Tuesday, May 23, 2006

Ursine tendencies

I said yesterday, “Although a short term bottom may have been put in commodities, I continue to detect complacency in the general market and readiness for traders to short any bounces.” The broad market was up early, but the volume simply dried up after the first hour and half. It was a painful slide down, culminated by accelerated selling into the close. The commodity stocks were up for the day but well off the highs. To me, this is a sign that some big boys are determined to get out. Or, in view of the unprecedented speculative liquidity out there, some 800 lb guerillas are determined to get out.

In the opening paragraph of Shorting Countrywide (CFC) I described the carnage in the month of September 2000. Let’s take another look in graphical form (S&P, Nasdaq 100 and Russell 2000 Jul-Dec 2000).

During that month horribilis, the S&P was so weak that it couldn’t put together back-to-back up days. IF we get a replay of that, we would have completed only 1/3 of the drop so far. Note also the rebound was approximately a 61.8% retracement. I’m not predicting this is what’s going to happen, but it’s definitely something to keep in mind when you hear those bottom callers again tonight.

This is not investment advice, so please do your own due diligence. At any rate, I suspect most people selectively listen to those that agree with them. Mine is a tiny voice in a cacophony of experts, so unless readers share my outlook to start with, my words won’t sway anyone. Fortunately (or not), my own opinion is a burden that I cannot shed: I put in orders for $15k of USPIX (2x inverse Naz 100 fund) before the close. Given the after-hours action I sure hope I get them.

Best of luck and be safe!