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Call Me Crazy

I think this is the big giant "WHOOSH" the technicians have been waiting for. Here's my first thought- if the market doesn't hold somewhere in here and have some sort of relief rally, we are going to have another huge leg down- probably sending the DOW down into the 8,000 to 8,500 range.

For those of you who like my idea for the China ETF (NYSE: FXI) - the "DOW" stocks of China- it has broken slight below $30 today, my SSL- if you want to stay disciplined and preserve your capital, take your small loss and go back to cash. I still think it's a great place to be, but it's headed the wrong way for now. China is going to have a slow down, but they don't have any sort of credit crunch going on, there's no stress in the banking system, and there won't be a recession. Nothing wrong with tuning out the noise and being long term on this one. 

Today, I went long the S&P 500 for my own account. Here's what I'm looking at. A nearly perfect 61.8% retracement of the entire move in the S&P 500 from the 2002 lows- that means the markets have given up 61.8% of the gains over 6 years.

Each bar in this chart represents a whole month. As you can see, the move down in the last month has accelerated quite dramatically. Today is the day that blows everyone's brains out. Today is the day where pretty much everyone throws in the towel and gives up who's not prepared to ride this one out.

I love this level. If we don't get some sort of relief rally in here, we are headed to much lower levels. Therefore, I can go long and keep a fairly tight stop.

Here's the way I chose to go long. This is a chart of SDS- it's an ETF that trades on the AMEX. It can be bought and sold just like any stock. This ETF is structured to trade inversely to the S&P 500 on a 2 for 1 basis. Another words, if the S&P 500 goes down 5%, this stock should trade up about 10%.

I was considering investing through some puts or calls, but the premiums for the options on both sides of the market are so extreme that it's not worth the price in my view.

What I did was go short this stock. Since it trades inversely to the market, if the market rallies, this security will go down.

All parabolic moves come back to the mean eventually. It was only a few short months ago when oil was $146 after a multi month parabolic rise, and and CNBC was trotting out a number of "experts" with all sorts of logical reasons for oil to hit $200 in the short term.

It proved out- the surest cure for high prices was high prices. The result of the parabolic rise in oil was probably a real contribution to the world wide recession.

I believe I'll make a lot of money holding this for a month. I could easily be wrong. I'm short at about $86. If it trades up through $90, I will probably take my $4,000 loss and get out. 

Call me crazy.

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Market Summary
Nasdaq 2596.38 -52.83 (-1.99%)
Russell 2K 722.68 -23.46 (-3.14%)
S&P 500 1234.35 -26.66 (-2.11%)
S&P 100 559.17 -11.14 (-1.95%)
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