I stated that I was not convinced of this rally and I’m still not convinced. However, this doesn’t mean that the bears are at an all clear right now. Canceling out yesterday’s gains was Step 1. Step 2 is to break down below the 820 support level and today’s action has made that probability slightly higher.

In addition, the decline was sharp and immediate and broke the “higher highs-higher lows” channel also know as pattern #1 in yesterday’s post. An up day, let’s say anything that’s 2%+, will be worrisome because we will be forming a symmetrical triangle. If we do break (and cleanly close) 820, we are clear to retest the 750 low.

Expect a bounce in the morning, or even a nice sized gap up on a more favorable report. We’ll have to see if it holds up and if I commit my reserve capital to short the the rally. If we gap down 2%+, we’ll be testing several immediate support levels after breaking today’s pre-closing flag.

Who knows what will happen since the expectations for very nauseous labor market numbers are already being priced in. Economists are calling for a -300,000 in NF payrolls vs. -240,000 in October’s report. They are also calling for 6.7% vs. 6.5% unemployment in October. These numbers do not matter. What matters is what the Street expects. The Street is calling for between -300,000 and -500,000 and unemployment of at least 7%.

The important data is summarized in the Employment Diffusion Index. A sub-50 reading signals a recession (I’m not sure why it took NBER a year to figure that out). The readings are currently in the 30’s (37.6 p) and since the data was first collected, the lowest reading was 33.6 in April 2001. Will we surpass this level?

In other news, for my fellow NoVA, DC, and MD folks, looks like Chevy Chase Bank is getting acquired by Capital One (COF) for $520 million in cash and stock. Our friendly, local bank holds $11 billion in deposits and apparently COF will take a $1.75 billion charge for “potential losses in CC’s loan portfolio. Some people say COF may need to up that to $2.25 billion. What the heck does CC have in its portfolio? Goodness. Log into your online banking and you’ll get the “memo”.

In other, other news, Eliot Spitzer is now a financial commentator for Slate! If you feel like it, you can read his first article here. What’s funny is the fact that he’s joining Henry Blodget, the man banned from the securities industry and fined $4 million in 2001 due to Spitzer’s very own top cop work. Have fun you two.

Don’t forget to add me on Twitter: http://twitter.com/WeeklyTA

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I’m still not convinced. That was a terrible rally with too much weakness on low volume. Was that a rollercoaster ride or what? You either sat in cash, day traded, or sat through it all. I told you. If we didn’t get a 4-5% up day today, then the chances for the market’s survival diminish significantly.

At one point, I made back my +27% gain from Monday (+ more), but my December gain now stands at +6% at the close. I cut out all of my leverage intra-day and added 25% long positions as a hedge (financials) while scapling this damn market to offset a total evaporation of paper gains. I’m waiting for a secondary entry point tomorrow on any massive breakdown.

On the sentiment side, Bill Miller came out and called a “bottom”. Others paraded on CNBC to call a bottom as well. Too many people are bullish in a bear market. This needs to be cleaned out unfortunately. There cannot be a bottom if there is still optimism. This means Bill Miller has got to go, sorry.

Looking forward, there are two possible formations after today’s action. First, a bear flag. They tend to slope higher, but the breakdown needs to be immediate and sharp after consolidation. Second, we could actually be rounding out (unlikely). This new element sort of changed the risk/reward picture and therefore I had to account for a slightly bullish case within 10 mins of today’s close. However, I am still majority net short (75% short/25% long).

Expect some massive resistance at the 20-day (presently) and 30-day MA’s (coming up). No joke. I will use my reserve margin (100%) plus extended institutional credit to (200%) short the living daylights out of this hellish market when I feel comfortable doing so. That point will be a roll over to the downside, breaking the “blue line” in the 10-day chart. I’d like to point out Danny’s post. His LoBV and Buy/Sell Strength charts look bearish as hell.

And you haters thought I lost real money today. LOL, please. I never had a losing month this entire year and December 2008 isn’t going to break that. You can keep dreaming for my demise. I shall make note of when I do max out on one side (preferable short) as I have the use of massive leverage to bring me back to my +27% on any real confirmatory action.

This is all true unless someone proclaims the Second Coming or a New Paradigm, at which time I will switch out to a 400% long position. Or, the SPX breaks out and closes above 900 in which the above will still apply.

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The market is up +270 points! Oh my goodness, it’s such a big day! No. It’s not. +270 points is nothing. The bounce was expected.

Here’s the problem: We lost 9% yesterday, the 4th largest down day in history, and we managed to gain back “only” 4% on the SPX (or 3.3% for the DJIA). I couldn’t be bullish unless the market made a dramatic turn in sentiment and nearly canceled out yesterday’s losses. I’ll need to see another +4-5% up day tomorrow, to even give the market a chance.

The low volume, itself, is no reason to rejoice. In addition, we had another WTF pattern (but to the upside) in the last hour. Even that rally was littered with deep, irregular corrections on the way up. To be fair, today is considered a neutral or consolidation day. I hold onto positions in the direction of the prevailing trend, which means that I remain short.

Today’s +270 point gain didn’t bother me one bit. I’m still up +16.4% (incomparable to the +27% of yesterday) which gives me a large buffer to the volatility and, like many of you, I became numb and accustomed to the 3-9% days we seem to be getting every day. 270 point days, up or down, are no longer “big” days, they’re “normal”. Do you remember the times way back when 100 points was such a big deal? Those times are gone. Welcome to the world of eye-popping volatility.

My timeframe is also to swing these stocks, therefore I keep my plan in mind, unless something drastic happens tomorrow. The swings may frighten many of you, in which case, you should not trade. Many losses are incurred within a neutral trading range. Exercise some patience and discipline, or just sit on your hands and stay in cash.

Make note of the support and resistance areas for tomorrow. If the market does breakout from it’s range, it becomes an uphill battle that requires some type of positive catalyst. The rally must be strong and continuous without deep sell offs. If we breakdown, that will be confirmation of retesting the lows. Either way, monitor the situation with hawk eyes.

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I am up an incredible +27.72% today – a nice way to start off the month, even though it is an unrealized gain. I mentioned that bear flag/ascending bearish wedge in my previous post. I went short various financials, including JPM, BAC, C, etc. and I still hold those shorts expecting a multi-day extravaganza, also known as a swing trade.

My orders to my students/subscribers included: 1) 8:54PM – 100% cash and alerted that “I am expecting to short this market silly very soon” (exact words) , 2) 10:25AM – short 50% (I went 100% a few minutes later), and 3) 3:19PM – I was 150% short into the close before the sell off. These positions will be held for several days, so a daily gain means very little to me. The goal for this week matters the most.

No, I did not expect a -9% down day. I was looking for a -3/-4% day. That late day selloff was absurd and it fueled round after round of massive panic selling. Meredith Whitney obvious added some fuel to the fire (thanks!). However, this slaughter is not over.

We may get a nice bounce or reaction rally, but that means nothing unless the SPX gains back today’s lost -80 points (or close to it), and this must be done tomorrow for the market to even have a chance.

The volume was extremely low (indicating a lack of transactions…atypical of a accelerated sell off) and I expect additional selling for those that weren’t able to -or- refused to sell today. Today should remind people that we remain in a trader’s market. I stay short for the swing.

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