Market Update Email 1-15-2009

To: Friends and Family
Subject: Stock Talk - Short term rally in process - try not to get sucked into buying yet

I have used a lot of technical jargon, so I will summarize at the end as well...

Ill be out of town in Phoenix next week and not sure when Ill be able to give an update, but it looks like today's bounce is kicking off the last move up (last chance?) before another huge move down begins (looking to set up the 3rd wave of the 5th wave down, which should be a pretty powerful move down and at least as large as the 124pts (14%) we have lost in the last 7 trading days).

The bottom today was a very very pretty practically perfect 61.8% (a fibonacci retracement) of the up move from the $741 Nov low to the $943 Jan high (943high-741low=202 pts*61.8%=124pts; 943high-124=818 target=today's low).

A few things to keep in mind on this bounce. Tomorrow is options expiration. Recently, that hasn't meant much, but historically OPEX Fridays are significant up days. Max Option Pain on the SPY is currently at $90 which implies that those people with the most at stake would do best to get the market as close to $900 as possible by tomorrow close. Also, markets are closed on Monday and Obama is inaugerated Tuesday. This is Obama hope rally time. So, I am calling for a 2-3 day bounce to correct this 7 day 14% selloff.

Picking price targets is never easy, but today's bounce can possibly be considered move one of a three wave corrective move up. Using equality ratios that would give a minimum target of $867 for the end of this bounce. There is also a very nice gap from Wednesday that would be filled at $867. Finally a 38.2% (fibo) retrace of the move down would be 47 points, or $865. So, that is the first primary target for this move up.

Price certainly can move higher than that, and in fact could get as high as 942 before invalidating my count, so I am going to slowly get into my shorts and/or move to cash over the next week. Once a new low below today's low ($818) is hit, we can really get comfortable that the move down is well on its way, but I am more aggressive and will be phasing in my shorts tomorrow and Tuesday hoping to get as much short as I am comfortable by the end of next week. I expect price to top somewhere in the $865 to $895 and that is my sweet spot to get short. Any much movement above $895 and I will have to reevaluate, but the risk/reward seems to be very good in that range. It is quite possible we only move up into this sweet spot range for a few hours before reversing downward to kickoff the next big move down. Of course things can change quickly and I will try to let yall know if something different is happening.

For portfolio protection, I suggest dabbling in some TZA as a hedge mechanism (3x levered russell 2000 bear). Also the banks have been very weak and once again leading us down so some FAZ (3x financials bear) or SRS (2x real estate bear) might be nice as well. These three etfs will get you some good short/hedge exposure. You buy them just like you would any other stock.

SUMMARY: I expect an up day tomorrow with ideally another up day Tuesday, then a reversal on Wednesday similar to the 2 day huge selloff after the November election. I would suggest protecting your portfolio and/or getting short during this time. I would save some dry powder for the icing on the cake when we make new lows again below $818 on our way to at least the Nov lows of $741. Getting short below $818 would be the least risky choice, but I see no problem adding some as we move higher the next few days.

Good Luck and shoot me an email if you have any questions.