Financials: Time to Go Ultra Short, Again

Alright, enough is enough. This artificial short covering bounce in financials on the sudden enforcement of 'no more naked shorts' has gone far enough.

On SKF anything around or below $120 looks attractive. SKF might overshoot and temporarily blow through the 200 day EMA (green line), so caution is warranted. I'm not going 'all in' here, and will keep enough powder dry to buy all the way down to $100 should it become necessary.

J.P Morgan Chase (JPM) has the largest weighting in the Proshares Ultra Short ETF at 6.10%. A bounce from $29.50 to $41.50 is just about large enough to blow most shorts out. The declining 200 day EMA (green line) should provide some resistance.

I don’t' expect business to pick in the fancy pants investment banking world anytime soon. I also believe that Bear Stearns will cause some severe indigestion...

Well, BAC is a major component of the Proshares Ultra Short Financials (SKF) ETF as well with a weighting of 5.60%. A bounce from $18.50 to $32.50 should be just about enough. This bounce takes prices back to the 'break down' area from the May Triangle. I also expect Countrywide to cause a severe hangover.

Citigroup (C) is the third largest component of the Proshares UltraShort ETF with a weighting of 4.20%. This bounce, just like the last bear rally, has taken prices beyond the declining 50 day EMA (red line), blowing out the shorts. The declining trend line (black line) should be an area of interest. The volume on this bounce, or more specifically lack thereof is suspicious. I expect this move to fizzle and die quickly. The oversold condition (Slow STO) has been remedied.

I expect more large losses from C and I don't believe C will be able to sell their assets, or portfolios at anyting resembling their optimistic forecasts. Don't forget, C has collected a good percentage of toxic crap through it's multiple massive SIV's that are now on it's balance sheet.

For more on the Proshares Ultra Short Financials (SKF) ETF click here.

Apple: Smashed, as Expected

This is an update on the post Can’t Resist Apple: Way Too Ripe, Way Too Juicy, Update1, Update2 and Update3.

I ended my last update with the following: “Apple (AAPL) rolled over and broke DOWN yesterday, falling $7.55 (4.18%) to $173.26.”

After releasing earnings last night, AAPL dropped almost 10% after hours, shattering all support levels. AAPL is now below the 20, 50 and 200 day EMAs, (blue, red and green lines). The $150 area my provide support as it is the 38.2% Fibonacci level.

I will take some profits around here, keeping my core short position and will add to that position on bounces.

Apple Falls on Outlook, Questions About Jobs's Health (Update2): “Apple Inc. fell 9.8 percent in early trading after its forecast for the back-to-school shopping season missed analysts' projections and questions resurfaced about Chief Executive Officer Steve Jobs's health.

Fourth-quarter profit will be $1 a share as sales climb to $7.8 billion, Cupertino, California-based Apple said yesterday. That compares with analysts' average estimates of $1.24 a share in profit and $8.3 billion in sales in a Bloomberg survey.

A slowing economy may make it harder for Apple to repeat its success in the quarter just ended, when it posted record sales of Macintosh computers and iPhones and better-than-expected demand for iPod media players. Back-to-school promotions and new product development also will curb profit margins, Apple said.”

I raged about the ‘invincible Apple’ philosophy months ago. In Update1 I ended the post with: “Ok. So, you’re house price is falling so fast you still can’t believe it and your mortgage is about to reset to a rate that ‘tastes like vomit’. You’re worried about your job security, despite the fact it costs you so much now just to drive to work that going in for a half day isn’t even worth it. You now deeply regret buying the SUV you don’t actually own, because you’ve traded your previous cars in so frequently that the lease payments on this one almost equal your pre-reset mortgage payments. How likely are you to be both willing and able to load up on shiny, expensive consumer discretionary items with big monthly costs such as the Apple iPhone?

Which is more probable, a surprise to the upside in a stock priced to perfection in a deteriorating economy or a surprise to the downside?”

Surprise. To the downside. Done and done.

Seriously though, was anything else really possible? With credit card delinquencies going vertical it doesn't really matter how fancy and cool that LUXURY, DISCRETIONARY gadget is. You still CAN'T afford it.

While on Vacation, Trading Gods Mock Me

I sure picked one helluva week to go on my cruise…

Just before I left, I wondered Indymac: Failure by Friday? Fannie, Freddie: We Need Capital! Sure enough, as I was at the airport my Blackerry damn near exploded with news headlines after hours. So the third largest bank failure in US history had to happen while I was stuck in the airport…

I knew then that the Trading Gods would mock me with one explosive trading week while I was trapped on a beautiful cruise ship for seven long days.

I insisted it was Time to Short Commodities and wondered Oil and Gas: Will They Break Down? I switched from Mohitos to Champagne by Wednesday as oil sliced down through $130 in a series of massive red candles. Those double inverse ETFs, DUG and SNM hit my profits targets and are now in consolidation mode.

Fannie Mae, Freddie Mac: Downgraded by Traders foreshadowed that final rinse in both stocks. I mean seriously, even a Former Federal Reserve President Says Fannie Mae and Freddie Mac Are Insolvent. Despite the bounce on various empty promises by the clowns in Washington, FNM and FRE common are still worth exactly zero.

Just like speculators were blamed for oil’s sudden rise, so too are they now being blamed for the sudden drop in financial stocks. This time a subhuman species of speculator known as the notorious Short Seller was blamed for causing the failure of financial institutions. A debate over ‘naked short selling’ began and the government finally and SUDDENLY decided to actively enforce an EXISTING rule banning such short selling. Basically, the big boys on Wallstreet were happily selling short naked while they benefited from doing so and the SEC turned the other cheek. Now that they are the target of the same game, they cry foul and their political bitches listen. Classic. Just banana republic classic…

This resulted in a massive, coordinated short squeeze in financials that put in that tradable bottom that I was looking for in How to Spot the Next Tradable Rally.

More as I catch up on the markets…

On Vacation: Back On Monday

I'll be back and ready to trade on Monday.

Overconfidence: Bernanke