Big Wave Riding or How the S&P 500 looks like its about to tank or Monday Night FOMC-Week Rock Blog

With the recent rapid rise in interest rates, a surging yen, plunging global equities, new bear market in gold, and spiking VIX, many investors seems to be scratching their heads at the modest ~5% correction in US stocks ($169 to $160).  If the world is going through a significant deflationary correction (like every index except for US stocks suggests), then why haven't stocks dropped more?  Its anybody's guess and there are many things to point to such as the accommodating FOMC (no tapering!), improving US economy, or possibility of fiscal stimulus.  

Its anybody's guess and there are many things to point to such as the accommodating FOMC (no tapering!), improving US economy, or possibility of fiscal stimulus.  Frankly, I think it could be just a question of leading indicators vs lagging indicators, and the US stock indexes seem to be the latter case these days (a lagging indicator).  US stock investor shave grown complacent due to the Bernanke put, and have absolutely no fear of a meaningful correction.  That could all be changing right under the bull's noses, if you put all of the puzzle pieces together.  Lets keep it simple, based on the above SPY chart I would be looking for shorts anywhere $162 to $165.  If SPY can break ~$166 then the bulls could squeeze us up to new highs.  However, I think a break of $162-ish spells doom for the bulls with ~$153-$156 (5%-7% lower) targeted by the  rising 200 dma and measure rule ($169 - $160 = A, $160- $165 = B).  

Probably what will happen is a huge move one day this week related to the FOMC.  Either the market will go into some sort of panic and tank, or the bears will capitulate and send stocks into an upwards crash/capitulation, such as I've spoken of recently.  I also wouldn't be surprised to see some sort of huge fake out, for example, a spike to new highs followed by a drop below $162 in the same day.  If you start to see the volume spike then you'll know the big wave is upon is.

Disclosure:  I have no SPY position but I have many other shorts, including S&P500-correlated indexes like the Russel 2000 and the Dow Jones Industrials.  I am long the yen and short gold.  So I am short, and I intend to stay short unless we break recent highs.  If we slide through recent lows it'll be time to hang ten.

US Treasuries Cross of Death

30 Year Treasury Bonds Daily 04/13/10-10/21/10:

The 30 year is currently trading under its 50day moving average. The last time the market was under this average was in September and bonds were able to hold to move higher. This move comes as bonds failed to retake the August highs of 137 and have now fallen under this 50 day moving average that has the market bear flagging and testing the trendline support from May’s breakout. Seeing the bear flag confirm with another leg down will have the 20 day moving average cross down and through the 50 day creating a “death cross”. The last time the 20day crossed through the 50 day was in April as it created a golden cross and the market began its move higher. This current cross can attempt to change direction in the market’s current trend. A test of the 100 day moving average down to 129 along with the September lows would be targeted. The fed is expected to buy treasuries today and the question is will their purchases be enough to hold yields at these levels? The St. Louis Fed President James Bullard has proposed the central bank buy $100 billion in long-term Treasuries next month and consider more purchases later. Are they bluffing? Buy stops to be triggered on a move through 133.

Bloomberg: Treasury Traders Increase Bets on Inflation for a Third Consecutive Week- http://bit.ly/cJVyrL

RISK DISCLOSURE: PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING IS SUBSTANTIAL AND SUCH INVESTING IS NOT SUITABLE FOR ALL INVESTORS.

Thank you and best of luck trading!

Stewart Solaka

futuresMONSTER

Twitter: @CHICAGOSTOCK

EMAIL: CHICAGOSTOCK

Saturday Rock Blog: Crash (ABK Won't Slow Down)

Ambac (ABK) is a stock that readers have known about for some time. I 've been posting about ABK for about a year and it ended up being a great short. After falling to as low as $1.04 in early July, ABK has been squeezing hard to settle around $7 on Friday. The lyrics of this song by The Primitives comes to mind:

"Here you go way to fast
don't slow down you're gonna crash
you should watch - watch your stay here
don't look out you're gonna break your neck"

Can anyone guess in what movie I heard this song last night?

Beautiful Bear Flags Galore!

I'm just posting the dow jones industrial average tonight but this same pattern appears on the Nasdaq, Russel 2000 small caps and S&P 500. Its a bear flag, pennant, rising wedge continuation, whatever you want to call it, its bearish. How low will we go? See some of my previous posts. The pattern has not completed in price but lookomg at the big volume increase on the dow jones today (above) I think the odds are very good this thing will break down hard later today (Friday). Good luck!