Wednesday, March 16, 2005

Catalysts for a downtrend

In 2004 the IBD's "Big Picture" column was calling the up and down wiggles of the market very well. This year it is just noise. More talking heads and misdirection. I wouldn't be suprised to see the naz take out the low from January on volume that gets heavier and heavier over the next couple of weeks. If it happens like this, then odds are it gets even uglier as it will be a text book downtrend.

I see several possible catalysts for a downtrend in the near future. The chinese revalueing their currency to a basket of currencies, slamming the dollar in the process. Also watch for a crisis created by foreign countries committing to diversifying their foreign holdings. Korea and Japan have already jawboned foreign asset diversification in an effort to make Greenspan raise the interest rates at a faster pace. Remember at the last fed meeting, Greenspan said that government spending was under control. This was a message to these foreign investors justifying a mild rate hike. I wonder who's going to call the other's bluff first.

I'm not exactly sure where oil fits in to all this. I've heard rumors that OPEC is running dry. Cramer talked about this idea on his tv show Mad Money. I'm not sure if this is true or not, but if it is, oil will rocket up. Why would OPEC let the price get so high right now anyway? They permanently erase some of their demand market when people replace their durable goods with more energy efficient goods. This reason for OPEC running dry is more compelling to me than Cramer's speal about "OPEC are chronic liars, see they reduced production when they said they would increase it." Maybe it is game over for them. If it is, then guess what happens to the market? Maybe the Bush administration has known this for years, hence another reason to enter Iraq. Just speculation.

China has recently passed a piece of legislation that legalizes means of retalliation against Taiwan if they do not surrender sovereignty to China. Guess who Taiwan's sworn ally is? US. China wants Taiwan badly and if they see us crippled by a recession, they may move with force on Taiwan.

I'm short, so if any of this materializes, I stand to make a substantial amount of money =)


At 1:04 PM, Anonymous Anonymous said...

Hi Jon - hope all is well... It's Dante (aka PositionTrader from RichDad Forums). Just curious what you see as interesting short plays right now? I remember you saying RIMM (great all the way until today) and TZOO (still falling every day seemingly), but are there other stocks/sectors you have your eye on? I am now long only COSI (earnings release tomorrow may change that), and have been short Fannie Mae since low $60s... (actually bought some very long term 40 puts and some June 55 puts, both of them doing well). Keep up the great info on your blog here, I look forward to all new entries.
Take care - Dante

At 12:21 AM, Blogger jontait said...

Dante, thanks for commenting. You need to update your blog, I still check it =) I was short RIMM going into today, but I covered this morning. This sort of event is rare so it doesn't bother me that much. I was sick Monday and Tuesday so I wasn't analyzing the rise in RIMM like I should have been. I didn't even get up until noon both days =/ I made several mistakes, like not covering when the stock was down on an analyst downgrade. I also knew something was up when yahoo messaging gave the stock the volume pop that it did. Both of these events were merely misdirection to allow informed buyers to accumulate the stock ahead of the litigation settlement. Going purely from the technicals, you would have avoided this trap, but I fell for it. Usually I close my positions when a strong trend crests and breaks its 10 day moving average. I didn't in this case. Lesson: keep your eyes on the ball =)

I haven't been looking at opening new positions lately, but my favorite short position is the QQQQ's. Shorting the Q's is lower risk than shorting individual stocks, and in my opinion more predictable. I've got a few other shorts but the only one I feel strongly about is SBUX.

If the market were healthier, I would be playing with GRU and ABLE on the long side. I may do some quick flipping in those stocks if everything looks perfect for a day or two, but otherwise, I'm mostly just sitting way short, listening to Tool's undertow record, and watching everybody else try to figure out what is going on.

Congrats on your positions. COSI looks like its been good to you, and FNM looks pretty grim! Take care,


At 8:39 AM, Blogger jontait said...


Sorry I forgot that was Steve's blog, not yours heh. This whole alias thing confuses me sometimes =)


At 4:24 PM, Blogger Chris Perruna said...

Hey guys,
I have been speaking about several red flag stocks and shorting opportunities over the past two months to my community members:

RIMM was one of them along with SSYS, TZOO, EBAY, ALDN, DCAI, CFC and LEND.

Some are past entry points, some may need to be covered and some are just getting started.

SBUX is another red flag but not a short in my analysis.

Review the charts as some of these were posted weeks ago by me (just the ones I can remember off the top of my head). Keep an eye on the home builders, red flags but not shorting opportunities just yet (support near 50-d) for most.

At 12:47 AM, Blogger jontait said...


I'm glad to see your community investigates opportunities on the short side. I did not know this, so I was waiting to sign up until I got bullish on the market again. I'll be signing up for the free trial soon so I can discuss on your site in this blog.

Thanks for commenting and sharing some of your red flag stocks on here =)


At 11:08 AM, Anonymous Anonymous said...

Hi guys - Jon, don't worry about the blog comment, I actually figured you meant the "Non-canslim stocks" thread on Rich dad... :)
Thanks for the comments Chris and Jon, I will do some research on the stocks you mentioned... I see that SBUX looks like a great short play, good job Jon. FNM dropped another $2.50 yesterday, so a very profitable day with that one, and while the report for COSI seemed to be very negative, the stock ended up about 4%, so we'll see where that one takes us...
Chris - I think I will be joining as a trial member as well, so keep up the good work! :)

At 3:55 AM, Blogger Sulli said...

YEah Jon - I've been shorting QQQQ and GLD. I love these ETFs - nice, slow, easier to predict than individual stocks.



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