Monday, May 11, 2009

Do You Feel It?

Last night, I wrote about fear. About how fear can overtake a fearless person very quickly, but getting rid of the fear takes a very long time. When a fearful event happens in someones life, the internal fear stays with the person for a very long time, if it ever goes away.

Today's action seems to have re-ignited the fear in the bulls. Not only what happened in the market, but also some of the news coming out and some of the doubt analysts are having in the government generated profits by the banks. The bulls are no longer screaming for Dow 10,000. They are no longer screaming for financials to double. Well, OK, Bob Pisani is still saying the banks can triple to get back to where they were, but does he count?

The fear is lingering. You saw it in the action at the end of the day. In previous down days, the market would rebound at the end of the day as shorts would take profits and longs will buy on the dip. Not today.

I am not saying the rally is over. But today may have been a day which told us that the rally is running out of steam. We need confirmation though. Here is what I am looking for...

  1. The SPX closing below 900. That would be big. If it closed below 895, that is a clear signal the bulls have temporarily lost control.
  2. The VIX crossing the 20 day MA. This means a VIX at or above 36. That would be a heck of a move.
  3. Banks raising capital through secondary offerings close at or below their secondary offering price. That would tell us the market has lost confidence in the bank valuations and reality has set in.

Without at least 2 of these happening, we are just looking at a short term correction. If the market closes below 895, we are definitely headed to 875. But if none of the other 2 items happen, it will bounce right back.

I have held, at a fault, AXP and BAC short positions perhaps too long. And the trader in me said I should have covered today. But the action at the end of the day said it is too early to cover. Financials should continue their slide at least through tomorrow. The question is, will the market follow and thus feed more selling in the financials as fear returns?

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6 comments:

  1. RobbyMay 12, 2009 at 12:28 AM

    I found it interesting to see CNBS opting to put Meredith Whitney on the air and during the last hour of trading! I don't recall Meredith getting hardly any air time (if any at all) during the weeks it was all rah rah rah. Is this a signal of an imminent rug pull? Lets hope.

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  2. UnknownMay 12, 2009 at 2:09 AM

    Beamer Dog, did you see this coming the last hour action today? Holding 914 to 915 through out most of the day, then bang, bring it all the way down below 910. I thought that the way it behaved most of the day, surely it will try to hang on no less than 910. Though the volume is so light that I still see a strong bull sentiment brewing secretly. Tomorrow is going to be another very interesting day. I closed faz and srs position today with gain. Close some & long & short position to try to stay neutral the best I can. Quick question, do you have any opinion with the steel sector? Seem to be very bullish. Regardless of warnings and downgrades, they keep on prevailing such as nue & x. Please share your dd if you do watch them. Thanks.

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  3. UnknownMay 12, 2009 at 5:10 AM

    So I would like to buy back in faz and srs for sure if SPX goes to 930, but if SPX fails to hold 895-898, is it a safe sign to jump back in shorting as well and anticipate 866-875? Feedback appreciated. Thanks.

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  4. Beamer DogMay 12, 2009 at 4:36 PM

    Robby, Keep in mind that lately Merideth has been less negative on the market and on bank earnings. You noticed how surprised Maria was with the comments being made. You probably won't see Merideth on during trading hours again for awhile.

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  5. Beamer DogMay 12, 2009 at 4:38 PM

    Mandy, I am not all that strong on the steel sector or in industrials at all. China is the only country "claiming" growth. I can't imagine china being an island and without showing construction growth and automotive growth worldwide, I don't see steel demand moving higher. But, I am not an expert at all so I would go with whatever fundamentals are saying.

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  6. Beamer DogMay 12, 2009 at 4:41 PM

    If spx can close below 895, it will go down to 875 or lower. So to me, you can't wait that long. A good play is to enter a short position without to big of an investment and if the market does break through 895, you are good to hold it. If the market appears so want to bounce (close above 915), you should exit the position.

    A really good play could be something like SRS or SKF (short term) with some puts on them for protection.

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