Trade: Sell FAZ @ 35.75 STOP Placed

We are not going to watch this today. Put in a stop order at 35.75 is the stock hits. It is doesn't then we will look at it before the close. Enjoy the day!

We missed the best October..EVER!

We got October totally wrong. Although we did extremely well on the downside, we missed the whole reversal. We did not lose any money...even made a little bit- but to miss the best October ever - is just frustrating to say the least. No excuses. We were wrong. We really hate to miss moves like that. Oh well...such is the trading life. We will take our 142% return since July and take a break. it would have been great to catch both the downside and the upside moves.

We will be closing our FAZ trade today and get ready for the weekend. We don't feel like trading the rest of the week. Time for fun.

This weekend is The Georgia/Florida Game...and the "World's Largest Cocktail Party" is beginning today and we look to enjoy the weekend!!!

Have a great weekend!

A Doji Star...What now?

We have a technical formation (see chart above) that can mean a move that has been exhausted. The EU crisis seems to be fairly settled in the minds of investors- although there are no details yet. The "perception" is that it may be over. The volatility has collapsed in the market as measured by the VIX. It has gone from 48 to 25 in about a month. The earnings are mixed to neutral. We have gone from a near "Bear Market" to positive for the year in under 30 days. It appears that the world changed completely during this time frame. It is hard to believe. Maybe the original fear and selling was unfounded and everything will be OK or this is a temporary reprise. I don't think anybody is really that surprised that The EU was going to get a bailout. Bankers protect their banks at all cost. What concerns us is that their really appears to be systematic problems. Now that the markets appear to have been stabilized, they will begin to argue again and the volatility will probably go up. The technical formation may be ominous. We will play the short with tight stops here. We will keep a neutral stance in our minds. The only question is; Are we going up or down from here.

let's see how the formation unfolds. It certainly reinforces the belief to always buy the corrections as The Fed will always bail it out....until it doesn't work. So far, it seems to be working.

Trade: Bought FAZ @ $37.10

The Bears can come out now......SELL!

The bombing is over. It has been an incredible run in October. The Bulls charged full steam dead on and crushed The Bears. I wish we participated. The Computers said it was safe; however, a little thing called fundamentals prevented us from participating- oh well. We went ahead and started a strong short program today. it should be clear now....Sell the news! We bought FAZ again at the opening for 37.10. The manipulation is over for now. The only thing left is for the EU to bicker over the details and the market can get back to worrying about earnings.

Trade on: FAZ @ 37.10

Check emails for details...

FAZ trade: Closes @ 45.24

Too much politics in here. Gonna wait and see. We took our 6.5% gain and are back in cash.

Trade: FAZ bought @ 42.50

Due to client concerns...we will now publish our trades after clients receive them first in their emails. We bought FAZ 10/24/2011 @ 42.50

Where have we been and what now?

I received an email from a (free) reader today asking where we have been the last couple weeks. I stated that we have basically been in cash because we did not trust the market. He advised that we "missed" the move and we were wrong. Our answer was...not really...as we posted..we closed our shorts and sat on the sidelines. We made no bet either way and advised clients to wait for better entry points. A "better entry point" can be at a higher or lower price. The key is- at a price where you have the highest probability of making money- not the lowest price. We figured in our emails that The Dow had an outside chance of approaching 12,000 because of a huge short squeeze..and choose not to participate in that move because the fundamentals are so poor ( it almost hit it yesterday). We certainly are wrong many times; however, choosing not to trade and not losing money is NOT being wrong. We continue to advise long-term investors not to buy at these prices or into this market at this juncture.

What now?

As explained in our email yesterday

We believe 12,000 to be the very top of the range and decided to short. We bought FAZ (3x short the financials @ 42.50 yesterday. We think the bank earnings with their DVA accounting is just horrendous. The momentum stocks are starting to crumble and the bank stocsk are in a very precarious position.

Mish Mash and GooLash....

Does it really matter what's going on in here? The markets are twisting around with no direction. It reminds me of a party where they bought tons of kegs and were expecting the party of the year....well- it's just a bunch of dudes drinking their own beer and no girls. Lame. Save your money and wait for better entry points.

Shorts closed and other Dr. Bizzaro stuff

The markets have been very strong. We closed out our shorts yesterday (at a break even), which was 1 day too early. Our trade worked out perfect; however, our timing was off by a couple hours. We jumped in the TVIX yesterday ahead of our program at 60 and again at 56- which was ahead of our computer target of 55 (it hit 54). The problem was that we did not wait for our computers to hit their targets. Well- needless to say, it was a couple hours too early and we were 100% committed. The market rose to our targets and we were underwater (impatience). It got near the close and we were surprised by the strength-we bailed out at a break even. Had we held or executed better, we could have claimed a nice 10% profit today (it hit 61). So- it gets worse. We think the markets are done with the fear trade, so we decide to go long financials and buy FAS (3X's). Again ,our timming was just off and we got in today at 12.05...it went straight to 11.47 and the news was horrible...JP Morgan reported and missed...double whipsaw! By this time we are braindead. We decide to hold and adapt a "damn the torpedos" mentality. We are not going to get shaken out of the tree twice in a row. FAS is going to 14 and we know it-no matter what the news is! It recovered to close at 11.97. Really a Dr. Bizzaro...against all logic. This is where we stand right now.

Analysis: Our ideas are 100% dead on- our execution is horrendous. The problem: Believing that we are "spot on" and not waiting or jumping the gun. The solution: Trust your systems.

Wall Street: Bizzaro's World

Dr. Bizzaro has reeled his insane head. The markets have touched positive for the year. The Dow has rallied 1200 points since Oct 4th low. Mind you that protests across the country have grown substantially larger, The Fed is out of bullets, the capital of Pennsylvania has just declared bankruptcy today, there is no detailed plan in place for sovereign debt, investors are confused, volatility has gone down substantially,and their is a real concern over the solvency of some large banks.

Strange days indeed.....

Operation Bear's Den

We commenced "Operation Bear's Den" at the opening today. We initiated 1/2 short positions. Check emails for details. We are playing with the computer strategy. The Dow is up 1100 points in 5 1/2 trading sessions- seems fishy

How The Occupy Wall Street Protest will affect the markets

The protest will mean that the power of The Fed's programs will be greatly diminished in the intermediate term. It would be foolish to attempt any market support at these levels and in this environment. The smart politicians are beginning to abandon their ties with the bankers. It is quite possible that a "too big to fail" institution will be hung out to dry as an example and a sacrificial offering to the 99%. The "short squeeze is about out of steam" and we will see new lower prices. Any attempt to prop up the markets would be a "spark" for more protests. Expect the markets to be allowed to "trade freely" in here. If they do........Dow 10,000 is sure to be hit. The Hammer is comming.

Inside The Compter's Mind

The current rally is confusing many investors and traders. We believe it is run by the computers. The above chart is our representation of what "The Computer's" are thinking. It is where we will attempt a short against the market. We are only about 200 points away.

Change of Mind! Red Alert!

We had a quick change of mind..almost got suckered into the bullish case. We believe that we may be very near a sell-off. We will be looking for an entry point to short soon. Check emails.

A New Era?

It would seem that the selling pressure has abated substantially. The "Reverse Capitulation" may have been the short-term bottom and the new support may be the 50-day moving average. It is still dangerous in here. The mood has decidedly shifted away from all doom and gloom. We have now begun to actually begin an accumulation process. Check emails for trades.

WSR Performance Numbers: 10/7 Close

Inception: 7/7/2011
WSR +137.5%
S&P500 -14.4%
Out/Under Performance: +151.9%

We should be a lot more satisfied with our performance thus far- but we are not. It has been a lot of work and we made many mistakes. We did not hold many of our winning positions long enough. It is very frustrating in that sense and we are working on our systems. We did well getting out of losing positions. Check emails for full report. Have a great weekend.

A Valiant effort by the humans!

We closed our short (TVIX @80) we bought in the morning (TVIX @73) in the middle of the day because the markets were barely selling off. It was a decent profit of 9.6% because we wanted to avoid "The Witching Hour". It came! The market made a valiant run again at DIA 112 during the last 50 minutes only to selloff again in the final 20 minutes! This market is dangerous for both longs and shorts. I am very surprised it closed basically flat. It should have sold hard. The
Matrix Defensive Line stands (DIA $112). Whew! Another gut wrenching day.

The Matrix Defensive Wall

Well ,The market (DJIA) has reached a very critical point. it is directly up against the dreaded 50-day moving average. This has been one of the best indicators for the strongest resistance during the last 3 months. This has been the place where The Computers that short the market make their stand. We call it the "Matrix Defensive Wall". This is were we will place our short. The Computers have been running the show and it would be extremely difficult to break this barrier; given the current fundamentals. Check emails for what we are playing.

It is The Computers vs. The Humans at this market juncture. We are just going with the odds. We put our stops in place for a small loss if the blockcade is overrun. There is no thinking in here- the computers will automatically pull us out. Emotionally we are nervous about a big market up-move; however, The Computers are running the show and we will let them dictate our strategy.

Reverse Capitulation and Find Elmo

Market Capitulation is usually the sign of a bottom. This is when all the bulls just give up and sell. Most traders and investors have been waiting for this moment for months. It signals to them that it is safe to buy stocks. It has not happened. What is it called when the bears give up and just buy? We will call it "Reverse Capitulation". Did you know that 74% of all the available SPY ETF were shorted the last couple months. The SPY is the ETF on the S&P500 index. This means everybody and their mother was betting stocks would go down. The violent reversal on Tuesday was what we would call a "Reverse Capitulation". All the shorts are battered and are close to giving up or have given up. Is this the sign of a bottom or a sign that things will get worse? We are not sure, it will definitely eliminate buyers (shorts they would eventually cover) and that just leaves the bulls. We now have 4 groups. Those that have given up completely and pulled their money out, The shorts who have given up, The bulls who are spent, and the computers who jump any way the market is going. So where is the market for potential buyers?

Find Elmo

Not out of the woods....

Technically speaking, the charts do not look well. The "Shorts" are losing money in a market that has been trending down. Why is this a negative?It is not a good sign because they have been the only capital providing support. As twisted as it sounds, whenever the market shows any strength, they come in and buy to cover their positions. There is not real interest in stocks at these levels. Poor Tecnicals + Poor Fundamentals = Lower Prices.

No Man's Land and The Witching Hour

We are now caught back in "No Man's Land". The Bulls are exhausted, The Bears are exhausted, and everybody is afraid to do ANYTHING.

The final hour in the trading day is now know as "The Witching Hour". It is now a mythical time where the markets can make violent moves in any direction and make traders bleed. The best advice is to avoid this time. It is a vacuum where few will now dare to tread.

Dow 10,000 still a high probability and the best time to go long if you have the guts!

The Whip Saw Came...

Out Dow target of 10,000 came very close to being hit. The Dow touched 10,400 and had a violent reversal in the last 50 minutes yesterday. The bears were crying "foul play" when in reality, almost everybody was short and just waiting for the capitulation- it was a perfect time for a reversal. The VIX index was extremely stretched and it was a natural snap-back. Did we play it?

Yes. We sent counter trades out on the XIV beginning Monday @ 5.25 - When Tuesday came our plan was to double-up at 4.92- At this point, even we were scared to add more. We held our original position and added FAS at 9. Towards the end of the day we were getting anxious and decided to turn the computers off.....Then at 4pm we checked....WOW! Our instinct was right because the market ripped higher in the last 1/2 hour. We dumped our positions today in XIV at 5.60 and FAS at 10.10 for a 7% and 12% gain respectively.

Scary stuff!