Exited the qqqq's

While i needed to go out of town and did not feel comfortable leaving my long qqqq positions on so i exited Friday of last week. We still appear to be in the same position as last week. We may be forming a double bottom on the nasdaq 100. We also may be forming a double bottom on the S & P 500 as well. In this case the double bottom would be distorted in that the second low did not make it all the way down to the first low. This is actually a position sign.

Before i rush out and buy a bunch of stuff i need to understand if this potential double bottom is different from the one put in on March of last year. One difference is that at that time the 50 day moving average was above the 200 day average. This is a more general bullish indicator for longer term institutional investors. Right now things are different in that the 50 is below the 200 and both a pointing down. Another differnce is that in March the market was in a consolidation period for 3 months before the double bottom formed. Right now we are clearly in a decline not a consolidation period.

My guess is that if the bottom forms we have limited upside potential. I keep trying to figure out what is the near term target we could expect. Getting to 13000 on the dow seems the furthest we could go at this time. What is the impetous to get to 14000 again? So for now i will sit out and watch. I do have a small gold position i am sitting on. It is starting to look like a symetrical triangle is forming. Although this will be smaller than the one that formed in Nov-Dec of last year, this sets up for a possible further rise. As always we don't know until the pattern completely forms and then breaks out. If it breaks lower then i'm out.
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They shot csco today

Very interesting after hour action in cisco. I was listening to the first part of the conference call and everything was fine. They made the numbers and the stock was rising a little. I left and came back an hour later to find out it was down 8% or so. The crux once again was guidance. As usual lately the guidance going forward was tepid. It is unlikely any company can escape the negativity right now. The crux is that the E in the P/E ratio is open to interpretation and is not very reliable right now.

This is great news for me as i'm short right now. As always the difficult part for me is to switch over to a more bullish tone when necessary. I'm starting to think that some of these stocks are really getting cheap, even if you whack off 20% in future earnings. The problem with bear markets is that you can never tell how far down we will go.

So i will look to the charts to show the way. If we hold the recent lows we could setup for a nice double bottom which could lead us into a steady increase in stocks over the next few months. This sounds counterintuitive, as we will still be in or just entering a recession, but it is just too easy right now to just short any stock before they report and make a chunk of money. This game will get played out soon.

As far as all the old and new horsemen? I think they all are dead.
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Google implosion

Well the 1 google put paid off nicely. I purchased at $22.60 on 1/25 and sold for $50.80 on 2/1. For a net gain of about $2800. The amzn puts were a different story. I was involved doing other things so i ended up holding on to them. This was a big misstake as it recovered most of the losses. Currently i am down about $350. I will look to unload at the most timely price i can this coming week.

In both cases a not bad quarterly result was sold off agressively. So far it looks like the goog drop will stick a little more than the amzn drop did. So what we are seeing is multiple contraction. From my previous post where i talk about the PEG ratio you can see that any reduction in the estimates going forward can have a great effect on what investors are willing to pay for a stock. We saw this with apple and many other former highflyers.

I currently put on some shorts, but i have to admit i'm concerned i might be wrong. So my position size is relatively small. On the S&P 500 we are coming into the previous support area near 1400. This could offer serious resistance, but i think we need some negative news to inspire the market to sell-off from this level. If there is little news this week then it is possible the market will keep advancing through this resistance. And it could actually cause a short squeeze.

On the other hand we could get more news on the mono line bond insurers. If they do get downgraded that could instigate a sell-off.

The bigger picture is that there is more bad news to come and this will continue to pressure the market. It is most likely that one or more homebuilders will declare bankruptcy and that one or more smaller banks will as well. At some point in the future when the Fed get's the rates down to 2% or so; bad news will pop out from somewhere. Then The Fed will be powerless to do anything about it and the market will know it. If dropping rates from 5.5% to 2% didn't "solve" the problem how is dropping rates to 0% going to help?

We will see but for the next year i can only see a negative bent to things. The debt bubble needs to unwind, consumers need to clean up their balance sheets, which means they need to cut back a lot. All the Fed's latest moves do is encourage people to borrow more, but they are already tapped out. If you cannot service your current debt load how can you borrow more? You can't. You must cut back even if the rates are really really low.

We will see how things play out. The markets tend to have nothing to do with the real world so you could have a rally in the stock market while the average Joe is struggling. So never buy the story, just watch what the charts are telling you.
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