Midnight Musing

20% of stocks are trading below their 200 day moving average, the VIX is hovering around 30, the White House is expected to release some sort of temporary stimulus package, and tomorrow is options expiration... my bet is on a dead cat bounce. Though I'm mostly in cash, I've taken a position in the badly beaten Chinese index GXC, some ICLR, and AMED (which has a fantastic short position)... I'm sill short gold and silver (which goes against every ounce of my fundamental fiber, but remains profitable), and I expect Friday to continue the head spinning roller coaster ride that this past week has brought. Needless to say, I've lost a bit of capital this week, nearly 1.5% of my overall capital, but when I look at how the markets have been trading, I guess I can't complain. I'd love to see a nice strong bounce, especially in the financials, real estate, and consumer discretionary, because I don't feel comfortable going short at these levels. I think gold will trade down to 830-840 an oz before resuming its upward momentum, so there should be a few more points to the downside in my GLD short. SLV might trade as low as 155, but it is showing much more strength that I imagined, even though it tends to be more volatile than gold. The weakness in energy and materials has done some enormous damage to DIG and UYM, which may prove to be an excellent entry point for a bounce as well. On the other hand, everybody seems to expect a bounce, and that doesn't bode well, because there is less conviction amongst the bears, and therefore less potential for a short squeeze. I watched an interview with John Thain, the CEO of Merrill Lynch, wherein he said he doesn't expect to have anymore significant write downs because they only have another 4.8 billion in subprime exposure... guess that leaves prime loans to go bad, but only time will tell.

Pitiful Pitfalls Prevent Profits

Trading has many advantages, but articulating long term strategies is not one of them... Though I expect good things from the precious metals sector over the next year, today is the second day of high volume downwards action, confirming my thesis that there is a short term top in gold ~900. I've sold all my precious metal related stocks (GLD, SLV, GDX), and have gone short for the time being, who knows when this market will find a bottom. In the "one that got away department", INTC numbers fell sufficiently short of the nervous markets expectations, and the semiconductors are getting pounded (SSG). Agriculture seems to be following gold, and thus I've moved a good deal of my positions short, in cash, or in the yen. Blogging and trading might not mix too well, it is difficult to time recommendations to a reasonable degree in which the remain profitable for weeks to come, not just a few days... I will have to figure out a better method... I'm hoping the Chinese indexes continue lower... they appear to be headed to my long term bargain zone. Using linear regression, I think FXI will be attractive ~120.

Interfestering

It has hardly been a few days since I posted my bullish thoughts on GLD, but what a difference a few days can make... With such a sharp run up in GLD, things looked good this morning as it continued to make new highs... but there was a sharp sell off today, but more importantly, it was on HIGH volume... FOUR times the 3 month average. This is not a good short term sign, and I will be monitoring this closely with the expectation of cutting my gold position in half. Though I still feel it is a very good place to be in the long run, the recent price action has gotten a bit ahead of itself, and with the Fed Futures already pricing in a 50 bps cut, I can only assume such expectations are baked into gold as well... Long term investors shouldn't be too worried, but it looks like the short trade is more viable in the near future, probably indicating a new consolidation range. This will also have a negative effect on the more volatile miners with whom I have placed much faith... needless to say, I'm not trading to be right, but to make money, and thus it may be prudent to take some profits off the table and watch from the sidelines... This mean I will be cutting down on silver (SLV), DBP, HGU.TO and GDX if negative price action persists, all of which I have had a great run with over the last month... I expect GLD to move to 83-84 over the next few weeks.