Today was a great day to short the market, and to short China and emerging markets (FXP/FXI, EEV/EEM) in particular.

The market moves today were triggered by a major move in oil futures triggered by a very minor move in inventory numbers. US inventory was down 8.4M barrels to 343.6M barrels. This is around 1-2 day’s worth of oil. Here is the Wall Street Journal report:
http://online.wsj.com/mdc/public/page/2_3063-economicCalendar.html?mod=topnav_2_3000

Most oil traders are actually short oil as oil price futures are in a contango state (futures higher than spot), and there is no demand to support the prices at this level. Oil’s rally was the only reason the markets were up today, and it was all a facade. If you were going long in the market today, you were trading in the exact opposite.

This is pretty bad news. The Shanghai market was the leading indicator of where global markets were heading in the last huge downturn. To ignore that indicator is foolish. Shanghai and the rest of China are in at least a short-term (1-2 months) down mode. That will drag the rest of the world down as well, as China is the only major commodities buyer, and the only real engine for manufacturing growth.

Get defensive. They are somewhat risky vehicles, but buying EEV, FXP, and calls in each of these. Or puts in FXI, EEM if you prefer a 1x down position rather than a 2x down position. And wait until at least October to get long and strong again. I’m half in cash, and leveraged to the downside.

Also consider buying Sept/Oct puts in KB Homes (KBH) and DR Horton (DHI) if you want some leverage down. These two dogs are strong sells and the analysts continue to pile on. Recommend shorting them on any day they are up.

Good luck all,

HighlyObservant

Related Posts:

• Panic: More than a third of the nation’s unemployed — 35.6%!!!
• CHINA CONFIRMS NO INTEREST IN GOLD AT CURRENT PRICES
• As long as there is a belief that we are stabilizing and ‘turning the corner’ the market will march higher.
• Who does the Board represent? I thought it was supposed to be the stockholders….
• THE HITS JUST KEEP ON COMING ON MORTGAGES

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