Thursday, December 31, 2009

Where did the 6 Trillion in Market Cap Increase come from...

if you think its possible Goldman Sachs, JP Morgan, Bank Of America and the other PPT the Fed and Treasury account may be responsible...then read this...check out more here.

Is it any wonder that, the crash during Dubai week, was blamed on Dubai instead of all the PPT operators leaving early for view is that absence of PPT money in overnight futures let the market do exactly what it really wants to do...sell hard.

Submitted by TrimTabs' Charles Biderman
Are Federal Reserve and U.S. Government Rigging Stock Market?  We Have No Evidence They Are, but They Could Be.  We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March.
The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion.  The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
We cannot identify the source of the new money that pushed stock prices up so far so fast.  For the most part, the money did not from the traditional players that provided money in the past:
  • Companies.  Corporate America has been a huge net seller.  The float of shares has ballooned $133 billion since the start of April.

  • Retail investor funds.  Retail investors have hardly bought any U.S. equities. Bond funds, yes. U.S equity funds, no.  U.S. equity funds and ETFs have received just $17 billion since the start of April.  Over that same time frame bond mutual funds and ETFs received $351 billion.

  • Retail investor direct. We doubt retail investors were big direct purchases of equities.  Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks.  Also, retail investor sentiment has been mostly neutral since the rally began.

  • Foreign investors.  Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October.  But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.

  • Hedge funds.  We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities.  But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.

  • Pension funds.  All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else.

We do not know where all the money has come from.  What we do know is that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers.  Why not support the stock market as well?
As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures.  Moreover, several officials have suggested the government should support stock prices.  For example, former Fed board member Robert Heller opined in the Wall Street Journal in 1989, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.”  In a Financial Times article in 2002, an unidentified Fed official was quoted as acknowledging that policymakers had considered buying U.S. equities directly, not just futures.  The official mentioned that the Fed could “theoretically buy anything to pump money into the system.”  In an article in the Daily Telegraph in 2006, former Clinton administration official George Stephanopoulos mentioned the existence of “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”
Think back to mid-March 2009.  Nothing positive was happening, and investor sentiment was horrible.  The Fed, the Treasury, and Wall Street were all trying to figure out how to prevent the financial system from collapsing. The Fed was willing to print whatever amount of money it took to bail out the system.
What if Ben Bernanke, Timothy Geithner, and the head of one or more Wall Street firms decided that creating a stock market rally was the only way to rescue the economy?  After all, after-tax income was down more than 10% y-o-y during Q1 2009, and the trillions the government committed or spent to prop up all sorts of entities was not working.
One way to manipulate the stock market would be for the Fed or the Treasury to buy $20 billion, plus or minus, of S&P 500 stock futures each month for a year.  Depending on margin levels, $20 billion per month would translate into at least $100 billion in notional buying power.  Given the hugely oversold market early in March, not only would a new $100 billion per month of buying power have stopped stock prices from plunging, but it would have encouraged huge amounts of sideline cash to flow into equities to absorb the $300 billion in newly printed shares that have been sold since the start of April.
This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. For example, Tyler Durden of ZeroHedge has pointed out that virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.
If we were involved in a scheme to manipulate the stock market, we would want to keep it in place until after the “wealth effect” put a floor under the economy of, say, three quarters of positive GDP growth.  Assuming the economy were performing better, then ending the support for stock prices would be justified because a stock market decline would not be so painful.
We want to emphasize that we have no evidence that the Fed or the Treasury are throwing money into the stock market, either directly or indirectly.  But if they are not pumping up stock prices, then who else is?
Equity Mutual Fund Cash Equal to 3.8% of Assets in November, Just above Record Low of 3.5% in Mid-2007.  U.S. Equity Funds Get Estimated $5.1 Billion in December, First Inflow in Five Months.
The Investment Company Institute reported Wednesday that equity mutual funds held just 3.8% of their assets in cash and equivalents in November.  To put this percentage into perspective, the record low was 3.5% in June 2007 and July 2007.  While the amount of cash increased $8.1 billion in November, assets shot up $229.1 billion, leaving the ratio of cash to assets unchanged.

Happy New Year

A wish for a prosperous, healthy and happy new year for you all.

I wish you all much more than financial success - enjoy what matters, since we never know how long we got to savour it.

Next year promises to bring many challenges and of course its share of rewards... Keeping ourselves human and offering it sincerely to others may be one of the biggest gifts we receive or can offer.

Again, I wish you all a wonderful 2010.

Wednesday, December 16, 2009

Time Magazine Man of the Year...

Good going Time Magazine. Now who is your biggest shareholder again?

Sunday, December 13, 2009

This is not Bullish

NASDAQ 100 was very weak on friday...and has produced these charts...while it is conceivable for a pop seems more conceivable for a drop in these issues after any pop...I will post some index charts as well.

The dollar has completed a small 5 waves in position for a pullback. I would view it that the dollars pullback is within a much larger wave 3 and therefore pullback may simply be a gap down on Monday or some shallow consolidation early next week. Fed has spoken by approving all sorts of numbers and talk that indicates they are prepared to change their stance after providing banks the free money carry trade. Retail numbers did not make sense to me as many of the numbers out lately...what they do reflect of Bernake's approval of messages of change in policy. Most of the numbers will be revised and are not credible. But the fact the a positive message is being sent is a deliberate sign that the Fed will change their message.

Watch the dollar...

Saturday, December 12, 2009

Steve LIESman

First, he does a 10 minute on-air report about EUC (emergency unemployment claims) and then when Santelli presents data one month later on the subject...miraculously...Liesman does not know about that very program he presented on-air, has never heard of it and accuses Santelli's numbers of being wrong. I have always thought that LIESman as an apologist for the Fed and the establishment...this proves my worst fears. Indeed, Liesman is a LIES man. Hat's off to Santelli.

Monday, December 7, 2009

Sunday, December 6, 2009

Saturday, December 5, 2009

These are the same commercial mortgages that are about to go belly up, McCabe says. "Dubai may be the most massively overbuilt market in the world," he says, but it's not the only one, and the global nature of real estate investing means that the Middle East's woes could easily be replicated in London, Sydney, Prague or Barcelona. "Real estate financing is world wide, and that means we're going to have defaults on a massive scale," he says. If there's a bright side, it's that U.S banks have already taken most of the hits they'll suffer for their overextension into real estate, says Richard Bove, a banking analyst at Rochdale Securities. He calls this a rare instance of U.S banks learning from past mistakes. 

Clearly, Dick Bove has the capacity to wrong on a staggering level. Perhaps, he should recommend that we buy UAE warrants - despite the likelyhood of a middle east financial collapse that effects the entire region not just Dubai.

Quantitive Easing

The term quantitative easing describes an extreme form of monetary policy used to stimulate an economy where interest rates are either at, or close to, zero. Normally, a central bank stimulates the economy indirectly by lowering interest rates but when it cannot lower them any further it can attempt to seed the financial system with new money through quantitative easing.
In practical terms, the central bank purchases financial assets (mostly short-term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has createdex nihilo (out of nothing). This process is called open market operations. The creation of this new money is supposed to seed the increase in the overall money supply through deposit multiplication by encouraging lending by these institutions and reducing the cost of borrowing, thereby stimulating the economy. However, there is a risk that banks will still refuse to lend despite the increase in their deposits, or that the policy will be too effective, leading in a worst case scenario to hyperinflation
Quantitative easing is sometimes described as 'printing money', although the central bank actually creates it electronically 'out of nothing' by increasing the credit in its own bank account.
Examples of economies where this policy has been used include Japan during the early 2000s, and the US and UK during the global financial crisis of 2008–2009.
Banks use a practice called fractional-reserve banking whereby they abide by a reserve requirement, which regulates them to keep a percentage of deposits in 'reserve'. The remainder, called 'excess reserves', can be used as a basis for lending. The increase in deposits from the quantitative easing process causes an excess in reserves and private banks can then, if they wish, create even more new money out of 'thin air' by increasing debt (lending) through a process known as deposit multiplication and thus increase the country's money supply. The reserve requirement limits the amount of new money. For example a 10% reserve requirement means that for every $10,000 created by quantitative easing the total new money created is potentially $100,000. The US Federal Reserve's now out-of-print booklet Modern Money Mechanics explains the process.
'Quantitative' refers to the fact that a specific quantity of money is being created; 'easing', according to Guardian, the British newspaper, refers to reducing the pressure on banks. However, another explanation of 'easing' is the Japanese-language expression for 'stimulatory monetary policy', which uses the term 'easing' (see the section below on the Origin of Q.E.).
A central bank can do this in a number of ways: by using the new money to buy government bonds (treasury securities in the United States) in the open market (this is also referred to as monetizing the debt), by lending the new money to private banks, by buying assets from banks in exchange for currency, or by any combination of these actions. These have the effects of reducing interest yields on government bonds and reducing interbank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying bodies.
In very simple layman's terms, the central bank creates new money out of thin air. It then uses this money to buy what is essentially an IOU, usually from the government. This money is credited to the bank account of the seller of the IOU. The bank can then use this money as a basis for creating more new money by increased lending.
A state must be in control of its own currency if it is to be able to unilaterally employ quantitative easing. Countries in the eurozone (for example) cannot unilaterally use this policy tool, but must rely on theEuropean Central Bank to implement it.
The aim of quantitative easing and the follow on process of deposit multiplication is to increase the amount of money in circulation by an increase of credit and thus stimulate the flow of money around the economy by increased spending. The usual method of regulating the money supply is by setting interest rates. Quantitative easing is a solution when the normal process of increasing the money supply by cutting interest rates isn’t working. Most obviously when interest rates are essentially at zero and it is impossible to cut them further.

Sunday, November 29, 2009

New Margin Requirements

If the shorts are already squeezed...perhaps they are also running low on margin reserves...The margin requirements increase demonstrated below, could easily create another squeeze if shorts are indeed over seems likely to be the case. Shorts are running low on funds, have been hammered so many times that money is running low...these are ideal conditions for people to buy too many shares in leveraged short positions to try to make money back. However, with all the bullish reading on sentiment flying around, perhaps retailers dove in hand over foot and went full margin long leveraged ETF's...but somehow I think this is just another setup intended to squeeze the shorts. So, perhaps, no matter the news...we get more up in the Goldman Sachs/PPT market...I mean stock markets. Isn't FINRA a division of GS? or has that not been announced yet.

Monday, November 23, 2009

Friday, November 20, 2009

SP 500 persepctive

With a large majority of third-quarter earnings in the books (87% of S&P 500 companies have reported for Q3 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to its Q3 2009 trough, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings bottomed and are moving up sharply.

Monday, November 16, 2009

Market Observations - Under the surface - not what it appears to be

Just like Bernake, if you look under the surface you can see that there is something masquerading as an impostor you always knew was lurking. Well, in my charts below you can see, this rally is not what it is cracked up to be. Additionally, we only need the box trades to close on both the ES and TF for the market to be set up for, at the least, a major pullback. Would be nice if the dollar could get into the 74.50 and below or above trendlines, confirming an unsustainable position in the markets.

Sunday, November 15, 2009

SP500 Futures Explained...

Here's a brief description and background on the E-Mini/S&P 500 futures contracts, since we get asked practically every day what they are.

A Brief Introduction

The Chicago Mercantile Exchange (CME) introduced the S&P 500 futures contract back in spring of 1982. The S&P 500 futures market has now become today's most actively traded equity futures contract. The S&P 500 futures contract represents roughly 90% of all US stock index futures trading. The S&P 500 is comprised of the largest 500 listed stocks, therefore allowing you to easily and effectively buy or sell an extremely well diversified portfolio of stocks in one stock index futures contract. This allows you to make trading/investing decisions based on your overall outlook of the stock market. Here's a couple advantages of trading the S&P 500 & E-Mini stock index futures contracts:

You can easily participate in broad market moves, with one trading decision (one chart to look at) - instead of having to choose individual stocks (looking at many charts).
You can easily protect the value of a portfolio during adverse markets without incurring high transaction fees.

In October 1997 the E-Mini S&P 500 futures contract (symbol = ES) was introduced - which is the same as the S&P 500 (symbol = SP), except it's one fifth the size in terms of point and tick size, discussed shortly.

Exactly What Is The S&P 500 Index?

Most all of you know what the Dow Jones Industrial Average (DJIA) Index consists of; The DJIA is made up of only 30 blue chip stocks. The S&P 500 index on the other hand is based on the stock prices of 500 different companies - generally 76% industrials, 12% financial institutions, 10% utilities and 2% transportation. As you can readily see, the S&P 500 is much more representative of the overall market than that of the DJIA. Also, the market value of the 500 firms that comprise the S&P 500 index is equal to roughly 80% of the value of all the stocks that are traded on the New York Stock Exchange.

The Value Of The S&P 500 Futures Contract

The value of the S&P 500 futures contract can be calculated by multiplying the futures price by $500. For example, if the S&P's are trading at 1089.50, the value would then be $500 X 1089.50, or $544,750. The minimum price fluctuation (tick) for the S&P's are .10, so a tick up or down is worth $25 per contract. A full point has 10 ticks in it, which is worth $250 per contract (.10 X $25 = $250). The E-Mini S&P 500 is on the same price scale as the regular (full) S&P 500, the difference lies in the tick and point values. The E-Mini S&P trades in .25 ticks and is worth $12.50 per tick; and a point is worth $50 ($12.50 X 4 = $50). As you can see the E-Mini's are one fifth the size of the full S&P 500 contract.

As you can readily see by now, since the S&P 500 futures market represents roughly 90% of all US stock index futures trading, you can use the S&P 500 futures contract to try and forecast the market's overall direction. You can in turn position yourself with a profit from such a move. That is, of course, if you're right on the market move.

What Are Futures Contracts?

A future's contract is an agreement between the seller and buyer to respectively deliver and take delivery of a commodity at a specified future date. But in the case of the S&P 500 futures contract, the commodity is a portfolio of stocks represented by a stock price index. The delivery is actually a cash settlement of the difference between the original transaction price and the final price of the index at the termination of the contract. More accurately, the cash settlement occurs in the increments daily until the termination of the contract, as the contract trading price changes.

The futures contract price responds to the changes in the overall underlying index, with the index recalculated as the component stock prices change. The prices of the futures contract looks very similar to the index price itself; the future's price may be higher or lower than the index itself. While the future's price does not move point-for-point with the index, it does track it closely enough to act as a very effective proxy.

How Much Does It Cost To Trade The E-Mini's and S&P 500?

The margin requirements to trade the S&P 500 is quite small compared to the overall value of the contract itself. Margin requirements to keep the S&P 500 Overnight (you need roughly $22,000 per contract to keep an S&P overnight) is much more costly than it is to Day Trade the S&P 500 (you need roughly $10,000 per contract to day trade), but it really depends on the discount futures house that you trade through. The firm I recommend only requires $5,000 to day trade the S&P and $12,000 to keep an S&P overnight. The E-Mini S&P's on the other hand are much less expensive to trade. It costs roughly $2,500 to day trade the e-mini S&P's and roughly $7,500 to keep an e-mini S&P overnight. We highly recommend to all students to start off trading the e-mini S&P's (if you ever decide to trade them) until you fully understand what they're doing before moving on to the full S&P 500 contract. We think that's a smart move for anyone just starting out.

Future's Risk

Please Remember: Trading the E-Mini's & S&P 500 markets (or any market for that matter) are not without risk and as a trader/investor you must accept the possibility of being incorrect in your predictions (trades) of the market. The opportunity to profit from trading futures can be very substantial, however keep in mind that the risk of trading futures can also be very substantial. And please remember, any market you decide to trade you must use stop losses (ISL's) - as you already know by now this will help limit your losses to your own personal comfort level .

"Why trade the full and E-mini S&P 500/Dow or Nasdaq futures markets?"

  • There is NO market research required.
  • *Futures margin requirements are a fraction of those needed for day trading stocks ($2,000 vs. $25,000).
  • You can profit no matter which way the market moves, up or down. Bad market news can be real good news to you.
  • Great potential for daily cash flow.
  • Tremendous leverage, liquidity and daily volatility for maximum profit potential.
  • There is NO Up tick rule.

    Saturday, November 14, 2009

    The Boy and the Barber

    A young boy enters a barber shop and the barber whispers to his customer, “This is the dumbest kid in the world. Watch while I prove it to you.” The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, “Which do you want, son?” The boy takes the quarters and leaves. “What did I tell you?” said the barber. “That kid never learns!” Later, when the customer leaves, he sees the same young boy coming out of the ice cream store. “Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?” The boy licked his cone and replied, “Because the day I take the dollar, the game is over!”

    NASDAQ Internals extremely weak

    Thursday, November 12, 2009

    Another View of the Dollar Carry Trade

    The slightly upward sloping channel needs one more little pop to fill. I saw a great chart of this earlier today...but I think the trend lines needed to reflect the channel. Nice moving average resistance above also.

    those of you with stockcharts may want to watch this chart live, enclosed is the link to the live chart. live chart

    Tuesday, November 10, 2009

    Market Observations - parabola

    I have not been posting much for personal reasons but did want to post something about this market situation.

    1. Everyone and their brother went short when trendlines were broken
    2. Those people feel hoodwinked again
    3. The dollar pattern failed
    4. Big fractures in the market
    5. Extremely low volume

    I am going to restate my thesis from quite a while back. We need an emotional bottom for the dollar. With a dive below 74.50 the market can panic people into buying and covering inflation assets and dollar longs can capitulate. I hear people looking for a positive seasonal move and this and that...however, volume is weak, the dollar sucks and conditions are ideal for fumes to be lit...we need this little parabola to complete to the upside...I think it is very difficult to set an exact level to short here since we could see a one day spike that could be dramatic.

    Apparently, EWI may be about to retract their P3 thesis. Hochberg has certainly had his challanges calling the rally from the lows. First he waited until we got to the 800's on the SP to call P2 and then he promptly used the whole trip from 800 to 920 looking for wave B down. In July, I believe he called P2 complete also, but handled that rebound much better. Recently, his bearish bias (which I can certainly rationally understand) is so strong that nearly every squiggle on the Dollar chart down from 80ish is a bottom and every pop on the markets is a top. And finally, just when a little potential parabola sets up he's addressing folding the forecast...Hochberg has been (and generally is) too bearish in opinion and thusly interprets his forecasts in that light rather than objectively. His interpretations have impacted many a waver - I am sure. It is important to remain detached from the market and convictions - apparently this is something that Hochberg needs to do better.

    Sunday, November 8, 2009

    Warren Buffett investments vs bailout funds

    Somebody certainly is in on the government game...interesting to ponder.

    Highest Unemployment Since the Great Depression

    Of course the real numbers are even higher...but at least we can reference U6 data for a less contrived and deceptive number.
    "Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. ...
    If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.
    In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous high was 17.1 percent, in December 1982."
    From David Leonhardt at the NY Times: Broader Measure of Unemployment Stands at 17.5%

    Elliotwave Freeweek

    A reminder - our collegues over at Elliott Wave International are hosting their occasional free week - so this a great chance for all of you to take advantage of this opportunity to register (yes it's free) and have access to the authoritative Elliottwave site. It is easy, fast and you get their Short Term Update, Monthly Financial Forecast and Prechter's Theorist. Good Stuff.

    Costs of Health care around the world...

    Will Mr Obama's plan raise or lower the US costs? I think you need only to look at any government take over of anything to get a good idea of past results not being indicative of future performance.

    "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them. 
    The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first.
    The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." - Thomas Jefferson
    Obviously, we have thrown out the constitution a long time ago...but these attacks on it are getting more and more grotesque...and will only decrease the quality and increase the cost of healthcare in the US.

    Saturday, November 7, 2009

    Government by the special interests for the special interests...

    It is clear what is going on in this country. And while the Fed, Treasury, Obama and Congress are abusing  the tax payer and constituents for the benefit of the special interests...they are deliberately furthering a scheme planned and implemented early in the 1900's. So called healthcare reforms represent a major step forward of that agenda. If there is any doubt about this...please read these quotes:

    Capital must protect itself in every way... Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd.- JP Morgan
    The world is now more sophisticated and prepared to march towards a world government. -David Rockerfeller

    Healthcare or Not?

    If the people let government decide what foods they eat and what medicines they take, their bodies will soon be in as sorry a state as are the souls of those who live under tyranny. 
    -Thomas Jefferson

    The Dollar - pattern broke supports

    This is an updated chart of the dollar from several days ago. This raises the odds of some lower probing...with downside targets in the 74.5 area. However, if the multiple turn dates occurring early next week play out the lows could still be in already and the dollar could make a huge move, otherwise it will be more of the same dribbling down.

    Interestingly, the large healthcare reform bill being voted before congress may have large implications for the future of the dollar and interest rates. A plan as misguided with regard to debt and constitutionality is likely to cause some real issues with interest rates and could be a good excuse to get 3 of 3 down moving...but for now the dollar chart forecasts weakness.

    Some Numbers

    Cost of military providing ONE gallon of fuel for a jeep in Afghanistan:
    $292.00 - yes that's right, two hundred and ninety two dollars.

    Effective all in tax rate for New Jersey:
    62% - and the government is still broke.

    All this money floating around being misused by government is not creating opportunities for the US citizens or business unless your name happens to be JP Morgan or Goldman Sachs

    Stimulus and Jobs?

    The Chicago Tribune said recently that Obama's gang says the jobs of 473 teachers were saved in North Chicago.

    But the paper pointed out that the district only has 290 teachers in total. How does that add up?

    Read more: click here

    Industrial Production then and now...

    This is a great chart of the current situation...

    Can we afford the wars and bailouts? What is the government and the press telling us? Is the stock-market levitation a miracle or something else?

    “I have sworn upon the altar of the Almighty God eternal hostility against every form of tyranny over the mind of man.”

    "I believe that banking institutions are more dangerous to our liberties than standing armies."

    -Thomas Jefferson
    “The business of the journalists is to destroy the truth… We are the tools and vassals of rich men behind the scenes. We are the jumping jacks, they pull the strings and we dance. Our talents, our possibilities and our lives are all the property of other men. We are intellectual prostitutes.”
    -John Swinton, speech given while working for the New York Sun, 1880

    Tuesday, November 3, 2009

    Dollar Pullback targets

    We should bounce at the trend line and then rally hard.

    Dollar Breaks Out - takes out stops in futures contracts

    Over night the dollar broke the 76.40 trendline...and took out stops in the low volume overnight session for the DX contract. The prices popped there to 81.00 on 3,000 contracts. If this was a hedge or speculative position...the net effect was an $11,000,000 hit on those contracts from overnight lows. Please look at these trades to see how you can get killed in overnight stop hunting. DX is not a very liquid contract and can not absorb  a 3,000 contract order.

    In any case, the market is not down on european banks as is being spread in the press. The market is down on relative value dollar issues. We may be setting up a leading diagonal for a downside break. This was my assumption yesterday and continues to be a preferred view today.

    Buffett's, hair-brained purchase of Burlington Northern is an example of the Buffett credit inflation thesis. Please read my Buffett pieces on the featured article list. Credit inflation is dead...buying transports now is absolutely devastating. Buffett does not understand the financial system and thinks his buddies at the Fed and Treasury will provide enough cushion. The reality is they are not in control. This buy of Burlington may provide some lingering strength for the Equity markets...which will, no doubt, be a great bearish opportunity.

    I saw Cramer last night, he has officially lost his mind and should be fired immediately. He is championing good news. Good news comes at a top...he should know that already. CNBS is continuing in their quest to reduce their view ship to Zero.

    As long as the dollar is strong...sell rallies IMO.

    Sunday, November 1, 2009

    The Dollar - another view

    This reflects the same chart as DXY potential for a small bounce in the markets and a dollar pullback to 75.90 or so. The HS pattern looks better on the UUP even than the DXY directly which is why I wanted to show this chart.

    above chartcourtesy of matt fraily,

    Saturday, October 31, 2009

    Dollar Analysis - much focus on market bounce - evidence not compelling

    Every where I see people looking for a market bounce, while evidence may support a very small one, keep in mind that the dollar did not even take out Thursday's high on Friday while equities got pummeled. From what I see, a pullback in the dollar has maximum potential of around 75.90. That is the dashed support line on the chart below. If the dollar were to take out that level, it would likely be taking out swing lows from the left shoulder and that would be a SIGNIFICANT compromise to the technical picture.

    What seems most likely to me is that the dollar makes a small pullback above this support and then breaks out or simply gaps up over resistance at the thick green line. This of course would likely support a market that would cascade lower to the 1016 to 1020 area at least, probably more prior to a good bounce. If we look at the downside risk for the dollar its so minimal that any market rally would have to be rather restrained at best. Again, if the dollar were to take out 75.90 then something else would be playing out.

    The thick green trend line immediately above for the dollar is a significant resistance, but the pattern is strong and looks like it is demanding follow through and then consolidation. A breakout of this trend line will cause an avalanche of dollar shorts to cover... potentially in explosive fashion.

    Looking at past action in the dollar, pullbacks during the first short squeeze higher are extremely small and more likely gap ups. I will post some examples shortly.

    Please click on chart for a sharper view.

    Nasdaq 100 vs AAPL earnings

    The Apple earnings reactions are demonstrated by the vertical lines on the chart below.  Looks like the Apple phenomenon has played out again...surprise surprise. This is a chart is an updated chart of a recent chart of Apple I put out before they reported.

    Friday, October 30, 2009

    Market Observations - Dollar Poised

    The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.

    EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.

    The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.

    Below is an unchanged old chart of the SP500 that I posted over the last few weeks.

    Below is a very good chart from Matt Fraily for the UUP.

    Below is an unchanged old chart of IWM that I posted on the 21st of September.

    Below is a chart of Oil that I have been monitoring over the long-term. 

    First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.

    The Gold Equities GDX chart below this is from Matt at and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.

    Below is another chart from of the SPX.

    I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.

    above chartcourtesy of matt fraily,

    Market Observations - Dollar and EURO

    The dollar held support yesterday. As long as it does not break it, I believe the down-trend in the market will persist and charts that are still not broken such as Oil and Gold will break. Contributing to this view was the large negative divergence at yesterday's close between the EURO and equities. This divergence pointed to negative prices today...I would continue to watch the EURO and SP500 for divergence. New highs in the EURO are usually foreshadowing of SP500 new highs and failed highs in the EURO are reliable and early indicators of failure in the SP500 especially when the SP makes a new swing high.

    Thursday, October 29, 2009

    Market Observations - What does the genie say this time?

    The dollar genie is below. The gray down trend line that we just broke over is now support. The pattern will not look well with a substantial pullback below this line and I do not anticipate one. That means, we should temper expectations for a pop in the indexes.

    There is some additional resistance from the green down trend line at 76.78. A break of this level targets trend reversal confirmation levels at the two red lines. This, in turn, confirms the dollar trend reversal.

    So, what this chart looks like is that it is preparing for a large range up candle - and SOON. Sure its overbought...but the markets were overbought for months and still went up - but the dollar has much stronger fundamentals supporting its rally than the stock market also has a much more emotionally and rationally attached contingent looking for a dollar collapse. So, I would temper expectations somewhere between a slight pullback for the dollar and pop for the markets to a mild to negative reception to the GDP numbers triggering a range extension to the current moves in both. The markets do not like to let you into a trade if they don't have to. The dollar chart says to me that Mr. Market is not going to make a lot of room to get short equity indexes and long the dollar.

    I have not been posting that much lately as I have had two deaths in the family...hopefully I will be able to get back to normal soon.

    Wednesday, October 28, 2009

    Market Observations - Trendline Breaks

    Market Observations - One Chart

    Only one chart is necessary to guide us for the next few days. The breakout or retrace on the dollar chart below.

    I do not see a high likelihood of a test of the lows on this pattern at this time. Additionally, that would also setup an entirely different scenario. But I do think we may have a small argument with the downtrend line immediately above. This resistance level was rejected today. Perhaps we get a retrace back to the 75.60 to 75.80 area. That would afford the market some upward bias consolidation.

    However, it may also be possible that we open with a breakout of this downtrend line. In which case I would think that we see very heavy buying of the dollar. 77.40 would be the nearest target in that case. That would set up a range day down potential for the indexes. Personally, as the markets are oversold, I would like to see some bounce or even rally here and thus a pullback in the Dollar...but this market has not been in the habit of doing what we want it or expect it to. So, given the bearishness of the the sentiment for the dollar, there is a lot of pressure to breakout of this resistance area. So, that is the signal I am looking for.

    Tuesday, October 27, 2009

    Housing Charts... Foreshadowing the Markets?

    Well, so much for Schiller's previous comments that the last uptick could be the bottom...

    Monday, October 26, 2009

    Market Observations - Targets

    First, lets talk about the dollar...down trend line at 76.4. Seems obvious that we will complete 5 waves up to test this resistance level. The question is what we get when we reach there. A Breakout? Reversal? Consolidation?

    The pattern in the dollar does not leave room for a new low. If the dollar were to break to a new low, it would likely be ushering a different pattern than an ending diagonal...which would likely be a new 5 wave move down, the inflation trade would likely play out. So, it does not seem very likely for a structure like this to be followed be a new low.

    Given the intensity of the rise, which was stronger than I was expecting, we are now at nearing formidable resistance with an overly confident set of bears in the market and the divergence in the Euro market, all seem to indicate to me that the amount of bears that will be trapped here could be sizable. If that is the case, a break of the 76.4 area will not give much time to get in. I may not give a retest of consequence and thus the SP500 may find itself in the 1020's lickity split. Incidentally, my target for the SP is 1026 for this initial move down...but we should not count on a big bounce. Just like the rally did not let you in, this bear may be even less understanding.

    In any case, it seems like a consolidation is in order for the dollar once it hits 76.40 and that will give us a change to see if the market can muster one last bounce off trend line support. I am not optimistic that the market can stage a rally here given the unexpectedly strong reaction of the dollar here.

    thanks to matt fraily,

    Saturday, October 24, 2009

    JP Morgan - Setup the Depression - Low standards in high places

    JP Morgan was one of the main manipulators installing the Federal Reserve and beginning the great credit inflation era. In addition, JP Morgan was one of the largest margin lenders of the time. And encouraged the credit fueled orgy of the 20's.

    The irony is that JP Morgan and the Fed along with selected buddies have done it again. They have created the new instruments of death - the very same conditions they took advantage of in the 1920's to set up the great wealth transfer of 30's.

    This is a great documentary by the BBC...a must watch.

    The video is in 6 sections...they should load automatically. If that is not the case for you, I have posted the individual links below.

    Part 1

    Part 2

    Part 3

    Part 4

    Part 5

    Part 6

    To watch a full video at higher quality you may want to install the veoh player and play the video below. This is an easy install and not dangerous for your computer. veoh is a great site and the video quality is much better than youtube.

    1929 - Great documentaries

    Steve Meyers Interview - Interesting...

    I am not sure what he is REALLY looking for regarding the dollar...but it seems he is looking to see if the unit can rally or not...and then make a determination. I see very little case to support a collapse of the dollar. Too many people are looking for it. I guess there is some chance that the dollar could selloff and the market could sell off - which would likely indicate a hyperinflationary condition. He does spend some time on this outlook which does not have much of a shot to me...For oen, hyperinflation is much too obvious a trade at this point. I do think hyperinflation will happen once the fiat system fails, but relative values will be more appropriate then and fiat currencies will end up being replaced. This looks to me to be sometime in the next few years - sometime in the 2012 to 2015.

    This video is a "First Baptist" production. I do not like to mix religion and economics and am not affiliated with them in any way. I do think ironically, that there is some religiousness to the attraction of people to the long Gold mentality. I, for one, am not of that view. I believe that the most Armageddon type scenario would be a hyper-inflationary depression....which is why its attractive to many at this point. Gold fits nicely in that view.

    I believe that a hyper-inflationary depression would ultimately lead to much more wealth destruction and futher undermine appropriate relative values. This would be catastrophic. A deflationary depression on the other hand, while catastrophic also, would be serving a practical purpose in purging the system and ushering the return to a real-value basis for relative values. This would end up improving the very long-term prospects for individuals and businesses. Keep in ming that "Very Long-term" part.

    Short-Term Dollar Chart - but still unfinished business

    Below is a chart from Mathew Fraily from yesterday...its great chart of the short-term dollar

    Please see his blog: here

    and here is an updated view version from today

    Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.

    If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.
    Change of share trading currency and proposed sub-division
    In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.
    Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.

    Friday, October 23, 2009

    When Sheila Bair has to publically reassure us...

    1. There is a problem she is not telling us about
    2. she is playing the party line
    3. she is close to running out of money

    When Sheila Bair tells us that the FDIC is adequately funded:

    1. is she actually reassuring us that there is plenty of money?
    2. is she lying to us for our own good?
    3. is she attempting to instill the state that created this mess - complacency?

    Well, the answer is: ALL OF THE ABOVE and then a FEW...

    Given the statements made in this video and the misguided effort to release it - it indicates that Sheila Bair is either a liar or a hack. But, I suspect the qualifications to be an accomplished hack would be to to be an accomplished liar.

    Lets examine this.

    The FDIC does not have adequate funding nor does the Treasury have 500 billion to lend to the FDIC. For that to occur the debt ceiling for the US will need to be raised...hence the need for the FDIC to borrow money from banks like JPM, Well Fargo, BAC directly.

    Additionally, Sheila Bair states that she has asked banks to prepay premiums for the next three years in advance. I can tell you one thing, if my insurance company asked me to pay three years in advance, I would be very unhappy and deeply suspicious. Without some sort of compensation I would refuse. Additionally, if she thinks that it is reassuring for people to know that the FDIC needs to ask for three years of premiums in advance - I think she is mistaken. What's next, asking for 10 years of premiums? Why not 20 years? And what do you do next year when all the premium has already been paid in advanace? This is a game of musical chair shells. First, distract them with the music. Second, the slight of hand. Third, the change in strategy and finally followed by the trick - no music, no magician, no chair, no seat and no shell. But my question is, what happened to the last 75 years of premiums? There have been years when the FDIC miraculously abated any premiums since its reserves were supposedly met with credit from the treasury and premiums already on deposit. But, even in that case, how could the FDIC possibly be so mismanged that they need special premiums now? If the FDIC can not run itself, how can they manage a confidence game and ponzi scheme. (Please see my previous articles below regarding the FDIC)

    Additionally, she indicates that the FDIC has 42 billion of reserves. Raising an additional 45 billion from advance payment of insurance premiums should do it right? Well, 89 billion, (according to her math) is still a small number especially given that they figure their projections based on $100,000 coverage per account even though they insure $250,000. This is the case, since the 250,000 number is supposedly only temporary so they can just ignore it for budget and accounting purposes...I think their math is fuzzy - to say the least. Incidentally, their reserve number is NOT the number that I come up with.

    As if that is not enough, just how many banks does Ms. Bair expect to fail? Remember that IndyMac wasn't even on their list 2 weeks before it failed? Well, I will hazard a guess. There will be thousands of the 8,200 banks in the US that will fail... I will not be surprised with up to two thirds of our banks failing, given the counter-party defaults and liabilities of the the banking system as a whole. More importantly the riskiest banks are the largest ones - you know, the ones that the FDIC is planning on borrowing from...and, ironically, can least afford to support.

    Sheila Bair, in my opinion, IS a hack and a liar. Her reassurances aside - the reality is that people will loose lots of pennies (lots and lots and lots of them) because of the FDIC, the ideal that it has fostered and is seeking to further - complacency.

    see also: FDIC, is rapidly running out of money because of a wave of bank failures and FDIC incompetence - where did all the money go?

    Art Cashin Interview

    What is interesting is what he is NOT saying but is between the words. He is obviously keenly aware of the dollar issues and probabilities of deflation...I like Art. Like most, he was early in looking for this market to consolidate or roll over...but at least he's good company.

    Dow adjusted for inflation

    For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now a little more than double where it was at its 1929 peak and trades a mere 51% above its 1966 peak – not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 54% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.

    Thursday, October 22, 2009

    Market Observations - Unfinished Business

    As I repeated over and over...the dollar is the arbiter of the markets. The market is trading off the fumes of the burning dollar. If the dollar weakens, the markets rise or bias to the upside. What I have noticed of late, especially with the more speculative indexes such as the Russell, NDX, Nasdaq and Mid Caps, is that they have become less sensitive to the selling machinations of the dollar with the exception of when it strengthens. This is a sign that the rally for equities is fading and the failure of the dollar is also losing momentum.

    Today was all about the dollar and until we see the dollar index capitulate, most probably to the 74.5 to 74.3 area...the market will not break down for anything more than a correction. It is absolutely stunning that a 4 day outside down day key reversal can be reversed by relative value dollar movements so easily.

    I will post charts later. Needless to say, I am getting very bullish on the dollar here. I am not currently long the Dollar contracts but will go long once something concrete happens.

    From the Press: As the Dollar Sinks, Oil Skyrockets

    Interesting that they notice the Oil Skyrockets after its already up 15 bucks! Be careful, oil rally is getting mature.
    As the Dollar Sinks, Oil Skyrockets
    HOUSTON — Crude oil soared to close above $80 a barrel on Wednesday, breaking that psychological barrier for the first time this year, despite weak global economic conditions.
    Prices have been up in 9 of the last 10 trading days, owing at least in part to the slide of the dollar. Many oil analysts predicted that prices would continue to rise in coming weeks and could reach $100 a barrel by early next year.
    “Oil is just flying,” said Phil Flynn, senior market analyst at PFGBest Research, a futures trading firm. “It’s off to the races.”
    Analysts said rising oil prices reflected confidence that the economy was beginning to rebound from a deep recession, as well as higher demand from refineries for superior grades of oil that were cheaper to refine.

    Market Observations - Not Pretty - Warning Shots

    Apparently, JP Morgan and Goldman Sachs need to sell some of the assets that they acquired using those hundreds of billions of dollars of crony capitalism supplied dollars they obtained through the manipulative tactics of their friends at the Fed and Treasury. Not satisfied that that money was enough, they leveraged up even further - so they could invest even more in risky assets and further the confidence game. Duping american investors and public out of more of they're money is a favorite past time for these guys.

    Are assets really risky if you and your friends own most of them? Certainly JPM and Goldman prove the axiom that if you own the market, which these participants alone most likely owned, at the very least. a significant percentage can squeeze prices up and then you can tear them apart when you are good an ready. Mind you I am not here to spout conspiracy theories...these guys are so flagrant do they even count as conspiracies? So, back to the mundane, while Goldman MAY actually survive the upcoming catastrophe, JPM will most likely not. Regardless, remnants of most of the financial firms will certainly exist, but the firms will be shells of their former selves and the economy will likely be significantly damaged by their demise and misdeeds.

    Fittingly, financials topped in ironic fashion earlier in October...with an island top. Financials are indeed in need of an island, Rikers Island would be appropriate for the gamesmanship they have demonstrated this year. All the earnings reports from the largest banks inspire distrust and are absent integrity...we will have to see how that flies. In any case, I am happy to report that JPM has more than enough money to lend to the FDIC to bail itself and most of the other banks that will fail out.

    Back to the markets, today may not be classified as a confirmed failure for the transports...but a break of 3890 will do so. the SPX closed beneath a recent sell level at would not be surprising to see some sort of a test slightly above those areas...but I certainly am under the impression that the buy side is extremely dangerous at this point. My diatribe above was important in understanding the motivations of the sellers at this point. The sellers are the largest banks. They MUST sell...given the profits they have made selling will not be ruled by trying to eek out little profits...they already have big ones...they do not have to be choosey about prices. When you are liquidating trillions of dollars of leverages purchases, it takes time and the average prices are more important than any single price. Though there may be attempts to retain prices supports to allow higher priced distribution, there is a dramatic need for these institutions, who misused the benefits of America's money, to get out stage left. The specter of this dynamic means that we have to on guard for waves of downside pressure - probably much more persistent than in last years bear market moves.

    Another interesting leading indicator for the markets is the Canadian Dollar which has failed its breakout...something to keep a close eye on.

    There is unfinished business - potentailly a remaining pop to the upside for commodities. Gold needs to reach its target of 1080 to 1085, Oil should still make an upside push to the 85 to 87 area, Silver looks primed for a little up move. The dollar looks complete, but also looks like it needs to get that emotional drop below 75 convincingly. As seen today, a dramatic drop in the dollar is no longer fuel for rising equity prices.

    So, what I am looking out for are small upside tests for equity markets followed by larger downside swings. There could be some unfinished business with regard to the per my usual comments - the dollar rules this game. I suggest having extremely disciplined rules for selling resistance and only buying support when its absolutely clear. It is important to recognize, that this type of market has the possibility to not let you in. Everyone is waiting for perfect backtests, retracements and kisses as in the LQD chart above. There is no guarantee that equity market need to give that courtesy. LQD has been breaking down for a month now, unconfirmed by equities. It may be time for some acceleration. Perhaps, some convenient excuses will come out this week - like MSFT earnings on friday.

    Personally, I will be extensively using trade automation to trade the upcoming turbulence. Today, in fact, I released a price quantization system with extensive risk controls that absolutely killed it on the CL contract - up $3000 on a single contract today alone.  I think mechanical templates can be a tremendous support for managing emotions during extreme and persistent repricing episodes...especially if you are lucky enough to be able to build some good ones...or get your had on some.
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