Sell the Rips

MARKET ANALYSIS
We can see as evidenced by the confirmation in the VIX that things finally broke down today. Asia was down quite a bit overnight and we gapped down about 2% and stayed down all day. Across the board on multiple stocks I finally saw breaks of previous uptrends. Notably in the financials and materials and tech sectors which have led the rally up until this point.

This gap down was significant because it definitely signaled a shift in sentiment rather that just a normal pullback. Even when better than expected readings came out from the housing index that did not lift the market at all. The bright side for the bulls was that we did not break down going into the close even though we tried but we did finish near the lows. People may be coming to the conclusion that we have experienced a period of better than expected readings but that may come to an end shortly. I of course could be wrong but I will wait until better readings come in before I change my view point. Until further notice I will be looking for rallies to short and then selling into weakness. This is likely what most people are thinking as well so it could help it become a self fulfilling prophecy.

Even though I plan to sell rips I am cautious to be excessively short right here as that move down did take us into oversold territory according to the McClellan Oscillator so this skews risk to the upside.

Ideally we could see a gap down tomorrow and then buy the open on the expectation we reverse but as of right now the futures are pointing to a bounce tomorrow ahead of housing starts. If we get better than expected starts it could cause a rally, however I do feel like it will be misleading because it is really the end of the buying season so the good numbers are unlikely to continue in my opinion.

FOREX
Dollar strength essentially across the board weighed on materials and commodities today. We can see that the EUR/USD finally broke its uptrend.

The AUD/USD sold off but is still a relative strength candidate holding its uptrend. I would like to buy near these levels but feel like it could be hard to fight the trend of a down market even with their stronger than normal economy. If I do get in I would like to buy it around .815
It was more of the same across the rest of the currency space as we saw a flight to quality fortold by the flag break of /ZN which continued higher today as well.

COMMODITIES

As you can imagine the strength in the dollar and weakness in equities was not good for the commodity space especially with the prospect of continued weak demand in the future. We can see things looking fairly similar across the commodity space.

I remain glad I exited my long /ZC position at 335. It touched 311 today before getting rejected and reversing back up. Had I been around I actually would have liked to buy it close to that level because I expected this type of action. Oil broke its recent uptrend, and is near longer term uptrend support which should be at 65. If this level breaks though watch out below. Ultimately unless things start to turn bad fairly quickly I doubt we really break down a lot but instead stay in a range. This could be an opportunity to do some swing trading in the futures.

OPTIONS
Interestingly enough the day that signals me to be short, I have reversed my bias to long. I cut my ADM and WFR positions at the open, along with my SPY puts which finally filled no thanks to thinkorswim. I sold half of my SRS calls after we saw a 10% move in a day which is one of my general rules. With FAZ spiking I bought back my short puts for .05 and decided to flip and sell some calls expecting somewhat of a reversal before option expiration.

I am still holding my V calls just to balance out my bearish positions and I am still short UYM calls which should expire worthless. I did nothing with my LVS position, it lost some decent value today but is still profitable so I will let it go. I have noticed that there seems to be quite a bit of buying in DSX at the 12 level, so I would like to see it ultimately get close to there again and i will go long some calls. Considering the recent trend it is hard to not go out and go long some good names thinking you are getting a bargain but if we really are starting to roll over they will keep getting cheaper. I think we find support at 970 on the S&P at least temporarily if we touch it, then test 995 from the underside. I have my eye on some good candidates to short on a good rally. So I'll post those up when I enter, stay tuned!

Total Return for 2009: 141%