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.