Wheee – this is fun!
Everything went according to plan yesterday as the very fake pre-market pump I warned you about in the morning post very quickly turned into a day of carnage for the markets. Sure we only ended up down 10 points, but it was down 100 from the open.
Fortunately, we have learned how to ride this bull and we grabbed the DIA $105 puts at a .55 average per my 9:47 Alert to Members and we cashed those out at .90 (up 63%) in the afternoon. We also had a quick 20% winner on Dec QID calls and we kept the Jan QIDs as our continuing bearish bet as we didn’t want to risk a possible overnight pump job taking the markets back up with open Dec calls. Still, we weren’t worried enough to cover our longer DIA puts so we were very bearish but, as I said yesterday: "We have neglected to do is play the futures pump for the past week as we keep expecting something very bad to happen and boy would we feel silly if we were just 55% bearish when this house of cards comes tumbling down."
It has been volume, volume, volume that kep me questioning the rallies this year - the fact that all the up moves come on very thin volume (ie. manipulated) while all day long the insiders sell to the suckers who are draw in by the futures action and stick saves (it’s a team effort). This chart from Ron Greiss illustrates what’s wrong with our rally on a more macro level:
While we are certainly not ready to do a bearish victory dance on this tiny little correction, we certainly feel a heck of a lot better about our decision to stay bearish. In addition to adding bearish DIA and QID plays yesterday, we (of course) added more SRS at our target bottom, took the money and ran on EWJ, shorted XTO (rumors XOM may walk), got more UUP and shorted V. Our long covers were TOL and the VIX but it was a very bearish day of picks, especially considering our already bearish stance (see Weekend Wrap-Up – Too Bearish or Just too Early?).