There’s only so many flat days that I can stand before going insane.

Today marks the third day of range bound trading. And when I say rangebound, I’m not only talking the three major indexes. The dollar moved slightly higher against the Euro and yields on 10-year treasuries slightly moved higher. While gold and the commodity complex lost a little steam.

Maybe it’s just me, but it seems like everyone is just positioning themselves for the jobs report on Friday. Estimates are everywhere. I think the number will come in higher than expected.

And I wouldn’t be shocked to see the market hit new highs. But there’s a few reasons why the party shouldn’t even start.

We have to understand that the Fed is nervous about all the liquidity that’s out there. If the 4^th quarter GDP comes in in frothy and jobs are positive, the Fed will start pulling liquidity out of this market. The FDIC is already warning banks about interest rate risk. The FDIC wants banks to actually test huge jumps in interest rates – I mean 3-4% swings at a time – to make sure that the bank is sufficiently protected.

Why would the FDIC ask banks to protect themselves against such huge swings? I think the FDIC sees something it isn’t saying out loud…

In the end, the big risk is that the Fed pulls out money too quickly.

Another reason why celebrating too early might be foolish has to do with the jobs numbers.

You see, the jobs numbers are nothing more than a sampling that the Bureau of Labor Statistics (BLS) does every month in order to gauge the overall health of the job market.

The Bureau then takes this sampling and applies a few filters to it. It tries to adjust for seasonality, and even adds or subtracts jobs based on “assumptions” of what’s happening to small businesses in the business cycle.

The result is that The BLS has been routinely added about 107,000 jobs a month since February. It’s the birth/death model.

But what happens in February is that the BLS ultimately makes an adjustment to the birth/death number for the previous year. At that time, we’ll probably see jobs decline as the BLS measures just how far off the mark they were. I’m not kidding when I say that the BLS could subtract 600,000 or more jobs.

If the stock market is expecting a positive job number, it will probably be disappointed. And it offers a catalyst for a correction in February.

Stuff to Read

http://www.reuters.com/article/idUSTRE6065MK20100107

http://www.reuters.com/article/idUSTRE5B92XZ20100107

http://www.reuters.com/article/idUSTRE60432520100107

I didn’t learn that from a movie, I learned it in Florida. After dealing with so many hurricanes, you begin to appreciate the calm right before the hurricane’s effects are felt.

With that knowledge in mind, it’s pretty easy to tell when the markets are too calm. Typically, the VIX index hovers in the low 20’s. And if you are savvy enough to buy a call option at that point, then you’ll be rewarded when a sell-off pushes the VIX back up to around 30.

That’s what I did during the last sell-off, and made a pretty penny. It’s also what I’m doing now to take advantage of the next sell-off.

Oh, and if you really have balls of steel, you can buy a put option on the VIX once it’s around 30 and make some cash as it drops.

Now you see why i love the VIX so damn much. It’s almost as simple as credit spreads.

Why the celebration? Shockingly enough, car sales pushed retail sales higher. And this time, there was no cash for clunkers to explain the pickup. We attribute this to pent up demand and better access to credit at the dealerships.

So traders bought. It appears the market was pricing in a slower fourth and first quarter.

Overnight, the dollar strengthened slightly and gold came off its record highs to rest at $1,126 an ounce. Silver and oil both dropped as well.

The weakness worked into today’s market as all three indexes struggled to reach the green.

From this point forward, economic data will matter more than ever. Today, we saw traders looking for an indication that the fourth and first quarter will do better than expected. And so any other economic data that shows this outcome (especially the leading economic indicator report) will likely push the market higher.

I’ve always been suspect about how far this rally could go on government support. And to be fair, we’re likely to keep seeing the economy do a little better than expected due to the massive stimulus Congress passed early last year (We’ll continue to feel the effects of that splurge well into late next year and 2011.).

But there are a few things which would end this rally.

1) The Fed tightening too fast, too soon
2) An end to the dollar carry trade
3) Higher taxes
4) Rising protectionism

If you haven’t bought yet, you probably shouldn’t start. Wait for the market to come back 3-5% and then go ‘balls in’ and buy some strong stocks (I prefer commodity stocks at the moment)

You can see my writing in the ‘Chart of the Day’ section of the site : )

I’ve also been tasked with the duty of finding them great recommendations.

Should be easy though – investing in times like these is pretty straight forward. You just have to have the “cohones” to do what your gut tells you to do. Half the times, everyone else will think you’re crazy. But then again, you and I know better…

By the way, should probably toss you a bone and let you know what I think the best place to put your money is…

Well, I don’t really trust the stock market much. But I do trust discount retailers (do a Google search).

Otherwise, you can sell me a high-interest, high-grade corporate bond trading under par and with a short-term maturity any day (now that was a mouthful)…

Admittedly though, it’s about 3:33 AM on a Friday night. I think I’m going to crawl back in my “money making” cave (you know, the bed).

Take care,

Charles

P.S. My lazy designer informs me that a design for the blog is coming soon! Which means I have to work on giving you a lot more content (money making wisdom, stock market tricks, and a thorough analysis of the big picture!).

At least it was a winning post : )

Either way, I’ve come out of hibernation and feel more bearish than ever. Too bad I can’t talk about it here.

My masters over at http://www.investorsdailyedge.com/ commanded me to use their blog.

Honestly, I don’t like the blog as much. But who cares what I think right? It’s about you after all.

AND I feel bad that I’ve been depriving you of such amazing stock market advice.

Well, that’s only half true…

After making the amazing prediction of the DOW hitting 11,000 (you know, back when it was around 12,500) I decided to take a freakishly long break.

This market is just smoking too much crack for me to pretend to make money in it. But lately I’ve been feeling saucy… saucy enough to start looking for good market plays.

So if you want to see my future blog postings and perhaps marvel at the deadly-accurate market calls then you have to add my new blog to your bookmarks.

http://www.investorsdailyedge.com/Blog.aspx?Id=53

Sadly there is no RSS feed or e-mail update feature. The masters say that’s well on its way. And I hope to the sweet lord that they add a comment feature soon!

I love hearing good debates. In the end I think a blog is all about the back and forth. You get to know me as I am. And I get to know you better.

So here’s to the future,

Charles

It looks like the bulls are trying to keep the Dow above water.

Look, i wouldnt be shocked to see the market rally for a few days. Hell, I wouldnt be shocked to see the market rally 600 points from here. But should it? I don’t think so.

But the market really doesn’t care what I think. And that’s why i’m going to let the price action dictate my actions.

Needless to say, I think if the Fed runs their mouth about inflation at next weeks rate meeting, the markets will head down on the fear of higher interest rates. The question is whether the market will break under its Februrary lows.

If it does, that would be a shorters fantasy.

It’s either inflation, or slower growth, or earnings – it seems there’s always a good reason why the market will drop.

Now the Dow Jones is set to test its February lows. I say if it breaks under 12,000 – it should make it down to 11,600.

Whether it gets past there or not is another story completely. So we’ll see.

But the truth is, the economic fundamentals suck harder then a Dyson vaccum cleaner. So i wouldnt be shocked to see the market do a slight rally at 11,600, only to fail and move under.

If the market breaks under 11,600, i’m shorting the Dow.

By the way, this blog will soon be moved to our redesigned IDE website (which has blogs).

I’ll be posting a link up in the next few weeks. So stay tuned!

First, Aixtron (AIXG). They fell a bunch today on no news. I think in a day or two, they will begin another bounce. Then there’s BHP who’s fallen yet again today. Once that RSI bleeds oversold, I’m a buyer!

There are a few other opportunities that are close to fruition – and I can’t wait for them to be ready.

After all, I need a new motorcycle! And it’d be awesome to pay for it with the proceeds of a few good market plays.

As far as the market goes, it’s going crazy. Volatility is ticking much higher (VIX is above its 200-day) and it seems to me that an important safety net is now gone.

You see, most thought we’d have a second half recovery. But thanks to the big pop in unemployment and rising inflation, that thought went right out the window on Friday.

Now what’s left to prop up the markets? Well, rate cuts were helpful. But guess what? Bernanke is talking about rate hikes!

The market surely won’t like rate hikes in the middle of a recession because it means things would slow down even further.

And now this is a fear that is making the rounds on Wall Street.

We’ll see how it all plays out.

So let me open up a beer and pour it in the name of ‘lost opportunities’.

In the post before this one, the Dow Jones was over 100 points. I told you it was overbought and should move down.

Here we are 60 points later. And the Dow Jones is only up about 44 points. The Dow actually dropped further then that.

You may wonder how the heck I could’ve played that move.

Simple. By buying puts on the Diamond ETF (DIA). The Diamond tracks the Dow Jones. So if you expect the Dow to drop, play the Diamonds.

By buying a slightly out of the money, front-month put option, I would’ve banked a nice 12% move in just a couple hours. The one I was looking at in particular was the June 123 Put.

If anyone has any questions – feel free to ask!

So far, the Dow is up over 100 points. Anyone who shorted the Dow this morning hoping for all hell to break loose, were only successful in having hell break loose inside their portfolio.

Right now, the Dow Jones is overbought (meaning it should come back down a little to breath).

Even with all of this volatility in the past few days, I’m not finding anything worth trading. BHP Biliton (BHP) is one of the closest. But its RSI needs to get more oversold before BHP becomes attractive.

Another candidate is Dollar Tree (DLTR) and Family Dollar (FDO). I love me some discount retailers. They recently announced better than expected same store sales. And this is a trend we should see increasing in the months ahead.

The only problem is getting them at a good price.