Pullback Ends with a Hammer Reversal

Well that rally sure was nice. Not only did it provide some cool long side opportunities but it also gave us some sweet shorts. The pullback I was looking for on the indexes has completed perfectly. After a week long 1000 point rally on declining volume the dow staged a major reversal today on huge volume (note the inverted hammer). This sharp move up was characteristic of the types of rallies I expect us to see over the next few years. As you can see on the dow jones below, we rallied back up to the area where we first broke down which happens to be the 50% retrace of the overall decline from all time highs. Using a measured rule, I am expecting another 15.6% decline in the dow (matching the first leg) which will bring it down to roughly 10,500 in the next few months.


Now I've talked about the fallacy of thinking rate cuts are good for the markets, but today was something else. The market has seen the most rapid decline in interest rates ever with a 1.25% drop in a little more than a week. So if cutting rates was ever going to boost the stock market it would have happened today and the market did rally at first, a couple hundred points in fact. However, these gains did not last and the broad indexes all closed in the red at their lowest levels of the day, this is exactly what a hammer reversal looks like.

The media tells you big rate cuts are ultra bullish when in fact they signals major economic problems. Furthermore, the fed is essentially murdering the US dollar. You can expect to see gas prices much higher, food prices much higher and traveling much more expensive in the coming years. Is the tanking US dollar going to prevent a depression or signal one? I heard someone say today that the market acted like a spoiled brat demanding a new toy. It got the new toy, played with it for about an hour then threw it on the ground and started screaming again. Here's the S&P intraday action:


What I'm try to say here is that I am once again 100% bearish on the stock market. I have to admit that I was fooled briefly today and made the stupid decision of buying back some JASO and NYX calls after the cut. But I will be out of those tomorrow as I'm pretty much threw with calls for a while. Luckily, I had the foresight to load up big on DIA and BAC puts near the highs, so I did ok today. Time to be bears again, new lows are coming up in my humble opinion. I'll leave you tonight with a 3 year chart of the US dollar index, your hard earned tax dollars are working hard against themselves:



Disclosure: I own March DIA puts