What The Hell Happened Today? Monday – Feb 25 2013

What happened today proved the bulls are sitting on the sidelines praying this correction isn’t 8%. Those who had money to invest in this secular bull market, already have, and so with no one else left to buy, the bears have come to crash the party. The bears today came in numbers (massive selling volume) and said they don’t give one sh*t about Italian elections, they know Euro problems aren’t going away, they finally decided to negatively price in the sequester, and they were sick and tired of seeing this rally ensue without any sort of consolidation…until now.

I no longer believe Bernanke’s testimony tomorrow will be enough to buoy this market. Although there may be some kind of Bernanke bounce once his testimony is released, I think the bears are here to stay. We broke through a number of technical levels on a majority of the indices and this is not something to shrug off.

A closer look at SPY:



My March 16 VIX call suggestion from The Week Ahead Report (yesterday’s post) is up 155% today. I knew it was a good hedge but even I did not anticipate such a move.

This week is set to be bloody. Be careful out there.


Be Wary – Today’s Bull is Tired

Traders, this gap in futures this morning is really pretty. I know. It’s what we’ve all hoping for…a continuation of this beautiful rally. But remember, the 153/154 level for SPY is multi-year resistance and the only news hitting the tape this morning is that Italian election results are looking to favor Bersani.

Other things to keep in mind: the U.K. was downgraded by Moody’s today, people are expecting Bernanke’s testimony to boost the market, and bearish bets for Friday’s sequester are very high.

If Bernanke doesn’t give the market the juice it needs to keep this rally going mid-week, things could get really ugly by Thursday.

Be careful buying in at these levels. Good luck!

The Week Ahead – Feb 24 2013

Everyone and their mother has figured out the market is most likely due for a pullback this week. We get it. The real uncertainty lies in the one and only, Ben Bernanke. He has a large political incentive to keep the wind in the sails of this market by reinstating the vagueness of QE3’s end with his testimony Tues. This is the potentially large bullish catalyst for equities this week.

The most important thing to remember is that this long-term bull trend is strong and all juiced up on QE3. This means there is still a slight chance Ben could help this secular bull get the fix it needs to pull a flat to slightly green week. Never underestimate Washington drama.

Speaking of Washington, this market has not yet priced in sequester results which could also be a huge market mover in either direction this week. I believe this pricing in has not happened yet because of how numb the markets are from the Fiscal Cliff drama in Nov/Dec. The market is waiting for more information to make its move simply because it’s smarter now. It realizes market overreaction is unwarranted until more news hits the tape. The deadline this Friday makes this pricing in inevitable so be ready for the move.

However, for the most part, this week is littered with bearish landmines. For one, technically, this market is looking very weak since most major indices broke their short-term trend channels last Weds (I’m sure you’ve all seen a thousand charts of that by now). Add to that the low volume bounce on Friday, the ominous trend of the EUR/USD and the long-term chart of the S&P, and you have “short-term correction” written all over it.

Chart of the EUR/USD, which historically has been an early indicator of market direction:


The long term chart of the S&P:


Fundamentally, bearish risk for global equities comes from this Italian stallion:


Since there are few economic indicators due for release domestically this week, the Italian election results could affect the U.S. markets negatively if European bond yields jump. Any opportunity for fear to creep into this market will only strengthen this building upcoming correction, whether it’s this week or in the next few weeks to come.

It’s also been mentioned in a million articles, but I don’t believe that just because 99% of newsletters are bullish that it’s automatically a reason to be bearish….but VIX has been below 13 for a large part of February…and complacency is not the market’s friend.

Overall, this week will be key in determining market momentum and should be exciting to watch. Traders will have to be nimble to survive. Protective positions are a must. If your portfolio is net long, I suggest picking up a few March 16 calls on VIX.