Friday, August 28, 2009

Sound the Alarms, Tsunami Coming!

EWI has issued an unprecedented double monthly report today. The sentiment extremes which we have been pointing out for over a month, the mag covers stating perhaps the worst is over, BB getting re-appointed as the savior, and extreme dollar bearishness all add up to one thing:

Tsunami. Lot's of retail has piled in long. They will scurry away quick with a 5% drop, but their financial advisor will be telling them to buy the dips, and we will be selling the rips after the dips. There might be alot of dip buying.

OK game plan from 5000 feet. Next week is a pre-holiday week, end of the summer for many people. Some of the big boys will be gone, lighter volume, easier to push the tape.

Because HBB games EWI I expect a drop on Monday AM, decent gap down, 1%...this encourages bears to sell but doesnt scare out the new bulls quite yet. Then market moves down in waves for 2 the bears are piling in...pissed that they missed part of the move. Now on light volume, HBB paint the tape higher, to new highs...shaking out the bears and puffing up the bulls who knew buy and hold and buy the dip would work.

Asia tanks on Sunday, Sep 6th, but US can't do diddly, markets are closed--but everyone can talk about it at the Monday Labor day holiday over a nice BBQ with corn on the cob, anxious that they can't do anything because the market is closed. They enter stop loss order right under their long positions, but the market gaps down pretty big like 3 or 4 percent, and they are forced to sell into an abyss.

I'll have stink puts ready to buy on that final pop later half of next week, but already picked up some nice stink puts today, all 2010 expiry. Get your tickers ready. And review my boatloads. Many of these "weak stocks" that have shown surprising strength are exactly that...a sentiment extreme in which non-pro "investors" get attractive to risky assets, like going to Vegas (like Fujisan...except that she is the opposite of retail, one of the best).


  1. Do you think it can go down 5% on light volume? What would be your target area for the downmove to end next week on the S&P?

  2. Yes, I think this market can fall simply by gravity if the amount of buying is reduced.

  3. Your scenario played out to a T.

  4. Being good and being lucky both count :-)
    It is funny how in the heat of the battle you can lose sight of the view from 5000 feet and do bad trades. I didn't fortunately. I re-read the above a few times during the week and while taking some pain on puts and shorts at the end of the week, added to the puts, getting some great fills on stink puts. I didn't get filled on MS and Fxi Puts. It will be interesting to see Sunday and Monday trading and futures.

  5. Fantastic discipline. Do you think its possible to see 980 by Wed and then have a misdirection day up Thursday before opex, then a rally back to 1k ish thru Friday?

  6. Sure I like your theory, but my crystal ball is calling for a big gap down Tuesday, which would take ES below 980. I am going to update and repost my chart of charts, today or tomorrow. It has swung from a neutral to a bearish direction. If you didn't see it, check it out.

    Thanks for your perspective on OPX---I never really thought of it that way, but since the big moves occur the Monday and Tuesday of Expiry week, then really the thurs Friday of the prior week is the "setup" for expiry.


Insightful and Useful Comment!