Friday, July 24, 2009

Confused Bear here

Well I wanted to make it official here. The market has done an amazing job at questioning my core beliefs. I had mentioned some of this in the comments yesterday but I wanted to go into more details.

As many of you know I am as bearish as it can be with expectations of the S&P500 falling even further with significant low below the 500 range most likely 480. I had my justifications and reasoning from a technical and fundamental perspective. Regardless - I have to accept that I could be wrong and that my overly bearish views have prevented me from seeing the obvious.

This rally off the march lows has been incredible, no one can deny that. Bears and bulls were surprised. But I think the bears were the ones that are now at a difficult point. We have broken the previous highs of the last bear market rally, are above the 200dma and have been able to hold above key support ranges. Regardless of whether I feel the markets are being manipulated - it does not matter. They have been for years, decades, longer then any of us have been trading so there is no one to blame.

At this point I am accepting the fact that the bear market could be over - yes I fundamentally believe very strongly that this is not the case but belief and what is actually happening has to be distinguished.

I am a pessimist by nature and I asked myself - looking back at lets stay 2003 or even 2004, with the information that was available back then, I am pretty confident I would have expected the market to turn lower. Consumer credit through the roof, leverage, etc. Ultimately we turned lower in 2007 but not before recovering ALL of the losses from the dot com crash. So here we are again with my fundamental views very negative - however, many people I talk to on a daily basis, cnbc, the general public of the belief that this will be over soon. Everyone is scared but they are hopeful as the news presents a much better outlook.

Can this go higher here? Could it be that the general public believes the worst is behind us? You tell me, I for one think its possible. I am not going to say anyone is being fooled here and that things are bad, well they are bad no question, but they were bad to some 5 years ago, 10 years ago, 15 years ago and before. You can always make a case for a negative point of view and my pessimism and negativity is the one that has gotten the better of me.

Look at the positives - banks are solvent, they have the support of the govt. While we still have a huge amount of bad and toxic assets they will eventually be washed and written off. It will take time but the cat is out of the bag - we know its going to be bad, and we are ready to deal with it as it arises. We are now much more confident then we were last year when it came as a shock to everyone without really knowing what to do and how to fix it - this is different now - we are confident that we have more control over the problems and are implementing fixes so it won't happen again.

I think we have the making of ending this recession here, maybe this quarter, maybe next, possibly this year and my long term prediction of 480 will never come true.

Most traders do not care about direction and I keep on hearing "I trade what I see" - well thats easy to say after the fact. Yes I am seeing the long side is working amazingly here (as I had described in my long post a few days ago) and the short side is meant to burn money. As my views are bearish BUT a few key events have occurred that put my bearish view into question, I have no choice but to step back from the markets until my views and the markets are aligned again. At this point, regardless of price I am very uneasy taking a long position due to the fear I personally have of more downside pressure, of course trading on the short side has been nothing but a disaster and has put my account to the largest drawdown yet. So if I cannot go long confidently and shorting brings me no money, what am I really doing here?

The "easiest" scenario is usually the right one - do you see a sudden change in direction here? to turn lower? After having 4-5 months of confirmed upside? Remember we are talking about a large time frame here, not just a 1-2 months bear market rally. This move has been building up for almost half a year. For me a sudden turn to the downside would be very surprising and could only occur due to a catastrophic event - even horrible earnings will not let this market move lower.

The easiest scenario for me at least seems to be more upside for a trend that has now been established for 4-5 months. Longer term investors say its impossible to catch a bottom - maybe this was it? What arguments do we have against it?

Either way (I love saying that heh) - I will be taking a considerable break from the market here. I am still exposed on the short side and will be looking for exists over the next few days or possibly close out with a fairly large loss. After that its time to dedicate towards some other things in my life that at this point seem to bring more joy to me. I will be around and will enter a trade here and there but more as a passive trader/investor.

And if I was right, and we get to 480, well then I can surely be a buyer there with confidence that we have a great base for a long term position =)

Feel free to get in touch with me or add me on MSN - chaugner (ad - @) hotmail (just removed some of the things for spamming reasons but you can figure out the address). Also, if you have any questions market related or not - I am always there to help out so don't be shy.

Of course I will make a post here and there again to share my opinion and other things. I wish everyone the best and if you are looking for more information. There is a great deal of blogs out there with good technical info - cobra, evil, slope - those are the three main ones I visit frequently.

Good luck all ... and I am sure we talk again soon.


  1. Good luck to you too Chris. it was great reading your blogs. Hope you recover from this and back soo at 450-666-750-or many bulls think 850 and then big bull market.

    some time cycle thinkers think we will not see end to this rally until October when the path towards 450-750 will begin to appear.

  2. I'm sorry to see your blog go but I've learned a great deal here. Today I did my first hedge LOL. Good luck and hope to see you back sooner rather than later.

  3. I was checking UNG earlier =) nice run up the past few days. Too bad it got a bit beaten yesterday but recovered nicely today. Glad you made some back there =)

    And yeah I will be around, just need to take a break for the market to resolve itself here. I do not want to enter a "revenge" mode and after having had the best 2 weeks in 20+ years I want to see what comes next first, before I commit any of my heard earned money.

    Remember we talked about the extremes on each end - well, this was again one of them ...

  4. Chris, thank you for all your hard work on this site. It truly has been a treat.

    I'm confident that you will return to trading with with new vigor after your hiatus.

    Be sure to stay true to yourself. It's amazing how mentally healing just a week or two away from the markets can be. Hell, some people take the whole summer off.

    We'll all look forward to your return.

  5. Chris; been great having you here; I too have a signiicant short position that needs an exit. Just hoping we'll see a down leg to escape with a black eye and nothing worse. Learned a lot from the info you shared, and admired your willingness to help anyone who was looking for a bit of advice; thank you. I look forward to checking in, to see what you're doing down the road. Good luck, and enjoy yourself! Steve

  6. Sorry to see you go. I am still holding puts and beat-up bad. One thing I did read lately that made sense of all this was this article by Chris Puplava. Here's the link:

    He (in a chart) indicates that the FED Balance Sheet (BS) may be a precursor to market highs and lows. When the FED's balance sheet is low near toughs, they have "juiced" the market with liquidity and the market miraculously rises for now reason as it has recently done. When FED's Balance Sheet peaks just before market tops. Presently, the FED's balance sheet has bounced off a bottom and we "could" be in for a correction? The question is now, is the market willing to pay more "now" for stocks that are down 30%-40% from 2008? Will their earnings start to "soar" from here, and we will be back to DOW 10,000 by 2010?

  7. Quite ironic. It seems after I had made this post my fellow bloggers that I follow religiously have come to similar conclusions. Cobra had made that same mention of the 2004 time frame, slope is ueber bullish now, evil is quite frustrated with the markets and is re-evaluating so it seems what the next step is.

    I have taken another loss today and closed out another 30% of my remaining shorts pretty close to the top here. At this point I have closed out over 50% of my short exposure at around 40 points of loss. I did take a long hedge today but that was just a small ratio.

    I will continue to scale out slowly regardless of price and may make some position management if we get to 1000 to attempt to recover some of those losses. But this will only be a short term trade to improve average prices while I am on my way to get back to 100% cash.

    It seems everyone else is feeling the pain, and unless you are long there is not much to be had in this irrational market. I guess the quote still works - "the market can stay irrational longer then your account can stay solvent" - something along those lines.

    This really has been devastating here. While I am of course hurting very much so in terms of drawdown - its more an emotional kick to me. I have made many mistakes the past 2 weeks - mistakes that I have warned you guys about here in the comments and various other posts.

    Regardless of the many divergences we see here - we continue to go up and continue to force covering of the remaining bears that are left. I am very confident that we WILL see the 940-930 range again for a pull back, however, I am not willing to take the risk of a run up to 1014 (again a number I have been talking about for many months now).

    Sorry to sound so negative - I am actually a lot better today as I had some time over the weekend. I may make another post here giving some more insight as to what could be developing and what we are in for.

    At this point the ONLY pattern the bears have left is the megaphone broadening top I have referred to a few times - some others are seeing this as well but as we know - ANY bearish pattern we have seen over the past few months has resolved in failure with more upside. To go back to the quote I have used a lot "if it looks like a duck, quacks like a duck, it probably is a duck" - of course this is in reference to the many bulls.

    Additionally the increase in VIX today is yet again another confirmation for more upside - instead of taking profits, long holders are buying protection with the goal of protecting the open profits BUT with the expectations of further upside. Statistically a rally we have seen here has a good 80% chance of seeing higher prices within the next 6-8 weeks. How high, I am not sure.

  8. chaugsy - get a hobby. stay retired. : )

  9. we should get a meaningful pullback in the next two days. good exit points. it may test 992 before the pullback begins.

  10. from a blog
    "Remain in cash on the short side. As seen on today's first chart, our NYA Index's C-RSI moved out of negative territory, moved positive, and on July 16th. made a higher/high. On Friday, it closed at 11.24 which was over the 10.8 historical level for failing. If it can hold here, more up movement will occur in the markets"

  11. hah baba booey - got a hobby and finally paying some attention to it. 2002 Audi TT quattro in the garage in pieces (its been 2 years since I work and travel too much). Going to dedicate the summer to finish the darn car finally - 500+HP hopefully once its done. Nice little weekend/track car.