The Bear Market Continues to Growl!

Good Evening Folks!

Today was an extremely interesting day. The bulls are now a complete mental case after seeing zero follow through on yesterday's sparkling reversal. I watched the beginning of CNBC's Fast Money tonight and they all looked completely drained. One of the traders admitted that he had lost money everyday this week.

The bulls are starting to get extremely frustrated as their bounces off the lows continue to shrink. Reality is beginning to slap them in the face. I say this because the smart bulls(there are 1 or 2 of them) understand that the markets will not turn around until housing prices stabilize, and Geithner's failure to come up with a housing recovery plan tells them that they may not be able to stop the housing price correction.

All I can say is: DUH! Everyone on THTB has known this on obvious fact for almost a year now! Once bubbles burst they cannot be stopped. Housing prices probably have another 20-30% on the downside and there is nothing anyone can do that can stop this. Period!

An interesting observation from CNBC today:

There was a major private equity investor on CNBC that said the banks have their loan books marked at .30 on the dollar above what their actually worth. He gave an example: Alt-A loans are now selling for around .45 on the dollar when a bank is forced to sell them due to liquidations etc. The problem he explained is the banks have them marked with a .30 cent premium which equals .75 cents on the buck. Yikes! It doesn't take a math degree to understand why they are all insolvent. And yet people wonder why they refuse to lend. You need money on order to do this!

Folks, whats scary here is this is what they are selling for today. What if housing prices drop another 25%? What are those Alt-A loans worth then? .25 on the dollar? .20? .15? The whole thing is so disturbing that I can't even think about it too much because it makes me realize how truly screwed this country is.

I think this is why we are seeing a lot of despair on the street. In some ways this may be a good thing. Remember, we will not see the lows until the bulls throw their hands up in the air and start to sell in a panic. This is the capitulation that we all talk about. We haven't had this yet folks. When we do you will know it.

Bottom Line:

I added some short positions in the Q's and SDS once I saw no real continuation of yesterday's rally. I also continue to hold my two positions in SPG PUTS and SRS. I also have 1 measly little call contract left on TBT. I sold most of this last week after getting burned badly, but I decided to hold onto one just for the hell of it. I have nothing on the long side right now in my trading account. I sold the SDS calls a minute before the close and took some profits. I kept everything else on heading into the close. My Q's ended the day pretty flat. Commercial real estate collapsed today so those trades worked pretty well. SPG was down almost 8%. SRS was up almost 12%.

I think commercial is falling apart because it appears that Obama's stimulus plan is going to focus on foreclosures and recapitalizing the banks. This does not bode well for the commercial guys. There is only so much money to go around and someone must be left out in the cold. Its looking more and more like its going to be commercial real estate.

Something to take note of: Stocks sold off hard in after hours trading. We lost another 6 handles on the S&P after the close to end up at 820 on the S&P. This just happens to be a key support area. If this breaks sucker breaks south Monday we will most likely retest 741. If 741 doesn't hold then god help us.

Closing at 820 also sets up a scenario for a potential bounce. I don't see this happening on Tuesday. Obama rolls out the foreclosure plan the following day so expect the long money to stay on the sidelines for the most part. The bulls were burned to the tune of 400 points on the first "recovery plan" announcement following Geithner's famous speech. Expect them to wait for firm details this go around.

Going forward, the ongoing sticksaves should result in smaller and less impulsive moves to the upside. The bulls have consistently been taken out to the woodshed and beaten since the beginning of the year. This has rattled their psyche and made them a little gun shy. The bears are growling and in total control.

Keep an eye on this story over the weekend:

"Britain's biggest high street bank shocked the City by announcing almost £11 billion of losses last year, more than twice what banking analysts had expected.

The Government already holds a 43 per cent stake in Lloyds after injecting £17 billion into the bank last year.

The bank's shares closed down 32.5 per cent last night. The fall leaves taxpayers with a paper loss of nearly £10 billion on the government's investment."

The UK is awash in debt and on the brink of default. Keep a close watch on this. There are basically potential shoe drops all over the world folks. We are about to head into a financial storm of the likes that none of us have ever seen. Be very very careful with your investments. Save some cash and get prepared.

A few last things to note: The DOW for the week closed at 7850 which is below November lows. I consider this to be extremely bearish. Also, as bearish as I am on the economy, I plan on selling my shorts heading into the Obama speech. I am sure he will not make the same mistakes as last weeks debacle. Front running this would be suicide. I expect a firm detailed announcement. We all know it won't work, but you need to respect the desperation for any news that could provide a bounce.

We are once again staring off the edge of the cliff everyone. Is this the week where we finally jump?

Stay Tuned.