Wheee, that was fun!
Can we do it again? Maybe but we got the pullback we were looking for and, as I said about cashing out our bullish plays at 300% this weekend – GREED KILLS! In fact, the title of this weekend’s Wrap-Up was "Why Does this Rally Give Me The Creeps," where I posted a Free TZA Disaster Hedge which made 90% in 48 hours – Bernanke is not the only one who can give away FREE MONEY!
We were already bearish coming into yesterday morning as my Monday post told you we were going to flip bearish at 10 am that morning (and you can read these things pre-market if you subscribe) and I told you in yesterday’s post that Greece and Goldman concerns can vanish in a puff of smoke when the Fed announces that money is still free in America (as long as you are Greece or GS) and that we would be doing one of our famous 566% upside plays on the downturn.
In my 10 am Alert to Members, I laid out a very nice SSO spread that came in very cheap in the afternoon. We took our profits from our 3 major short plays (TZA calls, DIA puts and Oil shorts) off the table and we did a little bottom fishing with TBT, DIA, Oil and XOM so pretty aggressively bullish as we got down to that 11,000 line. We would love to have more of a sell-off but it’s not like we haven’t seen this movie before – the bears ALWAYS get their heads chopped off every time they think it’s safe to leave the cave so why not bet on it happening? Just to be safe, though, I did lay out 5 plays that make 500% or more if the market falls in a special post for Members this morning, our famous "disaster hedges." Hopefully, we won’t need them…
Yesterday wasn’t a disaster at all – just a simple pullback after a huge run. If Greece gets worse, we can fall more, but I doubt the EU will let it and if Goldman gets worse, it can take down the financials but I doubt that will happen and if the Fed tightens policy and stops giving the banks free money which the banks only use to lever up into new derivative plays to destroy what’s left of our economy… I’m sorry, that last one was so ridiculous I have to stop. The Fed is NEVER going to stop giving banks free money and the banks are not going to stop levering that money to screw ordinary citizens, certainly not until they are forced to by circumstances outside of their control. Nonetheless, TBT is still one of our favorite disaster hedges as those outside influences are getting stronger every day.
The 2-year note auction went poorly yesterday and today Uncle Ben and Timmy have to convince $42Bn worth of buyers to hold US paper for 5 whole years at about 3%, which is 17% less than Greece is paying for 2-year loans at the moment! No problem though, those Greek Treasury guys are just as sharp as our Geek Treasury guys and they have used their super banking powers to BAN SHORT SELLING. Ah yes, that will fix everything – after all, it worked so well for us – for about 3 weeks…
We stand ready today to flip or flop – frankly we don’t care which way the market goes but we do LIKE to be bullish so we’d like the market to crash so we can buy stuff an be bullish for the long-term. Get it? We miss our Buy List, where we just made one adjustment every month or two and hung out in chat debating the issues of the day. Range-bound markets are hard work by comparison and this is a very good time to take a look at those ranges:
We’re still at the top of the 5% ranges from the last consolidation break-out. We would love to see a test of those red 5% down numbers but we will have to concede that consolidation above those blue mid-points would have to be considered fairly bullish. We’ll be watching those 20 dma lines (blue) to hold but much more important that those rapidly rising 50 dma lines (red) don’t begin to falter or we will be visiting those 10% drops! Note the NYSE is in the most danger and that was index that saved us from going bullish at the top as they never quite made our 7,700 target. The RUT is our runaway index and they could fall hard and fast (hence our TZA play) and the Nas is right on the line this morning so ANY red on the Nasdaq will keep us bearish.
Asia flopped this morning but no worse than we did with the Nikkei hitting the 2.5% rule at 10,924 and the Hang Seng off another 1.5% to 20,949 and the Shanghai holding up well at 2,900 after a week of relentless selling. The Hang Seng did blow critical support and the 200 dma did do a "death cross" below the 50 dma so we are by no means out of the woods in China. Europe had a huge turnaround after falling another 2% this morning and are now trading near flat as Greece is (as expected) "fixed" again. Watching those dominoes start to tumble yesterday really woke up the EU and IMF leaders (IMF is our money, by the way) so we can all celebrate today that Greece will be getting MORE FREE MONEY – at least until the next rumor reverses it once again but at least we can enjoy the open…
We are pretty neutral as this point with bull and bear bets, ready to take one or the other off the table as we see which way the market breaks. I expect at least a run-up into the Fed but the 5-year note auction at 1pm could sink us if it goes off poorly. I think I’d rather lend Greece money at 20% than the US money at 3% thank you – at least Greece is small enough to save!