Blow-Off Top Rally Coming.

The 1^st 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 3^rd 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 2^nd quarter which will give Bernanke opportunity to start another QE.

So we are going into 2^nd 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 1^st week of April is when the market shoots up. 2nd week it retraces somewhat and goes back and forth. 3^rd 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.

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.

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! 

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 1^st 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.

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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.

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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, 30^th 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.

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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.  

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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 2^nd 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.

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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!