MARKET ANALYSIS
So we finally had the break down of the flag. It was somewhat suspect yesterday as we bounced off of old support at 1015 and rallied into the close making me wary of a continued move down. This was not helped by the initial move up today as well. It was fairly interesting because clearly people were just waiting for higher prices to sell into, because pretty much as soon as we hit 1025 we sold off the rest of the day finishing on the lows. Technically that is very bearish. The VIX spiked up today moving back above the 50 SMA and will likely test 30 in the short term.
The tough thing now is the breakdown and nearly the whole short term move came in a single day as what usually happens so if you weren't positioned for it initially now you need to wait. Ultimately I think we test 980 again, but I will look for a rally to short into again. In the short term though the MO is near its most extreme oversold levels meaning there is more risk to the upside than downside however that does not mean we can't sell off more.
Ideally I'd like to see a gap down tomorrow, and I'd buy the open. I want to see a re-test of 1015 before I get short again. In the longer term we may be forming a Head and Shoulders pattern on the S&P but that way too early to tell. The funny thing is that most of all the metrics today were positive yet the collective market decided to sell it off. It is like they are coming to the conclusion I came too a month ago all at once. That is the inefficiency of the market and if you can anticipate shifts in psychology well you would be very successful. Obviously I may be correct in the long run but the reality is that I missed a near 20% rally because I was too early in my prediction. I may keep getting proven wrong but I think metrics will start to turn downward again shortly.
I decided to lighten my shorts into this move like I had planned. I got out a bit too early in the day because obviously finishing on the lows would have benefited my positions, however it was still a decent day. I am now long biased and will look to get short again into a rally. I just bought corn futures again as it is near support. I likely should have gone long soybeans and short wheat as a hedge but we'll see what happens. I feel slightly too long at the moment but will have a tight stop on it.
Total Return for 2009: 144%
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