Monday 25 July 2011

Debt Ceiling Monday.

The market action of today or tomorrow is inconsequential in the grand scheme of things.  In the short run, momentum chasing blind maniacs are hitting the buttons. They are not guided by economic logic. The logic of trading is now with the HFTs and ALGO traders which no one understands.

Overnight ES Futures touched a low of 1322 showing a loss of almost 20 points at one stage. It is now at 1332 having pared its loss by half.  The European exchanges started the day in big negative territory, but have since climbed their way up and are almost in positive territory.

So relax guys; this is a classic case of fear and greed paying out in the marketplace. From May onward the stock markets are selling off and on, yet the VIX never went past 24. So where is the panic? The big boys were selling premium in an orderly fashion all through the sell-off. Now they are creating panic in a different way. The media (MSM as well as blogosphere) is full of imminent doom and demise of the USA. Bear market does not come on bad news. Rather, bear market starts on good news, on euphoria. When nobody expects the sale to start, it does.

Primal sentiments, greed and fear govern the stock market. Nobody understands it better than those who buy low and sell high. Those who buy in the face of fear make money. But before that we have to understand if we are in a bear market or is it just a correction. I have shown these charts before and nothing has changed since then. We are going to see a minor correction on the face of hype and I think it is a buying opportunity.

The SPX is in a rising channel.

The DOW has formed a megaphone and would likely hit 14000 1st before 5000.

Nasdaq and other indexes have formed a bullish engulfing pattern on the weekly chart.

I wrote that I would be looking for a 10-15 point correction in SPX and we might get that today. In the short term, for the next month or so, the markets will push higher and as has been the trend so far, markets will jump a lot in one day on very thin volume.  So for me, dips are a buy.

This looks like a typical bear trap. Go up two steps and then come down one step. Keep the bears interested in the game. Generate more shorts and then take them out in one big move. As I have said before, I will not be shorting the market now; I would rather try to get in. As I am not a day trader and my time frame is longer, I am ready to take the heat for a few days before the market goes in my direction.

The market in all possibilities will start lower and may slowly work its way up. The world is not coming to an end, yet.

I posted the above before the market open.  At the opening SPX dived down to 1330 level and has been clawing back since then. NDX is already in positive territory.
Although half the day is still to come and many things may happen in the next 3/4 hours, markets are following the script, so far.
I have taken three trades on the long side. Just wanted to say, I walk the walk.


  1. Sounds like longer term you think the economy is doomed. What do you think drives that?

  2. Thank you for the analysis. Do you have a short term target for spx?

  3. I am not comfortable with a preset target. I measure various parameters and when they tell me to get out, I get out.However, I think in short term SPX may reach 1370-1380.
    Regarding long term view, yes the economy is doomed because we are in a balance sheet contraction. Just to give an example. From 2002 peak till date, the value of US household has gone down by almost $ 7 trillion. Even after accounting for $ 3 trillion , pumped in by Helicopter Ben, the total assets in USA has gone down by $ 4 trillion. This is just one example.
    I shall be explaining it in my blog soon.
    Thanks for reading my blog.

  4. Curious to know some details of the 3 longs...

  5. Great blog, really, keep up the great work and of course, many thanks for posting and sharing your thoughts!
    As per S&P, I am Long too - my target is +/- 1410 as the 3rd top on weekly basis. Then I will be looking for shorting in short term appr. 100 pts and then Long again up to 1500 which may definitely start real sell off.

    Good luck all!

  6. Do we know how much of the decline in assets is from real estate? That was a special period where everyone though by putting up a new mailbox increased the value of their home.

  7. It is an ongoing contraction.just the household sector loss of value is around $7 trillion. Add to that the commercial sector where real figures are difficult to obtain, all the derivatives on real estate like MBS which are virtually worthless,so on and so forth.
    Today, all financial institutions work on the principle of "Mark to Fantasy" . But it cannot continue much longer.