Very interesting! 

Like the boys mentioned, this week starts off "earnings warning" time. 

If we see a number of companies lower guidance or adjust their estimates to the lower end of guidance ... your case is very strong and I would be more convinced about a recession.

However, tech is traditionally very strong in the 4th quarter.  Mainly, because that's all the consumer wants for Xmas anymore ... cell phones, gaming consoles, electronics, computers, TVs. 

I think my play would be Gold or GLD instead of PUTS on the Qs.  If Gold was not down about 10% since the beginning of Sept, and if it was the 1st or 2nd quarter I would definately be looking at the PUTS for the Qs

Interesting report today. The commercials increased their short positions in the large contract by about a billion dollars. Whats more interesting is they increased their short postion in the small contract by 5 billion dollars. In one week they have gone from being about 53% short as compared to total open interest to being 57% short. That's a big jump. 6 billion dollars went over to the short side this week. They also flipped over to a negative net postion in the Nasdaq 100 futures. The big players look like they are starting to doubt the tech sector. It does seem to be having trouble staying above the 200 DMA. The commercials are usually early in the futures market but it does look like the S&P is making a double top so just to make sure I don't get left out I put on 1/4 of my short position this afternoon with the Dec. 07 Leaps. I want to make sure I give this one plenty of time to work. I wouldn't be surprised if the market continues up and makes a nominal new high on the Dow in the coming weeks. If the big contract follows through in the next week or so with an extreme level of -40,000 or more then I will look for any overbought level to put on the rest of my position.

A few thoughts for the weekend. The COT report this week showed another 2 billion to the short side. BTW another 17 million in unusual out of-the-money put activity today. The net position is now 33 billion more on the short side than the  long. In the last 6 years there have only been 2 times when the level has been higher (34 billion in Nov. 04 and 36 billion in Mar. 01) Also of interest the Commercial net position in oil is only slightly positive. Gold is in a down trend making lower highs even as the dollar collapses. Never in the last 4 years has gold traded down before the holiday season, historically the time of largest demand. With the dollar falling apart again and oil extremely oversold gold should be exploding to the upside and the oil futures should be showing a tremendous gain on the long side, like they did last year. Neither are happening. XOM and CVX both reported tremendous quaters and they're both down and looking like they put in a double top.  Something is different this year. With the yield curve becoming extremely inverted it looks like a lot of early signs are starting to lean toward a recession next year. I'm still looking for the 4 year cycle low to come in sometime between Jan and Apr. Many times after a long run either bullish or bearish the market will exhaust itself with a string of 4 or more days in a row up or down as the case may be. We just had 7 up days in the S&P, 4 in the DOW, WLSH, & MID. Often the first day in the opposite direction is the begining of a change in trend. We may have seen that change yesterday. There have only been 5 bulls that have lasted longer than this one in the last 110 years. 2 came at the end of massive bubbles. The other three started at the depths of secular bear markets with valuations extremely depressed. This bull started with P/E's above 20, a level that has capped most bull markets. No secular bear market has ever ended without P/E's becomeing very depressed and never has a 24 year bull market been corrected in only 2 years. Since I doubt that human nature has changed in the last 5000 years much less 100 I really doubt that this bear will end any differently. I suspect the last 3 months have been the the culmination of the feds money printing to try and keep us from feeling the pain from the massive bubble they created. Unfortunately there is no free lunch in this world and you can't stave off the effects of the bursting of the largest bubble the world has ever seen just by running the printing presses. As I recall the dollar collapse is one of the contributing factors to Black Monday 87. I think this is very dangerous time to be long the market. With the smart money very heavily short I certainly don't want to stand in front of that train.

"Gary the Bear" I like that. In the bottom of the next recession when  everyone is panic selling I'll be buying like crazy (then you will be calling me "Gary the bull"). That's when the big money is made, not by going long at the end of a parabolic move when the whole world is long. The sheeple never learn and they're going to make the same mistake they made in 2000 all over again. Never has Warren Buffet's tenet been more appropriate. We simply attempt to be fearful when others are greedy and greedy only when others are fearful.

Gary the Bear...

I am building a "den" of Q PUTS and GOLD ... and I may just hibernate for the winter. 

BTW: The Wilshire and the Transports have both notched 4 down days in a row. If in fact the trend has changed and is now down for the transports then they will have failed to confirm the new high in the industrials. If I'm not mistaken roughly 80% of all 4 year cycle tops have occured with a Dow Theory nonconfirmation.

-49,987 on the large contract this week. It's time to put on the rest of my qqqq puts. Another 8 billion on the short side this week. Another record, 48 billion more on the short side than the long side. There's currently 10 billion more shorts than ever before in the history of the COT. With the largest money in the market selling like crazy I don't think this market is going up much farther. BTW the long bias all but evaporated in oil and gas this week. Very unusual for the commercials to go to such a small long position and only stay long for a few weeks. Gold and silver shorts are starting to pile up also. The smart money is predicting some hairy times ahead for everything.

So far the Dow has failed to surpass the Nov. top. I'm guessing we should know soon whether the 4 day rule caught the top or not. I've been looking at the 66-74 bear market and the 89-2003 Nikkei. It appears that the second leg down in bear markets are typically around 35-45%. If the 4 year cycle still applies we should get that leg down sometime next year. The good news is that markets usually seem to rocket off the bottom of these down legs and rapidly recover most of the losses. The third leg down however is a doozy, typically around 45-50%. Most bear markets last around 1/3 as long as the preceding bull. 2010 would mark roughly 33% as long as the 74-2000 bull.

Looks like 12,000 is going to be the line in the sand. The Nikkei tested 20,000 3 times before it cratered in 93 and the Dow tested 2500 three times before black Monday 87.

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