Horrendous Earnings...Sky High Valuations

Wow! The tech companies operating profits have been terrible. If you prefer to use Non-GAAP earnings or virtual currency, then they were great! Fortunately, stocks don't trade on that for too long. Spring is coming and people are not going to be spending as much time playing on their idiot boxes. Sell in May and Go Away - are The Words on The Street. These stocks will be a lot cheaper by summer. A lot cheaper.

Why now would be a good time for a correction

The boards need to be cleaned up. I haven't seen this many "less-than-quality" deals priced so fast and selling at ridiculous prices since the 1999 Tech Bubble. We have indexes selling at unsustainable multiples, horrendous investment advice all over the media, and no fear at all of the risk of investing in stocks by the general public. The "10% Correction" in the NASDAQ" is over. It is safe again, buy!

It is good for the country to have a healthy stock market; however. right now would be a great time for The Fed to allow a healthy pull-back. This would clear the board of complacency and protect the investment public. They need to know that the market does not go straight up. There are too many nearing retirement that should reconsider their allocations. The markets can handle a reset right now. Most of these individuals have recovered from the 2008 financial crisis and have more than enough profits. If it is not done soon, it will set a dangerous precedent. Earnings are going to be anemic for at least the next couple quarters A  quick 20%-30% correction in  NASDAQ and Russell 2000 would be perfect to get the multiples back in line and save the Bull Market. This would be the right thing to do. Let's see what The Fed does.


* We are short the markets- we think they will do the right thing.

FEAR

The markets are full of it. The Bulls AND Bears are scared. The next 8 trading days are crucial in the short-term. The NASDAQ's resolve will be tested.

If you are long, you are nervous.
If you are short, you are nervous.

We are still short and even added a little more at the close yesterday. We are very nervous too. We had an opportunity to lock in a large gain in our short positions. Our instincts won't let us out of the trade. A 30% correction in the NASDAQ is there. We see it in our dreams.

Our vision will either pay us very handsomely or cost us a fair portion of our capital. Nobody really knows how this is going to play out. We failed to fully capitalize on our gut feelings many times and this time when we decided to play it out. It is extremely difficult to not sit this trade out.

This is trading in it's purest form. The fear of losing money because you believe your analysis is above the vast majority. A trader will need great resolve in situations like this.

A little perspective

Todays close:
NASDAQ 5-year return: +141%
The DOW 5- year return: +100%
S&P500 5-year return: +112%

Now after all the "carnage" and "fear" in the media.....

NASDAQ YTD: -2.6%
The DOW YTD: -1%
S&P500 YTD: 0%

The question should not be "What percent they are off the highs?" They are a bargain!

The question we would ask is "What percent are they off their lows?" They are Expensive!

What do you think?

Perfect Bounce...

The ATS's hit the 200-day on the NASDAQ. This triggered auto-buy programs. It triggered our buy program. We did not buy. The ATF's do not know valuation. There are a lot of Bears, Bulls, and Pigs that got slaughtered today. The earnings releases will be poor to average (of course they will beat the lowered bars), the spins will all be bullish, and almost every portfolio manager will find any reason to be publicly bullish. They have to be. You would too if you had to stay invested. Your bonus depends on it. I have never seen so much confusion and complacency in the financial media. We heard some of the most ridiculous financial advice media outlets gave to their viewers. There was a very noticeable fear when it passed through the 200-day on the NASDAQ though ( for a brief moment ).

Going to be tough; however, let's see if they can pull off the façade. They just might. We wouldn't touch the NASDAQ or RUSSELL 2000 with a 10 1/2 foot pool. There is substantial profit yet to be taken in these indexes.

P.S. We expect a visit from Yellen tomorrow. It would be perfect timing to make some kind of public announcement. Watch;)

Algo Trading Sytems set.....

The technical patterns of the markets are beginning to break across the board ( saw them break two weeks ago). We think the Algo Trading Systems (ATS's) are approaching auto-sell. If you are managing hundreds of billions in the markets, you have to have an ATS. We think they are at or passed their "Maximum Risk Parameter".  If you don't have one........

Here come the 3 B's

Blood. Bull-Traps, and Bulls***. The bulls in anything will be hit. The Gold Bugs got crushed today- Hiding out in gold has historically been a bad idea when the stock market gets on shaky ground or gets smashed. Risky and speculative holdings are being liquidated.

The Next 10 Trading Sessions

Murderer's Row.....Most of the Fantasy Valuation Stock's (FVS's) report during this period. Wall Street will see if there are anymore suckers left. They will spin it as best they can. We like to call their earnings valuations "PB Ratio" instead of "PE Ratio". PB stands for Price Bitcoin Ratio. If their dog and pony show is convincing enough, this party might continue. We can't imagine professional money managers really buy this stuff; however, maybe they think the public can be duped for more cash. It is really primed for a smash. Almost all the shorts are scared to death to play anymore. The Bulls are living on pure hope right now or greed is clouding their judgment. It can go higher - we wouldn't bet on it.

We are not afraid to short. According to our market scans, it looks like others are waiting in the wings. It is "sell the rips " not "buy the dips".

Trade Update

We sold our short leveraged ETF's and moved the profits into index put options that are out of the money. This move accomplishes:

1. Limits our risk to a pre-defined amount no matter what happens.
2. Unlocks significant amounts of capital for trading opportunities.
3. Allow us to play out our strong conviction.
4. Avoids market churning and whip-saw action.
5. Allows for a significant increase in potential reward if our trade is correct by a factor of 8 times.
6. Allows us to enjoy spring and play golf without following the markets. We are that confident this trade will payoff.

It's Master's Weekend!

Our short U.S. Banks is taking hold.....

We continue to hold our shorts on the banks we put on a week or so ago. Didn't think it would do much; however, it is doing well.

We put the short back on.....

Our original analysis is playing out on cue. Execution is everything;)

Not so fast....

The market completed it's scripted bounce. We could have gotten cute and made good money on this bounce; however, we didn't have time to trade and decided to let it ride. Our short got stopped out with a 1% loss before the release of the Fed minutes. No biggie. When the media starts talking about correction and market tops, you know being short is not the right side! It was really close though...The markets had a close call with a severe breakdown...we are not kidding. The algo trading systems saved the day by doing what they do best- buying at support points. If those points were broken, it could have easily gone the other way. It was at 50-50 odds of a break going into 2pm. That's high odds. This is the second time this year that the bull market was decided on a coin-flip. When the flip doesn't land on heads, look out below.The funny thing is that Wall Street knows that earnings are going to disappoint (they lowered the bars on all their estimates), they know QE will end soon enough, and they know that valuations are stretched - why are they not selling? We think that they are selling. We can see it in damaged markets across the board. We will play with them....not on the long side. Buying just because others are buying is crazy. We don't mind doing it, it's just that a "snap-sell" can crush The Bulls in a hurry. We are in cash and will be attempting bear raids at all the resistance points. If you catch the right point, a lot of money can be made fast. Paul Tudor Jones (one of WSR's Hall of Fame traders) will attempt the same trade multiple times until it hits. That is our strategy. It is playing out exactly how we predicted. We are playing golf tomorrow morning and are hoping for some strong bullish follow-through so we can re-initiate possible short positions again. We are in no hurry. This is a great time to trade the markets. If you survive (there will be lots of blood), you can reap huge rewards;)

Prediction: Bulls will get slaughtered, Bears will get slaughtered, and Pigs will get slaughtered. The Fed does a great job of clearing out speculators (unless you are one of their favorites). They want most  of us out. Many traders ,long and short, have taken severe hits the last couple weeks. When the carnage is done, the market will be ripe for huge profits. We love it!

What I would tell my father today- as an investor who held through the financial crisis up until now, it would not be unwise to sell here. The gains have been fantastic. There is no reason to risk waiting out another bust cycle or scraping out a few extra percentage points.

Good start today...

Our portfolio finished the day up just over 5%. Our large short positions are being rapidly accumulated. We know our short side will play out a 30% plus gain; however, it might not be straight up. Do we get cute and play the bounces or do we just sit back and watch the carnage continue to unfold? We haven't decided yet. There is a very good chance of significant market damage in here....which would equal big profits for The Bears. The Bulls are still delusional. There are still huge profits that have not been realized in the markets. We are talking about at least 1 trillion dollars. Cash registers are already being rung. The question is: How many more cash registers are going to start ringing? It would be pretty hard for even the staunchest bulls not to take a little off the table as the ringing gets louder......ring........ring..................ring..........

Let's see what happens tomorrow....A good start today;)

2014 Q1 Performance Report:The Ides of March

Dismal would be a good word. March was almost as bad for us as it was for Julius Caesar.It didn't start that way. We had made good profits on our 1st Gold trade, 3rd Gold trade,  QIWI, QIHU, NFLX short, and we basically pissed it away on our TWTR and ANV Trades. We finished down 17%.

Two mistakes out of 10 trades. The problem was that we did it again...We broke our golden rules. That's been our problem for a long time. The rules are there for a reason. The reason is that your instinct is a collective for your rules. It is pure. It is everything you didn't think you knew but you do. They are there to protect you.Never break your trading rules. Never.

Rules Broken:

1. Never bet on a Earnings Report. It is a total crap-shoot. Our Twitter trade was a big loss.
2. Betting too big and not having tighter stops. Bigger bets should always have tighter stops. ANV was case in point. Stops were waaaaaay too wide. Thank goodness our Fail Safe and a little luck pulled us out at non-critical loss point. Still we took a big hit; hence, the negative 17% return! Just plain greed and stupidity on that one.


Outlook for Q2:

We like it. Most of the trading bugs have been fixed. We think our current trading program has a good chance of doing really well this quarter. Our capital is in place, our strategy is sound, our execution plan is set, and our stops are firm.

Let The 2nd Quarter Begin!

This could be it.....

Stockspeare remembers this play from the 2000 Tech-Bubble Burst. It is playing out in crystal clear fashion. Does history repeat itself? The market is showing signs of cracking. There has been a vicious rotation going on for the past couple weeks. A vast amount of liquidity is drying up in the speculative Nasdaq and Small Cap names. The Bulls are hiding out in The Dow and S&P500. The Punch Bowl is almost empty. The Smart ones have left or trying to get out.... only The Pigs are left-and we all know what happens to pigs. There is a high probability of severe carnage (already has begun in some) in the Russell 2000, Internet Index, Biotech Index, The Nasdaq, and eventually this might hit The Dow and The S&P500. The Bull heard is on the move...they are nervous....The Bears are about to have a feast. Bearish positions are already being established......This is not a drill.

We are Short. We are confident. More Bears are coming and they have not been successful in years. The Bulls are fat from profits and it is affecting their vision. The bell has not been rung; however, the keeper grabbed his hammer. Expect The Three B's ( Bull-Traps, Bullshit, and Blood)

Hmmmmm...Sounds grim....The bet is on, let's see if this story plays out or is just fiction.