Tuesday, April 12, 2011

Swan Dive...?

It has recently come to my attention that it was my birthday - I have been, therefore, a little distracted. I generally prefer not to focus on my birthday or even celebrate it, but sometimes what you do on one is not your choice...so, officially, I am now a year older, though not likely wiser.

As many of you are aware, I have built a nearly full short position over the last weeks. I of course reticulate the positions, which means that the position is messaged intra trade to reduce risk and capture profits with in the position's bias. That current position is very profitable - especially in the Russell, Nasdaq 100 (which was closed today)  and MidCaps 400. It is important to understand that while it may be enticing to create beautiful equity curves, it is usually very hard and unnerving to produce real results with real money. These systems are working exactly as they should and producing substantial alpha.

As you are also most likely already conditioned, most are buying this pullback, if you can call it that. I was clear about my concern for the markets, and I am reiterating those concerns again tonight. At this point, I expect the risks are extremely high for negative market surprises. Volatility indexes are showing continued complacency as are other sentiment indicators. Complacency seems to me to be the one thing least appropriate at this time. Though the S&P500 is holding up to a degree, one should not be basing market decisions on the Dow Industrials or the S&P500, especially for market structure. Looks can be deceiving, and that is very likely what is going on with the major indexes right now, Though there is a possibility of a reaonsable bounce/retrace, I am concerned and prepared for a swan dive - something like one, two or three days of powerful and unusual selling into a climax - perhaps something rather more significantly extreme for the major indexes than most people or systems are prepared to handle.

I therefore, reiterate everything that I have said over the last two weeks. We were not in a wave 4 with 5 up to come...as nearly every elliotician recently projected and we are at the risk of significant market failure perhaps even catastrophic if one were to occur. The reality is that though the Fed retained its QE program, it has implemented other programs to remove more liquidity than the POMO (QE) effort infuses. This sets up a rather large drain on liquidity. Then there are the busts of all the rediculous carry trades which further impair liquidity. Additionally, as I drawn in my earlier dollar post and charts- the dollar may want a few little squiggles on those previous charts to complete, but the patterns are nonetherless, clear...and point to a large move in the dollar and most probably a large and significant effort to suppress interest rates by depserate leaders so that US debt can still be serviced and represented...which likely translates into an effort that will simply drive another bubble while simultaneously bursting quite a few others...ultimately ending in tears.

All in all, BURNanke, if he could get an award for incompetence would win first price. Obama and his trusted Wall Street advisers would be right behind tied for second. Goldman Sachs and JPM would get something too...between first and second prize. JPM is reporting earnings tomorrow. They once again have seriously manipulated their 10Q and in my opinion falsely represented their earnings while simultaneously not demontrating good faith or ability as a proper fiduciary. JPM's reporting is fraudulent....and what was their leverage ratio again? This bank is insolvent many times over...and needs to borrow and steal money to manipulate their earnings to their and the Fed's satisfaction...good luck Mr. Dimon...your time is nearly up.

All in all, these are very high risk times and nothing has changed in the last two weeks except that the risks increased even faster and more than I expected. I am expecting any bounce to be weaker than normal and the subsequent selling to be significantly stronger than anticipated.

9:00am update: added NQ short back and also restocked existing short by added contracts that I had reduced this morning. Of course JPM totally lies about earnings...nearly 40% of number is loan reserve reduction...and a lot of other suspect numbers.
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