Saturday, 31 March 2012

Blow-Off Top Rally Coming.


The 1st quarter is now officially over and what a quarter it has been so far! The stock market rise which started with the Santa Rally did not look back and kept rising. The bear camp including many famous names have been obliterated and ridiculed. But it was a rally which nobody loved. The bears hate it because it destroyed them. Bulls hate it because they were not fully prepared for it and could not get enough of it. Those on the sideline hate it because they never got a chance to join it after a pull back. Because there was no pull-back.

While I correctly predicted the start of the rally, I jumped down too early based on Technical Analysis while my cycle analysis and fund flow analysis were still positive. But in the Fed manipulated world no TA or fancy chart works. To get an idea of how the stock market really works just take a look at the following chart.


Do we need anything else to beat the stock market?

Question is where we go from here.  The answer possibly lies in the Fed action as well. The Operation twist is ending in June and there is no sign of more free money as yet. Combine the need of the Banksters with that of the politicians and we will get an answer which is fairly close. The Presidential election campaign will kick off in earnest from June. If there is no further liquidity pumping, the stock market will surely decline. If the stock market does not do well, that is bad news for an incumbent president.  So the Banksters and TBTF banks want more free money without which they cannot keep the ponzi scheme going and Obama need the Wall St. to keep pumping the stocks to get re-elected. There is no chance that the stock market will be allowed to perform on its own free will based on fundamentals till November. Bernanke has no option but to provide free money to the Wall St. even when he is aware that ZIRP is destroying the country and excess liquidity needs to be drained. They are boxed in a corner. (This is my theory and I may be wrong).

You may ask that if the above is correct and Operation Twist is still in operation why then the stock market should ever correct even remotely. Once again it is a matter of timing. If the stock market continues to operate at this present level till June / July, what justification Bernanke will have to pump more money. And if the stock market tanks in July / August, it may be too late to repair the damage from Obama re-election standpoint. So they have to start pumping the market again at least from the beginning of the 3rd quarter to have meaningful and positive impact on consumer confidence and voter behaviour. They do not want to take any chances. At the same time, they are banking on the theory that American Voters have the memory span of a goldfish.Take everything into consideration and my take is that we will get the correction in the 2nd quarter which will give Bernanke opportunity to start another QE.

So we are going into 2nd quarter and already there are signs that the blow-off top is starting soon. May be from as soon as this coming Monday. I think SPX will top between 1450-1460 and by April OpEx will be the top in terms of time. But the majority of these gains will come in the next 4 trading days. Take a look at the following SPX chart.
There is a pattern from last December which I have circled. The index goes down for about 3 days and then shoots up making a new high. This is not TA. Just simple observation. Combine that with the cycle analysis and seasonality and odds are high that what I said above is going to happen. From now till April OpEx there are three weeks.  If the market will listen to my plan, then the 1st week of April is when the market shoots up. 2nd week it retraces somewhat and goes back and forth. 3rd week it re-test the high and fails. The roll over comes thereafter.  Let us see how it unfolds but I do not see many other alternatives. If you have a better plan please let me know.

That the people in the know are preparing for that final melt up can be judged from the action of the treasury market. Friday, TLT had one of the biggest one day drops in recent history.
However, those who think that end of the bond market is here, are probably jumping the gun little ahead of time. If we are going to see correction in equities, bond bubble will not burst now. Also Bernanke cannot afford to let the rates rise now unless he himself initiates it. The time for that is around November.

Apple most likely has had its share of correction for now.
I think it will also re-test the high in the coming week.

The US $ ETF UUP is breaking down the trend line and if we see the final surge in equities, that may well correspond will the down-move in UUP.
Remember the market always inflict the maximum pain on maximum number of people. In the coming weeks, people will be convinced that the bond bubble has burst, that US$ is going lower and SPX is going to 1550. They are going to be so disappointed. When the correction comes, dip-buyers will buy again, only to give up all the gains of these months. The bears will not venture forth initially because they have been burnt so badly.  It is a game where the house always wins.

Thank you for reading my blog. I wish you all a very good week end. Please forward it to your friends and family and ask them to visit http://bbfinance.blogspot.ca/  and follow me on Twitter (@BBFinanceblog). You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com. I look forward to hearing your thoughts.

Thursday, 29 March 2012

Endangered Bear.



Today’s report will be short as I am running an errand and short of time.

Three consecutive red days in SPX and yet it has not been able to break the low of last week. That goes to show that time is still not right for the bears. Both my calls for this week have come to pass. I had written that the last week of March will have some weakness and here we have three red days out of four. Most likely tomorrow will also be red but not much. I have also written that the maximum downside I expect is 1380 and we are well within the range. Of course we still have one more day left in the week and anything can happen. But I doubt that SPX will close below that level.

There is too much noise in the market place and everyone is trying to make a sense of the market action. Too many good folks are discussing world economics and depending on their conviction, taking position in the market. Some think Europe is going to blow up and will take the world with it. Some are taking precaution thinking Israel will attack Iran. Still others are buying because they think USA has de-coupled from the world and is growing. As they say, “Each to his own”.

I am trying to stay clear of economic analysis and stay focused on what the market is going to do. Apart from one call in late Jan, all my market calls so far have been spot on. Both for equities and PM. My method does not depend on TA alone and I do not believe in fancy charts. Charts have their usefulness but up to a point. I do not understand Elliot Wave and that is my weakness. Also because I was taken to cleaners by Robert Prechter in the past. But there are many who make good use of it and kudos to them.

Anyway, coming back to market, we got only 13 out of the 20 points that I was looking for. May be we will get some more tomorrow.  Depending on the price action during the day, I plan to go long for a very short time.

I will present my detailed road map for the SPX by the week end. Thank you for reading my blog. Please let me know what you think of my market calls. You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com or follow me at Twitter. (@ BBFinanceblog)  I look forward to hearing from you.

Wednesday, 28 March 2012

Waiting For Tomorrow.


I was pleasantly surprised with today’s sell off. I thought it will drift lower in a range but at some point SPX was down about 1%. Alas, it gave back about one third but that’s OK. I wrote yesterday about the sign of life in VIX and Bond as well as in US$. Also, I have been writing about the weakness in the last week of March for a while now.

While many have been writing about quarter end window dressing which may take the markets higher, I have been harping on the opposite.  But I am also writing that such a correction, when comes will be a buying opportunity. Therefore my earlier plan of going long on Friday is still valid as of now. However if tomorrow we see a huge sell off, then it may have to wait. I expect the sell-off to be good but nothing that will derail the up-trend yet. Today NYMO has dipped to negative 26 only and there is good enough scope for further sell off.

 Today was one of those rare days when everything was in red. Gold and silver gave back a good portion of its bounce and once again, I stick to my earlier call of further fall in prices of PM.  I think a good bottom for PM is still far. Sentiments and technical parameters do not align yet for a good entry. What happened to those investors who purchased gold during August / September of 2011? Are they still holding on to those investment? Because if they are still holding on, the wait will be very long. Yesterday CPM group’s “ Gold Yearbook 2012” was released in New York. Jon Nadler of Kitco has done a good analysis on that report. I quote from Mr. Nadler:

For starters, the finding that gold investment demand fell by nearly 6% last year, at a time when we were all told (by certain agenda-driven newsletters) that investors were beating down the door of their nearest coin shop. Evidently, that was not the case.
We mentioned numerous times in these posts that record and/or near-record gold prices present an obstacle that many an investors is basically unwilling to tackle. CPM’s analysts found that “Such investor hesitance also was seen in gold coin buying patterns over the course of 2011, in Indian demand trends, and in other aspects of the gold investment market.” The research firm believes that investment holding additions will also decline in 2012-if not by much-and that while no major declines in the price of the yellow metal are in the cards this year, neither are new records.
The firm anticipates a possible trading range in gold of from $1400 to $1,900-and-change for the year. This, despite the incessant chants by mining firm CEOs that $2K and $2.5K gold are ‘in the bag.’ Note that high gold prices do matter and that “Investors as a result appear already to be reconsidering purchasing increased amounts of gold at ever higher prices as they have been doing over the past few years. They are instead showing signs of being increasingly willing to hold off on purchasing metal until prices soften from recent levels, a tendency that may continue in 2012 and beyond.
CPM also busted certain other myths that are present in abundance in the gold market newsletter space. One of them relates to gold as an inflation hedge. Aside from the fact that CPM noted that gold is a currency and that all currencies lose value over the long-term and that therefore gold’s purchasing power parity attribute is largely fiction, the firm also pointed out that investors may be placing their bets incorrectly when it comes to gold.
To wit: Quite a few gold investors are piling into the metal in proportions that a far larger than what a prudent portfolio allocation model might suggest, because they are convinced that we will get sharply rising inflation owing to the recent round of global fiscal stimulus. Investors have also bought the line that negative real interest rates are gold-beneficial. It turns out that, historically speaking, returns on gold have actually shown a tendency to decline when real interest rates dipped under -2%. As for the topic of Weimar Republic-style inflation, CPM said that, in the near-term, this type of threat is a non-issue that the anticipated future inflation levels may also not occur.”

In the world of investing, timing is everything. Ask someone who has purchased a house in 2007 and is now deeply underwater. This, when we were told that house prices never go down.

Coming back to the stock markets, everything is going more or less as per plan and I am waiting for tomorrow.  A good 20 point sell off tomorrow will validate my call for next week. But either way, a blow off the top rally is coming from next week.

Thank you for reading my blog. Please let me know what you think of my market calls. You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com. I look forward to hearing from you. Without your active participation, it becomes pretty boring! 

Tuesday, 27 March 2012

Double Top In Dow?

I missed it in my evening post:
Do you think it is a double top?
If so, then the correction target is very close, around 13000.As they say, DOW leads. It is in line with the short term cycle low this week. 

Dumb Money Still Chasing Stocks.


In the good old days or normal market behavior, I would have said today was a bearish reversal day. But now-a-days TA does not work so well when it comes to bearish prognosis, so I am little careful to say anything bearish. It might offend Bernanke. We cannot fight the Fed after all.  Although per cycle analysis, the last week of the March is supposed to be little weak, the 1st day of week has already covered for the rest and any selling is just to take out the overbought conditions.

After a free fall, VIX recovered somewhat today.
As you can see in the 5 minute chart, it was up for most part of the day while equities dived down much later.
On a daily chart, it looks like VIX has made a bottom.
While SPX has made higher high, VIX has not made a lower low. But I can tell you, this is temporary.  The lowest for VIX so far was 9 or so. I think that low will be broken.

Also up throughout the day were the US Treasuries.
TLT 5 minute chart is bullish. In fact TLT has been going up for a while equities are on a tear. Makes you go hmmm.

Also up was the US $ while AUD sold off.  

All these give the feeling that we might get that 2-3% sell off we are waiting for before the blow off the top rally.  Possibly today was the beginning.  But it is not time to go short yet.  As per Guy Lerner’s Dumb Money Indicator, as long as the indicator stays above the upper band, prices should continue to go higher.

This is consistent with what I have been writing all along that as of now dips are buying opportunity provided you know what you are doing and are ready to jump ship very quickly should it start to sink.

Thank you for reading http://bbfinance.blogspot.ca/ . Please pass it on and join me in Twitter for live market commentary. (@BBFinanceblog). 

Monday, 26 March 2012

Slaughter of the lambs (Bears).


I expected today to be range bound but it turned out to be the day of a new high thanks to uncle Ben.  In a way it is consistent with the bigger theme which I have been writing for so many days. That while we can expect some weakness in the last week of March, we are ultimately going to 1450 in SPX. Any dip therefore is a buying opportunity. Question in my mind was about the degree of correction and after today’s price action we can be sure that it will not be much. Even 1380 would be lucky.  The following is from Uempel.

Today’s price action has pushed NYMO in positive territory from where a small correction can be started.

Why am I still looking for a small correction now? Among other things, seasonality. The following table is from Stock Trader’s Almanac.

So a correction in the range of 2-3% is in order.

Also, with the blow of the top rally due in April, markets cannot run higher when they are already extended. Therefore some profit taking before the quarter end is in order. That will also shake out the weak hands.

Will today’s high be considered a valid breakout?
Probably not but what does it matter. It is still a high and we are still looking for higher high. Already folks are talking about 1500 SPX by mid-April and everyone is getting giddy with excitement. So a little lesson in history is in order. The following is a chart from Chris Kimble which is self explanatory.

I am not suggesting that we have reached that stage and we may well renew the upward journey after summer but right now the market moves do seem parabolic. Let us see what tomorrow brings.

Thank you for reading http://bbfinance.blogspot.ca/ . Please forward it to your friends and join me in Twitter for live market commentary. (@BBFinanceblog). 

Saturday, 24 March 2012

Free Fall Week Coming Up.


I told you so. They will somehow pain it green. And they did after the markets were down for better part of the morning. I also said that it will try 1400 again and fail it that attempt.  For the next part of the call we will have to wait till next week.

The market action of Friday confirmed two things. First, the uptrend has lost some of its mojo and a correction, however shallow is on us. Secondly, the correction will be very shallow, may be up to 1370 level before the blow off the top rally starts. Honestly, a 30 point correction is not a correction at all but sorry bears, that’s all you are going to get for now.

Many of the hedge funds have sit out of this rally and at this late stage of the rally they are thinking of joining the party.  I myself did not believe in the rally and have missed out a good 100 points which was there for taking.  One of the Fed’s regional head is also saying that there are lots of money sitting outside. The BOYZ know this and will do everything to bring that money on the table.  As such, every dip will be bought and some more.

This is called greater fool theory. We buy shares hoping that there will be another fool out there who will buy that rotten potato from us at still higher price. Till the music stops.  That is the nature of retail investing when people buy high and sell low.

But if the share prices keep going up on their own, then there will be no free money for the TBTF banks. Government will not buy their toxic assets like MBS and give them free money. So they will have to create panic. And they know that if they are able to create panic even for a short while in an election year, Obama will do anything in his power to lift the stock market up. There is no recovery anywhere! Stock price going up has nothing to do with unemployment rate of BLS. As per Gallop poll, who does that actual polling, the unemployment rate is well over 9%. Against all the hoopla that Europe has been saved, the fact is it has not been saved. Spain is daring ECB. We are seeing parabolic moves at different levels which is a pre cursor of the end game. As I have been writing, it is all a question of timing.

The TA is not a very useful tool in such manipulated market. There has to be a combination of many things but a clear understanding of the manipulation will surely help.  By the grace of God, so far my calls on the market have been correct except one, where I gave more weighted to TA over manipulation. That was a mistake and lesson learned.

Coming back to market, I expect Monday to be range bound with major damage being in the next 3 days. I plan to go long on Friday, 30th March for the blow off the top rally. I have been waiting on the sideline for a while for this opportunity. But this is not real and not for keeps. We will be running with the hares and hunting with the hounds.

Nothing much changed in the latest COT report. Commercials are still long EURO and JPY. That just re-confirms my theory of timing model. The trend is still up and dips are buying opportunity. So be nimble and play it safe.

Thank you for reading http://bbfinance.blogspot.ca/ . Please forward it to your friends and join me in Twitter for live market commentary. (@BBFinanceblog). 

Thursday, 22 March 2012

Time To Get Real?


The FED’s PPT (plunge protection team) came out to talk the market up in the last hour of the trading. The Fed’s Evans gave a statement that more accommodation would be appropriate and the dogs of war started salivating. Do they think people are blind and do not notice anything? However, 3 days of red is kind of abnormal in this day and age. So for tomorrow they have confiscated all non green colours and only colour available in the market for tomorrow is green.  They will make their best efforts to paint the market green tomorrow. No wonder Ireland has made Obama an honorary Irish.  But with momentum down, it will be a difficult task. Difficult but not impossible. They may have to be satisfied with few points up before the plunge begins again next week or at least a short squeeze in morning.

I wrote last night that I would not be surprised to see a decent size sell-off and we got one. However I am not totally satisfied because it was not even a 1% drop. All that may well change next week.

The other news was the washout in TVIX.  It is a derivative of a derivative and CS has made it a closed ended ETF. I understand that they have now stopped supporting it. You may read more about TVIX here: What You Need to Know About the TVIX Freeze | Outside The Box Blog | Schaeffer's Investment Research

The following is a quarterly chart of Apple.

It reminds me of the tulip bubble. I have no words to describe it and staying far away from Apple. By the way, does anyone remember Qualcomm in the year 1999? I would like to quote from Phil Davis:
The bull case is all about recovery, which we're just not seeing on a global basis (and even the U.S. is debatable) and INFLATION. Inflation I consider a good reason to bet AAPL can go to $1,000 - because $1,000 is how much a new IPhone will cost once inflation takes hold and it's very likely it will take hold as the supply of money, worldwide, is through the roof - up over 100% since 2007. The problem is that money is not moving (no velocity) so the economy is not growing. Until we see the money move through the broad economy (wage increases, interest rates rising), we're not going to have inflation that sticks because the consumer is out of money.

However, short term trading and fundamentals are far removed. Although the market will eventually catch up with the fundamentals, the rigging and fixing game will continue at its own pace. We might as well go with the greater fool theory and hope that someone out there will buy the stock which we are holding now.

Coming back to the market, there is good bit of support between 1392 and 1390. Tomorrow it may try to break above 1400 again and a failure will start a cascade downward. For that I think we will have to wait till next week. I have been writing for past many days that cycle shows some weakness in the last week of March and that is consistent with seasonality.  

Thank you for reading http://bbfinance.blogspot.ca/ . Please forward it to your friends and join me in Twitter for live market commentary. (@BBFinanceblog). 

Wednesday, 21 March 2012

Is it Legal?


Is it legal to have two consecutive red days? We have to check the by-laws of NYSE and read the web site of the FED. It might be against the mandate.  But here we are. We had a bit of a squeeze in between. I was expecting a range bound day with slight up close. But it was a range bound day with small loss.  Like I said yesterday, earlier, the dip would have been bought and some more. The market does look tired.

I have borrowed a chart from ZH for whatever it is worth.
While I am sure rather confident that we will reach around 1450 in SPX by mid-April and the above chart is ultimately meaningless, it is relevant at this point of time. Short term cycles are calling for some weakness by the last week of March and that call is consistent with the seasonality factors as well. I would not be surprised to see a decent sized sell off tomorrow although Thursdays have been most bullish days since October 2011. This pull back will be short and possibly not too deep and a buying opportunity for the last pop.

For the 2nd day in a row, bonds were higher.
As you can see it is recovering from deep oversold level and has some good space to run. That again is consistent with the call for correction in equities.

While Euro was unable to break above the H&S level, US $ is making preparation for breaking its H&S range.
When that happens, it will cause some damage to the risk assets. I expect that to happen soon. On the other hand NZD fell hard after US close as traders were disappointed with NZ growth data. Will the algos follow the NZ $ tomorrow? Both the 2 HR and 4 HR comparison with NZD/JPY and SPX shows that SPX has lots of room to come down.
This is not an exact science and it does not always follow the same path. But seeing that the correlation has worked well in the recent past, we can only expect it to follow suit in future. More so when cycle and seasonality and liquidity in the market seem to agree.

Next few days are going to be important and will define how the market is going to behave in April.

Thank you for reading  http://bbfinance.blogspot.ca/ . Please forward it / re-tweet to your friends and ask your friends to join me in Twitter. (@BBFinanceblog).

Tuesday, 20 March 2012

Beautiful H&S in EURO

You can see the beautiful almost text book H&S formation in Euro. If Euro breaks above 1.33 then the stock market correction will be very mute. If it fails to break above 1.33 and drops below, then we have a good show coming up. Depending on which side of the fence you are, you may want to keep the fingers crossed!

Shifting Grounds.


Today was an example as to why everything has to line up together before we can take a trade. That way we can reduce the risk. The important word here is REDUCE. We can never eliminate risk is trading and there is no system in world which can guarantee you risk free trading. Let us start with a closer look at SPX 15 minutes.

The chart may look complex but actually there are two BB. The outside one in red colour is in 3 standard deviation. The one next to it is BB with 2 standard deviation which is our regular BB. Then we have two moving averages, fast and slow.
The continuous push higher has stretched the prices beyond the rule of physics. If history is any guide, whenever price has moved away over 5% from the 50 DMA, it has reversed to the mean quickly thereafter.  The red BB which is 3 SD from mean acts as the outer limit. When price push that limit, either up or down, price will correct shortly thereafter.

You can see that SPX has been pushing the outer limit (red BB) and is now time to revert to mean. Mean today stands at 1344. Will we see that correction? If and when it comes, will it mean that the up-trend is over?  Possibly yes and no. However, if the correction has to come, it has to be fast and furious. There has to be a 70-90 point correction in three days or so. A gentle correction will not do. That was the reason I did not take the short trade today although the hourly reversal was triggered at 1405.

Let us take a look at VIX.
It seems VIX has formed a bottom of sorts as of now. Can it go down further? Of course it can and it will. But not yet. In case of VIX, price has touched the lower outer limit (lower red BB) and here also it will revert to mean.

As I wrote yesterday, US $ index have staged a reversal after 3 days. I expect it to test earlier high of 81.50 in the next 7/ 10 days.
The difference in price action today was the way it covered the morning dip. From my perspective, today the rebound in the afternoon was not strong. Earlier, the dip buyers would cover any morning dip and some more. Today was one of those rare days when everything ended in red. Therefore I feel a kind of tiredness and exhaustion.  Also, the Demark sell set up is supposed to trigger tomorrow.

I think the market may be up tomorrow, at least in the morning when they will squeeze the fresh bears and then we might see long anticipated sell starting Thursday.

However at this point this is just a speculation and the trend is still up. The point of highlighting this possible correction is not to short in advance but to stay away from new long set ups and have a very tight stop.

Thank you for reading http://bbfinance.blogspot.ca/ . Please forward it to your friends and join me in Twitter for live market commentary. (@BBFinanceblog). 

Monday, 19 March 2012

Deja Vu?

Once again, let me start with some of my morning tweets:

·         GM all. I don't have much of an upside target but may test 1410. Haven't seen any downside trigger yet. SPX hourly reversal at 1395
·         Retest of overnight high in ES failed. But also a small double bottom. lets just wait and watch which way it goes. No rush to front run.
·         Selling or shorting here would be dumb. At least we should see the hourly reversal.

That hourly reversal now stands at 1404. The daily reversal is at 1375 and long term monthly reversal is at 1320. So till 1320 is taken out we are still in an uptrend. Take that. I would expect almost everyone to be numb by now and resigned to never ending up move. Already we see talks of SPX 1600 and beyond!
But I think we are now entering in a correction zone.  The next few days may bear me out. I would expect between 3-5% corrections by the end of the month. However such a correction will definitely be a buy opportunity.  Precious metals continue on a sell signal and we may have to wait till Mid-April for a decent tradable bottom. Euro is making an inverse H&S and we may see a bounce upto 1.33. The AUD/USD and SPX correlation has now been replaced by NZD/JPY and SPX.
 This is a classic example as to how old correlations break down and new are formed. 

US $ index lost 3 days in a row but we may see a rebound from here.
 A lower close will give a sell signal and considering the total market, we are not ready for the blast off rally yet. May be next month.

As you can see, more often than not, it pays to follow the unbiased and uncluttered market analysis. I would be wrong from time to time but I have now incorporated the trend following algorithms with my other parameters which should reduce the whipsaw and will prevent front running.  No economic analysis or complex charts based on TA or EW. Pure trading and investing guidelines which works.

You may incorporate these signals with your methodology and see the results yourself. So pass it on to your friends and family who might be interested in stock market. And do follow me in twitter  (@BBFinanceblog) as you will find it useful. Thanks for reading http://bbfinance.blogspot.ca/

Saturday, 17 March 2012

Happy St. Patrick's Day.


Yesterday I sent out the following tweets:

·         GM all. All the witches are here and all kinds of black magic will be deployed today. I would rather watch the action.
·         And see if any blow off top is coming. Dips are routine in morning followed by rips in afternoon. SPX 1410 is almost guaranteed. Almost! 
·         SPY dividend today. SPY may be in red even when SPX is up. Blame triple witching!
·         NZD/JPY now has a better correlation with SPX than AUD/USD.

You can see for yourself if they turned out correct. SPX did in fact reached 1406 intra-day before closing down, but still in green. By now bears may have just given up any hope of correction and almost everyone has accepted that stock market only goes up. If it falls even a day, PPT of the Fed will come and save it. What else can explain VIX falling below 15, at a level not seen since 2008. However there are some die hard bears left who draw beautiful charts but whose trading methods seem limited to analogs or conventional TA. 
Analogs have the bad habit of deserting you during crunch time. They are fun to watch but absolutely horrible as a trading vehicle. And TA has show how limited it can be. But people like charts and like to predict the future by seeing the past. It seems our brains are made for pattern recognition.

I think only a true trend following method combined with cycle analysis and basic TA can give satisfactory result in trading. There are no 100% correct methods. You have to find something which will reduce losses and maximize profits.  As of now the trend is up although in short term the breadth is weakening.  I have been calling for weakness in the last week of March for a while but it will be a dip-buying opportunity. This rally still has some juice left in it but it is getting riskier by the day. I would consider to short it only if I see hourly trend line has been broken. As of now that is 1395 in SPX. But even that is going against bigger trend and should be played with absolute caution. In all likelihood Monday will be an up day leading to a Demark exhaustion set-up.

On an intermediate term time frame, can this rally go on forever? Absolutely not. It will end by Mid-April and the commercials are preparing for it. Last week, their long position of JPY has jumped almost double.

I have written before that JPY is correlated with bond prices. If we see this trend for few more weeks, we can expect a big jump in Bond prices which now seem to be breaking down. That is another example of a head fake. The market screws maximum number of people and when people least expect it. I think a bond rally and a US Dollar rally is coming by Mid-April which will take equities down. But that is still a month away.

On a longer time frame, year 2012 will be a year of equities and bulls. If you can join together all the pieces of the puzzle, you can be sure that indexes will reach a new high this year. The commercials are accumulating EURO in a big way for months now and they know something which we don’t.

Don’t be confused with all these calls of short term, intermediate term and long term. Markets never go up or down in one straight line. The buy and hold method of investing may not be suitable at this point and we may have to adjust as we go.

If there is one investment advice I may be allowed to give, that would be never to base your investment decision based on what is said in Elliot Wave or ZH. We know things will end badly but they have no credit for that. In the meantime, they will destroy your portfolio.

I hope you are enjoying this ST. Patrick’s Day weekend. Have fun with your friends and family. Remember to forward this post to someone you know and help me get another 100 followers in Twitter in the month of March. (@BBFinanceblog). Thank you for reading my post. 

Thursday, 15 March 2012

Three Peaks & Domed House.


Regular TA had been good in a two way market. But in a one way market it has failed miserably. And yet we are looking for an advance look into the future.  All sorts of obscure and unheard of models are going round. One of such model is Lindsay’s Three Peak and Domed House. There are people who have made a career out of it by writing book on it, giving lectures and writing newsletters.  Personally, I think it is something like Elliot Wave where you can make the wave counts fit after things have happened. The 3PDH goes like this:

Some of the respected and well know market technicians like Jeffrey Hirsch of Stock Traders Almanac and Doug Kass of Seabreeze  Partners, who between them have more years of trading experience than my total age, have been following 3PDH for some time. According to Jeffrey, we are now reaching point 21 and it will be followed by a small correction by end of March, which will be point 22. From there he expects one final move up to point 23 sometimes in April and then down to lows of October.

To a certain extent, this theory fits with my cycle analysis. I have been calling for a small weakness by end of March and a rally thereafter. I wrote in the past that SPX has another 30-50 points left before this Bull Run ends for a while. I still have not worked on the downside target but I expect a major bottom in May.

But we still have to get through the triple witching tomorrow. I have been twitting before the market open and during the session not to short the market even when it appears that the internals are weak. May be next week will a short term opportunity but it is too risky from my perspective.  Yesterday I wrote that it is just a pause and the market proved me right.

So trade safe and be very careful out there.

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

Wednesday, 14 March 2012

Just A Pause.


The market is digesting the gains of yesterday but that does not mean we are done with the flight to galaxy. Thursdays have been most bullish so far and tomorrow we may see another attempt to break through 1400 in SPX. I don’t think anybody knows what is going to happen short term but everyone is scared to short. Today was a bearish reversal day but TA has not worked well lately, so not much to read into it.

In the mean time my call on “Gold” has been spot on. I think gold has still further to fall before we can take a position.  It lost another $ 40 today but longer term, the target for gold is about $ 2000 by year end. Before that the mood has to turn sour on gold.

Both EURO and AUD continue to lose ground. Oil gave back much of its gain of yesterday. Only equities continue to defy gravity and logic. Has it de-coupled from the rest of the assets classes?  On Feb. 29, US$ index was at 78.80. Today it is above 80.50 and we can see the effect of rise in US $ in all other asset classes except equities.  Is it just a short term deviation or beginning of new trend? If the stock markets can continue to climb higher despite all divergences and no QE3, then there will not be any more free money. That is not an ideal situation for the TBTF banks. The 1 Trillion Euro which was doled out by ECB to 600 banks in Europe may not be sufficient to juice the markets here in USA. What next? They cannot wait too long and start QE3 in August / September because that would be too blatant and obvious political sweetener.  They cannot bring in the QE with SPX near all time high. I think answer lies in creating panic and sell-off in equities for the next few months and create suitable environment for the Fed intervention.  That fits well with my cycle analysis. Moreover when the free money comes, the BOYZ would like to buy cheap.  It is all a question of timing.

Looking at timing, have you seen the parabolic move of Apple? Intra-day it was about $595. I know it is a great company with solid cash flow and a PE of only 17, but I still wonder who is buying it at this level now.  Do they know something which we don’t? I think we will see this same blow up parabolic move in SPX very soon. When we see that we would know that the end of this beautiful Bull Run is close by. Yesterday was one such day and we need few more.  I think we still have another 30-50 point left in SPX before the trend reversal.

Treasury bonds which were moving in a range from last October fell off the cliff yesterday and continued to sell today.  The 10 year interest jumped to 2.27 %, a jump of almost 8%. When 2/3rd of all Govt. programs are being funded by borrowing, Bernanke can ill afford to let the rates rise. There will come a time when he will not be able to control the rate. TBT will be such a sweet deal then. But that day is still far off. For now, be ready to make money from long bond one last time.

We are near an infliction point and safety of capital is utmost importance. So whatever methods you are using to trade / invest, check again and be double sure. Keep a very tight stop loss.

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

Tuesday, 13 March 2012

To The Galaxy Far Far Away?


Do not front run and, do not short this market based on your bias.  These have been my everyday mantra for my readers.  Those who shorted the market based on various TA and / or Elliot Wave, have had their heads chopped off today and handed back on a silver platter.

Well, I am market neutral and sitting on the sideline for quite a while because I am not sure about the trend. The risk reward calculation does not allow me to go long but I am not short either.  How much loss of capital that gentleman at E Wave has caused to his readers? I understand that he has been calling to short the market with all the leverages for the 2nd time in this quarter.  Anyone who has acted based on his recommendation would have been wiped off by now. Same thing goes for ZH. At least ZH is a source of some useful information but Elliot Wave theory has to be the most practiced con game in town. I am yet to come across any one calling the market correctly based on Elliot Wave. And they are all wise after the events. Yet people are ready to pay hundreds of dollars to read their newsletters! Snake oil salesmen really do well even in this day and age.

Now that I have ranted and got my pet peeves out, let us see what the market is doing.  Essentially, it is doing what it does best. Hurt maximum number of people.  The rump job which came out of the blue in the last one hour was a JPM baby.  The boyz have now killed the entire short and will bring in the last few investors sitting on the sideline. But this is Triple Witching week and do not take anything at face value. Most likely all the gains of today will be given back very soon and some more but again that is not an invitation to short, rather a reminder to play it safe. This is not the last opportunity and those who are patient, will be rewarded suitably.

While I am sure that any major sell off in equities are still far off, I am not convinced about the “Risk On” trade.  Look at the precious metal sector. Gold again lost the 200DMA. Look at EURO, struggling below 1.31, AUD below 1.50. The correlation between the FX and equities has been broken and only equities are surging ahead.
Not very convincing and looks like a trap.

Do we go all in now? Not me, not here. Here is a table from Stocktradersalmanac.

Historically DOW has been up 19 of the 29 March Triple Witching. So we can expect this year up as well given all the liquidity sloshing around. What is interesting, what happens after? My cycles are calling for small weakness in the last week of March followed by another upswing. So depending on how much weakness we see in March end, I might go long for a very short time. Remember March comes roaring like a lion, goes out like a lamb. Not a done deal but odds are high.

Technically speaking, all the oversold conditions have now been corrected.

NYMO is in positive territory. So it can sustain any sell off in the last two weeks of March if it comes.

The trend table continues its long signal for indices and short for PM.

Once again, stay nimble, trade safe and do not front run based on your bias or after reading how the world is going to end soon.

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.

Monday, 12 March 2012

Schizophrenic Market.


Yahoo Finance heading! This is true I suppose. In the morning I twitted the following:” Not shorting yet. I think the correction if any will be shallow and more in time than in price. No definite trend change yet”. And it was more of the same. There may be odd trading chances now and then for the day traders but nothing good out there for swing traders.  Let us not forget that the triple witching is this week and all sorts of funny things will happen which cannot be explained. VIX closed outside the BB and could be a possible sell set up as and when VIX closes inside BB. But even that may not go far enough.  Tomorrow is FOMC and the Pavlovian Dogs are again salivating in anticipation of some indication of QE! Talk about moral hazards.

US $ started the day on a very promising note but gave back all the gains during the day. Even then PM had difficulty holding on to their levels. Gold hang on to dear life at $ 1700 level and Silver fell quite a bit. I am staying clear of PM till the cycle bottom by end of March- mid-April. I would not be surprised by another $ 100 fall in gold. But that would be a good entry opportunity.

We are supposed to buy low sell high. But is it surprising to find out that retail investors always do the opposite?

From the chart you can see that when the SPX falls, retail sell into it. And when SPX rises retail get invested. The current set up is no different. With SPX at or near multi year high, sentiments overtly bullish and complacency dangerously high, investors are going long or staying long. While I would not recommend shorting yet, I wonder how anyone can go long now. May be they know something which I don’t. But then when all the central Bankers of the world are flooding the world with liquidity with the only purpose of keeping the share prices high, all we need to do is BTFD Just look at all the free money in USA:

And in Europe.

Even with flooding the continent with that kind of money they have not been able to avoid a Greek default. Nor will they be able to stop Portugal or Spain or for that matter Italy. It may not happen in 2012, but it cannot be postponed much further. In short term, everyone and their Grandma is expecting a correction. The BOYZ know that and they are keeping the market artificially afloat. There are two things going on here. On one side, they want to bring in all the cash sitting on the sideline and on the other hand they want to kill the entire short. This, before their best friend Ben comes with free money. In other word, kill the maximum number of long and short. Based on this theory and my cycle analysis, I do not expect any major market correction before mid-April. My evil plan says that we will see some weakness by end of March, followed by a blow of top rally, which may take us past 1400 in SPX and then go down for two months before QE3 starts.  TA be damned!

There is nothing much to add to the trend table. So, stay nimble, trade safe and do not front run based on your bias.

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.

Saturday, 10 March 2012

Hurry Up, Sit Down and Start Running!


Bizarre as it may sound, this is what happened in the stock market last week. Like a dog chasing the tail and going round and round. When the index fell in the 1st part of week, remaining bears started making noise. ZH was painting the town red with the news of coming   Eurocalypse. And I was telling readers to wait and not to front run. I said repeatedly that trend change is not confirmed and whipsaw is expected. Technically the market was oversold to start with. Again, as absurd it may sound that while the prices were making higher high, the market was oversold, it was true. How can we expect a decent sell-off in such a situation? And not to forget, the cycles were showing a top due by March 6-9. Last I said, may be Friday, March 9 will be the fade date.

So where we are now and what do we expect in the coming week? For answers, let us look at some common, garden variety TA charts. The 1st one is NYMO which reflects the market breadth;

NYMO was in deep oversold territory and is only just coming above zero line.

While on the other hand NYSI has turned down quite a lot and is trying to move up a bit.
RSI in NYSI is in deep oversold region.

BPSPX which shows the bullish percentage index has reached the historical high and has started turning down. 

Read together, I get a feeling of indecision. While the market has lost upward momentum, it is not ready to plunge down as yet. Taking a position in either way is blind front running.

Normally Fridays have been the most bearish days for quite a while. Also, normally NFP days behave either as start high go lower or start low go higher. But this last Friday, it did not do either of the two. I twitted before close that I am not shorting the market, yet. On the bear side, the price action can be considered as testing the previous high which it had failed to breach. But on the bull side, it did not break down the lows either. Friday, both the “Risk on” and “Risk Off” trade moved higher. Equities, gold, oil etc moved higher. As well, bonds and USD moved higher.  One of the asset class is not behaving truly and we do not know which one. Only point to note that FX carry trade favourite AUD was moving lower while equities were moving higher.
US $ made solid gain on Friday and Euro moved below 1.3200.
 But it is no guarantee that Euro and AUD will not come up now that disorderly Greek default has been avoided. ( It is a default anyway) If you put a gun on my head and ask me to make a wildest, est, guess about market movement next week, this is what I would guess. This is SPY hourly chart:

There is a bit of gap on the downside which may be filled in the early part of the week and then go up again by OpEx. Again, this is just for fun and do not trade based on this. Never.

Do not forget next week is triple witching OpEx. The BOYZ will screw maximum number of people. It is better to avoid the shark infested water unless we are very sure of what we are doing. That is the reason I did not want to hold any position over the week end. I may take a stab at the market on Monday morning depending on what kind of strength or weakness it shows at open. The good news is (for bears) the cycles show a short term bottom by the last week of the month. And we can expect the major sell off to come in April.

So, stay nimble, trade safe and do not front run based on your bias.

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