Crunch Time Or New Paradigm?

It appears that everyone is now a confirmed bull. Nobody is selling despite the markets being progressively overbought and over-loved. So, if there are no sellers, then the markets will never fall and everyone will become filthy rich. While the economy still continues to chug along, I doubt that it will catch up to the market anytime soon. Perhaps we are in a new paradigm in which sanity no longer rules and the moon is the limit.

There is much conflicting news and views concerning the economy and the markets. There is little in the way of leadership in the market and yet it is grinding higher. I am shyly long but looking toward a possible bloodbath sometime in January 2011. Nothing so earth shattering as having the wheels fall off; but enough of a correction to rid the markets of the over-bullishness and buoyant complacency.

Employment trends are quite uncertain
The price of oil is being manipulated
The dollar will resume being decimated
Europe is a mess as governments scramble to lie through their teeth
Energy production in the US is being throttled by stupid environmental extremists
We are under a socialist regime
Government handouts are increasing daily
More handouts are proposed daily
Deficits are still climbing
The tax system is a disaster which few seem able to admit
Housing looks shaky as prices could fall again
The consumer is very much in hock to the debt man
Credit is in fact shrinking in that future credit will be unavailable to sustain the economy
The FED is gumming up the works by pretending to play god
Employment quality is falling...fewer higher paying jobs to be had
The manufacturing base continues to erode
Unions are of no help in holding/creating longer term jobs
More and more un-citizens are sucking on Auntie Samantha's teet (Uncle Sam's wife)
Our military is being dismantled by the slime controlling the White House
And on and on.....

Not that I like to be negative, but the current administration and Congress for certain have not done anything to help this situation. The socialists are leading us to fatal destruction and upheaval.

No use buying since the odds are so tilted in favor of a major correction that it would be a waste of capital. Wait to buy. My hit list on the downside:

OIH WLT CMI AMZN FCX NFLX BIDU AGU APA WHR CLF FLS CRM

Some of these will move higher in the next few weeks, but when the crunch arrives, most will be vulnerable to sell-offs. Target draw-downs in the 10-20% range. However, unless there is some major stumbling blocks that appear in the road, the overall path will be up for many of these stocks. The probabilities favor a rising market during the third year of the presidential cycle. Beware that this could prove false with so many pitfalls and bogeymen waiting to squelch investor bullishness.

Debt Is The Devil

After the S&P 500 broke through 1040, it looked like we were setting up for a real bloodbath. That is a move down 100 points from there with the possibility of even breaking 900. It didn't quite happen that way, at least not yet.

The market has politely bounced and looks to be able to tag the 1090-1100 area. We have earnings starting this coming week and there should be some major fireworks over the next month. The charts are spelling sell as this rather weak bounce is completed.

We could see a protracted rally into late August if guidance going forward is respectable. Otherwise, there are few reasons to buy with uncertainties about the economy piling up almost as quick as Obama-made lies.

It is going to take a lot more than global warming to heat up this market. There will not be a double-dip recession since we never came out of the down swoon. This perpetrated recovery is totally false as it has been a debt driven bump-up. Nothing of lasting value is being created and this is most evident from the lack of any constructive job creation.

There is not enough free debt in the system available to tip the scale towards small-business and consumer spending growth. Debt reduction is mostly coming from write-downs by the credit companies and banks.

The future is not totally bleak, but we need to let free markets work themselves into normalcy.
We need the financial system to be free to find a bottom. You know what happens to false bottoms; they generally seek their true level over time. Nothing sturdy can be built on a false bottom.

Thanks to the socialist government, the true dispersion of bloated debt has not been accomplished. Therefore, any progress will not be lasting. There is still an enormous amount of de-leveraging that needs to occur. And that means gargantuan pains for millions of Americans. Also, coming higher taxes will send the economy into a massive downturn. If not in reality, then in the minds of an Obama-snookered consumer. Parachutes anyone?

Trades: APPL Buy below 260 for a move to 270. On strong momentum, a retest of 280
ICE & CME Buy on a breakout above recent bases for a $5-10 move
CLF Buy at 51...sell at 55
PCLN Buy on a pullback for a $5-15 move
GOOG Buy on pullback for a move to $500 if earnings are good
NFLX Look to buy below 117 and sell at 125
POT Look to make a longer term put buy on any further strength


These trades could work out over the next week or two. Expect to reverse course and buy puts if trend lines are violated and price bars show strong downside tendencies.

For me, I have been struggling with trend reversals. Profits are vanishing and turning into losses. My problem is that I don't want to get stopped out since I believe I have the main price direction figured into trades. The counter-trend rallies are dissolving my profits. I need to make quicker decisions and take smaller profits. My problem=my fix.

Buy, Buy, Buy...All The Way To The Bottom

The markets have been jitterbugging for several months. The big bear market rally since March of 2009, has lost its fizzle. Don't worry dear trader, it is about to get frazzled as it tracts toward the downside. The false rally of the last 14 months has been supported by less volume and less longer-term commitment. Thus, the downward swoon is about to unfold and you can expect at least a drop in the S&P to 900.

Will new lows be made? Perhaps. That is certainly a substantial possibility; no probability would be more appropriate. The economy is only recovering in that it cannot stay on the floor for extended periods. After all, there are still some capitalists and wealth creators among us. Obama hasn't jailed or derailed them all just yet. But he is working triple time to get the job done. That is the complete destruction of our life style as dictated by the communist Marxist manifesto.

In regards to trading, I am still working on trading deep-in-the-money options. I was doing quite well late last year, but fumbled the ball (trade) by over-indulging in laziness. I simply forgot to keep all parts of my trading plan in focus. Thus, losses took a dastardly toll on my account.

This, of course, was mostly preventable if I had been paying more attention to my trading. Despite the recent blow-up, I have not giving up trying to perfect my methods. I don't mean to be a perfect trader, only a trader who trades with a certain flare that is tempered with an extreme dose of humble cake.

The chasm between the "what I would like to do" and what I actually happen to do is vast. In the trading of actual money and the accompanying decision making, so many obstructions get in the way. It is I who is in the way; therefore it is I who is the biggest detriment to my success.

I think that making trades with a target of 2 points is most fathomable. It can be done on a regular basis. With booking only 2 points a week, times 4 weeks per month, times 25 contracts per trade....well that is a neat income of 20K/month. Highly doable and obtainable.

I have puts on BIDU and GOOG. I am looking for some gap filling to the downside in these trades. Both have been strong as of late. Both are over-valued by my accounting. However, there are dozens of prospects to buy puts on, as long as you buy during an upswing in price when the volatility is coming down. Take your pick: WLT, CMG, NFLX, POT, AMZN, CAT, etc...in the coming trade scramble, few prisoners will be spared.

The vast majority of traders/investors will lose money in BIDU. They will buy on the way up, buy on the way down, buy the dips, buy the tops/bottoms, and keep buying no matter what. They will lose because as with all stocks, they will eventually have a falling out and this leads to a drastic fall in price. And most of the traders/investors have no clue as to when they will sell.
As a result, they will hold through thick and thin, then usually sell near the bottom for a humongous loss.

Wheneth you buyeth, or selleth short, always knoweth at what price you will selleth, such as a stop loss point or a profit target. Without this valuable information created and decided upon by you, the trader, you will not be able to secure profits over the longer term.

Finally, I am still reading the book PRICE ACTION, BAR BY BAR, an involved trading tome which is beyond most traders, I think. However, it is unique and filled with gems of trading wisdom and well worth the price and time. By the way, while on vacation, I stopped to eat at FREDS, where the burgers were good and so was the custard. This was somewhere in Kansas.

The Obama Style Economic Crash

Well, well, well...here we have God's greatest gift to the world, President Obama, now obsessed with further destruction of free markets, capitalism and personnel freedom. Here is a man who believes that every one's life in America should rise with the government and set with the government.

After last Tuesday's butt-kicking by Massachusetts voters toward the socialists, we see our most humble leader going on the attack. Banks...you are toast, Wall Street...get ready to tumble, mister rich person...cough it up...etc. And today he comes out with the government backed (taxpayers who still have jobs) plan to create more of them with silly gov't work projects. And don't forget adding insulation to your home; soon to create millions of caulking jobs and the like. But hey, winter is half over for much of the country.

Thank God with this latest defeat for the left, we can quietly torpedo government run health care and send it to the bottom with cap and trade and every other socialist bent program. Wake up Dumbo, you have had a year to get the economy stabilized and turned around. But it is looking more and more like you have failed magnificently. You silly bird...you focused on forcing your hard left Marxist agenda up our wazoos and not taking care of the slobs who you enticed to vote for your brand of Communism.

You managed to hoodwink the majority, but now your butt is in the fire and you don't like it. Working on midnight deals behind closed doors, promising certain groups that they will be exempt from your stupid taxes and all the rest of your slimy doings over the last year have graciously come back to haunt you and your Kommie Komrades. I have never witnessed such a bunch of deranged government leaders all collected in one place. You and your ilk are a disgrace to this great FREEDOM loving nation...so my advice to you is to take that slimy Pelosi and book fare to Cuba...where they will bow down and lick you bootprints.

AARG!!! Anyway, when trading/investing or fumbling around in any market, always remember to protect capital. Loss of capital means no trading. Or, get the book..."What I Learned Losing A Million Dollars" by Jim Paul and Brendan Moynihan and learn the most valuable lesson you ever can learn for increasing your wealth.

I have failed to fully learn this lesson as 3 of my option trades resulted in massive losses. This is because I failed to protect capital and limit my losses. I am still trading, but with limited resources. And with the third day of the Obama CRASH taking place, it looks like several of you are joining me. Currently I have a call option on PCLN (Priceline) which is the FEB 220 call. It is nearing the bailout phase as I write.

Markets hate uncertainty and with all the liberal word-sloshing this week, they have convinced me that they know not what they do. Since the current regime of sleazeballs in much of Washington is ANTI-Capitalist, it seems natural for them to destroy the markets and wealth in the process. Then they will expect all of us poorer people to come begging to them for a delicious handout and thus pledge our vote to support the hand that feeds us. What a crock of horse-manure, Mr Obama, you and your goofy hard-left pukewads. I will never, never, never bow down to your socialist crapple. Onward and upward FREEDOM and CAPITALISM!

An Update, 2010, And Beyond

Hey, this option trading using deep-in-the-money contracts really works well. There is little loss of option value due to time passing by and price movements reflect stock price movements with a high correlation. Of course, there is always the need to dump positions that are failing according to the direction you are trading.

The MOS (Mosaic) trade ended with a loss (about $350) as the option was nearing expiration. Then with two days remaining, the options I had purchased broke from losses into gains and my price target was hit exactly. But, again, I had sold the position due to non-action in the direction of my trade. This will happen to anyone who trades; as some positions will seem to take forever to move as expected. It is a good idea to set a limit for how long you want to hold a position before it starts to move in your favor, if ever.

As an example, while I had funds tied up in MOS, I had scouted out 2 very good trades in AAPL
(Apple) and AMZN (Amazon) that would have worked quite well. Today I exited the POT (Potash) call option trade with a small loss ($76) as it was too slow to evolve. I had been down over $500 on this position but according to my crystal ball it looked like it could reverse.

Meanwhile, with the funds from the MOS trade, I was able to buy a call on BIDU (Baidu, inc) and make a cool $960 overnight. Then, BIDU continued to trade higher and I missed out on another $700-800 in profits. Is that painful? No, because I cannot know how far any position will ultimately move. An 80% gain on a trade overnight is hard to ignore and not book profits. Since I only had 1 contract, it was either sell or risk losing good profits.

Now I am holding 2 X (US Steel) Jan 2010 $65 puts which today have become profitable. I may add to this position tomorrow if conditions look good to do so. I am expecting this stock to retreat from today's high of just over $58 to about $54-55, or with a strong market sell-off, to $49-50. Trading over the holidays can become skewed as volume and price movements lack fullness and authenticity. But trading is fun when things make sense using a prescribed method to place trades and take losses or profits. In about 3 months, my account has moved ahead about 250%. That is mainly a result of the fluctuations of a small account.

For 2010, I expect reality to come tumbling in and plow the bulls under at some point. I do not believe this is a new bull market because the Communists running the country from Washington will eventually over tax and spend us into financial depression. Just wait you Obama lovers, it will affect you numb-skulls too.

Beyond 2010, look out below. This time it is different. Capitalism and free markets are on the run as Marxists seek to destroy all evidence that the United States ever existed as a freedom loving country. And thus the markets will be deeply affected and not in a positive way. Forget listening to the mainstream pundits and economists as they are robotic and stagnant. The current market fluff parade will end in another bubble-popping episode courtesy of the gov and the fed.

As always, it is YOU and only YOU that can make it or break it in the trading game. Go your own way using accumulated knowledge and experience to guide you to greener pastures. Never give up. Forget CNBC, Bloomberg, Crammer, Barrons and all the rest. They do not know you, for only you can know you, inside and out; therefore you have all the power you need to become a multi-millionaire trader. The feast is yours to claim and enjoy.

Trading Strategies

In this economic environment, it is difficult to know which end is up. The mainstream economists are virtually hailing the recovery and the advent of a new growth economy. In other words, we are heading back towards normal. Hardly, in my view. The trouble with most economists is that they all come from the same dithering school of nonsense. Their models are static and conventional and non-elastic. They view the present in terms of the past by using data that is averaged and non-adaptable...A+B=C, so that when they see A they automatically predict B and then assume C.

I think things ARE different this time, finally. Over the last 50-60 years, we have had several booms and busts but we have always recovered from the busts. However, the new variable is that debt has now become a major factor in the emergence of any recovery. All levels of debt have been skyrocketing over the last few decades. And increasing debt has the propensity to demand higher levels of income to service it. With the interest payments demanding more income, there is less available to use for saving, investing and spending.

You eventually get to the point where income does not cover the debt payments. The answer is not to borrow more, but to pay down more debt. Our economy, in the years ahead will be burdened by higher payments to service debt, higher taxes, and more regulations making it difficult to increase levels of business creation. And you tell me MR economist that we are heading toward a new sustainable growth economy? Hmmmm.

Anyway, the last OIH trade was sold for a $2.70 gain. Since then, the OIH has trended toward the downside. The newest trade has been to buy the DEC 70 put option on MOS (Mosaic). This trade has been a wild ride. The average cost is now $11.70, and the option over the last week ranged between $7.70 and $12.90. True, I possibly should have closed this trade for a loss, however, several of the indicators I watch were signaling a downside correction. At this point, I am at break even and expecting further downside which will increase the value of my position. Perhaps, my evaluation is faulty and I will sell for a loss which must be considered.

The bottom line is that short term trading is the way to go in this market. And to be successful requires using deep-in-the-money options if you are not trading stock. At least you can take advantage of any quick bursts in either direction as prices have been eager to stop and reverse in both directions. The upside momentum is waning as volume has been noticeably light for a rally of all mothers, so to say. And he silly bulls are always telling us that volume matters.

I think the next major direction will be to the downside because with an improving economy, MR Barnacle Ben will have to raise interest rates, thus making the service of outstanding debt even more costly. And if we fail to get a substantial recovery, the market will sink like a stone.
This is because high expectations are currently baked into the markets, and I think the political landscape will eventually preclude the formation of any robust recovery.

This means, do not blindly go into the markets expecting bullish action. Forces may squelch any significant upside from here. This country has gotten itself into a pickle of cucumberous (sic) proportions. This is the result of reckless unabated spending and money creation. Somewhere down the line, reality will catch up to the current dream world the government is stranded in.

This Is A Great Trading Market

In my last post, the OIH trade was stopped out for a slight gain. During the last week, I have traded puts on US steel, X, bought at $7.50 and sold for $9.65. And also calls on Mastercard, MA, bought for $9.90 and sold an hour later for $15.10. This was truly a fortunate trade.

I have now bought a call on the OIH, trading near $117, the DEC 105 Call, for $13.00. I think oil is forming a bull flag and as long as it holds $76, it has the possibility of breaking through resistance and moving to above $88. But with the dollar finding a footing in the market, it could rebound enough to send oil back toward $68-70.

By targeting short term gains of $2-4 per trade, it is possible to earn 10 points or more in a month. The goal is to earn approximately $1,000 per contract. Trade 10 contracts, and you have a real plan to earn over $100,000 a year.

This is not the time to be expecting the market to continue to move up to infinity. Quick, targeted and nimble trading is perfect in this environment. The economy is too flimsy to expect great GDP expansion going forward. The Wall Street crowd is pricing in 4-6% next year and that simply will not happen, other than perhaps for one quarter.

This country is very fragile economically right now, and yet we have the current socialist government doing everything opposite of what is needs to do. YES, Virginia, it is part of the master leftist devised plan to destroy America, its freedoms, liberty, capital and free markets.

Today will be a sad day if health care passes because it will start the government on its path to reshaping America into 1950-60 Russia. More on this later....