Comments on today's action

Seems there was a tug of war going on between 2 analysts. The morning sell-off was sparked by a bearish report from bank analyst Mike Mayo stating that the banks would be insolvent under his version of a stress test but then celebrity star analyst Merideth Whitney made comments in the afternoon that banks could show decent numbers this quarter and advised against shorting them at this time. However, she's still bearish on them longer term.

After examining the indicators I look at, there is further evidence that this rally is running on fumes. I still however believe that the odds of a false breakout above 850 on the SPX is significant so I am avoiding top picking. I am very tempted to purchase a small speculative call position in FAS or XLF because I still think we need to see capitulation from tons of traders who are trapped in FAZ, XLF and SRS. My style when buying out of the money options is all or nothing with no stops. My stop is is at 0. It is far too easy to get stopped out of these types of positions due to noise volatility. Having no stops however, is not the same as getting out of a position at a loss if for a valid reason you believe you are wrong in your thesis.

A comment on analysts Whiteny and Roubini who have recently achieved super star status: From my experience anytime an analyst or strategist or whoever become market sages they inevidabely will fall from grace usually shortly after the point when everyone worships their every word (we could be at that point already with these 2). These 2 will WITHOUT A DOUBT one day become goats. Mark my words. Whitness for example Robert Precter who gained legendary status when he correctly called the begining of the secular bull market in 1982, turned bearish near the1987 crash and predicted a 1930's style depression after it. He remained stubornly bearish for the entire period since then! After the countless number of times he cried wolf he became irrelevent. In the mid 1990's you had Abbey Jospeh Cohen who was the sage du jour and then she earned her goat status when she remained stubbornly bullish through most of market collaspe form 2000-2003. You need to always remember that these are human beings and human beings are prone to error and fall prey to the same psycological traps that regular investors do, the typical one being achoring.

On that note, I find that being bearish is becoming "crowded". I notice a lot of newbie investors/traders and the fast money types (i.e. gamblers in disguse) are bears blindly worshiping the bearish alter. Although I believe there will be at least one more final downside episode before the year is over, I'm completely open to the possibility of a bullish resolution after it (even though it may be a short lived 1-3 year bull market). However, if we are at the brink of a once in 100 year type complete economic collapse (which is certaintly possible given the circumstances) then all bets are off because high levels of bearishness would be completely justified and will have little contrarian implications. These are very tricky times for traders and investors.