Week in Review

For the week, Dow, Nasdaq and S&P500 all dropped about 1%.

1. From technical analysis, it's a good sign for bears. All indices broke below 50MA, and it rallied to touch the lower end of the previous channel and then broke. Some calls this "kiss goodbye" pattern, which indicates another failed attempt to resume the up trend.
2. From fundamental analysis, it's a good week for the bears as well. More data point to weaker economy growth, elevated inflation, and more risks from the Middle East and a sudden change in trade policy to impose sanction on China's import.
3. The market action last week is very volatile, several days in a row, it reversed early direction and moved to another direction quickly and forcefully.
4. I think the market is heading much lower later this year, short term, it could be difficult to predict. I think it's going down.
5. Gold didn't live up to its status as a hedge against uncertainty and the dollar's decline. I think there is lot of hot money in gold already, that's why it could not take off with tailwinds. But eventually, it will separate from the general market and take off. So PM is still my main long idea in the long run.
6. Uranium play another idea considering the growth of the world economy and the short of energy supply. But short term, I think it will go down with the U.S. stock market in 2007. So I'll wait for better entry.
7. RIMM will release its earning on April 11th. Actually, it will report its preliminary earning, which means it doesn't need to report the details and can do whatever it wants to put the best spin to its favor.
8. I believe even the preliminary earning will show weakness in earning and reduced margin. And they'll likely to guide lower.
9. CFC and other banks associated with mortgages will have a tough 2007 and maybe tough 2008, depends on how the housing market plays out. So I'll put this as a better short play than RIMM. It's safer, specially when there is a big rally in this sector.

Plan:

1. Since the market showed its weakness, I didn't sell any short ETFs and puts.
2. I may sell portion or all of them if I think there is a chance it's the short term bottom.

Revised GDP rallies market

Today the final GDP for Q4 was revised upward from the downwardly revised GDP of 2.2% to 2.5%. This rallies the market, but Nsadaq spent most of the day in red before closed flat.

1. All major indices were still closed below 50MA, so short term trend is still intact:down.
2. The GDP number is not that great underline, the business inventory was revised upward, while computer and software were revised downward, which means there was more production but less purchase by consumer, again not a good news for the future growth.
3. Iran's tension with West continued to drag the market, pushed oil above $66.
4. Unless the issue was dramatically resolved tomorrow, I think tomorrow market will be under pressure again, short term traders don't want to hold positions over the weekend, I won't be surprised the market sell off ahead of the weekend.

Plan:

1. Need to watch gold carefully, I want to see it finishes strong in light of the oil surge and tension in the middle east. But so far, it's very disappointed. I'd like to see gold rally and assume its heaven status before I add PM shares.
2. Overall market, I'd like to see it move down. Ultra ETFs should help me.
3. CFC finished really weak today, from 3.5% early to only finished up 0.4%. This is after two days of more than 3% drops. I will short on any strength on CFC.
4. And late tonight, news report CFC's COO get 19M for his 2006 performance. Is this right? Considering its business is taking a dive, why should he get this package? Is this like the 2000, internet executives still get great compensation due to their 1999 performance. More downside for CFC.
5. RIMM was weak too. Next week it should report "earning", without providing any details to analysts since they could not officially release earning due to 250M option charge since last Sept.
6. It may push the stock down, I don't see any reason it goes up.
7. RIMM's earning should be in the weak side, while they may surpass the revenue target.
8. They may do the same as DELL when eventually they report 2006 earning, finding additional errors, which is one of its strength to continue to find additional technical errors. RIMM is really good at hiding the truth from public.
9. Seems like they continue to leak bad news to the public one piece at a time. Tomorrow they'll do the meaningless bi-weekly update again, what a joke! I won't add any new RIMM puts again, since I have enough. Don't want to add all in one basket.

Now the down trend is back

Market is back its down trend: all major indices broke below the 50MA. Nasdaq was down 0.8% and S&P500 off 0.9%.

1. Bernanke testified before Congress today, clarified a few things, which dashed the hope of a rate cut in the near future. So the market reacted with a quick 140 points drop in the Dow within 20 minutes of his speech.
2. On the other hand, Bernanke still held the view of "moderate growth" in 2007, which I don't agree.
3. I think Fed is out of options now, with a slowing economy heading to recession, and elevated inflation. They can only act if one of them is getting worse. Both cases implies a correction in the market.
4. Today's durable goods order number (+2.5%) was worse than expected, as a matter of fact, the January number was revised downward, from -8.7% to -9.3%. Without the revision, the high line news will be up 0.7%, and market expected 3.5% after the big drop last month.
5. On Feb.27th, the durable orders number was part of the reason market sold off that day. It's one of the leading indicators of the economy.
6. They are weak 4 out of the last 5 months, it shows the economy is running out of steam.
7. Iran's tension with the West dims the hope of a quick drop of the oil price, which can get worse since the summer driving season is just around the corner, and forecast of an active hurricane season doesn't help either. High price of oil will add inflation pressure and reduce consumer spending.

What's the proxy to play this market:

1. From FA perspective, the market may just enter a correction that started on Feb.27th. From TA perspective, as long as major indices remain below 50MA, the next logical path is to 200MA.
2. Ultra short ETFs. I'll use them as a core position in my portfolio.
3. Some speculative plays like RIMM, CFC puts. I may miss the mortgage plays already, since all these shares are significantly lower YTD.
4. I can't add PM shares now, because if the market sell off, they'll go with the market initially, then they'll separate from the general market. Unless dollar is broken down the historic low against major currencies, I don't think PM can significantly out perform market.
5. Uranium play is for long term, not short term, so I'll wait for better entry, just like the PM stocks.

Two days of bad news made a down day

Market:

1. Lennar's earning news finally convinced wall street that the housing market is really bad, that yesterday's new home sales figure is real. So the market was down today.
2. But you feel traders and funds wanted to move the market higher.
3. Tomorrow is the Bernanke speech in Congress again, he'll try his best to talk up the economy and talk down the bad news, in the past, this is the so called Bernanke rally.
4. Eventually, one child will say: The emperor has no clothes. Until then, the market, the Fed, the funds and traders will work hard to tell people the emperor's new clothes--goldilock is in still place.
5. But I think after 6 years of economy expansion, the bubble of housing market starts to burst, just like the 2000 internet bubble, the market will go down hard. So 2007 should be a bad year for longs. Excessive inventory in housing and other sectors take more than a few quarters to be righted, so I don't believe Fed can engineer a soft landing.

Plan next:

1. I plan to reduce my ultra short ETFs and raise cash.
2. Next sector to consider is home builders (XHB) and some mortgage companies, like CFC. Of course, the main idea is to short or buy put.
3. I think there is more downside in the home builders. But I need to be careful, only buy puts when there is a rally in the home builders.
4. I hope the market will head lower, then I'll try to catch a bottom to exit the ultra short ETFs and then wait to add short and puts back in when there is a bounce. This is the game plan.
5. For uranium and precious metals, I have to think they'll be under pressure as well if the economy slows, but they'll lead the market in the next economy cycle.

Short term, if we can pass end of March without big rally, then April and Q1 will bring more bad news out and market should go down further.

Tomorrow, three things to watch:

1. BZH's news and market reaction. BZH to home builders (LEN,KBH, etc) is what NEW to mortgage companies. Potentially, it can bring down the the whole sector and spill over.
2. Can Mr. Bernanke do his wonder again to market, congress? Do people still believe "Emperor's new clothes"?
3. Oil data, durable goods, can these two releases move people's thinking on inflation and economy?

For end of March:

1. Of course, there are lot of end of quarter window dressing by funds.
2. But I think time is my friend here, the more the time pass, the more evident market will realize that the economy is heading into recession.

New home sales and the market reaction

New home sales number is really bad, down 3.9% from Jan. 2007. Market took a dive but finished in green!

1. Market expected 995K in Feb. for new home sales, we have 848K.
2. January home sale number was revised down from 937K to 882K. Without the revision, the news will be more catchy like "New Home Sales down 10%".
3. And I checked the existing home sales number and new home numbers, the previous months were all revised lower, so that the number in this month was better. From per cent point of view. Some one is working hard to reduce the impact on general market, acted pretty much like the Fed, painting a rosy picture for market to see, for as long as possible!
4. And the existing home sale number margin of error is plus and minus 10%, so the number we saw on Friday (up 9%) was within the margin of error!
5. Plus, existing home sales include the foreclosure homes, home people just moved in and could not afford it any more. I think new home sales are better indicator than existing home sales.
6. So the housing market and general economy are weak.
7. Remember the GDP revision from 3.5% to 2.2%? Surely someone wanted to make people feel better. Why it's not revised up? In GDP, in home sales number? And these events happened recently in a critical period of time? Because government doesn't want the market crash, it wants to manage a soft landing! Maybe just my guess work. If the final GDP is at 2.2% or revised higher this week, then I'll trust the government number again.
8. But market sure doesn't care, the dip was bought with force, and paint a better technical picture again today, telling people it's time to buy.
9. And indeed, it may just do that.
10. So I'm bearish long term, and think short term, traders and funds may drive the market up and do another short squeeze.
11. The only negative for market from technical analysis is the over bought condition in S&P500 and Nasdaq.

Plan next:

1. I need to reduce the short positions whenever I have chance, even at a loss.
2. I need to right my portfolio so that I have enough cash to play the worst case scenario: the market push ahead with force again.
3. Now my cash is not enough, so I'm lacking the staying power in the market in the long run.
4. I'm still bearish in 2007, think it will be at least 10% lower than it's current level, but the question is, how does it get there?
5. Will it slowly heads lower? Or goes higher first, like 5-10% higher before it start to fall. If the latter is true, then I'm committed too early on the wrong side!
6. I hope the market won't go significantly higher from current level and let me out easily. If it does go higher from here, I have to reduce positions at loss one step at a time.
7. From now on, not only need to read market carefully, but also need to keep a balanced portfolio so I have staying power in case I'm betting on the wrong side. This is not the first time I'm too early in predicting a market turn!

Week in Review

This is a very painful week for me.

Last weekend, I was thinking another leg down for the market, but S&P 500 has the best week since 2003. The bull market returned as every index produced sizable gains. The Dow gained +3.1%, the S&P 500 +3.6%, Nasdaq +3.5%, and the Russell 200 +3.9%.

1. I think this is a short term bounce, nothing more. Several risks are still remained in the market, but in worse shape compared to a month ago.
2. Subprime mortgage issues, the impact is far from over.
3. The slowing of the economy, mainly due to the slowing of the housing market, is still ahead of us. We'll have 1% growth in Q2 and maybe in recession in Q3 or Q4 this year.
4. The resilience of the inflation, oil price is not low, corn and other commodities are near their multi-year highs, this will force the Fed to think twice before it eases.
5. The shrinking of the profit margin. This is at the end of 5 year expansion since last recession in 2001, same as previous expansions, the profit margin should shrink near the end of the cycles.
6. And we have not consider the situations in Iraq, Iran and middle east, they can be in worse shape in the coming months, causes oil price to rise;
7. The potential slowing growth in China and India are not factored in.
8. All things considered, the long term (2 year) view for stock market is very bearish.

What's next:

1. Short term, from technical perspective, the market may try to take out the recent highs, if that's the case, if will be very bad for my short ETF positions. I think there are 20% chance we head higher.
2. And another possibility is, market heads lower after the best week of 4 years, and resume the down trend. I think there are 40% chance we'll go lower.
3. The last possibility is side way, 40% chance.
4. After March and April, we'll enter the traditional weak period of the market, and it will go much lower once the risks I listed above become evident.
5. The problem for me is, can I sustain another market surge? It's not looking good for me. I have to sell a portion of positions should the market go significant higher from here (10%).

My head is bloody, but unbowed.

Today I lost lot of money in the stock market, since I have most positions in ultra short ETFs and puts.

But today has more impact in my trading than 2-27-07, which I regard as one of the most important days for my trading in a long time. On 2-27-07, I did things right; today, I did things wrong. What I learned from the market today:

Fed's decision:

1. Fed kept the rate unchanged, and changed the bias to neutral,so that they can tighten or ease rate in the future. This caused Nasdaq up 2% and Dow 1.3%.
2. But if you read carefully about Fed's statement, it's the other way around.
3. Fed admitted the economy growth is slower than they expected, which probably leads us to a recession, which on average, leads a 28% down fall in stock market. So a hard landing is more likely now than before.
4. On the other hand, Fed admitted the inflation is stronger than they expected, so they are still leaning to tighten. A higher rate leads to stock market down fall as well.
5. So it's really bad news, it's the opposite of what the market is hoping for: goldilocks. Either it's hard landing or inflation out of control. And yet market rally on Fed's statement!
6. Basically, Fed said they're out of options, they are into a corner: the economy is getting worse than they expected and the inflation is getting worse than they expected. And these two needs opposite actions to fight. So they will only act when one of these two is getting much worse, otherwise, they'll just continue to use moderate comments to not upset the market. And boy, they did their job today!
7. But Fed made a mistake today. By moving to neutral today, indicates they'll ease in the future should economy slow, which means they will let inflation grow, and by the time they want to fight inflation again, it's already out of control, and Fed will lose credibility.
8. A study shows economy reacts much quicker to rate reduction than inflation reacts to rate increase, so Fed moved to the wrong direction, as a result, U.S. economy will be in worse shape in 2-5 years should Fed carry out the rate cut in next few meetings.
9. Fed tried to not upset the market, to continue to paint a rosy picture until they can't do that any more. What a few smart people!
   

Back to market:

1. Now let's go back to the market. Yes, I'm smart and figure it out before the market, it should go down; and yes, lot of clueless players in the market and without intelligent analysis, pushed it up.
2. But is that it? It's the stupidity of the market that cause me losing money today?
3. Hell no!!! I think there are lot of traders smarter than me and participated the market rally today. So I totally misjudged the situation! I have no one to blame but myself.
4. These people, maybe hold the same bearish view as mine, but they also consider that market reaction to a Fed statement like this, so they did at least two things before today:
   1. They reduced their short positions and moved to cash.
   2. For a few even more nimble traders, they added their long positions.
5. Either way, they got rewarded by the market today. And some of them might do the third thing today:
6. They took the profit from their long positions they added recently, like Monday or last Friday, and added their short positions back in. Market is overbought after today's action!
7. So the smartest, knowing the market is wrong, but participate in the action and make money. They not only know the long term, they know the short term bounce as well. They know the market well.
8. I have a lot to learn.
9. You can say the people who switched from long to short in 1999 are smart; people who switched from long to short in 1998 are smart but lose money as result of bad timing; and people who switched from long to short on March 2000 are smart and lucky.
10. But people who reduced their longs in 1998, and again in 1999, and only added short in early 2000 are the smartest, they not only know the market is wrong, but also consider the stupidity of the market take time to play out, the mass of the traders can push a mad market even madder!
11. So this is what I learned today. I may not be good enough to long the market this Monday (market was up three days in a row, 4% , that's lot of money), but at least I should greatly reduce the short positions ahead of the Fed meeting, which I know will rally the market, but I thought this time is different.
12. By reducing the short exposure, I have long lasting power to stay in the market. Otherwise, I may be forced to sell sooner or later.
13. Every time you think "this time is different", you are wrong.
14. Overall, it's a bad day for my positions, but great day for my trading skills, I learned a lot today.
15. There are people who are in the market because they're index investor and move with market, good for them. It's luck that cause their fortune to go up, not because they're good.
16. And I don't think they can make 10% more money than the market. But that's the goal I set for myself, I want to beat the market and make 10% more than S&P 500 annually, that's my goal. If I can do that, good for me; if I can't, that's due to my lack of ability, not smart enough.
17. I need to monitor the market carefully, I need to be sure it's not 1998, or 1999, when shorts got crashed. I need to make sure it's Feb.2000 or March 2000, when a crash is very close. Otherwise, I'm just as stupid as the aimless and clueless investors in the market, actually, I'm worse than the clueless investors in the market, because I may lose twice: by shorting a bull market!!!

Today's action:

1. I added two small put positions today:
2. QQQQ Sept puts and MDY Sept puts.
3. I'm still thinking this is a bounce only, not a turn to resume the bull market. So I put my money where my mouth is.

Market has Fed rally the last two days

Market has a good day again, moved ahead of Fed's meeting tomorrow.

1. It's well known now the Fed won't do anything to harm the market, Mr. Bernanke is very market friendly, so traders moved in ahead of the meeting.
2. Last few Fed meetings, we had rally after the Fed meeting, so this time, smart traders moved early.
3. But long term, I don't see market move significant higher from here, the housing market is heading south, the economy is slowing.
4. So it's more likely to have a sharply correction than rally. I'll continue to hold these short positions, but it's tough.
5. I see the market rally tomorrow, but won't be surprised it sells off after Fed meeting, or later this week.

Following is the housing inventory number, it's not closing to bottom, as a matter of fact, it has to show significant reduction before we can call it a bottom.

Housing Inventory (months of supply, new and existing homes):
Year --------------New------------- Existing

2002 --------------5.8-----------------4.7

2003 --------------5.5-----------------4.6

2004 --------------4.1----------------- 4.3

2005 --------------4.8-----------------4.5

2006 (Jan) -------5.7 -----------------6.5

2006 (July)-- -----7.2-----------------7.3

2007 (Jan) -------6.8------------------6.6

RIMM:

1. Closed down again on an up market for two days in a row.
2. S&P think RIMM will miss by 4 cents this quarter, if that's the case, it will sell off.
3. Palm's rumor and Google phone rumor show the intensive competition in the smartphone market, and Apple's iPhone is just around the corner. The environment is very competitive, and this will force RIMM to further reduce its price in this quarter and the next few quarters to gain or maintain market share.
4. Out of all smart phone players, RIMM and Palm are in very bad positions since they are very small, and only a few products. But Palm got 2B market cap and RIMM got 25B. So it's easy for major player to buy Palm and leave RIMM in the dust.
5. I see in 2-5 years, when RIMM falls into Palm's current position (less than 5B-10B market cap), then itself can be bought by others. I don't see it can survive in the long run.

Tough day for shorts

Market was sharply higher today due to MA activities today.

1. Nasdaq, Dow and S&P 500 were all up about 1.0% today, so more than 2% loss for SDS, MZZ and QID.
2. More loss for QQQQ puts. This again tells me, in a dull and directionless market, puts and calls are bad positions to hold. If you're wrong, it's very tough.
3. RIMM was very weak today, down in a up market, but the volume was light, so doesn't spell big trouble yet.
4. Since all my puts are months away, and I'm convinced that the general market will go down, so I'm not too worried about the positions. RIMM put is also months away, so no worry about RIMM either.
5. Things learned today is, markets always give you chance to buy at lower entry price, like today is a good day to buy puts and short ETFs. Too bad I already committed with shorts ETFs, it's not a time to commit all, so no action for me today.
6. Two leaders of market's recent bull run, GOOG and AAPL pointed different picture for the market: GOOG was weak and indicated lower market ahead; while AAPL was strong and indicated a higher market in the future.
7. Tomorrow and later this week's housing data may move the market one way or the other.
8. For now, I think today's market rise is market's way to lure more people to participate and then take them down. But it's painful for me nonetheless.
9. A bear market has the ability to prevent people from exiting; while a bull market prevents people from buying. That's the nature of the market. When you finally realize it's a bear or bull market, it's already too late, you have larger loss (or smaller profit) before you can exit the positions.

Week in Review

Market:

1. For the week, even though there are lot of drastic movements early in the week, at the end of the week, indices were down down: Dow -1.4%, S&P 500 -1.1%, Nasdaq -0.6%, and Russell 2000 -0.8%.
2. Everyone should remember, after the 2% drop on Tuesday, on Wednesday, Nasdaq were down more than 1% before closed up 1%. That is the so called reversal day and bulls cheered the move to indicate the end of this down turn.
3. But from weekly chart, Nasdaq was down 6% two weeks ago, up 1% last week, and down less than 1% this week. It's hardly started. I think from long term perspective, Feb.27th marked the turning point, from bull market to bear market.
4. Housing bottom is not hit yet; subprime mortgage issue will spread into other mortgage sectors, the Alt-A and ARM areas for sure, so the worst is ahead of us, not behind us. Even prime mortgage is not immune from it.
5. Yen carry trade's unwinding will accelerate the market's sell off. But it will be anything but smooth.
6. Housing (subprime) issues and carry trade unwinding are among the issues facing this market, other issues are not completely out of wood yet, recession, inflation, geopolitical issues.

What's next:

1. I'm using ultra short ETFs (QID, SDS, MZZ) to play the market's slide into bear market. My core positions are these three. May consider TWM or exchange into TWM.
2. I have some QQQQ and MDY puts and RIMM puts, plus CFC and CNB puts.
3. QQQQ and MDY is to play the overall market.
4. RIMM is a speculative play, so far, it's not working well.
5. CFC and CNB puts are the play on mortgage and housing downfall.
6. Will watch PM, oil, uranium closely and add them when I think the sector are closer to the bottom.
7. I'll use a small positions to play swing trade if I find a chance.

Slow but firm

The market was flat today, waiting for CPI number tomorrow.

1. From now on, I will be slow but firm in trades.
2. Slow: wait for the best entry, be patient, don't rush to trade an idea. Market usually gives you chance after chance, this is evident in recent subprime mortgage stocks, momentum stocks like RIMM and BIDU, both cases are for short or put.
3. Firm: once a position is in, and there are fundamental and technical reasons behind it, then let it run for some time before I decide to pull it off. Don't try to play swing trades and over smart the market. Bet on the main trends.
4. This week I rushed to sell QQQQ put and RIMM put on Tuesday, not even at the low of the day.
5. Then yesterday, market sold off again in the morning. That's the time to sell the puts. Yes, it's almost impossible to catch a bottom or top, but the principle idea is, try to predict what's next for the market and act on it.
6. Usually after big selloff like Feb.27th and March 13th, the overseas markets will sell off, and that put pressures on the market opening next day or two, which is usually the short term bottom (like a few days). This proves to be true in the recent two relatively big sell off. Use it and remember it. The difference is more than 2% on March 14th and more than 2% on March 1st (the 2nd day after Feb.27th).

PM got big bounce today:

1. Mainly due to the unexpected large PPI number, inflation is not dead.
2. Gold is oversold recently, so gold index got a big bounce today.
3. Potentially, we can have a stagflation, that is, slow growth or recession, but inflation is high. In that case, PM will do really well.

What's next:

1. I think market will drop another 10% or so short term. Does it has to be 10%? no. The idea is to profit from another down movement in the market.
2. RIMM will drop big long term. 40-60%.
3. PM is not done with selling, but will add them when I think the sell off in general market is over. Yes, it's closer to the bottom than the market.

The bounce today

Market:

1. Market had a very strong bounce today, after touched a low that broke the 12000 level for Dow for the first time since last November.
2. But take a closer look, the bounce is mainly driven by the buying of large cap in Nasdaq 100, other sectors don't have as strong bounce as it appears in the main index. So the bulls tried their hardest to paint a better picture for the market.
3. I don't trust this bounce, and think it's a trap to lure more people in before take market down further.
4. I continue to believe that yesterday is the start of the next down leg, which is about 5-10% lower than today's level. We don't have a subprime crisis that can be erased in a few days in the market. In 1998, the LTM crisis and Russian crisis, also coupled with Yen carry trade unwinding, took the market down more than 20%. So I think this time around, a 10% correction is almost certain, if not a 20% correction. So far, the market's correction is less than 7%.

Things learned from recent market actions.

1. Yesterday's sale of March puts on QQQQ and RIMM turned out to be great, even though today's low is the best selling price.
2. This again proves that, in options, it's better to take profit when you have chance, you never know what's next for the market.
3. Even though I try to predict the long term trend for the market, it's almost impossible to predict daily activity.
4. I will not add RIMM puts any more, if I'm right, the existing puts that expired in June, Sept. and Jan.2008 should recover all the loss and some more.
5. I'll focus on overall market, financials (subprime), PM, uranium and other speculative plays.

Start of another down leg?

1. Today is a good day for me, since I only have short positions and puts positions. Dow lose 2% and Nasdaq 2.2%.
2. The subprime mortgage issues spreads into other sectors. I truly believe it's the start of the next down leg, not the ending of it.
3. But I have March puts on QQQQ and RIMM, which expires this Friday. So I sold these puts and exchanged to CFC and MDY puts that expire in Sept. today. The reason is, mortgage company like CFC has more down side to go, and S&P 400 midcap held relatively well in the first down turn since Feb.27th, so it will have more down side risk than Nasdaq.
4. My next target is Russell 2000 small cap. In a bear market or a sharp correction, I think small cap and midcap will drop more than large cap, since they outperform the large cap recently.
5. Once we have an issue like subprime, time is the only cure and it will get worse before it gets better, so more drops for the market in the next few months.

What's next:

1. If my thesis of more down side for the market is correct, then it's not too late to sell existing positions and go short.
2. Short ETFs are positions to own.
3. RIMM has more down side to go, it held extremely well recently, considering its own trouble and market conditions.
4. PM shares are closing to their bottom, but maybe still under pressure. Now is a market to sell all sectors, people just liquidate all positions and wait. So I won't jump back into PM shares just yet.
5. I like some speculative plays in this environment, like RIMM, BIDU, financial puts. But the overall positions in speculative play should be small in the portfolio.

Another slow climb day for market

1. Looks like the market just shake out the concerns about subprime and moved slowly higher with no heavy volume.
2. Nasday has a great day, closed at the high of the day.
3. I did nothing today and think it's the quite period before the next storm, and I hope I bet it right on the short side.
4. PM has a decent day as well.
5. RIMM, like the market, just moved higher without conviction.
6. Out of my recent action, CFC put is the right one, others should be sold since market moved higher and I have short ETFs and puts. I was afraid of missing another big leg down, so don't over smart the market.

Y2K7, market direction

Markets:

1. Market was flat on Friday, erased all the gain in the early hours due to "good" job numbers.
2. Tomorrow is the start of the early daylight saving time, some calls it Y2K7 because there are potential issues to disrupt computer systems. My question is, will it be a year like Y2K for the market? The turning point? Or the bull market since Oct.2002 remain intact.
3. The subprime mortgage issues were again the focus on Friday, with one Fed governor said it's the start of the wave, not the end of the wave.
4. All things considered, I think the market is heading lower in the near future, another 5%-8% drop is very likely in the next few weeks.
5. For the week, QID closed at 55.45 from 57 a week ago. SDS at 60, from 61.68 a week ago.
6. Nasdaq had problem to break 2400, S&P just sits on 1400. If they could not hold these levels, then we head lower short term.
7. If they break these levels with big volumes, then it may go all the way back to the previous close before the drop on Feb.27th, I don't think that is going to happen, there are a few resistance along the way as well.

RIMM closed at 134.5 from 136 a week ago.

1. It shows weaker price action in recent days.
2. Next week is option expiration week, it usually closes at or near a strike price during OE week: 135, 140, 130, 125 are all possible. Also depends on market action. I think most likely 130.
3. Long term, there is no question it will have difficulty to maintain the high price level unless it can greatly improve its growth rate and margin. From last two quarters, it's margin was shrinking, while it's revenue beat the view. So I truly believe it's at the last stage of its rapid growth, just like in Y2K, CSCO,DELL, ORCL and NT all showed better revenue numbers with worse margin numbers before the real stock price crash.

Precious metals and Uranium:

1. GDX closed at 38.03 from 37.68 a week ago. Recovered 1% during the week.
2. The strong PM stocks are GSS, HL, AUY, KGC, NG, GRS. Usually the group that does better in the bear market and also lead in the bull market.
3. URZ, EMU and FRG all showed weakness on Friday. All things considered, they did better than PM stocks. Still on my watch list to buy when I think the correction is over.

Another day market showed weakness at close

Markets:

1. Market was up 1% most of the day, but closed up 0.6%, again showed less bullishness at the close.
2. Tomorrow we have lot of economy data, and it can push it higher or lower decisively.
3. I think it's going lower to finish the correction next few weeks.
4. But if it's going higher decisively, it can prove the sharp drop last week is just a one day wonder, which I doubt it.
5. I didn't do anything recently and just sit and wait. I'm in the camp think this market is going lower, much lower in 2007.
6. But I need market to confirm what I believe, recently I got a little bit ahead of myself, it's really risky being too comfortable with my positions.

PM shares:

1. Two days in a row, gold index ^GDM were sharply higher during the day, and closed much lower at close.
2. It shows even weaker showing than general market, that's one the of reason I don't trust this rally after correction, seems like anytime it can turn lower. But this is the sector I watch.

Uranium:

1. URZ, FRG and EMU all recovered most of the recent loss, beats all sectors and stocks I watched.
2. I like them in the long run, but again think they will turn much lower if market turns. Keep watching.

RIMM showed nothing significant today, continue to turn lower in one hour and shoot up in another, pretty much track the market.

Market showed weakness at close

Market:

1. Market closed lower today. It started to sell into close right around 3PM ET today, this is a pattern three of the last 4 trading days:
2. We also have very weak close on last Friday and Monday. Tuesday is the only exception without weak close.
3. I think major funds are using any rally to sell. So my intuition of further down side may still be right, unless there are good news to move the market, otherwise I expect a slowly lower movement in the next few weeks or days, with at least one big and powerful down leg to indicate the end of this movement.

RIMM delayed its regulatory filing again, stock closed at 135:

1. In the never ending drama of delay of filing of RIMM today, the lawyer said following:
2. "I would be reluctant to hazard a guess on the date, but it's very close to being completed," Robert Staley, a lawyer for RIM, told an Ontario Securities Commission hearing on Wednesday regarding the work that remains to be done.
   "The company expects to be current in its filings very shortly."
   He also said that if the company's filings aren't up to date by April 11, it expects to file preliminary fourth-quarter results, as it has done in the past.
3. And the reports continued: At Wednesday's hearing, the OSC said that if RIM isn't current in its filings by June 1, it would have to appear before the commission again on June 5. The OSC has said RIM is co-operating.
4. So, it's possible that they can delay the filing until OSC is mad at RIMM, but so far OSC is happy, so the drama started last Sept. can last another 3 months, or if they want, another 3 years. Since for them "very shortly" means a few days, weeks, months, or years.
5. I'm sure they'll report "supplemental information" to "additional preliminary" results when they officially file with OSC and SEC, like they forget another $100 million dollar somewhere due to "technical mistakes".
6. To say it's a joke about the way RIMM played OSC and SEC is an understatement! And so far SEC and OSC are happy! I don't know when they'll be unhappy.
7. And in a research report today, Merrill Lynch analyst Vivek Arya sang the praise for RIMM again, the $165 target is not changed. BTW, if RIMM reaches $165, he'll move it to $200. This is what RBC analyst did 9 days ago( raised target from $145 to $180), right before the market selloff.
8. It's frustrated to play a overvalued stock like RIMM with patience for more than 4 months, and still nothing to show for it. And I am patient, for these who jumped in to short since early Oct. when it shot up from $80 to $105, they're crashed.
9. There is no fundamentals behind its rise, just speculation and momentum, plus early shorts added to the fuel by covering, which brought in another round of buying by momentum players and shorts.
10. However, this cycle is closing to an end: RIMM failed to pass $140 in three attempts in as many months.
11. I see longs on RIMM get burned eventually, just don't know when, and it will be very painful for these who hold RIMM shares at the time of the crash.

Market bounced back

I added one commentary in "Financial Article" section from professor Nouriel Roubini's blog, he has 10 predictions on the economy, if 5 of them turn out to be true, we maybe in bear market this year and early next year.

Market bounced back today on overseas gains:

1. Nasdaq up 1.9%, led the major index.
2. Gold ^GDM index up 3.5%, SSRI, PAAS, AEM, AUY, IAG, SLW, GLD and SLV all were big winners today.
3. URZ, FRG and EMU all were even stronger than the PM shares.
4. Short ETFs got crashed today with QID down 3.7%.
5. RIMM got 1 point higher, nothing major there.
6. I think today's bounce prepares us for another down leg. A correction and bear market always rewards buyers to keep them in the market, if everyone is leaving the market, then it's a bottom. A sharp rally is one way to keep people in to drag price lower over time.
7. Yes, it may rally again tomorrow, but I think the start of the next leg down is within weeks, if not days.

What's next:

1. There are two cases to play out in the future:
2. One is a short term correction (10-20%) and bull market resumes.
3. Second one is the start of a bear market into 2008.
4. If it's a correction, then I should sell ultra short ETFs when all are settled in a few months, like end of May or sometime in the summer, and move them into PM and uranium stocks.
5. But if it's a bear market, then I don't see PM and uranium stocks to be a great plays either, PM and uranium stocks may do better than general markets, but may still lose value over the bear market. Energy and oil will suffer as result of economy slowdown, it will affect commodities as well.
6. I don't know which one will play out, so I'll watch and wait.
7. There are two individual plays in this environment: one is high fliers like RIMM (BIDU) put; another one is mortgage puts on financials.
8. I think if RIMM(down 7% from all time high) is to catch BIDU (down 22% from YTD high, even after 4.6% gain today), we have at least 15% to go. I do not see any justification of its valuation this high, at this stage of the market. I don't think it can hold this price for long, it's just a matter of time. The time for momentum stocks is over.
9. RIMM will be less than 100 sometime this year, and maybe in the 60s this year or in 2008. Let's see.

A resilient market

The market performed relatively well today, considering it's another rout in world markets led by 3% decline in Japan and 4% in Hong Kong, but market took less than 15 minutes to bounce off morning lows and stayed well off the low for most of the days, until last 30 minutes which finished at the low of the day. There is NO black Monday, like someone eagerly called!

Market:

1. Nasdaq dropped the most, closed down 1.2% at 2340.
2. I added another QID position right at the open, bad entry, very bad.
3. I hope it's a bad entry only, not a wrong trade. Wrong trade always costs you money, bad entry only reduces your profit.

RIMM:

1. RIMM had the bad news out, reported 250 million charge (initial estimate is 25-45 million), Chairman out as a result, yet it recovered from low of 131 to close at 134. This is a stock the defied all reasons.
2. There is only one explanation to this, the major funds are still in it, they'll prepare for a graceful exit. As a matter of fact, several analysts called it a nonevent today, one even shamelessly gave credit to RIMM's management for option probe? Wow, people can spin any news any way they want, but I'm not buying.
3. BTW, once the news is out today, after two days(I don't know if this is still the rule), insiders can sell again. They stop selling for more than 6 months, so there are millions shares unlocked, I have to say, watch out below.
4. Even with market get a bounce, I see RIMM below 120 at the end of March, but I'm wrong on this one for a long time, it may even rally tomorrow to scare the weak shorts.

Sub prime mortgage and Yen carry trades:

1. I knew the sub prime mortgage weeks ago, even wrote in my blog and added articles about sub prime in the "Financial Article" and "Market Trend" sections; I knew NEW and NFI weeks ago, read articles about them, did NOTHING.
2. Today NEW was off 70% and 40%. That's lot of money, you can short, you can buy puts, where is my research on this and idea?
3. I'm too focused on PM and overall markets, obsessed with RIMM, result: I am totally blind to the sub prime mortgage plays.
4. Please, when read articles, think, think, and think some more. You can make lot of money out of it.
5. Even the Yen carry trades and markets initial reaction was wrong, I didn't research, even though I know FXY is the proxy to trade the unwinding. I did NOTHING!
6. So today, to make up my mistakes, I added small CFC and CNB puts. Yes, they are not sub prime mortgage plays, but I think it may spread into other mortgage business. Yes, it's late, but I decided to enter it so I can monitor them, and even be profitable. Actually, even today's return is more than 10%, since they both ended much lower than when I bought them early today.

PM continued its diving today and ^GDM lost another 2.5%. Now I think it may have a nice bounce tomorrow, but I didn't do anything today since I'm too focused on ultra short ETFs.

What's next:

1. I think the down side is not over, use rally and bounce to sell, not buy.
2. Will manage March puts, rest put options are OK.
3. Still expect another blog down leg to occur in the next few weeks, or new few months.
4. Market may bounce a little bit, go side ways, then I expect it's going down again, matching the same magnitude (5-7%) from last week.

Black Monday?

1. Stocks in Asia fell sharply in early afternoon trading, at 12:20 AM EST.
2. If they closes sharply lower for Monday, that will serve as a catalyst for more drastic selling on wall street, may even trigger large scale of selling.
3. There is a small chance it's a black Monday, but it's probable it will close 2-3% lower on Monday.
4. I still think at least another 5-15% down side on Nasdaq. If it's 5%, it's a minor but quick correction; if it's 15%, then it's a 20% correction form this year's top, may indicate a recession is in place.
5. The stock markets has correctly predicted the last 8 recessions in U.S. There is only one problem: there are 12 bear markets during these 8 recessions. So it's possible that a bear market doesn't guarantee recession.
6. So now we have three likely cases here:
7. A small correction(10%) and the bull market resumes after a few months.
8. A sharp correction(20%) and the bull market resumes after a few months.
9. A bear market.

Week review

Market, the start of the correction?

1. For the week, Nasdaq lost 5.9%, Dow dropped 4.2% and S&P 500 fell 4.4%. Most of them are from Tuesday's big and sudden drop.
2. I think this is the start of the correction, the beginning, not the ending of it. I expect another 5-15% in the next few months, bottom is summer time.
3. As I said in last week's Market Trend section, there are too many risks not priced in the market, and this week, people started to price these risks in.
4. There was a worry about black Monday, which caused the sell off again on Friday. If you check the history about Oct.19, 1987, the black Monday as we know it, there is a sudden 4% drop the previous Wed., before the black Monday. This time, we have a sudden drop on Tuesday. Lot of similarity between now and then. So another big drop can't be discounted.

PM and Uranium dropped hard:

1. GDX dropped from 41.83 to 37.80 this week, 10% drop. ^HUI fell from 357 to 323, 10%. That's just the index. I think this is due to the gain in PM stocks, and people start to protect profit, just like in any big sell off, PM goes with the market, not against the market, initially. Last May and June, we had the same behavior, I learned this time.
2. AEM, IAG, SSRI, PAAS, SLW, GG, AUY, GRS, all the PM stocks I monitored dropped like a rock. Here goes the hedge against market drop by PM shares.
3. FRG, URZ,EMU and CCJ lost more then 10%, some cases, 20%. There is no place to hide.

The actions this week:

1. I did great this week, one of my best weeks. Not because of I knew this is coming, but because my quick action on Tuesday to liquidate.
2. I sold almost all the positions on Tuesday, including PM shares, and add short ETFs and QQQQ options on Tuesday, great move.
3. I sold rest of the PM and uranium shares on Wednesday.
4. I added QID and SDS on Thursday and again on Friday.

RIMM's price movement:

1. It's down to 136 from 140 a week ago.
2. This is mainly due to the upgrade on Monday, which pushed the price from 140 to 147. Actually, one comment on this blog said the peak for RIMM is 147. I hope you caught a big fish!!!
3. RIMM dropped 5 to 136 on Friday. Puts premium jumped in front of the Monday news release.
4. I think RIMM will catch the market and drop big next few weeks.

What's next:

1. I'm looking for another 5% drop for the market. So I'll view any strength and rally as selling opportunity, not buying opportunity.
2. And there is a small chance we indeed have a black Monday (larger than 5% drop). If it does happen, then we may enter a full recession.
3. And I will add PM shares if there are way oversold. Now it's not there yet.
4. So mainly ultra short ETFs, plus QQQQ puts and RIMM puts.
5. Will monitor and manage my risky RIMM puts, hopefully it will turn around just like my QID and QQQQ puts.

PPT in action?

Market:

1. Today the market recovered nicely from the early rout, only down a fraction. Some people speculated that the PPT (Plunge Protection Team established after 1987 crash) may indeed rescue the market at the beginning, to prevent disaster.
2. Greenspan retracted his Monday speech and said a recession in the U.S. is possible, though not probable this year, in an effort to calm the market. It's a nice spin, Alan. Just like what Bernanke did yesterday. Their effort to talk up the market makes me wonder if there is more serious issue ahead of us.
3. The news that Oracle will buy Hyperion for $3.3 Billion provided support to market. And the manufacturing data lifted the spirit as well.
4. The market acted what I expected, down sharply out of the gate, so I didn't add anything.
5. But then, Dow erased 140 points of the 200 point loss and I decided to add. I added QID and SDS, both are ultra short ETFs.
6. It proved too early, eventually, dow was down only 35 and Nasdaq only down 12. It is difficult to time a better entry in a volatile market. Later of the day, I added another QID position, at its low of the day, which is good.
7. So now I have a big QID position, plus RIMM puts and QQQQ puts, and SDS.
8. But I'm not worried about this, the market is heading down, just how quickly and to what the magnitude, I'm not sure.
9. Just like in a bull market, if you think it's a correction or start of the bear market, like I do, then it's critical to enter early. I hope this will prove to be true.

PM and uranium closed sharply lower:

1. Yesterday's exit of the last GDX, EMU and URZ positions proved right, it's down bigger than the market today. I think people are taking profits in PM and uranium shares in this uncertain time, just like I did the previous two days. So there is no place to hide unless you're shorting, which is what I'm doing now.
2. But if market keep going down, then I'll move into PM stocks again, I think long term, they're far better asset than the stock markets. So I'll keep watching and build my watching list.
3. PM shares will provide the next golden opportunity in this year and next few years.

RIMM was up a fraction:

1. RIMM was up a fraction today. I didn't take any action here. Have enough puts, don't want to commit more, it's just too risky!
2. The news next Monday will determine it's short term direction, which I predict will be sharply lower.
3. General market can also pull it lower if there is no significant material in the release to drive the price one way or the other.

What's next?

1. I think tomorrow, the fact that it's Friday, may cause people to sell ahead of weekend, so I won't be surprised if market close lower again tomorrow.
2. And depends on what happened this weekend, we may have a black Monday.
3. VIX clearly shows there is great amount of uncertainty and people start to worry about risks.
4. I'll watch the market, may add QID or SDS again tomorrow. Other than that, I probably will do nothing.