Well that was obvious. 

As I noted in yesterday’s morning post, yesterday’s light-volume rally was nothing but a paint job to con the suckers back into the market and the dips that fell for the scam have already been parted with their money this morning as the indexes are down 1.5% already, now down 5% from Thursday’s highs.

This is why we have our 5% Rule™ over at PSW – it keeps us from falling for this BS.  Rather than looking at the squiggly lines as they move up and down, we prefer to focus on the FUNDAMENTALS and we only change our price targets when the Fundamentals actually change, not day to day based on the previous day’s price action – that would be kind of stupid, right?  

Sure we watch the technicals because about 80% of the market trades on technical signals.  If the market traded based on phases of the moon, we’d watch that too because the fact that people follow it becomes A (one) Fundamental factor but never THE Fundamental factor.  Because we watch the movement of the masses from the outside – it’s very easy for us to predict which way the herd will stampede but please – don’t confuse our analysis of voodoo for our endorsement of it!  

In the morning post, I said the S&P needed to bounce to 1,970 to impress us and, as you can see from the chart, that’s right where it got rejected in the morning and now we’re back at the lows. We looked at a bear call spread on Amazon (AMZN) buying the Jan $600 puts for $73.50 and selling the Jan $500 puts for $23 for net $50.50 on the $100 spread.  If AMZN is below $500 at Jan expiration (15th), the spread makes $49.50 (98%).

Of course we already have our disaster hedges (see last Thursday’s notes), so this was a more aggressive bet where we put our foot down on Amazon’s ridiculous $250Bn market cap on less than $100Bn in sales and no profits at all (and this is year 21, not year 2!).  One of our Members (Enfilade), asked if we had any specific bearish bets and that one was the top of my list.