Saturday 29 September 2012

Weekend Report.

We all can see the writing on the wall but can we read it? The Chicago PMI, another cooked up data by the Govt. went negative, despite all efforts by the powers that be, for the 1st time since 2009. The following chart is from Reuters:

Now we know the reason for the “Hail Mary pass”. Bernanke knows something which we don’t. But the virus has developed resistance for the medicine and now the medicine is causing more sickness. Borrowed money, money printed out of thin air cannot create prosperity. I wish you would see the following presentation in full:

So do we go short here?

Heck no! Not till after election. Let me quote from Stock Trader’s Almanac:

Psychological: Intoxicated. Despite weak fundamental data, Europe’s debt crisis, escalating geopolitical tensions, the pending fiscal cliff, etc. the market continues to drift higher with only an occasional pause. Central banks, the world-round, have either pledged to or have already begun to refill the punch bowl. At some point it time it may run dry again, but for now the market seems to care little about anything else.

Fundamental: Weak. Global growth is slowing and it was confirmed by warnings from Caterpillar and FedEx. Many Q3 corporate earnings forecasts are actually expecting year-over-year declines. Unemployment is still above 8% and the recent decline in the headline rate was actually due to the labor force shrinking, not because of new hirings. Today’s sharply lower than expected final Q2 GDP showing just 1.3% annual growth and the abysmal durable goods orders report only further underscores why the Fed took action.

Technical: Consolidating. After breaking out to new recovery highs, the market yielded to typical end-of-September weakness while digesting the Fed’s latest action. Provided the geopolitical environment and economic data do not deteriorate in any meaningful manner in coming weeks, the market is likely to resume its drift higher, at least until after the election when Congress returns to session. 

My short term cycles are down for some more time and I think we will see lots of chop. I was hoping that PM sector will sell off and offer a good entry point but so far it has not obliged. SPX 50DMA is around 1410 and unless it is broken convincingly, there is no reason to go short given that the last push up is about due. ( Does not apply to day traders). I see that the sentiments have turned bearish in the last two weeks and everyone is expecting the top or some sell off.

When everyone agrees it is time to be contrarian. The market inflicts maximum pain to maximum number of people and I think it is laying a bear trap. In the coming week, we might see little more selling just to keep the bears excited and entice them with more shorts and then zoom up. Where and how far it will go up, I do not have any idea. However, it can test the all time high of 1526 before the fat lady sing again.

I have a favour to ask you guys. And I am taking the cue from Tim Knights of SOH. Guys, if you are not donating, please disable ADBLOCK . I spend lots of time on this blog and I need to survive.  Thank you for understanding.

Have a great weekend folks. Join me in Twitter (@BBFinanceblog) and share it with your friends.


  1. Tks for your analysis.
    Do your cycles show anticipated direction and levels for each day during the chop cycle next week that you can share or just the fact that it should be a weaker chop next week?

    I have temporarily disabled my ad blocker to click on your ads as requested.
    I would suggest you add such reminders at the end of all your updates to ensure we don't forget and help each other out. Thanks.

    1. Thank you so much. Really appreciate your help.
      Coming back to cycles, it is more accurate on a longer term and as you shorten the focus, it lose clarity. So doing a daily cycle is possible but not dependable. On a weekly basis, it shows that the direction is down for a week and that matches with the seasonality.

  2. $spx and $USD perfect correlation

  3. Politic overdose detected :)

  4. I meant in that video, about free markets being corrupted by crony capitalism.

    I disabled adblock, but there are so much crap on this platform that pages literally took 2-3 times longer to open (not mentioned how ads are "relevant"). Also flash plugin crashes on something.

    Check how it looks in Chrome developer...
    enabled: 168 requests ❘ 135.18KB transferred ❘ 7.26s (onload: 2.75s, DOMContentLoaded: 2.61s)
    disabled:302 requests ❘ 209.50KB transferred ❘ 17.37s (onload: 6.35s, DOMContentLoaded: 3.07s)
    In the second case its still trying constantly post something on

    But anyway its not relevant in my case because I read your posts through rss.

    1. I have cleaned up the Blog. Let me know if you still have problem.

  5. great video - thanks!