Friday, July 10, 2009

If This is a Head Fake, Call Me Fooled

As I have been writing, technicals are clearly breaking down across the board. Things like Simon Property Group (SPG), American Express (AXP), KRE, SPX, you name it, all are showing signs of breakdown.

On the flip side, the short and ultrashort ETF technicals are showing clear signs of breaking out. That includes SKF, SDS, SRS, SZK, even the emerging markets ultrashort ETF, EEV. Analysts have been jumping all over the trendy emerging markets plays but they are getting beat up pretty good and that may very well continue.

All technicals for most equities and long etf's are showing clear signs of a breakdown. If this is a head fake, I am one of the fooled. This will not be a straight move down but a long zig zag move steadily down near 800. As we get closer to 800, I think we will see more volatility and depending on the economic conditions at that time, we could go down further or retrace most, if not all of the losses.

Wednesday, July 8, 2009

Technicals Continue to Fall Apart

All the stars are aligning and pointing to a potential market collapse. I find it interesting the timing of these technical breakdowns happening just before earnings season hits full stride. I have to believe that it is a sign of things to come.

  1. The VIX is going through the 20 day ma with no problems. Today it broke through the 50 day ma without flinching. A clear bearish signal that this is not just protection by bulls, but purchases of options at higher premiums, thus indicating some rough rodes ahead.
  2. The SPX fell through all moving averages including the 200 day ma.
  3. The SPX 20 day ma is crossing the 50 day ma and the 200 day ma
  4. For you SRS fans, SRS has broken through the 50 day ma with conviction today. Not only that, SPG has had a severe technical breakdown crossing all ma's and looks like the 20 and 50 day ma's are breaking through the 200 day ma. All very bearish for SPG which is the only REIT that may be standing in 12 months.

We have so much confirmation now that we are entering the next leg of the bear market, that any moves up in the market will be short lived. We are headed to the low 800's for sure. The question is, will financials lead, follow or not participate? Will energy and tech and retail lead us down?

shorting SDS is probably the safest play here but SRS sure looks good and SKF may be worth a look for a short term trade here and there. Energy will rebound but not until technicals give a better picture. Tech will be the first to rebound from this next leg down and will probably outperform other areas rather easily. I would rather be overweight in tech than in financials for sure. Therefore, if I were to short, it has to be the overall market (SDS) or financials (SKF, SRS, short KRE)

Tuesday, July 7, 2009

On the Verge of a Major Breakdown

I know I am seen as a perma-bear and perhaps I tend to lean to the bearish side when looking at charts and options actions but looking at all the key indicators, it sure does look like we are on the verge of a major breakdown in the market.

  1. The VIX has shown recently it is no longer afraid of the 20 day MA and crosses that residence like it is no resistance at all.
  2. The VIX is now starting to sniff the 50 day MA and appears to be building strength to cross that resistance in the not so distant future.
  3. The S&P has bounced off of the 887 key resistance yesterday and is now messing with it again. I suspect 887 will hold once again and bounce but the next time it will not. The next stop after 887 is around 850 but that resistance is not strong and the gap to 810 should get filled.

Also looking at SRS, it appears to be in ready for a breakout. This bodes well for shorting KRE and IYR.

UNG (along with oil) had a technical breakdown late last week. Better days will come for UNG but not today. Not until it can break back through the 20 day MA which may not be until late July. Even so, I will hold onto my Oct. options since they are quite cheap at this time.

I think the two key areas to be effected by the breakdown of the market will be financials and tech. Both have had great runs this year but now they have to show true earnings and not beating watered down earnings. I think they will struggle in this regard and will lead the market down to 810 or lower.

The credit crunch is starting to take effect. Credit defaults are rising much faster than anticipated. In fact, many experts had been expecting not only a slow down, but a reversal in credit defaults in Q3. Now we are seeing that there is no reversal in sight. For this, I think AmEx is going to be a great short again, just on the heals of yesterdays upgrade. BAC will also get hit hard by the credit crunch. Should also be a good short over the next few months.

And for those of you fortunate enough to be employed, get back to work and be productive to help get this economy going again. Its slackers like you who read financial blogs during the day which drag down the economy. :) Well, OK, maybe it has something to do with the mortgage crisis, credit defaults and unemployment. But you get the picture.

Monday, July 6, 2009

Rested and Relaxed

After a few days away from the real world and coming back to focus on the market, I find the charts rather interesting and seemingly on the verge of a technical breakdown. The S&P crossed the 50 day MA and it appears imminent that the 20 ma will soon cross the 50 ma on the down side which could signify a major downturn in the market.

887 is the key support level that must hold. The VIX is showing weakness for the most part but it has made a nice run since the 25 area and is only a point from crossing the 20 ma. So I want to see that cross and see 887 be broken before feeling more comfortable with short positions.

I feel strongly that regional banks are going to roll over. Shorting KRE just seems like a no brainer here which probably means I am dead wrong. It just seems too easy. SRS may be a good short term play here as well but not as solid as shorting KRE. But it has more potential for larger gains while shorting KRE has limited opportunities.

That's all for now. I am still in vacation mode so can't spend too much time on free thoughts. :)