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September 10, 2008

There Will Be Blood

Newsflash! Alan Greenspan says we have a 50% chance of seeing a recession! Well, apparently the stock market thinks we have a 100% chance, given the S&P 500 is off more than 20%, and anyone who knows how to read, and does so regularly, knows we are already in one. Where the hell has that clown been?

My apologies for the late post tonight. I was tucking into the swordfish special at Portofino with an old buddy. No offense intended, but imbibulous conversation with a good friend will always take priority over blog posts. You all are lucky I didn't have any bites at the bar or there would have been no post at all!

Anyway. Today's bloodbath left little doubt that much lower prices are presently on the way. However, as soon as a play becomes obvious, the market does what it can to shake out the weak players. Therefore, I anticipate a day or two of consolidation before we break sharply lower once again. How low can we go? Well, if my Elliott Wave measurements are correct, the slaughter could take us all the way to SPX 1080 over the next 4-6 weeks. I don't think anyone but the bear-est of bears expects that outcome.

Oh, and for those that doubted the prognosticastion I posted for gold yesterday, I have four words for you: I told you so. Gold spilled about $22 worth of blood, while silver shed almost 70c. Of course, with silver so close to the August 2007 low, who didn't expect it to give that level a test?

silver chart

More importantly, oil should be see a test of $100 in the near future, perhaps even tomorrow. Commodities in general are severely oversold, and will probably see a bounce as oil bouces off this level.

oil chart

I am looking to get long some commodities in conjunction with a test of $100 crude, perhaps by virtue of some oil calls or even some direct longs on gold or silver. As noted in the comments section from yesterday's post, I initiated a straddle on GDX at the $29 strike for October expiration. If oil tests $100 tomorrow and drags gold down with it, I will shed the put side of that combo and hold the calls for a snapback rally.

For the record, I am still sitting on my 50% short on the SPX. I have not pushed it, yet, simply because the market has not afforded me the luxury of a more comfortable entry. I am also short calls in financial-related ETFs.


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