OK, I don't know about you but at this point, I can only laugh at the reports and analysts all saying the market has bottomed and we go up from here. And if you are not in now, you missed a big part of the new bull market.
OMG. It used to make me mad, now I just laugh. Yeah, OK. The gov't throws $3T at a $30T or more problem and it is fixed? Unemployment continues to rise but since it rose a little less than they expected all is good? No one is buying houses except if they are foreclosures? That' all good?
I will grant that there is some good news. Mortgage rates are indeed down. That will spur on refi's and some purchases of foreclosed properties. That gets money flowing. But that comes at the cost of hurting the housing market even more via lower priced housing, which is what the gov't is trying to avoid. Over 5 million homes are glutting the system. The only way that glut goes away is if house prices come down another 20% which, you guessed it, hurts the banks.
And who will be buying these homes? Well, I suppose people with good jobs. But that will be offset by continued higher unemployment resulting in even more foreclosures. The trend will not stop until unemployment stops, which won't happen until banks get rid of bad assets which won't happen until assets can be priced appropriately which won't happen until the housing market stabilizes which won't happen until unemployment starts heading down. Its a cycle. It has to break somewhere and sure, Timmy G. is doing his darnedest to fix it. But I think they sent a boy to do a mans job. He came to a gun fight with a knife. He needs a bigger boat.
So, onto the market. Normal behavior today as the market stayed within the bullish range as bears are still a bit cautious and more money comes into the market ready to be trapped.
There are two key indicators that this bear market rally will not sustain for a long period. First, the VIX stayed above 40. Simply amazing. Yes it has gone down but relatively little since this market began. This indicates we are going to see some big bumps ahead.
Second, metals. Gold and Copper continue to stay relatively high indicating inflation is on its way. The market does not like high inflation but the market is currently blinded by the permabears on TV telling them to come out and play because the weather is nice. Yes the sun is shinning but there may be Hurricane Bank Failure on the horizon. Cramer is now mocking Roubini. A sure sign that bad things are coming.
We are at 832 with a top side of 850 before heavy resistance. Yet we have very little resistance looking down to 750. So the odds are we head down soon. Perhaps a little more upside and the play up until close today was to buy on dips. But tomorrow, I think the play is sell on spikes. If you played a straddle, tomorrow may be a good day to close out the call side. But watch closely to see if 850 holds. I suspect we may not even get that high which means you have to make a decision on your call side of the straddle. Let it ride, exit both ends (if you are showing profit) or sell the call side.
SRS is a total and unbelievable bargain at this level. But, don't back up the truck. It may even go lower next week. Not a bad place here to enter a position though and then add more next week or weeks after depending on what m2m does. Commercial RE is almost entirely bankrupt. There is no reason REIT;s which are centered around commercial RE should be around much longer unless they are incredibly hedged and are not overextended.
Once this market reverses, SRS will lead the way and I predict it will move 50% more than any short financial ETF. I also like TBT at these prices. We are getting fooled by the stinking Fed buying treasuries. Fed has to buy them because no one else will. Amazing.
I am looking for a test of 804 either Friday or Monday. That will make for some interesting market direction. I look for the VIX to return to 43-45. But again we are news driven and sentiment is bullish. That can change in a single day if market goes down 30 pts on the S&P.