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We weren’t fooled…
Well, it’s nice to be right when most of the market is wrong. After yesterdays rally to end the day on AIG news, many were (again) calling for a bottom in this market, and looking for a rally to play long. But we didn’t buy it, staying with a very short heavy portfolio, despite the plethora of pretty charts and irrational exuberance out there. We were rewarded today.
The market had one of it’s worst days in history, and it wasn’t even the worst day of the week. This is really turning into a historic event, and I must say, it is nice to be on the right side of it and making money while most of the people who were calling for a market bottom are wondering what happened. Thank you for sharing it with me. I mentioned the other day that I felt like we were witnessing something historic, and I still think we are, and things are finally starting to show signs of a capitulation, which anyone who has been following us for awhile will know we have been calling for since January, stating that until capitulation came, we were in for a choppy, illogical market with a bearish bias, a slow bleed if you will. I was called a sadist in the chat room today, and that made me chuckle. I am the furthest thing from a sadist, and am probably cheering for a bull market louder and harder than anyone else out there, but I am a realist. We make money for anticipating, not for cheering, and we anticipated what this market was going to do and did very well today as a result. And I am actually happier about the fact that we may be seeing that capitulation that we have been waiting on for so long, and perhaps we can start to anticipate, rather than just cheer for, a bull run in this market. Let’s take a look at some charts:
The Dow lost another 450 points on the day, and is now below almost every valid point of support, including the 2006 double bottom that has been mentioned as a downside target multiple times. The next real support we can see is at 10,000, and to be honest, the sooner we could get there, the better and sooner we can probably get this sell off over with and start in on a nice bull run.
On the Nasdaq we haven’t violated that mid 2006 low yet, and actually have a double bottom with a 2005 low, so that will serve as our next downside target, right around 2010.
The S & P lost close to 5% again on Wednesday, and from a support standpoint, looks like we have a long way to go, with the next real price support level coming in at around 1080 or so. That’s not to say we won’t bounce before that, but things do seem due to get worse before they get better, and that could be the point where they start to get better.
The VIX is finally starting to act the way we would expect it to, spiking up near it’s late 2007 and early 2008 highs. As mentioned many a time here, we are looking for it to get over 40, even of only for a brief period of time, before we really consider a sell off to be the capitulation selling characteristic of a solid oversold bull run.
Gold went on an absolute tear today, gaining over 10%, while a number of gold stocks posted gains of twice that or better. Actually, there was a watch list of gold stocks posted at around 10 am EST in the chatroom, none of them gained less than 10%, with a few over 30%. This is about as bullish a chart as you’ll find on a day like today, and as you might expect, there are quite a few gold stocks in the long watch list tonight.
Last night we called for a bounce in oil, and we got that too. We’re looking for a retest of $100 a barrel on crude in the next day or two, as this oversold bounce looks like it has some legs.
As mentioned our portfolio stocks had a great day, with all of our shorts posting nice gains, and one of our two longs fighting the tape and posting a very impressive one day gain as well. The rest of the week promises to be very volatile, with bailout news, investors digesting all this selling in the market, and options expiration on Friday, just to throw another wrench into the mix. As such we are holding off on any new end of day portfolio stocks in favor of intraday plays, and to that end there are a number of nice setups listed in the watch list. We are also locking in profits almost across the board, as there is a good chance of a huge sell off followed by a massive short covering rally tomorrow, so we are going to make sure we are positioned to profit no matter what. It should be another interesting day tomorrow, and we will continue to do our best to keep you on the right side of this historical market. Have a great evening, happy trading!
Quote of the Day
"There is no nonsense so gross that society will not, at some time, make a doctrine of it and defend it with every weapon of communal stupidity."
Robertson Davies
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