Long Expected Correction Arrives!

Folks, take heart! The correction is here! Why am I so giddy about the prospects of the market going down? It is because the markets have risen without a smidge of a correction since March! It is said that corrections are the ingedients for future upside moves. It is a process by which excess speculation and euphoria is washed out of the market. It builds strong support bases which are essential for the next upside moves.

Having said that, the markets corrected on average volume today. You wouldn't know it but it seemed much worse with close to 3:1 decliners over advancers on the NYSE and NASDAQ was worse with 4:1 ratio.

The million dollar question then is this: Is the beginning of the end? I would beg to differ. I know a lot of you would argue that it is a seasonally weak time to be trading. That major traders have packed it up until fall. But is it really different this time? Not really. The only major issue that I would like to point out is that there still exists excess liquidity in the market place and the long sided bulls that have been clamoring to get into the market before it ran away from them. You see, after the Correction in February 27th, many gun shy long sided traders have stayed on the sidelines to watch this market propel higher and higher and to their dismay, this market gave no convenient points of entry. Until now.

I hang on to the thesis that the markets have been pricing in a stronger economi growth in 12 to 13 months down the road. Also, the markets were pricing in a rate cut some time this year, and based on the retail numbers and the PPI and CPI (due next week) numbers, the markets may get just what they wished for. I still believe that the markets need a rate hike, not a rate cut, to combat inflation, but my feeling is that Bernake will succumb to the pressures of politics and dare not destroy the economy during the presidential election cycle. No way! It is too bad because whoever the next president will be, they will have a lot of garbage to clean up and our economy may be in for a rude awakening.

I do not fight the trend. Rarely in my trading career did I make money by fighting the trend and I will not change it this time. I have to stay true to what makes me a relatively successful trader. Until that trend is violated, and no matter how contrary the markets act in relation to the economic fundamentals, I will obey the trend. That trend is still up!

I am not right 100% of the time, but I am right just enough that it makes me money. Many of the readers will realize that for the past two months I have been really getting hammered and many are wondering how do I consistently trade? It is because I take small position sizes relative to my trading capital. To some that may be a big huge position but to others it may be peanuts. I generally trade anywhere between 10 contracts all the way up to 1000 contracts depending on how bullish I am. I have a win percentage of 38.4% which makes me money. The key is to manage contract size and capital wager.

Okay, I am boring you. So I will get to the gist of what I am up to lately.

I believe the market correction today will be short lived and the fundamentals today was ugly. Retail sales were down sharply more than forecasted spurring on fears of recession and slowing economy. Like I have said, the FED is in a precarious position but they will have to choose their poision soon enough and I am willing to bet that Bernake will wink and cut rates. Based on that, the economic data coming out will continue to be mixed causing much volatility in the market. But this sell off today will be a one or two day event and I predict that we will continue resumption of the uptrend soon enough. Thus today represents a key buy point for those who are in the market and those who are clamoring to get in.

It is doubly important that the "wall of worry" is brought back into the focus and according to my theory, it is a necessary evil for the markets to continue their upward trend. So that is a plus.

I am heavily involved in Crox. You might say, "what the heck are you on crack?" Well listen me out here. That quarter that Crox reported was just a monster one! It legitimizes Crox as more than a FAD. Additionally, it proved many naysayers wrong. Yet, as is often the case, the naysayers will not give in easily, even as they see the stock leap 20,30, even 60% from this point. I think that the price target of $105 by the end of the year is not unrealistic and a short term price target of $85 is reasonable. With the impending stock split, it is likely the hedgies and institutions will bid it up. Did you notice how it has been silent in terms of upgrades from big brokerages? It is likely that they are accumulating shares, quietly. This can take a while. But all indications are that there still is the 6 days to cover 28% short position in this stock and the meat of the squeeze is yet to come. Once the market gets over their conniption, we will see resumption of the uptrend in this stock. I have now accumulated 240 contracts of June $70 at an average price of $3.73. I plan on adding if the current option prices hold for the June $70 at $3.80 to $5.00 range.

That is my major trades. I have not done much with J&J or CAT. CFC looks like a good short from here and I may just do that but I have been burned on that stock before so I will tread carefully.

good luck!