Finally, a day of weakness in the market

Today Nasdaq was down 1.3%, Dow had the best showing of all indices, only down 0.4% and Russell 2000 was down 1.8%.

1. Again the economic data showed more weakness of the economy, and Dow was in new high all day long until 2PM, then it finally gave up to finish in red.
2. My recent pick up in TWM (Ultra short on Russell 2000) turned out to be a good pick, DXD was still under water, but recovered some loss. IWM's chart is the first major index that's broken to the down side. QQQQ also show weakness, SPY is better and DIA is still firmly in up trend.
3. I think the charts of these four indices tell me that this is the top of this market, think about it, the more aggressive and speculative IWM is the first to break, and people hide in a safe place like Dow, since that's the quality index. If people start to seek safety, then it's really the end of this rally. The weakness in IWM and QQQQ tells me it's over.
4. I expect a follow through this week to the down side. If market goes down, I think Dow will join the club eventually.
5. Sell in May and go away.
6. But any good news this week will again be used by bulls to run the bears over; on the other hand, any bad news will complete the reversal of the market trend, and I expect a much quicker down slope than the up slope since March 29th, it may only need 10 days for us to go back to the March low.
7. Right now it's still premature to predict a sharp down turn, but at least today's action is a sign.
8. And gold and PM stocks again proved to be a bad place to be in a down market, where is the hedge against a down market?
9. I think all assets are overvalued and expensive, they may all go down hard if there is a market sell off.
10. Let's see what ISM number bring us tomorrow. Today we saw consumer's spending is slowing.
11. After bell CC had a very bad report. Circuit City withdraws its forecast for the year. I think this should not be taken lightly, it's again a sign of end of a business cycle.

Week in Review

Stock market rose fourth week in a row, Dow was up 1.2% to close at 13120, it took 6 months for Dow to gain 1000 points. S&P was up 0.7% for the week and that's the best monthly gain since 2003. Nasdaq shot up 1.2% and now it stood at the highest level since Feb. 2001.

I understand my expanding exposure on the short side, I added DIA puts and DXD since April 20th. I found that Dow was up 19 out of the last 21 sessions, gained 820 points. If you think that it's impressive that it took Dow 6 months to gain 1000 points, what do you think about the 820 points since March 29th?

1. Last week we have very weak GDP number and exiting home sales number. So the economic data again points to a further slow down.
2. On the other hand, we have good earning reports from AAPL, AMZN, MSFT, BIDU,XOM and AT&T. These good earnings override the bad earnings from the like of BRCM, and almost all home builders.
3. So it's not too bad a decision to add puts and short ETFs starting on April 20th, it's overbought and likely to have a pullback any time now. I misjudged the strength of the liquidity in the market.
4. My real mistake is to hold a big QID positions since Feb.27th, and most of my QQQQ puts and RIMM puts. These mistakes are severer than the mistake of adding DXD recently. For all recent positions, it's likely I can get the loss back, for QID, I don't know if I can hold them any longer.
5. The only good news to me is that the market is overbought and may pull back, but if it can go up four weeks in a row, what can prevent it to go for a fifth?
6. Next week we have some labor data and ISM data, I expect a tight labor market to come with weak ISM number, so this potentially can derail the market rally.
7. And we're in May next week, the old saying "Sell in May and go away" may be true this year since we have the best start for the year in S&P 500 since 1999. So it's expected to take and protect profit, specially for the funds that outperform the market so far. But you never know.
8. I'll continue to use the common sense approach to guide me for the next action: add short if the market go crazy again, and sell the short and put positions if there is a decent pull back. I put the rally as 2% and the pullback as 3%, these are my target to add short or sell existing positions.
9. Gold and PM stocks are in the middle of a pullback and consolidation, I'll wait for better entries.
10. Oil may head higher, the arrest of militants in Saudi Arabia is great news since another potential disaster is avoided, but the fact that Al-Qaida keeps its focus on the oil fields in Saudi Arabia is bad news. Usually they'll try again if they failed. So the premium in oil will likely to go up.
11. Another significant move last week is the continued downward movement in Dollar. I truly believe it may be a good news for big companies that get a big percentage of it's revenue from overseas, but it will be bad news for U.S. economy and debts, the interest rate in bonds have to go up in order to attract foreigners to buy our debts. So that will add more pressure on the already bad housing market.
12. So anyway you look at this market, the bullish factors are liquidity and good earnings, the bearish factors are slower economy, higher inflation, weak dollar. Let's see how it plays out next week.

Focus

Today the market took a break, AMZN and AAPL jumped to new highs. After market closed, MSFT had a solid earning release.

1. I think now the market is at a critical point again, can it successfully consolidate and then move higher?
2. From TA perspective, it's overbought and pullback is good for bulls too.
3. From FA perspective, the economy is slowing and we may head into recession. But on the other hand, that has not translated to weak earnings; actually, recent market rise is due to good earning reports. And there are talks about liquidity in the market which causes the rise.
4. Tomorrow's GDP may give us more color on the economy and let's see how market reacts to the news.
5. I'm again on the wrong side of the market recently, it costs me a lot, but I'm still holding the positions and want to see further evidence before I adjust again. Now I still think short is the way to go, but what do I know?
6. Even this market crashes, my timing is wrong. If the market rises from here, then I'm dead wrong!
7. I need to focus on reducing the position sizes so that I can sit there to wait for the best moment to enter main positions, I committed too large of positions too early.
8. Let's keep the cash and don't add any more, let's exit the existing positions first before I add again. Now it's kind of careless for me!
9. Short squeeze caused AMZN jump 40% in two days, and the big earning surprise was partly due to lower tax rate (from 40% to 23%), but since there are lot of people shorting, so momentum players jumped in to force short to cover. 100 million shares traded yesterday and 60 million shares traded today, average volume is 8 million shares a day. But once the volumes dry up, so do the momentum players, I see if below 50 in next month if there is a market correction, and below 55 if market is flat or up slightly. Buying put here is the best, just don't short, it may go to 65, who knows. Its PE is 140, like in 2000?

Wrong again

I was wrong again with my latest positions since last Friday.I thought the market recovered too big too fast, so I added DIA puts as well as DXD since last Friday. Today with Dow surged 130 points to blow away the 13000, I'm wrong again.

1. AAPL had good earning after bell, so tomorrow morning, the Nasdaq should be higher. The momentum just keeps going.
2. From TA perspective, the addition of short last Friday was not bad, overbought with a new week of earnings and news. I thought the housing data would be bad, and what did that bring to the market?
3. Similarly, the addition of DIA puts today (yes, I added DIA puts again today, as well as small IBB puts) is not bad either. I expect a pull back, just don't know when. Maybe Friday, with bad GDP number.
4. But once you rely on hope, you're losing your trading game. Am I in front of a train leaving the station, or I pick the top of this trend at the exactly the right time?
5. I'll be patient and I will wait before I commit more on the short side.
6. I will liquidate if I think the bulls work out the overbought condition and successfully consolidate the recent gains. Now it's not there yet.
7. So be panic to sell now is the same as rushing to buy.

What can bring down this market:13000

Looks like the only thing that can bring down the market is for Dow to touch 13000. Bad existing home sales and consumer index barely moved the market, as the dip was bought and push Dow within 11 points of 13000.

1. I added a few DIA puts and TWM position today. I thought the market would head lower after the existing home sale number.
2. Now, like I said, I'll keep a tight control over the newly added puts and shorts.
3. Tomorrow we'll have more earnings and new home sales. So far the earnings were good, that's why it pushed the market higher.
4. Even though long term I see big drop in the market, I don't know if it will climb first, like pass 13000 on Dow and 1500 on S&P500, maybe these two can bring down the market.
5. I'll wait and add short positions carefully.
6. If they blame weather for the poor existing home sales number, then we'll have a bad number for new home sales tomorrow, and durable good orders. But you never know. And I'm sure market will rally if these two are good.
7. I'm a little tired of this senseless climb in the market.

The calm before a storm

Today market was quiet and didn't move much. It's down a little, with low volume. From tomorrow, we'll have lot of earnings, plus economic data. Also this week, lot of earning releases from Asia, which can move the market as well.

Overall, all major indices were overbought, so I expect a pull back.

1. DIA and SPY are overbought and show the bearish pattern for at least short term.
2. If we have weak housing data and weak GDP, then I expect a perfect time to pull back sharply.
3. On the other hand, if the data is strong and earnings are good, the market can work out the overbought conditions quickly just like today, low volume with very small pull back, and then move higher.
4. PM and uranium pulled back as expected, I'll continue to monitor them and wait for better entry.
5. Dollar bounced back, but is still at historic low. I don't expect it heads sharply lower from here, I expect a slow and long lasting bear market for dollar. And if this trend continues, it will have a negative and long lasting impact on US stock market and economy, since foreigners will slowly move money out of US. So gold should do well long term as long as dollar is firmly in a down trend.
6. Out of all the earning reports, AAPL will have an impact on tech, as well as MSFT.

Week in Review

This week is very strong for the market, led by Dow, on option expiration week. You can argue it's due to strong earnings, or mixed earnings, depends on your view. For the week, the Dow surged 2.8 percent, the S&P 500 added 2.2 percent, and the Nasdaq rose 1.4 percent.

1. I think now the market is very overbought, considering major indices are all in the overbought area. I expect a pull back. That's one the of main reasons I added the DXD and DIA and QQQQ puts again yesterday.
2. And I'll have a very tight leash on the newly added positions, they're intended to be short term positions.
3. We have more economical news next week. Again how market reacts to these news is more important than the news itself. I've been saying it's a weak economy, should translate to shrinking earnings and therefore lower stock market price, so far it defies the odds and pushes to new highs.
4. PM stocks and uranium stocks got very strong bounce on Friday, and I will not add here. I'll wait for them to pull back before I add them again.
5. Among the stocks I'll consider to add are: URZ,FRG,SSRI,PAAS,GSS and EMU. I'll watch other PM stocks as well.
6. I'm glad I sold SDS, MZZ and part of QID about two weeks ago and bought URZ and EMU. I sold URZ and EMU last Monday and Tuesday. These actions saved me, as an result, now I think I'll hold on to rest of the short ETFs longer with larger loss. But again, I maybe forced to sell if the market just shoot to the moon. Because, at the end, it's the market that decides.
7. I may adjust my positions again, and may add since I still have a sizable cash position. Let's see what the market bring us next.