Thursday 26 January 2012

The Evil Plan.

In a regular bull market the rise in share prices is backed by general growth in economy, wage growth, falling unemployment and all good things. In a bear market, it is the opposite. There is recession or fear of recession, credit is unavailable, unemployment is high and mood is gloomy. That is what fundamental analysis tells us.

If that is correct, where do you think the world is today? Is it in a growth phase or declining phase? There is no Nobel Prize for guessing the correct answer. But the question is if the world economy is in a declining stage, why the stock prices keep getting higher. The answer to that riddle is found in the continuous flow of liquidity injected by the CBs of the world. They are trying to solve the problem of solvency with more liquidity. In the process, they are buying time, hoping somehow, miracle will happen, growth will return and we will return to the goldilocks economy.

What do the small investors do in such a situation? If we short the market now, we will see that for the next one year or so, stock prices zooming higher and at some point we will be forced to cover our short position. So the best course of action may be to run with the hare and hunt with the hound.

Many do not believe that the stock market can be manipulated. They argue that it is so big, how can anyone manipulate it. But the fact is the big Ponzi scheme that is stock market is utterly rigged by the fifty TBTFBs of the world who control 90% of the trading and most of it through black pool trading which we never know. These are the same powerful bunch who borrow money from the FED or ECB at zero % rate of interest and then give back the same money to the FED at 3% ( buying treasuries). Thus, the Fed monetizes the debt at back door and banksters make risk free money from the tax payers.

As there is no immediate trend, they set up the market and create volatility. For the last two weeks they have created an expectation of a bull market where prices just keep going up.  Slowly all the bears are throwing in the towel and joining the buy program. Equity mutual funds are again seeing inflow of money. Retail is now afraid that they might miss the bus and are too eager to join. The free cash levels of the equity mutual funds are at all time low. Rydex money market funds have only $669 million now vs. $1.5 billion at October 2011 market bottom. The game plan is working. While retail is buying at the top, someone is selling these shares to them. You can again guess who are that someone. Today the believers of the rally are saying that one day sale does not derail such a strong bullish move.  While they would be correct in a normal market, this market is anything but normal.

When almost everyone is in, then the Boyz will take out the carpet under our feet. For the next two/ three week, we will see that a bearish environment will be created. ZH, CNBC will be filled with stories how Europe is falling apart. The retail will again sell cheap.
This pattern will be repeated many times in 2012 and if we can remember this game plan and play accordingly, we can come out alive in this market. Timing will be the key. As an individual trader we are pitted against these behemoths that have the best brains, best technologies and almost unlimited resources at their disposal. Our only chance is to find a quantifiable edge. That may be cycle analysis, TA, COT report, Liquidity analysis, market sentiment analysis or whatever works. Sometimes nothing seems to work, like now. But even in such situation two eternal drivers of the stock market work. Greed and Fear.

Today morning when the markets opened higher and kept going higher, those who were on the sideline, joined the buy express. Those who were short, closed their short to cut down further losses.  And now the almost entire Fed rally has been wiped off. Will they buy the dips tomorrow? May be we will see some buying in the morning just to convince the doubters.

But the evil plan is: wash, rinse, repeat.


  1. Great Post, BB, appreciate your insight. Thanks


    only re enforces your sentiment big time. Also today is biggest S&P drop all year (.57%) and first back to back down day in 6 weeks (and 16%). Madness - Joe R

  3. first I want to say I appreciate your blog and your sharing what you see in the market.
    So what is going on? No more free markets, just a big take over. I think we can still profit, even thou I am currently in the hole because I think the market shouldn't be going up as it is. I know I shouldn't trade how I think the market should go. Not a good way to start the year. Time to correct what has been a bad habit. Any suggestions?

  4. BB have you closed your shorts from a few weeks ago or are you still holding on?

  5. i am not any expert in this area.....but taking a glance at the NIFTY charts ...i find that they obey 76.8% retracement, 61.8% retracement....perfectmovement inside parallel channels, almost perfect touches of trendline support and why will any manipulator be interested in so much geometry......this is why I think they cant ne manipulated...although we can expect anything from those Illuminati bastards

  6. meanwhile correction should start by FEB 3rd ...according to a very good dont add to ur shorts now

  7. Yeah. Thanks for the post, TexEx.

  8. I am still holding to my short. Hurting.
    The HFTs are programmed with Fib levels in mind. But the market does not move according to TA.
    What worries me is the huge long position that the commercials have in Euro.
    That may push markets up huge sometimes soon.

  9. Look for correction on last week of October 2010 SPX and DRN which
    We are due for a correction of similar pattern.
    We are expecting a pullback of about same degree of December 2011
    before any rally left.

  10. BB, I like reading your postings. I know that not all trades are going to be positive, that's why I'm glad that you are admitting that you are still holding your shorts (some with less integrity will not admit to this). Thanks for your honesty and also your time in helping others (including myself) with the markets.

  11. Commercial position on EURO spiked higher level in November 2011 from October but the market had major correction in November from October high. We read articles of GS lost on EURO in ZERO HEDGE in November 2011. I expect for correction of "blow off top" before any further advance from today.

  12. bb - we are going to ES 1370 and TF 860 by feb 20, but I think we will see a ST top on Monday around /TF 804. I closed some short IWM puts and went partly long today at 1305. Long FSLR and TSL. Will probably exit on Monday and go 100% short IWM again. I do not think the correction will be deep, maybe only to 770 - 780 TF. Chinese markets will open after the Chinese new year and everything will shoot up like a rocket. I will use the correction/consolidation to load up on Chinese ADRs, Silver miners (AG), shorted stocks (solars, etc.) and possibly Silver.

  13. Thanks Guys.
    Win, I am intermediate term bullish and I think we will reach near SPX 1370, but my time frame is different. I am expecting the high end of March.

  14. the dollar has moved down more...looks like it will close the GAP at 78.73...20 more pips to a couple of more points upwards ...and then crash...i dont6 think this is madnes...this is the new normal thats it...