet traders brushed that news off just as they did the horrific employment number we received on Friday.

This is a dangerous time in the market, because there is very low volume and it seems as if the main bulk of traders are not fundamental traders. It is clear to me that hedge funds and institutions are waiting. Until, we get some fundamental movement based on actual numbers, the market is one big roulette table. This is why I am choosing to stick with my few fundamental picks and just wait. EEV and FXP have been utterly destroyed the past month. I don’t dare call “bottom” during this end of the year market run, but if I had to guess, I would say we have to be close with those two. If you haven’t bought in those yet, you are loving these incredibly low prices! Bring on 2009 and the new batch of problems.

The next item up for shorting are Treasury bills. With the recent, enormous popularity in our treasury bills with the billions of dollars being flushed into them, this makes treasuries prime for shorting in my book. As the US economy continues to show signs of severe weakness, our foreign neighbors will grow fearful of keeping their money with us. TBT is the Proshares Ultra short that shorts the Lehman 20+ year treasury. With the amount of government spending, coupled with foreign countries pulling their money out of our treasuries, this should weather very well for TBT. It may take a month to get jump started, but I believe we are low enough now. I plan on picking some up later in the week.

GDX and DIG are proving their resilience and I don’t see them slowing down much in the coming months. Sure they may get hit a day or two, but I think we will see an upward trend from here on out. The Saudi’s are closely watching oil and will not let the prices get lower. All commodities are receiving a lot of love due to the global weakening currencies. I am getting the urge more and more to look into trading currencies as I have been using for research. You might want to look into it if it’s your cup of tea. I see GDX and DIG continuing to move strong. SRS hurt today with strong gains in the REIT sector. There are no fundamental reasons for these gains other than them getting caught up with the bailout bust. These should be going down just as fast as they shot up in my opinion. Like I’ve said before, SRS is a rock star in my book.

We may see a bailout pass tomorrow. Either way, the market should move with that decision. If we see it pass, expect a nice little cheer rally. This could be the peak for the longs. I may sell out of the rest of my longs, except for GDX and DIG. If there is still complications with the bailout, we could see some selling tomorrow. Either way, I believe after this bailout is passed, people are going to once again realize the reality behind their two weeks of hallucinating. I hope everyone has a good evening, Happy Trading and see you tomorrow.


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