Apple keeps the party going

Traders are reacting quite positively to Apple's results after hours and once again the market has shown very little in the way of mercy towards the bears. I know I've been saying this for months but I still get the impression that many people are showing this market little respect. The reaction I've noted with these stubborn bears is akin to a poker player who is going on tilt. Unfortunately for such a player he ends up losing more.

I also get the feeling that there are a lot of weak longs out there with their finger on the sell button just waiting for an excuse to sell and I've highlighted the 1100-1120 zone as a likely ST inflection point and we are now essentially at the bottom range of this zone. Let me clear about something though...if the market rolls over from around these levels it will be much too convenient/predictable to have signified anything other that a ST top in my opinion. In addition, I'm not going to put any of my money on a downside trade unless I see "the whites of their eyes" and by that I mean capitulation by the bearish traders. I mentioned yesterday that the put/call ratio was the one of the things bears had in their favor but remember what I said about the "hooks" that keep you out from riding the trend correctly. Until price action confirms the bearish notion of the put/call ratio you stand to get run over if you play the short side especially when the market is making a fresh 52 week high like it is now.

Rookies often make the mistake of catching falling knifes or as we've seen this year, standing in front of oncoming Mack trucks. I know it is very, very tempting to lean the other way when the market has made a big move in one direction but until you see the whites of their eyes you stand to get run over. Conditions need to be near perfect to successfully execute a top or bottom pick, in other words, you need strong edges. Using the reason "the market is too high here" does not qualify as an edge. You can always scale into the position but that's not foolproof either because you could run out of ammo before the tide turns your way. Bulls learned that the hard way last year and bears are learning the same thing this year.


I mentioned last week about my interest in the Natural Gas sector and so I started getting exposure by taking a position in GAS on the Toronto Stock Exchange (TSX) last week. This is an ETF which holds front month Nat Gas futures. The problem with these types of products is the negative roll yield experienced when there's a contango in the commodity because the ETF will eventually have to roll over their holdings into the next month's contract which will be at a higher price. As a result of this, it's possible for you to be right about the change in spot price of the commodity but you don't get rewarded much due to the offsetting negative roll yield. As a result of this, I have put a tight leash on this position via a stop to protect the small gain I have thus far. I might end up getting whipsawed but I don't want to be in the position getting burned by a negative roll yield and negative price action. Defense first offense second. I'm looking at a couple of small cap stocks levered to nat gas as well but I haven't yet taken a position. One of them jumped 25% the same day I was doing DD on it...that really pissed me off!


On a lighter note please indulge yourself by watching this video. This is the funniest thing I've seen in a while.