Here we go...

We headed lower yesterday as expected. It looks like we will go higher today. The rally might be pretty dramatic today. I wouldn't be surprised to see something on the order of a 5-8% rally today. You will have the bulls running out (they have been really quiet recently) saying, "The bottom is in!" Do not believe them. It is not the beginning of the new bull market. It is only a great opportunity to get short in whatever you have been looking to short.

Why? Aren't we oversold enough? The true answer is not really. We have had several days in a row of selling so, by that definition, we are a little oversold. That is what will happen with the rally today. But there is nothing coming in the near future to brighten the picture. Most of the smart money will look at today's rally as an opportunity to sell. For that reason, I wouldn't be surprised if we saw a dramatic rally early and have it peter out near the end.

So why, in the big picture, are we not oversold? Because we are creatures of habit. We are always looking a reference point. This market has an unprecidented level of fear. When people are operating out of fear, they look for something to guide them. In this case, we are looking for technicals, because no one can trust fundamentals. No one can believe balance sheets, or cash positions, or debt levels. Unfortunately, almost all we have to go on is charts. The charts say we need another couple hundred points if not more on the Dow. We need to go to the 1,100 range on the Nasdaq and we will probably have to go below the 700 range for the S&P.

So what is the trade? This rally will be an opportunity to get short any of the index ETF's. I will be taking some of my calls I had off the table today. It should also be a good time to get short oil via the (USO) ETF puts. I would be looking for at the money puts that give a couple months till expiration. Oil has been trading with the market. It should be higher with the market today.

The (GLD) trade I gave you yesterday is now up 8%. That is nice, but I think it goes higher long term. Until next time, stay low risk.