Anyway, we are at a critical juncture in this market as we should soon find out whether this is a bear flag or just another dip in the rally to shake out the weak hands.  My cash position in the momentum book us +30% still as I’m not yet convinced the buyers are ready to squeeze this market.  The risk is to the downside here until many issues can recapture their 50 day moving averages.  Let’s take a look at the overall market.

The 20 and 50 day moving averages are going to be large resistance for this market.  If the 20 crosses down through the 50 that will signal an end to the move off the July lows and produce a test of the 200 day moving average.  We have already seen the market make a new 20 day low in the last week, the first since the July lows as well.  On the positive side, stochastics are rising from oversold levels and if we can crack the 50 day, I can see a major squeeze in this market similar to what happened in November.

On the 10 minute time frame, watch 110.50 as the major level of resistance and 109 as major support.  The first test of the 5 day moving average from above was successful which bodes well for a squeeze, but we need to see some follow through to the upside on good volume to get the bears scared and the bulls panicking that they need to get back in.  I will be one of them as my cash position is pretty high.

Use Goldman Sachs $GS as your guide to this market, if it runs back through that major level of resistance the squeeze could be on.  I continue to believe there is nothing fundamentally wrong with Goldman, it was sold due to fear of impending regulation and populist speak by the white house.  I don’t believe any significant legislation will be passed, and even if it is, Goldman will be fine.  The white house has shut its mouth for now, but could start talking again any time, so be aware of when the President is speaking.  If this major level in $GS fails for any one of a million reasons, it’s time to put shorts on.

The barbaric metal is behaving exactly the way I expected, we tested the bottom of the range and bounced hard.  I drew that descending triangle line in red but I don’t really believe that a break past that to the upside is going to get gold moving again, it’s just something to watch out for.  A few more weeks of consolidation is needed at these levels between 112 and 105 before we get some resolution in either direction.  I’ll play it either way.  I have been surprised at how hard the gold miners $GDX have been hit.  I made a bad call on materials a few weeks back and I’m still licking my wounds a little over it.  The miners have been a tricky trade, you need to buy on weakness, but this was the first time that weakness really turned to pain.  Stick with it, this trade isn’t over in my estimation.

Stay nimble and put together your watch list of stocks that are showing good relative strength.  If another rally does occur, it won’t be the old momentum names leading there way, there are new names that have grabbed the torch.  Here are just a few to look for: $MCD, $CMG, $ALGT, $LUV, $PRGO, $DV, $PEGA, $VRX, $HSP, $DMND, $ALXN, $NKTR.

We closed a penny away from VWAP on the $SPY today, no coincidence.  Today was the epitome of wait and see, traders are playing some serious chicken.  Don’t be the first to move, wait for the winner to appear and join the crowd.  Bulls want to see a slow, methodical strong bid in the market over the next 3 days, not a quick run up that is going to be heavily shorted into.  The longer we churn down here the move bears get trapped, the more fuel to push past the year’s highs and on to 1200 $SPX.

It appears that crude $CL_F has found a short term bottom.  It’s still suspect as the oil market has been unable to hold a bid for more than a few minutes at a time.  The US Dollar has a lot to do with this, we are on the door step of a huge breakout, everyone is in wait and see mode now.  I think there is a playable bounce here in crude with a tight stop under today’s low.  I want to see it climb back above a flat 5 day moving average, I won’t be able to take as much size, but I’ll feel more confident that the bid is back.

Gold $GC_F is in the area where you want to be accumulating it for a longer term position (3 to 6 months), as well are the gold miners.  You’ve got to buy the materials on dips, chasing breakouts has only led to heartbreak.  That said, if $GLD breaks 110.14 I’ll completely reverse my positions and get short gold, that kind of action could be signaling an end to the asset reflation scheme.

Copper $HG_F continues to hold the bid.  It’s showing a very pretty bull flag on the daily chart and continues in its trend.  The Chinese equity markets are struggling, but copper continues, a divergence for sure, I’m not quite sure what to make of it, something to ponder, keep an eye on it.

Grains continue to get destroyed, don’t touch em.  I missed my short entry, I’m not happy about that.  Sugar $SB_F continues to fly, pure momentum there.  I don’t play the sugar futures, too illiquid, along with the $SGG.  One way to play this is through $IPSU and $CZZ which both show nice momentum and patterns.  You take equity risk by playing these names, but it does give you some exposure to the trend.

I’m short the long bond via $TBT.  I hate to use double short products but I couldn’t get a borrow on $TLT and this looks like a trade too obvious not to take.  My stop is above Friday’s high on $TLT, check the trading book for my exact entry and size.

Apple crushed their earnings, although iPod sales were lite.  The tablet, slate, widget, or whatever the hell you want to call it is going to be a game changer, I have no doubt.  That said, I feel that there may be some serious institutional selling in $AAPL this week as retail money pours into the name, giving the fund enough of a bid to distribute their stock.  They’ve made a lot of coin in this name and I think some are itching to take a few dollars off the table.  I’m long, but a little nervous.  I want to see the stock get into clear air above 215 and I’ll stop sweating.  If it goes it may not look back for a hundred points, I’m not kidding.

Have some patience with the materials if you stepped in last week, these aren’t day trades.

I’m off to hockey, second round of playoffs tonight.

We are now at a critical juncture in the materials sector $XLB, an area that has acted as both support and resistance on several occasions.  It’s amazing to think that the sector has now retraced the entire collapse from 2008.  I highly doubt we are going to just blow through this level, especially with the fact that the sector is extended on the daily time frame.  It’s time to take a rest which means you should start rotating out of those steel names that have been on fire.  If you have large positions that you’d like to hang on to, I would be selling some calls here to protect yourself a little.

Gold $GLD $GC_F found support at the 20 week moving average, above a critical consolidation area.  This is very positive action as major investors stepped in to support their earlier buys on the breakout.

I’ve added to my gold miner position last week by picking up $IAG and $RBY, I still hold a large position in $EGO.  I don’t think we take off from here, it’s going to take some time to regroup and work off the froth from November.  I’ve drawn on the chart what I believe to be the most likely path.  You have to accumulate the materials and underlying commodities on dips, do not chase the strength, it hasn’t worked.  Be patient, gold is going higher, my ultimate target is 1300 and as high as 1360.

If the trade had not been a system trade, and just a swing trade, I would have exited on 12/7 as $GLD broke through the 20 day moving average after putting in a major reversal candle on huge volume the day before.

Anyway, let’s take a look at where gold $GC_F stands tonight.

I’ve placed on this chart the major support levels where we may see a bounce in gold.  Remember that the gold trade must be viewed through the prism of the inverse head and shoulders pattern which was fulfilled when gold broke through the all time high of 1029 back in October.  We topped out a few weeks ago at 1227, shy of the 1300 target measured move off the inverse head and shoulders pattern.  I’ve pounded the table going back a few months now that we need to see a retest of the breakout level at 1029.  This retest will be where the real investors reload.  We could see a move all the way down to 988 as the market attempts to shake out the weak hands.  If this level fails to hold, oh boy, watch out for a complete unwind of the gold trade put on by Paulson and friends.  The 200 day moving average shown on the chart will also be an important level of support.

Strength in the $USDX was the obvious catalyst for the sell off in gold.  It will continue to be an important asset to watch in the gold trade.  I feel we’ve seen an end to the turn off the bottom in the US Dollar as it now find resistance at the 200 day moving average and major overhead levels show on the chart.  The dollar needs to consolidate and test the 50 day moving average.  This should provide a short term respite for gold.

Volume By Price

I want to give a big thank you to @VPgradient who posted this chart on Chart.ly for me this afternoon.  It shows the significant levels of support in $GLD by measuring the volume traded at each price.  As you can see, the 104 level will be a major test for gold, below that and we are looking at 98.

For short term traders, you can buy the bounce by legging into a long position between here and 104.  For longer term investors, I still believe we need to either test the breakout level at 1029, or the 200 day moving average.  Be patient, more investors will lose money playing gold next year than will make money, it’s now a battleground asset, gone are the days of the boring yellow metal.  I still love the gold miners $GDX as an investment.  Names like $EGO, $RGLD, IAG, and $GOLD should be in your investment portfolio for both diversification and growth.

I highly doubt we are going to see rates raised tomorrow.  The congress is struggling with so much right now, Bernanke can’t risk popping the asset bubble he’s created just yet.  He won’t do it until he absolutely has to, and when he does, I’d be willing to bet he does it all at once.  We’re not going to see a slow and steady increase of interest rates that bleeds this market out.  That being said let’s take a look at a few assets at the tipping point going into 2:15 tomorrow.

The broader market rolled over this afternoon and pierced the 5 day moving average, but recovered to close strong.  Still we saw our 4th doji day in a row, signaling severe indecision in the market.  Odds are that we continue trading within the ascending range, but the FOMC announcement tomorrow afternoon could knock us out of that pattern.  Keep your equity positions small here and join the winning team when a high volume break of the range occurs.

The downward momentum in gold $GLD has been waning over the past two weeks.  The 5 day moving average is my bogey, if $GLD can hop over that line we should see a strong intermediate base in gold and a move back towards the highs.  A break of the triangle to the downside and a move through the 50 day moving average should signal an end to the run in gold, for now.  In the weekly time frame,  I still wouldn’t be surprised to see a retest of the breakout level at 1027 where I believe we could see a massive pile into the gold trade.  I’m long $GLD from 95.45 on a system trade and will stop out below 108.70 which is last Friday’s low.

A similar situation in crude $USO as gold.  We saw two tests of the declining 5 day moving average today which were both rejected.  If we move up above that level tomorrow I’ll look to get long for a swing trade up to the declining 20 day moving average.

The US Dollar $USDX has obviously broken its downtrend.  I believe we are headed up to test the June and August lows, also coincident with the declining 200 day moving average.  The dollar is smelling a raise in interest rates and it’s hard to argue with the action, but I still don’t feel Bernanke has the balls to do it.  Stochastics are overbought here.  Interesting that the equities have not been hit with the dollar moving up, we could be seeing the beginning of a break in that correlation.

The market is handling all of the bank equity issuance in stride, but the liquidity punch bowl may be running a bit dry.  Bank of America $BAC is now trading  about 1.50 below where the retail idiots piled into it on the day of the secondary announcement.  Action here will be very important to the outcome of this market, if buyers of that secondary start to feel major pain, we could see quick and dirty selling in the financials.  As well, Citibank $C has been mauled the past few days as they issue equity to cover the TARP.  I have been on record for quite some time saying that Citibank should be treated like the plague, stay as far away from it as possible and don’t associate with anything having to do with it.  Wells Fargo $WFC is having issues as well as it raises cash to pay back TARP through an equity offering.  The banks are still the key to this market, if they can’t get their act together the financial sector will hold this market back.  Meredith Whitney is out with very negative comments on the banks, I believe she has the pulse of the sector, she’s the axe, ignore her at your own peril.  For it was her that caused the short covering rally in July when she put out intermediate term buy ratings on a whole slew of broker dealers and banks.

I’m off to hockey, yes another 11:30 game.  I gave it Wade Redden hard at the Ranger game last night, but alas, he still allowed Kovalchuck to walk around him in the first period, leading to a penalty and the first Atlanta goal.  This guy is probably the biggest waste of 6.5 million dollars in the history of the game.

Have fun tomorrow, it should be a hell of a show either way.

In the news!  Tiger’s score card continues to fill up by the hour, how many current or former porn stars is it now?  Look, here’s my take, it’s never right to cheat, but I blame both him and Elin (what a babe) for getting married in the first place, they brought this on each other.  No major celebrity should ever get married in their prime, and no one should ever marry a major celebrity thinking it’ll actually work.  I don’t doubt Tiger loves her, but it’s just not in our DNA as humans to be monogamous, and given the amount of opportunity he has with his status, fagetaboutit.  She may love him as well, but there’s no doubt in my mind she loves the money more.  These sort of things only work when you have two athletes who marry each other (see Laird Hamilton and Gabrielle Reece).  By the way, I have a hamburger bet with @Stein that Tiger and Elin DON’T show up on Oprah together in the next few months.  Look for a lot of Tiger themed porn though.

Obama tried to justify sending 30,000 more troops into the abyss that is Afghanistan in order not to be the president that lost the war.  The administration has no cohesive regional strategy, just the hope that if we sit on the Afghan egg long enough maybe something will hatch.  As you all know I’m no pacifist, there is a proper place for war, even preemptive war, but it must be waged by weighing the risk of loss against the probability of success.  Is Afghanistan Vietnam, NO.  Please put things into perspective people, we’ve lost less than 1/10 the men in both Afghanistan and Iraq combined than we lost in Vietnam.  Is Afghanistan a complete and utter quagmire, you betcha.

Bank of America $BAC repaid the TARP.  I ran into a guy in the locker room at hockey who did the secondary on the capital markets desk at $BAC.  He said the book was mostly filled with guys who already owned large stakes, didn’t want to be diluted, and wanted to support their positions.  I guess the liquidity punch bowl is still not empty.

Everyone hates the banks, what’s new.  Matt Tiebbi is a smart guy, and a good writer might I add, but he makes his living by riding the coat tails of public outrage.  I think you can successfully use his columns to call tops in public outrage at anything.  My guess, after he’s done with Obama he goes for Congress.  The whole thing is a firggin joke.  Look people, I feel like a broken at this point, they gave the banks the money to buy assets and reflate the market.  If they didn’t give them the money, or nationalize the banking system, we were all going to be living on the street.  Yes, Goldman Sachs has made a shit load of money in the past 9 months because they got a piece.  They only got TARP because they had to take it, the treasury forced it on them because they didn’t want to be seen as picking winners and losers by giving some and not others.  The buffet investment wasn’t “needed” either, they took it to calm fears in the market.  Goldman is just playing by the rules of the game, and they are the best at playing it.  Instead of complaining about how much money their bankers and traders make, or that the government financed their trading (which they did), try and investing in their stock, or their funds.  I don’t care how much the average joe schmoe makes, it doesn’t matter, this country is about getting paid your market rate, and the market rate for a guy who can make his firm 100 million dollars in trading profits obviously deserves a percentage of that.  Let the market decided what the percentage is.  I don’t hear anyone complaining about baseball players making bank when the government finances stadiums to hold all those people who contribute to their salaries.

Here is your weekend reading:

How Obama decided to spend more blood and treasury on the quagmire that is Afghanistan (NYT)

More on why you should quit bashing Goldman Sachs and aspire to be one of them (Aiki14)

The mortgage modification program is a complete failure (The Atlantic)

China is winning the race to supply the world with clean energy parts (WSJ)

Turkey wants to take it’s rightful position as power broker in the region, don’t be surprised to see them go after nukes (Economist)

What companies are leading the push for a smarter grid (excellent investment thesis) (Greentech Media)

First person to figure out how to do super cheap desalinization is gonna be a rich and powerful man (Economist)

God bless China for investing in Pakistan, if they won’t send troops to the region, maybe they will help create an economy there (WSJ)

This UStream thing is gonna be huge, HUGE! (CNET)

Media consumption is changing in a dramatic way, so many cool things to come (The Atlantic)

The EPA finally does what’t necessary, calls a spade a spade and labels greenhouse gases a public health threat (WSJ)

Americans are finally starting to pay off the debt binge they went on this decade, good for them, too bad the government is screwed (Business Insider)

The financial transaction tax bill is a complete joke, there is no way it passes, not a chance in hell (WSJ)

The Apple tablet is going to be huge, and it’s coming (Apple Insider)

Consumer credit is still declining, banks know that Americans have no money and will continue to be monster credit risks (Calculated Risk)

Both shows had financial journalists as guests tonight, hocking their newest literature.  John Stewart entertained Andrew Ross Sorkin selling his book Too Big to Fail, Steven Colbert with Matt Taibbi talking about his much ballyhooed piece in Rolling Stone on Goldman Sachs.  The tv is entertaining no doubt, but leaves me frustrated.  The shtick that Stewart and Colbert have going is all about bashing classic idiocy and hypocrisy perpetrated by people in power.  But the financial crisis was really the first major go around for these guys in terms of the economic world.  As the crisis developed last year, I can picture both huddling with their writers at some point and saying, “guys, i need all the classic knocks on banks, economists, analysts, the fed, treasury, and anything else i can make fun of, thanks.”

This economic clusterfuck taught us all many lessons for sure, but no one learned more about how to bash everything and anything economic than these two guys.  It’s been entertaining to watch as they felt their way through.  But now it’s starting to become annoying, it’s turned from interesting to watch them learn how badly this financial system is fucked, to sad how they talk about the current system like it used to be all butterflies and fairies.

Not only them, but Sorkin and Taibbi hock their stuff acting like the greed and corruption on Wall Street only became prevalent in the run up to the financial collapse.  Taibbi isn’t as bad as Sorkin, his piece on Goldman Sachs outlined how they have helped to create and profited from many past asset bubbles.  But both still speak like Wall Street used to be a place where our financial system worked for the little guy, the joe schmo.

Look people, Wall Street has never, ever, ever, been in the business of helping the little guy.  The same shenanigans that go on today, happened yesterday, 10 years ago, 100 years ago, and will continue to take place tomorrow.  The only difference are the tools they use to screw you.  Wall Street only cares about America as a whole to the extent that it helps make them money.  I’m convinced that some major players in the short financials game last spring only covered because they were afraid if they didn’t there wouldn’t be much of a market left for them to play in down the road, kind of like what J.P. Morgan said to Jesse Livermore in Reminiscences of a Stock Operator.

I love Stewart and Colbert to death, but if they want to be relevant in the conversation regarding how to fix our financial system, they’ve got to grow up and recognize what motivates and will always motivate Wall Street.  In fact, when they realize that the heart of Wall Street is never going to change, they’ll probably have some really great material to work with.

As for the market, we continue to churn above major support levels.  I still believe we are set to test the all important 50 day moving average.  At the close today, the market was trapped below the 5 and 20 day moving averages which are both moving in the negative direction now.  A failure to recapture this level tomorrow and I believe we could see a break of the trading range into the end of the week.

The fact that we haven’t pulled back more the past few days with the bloodletting in gold and crude is amazing and testament to the fact that there are strong stocks and sectors in this market.  If you are still trading into the end of the year in this chop, you should be focusing on areas of relative strength instead of the averages, there are stocks to be found which are moving out there.  Playing the ranges though seems to be the better trade right now than taking entries on breakouts.

Crude is coming into a major level of support right above the 200 day exponential moving average.  The contango in $CL_F is starting to get ugly though making $USO a sub optimal way to get long energy.  Remember, when $USO has to roll into crude contracts that trade above the spot price, it negatively effects the price of the ETF.  Watch those stochastics for a bounce, they are very oversold.

Gold is getting closer to stopping me out, all be it with large gains.  This is a system trade for me, so I won’t spend time over analyzing it.  I’ll stop out on a violation of that lower yellow 20 day donchian channel.  Interesting though, that level does correspond very closely to the location of the 50 day moving average, coincidence, I think not.  If you don’t have a position in gold and want one, now is the time.  Take your shot with a tight stop.  If you are looking for longer term gold related positions, look more towards gold miners $EGO and $RGLD.

On the equity front, I still don’t like the action in this choppy market and have been sitting out for a while now.  Here are a couple of things that make me suspect that we are running out of steam in the broader indices.

This weekly chart of the USDX shows that the MACD is very close to turning upwards with a very oversold stochastic reading. Still, until the dollar can break the upper line of the downtrend channel and the 50 day moving average, it's a sell and the equity markets hang on. We have also now hit my first target support at 74.31. If we fail here look for 71.31 which is the low from 08' and would likely send the SPX to 1220-1260.

We are seeing the inverse on the SPY of the MACD reading in the USDX, about to give a sell signal. The stochastics are also overbought.

If we break through the yearly highs I will get long stock as we've been chopping around for a while and there will be fuel to push to 1200 quickly. That said, I don't like the choppy action up here with a lot of gaps and dojis.

If AAPL loses its footing here the market is done, you can't have a rally without the leaders. We are getting a sell signal now on the weekly MACD and stochastics. I would not be long this stock now and you should have it at the top of your watch list for clues as to where the broader market is headed. Today's action into the close was not a confidence builder.

Crude is trading back in its down trending range once again after a nasty shakeout last week.  If it breaks through the upper channel I have do doubt it will rip and we could see 90 very quickly.  I will be looking to get long on that breakout.

I was stoned cold on a breakaway last night and pulled a Wade Redden allowing someone to walk right around me at the blue line.  We won the game (now 10-1) but it wasn’t a pretty performance by yours truly.

On one last note, Obama makes his speech tonight regarding sending 40,000 more troops to Afghanistan from the West Point Military Academy.  First off, it is asinine to be making any war speech from one of our military academies.  In my mind this speech will rank up there with W’s from the aircraft carrier.  Mr. President, sit at your fucking desk and face the nation like the educated thinker / politician you are.  This nation does not need to be wooed into sending more troops, they need to be lead with sound strategy and reason.  Talk to the American people like you would your generals, not like the dumb as a rock populace we were treated like under Bush.  If you can look me straight in the face and tell me you have a grand strategy for how you are going to transform that region of the world from a mostly lawless migrant culture to one with strong rules and central governments which have control over their sovereign territories, I’ll go with it knowing that you have a real plan.  But if you are sending those troops over there, wasting more blood and money so that you aren’t the one who “lost the war”, then shame on you.  I believe in the end the book has already been written on this war, it will bring about the downfall of this nation by bleeding us of money and morale.  No nation has ever made it out of Afghanistan with its empire intact (although we are not an empire as the others were) and neither will we.  I hope I’m wrong, I hope Obama has more balls than I, I hope he’s smarter, I hope he’s the luckiest fuck on earth.