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January 6, 2009


Another day, another insignificant change in stock prices. Despite the fact the SPX didn't shed handles the way I had hoped, it did behave the way I expected, which is to say it failed to make much headway... even on what felt like a bullish day. The measly 7-point gain came within another narrow-range session and demonstrates why I chose to sell calls rather than outright short the index. Of course, the long bond didn't cooperate with our plans, spending the day in the red, and the greenback forfeited some healthy gains. But overall, I'm pleased with how the session played out. Take a look at the intraday pattern on the SPX:

spx chart

As noted, bonds fell, with the 30-year off about a third of a point. Four straight down days have knocked nine points off the long bond... a phenomenal move. Yesterday I postulated that bonds should see at least a reprise before tanking again, but I found two clues today that the big rally may not have even topped. First, the current issue of Barron's dedicates its cover to dissing (<== it's in the dictionary) bonds. This formerly-respectable magazine never gets the timing right... even going back to its respectable days. Second, a great Marc Faber interview on Bloomberg ends with Faber calling Treasury bond shorts the "trade of 2009." His prediction tells us two things: 1) shorting bonds will be the trade of 2009 and 2) bonds won't top for another 4-6 months. Faber is always early.

The big reversal in the buck today played havoc with my gold short. I woke up this morning to a cozy $11/oz gain then watched the position swing to a $16/oz loss by mid-afternoon. Not to be dissuaded, I shorted more just off the highs. However, when I sat down for my chart review this evening, the gold chart was less persuasive than yesterday:

gold chart

Fortunately, by the time I made the decision to bail this evening, gold had slumped further, and I was able to get out of the whole trade with a miniscule gain. A miniscule gain is better than a moderate loss, eh? I will now go back to plan A, which calls for waiting for either a kiss of the upper trend line (see yesterday's chart) or another bearish swing.

The market gods are certainly doing there job well. It is difficult to hold any conviction on just about any timeframe these days. Well, on to tomorrow...


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