Sit

What does the market really think? What does the majority of the traders think? That's the question I should ask before I added too many positions on Tuesday. If I can not only check charts, indicators and past patterns, but also ask the question, then I can improve my timing and reduce mistakes.

1. We sold off hard on Tuesday, and I thought this was the test of the recent low.
2. But wait, we have the "Bernanke put" coming, traders know there is a Fed cut coming, so in many traders mind, that should be enough to buy on big sell off like Tuesday, at least not adding shorts. I failed that.
3. As a result, today I could not put the trigger to commit more. If I sold on Tuesday before close, I got profit from the puts, and I could add today.
4. Now I need to ask, bearing a surprise Fed cut tomorrow, what Ben can say tomorrow that can trigger a great rally? What's the outcome of tomorrow's market reaction?
5. Even Ben promises a cut, I doubt we'll rally big.
6. And CNBC bills Ben's speech as the biggest in his career, almost telling people again and again, Fed will kill the bears and rally the bulls.
7. I don't know, pin too much hope on one single speech may disappoint bulls.
8. Think about this, traders won't commit too much ahead of a long weekend, knowing all the issues are still out there. Another shoe can drop any minute.
9. And if the economic forces are stronger than Fed, I don't think they can cure it with rate cuts.
10. Unless, of course, the economy is stronger than we thought, we'll work all the issues out, with Fed's help, then we'll rally from here.
11. I happen to think the issues are real, and we need some kind of adjustment in the markets before we resume the rally. So a correction is very likely. Bear market or not, the jury is still out.
12. So this brings me back to my old idea, the market will test recent low, when and from where, I don't know. Fed can delay this, but they can't prevent it.
13. So I'll sit on my shorts and puts, on the edge!
14. If the market rally from here to new high, then I'm dead wrong and will kill me again! I don't want to take it on the chin again!
15. Another surprise is the VIX, it's up with market up, very strange indeed. This happened before the August 16th. On August 8th, the market was up big, but VIX is pretty much flat (not down), and on August 10th, the market was up and down, but was pretty much flat, and VIX rose! Like today!
16. VIX is telling us a storm is on the way.
17. But you never know, maybe this time Ben can save the market again and cure the credit issue along the way, and VIX will go back in teens in no time. If that's the case, we the bears will be in big trouble.
18. Before that, let's put on a brave face and see if Fed can rally the market.

Take it on the chin

What a difference a day makes. Today Dow up 1.9% and Nasdaq up 2.5%. Yesterday we were disappointed by Fed minutes and today we were very happy about Fed's comment to "act if necessary".

1. There is nothing changed since yesterday. Traders' mood changed.
2. How can we down 2% one day and then next day up 2%? I think this again taught me a lesson, don't be so sure. That's when you're blind and taking unnecessary risks.
3. Once you started to think you're in sync with market, the market kicks you hard.
4. I'm back in the wait and see mode, and with all the puts and shorts down big today.
5. Even though I still think we'll head lower to test low, today's market action shocked me. I expect at most a 1.5% gain, but 2.5%? Probably people knew Fed will cut early before Sept.18th.
6. Again for these who bought just before the market closed today, you need rallies to upload your shares, not a good place to be long.
7. So far the market is still down for the week, let's see if the bulls can run us higher this week.

Just the way I like it

Today Dow down 2.1% and Nasdaq down 2.4%. This is just the way I like it. Selling across all the sectors, with relatively low volume, but bigger volume than last week's up days.

1. I liked what I saw, so I added short ETFs: SRS, MZZ today, and added QQQQ and IWM puts.
2. All gains last week were erased by today's action.
3. I think short term, there are three targets on the down side, S&P 1400, this is the closing low; S&P 1370, this is the intra-day low on August 16th, and new low in 1300.
4. Since there is no panic selling, just orderly retreat, I expect the market to go much lower, very likely 1370 if not lower.
5. Of course, Fed may cut rate, but I expect them to hold until Sept.18th. If things are out of control, the Fed will not act until the market bottom. Since the Bernanke put is similar to Greenspan put, they cut rate when market bottomed and rallied, since they want to build on momentum on the upside. Both Aug 17th cut and April 2001's cut have this in common.
6. I missed FXI yesterday, I felt it's the top, but the puts are very expensive.
7. I will watch carefully and see if we can get a real bottom this time and go long at some point.
8. Now I have to think we'll have more orderly selling this week.
9. Once we get the panic selling like August 16th, we'll have a bottom. I'll call it when I see it.
10. The Oct.19th, 1987 lesson is always on us, be prepared for another 10-20% drop, even though the possibility is still remote at this point.
11. Ryan, we're on the same page as how the market goes, I think you're the only reader on my blog. This blog is pretty much my own thoughts on the market, and by writing it everyday, it forces me to learn and focus, to improve my trades.

A quiet week

Looks like we'll have a quiet week with low volume, and lot of traders finally got some time off due to the volatility early this month. But I like the market tone, down it went.

1. All major indices were down, nothing big.
2. Considering how far the market rallied since August 16th, it's good to have a down day.
3. Bears hope it to continue; bulls like to take a break too.
4. I expect we'll pick up things next week, specially the week after that, with most people returning from vacation.
5. And I expect a test of August 16th's low in September.
6. But market can also break out to the upside. So I'd better not to add new shorts until things are clear.
7. Right now, I'll add puts and shorts only on big rally.
8. And keep most in cash.
9. FXI is breaking out yet another all time high. But the puts are too expensive, so I'll pass. May buy put when I think it will make a turn with the U.S. market. Maybe today is the day, but you never know. Hard to pick a top for FXI. It's a short target for me.

Added puts

I added QQQQ puts and QID today, since I don't think today's rally has any strength in it.

1. I don't care how bad the credit crunch is, how bad the CDO issue is; and I don't care how good Fed's timing rate cut has cured all the issues. Let's put aside all the fundamental analysis for a moment. Even though I think they'll likely to lead us into recession soon.
2. S&P had rallied 110 points from its intra-day low of 1370 on August 16th, to close at 1479 today, just 6 trading days!
3. People argued this is the same as Feb.-March's rally off low, this is not. Check history for all the rallies recent years, they usually have at least try to retest the low for a second time before real rally resume.
4. So either we'll test the close low of 1405 or the intra-day low of 1370 in the near future.
5. The only thing I'm not sure is how high we can go this time, do we go to 1490, 1510? I have no idea. But I'll keep adding puts and short ETFs on this leg up. The higher we go, the better place to short.
6. And economic cycles are stronger than Fed's cute timely rate cut, so I'll use any future Fed's cut initiated rallies to add short and puts.
7. It's very likely we'll test the low, and may even break down to new lower low in the near future, probably sometime before November.
8. And if we indeed have a new low, and Fed has not cut again, I'll go long to counter the trend.
9. I think to bet on oversold and overbought conditions produce better trade opportunity than TA and FA.
10. From seasonal perspective, Sept. and Oct. are known for its vicious dives, so for these who bought at the high of today before market closed, congratulation, you need a rally to unload these long positions.
11. I moved to the short side.

Reversal day

Today the bulls showed sign on weakness, we had BAC to add 2B into CFC news, future was up 8.2 for S&P and oversea markets again were very strong, and yet the bulls could not maintain the gain and finished lower in Nasdaq and flat in Dow.

1. This maybe a break for the bulls before the next leg up.
2. I think this is likely a reversal day for the short term bounce and we'll head lower to test 1400.
3. Since we started the sell off recently, last Friday is the first time we had a strong Friday finish in 6 trials. Tomorrow is another day to see if bulls are strong or bears regain the control.
4. I expect we head lower.
5. Again not a time to chase long positions here.
6. The fed will likely to be forced to cut rate, and that can only happen if we have more bad news coming, with market touches new low.
7. If the market holds well, I don't see Fed can cut rate.

Wait to short

The market declared its readiness to move back to normal, and risks are taken care off. Wow, what a difference a week make. Last week, we were talking about crash, Fed's timely rate cut, today, new M&A activities and oversea markets rallies after rallies made bears on the edge and bulls eager to show their strength again.

1. I'll wait to carefully add my short ETFs and puts.
2. Today I added a small QQQQ put positions. And I won't add again until S&P touches my next target 1485-1505 area.
3. Today seems to me bulls took out 1460 area without any real struggle. It's a fake or real take out remains to be seen, but I'll move to the next attack area, 1485-1505. I will add shorts and puts again around that area.
4. Depends on how strong the move is, my position will be small or large again.
5. My idea is simple, the credit crunch issue is by no means over, a Fed Sept. rate cut is already in the market price.
6. So any break out from here with low volume will be a welcome news to bears, if you can select your entry price right.
7. We will have a pull back, even in a bull market.
8. All things considered, I won't play long due to the risks, but I will play short in this environment.