Presenting: Sir Bubblus Maximus

Kevin Haggerty is on vacation for two weeks. During this time, we’ve asked
Joe Corona, Senior Trader for Tony Saliba, to write the lead morning piece.
Kevin will return on August 12.

As I was driving in today listening to Bloomberg
I thought I heard that Alan Greenspan was going to be
knighted by the Queen for “outstanding contribution to global economic
stability…” I hope I was hallucinating when I heard that. The Fed under his
watch, through their nonstop credit creation, constant bailouts, and therefore
bubble creation, has done more to destabilize the global economy than any
central banker in history — and he is so clueless he doesn’t even know it! God
I miss Paul Volcker.

A Possible “W” Bottom?

Yesterday went a long way toward forming what might be a tradable intermediate
low. We’re not out of the woods yet, but the fact that the recent sell off had
a higher low (in most cases), and much less volume than the previous sell off
that ended July 24 supports the possibility of a “W” bottom (see chart of S&P
cash below).

Daily chart of S&P Cash

What we need to
see now is a successful attack on the “month-end markup” highs on
increasing volume. One fly in the ointment
for the bull case might be the fact that it is August, and the recent volume
drop might simply be a function of the time of year. If we do transition into
an intermediate up mode, we will once again have to divide our minds into
short-term bull and long-term bear.

That means that we
daytrade index shares and ETFs from the long side (biotech and pharmaceutical
shares are the only thing I see showing any sustained strength at all at
the moment), while dropping bearish option “land mines” (put calendar spreads,
bearish vertical spreads) behind enemy lines (below the market) on the way up
in sectors displaying relative weakness, and are most likely to retreat the
fastest when the bear eventually takes control again.

We are opening higher again this morning, so keep an eye on volume today, if it
gets slow we may slip back into the “two days and out” mode that has marked the
rallies in this bear market. If volume is decent or even increasing we might
have something. Today might be a great day to just watch the market, and let it
tell you what it is going to do next.