Thursday, November 1, 2007


November 01, 2007
Hey, Bernanke - Reduce THIS!
Today was a delight, of course. Back on October 19th, the Dow fell over 300 points. The bulls shook it off, and they had themselves a little tea party yesterday when their co-conspirators coughed up the 25 basis point rate cut everyone on the planet knew was coming.

And yet, merely 9 trading sessions after the aforementioned swoon, we have another big fall in the Dow exceeding 300 points. The reason? Even a group as blinkered and philistine as the bulls are starting to realize that a crumbling economy does not a bright future make.

Look, let me make this simple. Here's what the next three years holds:

A complete sea-change in taxation, including the elimination of any favorable tax treatment of capital gains (there will be a huge backlash against the rich, and gigantic tax hikes will be the weapon used). Huge tax hikes will destroy the market. You can thank Hilary in advance.
A worldwide bursting of this insane China/India/everything else bubble. Tens of millions of utterly naive new investors will be wiped out.
A massive political swing to the left, including the re-emergence of cold war foes. Just as the 1980s and 1990s were a major push to the right, we are reaching a climax now in the form of a plutocracy. I hate to say it, but we're going to now see the re-emerging of all those disgusting things from beforehand, such as labor unions, high taxes, anti-business legislation, and some form of socialism lite in the U.S. The worship of the rich you are seeing right now is the apex of the plutocracy that has taken decades to establish.
This repeated fondling of Dow 14,000 is just the bulls trying to forestall the inevitable. But CROX and DRYS are sort of tipping you off as to what is going to eventually happen to all these momentum stocks. It's called the Greater Fool Theory for a reason, remember.

I would also add that bulls running around getting tiny little boners about the Next Rate Cut are making a mistake. Even the FOMC is signaling that this cut is all those bull bastards are going to get for a while. At least until the economy starts really collapsing. And, if nothing else, remember rates can never go below 0%. Take a look at Japan during the entire 1990s and clue in on that fact.

I'm afraid my obsession with the 2 p.m. gremlins was misplaced. I got out of my IWM puts (at a nice profit) and, just after 2, it really did seem that the Mysterious Forces were going to pull it off again. Nope. They're out of ammo. So I left many thousands of dollars on the table, when simply letting my stops do the work would have been sufficient. Totally my fault.

Actually, if I had any sense, I would have followed my own really good advice from earlier today - - which is to watch the Fibs! They played out the retracement scenario beautifully!

So, Mr. Bear, what's next? I'd suggest carefully watching all the index lows established on October 19th. That's an important psychological low to blast away. A significant Fib level is just beneath, and dropping below that would make things really interesting. Tomorrow morning holds a major jobs report, so that's bound to affect the market one way or the other.

My SOX puts have an absurd bid/ask spread (anyone know a better way to trade this? Post it in comments or write me!) but I love the graph. This is textbook head and shoulders. I've adjusted the neckline, which means the target price is even lower. Anyway, the bid/ask on SOX sux, so tell me what I'm doing wrong here.

China. China, China, China. Your day will come. And man, it will be spectacular. Bubble, bubble, toil and trouble. Those sheep-like new investors won't know what hit them.

You all know about CROX. The stock lost nearly 40% of its value today! Too bad I didn't have puts. For those that did, and enjoyed ten-fold one-day gains, huge congrats to you! Well done!

GOOG stood up incredible well in spite of the market's plunge. However, the newspapers are overflowing with stories about GOOG > $700, and that sort of coverage is a contrarian sign. Added to which, check out the shoot star. I have no position in GOOG, and I fear this stock, but I wouldn't bank on a climb to $800 anytime soon.

One commenter yesterday mentioned the parallel to QCOM's zaniness during Bubble 1.0. He's right. Check out this graph. Look familiar?

Oh, errr, here's what happened when people woke up and smelled the cat food.

As I've said before, one great thing about being a bear is that prices get wiped out much faster than they rise. Look at ABK. It took nearly a decade to get from $30 to nearly $100. And it only took a few months to destroy all that value! Whoo hoo! Awesome.

I don't remember if I've mentioned, but I've got puts on CSCO. It is failing what should be a great breakout.

The exactly same logic is driving my ownership of HANS puts.

I was happy enough with what LVS has been doing since I bought puts a couple of days ago, but I didn't know the treat I had in store after hours..........the stock's off nearly 20%! These puts are going to explode higher tomorrow. I've put an arrow showing where it's trading now.

My TIF puts are a long-term keeper. I see much lower prices for this luxury retailer. The collapse of the plutocracy will take years, but this is just the kind of trade that one can play.

One thoughtful reader sent me a suggestion - VSEA - which I appreciate! This H&S isn't as perfect as $SOX, but it's good enough for me to have bought puts a few minutes after receiving his email!

See you in the morning. It was a great day! Be strong, bears! You're better than they are.

Posted on November 01, 2007 at 01:54 PM | Permalink | Comments (4) | TrackBack (0)

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