Extreme market volatility setting the trap…

Sequestration...

"Equities are cheap…” - Ben B.

Its supposedly the Italians…NOT

Supposedly today’s sell off is related to the Italian elections. If you believe that I have a bridge I can turn you on to. The driver of this action has little to do with Italy and everything to do with US. Yes, the U.S. The implications are horrid, and as in the dollar/SP500 chart I posted a few days ago - the patterns suggested a very strong dollar move…which implies strong asset moves as well. Things have started to play out, though still in the very early stages, exactly as would be expected from that chart.

Gold bugs are bearish, I agree, however, with such a powerful bearishness we will need divergence between sentiment and price to trigger anything lasting in Gold…and, if that is the case, the above chart sets up what looks like a very nasty break that is emerging. One in which the VIX has begun showing us that it wants to go MUCH MUCH higher and do so urgently. Its a very rare ocurrence for the VIX to trigger back to back bollinger signals and its not likely to trigger another single day signal for a while. This means - fireworks are to come. The S&P500 targets arodun 1420 or so and a break there sets up a waterfall decline which certainly would go a long way to trapping many of those bullish borrow money to buy stocks type guru money managers.

Dollar Closes the Week Extremely strong despite equity bounce...

There was NO pullback in the US dollar last week as equities attempted their ramps. This is a very interesting omen. While the Yen looks very extended, how low can it go? I think to answer that we need to figure out how to price the unwind of a ponzi scheme. Japanese central bankers tried and failed to get the Nikkei to 13,000 but they did make a big mess…and the UK and Europe are waiting in the wings.

Let me say it clearly, Ben BURNanke took a problem of malinvestment and incentivised fools making silly gambles and reserved no trick or no ante to prevent any of these amatures from accounting for their failures with losses, bankruptcy and/or justice. In the process, he expanded his (and by osmosis most other central bank balance sheets) to untenable positions in order to protect the malinvestments of these fools. In the process, he has converted a relatively small (in comparison) mortgage problem into a full scale sovereign and now a central bank solvency issue. As everyone must be aware at this time, central banks have been buying literally ton’s of gold at the highest prices ever. While it sounds bullish its NOT. They will be forces to sell it at the lows, most likely hundreds and hundreds of dollars lower if the below chart of the dollar has anything to do with it.

The unwinding of the BURNanke put will be painful indeed...and to think people think 2008 was bad...when it was really just the prelude to a much more significant crisis.

S&P500…MIDCAP 400 drastically underpeforming...

While the Midcaps have previously been virutally unshortable, the last few weeks they have started to underperform everything else in their class. On this bounce they are drastically underperforming which is a VERY bad sign for any BTFD strategy. Midcaps must outform the 500 in a healthy advance.

After an overshoot that exhausts available buyers…where are good targets...

General Comment: What we are witnessing now:

Price Stability. 

Thank you very much Ben.

Financials…a breakout with no volume or something else...

Financials, have NOT broken out…they have ramped on NO volume for months and are simply at resistance in the apex of a triangle. On an fundamental level, bank balance sheets are now more misrepresented and precarious than most would believe.

S&P500 Proportionality and additionally an Overshoot

While EVERYONE and their brother sees any selling from this over believed, overhyped, over-marketed and extremely over-leveraged rally will lead to new highs…it is important to understand that overshoots in big rallies are nearly always terminal and represent the end of a move. Looking at the dollar pattern that I posted previously, I will not be looking for new recovery highs once this overshoot has been confirmed - and it has not been confirmed yet. We may still have more blowing off remaining. However, once confirmed, I will be looking for a persistent downtrend.

As a reminder, the chief bubble blower, Ben BURNanke and his predecessor are totally responsible for papering over reality, the results of which can clearly be seen in the charts I’ve posted over the last few days. Ofcourse, at some point Ben, in an apparent after thought,  will be trying to figure out what to do with the vast amount of leverage and currently precariously perched assets that he has procured, endorsed or blown into buubbles.

And to demonstrate symbolism of this overshoot, not to be left out, Bloomberg needs their own 16 year old now:

You just can’t make this stuff up!

High Yield bonds say…hmmm too...

While I was expecting the market to move to about 1515 for the last 9 months or so and subsequently to overthrow a bit to between 1525 and 1538, today’s enthusiasm was still on target yet intriguing due to the fact that my expectation was to see a pop today in the morning to complete a stop run that was setting up on Friday and then a reversal…though that pattern is still likely to soon be the result possibly tomorrow- today was not its day. To be sure, the High Yield corporate bonds are not endorsing bullish sentiment (which further increased today) and moreover, sport volume patterns that look pretty unsympathetic too. So, it looks likely that market optimism may want a little more upside and then the expected rejection…more or less what I was looking for today…but did not happen.

Weekly S&P500 and Dollar…hmmm

Everyone sees dollar head and shoulder patterns and a breakdown in treasuries…with all this consensus, should we not have a sneaking suspicion that new highs in Treasuries will come before they actually breakdown. In addition, everyone sees higher prices for equities. In fact, 70% of people see this week up as a sure thing and even more people see next month up as a sure thing. 

However, more importantly than any of this, the dollar has broken out AND retested a huge A-H pattern. This pattern projects in a way that does not allow for resumptions of the commodities up trends - which by the way, everyone is expecting also. As you can see from the chart below, equities have clearly come into their own but will likely soon need to acknowledge the excessive leverage, bullishness and ridiculously low volume not to mention argue with the dollar. This argument can be seen in the chart below…dollar is in green.

It seems to me that the minute a reasonably large block of shares in the financials index are offered at market - or there is even a sneeze - already scarce buyers will simply disappear all together…with the possible exception of one BURNanke…and this week is a slow for Fed liquidity operations... 

Today’sSentiment popped to an extreme nearly only seen at tops...

The most expensive condo ever sold in Miami...

In a gratuitous display that demonstrates the absolute most endearing qualities of some of our real estate professionals - this promotional announcement was sent by one Dora Puig…a sign of the times and lunacy going on in our world...

meanwhile…

At the END of the Line…make or break time...

Recommendation: Eat at McDonalds and Use as much Xanax as possible…it may soon be required if you follow the current fad advice

As Ray Dalio has missed the entire 2012 move…he will now be certain to get it right and in a big way…by recommending that we borrow as much money as we can to invest in every available asset…next his health recommendation will be an equivelant - to use Xanax every day and then go to Mc Donald’s and stuff yourself with abandon…Tepper, needs no comment…he only comes out when he’s talking his book…CNBC apparently loves a 16 year old stock picker and she’s probably about to get her own show…Sentiment is leveraged long and my sentiment measure is near record highs…hmmm 

Meanwhile bonds have not made meaningful downside progress…and the dollar is diverging with every other currency…I simply could not resist posting…cause there are so many buyers left…among other things…I apologize for my break in posting. I am planing on posting regularly again.