14 January 2009

Bearing News from Thailand

Apparently, it's a Thai bear.

And here's some bearish news I've culled together while enjoying a jaunt around Thailand, fleeing a bit of NYC winter:

Corey Rosenbloom at Afraid to Trade believes the market is set to test or break the November lows. Here are some of Rosenbloom's arguments below. Click over to his excellent site for the entirety of his argument along with helpful annotated charts:

From a technical analysis standpoint, we’re officially on course today to test or break beneath the November 2008 lows in the US Equity Indexes - it’s now the highest probability play.
What could make this move quicker and more painful for the bulls is the Bull Trap that lured them in once price broke above EMA resistance for the first time in months and formed a ‘confluence buy’ trade… before reversing. The move down is likely to be even swifter as their stops are taken out one by one on the way down.

Also, we’ve now officially broken downwards out of either a rectangle pattern or an ascending triangle (also which trapped the bulls - we did have a breakout of an ascending triangle which lured more bulls in - they will be stopped out on the way down). Patterns with false breaks tend to have stronger moves in the *opposite* direction.
Finally, there just isn’t any logical technical support, like a Fibonacci retracement (they’re all *above* price) or key Moving Average. There’s not even a meaningful swing high or low to halt price until it touches the November lows, which is the whole point behind the notion of a “test” in the market.
In sum, nothing is guaranteed in the market, but it appears to me at least that the odds have now shifted solidly in favor of price making an expansion move that takes us down to ‘test’ the November lows of 750, and I would further assume that buyers would fail and that price would be taken out - but we’ll cross that bridge once we get there.

Phil Davis is bottom-fishing in the financials (bold added):

We like XLF as a bet against the long-term collapse of the US banking system and you can buy that ETF for $10.80 and sell the March $10 puts and calls for $2.90, which is a net entry of $7.70 if called away at $10 (up 29%) or an average entry of $8.85 if it is put to you on March 20th, an 18% discount off the current price. As more of a gamble, we also like the UYGs, a 2x ETF that tracks the XLF and is back below $5 at $4.71 (was $65 in October 2007). While we don't expect it to go back to its highs, it won't take much improvement in the financials to rally this one so we like scaling in at this price (it may go back to $3.50 on a spike down where we'd really like them) and holding it naked or selling the March $5 puts and calls for $2 to drop the net to $2.71 (called away with a near double) or a $3.85 average entry (an 18% discount).

Yes, Alcoa (AA) was terrible (but they already told us earnings would suck), but Infosys (INFY) came in with a beat this morning and we have CBSH tomorrow and JPM and BLK on Thursday and that should firm up our picture of the financials but it will be too late to buy XLF and UYG by then if I'm right!

Oddly enough, Phil seems willing to scale into a stock that could spike down 30%, when he'd find UYG even more attractive. Why not plough in at $3.50? We seem to be heading in that direction.

One caveat to the bearish market moves over the last six trading days--the 800+ point drop in the Dow has pushed the market into oversold territory according to RSI(2) and Full Stochastics. I fully agree with the bearish points of view I've been posting to the blog as of late, but I am keeping in mind that markets rarely go straight down.

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