BIDU HORROR SHOW

Welcome to the Baidu (BIDU) horror show. Those of you who bought the false rally on Tuesday are really hurting today. Hopefully, you had the sense to at least sell as the stock went up. The corrective bounce or dead cat bounce was expected and was a shorting opportunity, not a buying opportunity.

Let's forget about the past. Baidu is no longer a leading stock. Heck in a market correction, no stocks are leading, that is if you don't count the way down. As above chart shows, on a daily scale, you will notice that for the past two days, the stock sold off hard into the close only to show buying activity the last 30 minutes. Do not mistake this as a harbinger for a rally. It is a set up for further short. True, if you bought the close today, and if you sell quickly in the morning, the likelihood of a profit is there, but why chance it. (I am asking myself that question right now as well.)

Overall, Baidu failed and sliced through the $334 support level which now presents a formidable resistance. I believe Baidu may make a gallant attempt at $334 but will ultimately fail to hold that level. This means that it may also retest the lows of the day tomorrow at $315.57. It appears that the market makers will try to pin this around $320 tomorrow at OPEX.

If this stock breaks $315.57, look out! It will retest the $297 level.

Overall, horrible looking chart, unless you are a short. In that case, sweet dreams!

SPX 1450 Must Be Defended or Else...

Another tough day for the market today. The relentless selling has not lost steam. What is worse, the SPX has breached for the good part of the day, the support level at 1450. The only meager solace in this action is that SPX ended the day above 1451.15 on a last minute surge in buying. There is nothing bullish about this action. Furthermore, the bulls need to pray that this level of support holds, else we may retest the 1430 level, which, if broken, is considered a bear market signal.

Who are we kidding? All the leading momentum stocks have rolled over and are falling faster than a knife through hot butter. Google (GOOG), Bidu (BIDU), Research in Motion (RIMM), Apple (AAPL), and many more have fallen by the way side.

Don't listen to the so called market experts who are calling for a "Turkey Rally". As I said before, the turkey has already been killed and the carcass is rotting. This is not the time to be picking at the bottom, as we have not yet found any bottom support. Stay in cash or go short if you are inclined to do so, but under no circumstances listen to the market gurus such as Jim Cramer. They are all confused and scared.

SPX would be a great short if it stays below 1450 on heavy volume. I am currently flat today. I sold out of my BIDU short term puts but am holding the January 195 puts (190 contracts- which I will add to on any rally attempt tomorrow). I am expecting an early morning dead cat bounce which I have positioned 15 contracts of December $330 BIDU contract, which I will sell into strength.

In this market, watch the key support and resistance levels on the S&P 500 and trade accordingly. It is treacherous out there with a lot of head fakes and noise from the market pundits. Unless proven otherwise, assume that the Santa rally and the turkey rally is dead. Period. Don't fight the tape here. Cash is king.

Goldman Sachs the Next Shoe to Drop

For weeks now, Goldman Sachs (GS) has categorically denied that it will be writing down huge sums of bad debt related to subprime mortgage market. It is a fact that Goldman Sachs is exposed to one of the largest positions of the risky mortgage debt obligations or CDOs. Goldman has stated previously that it would stand behind its valuation of $50 billion dollars of risky mortgage debt obligations. Goldman continues to reaffirm that it has somehow avoided the disasters that its competitors have gotten themselves into.

A lead article on the marketwatch.com is helpful here: http://www.marketwatch.com/news/story/goldman-ceo-sees-no-big/story.aspx?guid=%7B4AF9FAF2%2DB0E2%2D4ACA%2D8134%2D5BBD5FCACFD6%7D

Also, please see Herb Greenberg's blog in response to this: http://blogs.marketwatch.com/greenberg/2007/11/goldmans-shorting-of-subprime/

I believe Goldman is not completely forthcoming about their exposure. Dick Bove from Punk Ziegel & Co stated that "The risk-management systems at this company appears to have been effective in allowing Goldman to avoid the worst of the write-downs that others are announcing." But how are they doing that? Are their risk management so good that Goldman's competitors are not privy to? Are they that much smarter than the rest? I don't think so. Do they have some algorithms of computerized mathetmatical formulation that is out of this world? This is in fact what Goldman is contending.

And now this. It's been shorting subprime to avoid losses. But how do you short something that has no clear cut intrinsic valuation or less than transparent pricing? Review what Herb Greenberg is saying in his blog. It makes no sense.

In the end, the truth will have to come out, and Goldman Sachs, like Countrywide Financial (CFC) before it, will have to pay the piper. For those who buy into the Goldman Sachs (GS) BS, they too will feel the pain that Countrywide share holders feel.

If Goldman Sachs is forced to be more transparent and that leads to more write downs, this market will fall into a frenzied free fall. They know that and are painting the rosiest picture it possibly can. That will be the next shoe to drop and it will affect this market in a dire way because all the hopes are being placed on the fact that we finally have some grasp of the magnitude of the subprime mortgage mess and that it is under control. I don't think it is possible for this naive assumption to last forever.

Once the truth comes out, look out.

This is Only a Snap Back Rally from Over Sold Condition

Before all of you get excited about today's rally, please realize that this is a technical event that was all too expected. One day doesn't resume the bullish rally. Please know the context of this rally: within a bearish down trend in all of the major indices. What today accomplished was to pull in the unsuspecting retail investors to buy while the institutions continue to dump their shares. Also, it took out the technically "oversold" market. Underneath all of this action, when you look at the SPX (Standard and Poor's 500 Index), there were 20 new highs and 180 new lows.

Look at the SPX today:

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What you will see is that the SPX has formed a head and shoulder a while back. But notice that the 200 SDMA stopped this advance dead on its track. Additionally, it couldn't reclaim the neck line of the head and shoulders fall. The volume was also slightly lesser than the previous day negating some of the effects here. The bottom line is that when you consider mid August when the index tried to rally, it did have a 3 day rally which pittered out severely to retest the lows and then some near the 1300 mark. Just be careful before you get overly exuberant.

On the NASDAQ:

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This weekly will also show you that today's action in the whole context of things was nothing more than a snap back relief rally that was purely technical. Only time will tell, but I am not yet excited about this chart. Again look at the MACD which still maintains the weekly death cross as well as the lack of volume in this advance.

Lastly look at BIDU, my favorite Momentum stock currently that can be traded to the upside and the downside. But clearly, while the $40+ point advance was breath taking, it merely reset the damage done to it yesterday. Even so, it clearly remains in a major down trend.

Bidu (BIDU) is my favorite stock. It is a high momentum stock that can give both on the way up and on the way down. It is a speculative stock and carries with it immense volatility and huge price fire power. What it did do today was to test the 50 SDMA and bounced hard from that area. The volume was merely average and the MACD still remains in a down trend. It couldn't break above the $355 resistance level, and tomorrow will be a key tell on what this stock will do. Again, I believe that today's action was technical more so than the character change of the market. No down trend goes in a straight line and I believe I will find that this stock will roll over from here within a few days and resume the down trend. That doesn't mean I am not taking advantage of the upside, which is great. I just adjusted my position size to 25 contracts of the December $330 contract and will "bail" on a moment's notice. But I will ride this out, though, I must admit, I felt like I should have liquidated this position today prior to close. A good short point would be to wait and see what it does to the overhead resistance line at or near $355 and if it retraces on strong volume, that would be a good time to short. Conversely, you can also try to short this when it breaches the support at $300. I think it will take a stab down there in short time.

Over all this market is treacherous and I do not think we are done going down. But I will not argue with the market and play the side of the strength whether that would be up or down. In the mean time, do not chalk today's action as some sort of confirming trend. IT IS NOT.

Sympathetic Selling in Asian Markets

Hold on to your hats folks, we are in for continued spread of fear and panic when US markets open in just over 13 hours. Nikkei is down 2.4% and the remainder of the Asian indices are following suit. Yen continues to gain on the dollar destroying the "Yen Carry Trade". Will the US market bounce or continue to go down parabolically as it had done the other way for the past 2 months? I continue to bet a market melt down. There is nothing that can stop the recent downward trend.

Ridiculous Jim Cramer comments on Cuomo

Here is the post from thestreet.com, where James Cramer pontificates on Cuomo's "inquisition" of Washington Mutual.



For one thing, Jim Cramer's contention that Cuomo should keep this growing subprime fraud under wraps is ridiculous but shows irrationality of Jim Cramer. Cuomo has the fiduciary responsibility and the obligation to bring "truth" and "justice" to the public. Additionally, if WaMU engaged in fradulent lending practices, then why shouldn't they be investigated, tried fairly, and then be brought to justice?

Cramer contends that it will adversely panic the market and cause unecessary loss of market capitalization in the stock market. That is the biggest balony I have ever heard. The stock market is going down because the investors have finally opened their eyes to the truth, something Cramer seems to not understand. Truth and integrity are lacking for Jim Cramer.

If WaMU has done something wrong, then a swift and expedient justice should be served. This market is going down for many reasons and WaMu is a small part of the bigger problem that has plagued this economy for a long time.

Cramer, please stop losing money for people who don't know any better and who actually think that you are a stock market guru.

HSBC set to write off $1 billion

HSBC is set to write down $1 billion additional in bad US subprime mortgage debts. This further feeds the growing concern among investors that the write offs by the major banks and investment banks were "low balled". In a continued signal affirming the growing credit crisis, more banks are coming forward with "revised" upward figures for bad debt write downs.

Some have speculated that write downs could reach $1 trillion, which at that time seemed ridiculous, but now, I am not quite sure.

In a separate note, Countrywide Financial (CFC) death rattle has begun. Yet, Mozillo continues to sell. I joke every day that when CFC announces bankruptcy plans, Mozillo will continue to sell down at the $.25 level. Disgusting!