Or Shall We Call It Bernanke's Revenge?

Wondering about the sell-off in gold?
May be it was a revenge of Bernanke over Ron Paul?

Paul was showing him some precious metal and telling Ben how he screwed US Dollar. Then the sh*t hit the fan.

Gold Loses Glitter.

The big news for the day is sell-off in gold. GLD dropped from $172 to 168 in less than five minutes.

And there was no counter trend rally after that either. And the sell-off happened with very high volume.

By that standard, silver was relatively OK.  But almost everything in the commodity sector sold-off including copper and oil.

Such a waterfall decline in one class of risk assets do not bode well for the others.  I am not saying that the crash will start from tomorrow. Rather, I want to stress the fact that the up-trend is still intact despite all the divergences and warning signals. But Russell was down over 1.5 % while SPX was down merely 0.47%. We know that “Wall St” likes to make-up the stocks at the end of the month and high flying / well known stocks have to be guarded. May be that is why they can let Russet go but protect SPX and DOW somewhat.

I was not expecting any selling before next week so when SPX showed red I was rather surprised. With today’s price action we have a bearish reversal candle and may be a bearish engulfing candle as well. I am not sure of the bearish engulfing pattern because as per Bulkowski  : The body of the black candle should engulf or overlap the white candle’s body,…… Shadow overlap is not important.”  http://www.thepatternsite.com/BearEngulfing.html#C2  But in today’s case, I do not think the black candle body overlap the white candle body.

In any case, tomorrow being the 1^st of the month as well as Thursday, we can expect the market to be up. May be it will re-test the high before turning down. We will have to wait and see.

The ECB handed out more than $700 Billion and that may have been the last act of kindness for a long time to come. When Mr. Ben indicated that there would be no QE for a while, the junkies in the market went for a withdrawal symptom.  Did the traders and speculators decided that since there will not be any QE anytime soon, there would be no more liquidity and so sell the gold? NY Fed even did a reverse REPO today.  Even before Bernanke opened his mouth, EURO was not showing much life after the news of LTRO. So what gives?

While the 4QR GDP was reported to be at 3% ECRI is not backing away from its call for recession.

Let us see how the next jobless numbers come out.

In the mean time the Trend Table continues in green except gold. But I am happy to wait on the side line to see if all other risk assets move in the same direction. We may see a whipsaw in gold.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.

Apple A Day Keeps Bears Away.

Or whatever.  The stock market keeps grinding higher and everyone hates this market. The bears hate it because it is grinding them to dust. Bulls hate it because they are under invested and would like to go back and invest more. Brokers hate it because there is no action. We are all calling a top for months now and yet nobody has seen a top.

Now that DOW has closed over 13000 and SPX over 1370, do we throw away all the rules of TA, cycle analysis and just believe in the powers of Central Bankers? Buy the F**king dip?  I am no bear and I have no problem joining the buy program only if I could convince myself that this time is different. That all the divergences do not matter!  That this time is truly different!  The path of least resistance is up-ward. So the next we hear is DOW 13500 and SPX 1400.

Look at the 5 min. chart of SPX.

In the normal course I would have said it is a double top. But now I don’t know what to say.

The summation index (NYSI) is turning down and in the past it has been followed by market corrections.

(Source: Ciovacco Capital)

Will it be different this time?

J Wagner of FXCM has the following chart;

Mr. Wagner thinks AUD has some juice left. 

Look at the weekly chart of AUD.

I am thinking that AUD is at the top of the range and not much room to run.

If we have to guess the Top based on TA, then there is no better person to guess than our good friend Cobra.

As per his measured move target, SPX can go up-to 1376.

In the mean time, the trend table continues to be long.

Do not front run unless you know what you are doing. Market is smarter than all of us. Too many of us are calling for the top and reversal and it will come when we least expect it. While we wait for the market to show us the next bend, here are some interesting reads:

http://www.telegraph.co.uk/finance/financialcrisis/9112155/Irish-EU-treaty-vote-threatens-chaos.html

http://dynamichedge.com/2012/02/27/very-late-longs-or-blown-up-shorts/

http://www.frankvoisin.com/2012/02/28/grantham-10-investment-lessons/

http://www.marketanthropology.com/2012/02/where-wild-things-are.html

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.

Anyone Seen A Top?

Another BTFD day. Another world has been saved day.  And we have not seen helicopter Ben throwing money in USA yet, I mean directly. He is doing so indirectly by SWAP lines and ECB LTRO. Can you imagine where the indexes will be when Hel-Ben shows up here in USA, giving away free money? You better shed your bear skin and try to think like a bull. Because he will definitely show up.

I have whole host of technical indicators screaming murder but the bottom line is that the up- trend has not been broken. Time to buy?  I would say that unless SPX breaks 1370 convincingly (stays above the level for at least two days in a row), I am not ready to become a bull. VIX may be signaling something:

(Source;Minyaville.com)

Also there is a divergence between SPX and VIX. SPX making higher high but VIX is not making lower low. Rather it is also making higher high. It is now up two days in a row.

Per ZH Dow crossed 13000 22 times today.

(Source: ZH)

Now we know that ZH is given to hysteria, but still they have a valid point here.

SPX closed 1.85 points up while Dow closed 1.44 points down. Gold sold off and so did oil. I have an interesting chart from Uempel :

He does not give conclusion but being a smart person that he is, poses a question. Anyone seen a top yet? So while wait for the trend change, here is the trend table for today. The Indexes are mostly unchanged.

Hope it will help you to stay on the right side of the market.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.

P.S. Interesting read from Stock Trader's Almanac; http://blog.stocktradersalmanac.com/post/DJIA-Flashes-Down-FridayDown-Monday-Warning-2

Weekend Reading.

Some interesting reading from various places on a lazy Saturday afternoon;

First from Eric Sprott and David Baker  of Sprott Asset Management.

2012 is proving to be the 'Year of the Central Bank'. It is an exciting celebration of all the wonderful maneuvers central banks can employ to keep the system from falling apart. Western central banks have gone into complete overdrive since last November, convening, colluding and printing their way out of the mess that is the Eurozone. The scale and frequency of their maneuvering seems to increase with every passing week, and speaks to the desperate fragility that continues to define much of the financial system today.

The first major maneuver took place on November 30, 2011, when the world's G6 central banks (the Federal Reserve, the Bank of England, the Bank of Japan, the European Central Bank [ECB], the Swiss National Bank, and the Bank of Canada) announced "coordinated actions to enhance their capacity to provide liquidity support to the global financial system".1 Long story short, in an effort to avert a total collapse in the European banking system, the US Fed agreed to offer unlimitedUS dollar swap agreements with the other central banks. These US dollar swaps allow the other central banks, most notably the ECB, to borrow US dollars from the Federal Reserve and lend them to their respective national banks to meet withdrawals and make debt payments. The best part about these swaps is that they are limitless in scope - meaning that until February 1, 2013, the Federal Reserve is, and will be, prepared to lend as many US dollars as it takes to keep the financial system from imploding. It sounds absolutely great, and the Europeans should be nothing but thankful, except for the tiny little fact that to supply these unlimited US dollars, the Federal Reserve will have to print them out of thin air.

Eurozone banks may now be hooked on what is clearly a back-door quantitative easing (QE) program, and as the warning goes for addictive drugs - once you start, it can be very hard to stop.

Britain is definitely hooked. On February 9, 2012, the Bank of England announced another QE extension for 50 billion pounds, raising their total QE print to £325 billion since March 2009.3 Japan's hooked as well. On February 14, 2012, the Bank of Japan announced a ¥10 trillion ($129 billion) expansion to its own QE program, raising its total QE program to ¥65 trillion ($825 billion).

Who needs traditional QE when the Fed already buys 91 percent of all 20-30 year maturity US Treasury bonds?  Perhaps they're saving traditional QE for the upcoming election.

All of this pervasive intervention most likely explains more than 90 percent of the market's positive performance this past January. Had the G6 NOT convened on swaps, had the ECB NOT launched the LTRO programs, and had Bernanke NOT expressed a continuation of zero interest rates, one wonders where the equity indices would trade today. One also wonders if the European banking system would have made it through December. Thank goodness for "coordinated action". It does work in the short-term.

The problem with central bank intervention is that it never works out as planned. The unintended consequences end up cancelling out the short-term benefits. Back in 2008, when the Fed introduced zero percent interest rates, everyone thought it was a great policy. Four years later, however, and we're finally beginning to appreciate the complete destruction it has wreaked on savers. Just look at the horror show that is the pension industry today: According to Credit Suisse, of the 341 companies in the S&P 500 index with defined benefit pension plans, 97 percent are underfunded today.12 According to a recent pension study by Seattle-based Milliman Inc., the combined deficit of the 100 largest defined-benefit plans in the US increased by $236.4 billion in 2011 alone. The main culprit for the increase? Depressed interest rates on government bonds.

Let's also not forget the public sector pension shortfalls, which are outright frightening. In Europe, unfunded state pension obligations are estimated to total

$39 trillion dollars, which is approximately five times higher than Europe's combined gross debt.15 In the United States, unfunded pension obligations increased by $2.9 trillion in 2011. If the US actually acknowledged these costs in their deficit calculations, their official 2011 fiscal deficit would have risen from the reported $1.3 trillion to $4.2 trillion. Written the long way, that's a deficit of $4,200,000,000,000,... in one year.

I know Eric Sprott wants us to buy gold from him but I could not agree more on the points he has made here or write any better. So I quote from a very long essay and applaud.

The next one is from David Rosenberg of Gluskinn-Sheff:

There is perception and then there is reality. In a replay of events this time last year, investor optimism is near an extreme according to many measures and views over the economic outlook have become much more constructive. This is the perception and it is well ingrained. But there is also the reality that some critical hurdles for the economy loom on the horizon and should not be dismissed out of hand:

The European recession is just getting started and the impact on Asian trade flows is already evident in the data — with Chinese export growth completely vanishing in January and manufacturing diffusion indices flashing modest contraction in February. We are potentially one to two quarters away from seeing a significant shock to the U.S. GDP data from an eroding net foreign trade performance.

What upset the apple cart this time last year was the run-up in oil prices, followed by a lag with a surge in gas prices at the pump. Once again, oil prices have ratcheted up and with a lag, we can probably expect a return to $4 per gallon for regular gas at the pumps by the time spring rolls around. The front page of the USA Today makes the case for why $5 per gallon is likely coming. The transport stocks see what's coming, having peaked on February 3rd, and since then this group has suffered 9 losses out of the past 13 sessions, representing a 4% decline from the nearby peak. This is a bit of a problem for the bulls because the transports never did confirm the new highs that the Dow and S&P 500 made — and the index is now at a critical juncture as it kisses the 50-day moving average on the downslope.

This hurdle will likely only become apparent in the second half of the year and it relates to tax uncertainties and the implications for rising personal and corporate savings rates.

First, the top marginal personal tax rate rises to 39.6% from 35% as the Bush tax cuts expire at the end of 2012. A limit on itemized deductions will add a further 1.2 percentage points to the top rate. Second, a new 0.9% Medicare tax on incomes over $200,000 gets imposed ($250,000 for joint filers). Moreover, the top 15% rate on long-term capital gains rises to 20%. And dividends will once again be taxed at ordinary rates — 39.6% for the top income earners. A new 3.8% tax on investment income also gets introduced for incomes over $200,000 ($250,000 for joint filers). The top estate tax rate goes from 35% to 55% (60% in some cases). The estate tax exemption falls to $1 million from $5 million (the gift-tax exemption also drops to $1 million and the rate adjusts hither to 55%). In all, 41 separate tax provisions expire this year.

Of course we know Rosenberg as the perma bear and as such his views are to be read with the dark glasses but there is no denying the points he is making. Understanding the risks will save us from snake oil salesmen who are painting the sky in rainbow colours now.

And then there is some interesting reading from Greece:

Greece MP sends one million euro abroad. (s/he should know why) http://www.athensnews.gr/portal/9/53581

A third bailout of Greece is not ruled out (and we are not finished with 2^nd one yet) http://www.athensnews.gr/portal/11/53580

China asking for its pound of flesh from EU in exchange of promise to help. http://www.testosteronepit.com/home/2012/2/24/china-tightened-the-vise-on-eurozone-bailout.html

John Stewart makes fun with the Republican contenders and Republican Party in general http://www.thedailyshow.com/full-episodes/thu-february-23-2012-paul-rudd

Bill Maher gets nasty with Republicans as well http://screen.yahoo.com/crazystupidpolitics/

Some beautiful time lapse video photography of Yosemite

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions. Have a wonderful weekend folks.

Waiting For Godot.

First I would like to express my apologies for not being able to respond to some of the questions or comments from the readers. For some silly reason, Blogger is not allowing me to post response to the comments. I hope they sort it out soon.

Like the famous absurdist play by Samuel Beckett, we are all waiting for Godot, the market correction.  It just doesn’t want to listen to anyone. It simply refuses to show up and hiding behind the coat tails of the Fed.  In a liquidity induced rally, what will happen when all of a sudden a whole chunk of liquidity is removed from the market? As per Lee Adler of “The Wall St. Examiner” a total of $87 billion (yes, billion with a B) will be settling next Wednesday and Thursday. Won’t that be interesting! And cycles are calling for an end of this rally as well. We will see what next week brings.

Did SPX break its previous high? Yes and No.

It did a kind of peek-a-boo but there was no conviction. I suppose we will have to wait for another day to get a confirmation in either way.

While the trend is still not broken and SPX made a new high, not everything is well in the market place. Both Dow and DJ-Tran were in red. So was Russell 2000, gold, silver and copper. There are some funny disconnect in the market place and it is acting in the most irrational and suicidal manner. Euro is at a new high while Germany is saying that Greece bailout is not guaranteed. The Telegraph, UK has an interesting article on this: http://www.telegraph.co.uk/finance/financialcrisis/9104958/Greek-bond-swap-begins-as-Germany-voices-doubts-over-bailout.html

While Greece has opened the bond swap under PSI, the threshold level is 75%. I am not sure if the Greek FinMin is ignorant or just bluffing but he says that nobody cares about a CDS event.  What happens if 25.1% of the bond holders do not agree and the PSI does not go through? I am sure lots of European Countries will say “Halleluiah”. The following is a chart of Greek PSI from BNP Paribus. Just replace 67% with 76%. 

Germany and other Northern European countries are waiting for such an opportunity when they can blame the greedy hedge funds for kicking out Greece.

So the risks are high in the market place and never for a moment believe in the US growth story or fall in unemployment numbers. The following chart is from Streettalklive.com which is self explanatory.

As the Trend following table is saying, the trend is up but barely so. It is advisable not to front run unless you are sure of what you are doing. I lost on the gamble which I should not have taken in the 1^st place. Trading should not be a gamble and I am guilty of breaching my own discipline.

We know that a trend change is about to take place but it has not happened yet. So trade safe.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions. Have a wonderful weekend folks.

Trend Following.

With so many pundits calling for a top, I am afraid that the top will be delayed. Market knows how to screw the maximum number of long and short.

From the hourly chart of SPX of today, it looks like back testing / revisit of the previous high. And if tomorrow it fails to take out the previous high of 1367, we can be surer that a top is in.

At least for today, the trend was not broken. The Advance Decline line bounced off the 13 DMA.

Best of technical analysis have given numerous top signals and sell signals so far. Some of the signals have been rare and with over 90% success rate in the past. But external liquidity has trumped over everything and in this Presidential election year, this is going to be the story for the rest of the year. In order not to lose money, I think it is better to follow the trend and not front run. With that in mind, from now onward I will be incorporating a trend table based on the various TA and mathematical formula. As the table starts from today, some of the columns have no data. I have selected the three indices, gold and silver and two favourite companies each from tech. sector and finance sector. It takes into account the closing price for the day.

As with everything, trend following is not perfect. There are whipsaws and quick reversals. But the losses are expected to be less and you can let the profits run. Also, it is to be used in conjunction with the overall market. Therefore, while the indices show long, it is a decision call whether to go long at this point of time when we know that the markets are over bought and can reverse any time. If you are already long, you may want to hang on. But if you are thinking of adding fresh long position, you may want to have a very tight stop loss. I will try to update it every day. Let us see how this works out.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / retweet the post to your friends and join me in Twitter. (@BBFinanceblog). As always, I welcome your comments and suggestions.

Are We There Yet ? Part 2

The ever so slow trend change is yet to be confirmed. The Advance Decline line is sitting just above the 13 DMA.

After a long time today all the three indexes were in various shades of red, none severe. 

DeMark set-up gave a Trap Sell confirmation on SPX today. It is not one of the strongest of signals but taken with everything else, it does increase the chances of a correction. In the absence of any other trigger let us look at the FX today.

After the Greek drama, there is nothing much left for EURO to move higher. From a low of 1.2975, it spiked to 1.3291 on the news that Europe has been fixed.

After that it seems to have lost its MOJO and like the cardiogram of a dying patient, it is losing momentum. Sooner rather than later, gravity will pull it down. Its counterpart, USD has surprisingly come back to life.

From FXCM: "The dollar breached key resistance at the confluence of the 100-day moving average, former channel resistance dating back to January 13th, and the 50% Fibonacci extension taken from the August 1st and October 27th troughs at 9850. The index encountered resistance at the 50-day moving average at 9884 before closing just lower at 9880. Note that the daily relative strength index broke above former RSI support dating back to the October 27th low suggesting further dollar advances may be in the cards in the days to come."


AUD is on a sell signal and a comparison of SPX vs AUD shows that SPX has some catching up to do:

But if AUD cannot break down 1.06 level, then we may see it run above 1.0840 and SPX runs higher along with it.

While all these points to further downside in the short term, LTRO-2 will commence by end of the month and more liquidity will be pumped in. So unless we see some big drop in the next four trading days, we can kiss the correction goodbye for another two weeks. 

Thank you for visiting http://bbfinance.blogspot.com/ and following me in Twitter.(@BBFinanceblog).

Are we there yet?

We had lots of comments from the readers regarding the debt ceiling and thereafter. It seems that it will be one of those "buy the rumour, sell the news" type of things. Nobody believes that Greece has been saved and everyone is just buying time. I do not think the other EZ countries will pay even one cent. The editorial in "The Guardian," UK, says it all: http://www.guardian.co.uk/commentisfree/2012/feb/21/eurozone-greece-deal-debt-editorial

If anyone was hoping for a run-off rally after Europe had been fixed, they were surely disappointed. Question now is, are we done with this rally? Let us be very clear about the rally. This is not a fundamental driven rally. This is all about liquidity pumped by ECB and the FED in the form of LTRO. The 2nd phase of LTRO does not start till the end of February and the FED will be selling lots of bonds here in USA. This will drain out some of the excess liquidity and may cause the expected pull back in the stock markets.

In terms of market internals, breadth is becoming weak. Various summation indexes measure the market indexes and all things being equal, when the summation indexes turn down, that increases the odds of market correction. Let us look at NYSI first:

Parabolic Sar is giving a sell signal as well.

Let us look at BPSPX or SP 500 bullish percentage index, which is another breadth indicator.

As you can see on the weekly chart, it is as high as you can imagine and way over bought. Normally there is not much scope of further advance in prices from this level and more often than not, this level signify correction.

Of course there are many divergences and in the normal course of things we would have a correction long time back. But this is not a normal market.

However, we have to wait for the change of trend and my simple measure of change of trend is the AD line. Till AD line does not convincingly break through the 13 DMA, I would not consider it a valid trend change.

I would be very worried to front run even with all technical indicators screaming trend change because external forces like the FED or ECB can and do distort the market big time.

For the sake of information, you might be interested in the latest from Tom Demark:
http://www.bloomberg.com/video/86842200/

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What Do You Think?

The market knows exactly when to screw the most longs and when to kill and bury the most shorts. It will possibly do the exact opposite what most people agree on. Do you remember the debt ceiling drama of last year? I do because I was burnet. Everyone expected and knew that the Republicans and Democrats will ultimately agree at the last moment and the debt ceiling will be raised. We all expected the share market to continue the rally of the previous week. The market was up till then. And then, Boom.  The market tanked big time after the debt ceiling was raised. Looking back I now realize that the boat was loaded too much on one side and that’s why it sank.

So what it will be this coming week? Will Greek bailout sail out of the gate? What is your take? Since it is a long weekend, why not send some well thought out comments. Looking forward to it. 

Long Greek Weekend.

When on January 10^th, the great oracle of Elliot Wave theory proclaimed that wave 3 has started and everyone should leverage up and short the market with a stop loss of 1360, I should have realized that SPX 1360 would be taken out. Now that it has been taken out, can we come down to earth please? I think even the last bear has been killed by now. I want to join the fun but I am too old to give up on rationality and chase momentum. 

Let me quote from Phil Davis:

This is what it was like in 1999, when the experienced market players would be well-hedged and missing the rally while some kid who works for him quits because he bet his student loan money on Yahoo and now drives a Porsche.   

Sure 9 months later the Porsche was repossessed and the kid was flipping burgers but WE WANT TO BE THAT KID – IT'S FUN TO BE THAT KID – until it isn't again.

Last night I made a 2^nd post showing / mentioning few divergences. The list goes on. Today the FX proxy AUD developed a huge divergence and I have not seen anything like this in last few years.

The next two charts are from Eric Swarts of Market Anthropology who does a great job of analysing the market in the most rational manner. The first one is the divergence between DOW Transport and SPX.

The next is TNX and SPX.

This divergence is going on for a while and I think they will meet by end of May 2012.      

   

Today Credit was down, gold  was down, Carry trade FX was down, DJ-Transport was down, RUSSELL 2000 was down, Nasdaq was down. But SPX was up and DOW as well. You tell me should I go long now? May be I will flip long if I see that SPX has decisively broken past 1370 and stayed there after end of February.  Till then I am still a non-believer.

While we shall be enjoying our long weekend, Monday will decide the fate of Greece one way or other. Either they default and get liberated or they get bailed out and live in semi-slavery of Germany for many generations. And this time, Germany does not have to fire a single bullet! Isn’t that sweet!

I would close the post with the chart I showed few days back and it is still relevant, if not more. ( Hat tip to Streettalklive.com)

Thank you for sharing my thoughts and for reading http://bbfinance.blogspot.com/ Have a wonderful long weekend folks.

Divergences Everywhere.

While SPX is making new highs I am seeing divergences everywhere.
1. Price Volume Divergence:

 2. Momentum divergence. Prices up but RSI down.

3. SPX making new high but VIX not making lower low.

4. SPX making new high, but NYSE new highs are falling.

5. SPX making new high, DJ-Transport is diverging.

6. SPX making new high, copper moving down.

I can go on and on but somehow I think a correction is needed to rebalance the too stretched rubber band.

I know liquidity is strong and all Central Bankers are pumping in money, but even then!

Lets see tomorrow. 

Punch Bowl Filled Again!

Yessss! They filled up the punch bowl again today. I hope you did what I wrote yesterday. That is, did not do anything. Neither long nor short. I was expecting that SPX will go up today but I did not expect a new high. But hey, we tested 1358-1360 level and that was the ultimate goal. The following is a chart from Uempel .

So let us see how far it goes. It shows resistance at 1360 level.

AUD, the FX proxy for risk assets seems to have made triple top.

/ES or S&P 500 futures showing a double top in the one hour chart.

Although SPX cash index made a high today, Emini made a high yesterday and it did not take out the high yet. 

With all my indicators flashing red, I am not chasing this bus. Even if I am wrong, I might miss another ten or twenty upward points, but the risk to the downside is not worth it.

The CBs have flooded the world with fresh liquidity and everything is being done just to create enough fire-wall around Greece. Today’s rumour was the ECB bond swap news story and the momo chasing lemmings took the bait hook line and sinker.

Time is running out for a Greek deal and more and more it seems that by February 23, Greece will declare insolvency. The negotiations with the private bond holders are not going anywhere. 

http://blogs.ft.com/brusselsblog/2012/02/more-on-leaked-greek-debt-deal-documents/#axzz1maD2Ufsg

Please read the complete article and you will understand why it is such a hopeless situation. All the liquidity is actually needed to save the European Banks from the collapse after the Greek default. Even if the deal is finalized on Monday the 20^th February, it will still include a list of 24 prior actions to be completed by the end of the month, before the aid is disbursed. There is not enough time to put all the ducks in a row.

Coming back to the US markets, I expect that the punch bowl will be taken back tomorrow and the Junkies will be put on a Detox & Cleansing diet from tomorrow till the end of the month.  But no front running please. Wait for the confirmation of the trend change. Better still, if you are trapped in short position, you may get an opportunity to get out. There is too much liquidity in the system and unless the default is triggered, good correction will not be forthcoming.

   

Thank you for sharing my thoughts and reading http://bbfinance.blogspot.com/

Growth ? What Growth?

Those of you who think that the recent rise in the stock exchanges are related to the growth in USA, I would encourage them to read through the following presentation:
http://www.businessinsider.com/doubleline-jeff-gundlach-us-decline-fall-roman-empire-2012-2?op=1
You may not agree with the prognosis, but you cannot doubt the facts and figures.
However that does not mean that DOW will not go to 15000!
So long Tom & Jerry, I mean Tim and Ben have green ink, have no fear.

Newton's Law Still Works!

Today’s rumour was floated by none other than Dow Jones. It seems Greece FinMin said that some Technical Issues are to be resolved before money can be had. But nobody fell for that pixie dust today.  Did anyone really buy at the close yesterday? I doubt it. And yet it was the dumbest rally I have ever seen in life. Yesterday the volume was next to non-existent and it was so easy for the HFTs to manipulate the market. Somehow we are relieved to know that Newton’s law of gravity still works here in USA.  Volume picked up today as markets sold off a little. We are yet to see a 1% or more correction in 2012. Although SPX did not make lower low, the fact that volume increased on a down day and the day was red despite making a new high, is good news for those who are short. It was a bearing reversal day and now all is needed is good follow through.

Coming back to the ongoing Greek drama, as per the last bailout condition, Greece was to privatize its public sector and raise $ 50 billion. So far they have raised $1.5 billion. No wonder that nobody wants to touch them with a bargepole.

 Per AP:  "There are many in the euro zone who don't want us anymore," Venizelos told the country's president, Karolos Papoulias, earlier in the day. Greece, Venizelos added, had to persuade the skeptics that the country could stay in the currency union and regain lost ground in reforming its economy."We are facing a situation that is particular because we are constantly being given new terms and conditions," he said. And regarding the response of the President, you may read the following: http://www.businessweek.com/news/2012-02-15/greek-president-slams-german-insults-as-bailout-talks-stall.html

It seems both Germany and France agree that Troika needs a permanent presence in Greece with authority to implement the programs and a separate escrow account is needed to monitor the use of funds. Talk about trust issues! What was unthinkable few months ago, is now an accepted fait accomplice. EZ is ready to cut off the ties; http://www.athensnews.gr/portal/11/53282  EZ thinks that they are ready with sufficient firewall to prevent any contagion and they may well be right. If you remember way back when Mexico defaulted, the stock markets rallied after that.

Coming back to the market, the trend change is unconfirmed as of now. I am waiting for VIX to close above its 50 DMA. Right now it is just about touching it.

The chart is too compressed so you may find it little hard to read. Whenever VIX has crossed its 50 DMA, it has been accompanied by a stock market correction. Simple. Today VIX closed above the upper line of BB. So tomorrow we might see some bounce in SPX. But I am not going to buy anything now. I believe we will see some decent selling in the coming days and that will be followed by a renewed up move which may last till end of March. But we will cross the bridge when we come near it. As of now, we are still waiting for the pull back.

It is going to be interesting till end of February to say the least. So keep your seat belt fastened. Just because we cannot see the danger does not mean there is no danger. So trade safe.

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Topping Process?

The topping process has begun. I mentioned yesterday that a correction is expected to start from today and so it did. If you are short from January, you may continue to hold on to the short but if you are thinking of opening a new short position, I would recommend waiting a while longer. The momentum is very strong and lots of investors are convinced of a new bull run. Many are thinking that any pullback is a buying opportunity and the last fifteen minutes of price action will re-confirm their belief.

But they have not priced in the Greek default. Notwithstanding the vote or expected letter, there is simply no exit from the debt mess. Greece is at the point of no return. I am fairly certain that Germany will not give any more money to Greece and this drama will go on till end of March at which point everything will unravel.  If we are rejoicing because our stock indexes have reached certain level after eleven years, we must be delusional. As of now, we are only looking at Europe and hoping that the fallout from the Greek default will be manageable. What about Portugal. It is next in line. Don’t forget Spain and the pink elephant in the room, Italy. And as John Mauldin says, Japan is the next bug searching for the windshield to crash. The biggest black swan is our own US of A. Those who think that US debt is below 100% are just the ostrich with head in the sand. The following is a chart from Hoisington Investment Management.

And we have not included the unfunded liability of Medicaid, Medicare and many other programs.

At some point of time fundamentals with catch up with the technical and in the big scheme of things six months to a year is not a big deal. This story of excess is being repeated over and over again and every time we think “this time, it is different” . Whether it is “Tulip Mania” of two centuries ago or “Dot-Com Bubble” or “Housing Bubble” the underlying factor is the same. Excess. Today the excess is credit and liquidity. The regulators have pained themselves in a corner. They have to go on printing and pumping in more liquidity in the system just to remain afloat. It is like the situation in “Alice in Wonderland”, where if you want to stay where you are, you have to run.  You may remember QE1 and QE2. When the effect of QE1 started to fade, they came up with QE2. When QE2 started to fade, they came up with LTRO. But LTRO is not going to be sufficient to save Europe. So Ben will come up with QE3. May be as soon as June of 2012. Because this is a Presidential election year and politicians know only one way to get elected. To buy the votes. Consequences be damned.

The believers of this rally have many reasons. Corporate earning is one of them. But apart from Apple, none of the tech companies have reported any spectacular earning. GOOG and AMZN both missed. Financials are in dumps.  The rally, if based on earning, does not make sense. If it is based on QE, then of course it does.  They are talking of growth in US as if it is a different planet apart from Europe. I say what growth? BLS numbers?

So we have to take everything in perspective and in timeline. What we can expect to happen in three months, six months, in one year. Coming back to short term market, today’s market action confirms that it was a double top yesterday but the inability to take out the low last Friday is little worry-some.  So we may see a bounce tomorrow but that will be just a bounce, to help the dip buyers get fully invested. On the other hand, the trend line has not yet been broken and so a trend change is not confirmed yet. In the last 30 minutes, the market ramped up on the rumour that Greek conservative party leader will deliver letter of commitment to lenders on Wednesday, as per unnamed government source. How many times the market reacts to such rumours and when they resort to rumours to prop up the market, you can be sure that there is trouble ahead.

 The FX proxies are also moving in tandem. AUD jumped and tested 1.07 but failed to hold it. Since it made the high on February 7, it is making lower highs and lower lows. I think by tomorrow we will have a sell signal in AUD.

 Euro jumped 50 pips on the rumour but is now giving back the gains. A closed below 1.31 will be  a sell signal. The cycle for Euro has topped or about to top now.

Everything points to a grand topping by 20^th March. Can the SPX go higher? While everything is possible, it looks highly unlikely at this point of time. 

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Same Old Story.

Volume of SPX was the lowest we have seen for this year and we have not seen much volume this year so far anyway. That says something. There is no clear direction in the market as yet. While index opened higher on the back of Greek vote, it failed to take out the previous high. Is it a double top?

We will know tomorrow which way the wind is blowing. In the mean time the Analog is looking like this;

Apple made a new high today. Possibly it is the only reason COMPQ keeps grinding higher. However Chris Kimble has a very interesting chart for Apple.

Will Apple be able to break this seventeen year old trend line and keep going higher?  There is huge euphoria in the main stream media that Nasdaq has reached the eleven year old high. As if that is something great. Add all the inflation and cost of money and we are worse off eleven years after. And thank Ben for reaching this milestone after eleven years.

Euro gave back all the post Greek vote gain and some more. Gold is just hanging on but barely just.  But with momentum so strong and liquidity so much, it may not before end of March / 1^st week of April that we may see real downturn. Any correction at this point will be a short term buying opportunity. But at least a 70-90 point’s correction in SPX can be expected at this point of time, staring most likely from tomorrow and lasting till about February 24-28. I think there will be one more rally after that which will take us till end of March.

I am changing the way I present this blog. Because I have failed with my last call, I better stick to the basics and stop showcasing my trading records. I need to improve my trading skills and to that end, I need to be more modest. Accordingly, I will not be posting the trading journals till such time I am satisfied with my performance.

I have made some wonderful friends here and all the comments and suggestions will hopefully make me a better trader. I will continue to share my ideas and thoughts about the market and would request you, dear readers to share your thoughts as well.

Thank you for reading http://bbfinance.blogspot.com/. Trade safe.