Wednesday 7 November 2012

Movers Did Not Show Up.

The movers did not show up and the Wall St. is screaming bloody murder. They might as well because the screw is about to get tight for the next four years. These folks have invested millions of dollars on Romney win and Obama is not going to forget that in a hurry. The TBTF banks can expect more lawsuits and regulations going forward.  And this is preciously the reason I was not long and was asking readers not to chase the bus. But it seems that today’s 2.5% sell off is not the biggest. In his 1st term Obama encouraged a 5% sell off on the day after winning. Some interesting fun facts from Schaeffers:

And as you can see from the table, we cannot make any prediction about the rest of the year based on this statistics. Question is, did Christmas come early for the bears?

I am waiting patiently for shorting the market and so far I think it is still bit early for the party. Apart from cycles, let me show you few other things. Let’s start with VIX. Despite SPX making a lower low, VIX is still in the teens and did not make a new high.

The 2nd contrarian move is coming from the currencies. AUD did not break down and EURO held 1.27 levels well. Even EURO/YEN cross is holding the crucial 1.02 and the cycles for that cross does not top for another two weeks.  A correlation of SPX with EURO/YEN is as follows:

Going short is the most difficult trade in this day and age of unlimited money printing. You never know when a short squeeze will come because so much free money is floating around. Therefore, as much I want to short the market, I would rather wait to make sure that the ducks are in line. For that if we miss few points at the beginning, it is worth the sacrifice. And when I am very much certain that this is just going to be a correction, in the range of 15% -20% and nothing more, not a repeat of 2008-9.  

What is the trade then I would be looking for? I think I would adopt a long short strategy here. Instead of shorting the market in all asset class, I would rather long some sectors and short some. One sector I am planning to go long is Natural Gas. If you remember, in the past we have discussed that Nat.Gas is going to be the trade of the decade. And it has so far refused to go down below $3.40. So why not start building up a position in Natural Gas futures. I do not want to get into the stocks of companies dealing in Natural gas because those shares will be affected with the general market weakness. The best bet is to concentrate on futures. I found a list of ETFs for Nat.Gas and here is the list.

 May be I would buy BOIL and sell LEAPs covered call to cover any downside risk.

And I would start buying some reverse ETFs after the OPEX.

Once again, there is no rush. If this is the big correction we are looking for there will be plenty of points to run for. But we have to make sure it is not a head fake.

That’s all for tonight. My sincere thanks to those of you who have sent donations. Your help and support is more important than ever. I hope we will be able to make money in the coming days but more important than that, we should not lose money. Stay frosty folks.


  1. looks like steady rally after Obama reelection is no longer in. what you think?

    1. My top was due around November 12 and that's why I am not short yet. Let's see how things develop in the next few days.