Squeeze, satisfy, scrap

I have a bad feeling about this market. I think it's all set to make a fool out of most of us. My belief is that in the next couple of weeks, there are going to be a number of winds blowing and the direction is going to change rapidly. You have many things happening..options expiration, end of quarter, hedge fund redemptions, momentum stocks going nuts, financials getting taken to the woodshed, energy, materials, fertilizer on a roll. Well, things are going to change. As for direction, my guess is a near term short squeeze followed by institutions taking profits and then a selloff that ends at around 1300. Upside target...about 1375 which should happen tomorrow (Wed) if the crude inventory report is good (buildup of supplies). For all I know, maybe the biggest fool will be me!

Near term bottom?

Atleast that's what the CBOE options equity put/call ratio seems to be telling us. See the last few times when it spiked. Well, it's doing to same right now. So generally, the tendency of market players is to buy equity calls and then hedge using index puts (see, they think they are smarter than the general market so their picks will do better). But when things get inverted, which happens quite rarely, it shows there is an inordinate amount of pessimism out there.

$199 only

I posted a comment Matt Trivisonno's blog on an iPhone post he put up regarding the underpricing of the iPhone. Here it is...

I respectfully disagree with your take on the price of the iPhone. I was surprised to see the phone being priced at 199. My main concern was that if many phones were bought and unlocked, then there would be no recurring shared revenue for Apple. However, I can think of a few big reasons for why this price makes sense:
- The component prices have dropped substantially. I'm sure Apple has struck agreements with suppliers to drop costs promising exclusivity and volumes
- They are not coming from a position of dominance. I think Nokia, Samsung, etc. are hot on their trail and they want to have a captive audience. The phone is THE device of tomorrow. PC's are so last gen.
- See this post in Nytimes blogs. Looks like Apple will still be making a decent buck from the phone. Now I need to figure out how they will make sure it cannot be unlocked, or make it unworkable if it is.

I'm going to give it more thought and add a couple of more points to this. Note that although AAPL dropped yesterday, it recovered pretty nicely today and is mightily outperforming GOOG, etc. from the lows. I think yesterday was sell the news, force buyout of the callers (there P/C ratio for AAPL was heavily skewed to the call side)

PS: Ppl..i need this to be more collaborative if I'm going to have the enthu to keep it going. Please comment and/or publicize.

Bouncing checks to bouncing banks

Time and time again, I have had it proven to me that picking bottoms is never a good idea. And the contrarian at heart that I am, I refuse to give up. So I thought a couple of days ago we would see a ^BKX bounce back to 75. Nope. (I lost decent money on this trade and hence the bouncing check reference).

But at some point, things get so oversold that calling a short term bounce (given no extraneous black swan factors) is a safe bet. Consider this...the banking index is challenging lows going all the way back to 1999! Its RSI shows it's way oversold and it's at the bottom of the Bollinger Band! And then consider this Minyanville article (which also btw was early). So taking all this into account, I would think that a bounce back to test the underbelly of that 75 line is a strong possibility.

A near term scenario

A scenario I see unfolding over the next week (until next turnaround Tuesday) is that we could get a great shift out of commodities into tech! The VXN (Nasdaq 100 volatility index) seems to have hit the top end of its recent downtrending channel. Monday is iPhone 3G day. If the job report on Friday comes out good, we could see the $ rise and crude pull back violently and that money move into the tech arena...maybe taking the NAS even upto that 2600 or so level in a short span! Moreover, banks look set for atleast a small bounce...BKX back upto 75? (Note: I really think IBN/HDB are overdue for a good bounce anytime now).

From there though I think we will drop, and drop hard! See....hard for me to get too optimistic :)

Risks

"The three biggest risks to the market, in my most humble view? A sustained rally in the greenback, sharply lower commodities and a breach of BKX 75"

I picked up the above comments from this Minyanville article.

Well guess what...BKX fell below the 75 level today! While that's not a recipe for disaster, it does raise caution flags. In addition, I am seeing many more news stories dedicated to

• Crude oil: Iran's storing crude in tankers, gas consumption reducing in face of rising prices, Asian countries passing on fuel price increases to the people, etc.
• $$: Pension funds are bullish on the $. A lot of hedge funds are apparently still short the dollar. Now just imagine how that trade would unwind further pressuring commodity prices.
  
• Banking stocks: We are fast approaching another wave of bank balance sheet issues. When that shit really hits the fan is not known but XLF is also challenging march lows, so it makes sense to be cautious. It's very important to remember that a liquidity crisis can cause tremendous short term price volatility (declines) as in early March.
  

Well, Apple is soon to release the 3G iPhone, so that's a near term +ve. The stimulus checks should have started kicking in to abet consumer spending. But what happens when all this dries up?