My Apple shorts are still doing well but last night I was going to short at $125 and got distracted missing my opportunity. As a first step at expanding my trading range it was interesting but very volatile experiment. My trading style doesn’t generally like volatility and I tend to stay away from heavy risk. My Apple shorts were for .50 cents so it wasn’t going to break the bank but allowed me to test the waters. I’m taking profits today on any sell off after the stellar results posted by Apple.

So How Are Your FTSE Shorts?
They were doing allot better two days ago and I should have taken profits. I was determined to stick to my plan and trade it till the end resulting in missed opportunities to take profits. Sometimes being too ridged can be a big hindrance but on the other side I have a reputation for taking profits too early.

At present I have three €5 shorts open after one was stopped out yesterday for €90. I have another order to open at 4,065 for €5. My plan is to continue to build up my short and take profits at around 3,900. I’m very comfortable with their being only a limited upside. Once earnings are over which have been better than expected I believe the focus will return to TARP, banks and the myriad of unanswered questions. This will push stocks back and create more headwinds for equities.

Entry: 4000 – 4150 FTSE (September Contracts)
Exit: 3900
Stop (Mental): 4500
Point Size: 20 Euro (5 x 4)
Estimated Return: 2000

What a day for equities, just when you think you know what’s happening and a 5% drop on the FTSE 100 catches you by surprise. I know today’s US retail sales slumping 2.7% for December was bad but I wasn’t expecting a 6% drop on the FTSE (Low of 4115). I took profits today on all my shorts as I’m not comfortable running shorts this close to the Obama inauguration. The beige book didn’t add much cheer with continued deterioration over the last six weeks. I read a funny name for the unholy spawn of JP Morgan and Citygroup “City Morg”. It’s always good to laugh otherwise you would cry.

Meanwhile in other mediocre news CNBC are doing “Madoff Watch” where they have poor Roberta Combs standing outside his flat awaiting any move. Who cares? The justice system will hopefully wake up and do what they are paid to do, justice.

For my part I think we may have more selling tomorrow but an uptrend to come next week. Tomorrow and Friday have a lot of news flow going on so further percentage fluctuations could occur. I am mostly neutral but have undertaken a small buy on the FTSE 100. This is because I believe a bounce will occur and even a small correction after the heavy selling today. I’m keeping stops close.

My next big more will be shorting the Obama rally as per the last post. Best of luck out there, we are going to all need it.

Just opened a -2.50 (the usual amount) spread bet on FTSE December futures. I sold at 5300 (5250 in normal trading) and whilst I’m happy enough with this there is the little twinge of nerves. Selling at these levels is not for the faint hearted and I will be monitoring it closely. The risk of a stupid rally on any good news because traders are sick of loosing is quite strong.

We shall wait and see.

Fears still abound and financials are taking the beating of their lives. It’s the car crash scenario where you can’t look away and every time you look it looks worse. The ISEQ index of Irish shares is down 20% in the last five days. This has taken Bank of Ireland down to 4.50 and Allied Irish Bank to 6.90 (my purchase at 11 was not my greatest moment). Other recession proof industries like gambling are also taking it on the chin. Paddy Power is down 25% with rivals William Hill and Ladbrokes taking a trouncing. In fact there is very little on the upside. No shares on the FTSE 100 are in positive territory.

However with my -2.50 sell on FTSE yesterday not above 400 Euro I can’t complain. The question now is where to short again?

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The second largest banking failure in US history and only a few lines appear in the Sunday newspapers. This goes to show the level of fear and confusion in the market at present. On Friday we had a free for all as Reuters loaded the market with speculative rumours which turned around the huge losses by Fannie Mae & Freddie Mac before the market close. These were later denied but over the weekend Fannie Mae & Freddie Mac have been granted access to the Treasury credit lines and the Federal Reserve’s Discount Window. A 15 Billion injection is also being mooted.

My Trade
I placed a -2.50 sell spread bet on FTSE futures at 5345 and whilst I’m not too comfortable selling at these lows I am a lot happier selling than buying. This week sees Citigroup, JP Morgan, Merrills and Washington Mutual report which could lead us down but on the flip side eBay, Google, IBM, Intel and Microsoft could lead a tech surge pushing the NASDAQ up.

At present stocks seem to be retracing some of their gains in a similar fashion to the Asian trading day which rallied and then reversed. With all the news ahead it will be interesting to see where we go.

Talks within the US government on plans to take over the two firms have intensified recently leading to a spate of sell offs and pulling the global financial stock down. Under a 1992 law, if either is seen as undercapitalised, it would have to be placed into government conservatorship. Such an event would I believe scare the markets to a far greater extent than the Bear Sterns collapse and would lead to a large unprecedented sell off.

In earnings news General Electric report today and eager investors will be keenly watching the news for a market direction. Presently we seem to be pushing lower on the FTSE after a positive start. Oil popped $5 yesterday as Iran continues lobbing up missiles and gold also strengthened indicating a small move to safety.

My Play
Since everyone and their mother seems to be waiting to short the market it will be interesting to see do we get the spark that ignites the sell off. Not having the fortitude to sell at these levels (5380) I’m playing the wait and see game hoping for a large sell or small bounce. If we close below 5380 I would be increasing my bearish stance and expecting lower lows.

As the bad news intensifies and reaches wide scale press coverage the premise that you should be buying when everyone else is selling starts to come into play. If we are in a bear market no one really knows how low it could go or how long this takes to resolve itself. One certainty is that bear rallies will occur and selling short isn’t the only way to profit in a bear market.

My current concern is the death by a hundred blades syndrome. This is the effect of an indecisive market that doesn’t drop quickly but steadily goes lower and lower. Like a wave eroding the shore this would be a slow and prolonged and very painful place to trade. In this scenario the market could take a year or more to drop 1000 points. The rally would then be equally as muted.

I do want to short again and my long term prediction is for a lower market but without any bear rallies I don’t have the full force of my conviction to sell into this languishing market which takes me back to wait and see mode.

I think we have established a short term trend between 5500 and 5400. My hope is by openly stating this we break the trend and head either up or down. I don’t care just do something. If we move up I will go short over 5500 and if not I’m not too sure where I stand. My downward conviction is quite strong but at these levels we are very near the lows of the year.

Interestingly the DOW pushed well into bear territory yesterday but if we get another rally today this will lead to more uncertainty. My ideal scenario is down 100, down 150, up 30 and down 200. That would give us the kind of downward momentum we need to sustain this clean out.

This idealistic thinking doesn’t help me now and with no positions open my fear is that I miss a big swing. My mistake was not placing a 2.50 sell yesterday as the FTSE closed at 5512. I need to start evaluating where to go from here.

The FTSE has reversed its earlier gains and is loitering around 5400. Any attempt from here to push the markets higher will be sold off as the bears have full control. Unfortunately the willingness of the bears to sell doesn’t seem to extend past 5400 which leaves us waiting for the next shoe.

I’m unwilling to buy into this market due to the level of calmness that seems to be around. There is a level of comport at these levels which many believe is simply where the market should be in relation to the underline economy. I tend to agree with this view and whilst a bounce may be on the cards it is in no way certain. What I do believe we can expect is a pick up in volatility. I’m waiting on (1) Volume selling and (2) a pick up in the VIX which measures volatility.

Data out this week includes the Bank of England rate decision which shouldn’t be much surprise and more bad news from the financials as more banks including Credit Suisse and UBS are forced to look for more capital. Oil seems to have backed off as the dollar falls based on a more dovish view from the ECB and that takes me back nicely to our Monday morning blues as the market looks for direction.

In stocks to watch AIB has dropped another 2% at 8.99 as sloppy management and the disposal or important documents comes into question. Paddy Power rises 1.5% to 19.30 after Goldman Sachs raises it to a buy taking it to a drop of 14% for the year. In the UK British Airways makes a rebound after prolonged selling and RBS is down 4% in London.