The market chopped around today, finishing essentially flat on the day as the $SPX closed just under 1166. While there were pockets of strength, the commodity sector as a whole faced profit taking after the New York lunch hour.  All in all, the broad indices continue to be overbought. However, as I discussed yesterday, that does not necessarily mean we are facing an imminent correction.  Rather, we could easily see several more days of flattish, choppy action that could help to alleviate the extended tape.  In bull markets, stocks becoming–and staying–overbought is more of the rule than the exception.

Going all-in on the short side is extremely tempting right now to many traders who see headlines that the Dow has closed up eight consecutive days, and volatility is reaching news lows everyday.  Still, I believe there remains too much risk to be net short this market.  After the July 2009 false head and shoulders breakdown, we rallied for an extended period of time–like we are now.  When we finally pulled back in mid-late August, it was a benign pullback and proved to be a great buying opportunity.  So, the take home lesson is short at your own risk.

I am also seeing the charts of many stocks setting up bullish formations for powerful breakouts.  These stocks include, $PCX, $BUCY, $ROC, $NTCT, $BBY and $AAPL.

Finally, check out the chart below to see a bear-killing piece of data.

One of the key lessons that you should have learned–the cheap or expensive way–in 2008 and early 2009 was that oversold markets can stay oversold for much longer than you think during the course of a bear market.  What we are seeing now is the flip side of that coin.  The broad market is overbought, and there is nothing to prevent it from staying that way for short to intermediate term.  Without a doubt, we are in a cyclical bull market, albeit within the broad context of a secular bear market.  When we do end this bull run, the selloff will be steep and painful.  However, the return of the big, bad bear from hibernation could be months or even years away.  I have been just as guilty as anyone else recently of being overly cautious when I should have been far more bullish.  Mr. Market is not my friend, and trying to reason with him continues to be a good way to either lose money or miss out on opportunities to make some.

The $SPX closed up 0.58% to 1166.  We have clearly taken out the 1150 level, and are operating at levels we have not been at since the October 2008 crash.  The fact is that the 2008 crash created a huge gap that has allowed us to drift higher on low volume.  I do not see any major resistance until we get up to 1200.  As I noted above, the RSI, MACD and Stochastics all indicate relatively overbought conditions, but that can remain the case for the foreseeable future.  The bulls have seasonality in their favor, as the warm spring weather starts to inspire more animal spirits.  Beyond that, we are setting up for a classic “sell in May and go away” situation, which means that from now until then we could get a melt up.

Perhaps the biggest tell for the markets is the price of crude oil, which looks poised to break out of the $80 level as it settled near $83 today.  If the black gold can stay above $80 and march higher, then expect the risk trade to exacerbate itself to the upside.  The chart below shows that oil is coiled and is looking to spring higher.  My favorite looking plays in the entire energy complex right now are $PCX and $IOC.

By NELSON D. SCHWARTZ
Published: March 15, 2010
NY Times

When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

http://www.nytimes.com/2010/03/16/business/16debt.html?ref=global

Where the FUCK is everyone at??

I mean, I know The Fly’s telling you (unwashed internet masses) to STFU, but this is YOUR tab!  The place to air your deepest, darkest, most disturbing and inane (market) thoughts.  Shit, if you’ve seen any of my posts, you’ll know it doesn’t have to be good, actionable, or well-written.

So what if the market may never go down again?  Get off your fat, lazy Peanut asses and decrease the percentage of DPeezy’s presence on this damn blog.

hattery – I see you have several drafts in the post queue.  Hit that ‘Publish’ button, son!
chessNwine – What happened to the market updates?  I liked those, and so did many others.
Mushroomz – The continuing adventures of FAZ…any updates?
Dr. ‘Cane – Prepping for hurricane season?
GW, Mr.Thaler, milktrader,  MOOBS, CuervosLaugh, mrKC, etc – Bueller?  Anyone?

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Here’s a local story to put a smile/frown on your face.
I kid you not:  IRS visits Sacramento carwash in pursuit of 4 cents

Government, FUCK YEAH!

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The VIX-SPY pair trade was hurting today, with the VIX dropping below 18 prior to expiration.  If I had brassier balls & deeper pockets, I would’ve rolled/doubled down on my bearish bet.  Alas, that is not the case…so I did nothing there, nor on any of my other directional bets.

For tomorrow, watching ACI, CMI, GLW, HES, PCLN, RIG, WYNN, among others for potential (continued) bullish action…  Why not, right?  Afterall, sell buttons have been disabled by emergency government mandate.

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All-in-all, I think Monty Python said it best…”and nothing happened!!!!“

It’s been over 2 weeks now since the the S&P 500 closed lower than the previous day!  That’s pretty fucking amazing.  11 straight days – certainly the longest streak that I can recall since I started actively trading a few years ago…

Not sure what the “odds” may be for 12 straight, but I’m willing to bet that they’re very, very low.  And even lower for 13…and so on and so forth.  So this is the “high probability” part:  certainly there’s a very good chance that we’ll have a few down days.  ”Soon.”

Specifically, this leg of the trade comprises of May’10 115. puts @ 3.55/contract.  Going out to May expiration does give us some leeway should the SPY’s “winning” streak extend into the mid-teens.

Converse to the SPY’s streak is the VIX’s “losing” streak.  Surely, this must end as well – more than likely, when the SPY does sell off, the VIX will produce a healthy bounce.  As of right now, it is approaching, if not already sitting at (strong) support around 17.

VIX 5-year Weekly

Playing the VIX is always tricky and playing VIX options adds just another layer to that.  Derivative of a derivative of a derivative (of a derivative?) “predicting” things 30 days out…it gets pretty fucked up.  I certainly avoid long VIX options…

Short options, on the other hand, can be quite useful – usually the “safer” choice (most options expire out of the money, afterall) and they do provide income up front.  In fact, the SPY put purchase was (mostly) financed by selling VIX puts, Mar’10 18.’s @ 0.35/contract, to be specific.  I do consider this part high risk (although inherently lower than any long Mar’10 option).  The VIX needs to finish above 18. for me to keep all the premium; above 17.65 to keep at least part of it.  Currently it sits at 17.58, so really, it’s anyone’s game.  But I’d like to think that the odds do favor my side.

Here’s an overall look at the risk involved with respect to the SPY.  The VIX line (red) is a bit of a best guess since its values do not necessarily correlate with any SPY reading.  My breakeven is in the mid-115’s.  Profitability grows nicely south of there, while the opposite is true at higher values.

SPY-VIX Pair Risk

Most of that overall risk is tempered by the fact that the VIX options do expire on Wednesday.  So even if they underlying does not go up, surely it won’t suddenly just plummet 50% (if anything, it’ll just continue the “slow death” that it’s been dying).  The risk on the SPY puts is capped at the initial price paid.  Profits are practically unlimited; technically capped at the SPY hitting 0.  That has about as much chance happening as the VIX doing the same.

This is surely a sign of the end of bullishness…the SPY 20-day sma finally crossed back over the 50-day AND the index put/call ratio ($CPCI) spiked high to 1.68, which I consider a contrarian long SPY entry.

Any other day, I’d be ecstatic for these signals…but after 10-days of “straight up” market action, I fear they will be proven wrong.

But if I can’t follow them blindly, what damn good are these indicators for anyway…right?

So:  long SPY at the open.  Also keeping CHK, ENER, STP, MON, PNRA, ESRX, VOD among others, on the radar…

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I just want to say one word to you…are you listening?

PLASTICS.

While banking some short term coin on AMZN & CREE, I ran across this news story…which immediately makes me want to load up on IBM in a long-term IRA.

IBM researchers on Tuesday said they have discovered a way to make Earth-friendly [biodegradable] plastic from plants that could replace petroleum-based products tough on the environment.

Now the key part isn’t even that it’s plant-based plastic instead of petroleum-based.

The “green chemistry” breakthrough using “organic catalysts” results in plastics that could be repeatedly recycled, instead of only once as is the case with petroleum-based plastic made using metal oxide catalysts.

The key part is that it’s (potentially) infinitely recyclable.  And not only that, it would allow us to recycle all our current (petroleum-based) plastics (using the same “organic catalysts”).

If that all sounds something like dividing by 0 (”infinitely” recyclable)…well it’s the future dammit.  (With jetpacks and telepathic communication!)

The future is still plastic, ladies & gentlemen…and if this technology becomes proven, IBM will be at the forefront of it.

Many local governments eager to cut financing costs for years rushed to sign up for complex derivatives contracts, even when the terms were in English. But some cities, facing big losses when interest rates go up, are now trying to pull out of derivatives and suing the international and local banks that arranged the deals.

http://www.theglobeandmail.com/report-on-business/economy/why-italy-faces-a-derivatives-time-bomb/article1497312

Indeud. Brother Jake has been a printing press (pun intended) for all of you fanboys out there. I believe he deserves a shout out for his acumen.  Basically, investments along side him in $SLW, $ANV and $RGLD will soon see you upgrade your diet from nightly feasts on Ramen Noodles to walking into Le Cirque 2000 in sweatpants and sunglasses, and still getting served, just “because you can.”

As per my market wrap up–see yesterday’s post.  The same analysis and possible scenarios are still relevant given the benign action we saw today.