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February 10, 2009

Going Nowhere

Bad news for rally proponents. Equities tanked 4-5% today and did so on a sharp increase in volume. One has to love sentiment indicators like the put/call ratio. Most of the time their charts are just taking up space, but when readings reach extremes, they are to be heeded. Considering the extreme reading from which today's drop was propelled, we may be witnessing the beginning of the next major bear move. We'll just have to keep an eye on how the SPX dances with the lower triangle bound:

stock index chart

I've already bumped up my shorts, but if we see a day or two of crawl here, I will be getting really aggressive, looking for a big break.

It's been a while since the Nasdaq 100 has been featured in a post, but there is a curiosity to note:

stock index chart

Shorting gold last night was a bad idea. Even in the prior day's comment section, I noted that the prudent play was to wait for gold to set itself up for a more appropriate short entry than just chasing a large move. I paid the price for not following my own advice by taking an $18 overnight hit. Interestingly, gold still failed to close back above the trend line, but its uncanny strength today was enough to prompt me to retreat and lick my wounds. No way am I going to risk a $40-50 move against me in conditions for which I don't seem to have a handle.

Perhaps I should explain the title. It's personal, actually. The equity fire sale was quite good for those short calls I've been touting, but you may recall that I started building that position in the 830s. So now we're back below that point and the position is marginally profitable, but not as if I had shorted the S&P just yesterday. Then along comes a side-swiping move from gold to erase a big chunk of that gain. So far this month, I've pretty much been running in place. Such is the nature of trading at times. It is a lot harder to make money than to be right.

Back to the market... there are two other indications that it may be panic time again:

dollar index chart

treasury bond chart

If the buck and bonds start a new big upleg, then we are certainly entering Liquidation II. Unfortunately, it seems gold is not going to cooperate and get cheap for us one more time.


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