Trading Alert-Short the Market; Calypte Interview Cancelled

March 11, 2003
Volume VI, Issue 21
Email : [email protected]

To OTC Journal Members:

Calypte Biomed (OTC BB: CALY): Interview With Chairman Tony Cataldo Canceled

Last week we announced we would be publishing an audio interview with Tony Cataldo, Chairman of Calypte Biomedical, later this week. The purpose of the interview was to bring investors up to date on corporate developments, provide some insight on potential future developments, and discuss the enormous excess supply of stock which has been hampering Calypte's ability to move up the charts despite corporate achievements.

Mr. Cataldo failed to be available for the scheduled interview, so for the time being it is canceled. It may be rescheduled, or may never happen. We'll let you know. We apologize for any inconvenience this may have caused.

Trading Alert- Time To Short the Market

In this past weekend's edition we covered the unusual grinding and congestion in the market. We also hypothesized this unusually long low volume grind is setting us up for a big move in one direction or the other. In summary, we believe forces are building up in the market like water building up behind a dam. The longer the build up, the more violent the inevitable move when the dam bursts.

We now believe there is a 75% probability the NASDAQ is setting up to retest the October low of 1100, and now is the time to establish a short term trading position on which you can make money if the market capitulates.

Note that the NASDAQ failed to retrace 50% of its drop from the mid January to the mid February time frame. Therefore, we believe any attempt to rally will fail, and a retest of the October low is inevitable barring any miraculous changes on the geopolitical scene.

We don't believe this means you should sell all your longs, particularly in the penny stock arena. These stocks have dropped to absurdly low levels due to a buyers strike, and as long as the fundamentals remain intact, you should stay in and wait it out.

Working against this trading idea is the fact that nearly everyone is negative on the market, and the crowd is usually wrong. No one seems to be able to find any reason to buy. Yesterday a Fed governor warned about potential problems with Freddie Mac and Fannie Mae. Warren Buffet is not buying. War in on the horizon as the endless diplomatic process seems to be winding to a close. 94.8% of yesterday's volume was on the sell side, a huge number and generally associated with a bottoming process.

Since the market's job is to fool everyone everyone, a tight stop and a small amount of capital should be used if you decide to participate.

How To Short the Market

Shorting is a strategy which provides you the opportunity to make money in a declining market environment. There are several ways to accomplish this. Representative of the NASDAQ 100 is the QQQ (AMEX: QQQ), which goes up and down just like a stock with the NASDAQ. Reflective of the S&P 500 are the Spyders, which trade under the symbol SPY (AMEX: SPY). As we write this edition, the QQQs are trading at $24, and the SPYDERS are trading at $81.30.

Both QQQ and SPY can be shorted just like a stock, and you don't need a down tick to be allowed to short. You can purchase options on QQQ if you want maximum leverage. Here are three ways to participate in this idea, with the first two giving you the best leverage for the least amount of capital:

  • Short QQQ at the market (currently about $24 per share)
  • Purchase a put option QQQ- one of our editors has purchased 20 of the April 25 QQQ puts at $1.85 each for a total investment of $3700 without commissions. The symbol for these puts is QAV.PY.
  • Short SPY at the current market (about $81.25).
In support of our belief the market is ready to crack is the VIX- the volatility index. The higher the level of the VIX, the more volatile the trading activity. Note how dramatically the VIX climbed in January. It declined through February, but has been rising steadily in March, indicating volatility could be returning.

If you decide to participate in this idea, you should do so with a tight stop loss. We would recommend closing out your position in QQQ if it hits $24.50, and SPY at $82.20 to minimize potential losses. If you own the put options, and the QQQ hits $24.50, simply sell the options at the market.

Be prepared to take your profits when the NASDAQ tries to retest the October lows, but don't try to make every last dime. Just close out your position at about 1120 NASDAQ, take your profit and wait. If the NASDAQ can close below 1260, the probability of the trade being a money market will improve considerably. 


For the purpose of this trading alert we will post shorts on both the QQQ and SPY in our Alerts Tracker. However, if we hit the stop loss or the profit level we will publish a special edition.

This trading alert is important because it will give you the opportunity to take advantage of the what appears to be the set up for a good trade.

However, if the trade works, the far more exciting opportunity will be going long at the October lows. We would recommend you consider setting aside four to five times as much capital for trading ideas if these lows are challenged.

As usual, comments are welcome - email: [email protected].

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