Stock indexes sold off violently last week. The bottom print was 1065.79 on the S&P 500. In my opinion, it will be difficult for the market to breach that low for the next 2 to 3 months.

The pattern of higher lows continues.

Trade Art: Higher Lows

There is always a bull market somewhere and the bull market in gold continues to be in its infancy. Have you seen this movie before? The markets don’t change, just the players. The cycles play out the same every time.

Trader Art - Gold Bull Market: Oil on Canvas

Meanwhile, back at The Factory, the expansion continues and my mission is in motion. Extensive time travels have my clock out of whack. Life is so strange — Destination Unknown.

Conditions

S&P 500 - Weekly

Since the March 2009 bottom, we have seen an uptrend with little interruption. In light of some regression analysis, it is evident that we could go either way. This could be a time to buy the index, or it could be a time to sell it. Like a man on a high wire, falling down and being out of the game is not an option. But I must make it back to one side. Will it be the buy side or the sell side? In correlation, here are some data points that I ponder:

1) Dubai Credit default swaps have continued to trade wider, at levels not seen since November.

2) The Volatility Index (VIX) made a large move higher last week.

3) Volatility dispersion is at it’s highest level in months–indicating higher probability of a systemic problem and trouble with the entire structure of the market and it’s underpinnings. If the market is a sell, it will be best to short the market indexes as opposed to individual names.

4) Some individual names look as though they can move much, much higher from here. My re-positioning will depend on various factors that I will continue to monitor.

I am a trader
and Flexibility is
my reality.

And the beat goes on.

Are we still in a bear market rally? You decide. This chart is courtesy of Chart of the Day.

Former Head of Structured Products at UBS: Game Theory Exposes Toxic Asset Plan As Fraudulent (Washington’s Blog)

“Keller presumably understands financial markets, toxic assets and game theory quite well. And he is calling Geithner’s toxic asset plan ‘fraudulent.’”

Stress Test Results To Be Delayed ‘Til Later Next Week Or Possibly Never (Dealbreaker)

“Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.”

The Naming of Swine Flu, a Curious Matter (New York Times Asia Pacific)

“While the new virus seems to be most heavily composed of genetic sequences from swine influenza virus material, it also has human and avian influenza genetic sequences as well, according to the Centers for Disease Control and Prevention in Atlanta.”

Peace