Nightly Report. December 14, 2011

During the day I tweet many times to my readers.  I would like to quote one in particular in the afternoon;

We might have reached the bottom. Max. Downside another 10 handles in SPX, but I am not betting on it. If it was me, I would close all short.

May be SPX did make a triple bottom. Whatever it is, my algorithms and indicators are saying that we have a short term bottom. I was ready for SPX 1200 +/- 10 handles, and here we are.

Tomorrow will tell us if it is indeed the bottom. But I am not rushing in to go long as yet. I think the law of inertia does apply to stock market as well. And the liquidity situation is still sloshing around.  We might go up for the next two days because of the OE week but weakness might return early next week. So I am not looking for any trade till at least December 21st.  Only new trade I have done today (apart from closing all short position) is a pure speculation. It was a call option on AMR, the bankrupt airliner trading below $1. Again, it is all a question of risk and reward perception.

To my “Bear” friends, the risk reward ratio does not support a good short now.  So for now, for the next few days at least, my bias is: NUTRAL, position: 100% CASH.

TBT appears to have made triple bottom as well.

AUD 30 minutes chart shows some kind of stability and RSI is also stable around 30. The up indicator in Aroon  is showing 48 which is not bad.

The regular readers know that I correlate stock market movement with currencies. The speculative sentiment index (SSI) shows that retail traders have gone super short on EURO and AUD. SSI is a contrarian indicator and indicates gain in EURO and AUD. By extension, in stocks.

There are many reasons why the index can go down further, but there are many other reasons why it would not. I think the logic for upside is going to win.  The option maximum pain is showing SPY at $ 124 and actual pain is showing SPY at $ 125. With only two days left for OE, I do not want to underestimate the strength of the option writing group. These are the people who have the power to move the market. The following data is from CBOE. I am no expert in analyzing these data, but to me it looks like more people have puts on SPX than calls.

As you know, stock market likes to inflict maximum pain on maximum number of people.

So dear reader, if you went short when I called the top, you may want to close those short, now that I am calling the bottom. In any case, let us protect the profit. Be safe out there.

Thanks everyone for following me in Twitter (@BBFinanceblog) and keep reading http://bbfinance.blogspot.com/ regularly to profit from the world of finance.

P.S. I forgot to show the McClellan Oscillator for the day which is moderately oversold;