Would you still hold if you were heavily underwater an ultrashort ETF? I’m knee-deep in HJD (TSX equivalent of EEV.) I’m expecting commodities to lead the pull-back, which is a positive, but not sure the decay can be overcome.

1. The Nas and Russell 2K actually closed ABOVE their respective BB’s, albeit marginally. Since these indeces generally entail more volatility, their recent outperformance suggests a growing appetite for risk – i.e., less fear of being trapped in a major sell-off.
2. While a major down-leg ensued in Aug as you indicated, the weekly MACD (12,26,9) was not positive as it is today.

That said, I’m looking for a pullback to SPX 890-910 to get long/cover shorts. I see the SPX eclipsing 1000 (based on convergence of fib /reverse H&S / moving avg. targets) before thinking this bear market rally might be over.

The fundamentals remain negative as you steadfastly point out, but I believe most buyers already recognize this and are playing a trade. I suspect the true downside will occur once the economic data/consensus opinions become alligned in the bullish camp. This will be the time when permabears really question their bias and capitulate, which will spark a final squeeze to get Joe Retailer back into the market.

http://www.youtube.com/watch?v=6GBO7-7M5eQ&feature=PlayList&p=33D0C18CDEBF64B7&index=35

This is why I only use my margin for day trading. No over margin for over night. So if I get in a hole I can stick it out for over a year if I have to.

Separately, I becoming less and less of a Mav fan. Mav, the Bollingerbands are excellent technical indicators for oversold/overbought. To say that a bullish/bearish idicator is when they cross the middle is to say the same thing, meaning that you agree to close out your holdings when the BB reached the extreme. Otherwise, you would never accomplish anything.

The only true unknown is how long the price can remain in the upper or lower BB.

http://www.investopedia.com/terms/b/bollingerbands.asp

Here are some issues:

1. SP has bottoms up and tops down estimates for earnings. $42 is the current tops down projection for 2009 SP 500 earnings, but $82 is the bottoms up version. Obviously using 9 as a trough multiple on earnings gets you SP fair value of 336 if you use tops down earnings, whereas using bottoms up earnings of $82 with the same 9 multiple gets you SP fair value of 738. Hmm. Does that number sound familiar? About where the market bottomed in November, huh.

If you want to read a discussion of the difference between tops down and bottoms up and reasons for using them, go here: http://www.comstockfunds.com/index.cfm?act=Newsletter.cfm&category=SpecialReport&newsletterid=1356&menugroup=Home

2. The actual market PE’s over the past 20 years during market peaks and troughs might surprise you. SP maintains a list of historical prices and market PE’s at their site. If you want to see the SP500 data unvarnished, with PE results for actual earnings tops up and bottoms down for the past 20 years, go here: http://74.125.45.132/search?q=cache:PkIPXrP7oLIJ:www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS+2008+sp+earnings&hl=en&ct=clnk&cd=1&gl=us

3. Any chance the estimates are wrong? In March 2008, the tops down estimate for 2009 SP earnings was $84. Now it is half. At market tops bulls like to project historically unsustainable earnings growth far into the future to justify expansive multiples, and at market troughs bears like to project historically unsustainable earnings declines far into the future to justify contracting multiples. Perhaps the truth is somewhere in the middle?

4. Long term investors (yes they still exist) are buying not just 2009 earnings streams, but earning streams in 2010, 11, 12, etc, etc. If you have an investing horizon of that time line, a good argument can be made for equity investments at current prices.

5. If you want to know why the various analysts listed above have the SP targets they do for 2009, you can view this, or read the Barron’s article: http://guruideas.files.wordpress.com/2008/12/barrons_2009.pdf

There are always 2 sides to a coin, and it takes a buyer and a seller to make a market. A wise trader once observed that for every trade he made, someone else was on the other side of the trade, and he wondered “what does that person know that I don’t know? Why are they selling when I am buying?” A healthy level of personal skepticism and honest intellectual curiousness are good traits for a trader.

The market has moved 200 SP points off the Nov bottom, 85 points since Dec 29, and 40 points in the last 3 trading sessions. As a trader, do I argue against the moves or profit from them? Do I put my capital in harm’s way and go against the trend, or do I grow my capital with the trend? If I didn’t see the possibility of the move since the end of Nov., or its scope or duration, what in my analysis is missing? If the market crashes tomorrow, or next week or month, I am not vindicated for missing the 25% move in prices in the past 6 weeks. That was a missed opportunity, and I should re tool myself to be sure I catch it the next time. If my short term market radar is jammed, and I am having difficulty predicting market direction in either time or price, should I be entering any trades?

In the end only price pays. In the end, having an open mind about market direction allows for opportunities to be identified and profited from. Craig did a great job with his TA videos, and Brian Shannon has the same even handed treatment. At no time have I ever heard either of them complain about the market or its direction. The charts were the charts and there was no emotion about what the “market should do”. Just good entries and exits and risk management.

For what it is worth, Craig had this to say in his Jan 2nd post “Expect a Pullback, but don’t count the rally out”:

“Don’t confuse me as a bull. I fully acknowledge this is a bear market rally. But at least through the rest of wave 4, the trend is higher and I wouldn’t fight it. A sharp pullback from here wouldn’t surprise me. I’d view a 50% pullback as a buying opportunity.”

Trading involves a commitment of time and money. It doesn’t require us to be joyless, angry, upset or stressed. If a position is moving against you, cut it. If you are not predicting short term market moves accurately, re-tool, and cut your trading size. If we are to have long and successful careers as traders, our first step is to quit arguing with the market. Its capital is infinite, ours is finite. Besides, its much more fun to having winning positions, whether they are rational or not.

If you thought you have seen the ultimate height of opportunism by irresponsible lenders/borrowers who are big enough to screw the system, be ready to be surprised in reading this:

http://bloomberg.com/apps/news?pid=20601087&sid=aMjCHzL0Bun4&refer=home

Businesses Seek Tax Break on Canceled Debt Like Homeowners Got
By Ryan J. Donmoyer

Jan. 6 (Bloomberg) — Commercial real estate companies, the U.S. Chamber of Commerce and other business groups are pushing Congress for a temporary tax break on forgiven debt similar to relief given in 2007 to homeowners facing foreclosure.

The provision would let solvent businesses negotiate new terms with lenders, lowering the amounts they owe, without being required to pay taxes on the forgiven portions of the loans. The proposal may emerge as a priority among Republicans for inclusion in a stimulus package that President-elect Barack Obama seeks to pass with bipartisan support.
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Un-friggin believable. The congress and the Treasury dept may let them have their way. This broken capitalistic system protects the irresponsible and the greedy at the expense of savers, and those who live by the rules.