Thursday, October 1, 2009


We broke. Is that not incredible? All those who get long expecting to be able to get out at the right time, look at the percentage drops on some of these stocks. My screen is littered with every day names down between 3% and 8%. Lets take a typical stock, you fill in the name, and say it was $10 six months ago. It started climbing, grinding its way higher. At 12.00 (20%) rise, you start looking at it kicking yourself for not buying it at 10. At 12.50 you promise yourself if it pulls back to 12 you are going to buy it. At 13 you give in and buy it. Now up 30%. Sure enough it grinds and climbs its way higher making it to $15 (50% move). It pulls its way back to 14.40. Nothing to get worried about, at least that is what Cramer is telling you. Than today it happens to be an unlucky stock that drops 7% (or higher). Bam, the stock drops 1.01 and the price is down to $13.39. You are now up a measly 3% (in my example most people would have probably bought higher than 13 and would be down). What do you do? Tomorrow you could lose all of it and be down on a stock that had a 50% rise in six months!!!

My point is, it is so hard to chase stocks you don't have a fundamental view on because when going down, you can lose money very very quickly and left in no man's land.

The 10:00 a.m. economic data which I was bearish on really wasn't that bad. I guess it was just time for the market to sell off. The 200 point down day that we should have gotten yesterday came today (but all the very long funds didn't want to go through that math I just explained to you and made sure they were able to collect their big fees from the moms and pops at the end of the quarter). The one most surprising to me was pending home sales. At some point I will dig into it and try to figure out why that number was so high. ISM as expected was really bad but not as bad as it could have been. New orders was meaningfully down from 64.9 to 60.8 but backlogs was up from 52.5 to 53.5. But when you have expectations sky high watch out.

So that leaves the non farm payroll report tomorrow. Goldman's analyst came out at the end of the day and downgraded the report expecting a loss of 250,000. Market is expecting a loss between 150,000 to 200,000. Market probably still has some downside left.

So we broke the trendline from the July rally. Before the bears get all giddy we are quickly approaching the trendline of this entire rally from March. Because when the market falls it moves down so quickly, you don't have a moment to just sit back and relax. The big resistance is around 1010 to 1015. I have talked about that level before. Guess where the trendline from March is tomorrow?? 1014. You can't make this stuff up. I would be shocked if we broke this big trendline the first time we hit it. If we get a bad non farm payroll number and get a gap down and if your trading the market, I would bet strongly we will have a big bounce that starts if we get close to this 1014 / trendline number. That 1038 to 1040 level was very important that we broke today. I wouldn't be surprised for the market to go back up and test it if we bounce off of 1015. Obviously I don't know, just hypothesizing.

In the bigger picture, the fundamentals continue to deteriorate. I was calling for an August or September top. I would put it at close to 75% that we have seen our top for 2009. If we break the trendline from this whole move up from March over the next week or two (be surprised if we break it the first time) it becomes near a 99% probability in my book.

Personally, I think todays down move is the first of many more to come over the next 18 months with a very high probability of going back to 840 and 50/50 of breaking the March lows.

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