Regarding using reason and deduction to survive or prosper in the markets:

I read somewhere that Charley Darwin figured out that positive mutations in our prehistoric ancestors caused us to ‘evolve’ one way or another. For instance whales, which are mammals, used to live only in the sea but evolved legs to hunt or hide on land. But as food sources dried up on land whales developed larger capacity to ‘breathe’ for longer times under water seeking food or to hide from predators on land. This was considered a positive mutation for it propagated more whales. They eventually mutated, evolved, a blow hole that they sport today for permanent sea-dwelling and ‘de-volved’ legs that they no longer needed. Today they would die if they have to live on land.

To wit: There is now a small but growing coterie of folks who think that “rational thought”, deduction, induction, and logic instead of being a positive mutation may in fact actually be a “negative” mutation, and thus be our ruination.

With the VIX between 70 and 80 and the SPX beaten down 50% ( hey – it can fall ANOTHER 20% ) I see and smell opportunity.

The SPY closed at 79.52 on Friday. You can buy it for 60.72 on Monday (for a 23.64% downside hedge) and 13.17% return over 16 weeks ( 42.82% annualized)

Walmart closed at 52.92 on Friday. Can be purchased for 41.62 on Monday (for a 21.35% downside hedge) and a 15.02% return over 16 weeks ( 48.82% annualized)

Consol Energy closed at 20.80 on Friday. Can be purchased for 11.30 on Monday (for a 45.67% downside hedge) and a 49.33% return over 20 weeks ( 128.7% annualized)

Conoco Phillips closed at 46.84 on Friday. Can be purchased for 35.29 on Monday (for a 24.66% downside protection and a 23.55% return over 12 weeks ( 102.05% annualized)

The above are just a few random examples – and of course – hard stops are always in place – but the probability (edge) is so much in your favor right now. Why the market bounced on Friday afternoon is completely irrelevant. I run my own TA also (by the way – my system tells me we have an unconfirmed intermediate bottom in place. It should be confirmed or non-confirmed over the next week or so) – my job as a trader is formulate trades – TAKE buy / sell signals without question – manage risk form there. Trading / investing is a game of PROBABILITY and RISK MANAGEMENT. Most – have no risk management. Great traders that have an edge and risk management – and the ones that are right about60% of the time – print money. Our opinions mean nothing.. and will usually cost us money. I choose to listen to what the market is telling me. Great quote, “Trade what you SEE – not what you THINK.”

Crash? With the Democratic Party’s upcoming control of Washington just weeks away and great worry among The City and Wall Street about a return to policies associated with FDR? I think not. Despite every reason not to buy, European aristocrats and their American Loyalists have no other alternative if they wish to protect those bankrupt ideologies they’ve imposed upon the American Republic and which have brought us to this extraordinarily vulnerable point. Give it a couple years. Then they’ll be ready to destroy the Democratic Party (in similar fashion the other side has been) … and reek the kind of political havoc they are famous for imposing on Europe in the 1930s.

The Bank of England’s boy at the NY Fed … who gave away Lehman to Barclays … soon to become Treasury Secretary … might buy time giving away more of the store … but in the end, no scheme coming from a monetarist monkey will forever forestall a Great Calamity…

Well, at least this seems a reasonable possibility, anyway…

http://asburyresearch.blogspot.com/2008/11/following-green-highlights-is-excerpt.html

But, let’s make a case for both the bear AND bull, not gather evidence to support only one view, and thus maintain the mental flexibility to deal with the ridiculous price volatility-since it’s likely to continue.

Technically speaking, with a nod to the Wyckoff analysis, and trying to keep it simple, viewing the Oct/Nov DOW action as a continuation triangle, with a 2000 point range, the break last Monday of the triangle bottom would continue down to project to the DOW 1996 price level, per Steve’s projections.

As counterpoint to this, since Thursday printed new, but marginal millenial price lows, a rally back up to test the old lows should not be a major surprise. If one is also bullish enough to consider that SPX might simply be in multi-year long term consolidation since the 2000 highs, a marginal new low would also be a natural buy point. In this instance, we might be at point 7 of the chart, if viewing the chart as daily closes.

As JY appears to be failing at a secondary high, suggesting reduced de-leveraging at current equity price levels, it’s hard to push the shorts. But global macro conditions continue to deteriorate, which to me precludes any forward-looking bullish equity price projections. Watch the JY futures to DOW correlation intra-day as a clue to equity price action

In respect to Fed actions and Treasuries, the best commentary I’ve read is that the credit crisis is the top of the ninth inning, the economic crisis is coming out of the bullpen and most people don’t even know the funding crisis is scheduled. As another commentator’s grandfather told him, “You only get three times in your life to sell Treasuries at 120 down to the 70’s.”

I’m pretty sure this will be one of them. That’s the beginning of what we’re seeing in gold and gold miners. But that doesn’t mean we can’t in the meantime have a decent equity sucker rally.

Yeah, those free markets are a real bitch. We should definitely ban all forms of short selling. But wait…they don’t allow shortselling in China and their market is down about 70%. Hmmm… well that must be an anomaly, we know Cramer is a genius so he must be right, right?

I don’t watch his show anymore, but I sometimes wonder, what is he selling these days after his capitulation and recommendation that everyone get out of the market a few weeks ago? Is every stock a Sell, Sell, Sell now? How can you do a show like his after you have told everyone to get out of the market? Perhaps he has called a bottom again, that would seem to be the only way to continue the show.

Last year I predicted his show would be gone by the end of 2008, after his bullishness and his stocks of the year crashed and burned in this bear market, but I underestimated his chutzpah.