Reversal of Fortunes

MARKET ANALYSIS

After the confirmed breakdown across multiple benchmarks we have essentially rejected that move down and reversed higher much to my dismay. After the break down I did flip and go long which worked out well, then I decided to go short biased again as we were approaching the 990 level. As we can see the market has since made a new higher high:

This was also confirmed by the VIX breaking back down as well. The only thing to note is that that VIX is testing the top side of its downtrend so we could see a bit of a pull back into next week but besides that things look poised to keep going up as much as it puzzles me.
From here we look to not have much resistance until 1100 on the S&P. With existing home sales coming in better than expected that should really give the bulls confidence. My concern is once we get out of the housing season things start to turn down again but who knows. It would be stupid for me to doubt the recovery the entire way, this could be the forward looking and turn before unemployment that people expect. Technicals suggest a rally so I may as well go along for the ride until shown otherwise.

Of course we saw a huge contraction in volatility before expiration, big surprise right? 15% drop in the VIX in a few days means the market makers are printing money. The only divergences to note is the fact that materials did not make a new high and they have been leading the recovery so far so it will be interesting to see if they lag now or pick up again in the coming weeks. Also the 10 year treasury did not sell off significantly when a new high was made meaning that the bond market is clearly not expecting inflation at the moment otherwise they would be demanding significantly higher yields.

It's annoying to see my account make a decent advance then give it back over the week. I guess being break even for a week isn't terrible but isn't what I'd like to be doing ultimately.
COMMODITIES

Crude oil made a new high breaking out on this most recent advance after we saw a draw in inventories which was unexpected. Corn has somewhat lagged after the crop report and sell off in equities. This again could mean it is a relative weakness play or we could see a more acute rebound as it catches up. I may look to play it to the long side if it gets back above the 330 level or test 320 again.
FOREX

We did see some strength initially in the USD as we broke down but have since regained a decent amount. However, most currency pairs are still not at their recent highs/lows which is another odd divergence. AUD came down near support but not quite far enough for me to buy it but as we can see others wanted to own it. I still feel like it could be the currency to own if the recovery continues.

OPTIONS

Expiration came and went and my short August options expired worthless. In both instances where I sold options it would have been much more profitable to buy long positions in the direction I wanted but oh well. On Monday the capital held in margin will be available again so I can use it to take on more positions as they present themselves. I am still inclined to keep my position sizes small until I get on a better track record. I am still in my LVS position and V position with calls, however I am more short biased with SRS, SPY and IBM and SDS. I will likely add a call position on monday or cut a short position to help balance myself out more.
I am highly annoyed I didn't get into FSLR puts like I had planned. There was only a brief moment to be able to get in but it has since collapsed 20 points.

I need to spend tomorrow creating a watchlist for the week of potential candidates. As of dips should be bought again. I just wish I could shake the feeling that I will get whipped out again as soon as I get long.

Total Return for 2009: 138%