How can a firm that never loses money be so totally wrong?

Just this Monday, Goldman Sachs (GS) helped to gap the markets higher at the open in low-volume futures trading with the following pronouncement:

I led off my morning post saying it was time to short the Dow, Copper, Oil and the Euro and anyone playing those futures bets off my 8:27 post made out like a bandit. I even posted a nice little DIA play FOR FREE (for those of you who can’t be bothered to subscribe yet), picking the DIA $104 puts at .55. It only took 45 minutes for those puts to shoot up to .85 and I warned our Members to take it off the table on the way up and, since it was my free trade of the week, I also posted it at Stock Talk on Seeking Alpha. This is a great way to follow up on some of our trades and is also the back-up for our member chat whenever we have server issues, so do make sure you are signed up to follow me there (just click on my picture).

We like going short on oil today.

We like going short on the Dow here, as close to 10,500 as we can until "they" prove they can hold it and not just spike us over the line. Copper is also a great short at $3.17 this morning as that is just ridiculous too. We can use 10,500 as a stop on Dow shorts and $80 as a stop for oil shorts and $3.18 as a stop for copper so it’s not like we have to bet the house but, COME ON, this is just getting stupid! Oh, sorry - missed one, also short on the Euro at $1.4975 with a stop at $1.5025…

10,500 - that’s 75% of 14,000 in the Dow!

On the S&P we topped out all the way up at 1,550 in October, 2007 so 1,162 would be the target there. For the Nasdaq it’s 2,100 (already over), 7,750 on the NYSE is still far away and 637 on the Russell is tantalizingly close (5%ish). The SOX still need to gain 30% to get back to 400 and the the Transports are going to need a lot of gas to get back to 2,250. (see Fallond’s breakout charts here)

Good morning!

Japan had a huge GDP beat (+1.2% for the Q, 4.8% annualized) and they leaked it early (to oil executives!) but, strangely, deflation is accelerating at the same time. That’s great news for stimulus watchers as the government can continue to pump money into the economy, even while it’s growing and, of course, the carry trade can continue.

We had a very exciting day on Monday, topping out at 10,248 but I didn’t like the way we got there (low-volume, commodity rally, as noted in David Fry’s chart) and, when pressed for a prediction on TV that evening, I had to say that I felt that we were more likely to be down by Thanksgiving than up with a possible Santa Claus bounce into Christmas. What we did get for the remainder of the week was very choppy action on even lower volume.

Here is a great metaphor for the emptiness of the global recovery:

An entire city in China, tens of billions of dollars in construction, sits empty. They also built the world’s biggest shopping mall, also empty. As they say in the video, people can’t move in because there is no economy. Yet the building of the city of Ordos and the Utopia mall have allowed China to hit their 8% GDP growth target because it doesn’t matter whether you build something worthwhile - as long as you build SOMETHING, it’s going to count as part of your GDP. It’s ironic that this country still hasn’t bothered rebuilding New Orleans, which was once a healthy, vibrant city, and we are letting Detroit die a little more every day when it’s ideally situated to attract (comparatively) wealthy Canadian tourists, but China is willing to build entire cities from scratch.

"California tumbles into the sea."

Yes, Steely Dan predicted it in 1973, when Ronald Reagan was still Governor but we thought they were talking about earthquakes at the time. This year it’s clearly California’s 49.3% budget gap and 16.2% drop in state revenue that has them leading a list of lemming states to their doom. Over 1M state and municipal employees may be getting their last checks this Christmas as 9 states face budget issues on par with California.

$2.5 Trillion - That’s the size of the global oil scam.

It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). $2.5Tn is 50 times the amount of money that Bernie Madoff scammed from investors in his lifetime, but it is less than the monthly excess price the global population is being manipulated into paying for a barrel of oil.

Too bad I’m going to miss this, I’m away for the day but have fun on what is probably going to be the lowest-volume day since our top in mid-October. Let’s call this a bonus rally as market pushers take advantage of the low, Veterans Day volume and lack of substantive news to goose us over our 5% levels, which will now give us some critical bullish lines to hold.

That was some day yesterday.

We even had to flip bullish in the afternoon (slightly and reluctantly) but, when push came to shove and they asked me for my opinion on TV, I had to tell them I still thought we were toppy. I said that despite the Fast Money crew sitting in the studio right below me actively advising their viewers to chase the performance and, right after them, our friendbuddypal Jim Cramer told his viewers that no news is good news and the market is in a "a positive and delicious void" where we don’t have to worry about any pesky facts interfering with our buying premise.

"The problem is all inside your head", G20 said to me
The economy’s an easy fix if you don’t want to wait
All we need to do is globally inflate
There must be fifty ways to dump the dollar

G20 said it’s really not our habit to deflate
Furthermore, we have elections and the voters hate to wait
So we’ll indebt ourselves, by lowering the rates
There must be fifty ways to dump the dollar
Fifty ways to dump the dollar

In early November 1999, the Dow was at 10,500.

10 Years later, it’s a different Dow that sits at 10,000 than we had back then with AlliedSignal, Citigroup (C), Eastman Kodak (EK), GM, International Paper (IP), Minnesota Mining, Philip Morris and SBC Communications now replaced by Cisco (CSC)), Chevron (CVX), Hewlett Packard (HPQ), Kraft (KFT), 3M (MMM), Pfizer (PFE), Travelers (who became Citigroup in 1999, ironically), Verizon (VZ) and Exxon (XOM). The Dow finished 1999 1,000 points higher, at almost exactly 11,500 despite the fact that many people thought computer clocks would fail to roll over and wipe out Western Civilization on January 1st.

Is it time to buy the buck?

As noted by Andrew Wilkinson on Wednesday, there was a huge volume surge in UUP call options, the ETF that tracks the US Dollars index value, ahead of the FOMC statement. 155,000 November call options were bought at the $23 strike level and another 155,000 were purchased at the December $23 strikes. The November calls came in at around .15 and are now .25 (up 66% in one day on UUP) and the December calls were executed around .25 and are now .40 (UUP up 60%) - this is not bad for a day’s work but was it just a day’s work or are we betting on a trend?

Unemployment benefits will now be extended to 79 weeks!

The Senate approved a measure to extend the current benefit program by another 33% and, in a bid to aid the property market, the bill would also extend for five months a tax credit for home buyers, AND expand it beyond first-time purchasers. There will ALSO be a new tax break for businesses that would give large companies bigger refunds to make up for recent losses. Specifically, it would let large firms claim cash refunds on taxes they paid going back nearly five years. Will extending the unemployment checks currently being collected by 6M people save Christmas? Will GS et al now claim losses to get back the tax money they paid in ‘05, ‘06 and ‘07?

Ah, I love Fed days!

Hope springs eternal and the pre-markets are already up half a point (7:30), which suits us just fine because the level I set to flip bullish in Monday’s first Alert to Members (and mentioned again in yesterday’s morning post for those of you who don’t need to know these things on time), 9,775, was perfectly tracked by the Dow yesterday and we even adjusted for the extra 5 points at 10:04, after we tested 9,980 at 9:57. The 9,780 line was tested 5 times in yesterday’s trading but, rather than stay more bearish, as we did on Monday’s failure, we took the DDM $39 calls (which I also mentioned in yesterday’s post) for $1.15 in anticipation of a nice pre-Fed move up.

Just two weeks ago, on October 17th, I warned in the Weekly Wrap-Up that it was "Dow 10,000 or Bust" for the next week and we failed that one and last Wednesday we were looking to hold NYSE 6,900 and that failed too. Now we enter into the second phase of our limbo game where the deep-voiced guy asks the question "how low can you go?" and we’ll be setting our next bar at our long-standing 9,650 target for the Dow, which we are already hitting in pre-market trading. If that fails, we’ll have to look down to S&P 1,000. As you can see from Jesse’s Chart above (click to enlarge), we took a nice bounce off serious resistance yesterday but we’re just not feeling it yet, even though the market is now as technically oversold as it was in March.

Here’s a scary chart pattern for you from our Chart School:

Elliot Wave

The Dow began the month of October at 9,712 and finished the month of October at EXACTLY 9,712. Now I don’t want to say the market is manipulated but… No, I’ve got nothing, there are no buts - the market is totally manipulated! Either that or you believe that the random outcome of tens of millions of traders around the globe trading hundreds of billions of shares of stock would just so happen to begin and end the month within .50 after going as low as 9,378.77 (on the 5th) and as high as 10,157.94 (on the 21st). So that is literally a 1 out of the 779-point swing coincidence to hit that 9,712 nail on the head.

Wheee what a day!

Who said we placed a spread bet on the Dow moving 200 points one way or another in yesterday’s morning post? Me, that’s who. And how much did the Dow move yesterday? 199.89 points. OK, so I was wrong by .11 but our plays worked out just fine and we flipped bearish again as we flew up. We’ll see if my streak continues this week. We would have gone more aggressivley bearish but we were worried about end of the month (and end of the year for many hedge funds) window dressing that would keep things going for one more day.