Thursday, March 12, 2009

Rally Rally, Who's got a Rally?

Nice rally for the longs. Gave them hope to get back to even. The problem is, the rally is based on hope and lies.

The hope is based on re-instating the uptick rule and and m2m modifications. Somehow these are going to make the world economy good again. ... uh.... Say what? A lot of good traders jumped on this band wagon to ride the hope train up a bit. I am guessing most got off somewhere along the way waiting to short back.

The lies are all the banks saying they are profitable. That they are well capitalized. That they don't think they need gov't help. Sure they are operationally profitable. They better be. How can a bank not be operational profitable? If they aren't they would have closed long ago.

Don't believe the hype people. This is a nice technical rally that is feeding some false optimism. While at 666 we were closer to the bottom than a near term top, we now have reversed that situation. We are now a lot more closer to a near term top than a bottom. In fact, we may be there right now.

Technically 740 was a previous low that would be a technical resistance level. But 750 is just as tough as it represents the 20 day MA. It can be broken but even it if is, 770 is another heavy resistance and as Erik points out, 804 is impossible to cross. So at most, we have 50 pts more to go up. But there is a good 150 pts that are sitting right beneath us.

The likelihood is, 750 is the top of this rally or 770. An outside chance of 800. If any news comes out the crushes the rumor and hope news that came out this week, the fall will be fast and furious. Watch Barkley's. Also watch GS earnings. Bad news from either can be big trouble.

VIX is way below the 20dma. So far below that it has to rebound soon. So technically, TA/EW and VIX all say we are near the end of this run if we have not already hit it.

This is probably a great spot to start getting VIX calls. I will be watching closely for heavy loading on VIX options. ON Monday, there were some huge trades on the VIX puts. I should have paid more attention to them. They were a sign that something was coming, in retrospect.

If VIX goes below 38, it will be the first time since October. I just don't believe that can happen. So you have maybe 2 pts down further for the VIX at most, while it could go up to 55. Very low risk/reward. Gotta jump on them. I also like April GOOG puts and I will venture into some March and April GS puts tomorrow.

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