Bear Market Rally Insights (Part 2)

Well, that was quite a bounce. There are theories galore for the rip but the fact remains that it was due and it came on schedule. How are you playing the bounce? Yes, it is just a bounce not a trend change, which is firmly down. We have talked about this bounce and we knew it is coming. What we don’t know is how far this bounce will go. This week is a shortened week, nothing much is going to happen after Wednesday afternoon. So whatever more upside is to come, will be next week and this time I would take up short positions. But that is still two weeks away and lets 1st see how these two weeks play out. I would love to see the equities making a high around November 28-29 and short the hell out of it. Rating Agencies put a spanner in the enthusiasm and downgraded France. Euro had a knee jerk reaction but is slowly recovering. SPX futures are down about 1 handles and Rant in Chief is predicting a collapse tomorrow. Let’s do a quick recap:

Equities:

As expected we have the low and a bounce. Apple (AAPL) had 7% + bounce. Question everyone asking is: how far will it go? My guess is not very far. I would be happy to get up-to 1425 in SPX but I have a feeling it will go further. The other option is to measure the time. Cycles tell me that the up move has a life of about 2 weeks. So instead of front running, let us just wait and see how far it goes till then.

As I have written before, I am playing this bounce with out of money calls on ProShares UltraPro QQQ ETF (TQQQ) or Direxion Daily Small Cap Bull 3X Shares (TNA).

Here is the paradox. Now we have a confirmed sell signal. But the late bears have been taken to the cleaners. Let me share this chart from Lance Roberts:


So we have about 2 weeks to enjoy the ride up and make the most of it. But again and again I would caution readers that this is not the time to go long equities. Rather, use the bounce to reduce the exposure. We will get a better entry opportunity soon.

Crude:

As the saying goes, rising tide lifts all boats, crude also rose along with other risk assets. The story is same here as well. I have already written that crude will rise along with Euro. Crude is also oversold short term and a price target of around $91-$92 can be expected. Also it would be a wonderful opportunity to short in case you have missed it last time. But there is no hurry. In fact higher it goes better the shorting opportunity. There is a confirmed sell signal for Crude as well.

Precious Metals:

May be I closed my long gold little early but I am not feeling confident about the PMs here. Even today, with everything ripping up, Gold did not convincingly close above $ 1730 or silver did not cross $33 very robustly. At the time of writing, both are below that respective line and the prices did not held above. May be PMs will get a boost along with other asset classes but I would rather wait for a while longer.


Nat.Gas:

Nat.Gas did sell off today. It seems that traders took some money out of it to play the equities and crude. If that is correct, we will see Nat.Gas struggling a bit for the next two weeks but I think it is making a base at $3.70 and will make a run higher. Normally Nat.gas spends a lot of time in one range and all of sudden jumps to the next level. Just a bit more patience needed.

Other Stuff:

While the late bears have been slaughtered and will have little love for the next two weeks, the rally to the yearend cry has started popping up. This is nonsense. The selling is not over. Let me put it in a better way. The real selling has not yet started. Too many folks were and still are complacent about the correction. Did you read about Romney backer, Steve Wynn, declared a special dividend so that he can save on tax which will go up next year? Or for that matter Wall Mart preponing its dividend dates? Funds will sell in December to book profit/loss whatever and get out of long positions. We should also take a cue.