I believe the 40% rally is over. No one believes it (yet), but that is what makes it such a compelling trade. With all the imminent dark clouds on the horizon there is absolutely no reason to think the economy is in recovery. In fact, if you believe that, I’ve got a “bridge” you might want to buy.
Forget the 40 trillion dollar derivatives market, forget the “Fed’s” currency debasement policy (sorry, they call it quantitative easing), contracting GDP, rising foreclosures, rising unemployment and the $400 billion writedowns in the commercial real estate market (which no seems to want to address). In fact, just the other day I heard an analyst recommend buying REITs!!!
I’m not a “fundamentalist,” so I’ll tell you the double top price formation is intact. The first draw down will bounce off the 875 (S&P) resistance level. The run-up has been 250 points from the March 9th low. A likely 50% retracement of that run-up is a 125 pt. loss. Once it blows through the 875 level the next price target is 775 with the potential to break a new 12 month low (yes I mean below 666).
Have one of the best summer’s of your life… Buy the SPY Sept. 85 puts and enjoy the ride.
Ray
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