Lack of Follow Through

The market definitely erred on the side of caution yesterday. It held up above VWAP all day long which statistically points to a rally late in the day, however I held the belief that we would not rally simply due to the factors I already described which are month end and risk to the downside. The rally yesterday I feel skewed the risks even more to the downside because I feel like we will need a decent beat for GDP to have this rally continue and get over 1000.

We are again in a scenario like we were at 950 where we are overbought and close to resistance. We are admittedly a little ways away from the all important 1000 level. This is a psychological level which means it is a technical level because if it is paid attention to it becomes a self fulfilling prophecy like I have said before. If GDP comes in light or worse than expected we could see a decent reversal of this rally. Although I don't think that will happen I am decently prepared for it.

Yesterday almost at the exact high of the day on the S&P I decided to get into SDS calls as a hedge going into the GDP number. I ended up buying back my short IYR calls because it ran significantly yesterday close to my strike and was eating up a significant amount of capital in margin. This proved to be a great move as the sell off I expected into the close materialized and my SDS calls are nicely profitable.

Corn recovered and finally broke out of it's downtrend of the past 3 months. This should signal a run to 350. It should encounter resistance there but if it gets above that we could see a fast back to 400. If the S&P does happen to get above 1000, there is not much resistance until 1100 so the party may continue. However, we are currently at extreme readings in the bullish percent on the NYSE and on the nasdaq. The $BPNDX is at new extreme highs where we have historically seen a reversal and the NYSE is close to extremes as well. Interestingly the bullish percent on energy is at fairly low levels, which means they could see some significant movement if things continues to the upside. Lastly, the Baltic Dry index still couldn't get above it's 50 day MA yesterday so the flag continues.

DRYS reported earnings last night and beat estimates by a couple cents. Their outlook was actually decently positive saying they were seeing improvement and signs of a recovery. The stock was up after hours and I am hoping that will help my DSX position and the Baltic Dry to break out of it's flag. If I were extremely lucky DSX will hold up well even if GDP does not beat expectations or we have a sell off. Overall I should be decently positioned going into this number either way. I may look to change my bias depending on how things shape up.

With this sleep schedule I am on I may as well be a money manager haha.:-)

Total Return for 2009: 147%