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I have a lot to write about this evening, but will have to keep it short due to my onerous tax situation.  Goldman Sachs sold $5bn of stock at $123, which I was expecting ever since the stock broke $100.  GS indicated they have over $164bn of liquidity, yet they found it prudent to raise $5bn of additional liquidity to be on the safe side.  This tells me that GS sees the potential for another leg down and they think their stock is expensive.  In the conference call, GS stated “Our real estate investing portfolio generated $640mm in losses” due to deteriorating fundamentals in commercial real estate and higher cap rates — This caused all the REITs and insurance companies (which have high c.r.e. exposure )to get absolutely crushed.  Maybe I should not have divorced SRS last week — it was up 20% from its low of $30 yesterday (SRS gets you double short commercial real estate.  I expect SRS to continue to work, but would not chase it. 

I wonder who were the buyers of the GS secondary?  I imagine there must have been a very high amount of retail interest and if you were a professional money manger buying this offering, you deserve to be fired.  The stock was up almost 200% from its intraday low in November.

I had the GS chart on my screen all day because I thought it would drive the market.  I wanted to get short of GS below $122 but I’ve been burned so many times that fear kicked in.  The prudent thing would have been to only short 100 shares with a stop $1.50 above the issue price.  Think about it, if GS sold $5bn at 123 then all those buyers are breakeven at 123 so as the stock drifts below 123, selling pressure intensifies. 

Intel reported earnings after the bell, which were better than expectations (top and bottom line).  The bottom line was aided by a 2% tax rate, however, they would have beat estimates even without the lower tax rate.  The stock is getting crushed after hours due to murky guidance.  I’m very near-term neutral/bearish on the stock mkt right now, but for heaven’s sake, why was the market expecting positive guidance?  Intel sells chips that go in computers and other high end electronics — a truly discretionary item.  On another note, it amazes me that the market was surprised by the negative retail data this morning.  The futures plummeted over 1% on news that consumer spending was down over 1%.  I guess the analyst expected the consumer to BUY, BUY, BUY after saving so much money on their 4.5% refi and tax rebate.  As a good friend of ours says, “green shoots”.

On the overall market — there is a lot of bullishness priced into stocks and today was the first day where I didn’t see an underlying bid in the market.  If bank earnings are anything less than spectacular, the market will sell off further, but consolidation will likely occur around the 800 level.  Watch price action in GS, stay long above 800 SPY and go short below the trendline and support levels — Yes, it’s that simple. 

I’ve been trading the market very well lately, and wanted to share some of the reasons for my trades.  First of all, I start by writing into my trading journal whether I expect it to be a choppy scalping day, a choppy trending day, or a trending day, and I also take a directional view on the market.  If the technicals support my view, I trade in larger size, however, even if my view is wrong, I will still trade the price action I see, but in smaller size.  Today, I expected a choppy trending negative day due to GS.  I read highlights of the conference call this morning and expected traders to take profits and expected supply would outpace demand below $123. 

I went long a small amount of SSO when the vwap was held.  The sellers couldn’t take the market lower so once the market broke above the vwap (yellow line), this was a buy signal.  The tails on the candle also indicate resistance to go lower — confirming the long trade.  I let my bearish sentiment interfere with my discipline and sold the position very early, which is why it’s important to document these sell levels.  My next trade was going short the s&p via SDS when the mkt failed to fill the gap.  I exited this trade too early also.  The bullish action of the last few weeks made me hesitant to hold short positions too long.  When I saw the head and shoulders pattern on several charts and the TICK was weak, I repurchased SDS and went out for breakfast with a stop and limit order in place.  By time I returned, my limit was hit for a good profit, but the trade continued to work and I had missed a much bigger move.  In my last long trade, I bought 2000 SSO with a stop below the low.  I scaled out of the entire position with 85% of the position sold at limit prices below the vwap.  250 shares were stopped out, as I increased the stop price after the mkt moved higher. 

In order to be a disciplined trader, I can’t urge how important it is to have a set of rules and stick to them.  Personally, I find it helpful to automate my sell-stops and sell-limit orders and write them down.  Most of my losing trades are a result of changing a stop price and most of my daily stress is a result of lowering limit prices and selling too early.

On the 20-day chart, the 820 and 800 levels will be important levels of support.  My best guess is the mkt opens 100 points lower near the 820 support level and the green trendline.  Last time this happened, the market ripped higher after testing the trendline, however, the market is so extended and the financials have run so high, that I find this scenario unlikely.  I will be short if 825 is broke and long if the level is held.

If support levels hold, I expect the S&P to rally up to 900, however, I see a lot of near-term headwinds and the most likely scenario is that we consolidate lower.  Green Shoots says “We Go Lower”

I’m having the pleasure of doing my own taxes and found Investotek to be quite helpful.  I am using a couple of their products for the purpose of verifying my own calculations.  The website is www.investotek.com

Observe today’s intraday chart on the right and the 10 day chart on the left.  Resistance held on the longer term chart.  Trendline and vwap are resistance on intraday.  The opening level on spy was also major resistance (see how the mkt traded right down to that area and buyers came out). If the mkt can sustain a break above the vwap, we’ll make a run for the high.  Note that the Russell and NASDAQ are leading the mkt.

Last night I thought I posted “Will the Bulls Dial an (800) R-A-L-L-L-L-Y”.  For some reason, it was not published (quite disturbing b/c I spent a half hour writing it at midnight).  800 was major support on the S&P and the S&P futures traded near that level in the overnight session, however they bounced pretty hard in the early a.m.

Today was one of those days where i made money on everything.  My only problems were in the area of risk management, where i changed a stop price that was detrimental to my P&L (would have made major coin if i didn’t raise my stop to my purchase price).  I posted most of my trades to Twitter, which you can see on the right page of the website.  I nailed each turning point in the market using TICK, volume, the overnight futures, and intuition. 

To summarize, I think today’s price action was healthy.  The 800 support level was held and buyers came out at the end of the day when we retested lows.  Additionally, companies such as Alcoa, Mosaic and Emerson, that reported horrible earnings closed significantly higher.  My main concern right now is the ability of the financials to hang in there.  I just don’t see them rallying much higher when you have Goldman Sachs near 120 and JP Morgan in the upper 20s.

Every time we hit vwap (see chart below — vwap is the yellow line), the buyers come out — sign of a market that remains strong.  However, the bulls may be exhausted by 2pm.  also, alcoa kicks off earnings next week so there may be profit taking.  they are known to disappoint.

I’ve been in an abusive relationship with SRS lately.  Made some good coin fading the market at the open with SDS, but SRS stabbed me in the back. 

Sorry, I haven’t been posting lately, but I’ve been busy with a couple side projects.  Price action in the market has been very confusing lately, but after digesting all this consolidation and volatility, which I warned about in recent posts, I continue to think the rally has legs.  This morning, the market opened down over 100 points on the Dow and we tested the lows on the overnight futures.  I noticed the financials strengthening prior to the pending home sales report and this was the first indication that the mkt would rip if the report was positive.  The report was positive and I quickly addes to my long position in SSO.  Later in the day, I went short via SDS after we tested the prior day’s high and the mkt made a triple top channel formation.  I scaled out of the position in 4 different sell orders.  

The Dow climbed over 250 points after a very bad ADP jobs report and closed near the high after testing the VWAP.  This is a strong indication that the market doesn’t really care about the NFP jobs number on Friday and will rally regardless.  I think the number will be atrocious and the most likey scenario is that the market initally trades lower, but closes near the high of the day. 

If you are a newcomer to the website, I encourage you to read \”Below Are Some Popular Posts From the Past\”.  I still think the market goes lower, but you can’t ignore a vicious bear rally, which i think takes us to 875-900 on the s&p.  Most major recessions experienced a 25-50% rally before the ultimate bottom. 

Trade Idea: Short the Japanese Yen via FXY puts.  I own the April 100 puts, but I will probably roll into the May 100 Puts to buy some more time.  I think this trade could be worth an Aston Martin and may add to the trade if the Yen breaks 100.  For further info please see What Do You Do When A Trade Idea Works and You\’re Not Yet Involved?

See everybody on Twitter tomorrow.