Wednesday, March 09, 2011


Being in a position with no particular ax to grind in either direction, I found a development yesterday that is being passed off by the media as a non starter very interesting. Carl Icahn's announcement that he is returning close to 2B to his hedge fund investors because he essentially fears another market meltdown is possible. He went on further to explain that the last meltdown effected him deeply, and he was not sure he could handle watching clients lose money again. It is not often this type of high profile person makes this type of statement.

I heard a discussion on FOX about this and of course the traders pawned it off as him being a tired old man who had made his money and was just saying the hell with it all and walking away. Others had a different opinion. I can tell you this, as a trader, you live trading. I will be placing traders til my dying breath, so that angle is not too likely to me. Then this morning I heard an interview with Art Cashin, a long time floor trader, can't recall who he works for now I think UBS, but this guy is pretty dialed in to what is happening behind the scenes. The CNBC host said all the dips are being bought so everything is good? Art said no. He referenced heavy insider selling which we know is going on. I think we have record selling by corporate officers, legal insider selling that they are allowed to do with company stock. He also referenced Europe etcc..

There have been no dips to buy so I am not sure what exactly the CNBC guy was talking about. The question of course is what if anything to do with this information? It is very tempting to seek out opinions on market direction, but dangerous. We all tend to seek out those that agree with what we think, and dismiss the others. For me, I do not really factor other opinions much simply because it is my money that is on the line so I want to be responsible for it coming and going, not someone else. After all I can't bill them for my losses if I follow their lead and they are wrong. However, there are many that do not wish to manage their own money or make their own decisions. This is a very difficult business, not for the faint of heart. It is certainly understandable why someone would want to look to others for help.

I do not really have an overall opinion bullish or bearish at the moment. I see a very tight range contracting even more the last couple of days. We are at this posting working on two consecutive inside bars, although it is not known if today will be one by day's end yet. Generally those are bullish patterns when they form, but that is not an absolute. I do think from a bigger perspective, the next large move is going to be down, and by large I mean in the thousands of Dow points. If we break out higher here obviously the up trend remains intact. However, I just think stepping back away from all the hype and manipulation, this market is incredibly over extended on the upside. It is not a spot to place new longs, and it is a spot to tighten stops on existing longs. That is just my opinion. I guess that means that I think if we break out to the upside here, it won't be an explosion, it will just meander higher. If we break down I think it will be sharp just because of how overbought we are. It is certainly bullish working of an extended market by moving sideways like this if this is all the correction we get.

If I had ridden this up all the way, I would be flat here. Most sectors have more than doubled in the last 2 years and those are just incredible gains no matter how you look at them. Most people have been made whole in their 401k's. However, we know there is a Jim Tressel type story behind all of this and it is going to break at some point. There are people that know how the market is being moved higher and have tight lips. At some point that story will break, but who knows when. The problems that got us where we are today are not solved, they were shoved aside. They are going to come back at some point. I do think when you see someone like Icahn make this statement, you need to take notice. He has no vested interest in seeing things decline, he is not a short side only hedge fund trader. He along with Kevin Haggerty one of my early mentors, are of the same mindset.

If you are someone who likes bigger picture views, I would stay on top of Haggerties commentaries at Trading Markets.com. He is the best there is at the big picture even though he too underestimated how far the PPT could take this thing. This is really ironic, because I learned of the PPT from him, he knows their game better than anyone. It just goes to show how truly unique this has been.

As to how to trade what we have here, these are my thoughts today. What I put in my trading log today was that as much as I am tempted to short a break of yesterday's inside bars low, it is just not an obvious trade to me. We are eerily similar to late Novembers chart pattern, so I am going to need a bit more to get short here. On the other hand, I do not have any buy signals, so I have nothing to do in the indexes today. As much as I want to get involved, I know that marginal trades produce marginal results. I don't push them. If it is not there I move on to something else. Here is the something else.

I reviewed on a bigger picture basis recently why I felt GOLD was setup for a decline. Here on a daily chart I have projected what things would look like tomorrow if today's low were taken out. You can see the momentum oscillator starts to roll over confirming the divergence it has been building. This is a trade I am looking at. Will it happen, I have no idea. Also as I have stated many times, this oscillator is not the exact one I use, it is similar. I will have to look at the exact one I use to see how things look, but it looks basically the same right now as I go to press. I would prefer to see yesterday's high get taken out in GOLD today for a short tomorrow, so we will have to see if that happens. Also, just look at how much weaker GOLD has been than Silver. GOLD is where you should short if you are inclined to short the metals. You never want to short the strongest one. The metals hawks are talking about how we are headed to a 17 to 1 ratio of GOLD to SILVER and therefore SILVER will dramatically out perform GOLD. They may be right I have no idea, but I find it hard to believe that SILVER would soar if GOLD declines. Again, that has never happened before, will it his time? Maybe, but the different this time arguments just don't usually pan out.

To those different this time players, I have to tip my cap to them. They have been right in the metals. This rally is unprecedented in terms of how far it has gone being driven almost exclusively by small speculators.

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