We finally get the pullback that I have wanted for a while, which of course took place without me since I had to cut my losses on shorts.  In my opinion we are now at a make or break point for the market direction.

MARKET ANALYSIS

For most of this recent rally when we have had pull backs they have not been a very large amount and they generally haven't lasted more than two days.  Let's look at the S&P:

The significant thing that hadn't happened until yesterday was a complete reversal that came after the Fed, we were initially at new highs then reversed and finished on the lows, a very bad technical sign.  We have now come down and tested 1050 and held it for the time being.  So now the question is will the market attract dip buyers again? The McClellan Oscillator is now getting to oversold territory which generally skews risk to the upside rather than the downside making short term long attempts more attractive. 

Here is where it gets a little tricky.  In the longer term context of what we have witnessed from March to present this is extreme.  We went from record oversold territory with bullish percentages at zero in some cases to record overbought territory.   We have in reality experienced very little pull back overall so far but at some point this will change.  Is it starting now? Who knows. Consider this:

Here we see the bullish percent on the NYSE is coming off record highs, of course one could argue that we were also at record highs at 80%, pulled back and then hit 85.  We could also now pull back and go higher, but again it is all about how risk is skewed.

Tech has indeed led us out in this rally and the Nasdaq 100 is even more overbought than the NYSE.

Last I looked at energy I noted how it was at the 60% level and was lagging the indices so it could play catch up.  Here was can see it has moved up significantly into overbought territory.  The energy complex was the last group to really participate so this could be make it difficult for the rally going forward in the intermediate term.

Metrics have started to reflect what I had been anticipating for the past month but was premature.  We started to see less rosey numbers with the existing home sale numbers coming in worse than expected.  This is the real gauge of economic health because when real estate is doing well it has a huge ripple effect.  Oil inventories also had a build compared to an expected draw showing weak demand for oil.

TREASURIES

We saw buying come into the Ten-Year again at support and it recently broke its down trend pointing to further upside.  This flight to safety points to difficulty for the rally as people are settling for much lower yields than I would expect if we were on the verge of seeing some decent inflation.  If we start to get above the 118 level I think we will be seeing things deteriorate in the equity market.

CURRENCIES

Dollar strength was now the fashionable thing lately.  /DX has had a good move and Davian Letter subscribers have profited handsomely so far.  I missed the entry so I had to let it go.  Phil Dunham and myself caught a nice move up in the USD/JPY.  I rode that for a $1.30 gain then proceeded to give a majority of it back on a re-entry then another entry long on EUR/JPY.  I got stopped out both times.  Earlier today I went long AUD/USD looking for a bit of a snap back I chose the relative strength candidate and grabbed a nice gain back again. 

All the longer term trends are currently still in tact.  USD/JPY is looking like it may be forming a bottom though and a finish above the 92 level would be significant.

COMMODITIES

The action in soft commodities as of late has me a bit irritated.  I had gone long Soybeans and short Wheat as my hedge since Soybeans are normally the relative strength candidate.  This trade initially was working but then completely fell apart.  Since I didn't understand why this was happening I decided to cut my loss and re-evaluate.  Both Wheat and Corn were up 2% on days that Soy was flat to down.

Either Soybeans is setting up for a break down or it is coiling up to break out of that downtrend line.  I am going to wait and see which it is before taking action.

Crude oil has finally broken its neck line at 67.50 confirming its reversal pattern.  Overall I am not that bearish on oil long term but if the dollar starts to strengthen the already weak demand will do nothing to prob this up.  That being said I am currently long /QM in hopes of a retest of 67.50.  I'll look to take a quick profit as this is admittedly not a high probability trade.

OPTIONS

I do find it odd that we didn't spike higher in the VIX today if there is that much fear of a pullback coming.  If we do continue higher in the VIX it could present some nice opportunities to sell premium going into the next expiration.

Since risks are currently skewed to the upside I decided to get long DSX which is at long term support.  This will likely be a make or break point on this stock and I may stop and reverse if I get stopped out.  The Baltic Dry Index continues to struggle but if we plan to have any legitimate recovery it would need to start moving higher.  Went long Dec 12.50 Calls.

Lastly, if we get an extended pull back I really want to own CERN.  I like the technicals and the fundamental story.  It is at all time highs, can't get more bullish than that plus it is health care IT.  No matter who is running healthcare someone needs to compile the data, enter CERN.  It is near support of its recent extreme up trend but I'd LOVE it at 65.  Every time I am patient with this stock it just keeps going up without me.

Overall, what I would LIKE to happen is we get a little bit of remaining good data, better than expected durable goods data and consumer sentiment could help us get a snap back rally going, then I would look for a roll over again around the 1060 level which could be a good place to initiate some short positions.  RIMM reported earnings and may be the first company to start the trend of disappointing(yet likely realistic) forecasts.  It had dropped 11% in after hours trading, keep in mind it has moved a huge amount this year.

How have I done? Yep you guessed it, still stuck at 143%  I try to let my winners go but then they end up going against me.  My girlfiend tells me to sell all the time as soon as I make a small profit and I try to tell her that is not the smart way to trade but lately I have been looking stupid for not listening. :-P

Total Return for 2009: 143%