Relief Rally

On Friday, the market traded within a 200 points range, plus 100 points and minus 100 points until the last hour of trading. In the last hour of trading, the market rallied more than 500 points and end the session with a gain of 494 points. The advance/decline and the up/down volume all reverted from negative to positive at the close. The strength of this last hour rally seems to indicate some short term relief rallies are forthcoming. But one must be very careful on trading these rallies. I will continue to watch these rallies as they develop and look for opportunities to re-establish short positions using the inverse ETF, QID, DXD, SDS, TWM.

You Still Believe The Market Has Bottomed?

If you were one of those that thought the market has bottomed and you have participated in those recent fake 600 & 900 points rallies when the DJIA went near the 8000 mark, then today's new low might have been a surprise to you. But, if you have been listening to the market or have been following this blog and read my 11/12/2008 post or the 10/25/2008 post, then you would have been expecting today's new low.

Well, no need to dwell on the past. The new low is here. The question to ask now is "did the market bottomed today?" My answer is a resounding no. Today's low is a fully confirmed low. All the indices made new low along with the DJIA. To my surprise, even the DJ Transport made a new low to join the party. This made it a confirmed Dow Theory low and this mean lower low is yet to come.

Don't be fooled by today's event to be a market bottom. Stay short and avoid long. We are still in a bear market and the primary trend is still down. Just remember, a market bottom is a process and is not an event. The market doesn't bottom in a single day. The process the market goes through to form a bottom is as the Dow make successive new low, there will be fewer indices making new low. When the Dow is the last index to make a new low, that's when it will put in a bottom. In the meantime, I will be looking for support near 7700 and 7300 levels, and continue to buy the inverse ETFs on any rally, i.e. DXD, SDS, QID, TWM.

Hello Down There!

The market appears like it is standing on the edge of a cliff, with a slight gust of wind and it will be headed down. You can feel the volatility is coming back. Lot of stocks are setting itself up to test their October low, with the financial stocks leading the way and the energy and tech follow. So, say hello down there and get ready to dive. Inverse ETF is the way to go if you don't want to short the stocks, DXD, QID, SDS, TWM, SKF, DUG and DTO (ETN).

Just a few words on DUG. If you believe crude prices will continue to drop, then play the DTO. If you believe the oil and oil service companies will go down, then play DUG.

Why Bother!

With so much fears and volatility in the market, I'm not even going to bother on trading individual stocks. What I know is the market is unwinding and it is going down, what I don't know is how low will it go and how it will get to the bottom (the low could be somewhere in the 2002-2003 low, we won't know until the market get there.) Therefore, by buying the ultra short ETF on SP500, Nasdaq 100 and the Russel 2000, SDS, QID, TWM respectively, I will ride the trend without having to worry about the directional move of any individual stock and avoid the opening gap risk.

In addition, as the global economy is being dragged into a global recession by the credit crisis, demand destruction for oil will bring the price of oil back down to the level where it begun to run toward the speculative $150 per barrel, and that level is in the $65 range. Since the price for a barrel of oil exceeded $120, the daily US consumption has decreased by 1 million barrels a day. With the anticipation of the price for a barrel of oil to go below $80, I will buy the ultra short ETF, DUG.

As the world central banks and the Fed are pumping enormous amount of liquidity into the financial market in an attempt to solve the credit crisis. these moves will cause tremendous inflationary pressure for the future. With the panicky investors seeking safe haven along with the inflationary pressure that will come due to the expansion of liquidity by running the currency printing presses, the price of gold will move upward. To profit from the upward movement of the price of gold, I will buy the gold ETF, GLD.