MARKET ANALYSIS

Last week was fairly harsh for me.  After I had been making decent progress, I made some timely moves then some untimely moves which set me back coming into expiration week.  Let's look at what the S&P 500 has done recently:

The breakdown from the recent flag came fairly quickly.  This also broke the recent uptrend signaling a possible reversal.  After I was short for that move I got long, now assuming that 1015 would be resistance.  As we can see it held once then went straight up with me net short the entire time.  So I felt like a genius for approximately one day then really stupid.

Things feel fairly bullish, although we can see the McClellan Oscillator is again nearing over bought territory.  If we zoom out to a 5 year chart on the S&P though we are at a fairly precarious point according to how I drew my trendlines.

As with most things, if I am seeing it so are other people, meaning that we are likely to not break this line on first test because it will be a target point to sell.  Obviously we could shoot right through it with no regard but it will definitely be on the bulls to keep the rally going.  So 1050 could be a resistance point for a little while, we nearly reached it on Friday but could't quite touch it.

TREASURIES

Oddly over this recent rally we have seen a divergence in the 10 year treasury also rallying, making it that much harder to abandon my bearish thesis even though it is counter trend.  If people are really expecting this recovery to continue why would they be settling a 3.34% yield for the next ten years?  This recent move confirmed a break of the recent flag pointing to higher prices and lower yields.  Long term it makes sense to be a seller of treasuries but the action lately is bullish.

CURRENCIES

The major currencies have generally been supportive of the rally in stocks, with a weakening dollar, the EUR/USD, AUD/USD hitting new highs while the USD/JPY hit new lows.  Obviously it makes sense to play these trends until they stop working as normally currencies are known for their long term trends once they get going.

COMMODITIES

There has again been somewhat of a divergence in some of the commodities.  You would expect with all this dollar weakness that crude oil would be at new highs as well but we can see above that /QM is not at new highs and may actually be forming a head and shoulders pattern however that won't be confirmed until we break below 67.50.  Natural gas had a huge move to the upside last week, which I tried to participate in but was unable to and am now kicking myself as it would have made up for my losses and more.  Soft commodities are not acting very strong at the moment either.  Both Corn and Wheat are below their long term support lines, only Soybeans are hanging in there but they also had a fairly large down move recently.  Long term these are good plays but it may get tricky to hold front month contracts in the short term.

OPTIONS

We have expiration week coming up which always brings with it the usual shenanigans.  After making some fresh new intraday lows in the VIX we did rebound off those levels to finish at 24. 

Generally we can expect some kind of movement that will contract the VIX going into OE.  My guess is we may sell off initially, spiking the VIX up, then rally enough to knock it back down putting money right into the market makers pockets. 

I am currently short a couple strangle positions on the FAZ and UYM.  FAZ is currently working and UYM is not, my short call strike is now fairly decently in the money so I will look to cut it on any weakness we see this coming week.  I am long V calls as it made some new recent year highs, still long IBM puts that have decayed significantly not in my favor.  Last I am long calls on SDS, which I will again look to dump on a pullback as being net short has not been working recently.  I will spend some time tonight looking at some decent positions to take into next week or after OE.  If I find some of low risk entry points I will post them up here. 

Total Return for 2009: 135%