This is why its not easy to trade in the markets

The markets have been overbought for a loooong time now but they keep going higher.
Now you see many momentum stocks lose their momentum, AAPL, RIMM, AMZN etc. and the markets still manage to be higher.
This drags in the casual trader/investor just to see the markets tank suddenly.
Then they get frustrated and give up.
This is why the market proffessionals are called "smart money " .
Well its not always that they are right always, like you saw, "smart money" was heavily invested in banks and got floored when the banks tanked.
But as a rule of thumb , avoid when "smart money", wait a minute, lets just call them "big money". So when big money starts buying, just keep away ( away from shorting, if you wanna buy , then wait for a breakout). How to know they are buying, its when the stock/market just keep going up for no reason.
It also works the other way, then big money is selling the stocks or markets keep going down no matter what.
This is also know as " The trend is your friend". Its your friend not because you think similarly but because big money is dictating the trend and they can move markets.

Very informative post from ritholtz.com

Over at Barry Ritholtz's blog he has this post with a picture which shows how overbought we are.
Click here.

Think Risk/Reward

As this rally shows no side of letting up, think Risk/Reward.
How high can it go if you buy now. How low can it go ? If you do some analysis and reading then you will agree that this rally needs a break and he upside is limited and downside seems huge.
This is just my opinion. If you hold longs , protect them with a stop loss.
The markets have been igonoring all bad news , but sooner or later its going to face the reality. I am not buying anything new here. Maybe a little more GLD/GDX.
But I will wait for consolidation/pullback before I buy any calls.

Bear Markets rallies in the past

I have seen this a few times now but it provides a good picture.
Is this rally a bear market rally or not? Technically we will not know unless the patterns are completed, but we can surely speculate.
This charts is from 1929 , we need not follow the same pattern but its worth looking at. Especially nowadays many people are saying that 20% rally from a low equals a new bull market.
This is not true, as you will see in the chart in previous bear markets the rallies have been over 30% and the overall trend was still down.
Maybe its different this time but I think we should try and learn from history.
Here it is again.

So QCOM and BRCM are settling?

Yesterday QCOM delayed their earnings statement , the reason they said was that they are in talk with BRCM to settle a dispute.
Now the news can be anything but I feel that this is a win for BRCM, see QCOM is settling not BRCM, so to me it looks like that they might be paying BRCM .
This is just some assumption from me but check it out and see how it looks.
Both QCOM and BRCM were up but both went down and are kinda flat now.
I did get some BRCM out of money ( otm ) calls , just a few.
Hope it works out and BRCM runs up a bit more.

So QCOM

Markets

So where do we stand with the markets? It looks like we finally are taking a breather, though we are up today, the resistance is tough to break as the rally gets a bit weak.
There are some major earnings reports due like AMZN and AAPL and a few which not many will focus on but important anyways like BRCM, CREE etc.
In any case what I am doing is I have a few qqqq puts and calls on some individual names.
The markets will consolidate but good stocks have room to run.
BRCM is down almost 10% as they announce that they will buy Emulex.
I think this could be a good pullback but I am afraid to do anything in front of the earnings call.

Are lipstick sales a good economic indicator

Here is a unique way to look at things. Lipstick sales, yes there are those who say that lipstick sales inndicate how the economy is doing .
Read that story from nytimes.com by clicking here.

Goldman Sachs earnings

A lot is being said about GS earnings, was it good? it was, they blew away the estimates. But some people point out some missinng links.
See remember GS used to be a Investment banker and then changed itself to a Bank Holding company while Hank Paulson was the Treasury secratary? That was when the quater was GS used to be Nov to Feb. But since they became a bank holding company they had to change the quater to Jan to Mar.
So nothing wrong yet, whats missing , according to many folks I read is the data for Dec 08. They say GS booked most losses during that month as they knew they would not have to show that month at all. WOW! is that possible in this day and age?
I am posting some links, make your own decision .
Barry Riholtz's article.

Clusterstock.com has so many GS articles you gotta go there.
http://www.businessinsider.com/clusterstock

Check this out from 1934

just saw this over at Barry's site,
http://www.ritholtz.com/blog/2009/04/1934-chicago-tribune-cartoon/.
Its from 1934 and seems fit for these times. Whats that old saying? The more things change , the more they remain the same?
Mind you I am pretty neutral on this whole issue about should the govt. be doing what they are doing. When I had an opinion , my trades started getting affected, meaning I kept thinking that the markets will go lower due to whats happening , but they did not.
The markets do not go hand in hand with the economy, they usually recover before the economy. But this time this thing looks like a huge deal . I want to make as much money as possible.
If you look at the 1930's , which many compare to these times, there were many rallies 20% and more. So whatever economic state we are in , the markets do rally. So I will stick to what I can control , make money for myself via trading. I will keep an eye on the economy so that I know if the rally is a bear market rally or a real deal so I know when to sell.
But I will not get sucked into this economy going to 0 mindset which serves no purpose. Its pretty bad out there but we have seen other times like these and we will get out of this present situation someday, maybe not this year , maybe not next but someday.
Until then let the trend be your friend.
Markets are closed tomorrow which is just a great thing 3 day's no trying to figure out whats next with the markets, well not 3 days. Sunday evening I will check the futures.

I am reading this book, about creativity, cracking creativity ( click here to see it on amazon.com ). It seems nice and thats what I need , to look at things from a different prespective.

OK then over and out , I will try and start posting more non-market economic stuff.

Update

After the S&P 500 tested 815 or so , it has zoomed ahead. I would have expected a test of 800 but the markets had other ideas.
So did we get the pullback and should we jump in and buy? I think one has to be very careful as the resistance at 860 or so is high.
Volume is low today and we can still have some pullbacks.
Overall the upside is not much and downside is high. Risk/reward not so appealing.
I have sold some calls here, have some puts and some calls meaning while we might go down , I do not want to miss the upside.
So I am buying calls on technically good companies and buying puts on bad ones.
I guess you did not need me to tell that but while a rising tide lifts all boats and a market collapse takes all the companies down, now while we are at resistance, stock picking is the right way to go.
Meaning I am not buying index calls but rather calls on individual companies.
Be careful.

Caution flag is looking good

We can have a bit more of upside , like S&P 500 at 860 or so , but the markets are struggling , RIMM and APPL rallied good but otherwise stocks were consolidating. Earnings season starts very soon so lets just be careful.
I see some buys , some shorts but there will be lots of volatility, whipsaw action. So protect those profits.
On my blog I have a link to Barry Ritholtz's blog, www.riholtz.com , there is a very interesting article there. Go check it out , click here.
I will paste it here anyway, but this will talk about the whole bear rally vs bull market thing.


David Rosenberg, the soon-to-be former Economist for Merrill Lynch, had a very prescient commentary last week about the 25% four week rally on Friday:

As for this 25% rally in three weeks – the consensus has swung to the view that this is a real inflection point. One warning. We saw this happen in late 2001 and early 2002 too … big, big rally; early cyclicals flew; the markets thought we were in for a V-shaped recovery … it was longer away than many at the time believed and many were burnt as a result. And keep in mind that the ‘second derivative’ on growth began to improve in the fourth quarter of 2001, and the S&P 500 still did not bottom for another year.

Currently, the equity market is priced for $70 on earnings on a going-forward basis, or a 75% rebound. And with retailing stocks up 30%, leisure/accommodation up 35%, and the homebuilders up 40%, the market is priced, amazingly, for a revival that is led by the consumer! (in fact, the only S&P sector that is now trading at P/E multiples that are at post-2001 highs is the consumer cyclical group). If we see that in the next year, we will be the first to hang up our Hewlett Packards. Being up 25% in a year and staying bearish … well, shame.

Achieving that in less than a month – come on. Too flashy for our liking.

In fact, let’s learn from history. The only times we have ever seen the stock market surge close to this much in such a short time frame were:

* December 1929
* June 1931
* August 1932
* May 1933
* July 1938
* September 1982

Only in September 1982 and in May 1933 was the equity market embarking on a new bull phase. But guess what? By the time the S&P 500 surged 25%, it had already crossed above its 200-day moving average. So call us when the S&P 500 crosses the 1,000 mark – another 20% to go. That is how deeply entrenched this particular bear market has been – that even after this massive rally, the onus is still on the bulls! Consider as well that on 4 of the 6 occasions that the equity market staged such a huge rally over such a short time period, it relapsed. So we are going to wait this out, acknowledging that we could be late to the party. We still feel the downside risks are too high to be involved.

Raising the "Caution " flag

We have had a great run but its time to be cautious as we can get a pullback. This does not mean one can short away but I am protecting my profits and selling calls and looking at puts now.
RIMM and APPL are doing just great, look at them as an indicator of the whole tech strength and at GS as the indicator of general strength.
We can have a small intraday rally or in fact we can even touch 845-850 on the S&P500, but overall the resistance there is strong.
Stocks like RIMM have great momentum behind them so do not be surprised if RIMM keeps on rallying. I am always open to trading stocks which have their momentum /own trends irrespective of the markets action.
UNG is acting very weird. I am not buying any more of that.

FASB 157 , mark to market meeting

Here is a link from marketwatch.com about the fasb meeting.
For the PDF see my post before this.
This one can move markets so be careful.

Great rally, but today is key

This rally has been good but honestly the market seems to be stuck it was at 815-820 beginning of last week, we got a pullback and now again its back there.
Today is a key day as we get the G-20 ( already in progress ) and then there is the FASB meeting , particularly the FASB 157. You can follow it here.
Also click here for the pdf about this meeting.
Futures are up huge, RIMM reports earnings today after the close. So it is a huge day.