Featured Trades: (THE BATTLE OF THE 100 DAY MOVING AVERAGE)

2) The Battle of the 100 Day Moving Average. Take a look at the chart below from StockCharts.com and it is clear that the line in the sand for the stock market is the 100 day moving average at 1,312.

I have noticed an interesting pattern that trading has fallen into since stocks peaked on April 29. All year, the Monday action indicated the medium term direction of the market. For the first four months, that brought rising stocks more than 90% of the time. For the past month, Mondays of delivered falling stocks like clockwork.

The indexes then bring in a few days of indecisive, double digit, low volume rallies. Next, a big risk off trade hits on Friday as short term traders clear the books for the weekend. The weekend press then produces some new bomb shells from Europe plus a lot of handwringing from domestic analysts that severely beat up stocks on Monday morning. That is then the low for the week.

If the 100 day moving average breaks then look out below, because the 'RISK OFF' trade will then continue all the way up until QE2 ends on June 30. The next support becomes the 200 day average at 1,240, or down 75 points from here. If it doesn't break, then it won't. Just thought you'd like to know.

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Featured Trades: (HOW'S THAT RISK OFF TRADE WORKING?),
(SPX), (SDS), (GLD), (USO), (DUG), (TLT), (TBT), (FCX), (CU)

3) How's That 'RISK OFF' Trade Working? Take a look at the chart below since I made my watershed call to put on a 'RISK OFF' portfolio on April 25 (click here for the link). Almost all ass asset classes peaked exactly four days later.

You may recall that the 'RISK OFF' portfolio bets on falling prices for stocks (SPX), (SDS), commodities (CU), (FCX), oil (USO), (DUG), foreign currencies (UUP), (FXE), (EUO), and precious metals (GLD), (SLV). Simultaneously, a flight to safety bid would bring rising prices for the dollar and bonds. The fundamental rational for the portfolio was that all of the money that ran into assets to take advantage of QE2 would run right back out again. Call this my 'Anti-QE2 Portfolio'

I think that the 'RISK OFF' trade will run for not days or weeks, but months. The challenge will be not to get shaken out of the portfolio when the inevitable, technically driven short covering rallies ensue. What would it take to change my mind and return to a 'RISK ON' portfolio? Here is a short list:

*US corporations produce blow out earnings in their September quarterly reports three months off.

*China abandons its inflation fight, cuts interest rates and bank reserve requirements.

*We get a run of weak economic data that prompts Ben Bernanke to launch a real QE3.

*The Japanese governments awakens from its tsunami induced stupor and orders the Bank of Japan to run the printing presses to finance reconstruction. That enables the yen to return as a carry trade and collapse.

All of the above will eventually occur. For precise timing, watch this space. You'll be the first to know.

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'RISK OFF' Has Months to Run

Featured Trades: (QE3 HAS ALREADY STARTED)

2) QE3 Has Already Started. Most analysts have missed the fact that QE3 has already started in earnest. Of course, it would have been easy to miss. Ben Bernanke has not made any grand pronouncements. He hasn't done some public thinking out loud, as he did among friends at Jackson Hole, Wyoming last August. It is not even called 'QE3'. Think of it as a 'stealth QE3'. But make no mistake. A new variety of quantitative easing has already begun in a big way, and is generating its desired effect.

The new QE3 is the 'RISK OFF' trade. QE2 ended up pouring $600 billion into stocks, commodities, oil, gold, and silver. Since April 29, the prospect of slowing economic growth has prompted this hot money to take flight and bail from these assets classes. Think of it as the same $600 billion stampeding into risky markets, doing a 180, and then stampeding right back out against.

Where is all this money going? Into the Treasury bond market. We have in fact been in new bull market for bonds since February, taking the yield on the ten year Treasury down from 4.10% to 3.10%. If the current 'RISK OFF' trade continues, or even accelerates, we could see ten year yields down to 2.0%-2.5% by the end of the summer.

In the ultimate irony, we might even see bonds peak and risk assets bottom on June 30, the day QE2 ends. Given the way that events compress and accelerate these days, I would not be surprised to see things unfold this way. This is why I have been selling short puts on the long bond ETF (TLT), and avoiding bearish bets on bonds, like the plague, such as the (TBT). It is also why I have been piling on shorts in oil and stock at every opportunity.

There is no doubt that this is Ben Bernanke and Treasury Secretary Tim Geithner's plan, and they have voiced as much to Washington confidents in recent weeks. The beauty of this plan is that it has no government fingerprints on it. They are getting private investors to do the heavy lifting for them. That will make them immune from attacks from anti-interventionists, like the Tea Party, and anti-Federal Reservists, like Ron Paul. Bernanke can just sit back and let natural market forces do his handiwork for him.

Clever Ben, clever.

Of course Bernanke cannot employ this strategy forever. Eventually the expiration of Obama's many stimulus programs, the end of the Bush tax cuts, a growing drag by the state and municipal sector, and a worsening structural unemployment problem, will slow economic growth enough to where the Fed will have to take real action. Then they will have to launch a real QE3, or face another Great Recession, something the administration would rather not see in an election year.

Keep in mind that the next Recession will be far worse than the last one. None of the problems of the 2008-2009 debacle, like too big to fail, the real estate collapse, and the burgeoning bad debts on bank balance sheets, have really been solved. The can has merely been kicked forward. The only difference will be that there will be no TARP and no bail outs next time. The chips will fall where they want.

This all means that you better keep running your shorts and make some serious coin from the unfolding 'RISK OFF' trade while you can. Look out below.

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What Do You Have Up Your Sleeve, Ben?

Featured Trades: (THE BEAR CASE FOR OIL), (USO), (DUG)

3) The Bear Case for Oil. Let's do some out of the box thinking here. Let's say that the global economy is really slowing down. The demand for oil will fall. Let's say that China continues to raise interest rates, slowing its economy further. Then Chinese oil demand starts to wane.

Then we bring on stream new US onshore supplies opened up by advanced technologies in places like the Bakken field in North Dakota. Then current high prices at the pump deliver a summer driving season that is a shadow of its former self. Next, the exchanges get religion and decide to damp down speculation in earnest by raising margin requirements on oil.

Now, let's thrown in an outlier. Muammar Khadafi chokes to death on a bad falafel, bringing the Libyan civil war to an immediate end, and unleashing 1.2 million barrels a day of light crude on the European market.

What I have just outlined here is a perfect storm for oil prices. It's not that these are low probability events. They are in fact the most likely scenario that will unfold over the next three months. And they are all likely to hit at the same time, taking crude down to the bottom of the last year's range of $84/barrel.

So I think that it is prudent here to start adding some short exposure for oil. Selling short the US Oil Fund (USO) might be a good idea, which has one of the worst tracking errors in the ETF world, and never fails to rob investors blind. Play this from the short side, and these gross inefficiencies work in your favor. When I employed this strategy through the put options in March, I scored a near double in just five days.

Just to add a little kicker to your short oil play, you might buy the (DUG), a -2X inverse short ETF on the oil majors now trading at $29.25. Falling oil prices will lead to plunging oil company profitability, shrinking PE multiples, and sharply declining stock prices, all of which work in favor of (DUG). Throw in a broader global risk off trade, and this thing works with a turbocharger.

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'We live in a nominal world right now. Inflation is going up modestly, so the dollars we are making are nominal dollars, not real dollars,' said legendary value investor, Leon Cooperman, of Omega Advisors.