Apple, Baidu, and Google Look Ripe for a Fall.

Apple computer is completing the right shoulder of the head and shoulders base. Head and Shoulders base is a bearish chart pattern that has preceded stock price declines that are considered significant. At this time, it appears $89 is the resistance, and if the market conditions continue to deteriorate, it is possible to test the $83 mark within next week. How can I make this call since Standard and Poors and others are so bullish on this stock? It is because we are in a new down trend with high volatility. Trend must be obeyed. Additionally, during market corrections (although I believe we may be entering a bear market phase), many of the fundamentals of the stock and analyst opinions are contrary. There seems to be a lot of things going for Apple with the iPod sales, introduction of the new iPhone which is scheduled to be released in May, and increasingly popular Macintosh Computers. Additionally, they also blew the doors off of their earnings report last quarter. So why am I bearish?

1. Apple has been a top performer, a darling of many mutual funds and analysts, and an American Icon. But deep down, what matters most is institutional sponsorship and with the performance that it has generated over the past 5 years, most big money institutions probably bought it. In Wall Street, it is the institutions that move the markets. Not retail.
2. On the chart, it appears that Apple had topped on the week of 1/19/2007.
3. Economy is not okay. It is not healthy. Given the praises of Paulson, Bernake, and all others including CNBC, the economy will cool faster than people expect. The subprime market will bleed into other mainstream financial markets. Credit will be tougher to obtain.
4. Inflation is not under control. But more importantly, I think we have to switch our thinking and consider stagflation, a combination of high inflation and slow to zero economic growth. Just look at today's jobs report, which was good. However, no sooner was this announced then fears of inflation took over. I don't think any economic report will help this market right now.

My price target for Apple is $75 by June. I believe another shoe is ready to drop in the near future.

Oh yeah, did anyone see the bearish action in BIDU and Google despite analyst upgrades this week?

Please be careful out there!

MARKET COMMENTARY FOR TODAY

I would like to recap the "dead cat bounce" that occurred on Tuesday to today. I like to follow the price to volume action of the market to assess the general health of the market. On Monday the markets lost on heavy volume and ended on the lows of the day. On Tuesday, the market started a rally attempt on low volume but big price gains. On Wednesday, stocks started strong but finished weak. These price actions are what bear markets are made of. It creates an illusion of strength and bottoming but I fear we are far from that point. When that day comes, I will change my stance and go with the "trend" and go long. I think a lot of people will get hurt by going long too prematurely. Stay in cash or go short at the opportune time. AAPL, GOOG, BIDU is nearing a new short entry points right now.

Tomorrow is the jobs report. I don't know what that report will hold but if the jobs report is weak or below the consensus of 100K jobs created, we will see a sharp sell off that may trigger the next leg down. Also, keep your eye on the "benign" subprime mortgage lender crisis and keep a watchful eye out for its spread into conventional mortgage lenders as well. I am waiting for the next shoe to drop. Until then, I patiently wait for shorting opportunities.

APPLE AND GOOGLE BEGINNING TO ROLL OVER AGAIN.

Apple (AAPL) is finishing the right shoulder of its head and shoulder base and is poised to break down. This represents a good short opportunity. Google has also been exhibiting bearish chart patterns showing that it closed the last two days in lower price range. It has filled the gap between $459.80 and $463.75 and may test and possibly breach the 200 DMA. It should be high noon for those attempting to find high percentage short position to look at Google while it is in midst of the dead cat bounce.

I have established 3 contracts of GOOG April $440 put positions and look to add on continued dead cat bounces on low volume.

Watch List: CME, AAPL, RIMM, GOOG, BIDU, AKAM to short.
LHCG, CROX, HLYS to go long.

CORRECTION OR BEAR MARKET OR IS IT ONE AND THE SAME?

There are two camps in the market currently. Those who keep calling the bottoms and those who claim that we are in the bear market. What's the difference? All I know is that we are badly broken technically and most leaders have rolled over and have broken at least below 50 DMA and are flirting with 200 DMA. I think that today's benign action on low volume is more of a warning shot that should be heeded by both the shorts and the longs.

Markets have a tendency to act contrary to popular opinions. But what is popular right now? Is it that the market has bottomed and is ready for the next leg up? Or are we due for further pain and deterioration of market technicals and fundamentals? I believe that we are at about 50/50 in terms of popular opinion but everyone is scared. That however has not washed away complacency in the markets. Just listen to Ben Bernake, Paulson, and other "experts" who claim that we are fine and that the global markets are fine. If that is the truth, then can we adequately attribute last week's blood letting as just part of the over due correction? I can harken back to the 2000-2001 when the market experts advised everyone to buy on the way down, to cost average down, that the bottom has been reached, all the way down to the abyss. I feel that those type of psychology or denial is prevelant in today's market.

All of these views are my opinion and what I bring to the table with my experience in the market place. I see that the majority of the market players seem to favor short term correcdtion that was badly needed. Perhaps they are right. But popular consensus or psychology in times of disruption in the market trend is often wrong. As I have been saying all along, this is the market to get contrarian against the market gurus, against human psychology. It is the time to look fear straight in the eye and laugh in the face of seeming danger. It is at that moment, money is made. You must buy the weakness and sell the strength. That is, sell if you are giddy and buy when you are fearful.

You'll know that moment of fear because buying opportunity in this market comes with Armageddon like fervor with noises rivaling those of the valley of death, the groanings of thousands victims, the dark days that are promised to come. At that moment, you must take a deep breath, calm your nerves, and buy for short term scalp. Conversely, when the trumpets of Angels sound, when the music of harps rings so sweet, when the soothing words of perma-bulls ring all clear signal, that is the time to short and short heavily, for the market rewards those who are on guard and respect the "system".

My analysis of the market today is that the volume plays a key pivotal role. On Tuesday the market made first attempt at a rally. While the price gains were broad based and spectacular, the volume lagged. That means that it was day 1 of the "DEAD CAT BOUNCE". Today, the market action was unspectacular and mixed and many stocks gave back their gains on, again, low volume. The price breakouts were from laggards ;such Chicos FAS (CHS), ASSET ACCEPTANCE CORP (AACC). Another absolute leader Intercontinental Exchange (ICE) rolled over on three times normal volume and pierced the 50 DMA. ICE is arguably the "best" stock of prior market uptrend that started in July 2006. So this tells me that underneath this "relief rally" or "dead cat bounce (more like it)", silent distribution is taking place. It is not yet time to get long folks. Will this rally continue? Yes, I think we will continue to show some price appreciations but I believe that we will continue to see lower highs and lower lows in the coming days. Do not underestimate the significance of the subprime market and the rest of the mortgage lending industry. I do not agree with Alan Greenspan (where did this guy come back from anyways, I always thought he was buried with his retirement) when he predicts that the housing market has bottomed. This is coming from a guy who couldn't call a market top or bottom if his coke bottled glasses depended on it. So here's to you Mr. Magoo, lest you forget your "irrational exhuberance speech" that was 4 years too early, that the housing market has yet even began to bottom and that there is, unfortunately, more bloodshed and gnashing of the teeth to come. This will have global consequences.

There are some factors then that will contribute to continued market weakness.
1. US subprime and prime mortgage blow up.
2. Loss of global liquidity from rising YEN which will abolish YEN Carry Trades.
3. We should worry about stagflation and not inflation, which is worse I think.
4. Iranian menace and geopolitical instability.
5. Oil is rebounding, has anyone noticed this?

As always, I am looking to short BIDU, GOOG, CME, RIMM.

Market Bulls Return

bt least temporarily, the market, as expected, had a "dead cat bounce" on lower volume today. Much of today's action is due to the fact that many shorts covered their positions, adding fuel to the fire. The put to call ratio leading up to today was 1.45, a very high number. The market remains technically broken and any upside move, even strong moves on lower volumes must be shorted, but I do not believe tomorrow is the top. If you should want to play the market, the best position is to take the contrarian position at extreme movements in stock prices. I do not think that the underlying fundamentals of this market and the global market is sound. I believe we are in a sick market and the real pain will start after the excess bullishness and froth has been wiped out. Judging by today's action, the bullish sentiment still prevails which bodes well for establishing further short trade.

Baidu and Google both broke to the upside in spectacular fashion, especially for Google, as the longs who bought the weakness got rewarded. As I said before, "buy the weakness and sell the strength". This is a highly volatile market place, and the sooner you get nimble and readjust your thinking, the sooner you can make money.

-By Thursday, I will be adding to BIDU and GOOG shorts with put options. Google should test $465 to $470, where there will be an excellent short opportunity. BIDU should test the $110 level, though I do not think it will breach that mark, which will make a good short entry for the down leg, which hopefully will test the 200 DMA at $93.

The bulls will enjoy one more day of gloating and the shorts will have to endure at least one more day of pain. Cheers!

Rumblings of Bottom

I was reading through Jim Cramer's blogs at The Street.com. He is talking about the market and some high flying momentum stock such as F5 Networks (FFIV) and Akamai (AKAM) as "putting" in the bottom. What the hell does this mean? The daily chart does show that Akamai has finished the day in the upper range and did not sell off today. So does that mean that this stock is ready to go up? I think Mr. Cramer forgets that a down trend has been firmly established and to buck this trend before the market confirms an uptrend, would be asking his faithful readers to go jump off the cliff. I believe that he has hurt a lot of people the past few months with his irresponsible rants on The Mad Money, such as Mastercard (MA), Google (GOOG- remember Google to $600!), Cisco calls, his bold predictions about the top 3 stocks for 2007 (Apple, New York Stock Exchange, and Cisco). Did anyone see where these stocks are at since he recommended them? Sure, we can blame the market right now but I believe that his call that the market bottom is near is irresponsible and is likely to get other people in serious financial trouble. Perhaps they deserve it for listening to Mr. Cramer.

Today was another confirmation of what's ominous about the markets currently. Everything, I mean everything is selling off. Gold, Oil, Equities are all selling off globally. I cannot fathom the underlying reason for this sell off. I have learned long ago not to question the market.
The historians will rightfully assign the reasons and analysis of the current de novo sell off that we are experiencing. Whatever the reason, it is troubling.

The bears are in firm control of the markets right now. As I alluded to before, this market presents a unique opportunity to trade the short term movements. But it would be suicidal to start nibbling at the beaten down stocks in hopes that the bottom is near. No one knows. It is far better to sit on cash or go short I think.

I added to my BIDU short today as I took advantage of the "dead cat bounce" today above $100 level. It has breached the $100 level and tomorrow is a big test to see if it can stay below that level. If it does, it will create a powerful resistance at $100. None the less, if I had to be a betting man, I would say that we will be testing the 200 DMA soon at around $93 level. Time will only tell.

I also started a small April $30 put position (20 contracts in all) in LHCG (LHC Group), a home health care delivery company. It has acted very strong in light of recent market melt down. The law of probability says that when a stock is strong in the face of overwhelming counter trend, it will succumb and base below the gap level. In this case, the gap is near $27 to $28 level.

Tomorrow appears to open higher from today's thrashing of the markets. Astute traders can look to reload on their short positions or scal to the long side as a day trade. The same names that I have been tracking will be followed: GOOG, RIMM, CME, BIDU, LHCG

Good luck everyone, stay safe!

DO NOT BUY THIS FALSE RALLY!

This is a dead cat bounce today. Please do not go long! It is not time, as I foresee more pain ahead for the markets. The pain has not subsided. Most of the longs will sell into the strength and the most prudent thing to do is to go to cash or if you're adventuresome, to short into the short term strength.

SHORT:
GOOG, RIMM, BIDU, AAPL, LHCG

DO I FEEL LUCKY? WELL DO I?

So the Asian markets are selling off which is causing US futures to sell off. This indicates a low open tomorrow. I would caution against jumping into the short side of the trade tomorrow. While the markets may sell off early morning, I believe if there is no negative news concerning the subprime lenders and if the economic reports are not bad, we may actually see a bounce off the lows tomorrow causing a bear trap, at least for tomorrow.

One might say, "but look, Asians are selling off, and our futures look horrible!". Although I agree, sometimes futures and Asian markets have little correlation to the US markets. Why do I say that even though I have been so bearish over the past few weeks? Shouldn't I embrace the encouraging data for the shorts? Well, I would like to remind everyone about volatility. It is nobody's friend. If history has taught me anything, it is easier to take the contrarian position at the extreme points rather than going with the flow during the massive sell offs. One thing is clear. This market is dangerous for even the most seasoned traders. I still think that it would be wisest to sit in cash and wait this storm out. I do not know how this will play out but already, the message boards and news media alike are harping on the impending downturn that will rival 1987 and all of the other worst stock market crashes that preceded us before. The other thing is that it is very rare for the US market to follow Asian markets as it has been the past few weeks. Additionally, I must admit is that the majority of Asian markets are selling off on fears of US markets. It's funny, I thought it was the other way around. So the game goes on.

One interesting thing I did notice few days ago is that gold is also selling off. In times of uncertainty, traders and investors alike flock to either bonds or gold. But gold is selling off! To me that is a negative divergence, which usually state that gold should rally in perceived weak economic environments and decline in periods of economic prosperity. Gold was down $42 last week. I thought based on the gloom and doom that is ahead, we should see gold close to $700, not at $640's. What gives? This is a troubling divergence for me. I will continue to monitor this, but if gold continues to churn or go lower on sell offs, that would mean that the market is not convinced about this recent sell off, and it may just end up being a correction.

So what gives? Do I feel lucky? Do I? Well I don't know. I did get whipsawed a few times last week. I am not sure what the market holds for us tomorrow or even today. As the market is getting ready to open low tomorrow, I see the chances of anything happening at 50/50. It is a crap shoot. I think I may have better odds in Vegas. I think that the payoffs can be huge by playing the game during recent volatility, but the down side can be harrowing. I may just sit tight and wait this one out, at least for tomorrow. If the maket starts to show some life, I may take a long position in CME or RIMM which seems to have not broken down as much as say Google. I think that Google can show a strong bounce if the sell off loses steam tomorrow.

If I was to short tomorrow:
-BIDU
-LHGC
-SHLD
-RIMM
-CME
-GOOG
-AAPL

If the market shows strength go long:
-GOOG
-LHGC
-CME
-RIMM

Stay safe!

I Actually Did Some Buying Today.

The market sold off in another spectacular fashion today, once again reiterating that the BEARS are in firm control of this market. There is much chatter of gloom and doom and of the proverbial "Black Monday". Yes, the sub prime market is a concern and the implications from this soon to be fall out will reverberate throughout the country and possibly the world. But we aren't there yet. There is too much chatter and noise of the death of this economy, and many prognostications that next will be the week that all "hell" breaks loose, one for the history books. Well, if only the markets were that obvious. The market will determine the right place and time, when it is time, if at all for the Armageddon like crash of the US and possibly global equity markets. It is interesting to see how quickly people have become negative on the market that just one week before, was humming at unprescedented levels.

My take is that we will have volatility along the way. Clearly, it is increasingly clear that this is not a one week wonder "correction". I think Jim Cramer is prognosticating that Thursday and Friday's market behavior was the "whoosh" or the "Crescendo bottom". I think that he is way too premature in declaring that. The fact is no one knows what this market will do next. It is clear that we have broken all reasonable technical levels and are establishing a down trend. But it is too early to call a down trend based on one singular week. Perhaps Cramer is right. I tend to disagree with his position.

I do not think that we will get the "Black Monday" that all the bears are hoping for, including myself (though I am not a bear at heart). I tend to believe that in extreme volatile market conditions, we are more apt to get contrary events, sending the market participants running for the hills in panic. This type of market has the tendency to do that. So what did I do today? I bought, yes I BOUGHT CALLS to play the market opening on Monday. I noticed that Google was extremely weak today and is now technically oversold. For whatever that's worth, I think that we can expect a little "dead cat bounce" next week in the market and in Google.

For the intermediate term, we will experience intense volatility and whipsaw like trading environment. Only the bravest and quickest need to stick around and profit from this environment. As I have said before, just about the only thing that will work as a trade is day trading both the long and short side or going short with puts with at least 3 months of time built into the options.

Google is close to filling the gap at $429. It closed today at $438.68. I believe that as this correction continues, the stock will eventually fill that gap and possible bounce from that level. But my bet on Monday is that it will regain some of the losses encurred on Friday. Easy does it. I have 10 contracts of March $450 calls which I will close by Wednesday if no profit can be obtained. If the market players who are on the sidelines feel that it is safe to once again press to the upside, we should be able to rally past $450 level one more time, before descending to close the gap at $429 level.

I would advise staying in cash however but if you must trade, please trade the long dated puts in your favorite fast movers of the previous bull market run. The basic but not so easy to tenet in this bear market is: SELL THE STRENGTH and BUY THE WEAKNESS and KEEP YOUR TIME FRAME ULTRA SHORT.

I hope everyone is safe and did not incur too much losses this week. It's just been hell.

Market Bounces!

I thought for sure today would be a repeat of Tuesday with the Dow Futures above 100 and true to form, the market opened with Dow down 200 points. It had the same frenetic pace as Tuesday but surely and slowly, the bottom buyers bid the Dow, Nasdaq, and S&P to positive territory. It ended down today erasing most of the early morning losses. It is days like this that I implore everyone to go to cash. The market volatility was incredible. I began to hear a lot of market pundits proclaiming that the market bottom was near, that the correction was almost over, or that this will not be a prolonged correction. Perhaps they are right. But if you delve deeply, majority of the leadership today was from the oil related stocks and the decliners outweighed the advancers by 2 to 1. That is a negative divergence from what we actually saw in the market today. The short term over sold condition has lead the fearless bottom buyers into buying the dip and totally routed the short sellers today. It was a good day for the longs. But, I continue to remain skeptical about this rally. I am not at heart a bear. I love bull markets that are trending strongly in a strong economy. But I have to listen to what the market is telling me right now. There is no future prognostications on my part. Only what the macro-economic factors are telling along with the what the market did today. That's all. I continue to see a lot of risk in this market. I see a lot of risk in the US economy despite what Ben Bernake says. I do not think that at least in the short term, the economy is as healthy as everyone makes it out to be. I tend to see the point that Alan Greenspan is saying now. I was critical of him for making the "recession" speech. But again, I think the mainstream media took that to the extreme.

In this market, the only thing you can do is to sit in cash or to trade around the volatile bounces. But as an example, today, I lost some money by being on the wrong side of the trade in CME which finished up above $5 today. Live and learn.

Good luck.

Stocks Are Not on Sale Right Now.

Please, do not see this as the sale of the decade. Just look at the continued deterioration of the Asian markets over night. That seems to be the norm these days. Please heed what the Dow futures are telling us as they are down more than 110 and NAS is now down more than 21. It is pointing to another market plunge today. The prudent and sane way to trade this market for the unforseeable future is to short or go to cash. Do not pick up the shares of these seemingly cheap shares. They will go lower.

Short
BIDU, GOOG, RIMM, CME, AKAM, and any Chinese stocks.

Until the market bottoms, this will be my trades. Short and sweet.

Good luck!

NOT YET! A SHORT STORY

I have been watching this market today in amazement. The differing opinion expressed by various gurus and pundits is amazing. What do I think? First, I am not a pundit or a guru.

I think this is the beginning of the correction that I would consider significant. I do not think that the 3% plus plummet that we experienced on Tuesday was the end all be all. The dead cat bounce today was just that, yet, I find in amazement how many people are stating that this was an aberration or a glitch from computers (read Dow Jones). I think that the “glitch” was due to overwhelming urgent need for the institutional investors to get out of dodge. A market does not plummet 400+ points without panic and some underlying ominous reason. As I posted in my prior posts, signs were there that we may be nearing the end of the rally that began back in July 2006. But even earlier, there have been signs that perhaps our economy is not well. Lest you forget, the impact of any economic event and its expression into an actual event has a lag period of at least 6 months. I believe that the economy will now show the signs of housing bubble that has not yet burst. I believe that the real fall out from housing market is just beginning. The subprime mortgage issue will turn into a crisis. We have not seen the mass hysteria that marks the end of the bubble boom in anything from the dot com busts to Tulip bulbs. Housing is no exception. But I do not think that the housing issue alone is responsible for yesterday’s melt down that showed all the complacent investors (including myself) that market risk is alive and real. The issues associated with yesterday’s global sell off in the equity market are multi factorial. This is because at the heart of the problem is China. China is the sleeping giant that dictates and feeds the world equity markets and to a larger extent the global economy. China is the fastest growing emerging economy and in some cases is already a world economic superpower. The relentless growth, demands for oil, commodities, and fledging equity market has lent a strong hand in yesterday’s sell off world wide. But, I also believe that they will be responsible for the continued correction and possible crash in the world equity markets. It may not happen tomorrow, but we are coming closer to the day of reckoning.

Please heed the siren call of caution as we trudge forward in this renewed market. While the previous rally was gradual and steady, I anticipate this corrective phase to also be gradual and steady but full of volatility. I do not think it is the time to be establishing long positions in hopes of getting “cheap” shares. The doomsday has not yet been declared and there is much more blood letting before this correction has run its course. Do not be suckered into the pundits and gurus who proclaim that yesterday’s sell off was an aberration or is a short term phenomenon. We have not had any significant correction since 2004 of 5% or more. I believe that we will have more harrowing days ahead of us.

The technicality of the market has changed. The character has changed from orderly and benevolent to chaotic and malicious. Please consider what the market is saying and act accordingly. The good thing that will come out of this correction is that it will refresh the market for the next phase up, and it will come sooner or later, but I would venture to guess that it is much later than anyone thinks.

How would I play this market? I would recommend those market players that have less than 2 years of experience trading to go to cash and earn 4.5%+ in the money markets and sit this one out. For the more experienced and adventuresome traders (notice I said traders and not investors) I would have a bias toward shorting the market rather than going long. The probability of success is much higher here as a short. Having said that I think one could increase their margins quite successfully by scalping the markets by employing day trading. I don’t like to day trade but when the volatility is this high sometimes I just have to heed the call of the wild.

I still believe that Google (GOOG), Baidu (BIDU), Research in Motion (RIMM), Akamai (AKAM), and Intuitive Surgical (ISRG) is a short. But I like to use puts dated at least 2 months out until expiration and close to the strike price (no farther out than 10%) to short the market. It limits the downside loss potential while shorting with the common downside risk is unlimited. On the same token, due to volatility, going long by employing quick scalping plays can be done on Google, Baidu, Research in Motion, and Apple. I would not use options while doing this but would favor commons here.

Have a good trading day and please be careful!

BIDU OR NOT BIDU?

In the immortal words of Shakespear, "to be or not to be...". That has special significance to me today in regards to this high flying Chinese ADR. It has taken a lot of longs and shorts alike for a ride, both pleasurable and agonizing. I have been burned a few times on this stock as well. So, why is this stock my #1 candidate for shorting in this market "correction" or even "crash"? It is because this stock has been powerful on both upside and downside. It has many favorable criterion for shorting. I will post why I think BIDU will test and breach the 200 EDMA and beyond.

1. Chinese stock- No matter how good the stock is, China is the home base and right now, China is untouchable.
2. High momentum traders/speculators- need I say more?
3. Extreme valuation- 90 PE is not a bargain for a company valued at over $3.53 billion dollars but only generating revenue of less than $200 million dollars and declining revenue base.
4. Technical breach of the 50 EDMA- this stock will have a lot of overhead resistance when it tries to climb back.
5. US Market Weakness- housing market meltdown has not started and the idea that the housing market has bottomed is a myth. Liquidity issues related to subprime debacle will intensify and pressure the US economic growth and consumer spending. Inverted yield curve is higher than ever.
6. Denial- most traders and financial professionals are still too complacent as most are treating this as a short term phenomenon and not consider that this infact could be the start of the global stock market bear market.
7. Overextended market conditions- we have not had a meaningful correction since 2004 and much froth needs to be removed from the markt.
8. Cheerleaders- there are alot of die hard cheerleaders for BIDU which is a contrarian indicator.

Bottom line. I will continue to buy June $95 puts as I go forward. Only the brave and experienced traders should attempt to trade the extreme volatility that is likely to come.

As always please be very careful!

What a Day!

Today's action was frightening and breathtaking at the same time. I have been trading since 1997 and I admit that I have a lot to learn and experience. I thought I saw just about everything in terms of market melt down, when I saw my portfolio diminish to nothing in 2001. But today, today's action in the Dow was simply breathtaking! I have not seen an index go down another 200 points all within a matter of minutes! -584.86 on the Dow! I do not think this is a one day wonder event. The way the markets behaved, across the board, there is significant technical damage done. On the NASDAQ Composite, the index dived below the 50 EDMA to 2407.87, the support is smack dab at the 2400. If we breach that line and stay down, we will see the next support at 2320. Ultimately we will test the 200 EDMA whic is currently sitting just below 2300 (2297). I know a lot of people lost money today, perhaps significant portion of their trading account or even their retirement, and my heart goes out to those who did. The action today was fast, furious, and unrelenting. It was like being punched in the gut over and over again until you couldn't take it anymore, and more kept coming. I don't see any sign that this will abate in the near future.

On the Dow, the picture right now is even more grim. The index closed today at 12216 -431.40 but all signs indicate that it wont stop until about 11670 where the market will reassess if it wants to continue. The volume on the dow was below average and that was about the only good piece of news that I can say right now. But for now, there is always tomorrow.

Asian markets are continuing their descent and as I write this blog.

My advice is this:

Longs: No one made a dime by panicking. I advise the longs to keep their cool and if possible start trimming their most speculative holdings, get off of margin before the margin calls take your hard earned money, and get off of long calls. Do not give into the temptation to liquidate everything. If you liquidate, so will you.

Shorts: Continue to press this market and use every bounce as a new point to short. I don't like to short with the underlying commons. I like to short using long dated puts as this limits my down side.

China Markets Finally Succumbs!

As my fears have proved correct, I believe that today's Chinese market sell off will be the spring board for further global corrections in the stock market. I believe we will also experience a sharp sell off this morning when the market opens. Currently, the NASDAQ futures are just under 16 and Dow futures are just under 60. I believe we will see continued correction in our equity markets and we will continue to have price pressure well into this summer. I will now buy vigorously equity option puts in the following companies:

1. BAIDU (BIDU)- we can expect to see prices as low as $50 if this correction is more than a correction in the Chinese market.
2. Google (GOOG)- I expect this stock to correct below $400 if this correction gains steam.
3. RIMM- I expect price below $90
4. AAPL- I expect prices below $60

I am going to buy puts hand over fist to augment my BIDU puts that I purchased yesterday. I believe we are undergoing possible global stock market correction. As I alluded to before, there remains significant stock market risks, and we are now seeing the inflection point for this down turn. I do not think that this will be a one day wonder. In a jittery market, this will gain steam and should see significant corrections ahead.

Take the losses and protect your capital and if possible, go short.

Be careful please!

Greenspan Strikes Back!

The stocks traded down today after Alan Greenspan hinted at a possible recession towards the end of 2007. Additionally, the market is exhibiting signs that the 7 month old rally is running out of steam. There is rampant jitters in the market regarding rising oil prices, rising gold prices, and Iran Nuclear Crisis. The former Fed chairman's comments did not help with the overall sentiment in the market which appears to be in the early phases of the correction. I know that a lot of pundits are calling for a correction but we have to be careful here. Remember, it is not what WE THINK that matters in this market but what the MARKET THINKS that matters. I would attribute most of the down trend in the market due to Greenspan's comments.

So what do we do? We can certainly head for the hills and indiscriminantly start shorting stocks now. But that would be the sure fire way to lose all of your capital and sanity! The current market condition is still healthy without evidence of any distribution days. The major indices are still in an uptrend and technically, I cannot see anything wrong so far. There are signs though that makes me wonder. Hmmm...

Although I am bullish on Google, I believe that it has started another leg down. I would suspect that we will be testing the $450 level soon. This leads to my exact point. That is, prior leaders are beginning to or have rolled over! New leadership is emerging in the oil fields, precious and semi-precious metals, and obscure farm equipment sectors. There is still strength in the small cap stocks that follow IBD's CAN SLIM methods and these are showing excellent strength.

In this phase of the market, I would have to look at the risks, and they are increasing. First off, this latest uptrend is growing old and possibly running out of steam. No correction has yet taken place, so the risk for a steep sell off is growin. Geopolitical concerns are taking center stage- read Iran. Greenspan just spoke of impending recession- gosh! Doesn't this guy ever shut up? Oil prices are creeping up.

I am going for quick trades and will take small profits when I have them. I wouldn't enter any meaningful long sided trades unless you have more than 2 year time horizon to wait out the possible steep sell offs. I am looking at short candidates and they are increasing:
1. Google (GOOG)
2. BAIDU (BIDU)
3. COMCAST (CMCSA)
4. RESEARCH IN MOTION (RIMM)

I have entered into long sided trades in LHC Group, a home health care company, Mindray Medical (MR), and a small short position on BIDU (April $95 10 contract puts).

Be very careful!

Stock List for the week of 2/26/2007 to 3/2/2007

STOCKS TO WATCH ON THE LONG SIDE:
1. TWGP- Tower Group anncounces earnings on 2/27/2007 before market opens. Formed a nice double bottom with handle base.
2. LHCG- Forming the right side of the cup base, reports earnings on 2/28/2007 after market closes. Look for gap up.
3. MR- Mindray- reports earnings 3/12/2007, breaking out of shallow saucer type base. Also on IBD top 10.
4. MGM- looks to be possibly forming a high tight base.
5. Google- needs to get above the 50 DMA, it's trying very hard.
6. CROX- needs to kiss the 50 DMA but this correction is good for the stock.

STOCKS TO WATCH ON THE SHORT SIDE:
1. BIDU- look for the gap to be filled at $111.80, could possibly test $115. Establish short at $115.
2. GOOG- if it fails to get above 50 DMA this week, establish short.
3. MU- I don't buy the "new" life in semiconductors.

Iran, Russia, Oil, and Gold Seen Pressuring Stocks this week.

Continued defiance and boldness by Iran will pressure stocks in the near term. Iran publicly declared that it had successfully lanched a missle in to the outer space in their bid to establish satellites by year 2010. Additionally, according to Fox news, http://www.foxnews.com/story/0,2933,254480,00.html, Iran's nuclear ambition is now declard as a freight train without brakes and rear gear. Further antagonism by Russia further escalates concern for continued oil price spike, infation worries, and a market sell off on Wall Street. The last dark horse that can cause a market sell off is Israel, who may take matters into their own hands in attempting to neutralize the Iranian menace. Much like in the early 1990's attack by Israeli air force on Iraq's suspected nuclear site, this may be a likely scenario, especially when Israel is the preeminent focus by prior statements by Iran's hardline president Ahmadinejad. If this scenario was to take place, it would increase global tensions, oil price spikes, and sell off in global equities, and may be the fuel that is needed for the long awaited "corrective phase" in the US market.

Russia's anti-US rhetoric is growing. Russia is increasingly supplying Iran with weapons for anti-aircraft defense and Putin has publincly warned the US and European allies against establishing anti-missle defense systems in Eastern Europe. Furthermore, Russia has publicly called for OPEC like cartel to control the natural gas supply and establish pricing power. Read in between the lines, it is clear that Russia is willing to parlay their substantial oil and natural gas powers to gain leverage and prestiege on the world stage. Any conflict within Iran by either US and their allies or Israel will result in oil spike above $65 to $70 in quick order, thereby sqashing any hopes for "Goldilocks economy". Inflation jitters will predominate and a sell off can ensue in the global equity markets.

Gold prices are hovering around $680, which is alarming, but not surprising given the issues surrounding Iran, Russia, and evidence to the contrary to what the Fed chairman Ben Bernake said regarding to the dovish economic situation in the US.

In light of these issues, it creates the "wall of worry" that is necessary for the markets to continue moving up. I don't see any reason to push the "eject" button just yet. Cooler heads will prevail in this market. I would advocate possibly starting a small short position around Bidu, Google, Crox, Apple, QQQQ, dated out to at least June, and slowly add to that position as conditions deteriorate. Long positions should be kept small, short, and sweet. Take profits early and often and reassess. Most importantly, this is not the time to be greedy as there is a lot of growing risk in this market. Many momentum stocks are extended and good entry point does not exist. Many leaders have began to roll over. As usual, don't allocate more than 20% of your cash position into any trades. That would be my advice for the week.

1. I myself will be looking to buy some June 07 $85 puts, slowly as BIDU's price rises. The gap should finish filling around $111.80 mark but the stock may run as high as $120.00, but below the 50 DMA which should pose significant resistance.

2. I have established 21 contract position at Mindray MR April $30 calls. I will look to add to this position leading up to earnings onf 3/12/2007. I expect a blow out earnings.

3. I will sell my Google call contracts this week.

4. I am establishing position into LHC Group leading into earnings on 2/28/2007. I would like to establish 100 contract positions.

5. I may establish a small 10 contract position into TWGP April $40 contracts.

As always becareful out there.

Week In Review 2/19/2007 to 2/23/2007

The market remains in an uptrend. One thing to watch out for in the coming week is the continued ascent of the oil above $61 per barrel and rise in gold prices. These two groups can kill this rally if not mitigated. The action comes at the heels of some troubling news coming out of Iran who continues to remain defiant in their quest for "peaceful" nuclear power acquisition. Iran's continued involvement in support of the insurgents in Iraq is also troubling. In addition, CPI numbers came in refuting some of the dovish comments by Ben Bernake and company last week. But that number should be taken with a grain of salt. While we are overdue for a correction in the market, we cannot force the issue at this point and go with what the market gives you. As long as the technicals remain solid in the markets, and they are, we should continue to play "offense". I would recommend that we keep the long trades short term and scalping plays might be the best way to mitigate the possible reversal in the market. The bearish sentiment is higher than ever, and the bearish noise is audible. The put to call ratio still remains relatively high.

Nasdaq is hitting highs and is showing strength finally. The real question now is, can the techs, financials, retailers, and transportations lead this market again? One thing that I am noticing is that the current market leaders have been rolling over a bit, and even great earnings report is met with selling. In a strong market, we shouldn't see those kind of action. Some laggards have been showing strength lately, just watch what Service Corp is doing (SCI).

I am still bullish on Google. It has successfully tested the $455 bottom and is trying to make one more go at the highs at $513. I believe that the uptrend remains intact, especially because a lot of investors are not sold on Google's possiblity to run again. That is good news to me. I am looking to establish long sided trades in Tower Group (TWGP), LHC Group (LHCG), and Mindray (MR).

Next week will be a tell in the market. So far I have not seen any distribution days and there is no evidence of institutional selling. So, lets keep our fingers crossed and exercise some common sense and as always, be careful out there!

Nasdaq Showing Strength.

Today major indices were mixed ahead of rise in crude oil prices above $61 per barrel and ongoing problems with Iran's nuclear ambitions. In a stark change of pace from Tuesday, the maket over the past few days have turned increasingly bearish with two straight days of down days in DIJA and S&P 500 Indices. Valuclick reported favorable earnings yesterday after market close and today finished up $2.66 on more than 4X average volume at $29.13, further indicating strength. In general, small caps have been breaking out despite seeming weakness in the market place over the past few days. You generally want to see strength in the small caps as they will lead the next phase of the market leg up. However, there is increasingly bearish ominous under tones to this market. Increasing oil prices, unsettling CPI numbers indicative of rising inflation, inverted yield curve, and "sell the news mentality of the current market". Despite that, there is good dose of gloom and doom in the market and many of the market participants are voicing this sentiment. Usually, in a topping market, you will see increased enthusaism and euphoria that leads to a sell off. Based on that notion, I think it is still premature to consider that this market is topping- but we are getting awfully close. Thus I keep one eye open as we have not had any meaningful correction in this phase of the market run up which has me a bit concerned. This rise in the current market is by no means a parabolic rise.

Again, the prior momentum leaders are showing signs of life. Apple (AAPL), Google (GOOG), Research in Motion (RIMM), New York Stock Exchange (NYX) to name a few. Can the momentum start again in earnest? Perhaps in the short term.

I have started to initiate a small bullish position in Google, April $490 call for a total of 3 contracts. I will slowly add to this position over the next few weeks in anticipation for a rise in these shares. If the market doesn't correct and the market sentiment returns to fully bullish stance, then I believe Google can test $550's by April. I wil have one button on the eject button just for good measure. I am also interested in Valero (VLO) and Trans Ocean (RIG) especially if oil prices continue to rise. Today's price action in these two concerns was nothing but good.

I am investigating Mindray Medical Internation Ads (MR) a Chinese medical device maker engaged in diagnostic instruments, ultrasound imaging systems, and patient monitoring systems. It sports a strong ROE of 28% and prior quarter profit increase yoy of 131%, it boasts a reasonable PEG of 1.5. It has broken out of 10 week sideways consolidation today on strong volume up $2.12 and finished at $28.00. The company reports earnings on March 12, 2007.

Another candidate that I am investigating is Heely's (HLYS) the maker of those pesky roller shoes thet bratty kids wear around the mall. They are ubiquitous, all you have to do is run into one of the kids at the mall or while you're out. Again, there is high expectations built into this company. They had one of the most successful recent IPOs in January. None the less, PEG is 1.76 a bit higher than say Crocs (CROX) with a PEG 1.08. This should come down a bit after their earnings release. Revenue and Quarterly earnings both grew at 190%+ yoy, a tremendous growth. Analysts are expecting $.28 EPS. I think that they should be able to handle this number handidly. If they beat and guide up, this stock could see $45 to $50 within the next few months. There are bearish sentiments on this company. It only has one product line and many people consider this a fad. But like its counter part Crocs (CROX), I believe that this company will try to parlay into more diversified offerings while staying true to its roots, by selling fun shoes with lots of sports appeal to kids. The down side obviously would be that there already is a slew of skeptics who want to see this stock fail.

As always, be careful out there.