Will The Bounce Hold?

This is what I said yesterday: “we might see a lower low intraday tomorrow but more likely than not, we will also see a bounce”. And we got just that. How far the bounce will go? We will know tomorrow how much fuel is left in the rocket and whether it will go to another planet far away. So no front running. Going against a trend and running with a countertrend rally is an expensive proposition, which I have learned painfully.

The interesting thing that happened in the market today, both VIX and SPX closed at red. VIX is showing a spinning top. I also see a kind of double top.

It kept changing throughout the day. In the morning it was solid green, 30 minutes before close it was a hanging man and at close a spinning top. This shows that there is fair amount of indecision in the market. Greed and fear are fighting for supremacy and if nothing bad comes out of Europe, most likely greed will win, short term. At least I am trying to keep my greed in check.

1300 level in SPX held for now and I sincerely hope and expect that it will now test the 50DMA which is around 1368. Today it looks doubtful whether it will reach there and that is result of the negative sentiment build up. But all that can change in 3 huge up trading days and folks will be talking of new bull run! Zuckers all.

That reminds me of Mr. Zuck. While he is having the fun, his FaceCrook shares had a rare reversal of fortune in the last 2 hours and ended the day in green. After IPO, the share had six red, two green and one eh! days. Talk about hype. And still it is at almost 90 time valuation of its current earnings and possibly 30 times expected earnings. Who all are buying this? What am I missing? It was a great example of greater fool theory beautifully executed by the company insiders who bailed out at the right time. The FB share will have free fall after its next quarterly earnings report and I am very sure it will be counted in penny stocks by 2014.

So where do we go from here? Nowhere actually. We wait patiently for the set up to be complete before we make our next move.  For the last week or so, the markets are churning in a range.

Unless it brakes the range and goes either way, there is nothing much to do. Thanks for reading http://bbfinance.blogspot.com . Please re-tweet, forward, post it on your wall and share it anyway you can. My Twitter id is @BBFinanceblog and Stockcharts : Worldoffinance.  

Same Boring Stuff!

I know it is kind of boring to read the same thing. “Hold on”, “don’t do anything”, “this market is not for investors” so on and so forth. But what else can I say. If we got excited yesterday and jumped in, we would have been very sad today. Even if there is bounce on the way, a better entry is always welcome. So where in the grand scheme of things we are right now? It is just my guess and please do your due diligence, but if we compare the price action of last year, I think we are here:

The areas circled.

Here is an interesting tit bit from Bespoke

 Ya, ya I know I know. SPX is going to 1250 1^st before any bounce or so they say. The funny thing is when everyone and their grandma agree on same thing, opposite happens. The sentiment is as bearish as it can get. We are almost getting to the point where we are getting bored and develop fatigue about news from Europe. There is no end of bad news from Europe and about Europe. But I tend to agree with Nassim Taleb. Forget Europe, it is USA which is a bigger problem. http://www.bloomberg.com/news/2012-05-30/taleb-says-euro-breakup-not-a-big-deal-as-u-s-scariest.html

Remember my post about the giant Ponzi scheme few days back?

Coming back to the markets here at Ponzistan, we might see a lower low intraday tomorrow but more likely than not, we will also see a bounce.  The FOMC is still three weeks away and it does not serve much purpose to tank the market too much now. The Chairman will not be able to take any action. Technically speaking, now is the right time for a bounce.  Can the market go lower from here? Sure it can. 200 DMA of SPX is at 1283 and would be a good support level. That is about 2% below from here. But the potential for upside is more at this point.  As and when the equities go up, commodities will also go up, including gold. However, I would still stay away from going long gold at this point of time.

I am not suggesting that you start buying tomorrow. All I am saying is: maybe we should not jump on the short side now and just stay in cash and see how things develop.  I know, again the same old suggestion. Boring.

Anyway, thanks for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

Floating The Balloon.

There are many theories why SPX had an amazing 1.2% or 14.6 handle jump today. Some say it was because of the reumour that  ECB will re-capitalize the broke banks. Others are talking about some sort of secrete communication between the Fed and ECB. Many others are calling for a bottom and end of the correction. But have we not called for the counter trend rally for days now? It was only to be expected and I am rather disappointed with the speed or momentum of the bounce. Earlier I was expecting a bounce up-to 1400. Now I would be happy if we reach 1360. Already McClellan Oscillator is reaching close to 100.

I have written before, this will be a short squeeze rally, killing the bears and laying trap for bulls. But I have not yet decided to jump in. Because I think this bounce will not last long and we will resume selling soon. I do not think the correction is over.

Despite the general bullishness in the market, the horror story was reserved for Facebook, now below $ 29. Is it possible to cancel an IPO and demand a complete refund? Commodities are not showing much enthusiasm matching the equity. Copper is still around $3.47. Crude have not been able to break $ 91 and dear o dear Gold lost intraday and sitting at $ 1555. Euro broke through $ 1.25 and is at the lowest for the year. Spanish yields are reaching the stage where Greece was two years back. And ECB is yet to come up with money. To top it all, Egan Jones downgraded Spain. Why the euphoria then? Because that is all written, so! No treasuries sell scheduled this week, so no need to create panic. Clear the short term oversold conditions and is ready for fresh plunge. It is that simple. In the process if some momentum chasing lemmings join the buy express, all the better.

It is all good if you are a day trader. But God save you in this market if you are an investor and you listen to all the talking heads and decide now is the time to buy or you will miss the bus like last Jan-March. I think and I may well be wrong, that right now, “Cash is King” and I am waiting on the sideline to see how far the bounce goes.  We have penned the coming course of action many times over and so far it is following the script with minor variations. So save us from temptation God!

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

Weekend Rambling.

Everything so far suggests that we will see a re-run of last summer.  Like last year, Europe is at the front and centre of everything. Last summer QE2 was getting over. This summer Operation Twist is at its end stage. What is new this year VS. last year is US Presidential election. More the reason for free money. I keep looking at last year’s price action and I get a feeling that the Algos are following the same program with minor variations. Even in 2011, they were following the program of 2010. In effect it is the same program for last 3 years. Take a look at the weekly chart of SPX.

Why would it be any different this year?

The bounce so far has been weak. But that can change quickly. All it needs for the Fed to open its swap lines to ECB. I would have liked if NYMO was at lower level but it is already approaching zero. It is easier to stage a bounce from oversold level.

The counter trend bounce therefore may not be very strong.  Again, if we look at the daily chart of SPX, the Fibonacci retrace levels indicate many different levels of bounce but the one I am looking at is the 61.8% or 1368. That also happens to be the 40 DMA. If it goes past that level, the next one is 50DMA of 1374.

Let us see how it plays out this week.

The settlement for last week’s huge treasury sale will be this week. This may put some pressure on price action on Tuesday. But with no major treasury sales due for the rest of the month, there is less need to create panic and drive the rates down. That may be another factor whereby the master manipulators let the treasury yield rise a little bit and allow the stock market to go up with it.  Already the futures have opened higher but the markets are closed on Monday in USA so it does not really matter what happens between now and tomorrow.

The Fed knows that it has painted itself in a corner but it is reluctant to accept that. Everyone in the corridors of power knows what the challenges facing USA are. There is a Seven Trillion Dollar asteroid     ( yes, trillion with a capital T) coming in the way of USA in 2013. That will knock off 4% of the GDP and will put USA in recession. The first causality will be the Banks  and they need all the free money that are available.  If you do not remember what Bernanke said in last April regarding the looming danger, here it is to refresh your memory:

"It's very important to say that, if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that I think there is absolutely no chance that the Fed could or would have any ability to offset, whatsoever, that effect on the economy," "I am concerned that if all the tax increases and spending cuts that are associated with current law would take place, absent congressional actions, that would be a significant risk to the recovery."

In any event, the “recovery” that the Fed chairman talks about is the recovery of the TBTF banks that he represents and not the recovery of the main st.  But that is the fact of life and all your representatives are also the representatives of the big businesses. So now the effort is on to find a solution to the coming disaster. http://www.reuters.com/article/2012/05/27/us-usa-congress-taxmageddon-idUSBRE84Q08320120527

Given all that why do you think SPX will go up at all, let alone going to 1500 if there is no easy money from Bernanke? Just because Obama wants to get re-elected does not mean anything to the real money bags! To go there, we need fuel which is QE. If any opposing congressman wants to protest against the Fed giving free money to the banks before election, the best way to shut him is to give him a call from his broker or banker that the world is coming to an end and his shares are now valued much less.  (Except Ron Paul may be) Problem with the giant Ponzi scheme that the Fed and congress are playing is like riding a tiger. They cannot get down without getting killed.

We look at Fibonacci level, over sold or over bought or some other crap to find out what the stock market will do next but the real answer for the stock market going up or down can be found somewhere else.  For the retail investors, who have lost money every time s/he has tried to beat the system with various system, I can only say that be very afraid. Preserve what you have and do not fall prey to the schemes like the FB IPO or some other get rich quick scheme.  This rally is to be sold into. Raise cash and be patient.  We have not seen anything yet but remember timing is everything. The 1^st rule of investing is “Preserve Capital”. And be clear to yourself, are you investing or gambling.

Hope you are enjoying the “Memorial Day” long weekend. While you are having fun, it will be nice if you remember that they have killed 1000s of young men and women in the name of honour and glory in needless war which did not protect American or made it any safer. We are not even thinking of many thousand innocent civilians who got killed, maimed, ruined as incidental casualties of war. And yet the real source of the problem, the states from where it all emanates like Pakistan or Saudi Arabia, are our friends!

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

1200 OR 1400 ?

Last Monday, may 21^st SPX closed at 1316, on May 25^th it closed at 1318. It is as if the last few days did not exist at all. All intraday highs and lows for nothing. For two consecutive days I have written that although I expect a “Memorial day rally”, I am not sure how far it will go and it is just a counter trend rally if it happens. For three days in a row, they have goosed the market at the close, to make it close in green by a whisker. And McClellan Oscillator is doing something funny. It is slowly creeping out of the oversold position and reaching the Zero level. All for 20 SPX points?  But then why bother about one week, SPX has not gone anywhere for the years as a whole. If you think this week was a waste, then last one year was waste as well. Only the brokers made money out of us. And of course TBTF banks.

Coming back to the market, it remains oversold and the promised rally is yet to materialize. On the other hand sentiments are overtly bearish and yet we have not seen the capitulation. The immediate downside appears limited to 1280 and the upside potential is somewhere between 1360-1380. ( Very short Term for next few trading days) The seasonality favours the bull in the very short term but the bears are in control of the intermediate term, till Bernanke shows up.

I  think we will see violent and volatile price movement for the next few weeks till the FOMC meeting and much panic will be created here in USA and in Europe that will help the Fed to open its purse string. It is only too willing to help but needs some clock and dagger to perform and appear non-partisan.

The investors should avoid the market till the FOMC is over and we know what is in store. Cycles are down for major part of June and even if it manages to rally to 1380, it will be a counter trend rally and risky to participate.

The markets are closed on Monday, May 28^th in USA but open in Europe. It will be interesting to see how the markets open here on Tuesday. If Europe manages not to blow itself up on Monday, next week has promise to have some action. In the mean time enjoy your long weekend.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your Facebroke wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

Russian Roulette.

Today’s post will be ultra-short as I am going out for a late evening meeting and will not be able to do much later.

In the morning I sent out four tweets. You can see them next to the blog. Around 11.45 AM Eastern, I closed the long positions initiated yesterday and a minute later informed everyone that I am getting out. I am clueless in this market and I do not want to be cute or smart. Just take a look at the price action for the last four days.

I still think we will get the “memorial day bounce” but we might not go very far and may even get a better entry point as well if at all we decide to play the bounce.  It’s a meat grinder of a market and if we are not careful, our hands and fingers will get smashed. The primary objective in this type of market is to preserve capital. You can smell the stinking rat here.

So let us see what happens tomorrow.  Friday before Memorial Day tends to be light and lackluster. If the level holds tomorrow before close, then I might take another stab at it. But this is not investing. This is playing Russian roulette. Do we really want to play this game with a loaded gun? Let me repeat what I wrote yesterday : “ If you are an Investor, it is better to avoid the market now.  A better opportunity will come by 3^rd week of June. “

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your Fadebook wall and invite others to join the growing gang. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

Minefield!

WOW! That was some intraday reversal.  Are we still playing the old tape?

It may not be exactly similar but the theme is very familiar.

This market is insanely dangerous both for bulls and bears. It’s like walking in a minefield at the middle of night blindfold. That is why I keep repeating “don’t do anything, just wait.” I was looking for a bounce but I waited till the last half an hour to decide whether to go long. I think we have had a test of the earlier low and reversal there from.  A close below last Friday’s low will take SPX to 1380 level. Please remember, this is not “Risk On”. This is ‘Risk-Off, Off”. There is a difference.

The model portfolio has been updated with the picks but they have a very tight stop. And as promised, I tweeted my intention well in advance. This bounce is going to be a technical bounce and counter trend rally. So don’t expect too much for too long. However, it is going to be a massive short squeeze.

Germany sold $6 Bn. 2 year bonds at 0 %. Yes you are reading it correctly. But that’s all a galaxy far away. In the immediate neighborhood, the Fed has to sell $ 35 Bn. 2 year notes yesterday and another $ 35 Bn. 5 year notes today. No wonder they had to create little panic to get good rates.  The TNX (10 year treasury yield index) was at historical low.

The recovery for the day was without any volume. But isn’t that the case always?  As I said in the beginning, it is just a technical rally from oversold position.  Seasonality is also a factor.  From now till the first two days of June, it is a bullish period. When bullish seasonality combines with oversold market, we do expect a rally, even if it is a counter-trend one. It is called “Memorial Day Rebound”. The following table is from “ Stock Traders’ Almanac”.

Tomorrow is expected to be bullish. Let us see where and how far it pushed. It is always good to remember that the market is the boss and it inflicts maximum pain on maximum number of people. So be nimble and trade safe. If you are an Investor, it is better to avoid the market now.  A better opportunity will come by 3^rd week of June.

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your Fadebook wall and invite others to join the growing gang. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

The Smug Little S**T Hosed The Muppets!

You read it right. Now the shocker and it is from Reuters;; Reuters' Alistair Barr is reporting that Facebook's lead underwriters, Morgan Stanley (MS), JP Morgan (JPM), and Goldman Sachs (GS) all cut their earnings forecasts for the company in the middle of the IPO roadshow. They told it to the institutional investors but nothing to the retail. No wonder Goldman calls the retail investors as “Muppets” in their internal emails!

http://finance.yahoo.com/blogs/daily-ticker/facebook-bankers-secretly-cut-facebook-revenue-estimates-middle-133648905.html

If we did not live in a banana republic, the lead underwriters and owners of FB would have been hauled for criminal conspiracy to defraud the investors. But that is not going to happen. The rot in the system is too pervasive. But even the muppets are to be blamed for their greed. One would have thought that by now the retail investors have learned their lesson as how the St. games the system, but no, not a chance in hell.  From NY Post:

After a 30-minute delay, individual New York investors gobbled up stock online and at discount brokerage houses.

Queens chauffeur Thomas Gardner, whose home was just foreclosed on, could only afford $89 for two shares, which he hoped would eventually send his 9/11-born son to St. John’s University.

“This is a good start,” Thomas said, beaming as he came out of a Midtown Charles Schwab office. “Everybody is hoping for something, so I’m jumping on this wagon. I have a good feeling.”

Michael Scott, an Upper West Side architect, bought his shares on his iPhone.

“I like the chase,” said Scott, who bought Google stock at $100 a share in 2004 and still holds the $618 stock.

Retired nurse Teresa Ryan, who lives in Tudor City, bought 4,920 shares at $40.50, noting she made a killing on Apple stock.

“I’m very psychic when it comes to stocks, I really am,” said Ryan. “I have no retirement, I have no pension, so I try to make money on the market.”

 Read more: http://www.nypost.com/p/news/national/zuck_laughin_in_their_faces_YuKorcZA7fIl8DKPLksIhK#ixzz1vcRVM1yR

Zuckers!

I am disappointed that there are no puts available on FB or I would have bought a boat load of puts on FB. If you consider the EPS of Apple or Google, FB should be trading at $ 2, max. $3. No more.

Coming back to market, the early morning euphoria was absent by the day’s end. We may see further dip tomorrow at least in the morning and that is why doing nothing now is a good idea. Let me repeat what I wrote yesterday: “Tomorrow might be a red day and a better entry point. There is no hurry. This is not the last train leaving station.” Logically and technically speaking, there has to be a test of selling pressure and how aggressively the dip gets bought before we can determine the strength of any up-swing. Pardon me if I have confused  you but if and when I go long, I will inform you by twitter. More the reason you should join me in twitter (@BBFinanceblog). As you know, I do not spam with unnecessary tweets and say something only when it is worthwhile. Most of the time, it is just noise out there and not worth bothering.

The late day sell-off was triggered by the rumour of  Grekxit. This time the rumours are working the other way, to create panic. You can actually see through the game. Greece will exit Euro but not now, may be in another six to eight months time. Despite all the bravado, Europe is not yet ready to face the mess. And don’t forget the almighty “O” wants to get re-elected and will do everything in his power, including arm-twisting the European leaders to at least temporarily pull a rug over the problems and print more money.

So we wait for more price action to get a better idea about the immediate direction of the market. Thank you for reading http://bbfinance.blogspot.com/

Surprise, We Have A Bounce!

So we have a bounce after six or seven down days. Already talking heads in 24 hour news channels have started identifying the next buy! How come there is always a time to buy but never a time to sell? No wonder that most of the time news is just noise.

What happens next? Problems in Europe gets solved? Will Hallande start doling out money to all Europeans?  Or ECB starts its printing press? If none of the above, then why are the talking heads so excited today?

I closed the short positions and was waiting for a bounce even while the world was ending last week. But today I am reminding myself that one swallow does not make a summer. I need to see how things are over night and tomorrow. I am ready for a quick but vicious bounce and would like to take advantage of it. This is just a technical bounce which will also kill most of the shorts.  Let me remind you how the tape was played last year.

This is S&P 400 Mid-Cap ETF, RFG. To me it looks so very similar. At the same time, I want to be sure about the strength of the bounce. So I will give it some more time. Tomorrow might be a red day and a better entry point. There is no hurry. This is not the last train leaving station.

Now that the Fadebook drama is over, folks seem to be in a hurry to get out of the stock. My time line for Fadebook penny stock was May of 2014. But at this rate, it may come in 2012 itself. The best description of this scam is from NY post.

So we wait for clarity and best odds. In the mean time, please re-tweet this post to someone who might like it and follow me in Twitter @ BBFinanceblog. Thank you for reading http://bbfinance.blogspot.com/

The Giant Ponzi Scheme.

Black swan of the financial world really exists. No, it has nothing to do with Euroland. Not even coming failure of Spain or Italy. Euro-Zone will survive even if Greece or Portugal exits. It will lurch from one crisis to another and it is not going to get any better either. This is the new normal with Europe. The panic will continue at different levels and TBTF Banks will use that panic to milk money out of the Fed.  Greece going out of Euro will not be the end of it or end of the world. The financial illusion of the world and US of A is actually running on another giant Ponzi scheme. When this Ponzi scheme comes undone, that will be the day of Armageddon. That will be the day when US $ will lose its reserve currency status and the collapse of capitalism will be upon us. The financial system that we know today will be changed forever on that day. Trillions of dollars of assets will be gone in a moment. That Ponzi scheme is called the “US Treasury Market”. Problem with Europe may take DOW to 10,000 but when the US Treasury Ponzi ends, DOW will be at 3000 and SPX at 400.

The primary dealers (Too Big To Fail Banks) borrow money from the Fed at overnight rate of 10 basis points and then invest in 10 year treasury for 200 basis points. Then they put these treasuries up as collateral and borrow again. Do you see the never ending circular loop? In this scheme, the Fed is able to keep the interest rates down, (backdoor monetization of debt which is illegal under US Constitution) politicians are able to borrow from the future and TBTF Banks are free to take risky bets and make profit out of nothing. Even if something blows up once in a while, they don’t really care because their skin is not in the game. Nobody owns the treasury bonds (except retail and pension funds) and the whole scheme is running on REPO. They make money as long as the prices of the bonds are rising or stable. The day the interest rates starts going up the scheme starts to unravel. This massive REPO scheme, which will make the Lehman REPO appear as a grain of sand in comparison, where debt is fueled by more debt, will go on, till it does not.  It makes Madoff looks like an amateur.  Like it happened in country after country in Europe, it is going to happen here. When that will happen I do not know. But just be aware that the timer is ticking.  The result of this endless circular loop is the ever increasing balance sheet of the Fed. From $ 900 billion in Sept. 2008, today it stands at over $ 3 trillion, just to keep things stable where they were. On16^rd May 2008, SPX was at 1425. On 16^th May 2012 SPX was at 1304. So with all these trillions, they have lost only 120 points. Not bad Mr. Chairman. Now shall we sell Everything?

 I think by end of the year the Fed’s Balance Sheet will be near $ 4 trillion just to take back SPX near its all time high of 1565. Will they succeed in doing that? Difficult but not impossible because they seriously believe “deficit does not matter”.  At what point of time the balloon burst? I do not know. But I am ready to run. Three horsemen of Apocalypse are in view. Expiration of Bush Tax cut, expiration of extended unemployment benefit and debt ceiling issues forcing spending cuts. All three arriving at the same time in 2013.

I do not believe in the growth story. But I do not under-estimate the power of the central banks either. They can keep the ponzi going much longer than you and I can remain short in the market.  Now we have a correction on hand. Do you think they will let it run its course? More so, when a Presidential election is round the corner! You are kidding, right? So I am ready for a bounce anytime now. If the bounce comes just because of fancy words like growth and stability and strong resolve, then we will sell that bounce. When we see money actually coming in, we will buy that correction. Wash, rinse and repeat.

This is the end game. This is the black swan Taleb was talking about and it is very much out there. I can almost see it. By the way, be aware that there are different frames. The end may well be six to eight months away. If you have any questions, feel free to email me. Please re-tweet this post to someone who might like it and follow me in Twitter @ BBFinanceblog. Thank you for reading http://bbfinance.blogspot.com/

Fade Book!

Cartoon Source: Walt Handelsman for Newsday

There was shock and awe from the Facebook bankers who fought valiantly to hold the $ 38 line.
If you happen to read this blog on May 19, 2014, remember what I said today. Facebook, Groupon and whole host of social media IPOs  will be penny stock in two years time.Its 2000 all over again.
P.S.
You might be interested in the following:
http://www.nypost.com/p/news/national/zuck_laughin_in_their_faces_YuKorcZA7fIl8DKPLksIhK

Someone Is Lying.

The correlation between Euro and SPX has been strong. And yet, something funny happened today. Around noon, Euro surged and SPX dropped. You can see the divergence in the following chart.

One of these two is lying. I guess it is SPX. For one, it is more difficult to manipulate the forex market which is many times bigger than the US equities market.

Let’s take a look at US $ Index.

It’s down substantially. I wrote few days back that US $ is hitting multiyear resistance and is making a double top. So here it is.

Something is fishy out there. And it got me thinking!

I am thinking that someone wants to create a bit of panic. So that retail sells and they buy cheap. May be I am just nuts but I am expecting some good sound bites from Camp David summit. Don’t get me wrong. I fully expect another 10-15% correction but I only beg to differ on the timing. And timing, as you know, is everything in investing or trading. Ask those who bought gold at $1900 or Apple at $625. Getting even is not a good score in this game.

This is not a sprint. This is a marathon. Most of us want to play this game for another 10 years or more. If we can catch 75% of all up swing and 40% of all down swing, on a consistent basis for a long period of time, we will retire as millionaire. I did not have this discipline when I started out. 20 years after, I am still learning and battling with my own impatience, fear and greed.  I would make good profit in most trades only to give it back and some more in a few bad ones.  To recover a -50% we have to make +100% in the next trade.

Back to the market, oversold became more oversold and is reaching extreme level. Can it go down further? Yes, it can but not much. I think we would reach a tradable bottom soon.  Lots of stop loss levels have been taken out; lots of new short positions have been initiated.  It was only 30 days back, when the sky was all blue and everyone was talking how indexes were going to new high. I was writing about panic that will come because without panic, Bernanke cannot give free money to the Banksters. It serves two purposes, it shakes out retail investors and makes them sell out at the bottom and then pump all the way up with the liquidity provided by the Fed. And if they can co-ordinate this up-swing from July – October, victory is election is guaranteed. And again, mark my words; this is what going to happen.

So I am still waiting and I have no worries of losing because I am in cash. Only I should not get greedy and do something silly. It is not going to end well but we will have to time it right.

That’s all for today. A gorgeous a long weekend is here. Let’s enjoy the sunshine because there is more to life than sitting before computer and worrying if the market will go up or down. If you care, please re-tweet this post to someone who might like it and follow me in Twitter @ BBFinanceblog. Thank you for reading http://bbfinance.blogspot.com/

Not Looking Good, But!

Definitely not looking good.  A 20 point sell-off is never good looking but it is looking more like a panic bottom. Question is, do we have sufficient panic for a bottom or more panic is yet to come.  If we do get a break down, we are looking towards 1100, so we have not missed much. Better be careful because on hourly as well as daily basis, SPX is way oversold. The following is Daily $NYMO

And the next one is weekly $NYMO

I am not sure how much lower we can expect the market to go from here. On the other hand, oversold can remain oversold for much longer. These are real danger zones. Volume for the day was well above average at 2.88 mil for /ES. It seems no one wants to hold the bag overnight. But Crude did not break down below $ 92.50 and showing a bottoming pattern.  Copper is refusing to break down below $3.45 and is oversold. Of all things, Gold and Silver bounced back almost 3 %. If Europe melts down tomorrow we can always join the party, but better not gate crash unwanted. At the same time, bottom fishing now is like trying to catch a falling knife.  Let us see how things develop for next few days.

Looking at chart pattern, I think this panic is just a teaser of what is to come, but before that we could have another huge up. My downside target as of now is 1280 but the upside target is 1420. I might be totally off my rocker but the risk and reward analysis does not support shorting here. We were short from 1410 and we got out at 1340. So we got most of the correction. Could we have waited? Sure we could have, but I wanted to protect the profit, take the cash and run. There is no best time to take profit and we cannot exactly time the top or bottom. As Joe said, 1^st priority is preservation of capital.

We have to overcome our fear of “missing out”. I quote Joe Fahemi again: “95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.”

The 1^st rebound, if it comes tomorrow or day after, will fail. It is at that point of failure, we should decide the next course of action. I would give few more days for the panic to settle down and see where we are going.

I hope you are enjoying my posts but at the end do whatever is best for you. If you think we should short here, please let me know why. I am always ready to learn and improve.

Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Please forward / re-tweet the post. I would like to have more readers and your re-tweeting  might help.

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In Waiting Mode.

I am in waiting mode and do not have any new thing to say or discuss today. SPX closed below 1330 and as I have said before, I would wait for it to close two consecutive days below 1330 to decide whether to take short position again. However I think we are due for bounce.

Given the lack of any clear direction and not waiting to risk capital by taking hasty positions, I thought I would share some investment thoughts. I would like to share with you some parts of an email from Joe Fahmy which I received today. Joe is a highly successful trader and I like what he has to say. In fact my investment philosophy today is almost similar to Joe’s.  So while we wait for the market to show its hand, let us read together what Joe has to say. I am sure you will like it.

·         I’ve been trading for 16 years. For the first 12 years, I would do very well during market uptrends, only to give back a good deal of profits during the corrections. I made one simple adjustment over the past 4 years: When I see potential warning signs, I now go to cash and SIT OUT! If I’m wrong, I could care less because I’m confident that I’ll make the proper adjustments and get back in the market, even if it’s at higher prices. I stopped worrying about “the fear of missing out” (which is the downfall of most traders) and I got more concerned with respecting risk and playing defense. MY NUMBER ONE PRIORITY IS TO PROTECT CAPITAL…PERIOD!

·         The market is healthy 2 to 3 times a year. When I feel we’re in an uptrend, I trade companies that are both fundamentally and technically strong. When I see warnings signs, I get out!

·         I’ve studied some of the best traders who ever lived, such as Jesse Livermore and Gerald Loeb. They believe that you should only be in the market when probabilities are in your favor, and that the LESS you are in the market, the better. According to Harvard Business Review, since 1886, the US economy has been in a recession or depression 61% of the time. I realize that the stock market does not equal the economy, but they are somewhat related. Again, I only want to be in the market when I feel it’s healthy.

·         90% of what we’re taught about the stock market is flat out wrong: dollar-cost averaging, buy and hold, buy cheap stocks, always be in the market. The last point has certainly been proven wrong because we have seen two declines of over -50%…just in the past decade! Keep in mind, it takes a +100% gain to recover a -50% decline.

·         95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.

·         I rarely short because I believe shorting is very difficult. In his Market Wizards interview, William O’Neil said: “I have only made significant profits on the short side of two of the last nine bear markets.” In other words, if one of the best traders of all-time finds the short side challenging, then who am I to try and re-invent the wheel?

·         DO WHAT WORKS FOR YOU.

I could not agree more! One of the reasons I am extra cautious now to take the short side is risks are more and that is why it is a bad trading / investment strategy to make up your mind after reading all the doomsayers. You know who all I mean. Like Joe, I have realized that fear mongering is an extremely good marketing strategy. But as the saying goes, “ do what works for you”. If someone out there thinks that the world will end tomorrow and short the hell out of the market, who am I to argue with him.

In the morning I posted a US $ chart showing a possible double top. US $ is facing a multiyear resistance and it may not be able to break that resistance in the 1^st attempt.

 Now it is weak across the board.

So we wait for opportunities and keep our patience. Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Please forward / re-tweet the post. My only motivation as of now is to have more readers and your re-tweeting  might help.

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

US Dollar

It is 12 noon Eastern. It seems US $ has reached a critical resistance level.

It looks like a double top to me. Unless US $ takes out 81.50 convincingly, we will see reversal here.
Going to be very choppy next few days.

Houston, We Have A Problem.

The markets are standing on a precipice. One more push and it will be in free fall. Crude is near $ 93 and breaking that level will take us to $ 70. Gold at $ 1543 and on confirmed sell signal. Apple back to its pre-earning level. Euro at a new low. God, we have panic. I wrote almost a month ago when the air was full of talk of SPX 1500, mark my words, we will have panic soon. http://bbfinance.blogspot.ca/2012/04/weekend-musings.html

As I wrote last night, I will wait to see SPX close below 1330 for two consecutive days before I decide to short again. Today we came close but it was not enough. We will have to wait for another day. This is the beauty of the market. That it is able to turn sentiments in the opposite direction in a very short time. Now everyone is totally bearish and clarion call is going out to short the market with all the leverage. But it may be too early, too soon. Only time will tell.

Surprisingly, RFG, the S&P 400 mid-cap did not show much damage. And all the bearishness did not put much water on the mother of all scams, the Facebook IPO. For some reason Groupon shares were in high demand today and the share jumped almost 4% on good profit. Don’t folks realize that it’s all accounting myth? I think most of the demand was for taking loan for shorting.

I am sticking to my plan. I am happy to be out of the market watching the psychotic behavior from low to high to low. We do not always have to be invested and cash is a position. When in doubt, stay in cash. I do not think we have seen the end of the bull yet. There is still some life left in it and it may surprise many.

Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Thank you for reading http://bbfinance.blogspot.com/ . Stay nimble and trade safe. 

Cash And Cushy!

Once again we are in “Cash and Cushy”. We closed our short position around 10 AM eastern. After that the markets went up, then down and now futures going up again. The reason for closing the short positions is a simple one.  Technically speaking, everything is oversold in the short term.  There are confluences of supports and resistance, Demark exhaustion set up is tomorrow, short term cycle has bottomed, McClellan Oscillator is oversold and the last year’s tape is being played, everything points to a bounce.

You may like the following chart from Ciovacco Capital:

My earlier call was for SPX 1340 and I got out there. I will wait for few days to access the market internals and momentum. If SPX can close decisively below 1330 for two days in a row, I will add new short position. If SPX can crawl above 1360, I will go long, even if for a short while.  In the interim zone, I will just watch.  More so, folks are now bearish and are piling on to lots of puts.

In the 1^st place we waited for quite a while before going short and only when I felt that the risk of whipsaw is less, I got into short position on May 1^st  around 1410. And we are out on May 14 with a 14% return. No heartburn now, whichever way the market moves in between those 30 SPX points!

Let us see which way Greece drama plays out. I think Euro bounce is due. As of now it is still threatening to breach 1.28 but except Gold, rest of the risk assets are not following it. Part of the reason of renewed drop of Euro post lunch may be Moody’s downgrade of 26 Italian Banks and the knee-jerk reaction to it. By itself S&P and Moody’s are a joke and I fail to understand why anyone would react to whatever they do. But the biggest joke is that the Banks in Europe have any rating at all. So downgrade does not make a squat of a difference. 

Jim Flaherty, the finance minister of Canada made some blunt comment about Europe today:

 "This is a time of crisis in the euro zone. The whole future of the euro zone is up for grabs, and this is very important for many of the euro zone member countries, given the history of Europe in the last 100 years or so," Flaherty told CTV television.

"So they have to show courage. They have to do the right thing, use some of their taxpayers' money to bail out some of the weaker members of the euro zone - or start moving away from the euro zone and just say this was an experiment that has not worked."

(Reporting by Randall Palmer; Editing by Peter Galloway)

 That is pretty blunt talking and we have not heard such talks from politicians before. May be it shows that patience with Europe is running short and money from G20 will not be coming in easily?

That’s all for today. Let us not trade or invest with fear and greed.  As always, trade safe and be nimble. Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Thank you for reading http://bbfinance.blogspot.com/

Nothing Really Changed Or The Cockroach Theory.

It is said that there is never just one cockroach in the house. The JPM $ 2 Bil. speculative loss reminds us of that. How many various other kinds of loss are hidden in the cupboard of the Fed? JPM is supposed to be the strongest of the rotten lot. What about BAC or C or other European Banks? We know for sure that many of those are zombies walking around.

So what has changed after three years of the worst financial meltdown in the recent history and trillions of dollars/euro liquidity pumped in by the central bankers. Nothing really!  I know that a comparison of Bear Sterns with JPM may not be very appropriate, but let’s just review the time line of the collapse of Bear Sterns from an academic interest point of view: ( Source: Reuters)

1) December 14, 2006 - Bear Stearns posts record earnings, touting huge profit gains from then-booming businesses advising on mergers and arranging credit derivative, distressed debt and leveraged finance deals.

Bear stock closes at $159.96. The average price target from Wall Street research analysts covering the stock, according to Reuters Estimates, is $166.24.

2) January 12, 2007 - Bear shares close at a record $171.51 on momentum from its strong earnings report the previous month. The average price target: $174.

3) May 24, 2007 - Bear shares close at $147.55, a six-week low, after Goldman Sachs slashed its quarterly earnings target for the rival investment bank, citing concern about Bear's heavy exposure to the mortgage securitization business. The average price target: $181.73.

4) June 14, 15 & 16, 2007 - On June 14, Bear reports earnings declined for the first time in four quarters on weaker results from its mortgage securities business. On June 15, The Wall Street Journal reports a hedge fund run by Bear has suffered big losses on soured subprime mortgage investments. (A second fund with similar troubles would soon emerge.) The next day, the 16th, the Journal reports that Merrill Lynch, a creditor to the fund, seized some of its assets. The stock closes at $150.09 on Friday, June 15. The average target price: $181.

5) July 17, 2007 - As losses from subprime mortgages begin to threaten credit markets around the world, Bear Stearns informs investors in its two struggling hedge funds that the funds have "very little value" remaining. Bear shares end the day at $139.91. The average target price: $178.23.

6) August 5, 2007 - Warren Spector resigns under pressure as co-president and co-chief operating officer of Bear, having lost the confidence of long-time CEO James Cayne for his handling of the subprime mortgage crisis. The stock closes at $113.81 on Monday August 6. The average target price: $164.29.

7) October 5, 2007 - Prosecutors launch a criminal probe into the collapse of the two Bear Stearns hedge funds. The stock closes at $131.58. The average target price: $144.17.

8) December 20, 2007 - Bear reports its first-ever quarterly loss, driven by $1.9 billion of bad debt write-downs. It also says executives will not receive annual bonuses. Bear shares close at $91.42. The average target price: $121.67.

9) January 8, 2008 - James Cayne is replaced as CEO by investment banker Alan Schwartz. The stock closes at $71.01. The average target price: $111.36.

10) March 12, 2008 - Responding to market rumors of a cash crunch at the bank, Bear CEO Alan Schwartz goes on CNBC television and assures viewers that the firm has ample liquidity. The stock closes at $61.58. The average target price: $98.87.

11) March 14, 2008 - JPMorgan, backed by the Federal Reserve, provides an undisclosed amount of emergency financing to Bear Stearns. Bear says its liquidity position had deteriorated dramatically in the previous 24 hours. The stock plunges to close at $30.85. The average price target: $93.62.

12) March 16 & 17, 2008 - JPMorgan agrees on March 16 to buy Bear for $236 million, or $2 a share, representing just over 1 percent of the firm's value at its record high close just 14 months earlier. The deal essentially marks the end of Bear's 85-year run as an independent securities firm. On Monday, March 17, Bear shares close at $4.81 on optimism another buyer may emerge. The average target price: $2.

Yes, the same JPM.

Around that same time other cockroaches came out of the closet. Lehman Brothers filed for bankruptcy protection on September 15, 2008.  Merrill Lynch got purchased by BAC on September 14, 2008. Then it took over 2 years to discover that too big to fail banks are in fact living dead walking the earth and yet today they are bigger than before. None other than a prominent Fed official is pounding his fist on the table to break them up but it will have no impact whatsoever. So many cockroaches got away in the height of 2008/9 crisis. They got fat with the taxpayers money and now they are coming out again. How many months you think we have now from sighting of the cockroach and final meltdown? I would say about eight months to a year.

But that is a very long time horizon. Let us review what is in front of us for the next week or two.

European Crisis: By now everyone knows everything about how shi**y things are in Euroland. And it is still a wonder that Euro has not collapsed yet. The reason being, the same TBTF banks believe that their Chairman will bring in more free money here in USA and ECB will start another LTRO in summer. Liquidity cannot save them forever but   may gain them some months.  Now that Euro has closed below 1.30, the immediate target is 1.285 after which there will be a short term bounce. I think we will see 1.26 challenged by end of June 2012.

This will give Bernanke enough ammunition to start the next liquidity pumping program.

Economic Situation: Those who believe in the de-coupling theory and shout that because US stock markets are going up, US economy is doing great, are in for a shock. The fact is the world economy is sputtering and US economy is no exception. The GDP count for the 1^st quarter will come around 1.5, Europe is in recession, Manufacturing index in India has nose dived, China, in spite of all manufactured data, clearly showing signs of landing ( I suppose hard) and have now reduced the bank reserve ratio. The real story of Chinese economy is told by Australian Dollar which is going down and will soon be below parity.  What does it all mean? It means that we will soon see a concerted effort by all the Central Banks of the world to reflate. Do not buy canned foods and that survival kit yet.

US Stock Markets:  While SPX and DOW gave sell signal, there is no sell signal from Nasdaq yet.  I keep repeating that we are following the script of 2011. An update of RFG ( SPX Mid cap 400 ETF) is here.

You can match the points to the T.

In the coming week, we might see a lower push but by month end we will re-test the Apple earning high of around 1400 again. I believe any rally should be sold.  You can follow daily response to the market movement in our model portfolio.  As of now, the model portfolio is short on commodities, financials and Russell 2000. I would like to close all short positions and re-enter later again.

Oil and Commodities:  I have said it before and will say it again; crude and commodities will go down unless we see more easing. These just reflect the world economy better than the algo driven bot controlled US stock markets. I think Crude will bounce along with the general markets only because it is much oversold.  It is gets past $ 93 in June, we would be looking for way down below.

Gold & Silver:  Just hanging by a thread. How far it can go? Let’s see if this chart by Chris Kimble gives any indication.

I still think Gold will go upto $ 2500 in next 12 to 18 months time but that will come in a different set of circumstances. For now, more downside is to come. Again, there will be a short term bounce along with other markets but I would stay away from going long gold for now.

It’s been a long post. So let me stop here by quoting Charles Dickens: It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

You see, nothing really changed even after 200 years.

Thanks for reading http://bbfinance.blogspot.com/ . Hope you are enjoying my blabbering and forwarding it on to someone who you think might benefit. I am looking forward to your comments and emails. 

Whale Of A Day.

It was whale of a day. Nothing much really happened in terms of end price but lots of things happened in between. It was only yesterday that I wrote: “I do not believe that the powers that be will allow any meaningful correction in the Indices”. And sure enough, the plunge protection team was out in full swing to buy the dip in the morning. They did stop the panic today morning but there were no believers or buyers. So the bots had to close their position by the end of the day and the market was back to where it started.  If you know how the house operates you can play your bets accordingly.

By the end of the day Euro was back to its lows of 1.2915, Crude at $ 95.575, Copper at $ 3.63, Gold at $ 1579.1, Silver at $28.89. Short term crude is reaching oversold level and any close near or below $93 may result in a dead cat bounce. Same is the situation with Gold and Silver.

While the trend is firmly down, I am expecting a short term bounce. If we see further sell off of all the asset classes on Monday, it may not be a bad idea to close the short positions, take some profit and wait for the bounce to complete. In any case my short term target for SPX is 1330 which is about 23 points away. Even if we come close to the target intraday Monday, I would take that as a sign of fulfillment of promise.

It has been an exciting week. So far, we have played it nice and safe. We have not taken any undue risk, nor front- run. We should now take the money off the table and be cash and cushy. I think because of the JPM saga, the BOYZ will try to do something silly soon. But unless they feed the beast with more money, it will not sit quite. Let us see how it plays out.

It’s going to be a wonderful weekend. Sunny and nice. Let’s have a life and enjoy the weekend with our loved ones. Let’s forget Greece Spain and have some fun instead.  Thanks for reading http://bbfinance.blogspot.com/ . Hope you are enjoying my blabbering and passing it on to someone who you think might benefit. I am looking forward to your comments and emails. 

JPM Takes It On The Chin.

Although I am normally critical of the constant negative reporting of ZH, today I have to say kudos to them.  They do bring out the dark side of the Wall St like no other. Two of their reports stand out today.

·         The going on of JPM and

·         The impending bond default of Greece.

My only point is: do not get caught up in headlines or conspiracy theories while trading or investing- pay attention to risk management. Stock market is not economy. Wall St. is a giant casino and the house always wins.

After six days of red, today DOW managed a tiny green but that was compensated by red Nasdaq.  Even mighty Apple was marginally green. Markets are closed as I write it. Let us see how the world market reacts to the JPM news. The memory of Lehman may not have been forgotten yet.

Euro did show some bounce in the morning but gave back all of it by evening and there is serious risk that it will cross in the range of 1.28. AUD is nearing parity. US $ have crossed all important level of 80 and would likely do some serious damage in the next few days.

The carry trade favourite AUD is moving in sync with SPX and with AUD losing ground and demand for safe heaven $ shooting up based on headlines, things do not look so good for the “Risk On” trade. But again, please do not get carried away.

Readers know that the model portfolio is not much dependent on major indices. I have not touched anything remotely connected to DOW or S&P 500 or Nasdaq. The reason being I do not believe that the powers that be will allow any meaningful correction in the Indices. So I have targeted sectors where there is definite weakness. But I am glad that we have a short position in financials. Again, be ready to bail out of the short positions quickly. I am fairly confident about the short positions in commodities. If you remember my commentary few days back regarding Crude, I said that if it breaks below $97, the next stage is $ 93 and after then $ 70. Today, Jamie Saettele, an excellent currency analyst has this chart for us;

If we really get past $ 93, there is only air below that. Isn’t that something!

It is going to be exciting next few days. So far as SPX is concerned, unless we see a good close below 1330, we are playing out last year’s tape.

Thank you for reading http://bbfinance.blogspot.com/ . Hope you are benefiting from my two cents worth of blabbering and passing it on to someone you think might benefit.