tradepostings

channels & tls

2009-07-15T15:39:00.005-04:00

Fake-out

2009-07-14T15:39:00.001-04:00

Long Term Vix

2009-06-30T08:47:00.002-04:00

There's The Retracement Rally I Was Looking For

2009-05-06T11:31:00.004-04:00

I don't know if anyone remembered my posts at the beginning of the year expecting a 100% retracement of losses in the financial sector - well today it finally arrived. Granted this retracment was from a lower low than I expected. In any case - better late than never.

Dribs & Drabs

2009-04-29T19:58:00.002-04:00

VIX Update

2009-04-17T11:19:00.001-04:00

Odds point to the VIX getting a bid next week.

BKX Update

2009-03-04T10:02:00.002-05:00

Caution

2009-02-24T11:31:00.003-05:00

Vix Update

2009-02-24T07:38:00.003-05:00

All Hands On Deck

2009-02-23T09:57:00.005-05:00

What the Fed, the Treasury and the Obama Administration have attempted is to bridle the bucking bronco that has become our capital markets. Although the markets have been under pressure as of late - it has been a direct result of premeditated ambiguity by various government officials towards the savage beast herself.

Now mind you this type of intervention could not work in most market conditions - i.e this fall. There was far too much selling pressure to be overcome by information and rhetoric. It was man verses nature and we all know who wins that battle. Where we are currently sitting is in the doldrums of the storm. The ship is in tatters, the crew is demoralized and looking for answers and leadership. Mass psychology now becomes either the crews downfall or secret weapon to survival. It is up to their captain to suspend the aroma of certain death and inspire a path towards safety. They just need to believe in the option of survival.

Let's see if Geithner can earn our respect and lead us to safer waters. I still believe this is an engineered test of the November lows. Time is of the essence to many businesses models from annuity to insurance companies and I believe the Treasury felt compelled to "induce" a weaker market in the short term to allow for a healthier market in the long term. No sustainable returns would be possible without a test of the markets lows from November.

I am drinking the cool-aid on deck with the belief that the world is not going to hell in a handbasket. From my perspective, and ironically - there are far to many idiots on that side of the fence right now.

The Bulls Last Stand

2009-02-19T20:27:00.002-05:00

Bottom Forming

2009-02-19T12:53:00.003-05:00

BKX Update

2009-02-18T11:23:00.007-05:00

12:00 For those who may have missed out on the low - we will in all likelihood retest those levels later in the day (post 3 PM). Tomorrow things should improve dramatically.

3:00 Looks like the retest was during the 2 PM trading hour.

Which Side Of The Mouth To Believe?

2009-02-17T21:48:00.004-05:00

From the Financial Times today -

Bank nationalisation gains ground with Republicans

By Edward Luce and Krishna Guha
Published: February 17 2009 19:44 | Last updated: February 18 2009 01:07

Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans.

Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”.

Mr Graham says that people across the US accept his argument that it is untenable to keep throwing good money after bad into institutions such as Citigroup and Bank of America, which now have a lower net value than the amount of public funds they have received.

“You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant. It doesn’t matter what you call it, but we can’t keep on funding these zombie banks [without gaining public control]. That’s what the Japanese did.”

Barack Obama, the president, who has tried to avoid panicking lawmakers and markets by entertaining the idea, has moved more towards what he calls the “Swedish model” – an approach backed strongly by Mr Graham. In the early 1990s Sweden nationalised its banking sector then auctioned banks having cleaned up balance sheets. “In limited circumstances the Swedish model makes sense for the US,” says Mr Graham.

Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

“They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.”

I would be weary of rhetoric and public discourse by government officials here. They may be setting the bear trap for the market on options expiration. This reminds me of September 2007 when Fed officials said one thing and sprang the trap on options expiration with "surprise" action. The market catapulted to new highs a few weeks later. Of course new highs are off the table - but I haven't given up on S&P 1000 before fresh lows.

From all angles this week smells like the scenario I have been expecting for some time. The administration holds a few powerful cards. Don't expect them to roll over and fall on their sword. Geithner knows how to play the market's game of bluff, empty rhetoric, ambiguity and trap doors. Too much depends on market stability here to deliver nationalization or tangible hints at it during a technically fragile trading environment. It would reintroduce systemic risk to the system at precisely the wrong time. Remember Lehman Brothers? Perhaps a few hundred points higher on the S&P would give the market cover to digest these enormous tasks- but not now - not during the retest. I do believe it would significantly reduce systemic risk in the long term - just not at this critical level of support.

Remember last week Obama had this to say about nationalization.

Obama: Nationalization "Wouldn't Make Sense"
By Zachary Roth - February 10, 2009, 6:57PM
In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.

But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:
[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

I think the last comment is closer to the truth for now. We shall see.

BKX Update

2009-02-17T10:42:00.008-05:00

I believe we are making our way through another washout low in the financials. I would be a buyer of them after tomorrows open. I am expecting the BKX to fall by another 7 to 10% between then and now.

11:45 - Those looking for a daytrade with considerable meat may consider the FAZ around 57.50. I expect it to take off post 12:30 and go parabolic into the close. TIGHT STOPS ARE A MUST!

12:35 - Can't even take my own advice - sold at 58.85 for a modest gain. Can't trust this market on the short side. Too many things could blow that trade apart.

War Is Hell

2009-02-16T11:58:00.015-05:00

For the last few weeks I have been feeling like a young infantry soldier that realizes only through the grizzly sights and acts of battle that the war so eager to be fought was far too horrific to witness, let alone desire. And just like in war there are far too many casualties to justify any semblance of righteousness for finding yourself on the "winning" side. Trust me, we will all pay reparations for this. There are statues of irony and sorrow in so many places that it is hard to imagine things ever resembling the normalcy many of us took for granted. I know things will improve and it will simply take the great revolver of time - but I am impatient. I am impatient in hearing those that feel the need to be righteous and lecture the oblivious, the ignorant or even the choir. I am impatient in those that feel the need to self-promote even in the face of such national and world crisis. I am impatient with human nature and all our inherent shortcomings. I am impatient with myself and all the irony of circumstance. But most of all I am impatient with the process - in realizing we have only started our collective journey down this broken road to our uncertain tomorrow.

"Cadets of the graduating class - Boys, I’ve been where you are now and I know just how you feel. It’s entirely natural that there should beat in the breast of every one of you a hope and desire that some day you can use the skill you have acquired here.

Suppress it! You don’t know the horrible aspects of war. I’ve been through two wars and I know. I’ve seen cities and homes in ashes. I’ve seen thousands of men lying on the ground, their dead faces looking up at the skies. I tell you, war is hell!" - General William Tecumseh Sherman addressing the graduating class of the Michigan Military Academy - 19 June 1879

FAZ Intraday Update

2009-02-13T14:47:00.001-05:00

Bought @ 47 sold at 48.65. Didn't want to get caught in a "Breaking News" rip.

FAS Update

2009-02-13T09:47:00.003-05:00

11:45 - I would exit here if you have been long. This could break below 7.40 in the coming hours.

Dow Theory Non-Confirmation

2009-02-12T22:48:00.004-05:00

Since the inception of this bear market in October of 2007 the Dow Industrial Transportation Index has been one of the primary leading indicators for traders.

That fact still rings true - except it appears to be flashing a preliminary buy signal.

Since January the Transports have signaled a Dow Theory Non-Confirmation - meaning the Transports have made a new low, but the overall index has yet to confirm. The longer this signal transpires without confirmation, the more bullish it is for the markets. These are typically signals that indicate the markets are getting ready to change script and traders should prepare accordingly. Today the Transports flipped bullish in the P&F chart. Granted the P&F charts have been flipping all over the place in the past few months, but the Transports have primarily remained in a bearish posture - until today. There are some big ifs here - but if the Transports start galloping and the banks find a bid, you just may see some light in this otherwise damp and dark tunnel.

Stop Whining!

2009-02-12T20:27:00.000-05:00

Man can you hear the whining around the trading pits tonight.

"Damn Obama sticking his nose in the markets. Socialism! How am I suppose to trade when they intervene every month!"

If you didn't see this coming or weren't prepared for a 3:30 news flash on a technical break day - you shouldn't be trading. Do you remember the Geithner announcement in November when we were sitting at the 2002 low? We aren't the only ones who read the charts. They know exactly where things stand and frankly they hold some serious cards at this point. Between the repeal of the uptick rule, the purposely ambiguous bank rescue plan to changes in mark-to-market accounting - get ready for some more whipsaw and stop your whining. There's no crying in baseball.

Perhaps these information catalysts will only have fleeting effects in supporting the markets - or perhaps they will turn the tide favorably away from these rocky shoals. At these levels with so much riding on the precarious technical framework of the market - you have to be prepared for it. Remember most technicians and elliot wave theorists were flabbergasted with the bull market that sprang from the 2002 lows. Greed seeps into bulls and bears alike and never discriminates.

Buy Financials?

2009-02-12T14:18:00.006-05:00

I realize this is redundant charting since these two trading vehicles are inversely correlated - but for those that don't get it - here it is.

Tight stops are a must! These things can run away VERY very fast.

I like what I am seeing in the VIX and the YEN for a bounce. Tread carefully.

Precarious

2009-02-11T12:44:00.005-05:00

It appears it just breached to the upside. Be careful for a snapback.

1:45 - I would sell it here at 47.20 if you picked it up below 45. It should come back to the lows by the close.

Obama's Telling Posture?

2009-02-11T07:41:00.003-05:00

Here is a little verbiage from Obama last night on Nightline.

Obama: Nationalization "Wouldn't Make Sense"
By Zachary Roth - February 10, 2009, 6:57PM
In the wake of Tim Geithner's speech this morning, laying out the Treasury's plan, such as it is, for Bailout 3.0, most smart observers have concluded that the Obama administration has at least left the door open for a possible nationalization of failed banks at some point, if it decides circumstances warrant that step.

But in an interview with ABC News' Nighline, set to air tonight, the president seemed to all but rule out that idea. He told ABC:
[Sweden"] took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem -- Sweden had like five banks," he said, laughing. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.
True, Obama, like Geithner, has always seemed skeptical of nationalization. But his answer to ABC would appear to go further than he yet has in declaring that he'll avoid adopting any version of that approach.

Of course, things might look different once we get done with these "stress tests," and find out how many major banks are truly insolvent. But as of now, the president seems dead set against even short term nationalization.

At this point, with the Republic in ruins - take the hard road, it will lead to another term. His problem is in the Senate and the House and people like Dodd.

Poll shows Rell rates, Dodd down

BY PAUL HUGHES REPUBLICAN-AMERICAN

HARTFORD — New Quinnipiac University polls show a growing distrust of Sen. Christopher J. Dodd but soaring popularity for Gov. M. Jodi Rell.

The poll reported that 54 percent of state voters aren't satisfied with Dodd's explanation of sweetheart loans he got from a failed mortgage lender. Worse, 51 percent of voters aren't inclined to vote to re-elect Dodd should the Democratic senator choose to run next year.

"The numbers are bad news for Senator Dodd. He is in real trouble. Clearly, he is vulnerable," said Douglas Schwartz, director of the Quinnipiac University poll.

Republicans in Connecticut and Washington, D.C. also see vulnerability and sense Dodd's time may be up after 28 years in the U.S. Senate.

Christopher Healy, state chairman of the Republican Party, declared that new Quinnipiac poll shows Dodd is on "life support."

A spokesman said Dodd is preparing for a vigorous re-election campaign. The senator continues to enjoy strong support among Democrats in this Democrat-leaning state.

Dodd doesn't appear to have helped himself concerning controversial allegations that he received special rates from Countrywide Financial Corp. when he refinanced two home loans in 2003.

Schwartz said Dodd's poll numbers have been steadily sliding since the mortgage controversy broke last June. The senator's job approval rating dropped 10 percentage points in the last year to 41 percent in the Quinnipiac poll and his disapproval rating increased 20 percentage points.

Healy said several Republicans are considering challenging Dodd and some others have been mentioned as possible candidates.

Meanwhile, the Quinnipiac poll suggests Rell has ideally positioned herself politically a little more than 18 months before the next election for governor. She isn't saying what her election plans are yet, but Healy said he expects Rell will seek a second full term in 2010.

Rell received an approval rating of 75 percent one week after she delivered a grim budget message to lawmakers. Even Democrats approve of their Republican governor, 67 percent to 26 percent.

Welcome to trading and investing through Washington. The center of the capital universe has moved a few hundred miles south of NYC. God help us all.

Geithner's Telling Posture

2009-02-10T12:27:00.005-05:00

Just a quick note - I think they are strongly considering a quasi nationalization plan sometime in the near future. Geithner provided very little details with the expected bank rescue plan. I believe the "stress test" component Geithner was talking about is the opening to the nationalization coup. Their mistake was in scheduling the rollout of that plan with the parallel track of the stimulus. First get the stimulus through - then get medieval on the banking system. They need Congress to get the stimulus through. Many senators and especially moderate Democrats and Republicans would be quite alarmed if some of their biggest business constituents in their respective districts were suddenly nationalized overnight. I think it could be coming though.

What If?

2009-02-09T21:22:00.005-05:00

I realize this squares 180 degrees from what I posted a few days back - But hey, this is just my stream of consciousness - If I didn't wrestle with these broad macro concepts, where would that leave me?...Probably significantly richer and much better rested! I really am a behavioral economists trapped inside a trader. The jury is still out if they are on the same page...

Getting back to things - When would a broad based and bold bank nationalization plan be politically capable? When would it not be political suicide? Perhaps tomorrow?

In the last few days the Republicans in both the Senate and the House have been building and setting the traps for their next elections. Speeches and press conferences with allegations that the "Obama" stimulus plan will be the death blow to the economy are being made with great fervor and repetition. Let's face it, the Republicans hold really shitty cards. Cards so hollow they could easily cause the party to go bust in the next House elections. In the mean time their best alternative is card trickery and illusion. Their hope is that the economy in four years will still be as stagnant and perilous as it is today and they can point their finger all the way back to Obama's first days and say, "Ah ha! There's where it came off the rails - it was his liberal stimulus plan!" You can already hear it all over the conservative radio dial.

The reality is a broad and powerful bank nationalization plan would have the greatest chance at delivering another term for the president in four years. Although it would be INCREDIBLY contentious in the near term with VERY powerful people left out in the cold and stripped of their investments - the banks would be restored to solvency much quicker than the slow bleed we have been experiencing. And although Obama and much of the Democrats had very little to do with this financial tsunami - in two and four years the economy will most likely still be in dire straits if a piecemeal solution is delivered as the antidote. All the Republicans would need to do is cash in their phony chips for redemption.

I have been shocked in the past month as to how far the BKX has fallen even with all of the Fed and Treasury interventions. Perhaps the charts were expressing that in January when the BKX fell completely out of bed - yet the overall market held its resolve. We shall see in the coming days.

I'll leave you with this clip from Martin Wolf, chief economics commentator for The Financial Times. He thinks the administration would be too scarred to take the right medicine. I think he makes a descent case as to why they could choose it. It's radical - but in the long run the broad populist would have the greatest immediate benefit. The people who brought Obama to the White House would have their cure and many of the financial elite would be castrated and humbled. http://finance.yahoo.com/tech-ticker/article/172116/Part-II%3A-U.S.-Too-%22Politically-Frightened%22-to-Admit-Truth-About-Banks%2C-FTs-Wolf-Says

BKX Bull Trap?

2009-02-09T10:55:00.002-05:00

This will resolve itself tomorrow.

BKX Intraday Update - Feb 5

2009-02-05T09:55:00.005-05:00

NATIONALIZATION! NATIONALIZATION!

RUN FOR YOUR LIVES!!!!!!

It's anyones guess as to how far "they" (Obama) are going to let this fall. A Monday morning capitulation with a stampede rally would be textbook. This market has yet to capitulate on a Monday morning - It would be nice to see one.

1:50 - Well it appears the suspension of the mark-to-market accounting rules rumor has been swirling around this afternoon. The administration may be using that rumor to keep things from totally unraveling like they were this morning until they have all the details worked out. I would suspect that if we don't hear anything tangible soon - the market will give back most of the gains.

At this point the administration holds all the cards and is in the perfect spot to have a "controlled" test of the lows with a powerful countertrend rally. Remember it was the introduction of Geithner as Treasury Secretary in November that pulled the market out of the death spiral it was in.

Traders have a bad habit with complaining about market manipulation - but it is a fact of life in trading. It's best to be prepared for it, especially when it is being telegraphed from all sides.

As Tom Hanks says, "There's no crying in baseball!".

BKX Intraday Update

2009-02-04T11:54:00.004-05:00

From what I am seeing, traders may get an opportunity to go long the financials sometime in the next two days. Between now and then expect more downside with another waterfall bottom.

Step Inside The Casino

2009-02-03T22:35:00.001-05:00

In these precarious and financially desolate times, if you happen to have some money lying under the couch cushion or between the car seats - you may want to buy bank stocks rather than that lotto ticket or pull of the slot machine. The hysteria over a possible bank nationalization plan is reaching its fever pitch. The crescendo always hits before the scene change. The idea that the overall market would benefit from the complete dilution of common equity holders in the banking sector is delusional at best - and in many cases, if you look under the hood of the grim messenger relaying these tales - they are only being fashioned to propagate their own positions, either in the market or in the media.

I am willing to wager that the mark-to-market accounting rules will be amended by the end of next week. You will also most likely see some other game changing initiatives to recapitalize the banks and to secure the market. Should these changes take place, that sucking sound we have been hearing for the last six months will be replaced with a sonic boom and a mad rush to buy the stock market. The rally may be fleeting, but then again it may be the start of something else.

I realize our economy and dependency on the markets is vastly different than Japan in the early 90's, but we should at least acknowledge at this point in the crisis that Japan avoided a Depression! Sure it was tough, heck it's still tough for them - but they avoided an even worst scenario. If we strictly stick to dogma things will inevitably get much worse. We need not cut off our noses to spite our face.

BKX&VIX

2009-01-27T11:46:00.001-05:00

Which one's going to break?

New Targets

2009-01-23T10:00:00.005-05:00

My new targets are 21 for the BKX and around 700 for the S&P. I think we could see these by next Friday. Closing SSO @ 21.50.

It appears another batch of liquidation is upon us for next week. Granted, the new administration could negate this temporarily with rule changes or a new bank rescue plan - but I would expect them to wait for this to bottom before introducing new information. We are not the only ones that read the charts...

It's All Laid Out In Front Of Us

2009-01-21T14:39:00.003-05:00

Perhaps I'm getting ahead of myself - but I think the bear market in the financial sector could be over. Looking at this chart you could argue for a full retracement rally from the September high. Interesting stuff.

It should be noted that this chart is broken down differently than my weekend post. The weekend post also classified things in four waves - but did so just in this past year. The current chart starts from 2007 after the February mini-crash and ties things together with broader time horizons.

S&P 1000

2009-01-21T03:34:00.004-05:00

Despite the route today across most market sectors, the market is setting itself up for one hell of a violent countertrend rally. I strongly feel we will see 1000 in the S&P before we see a new low.

The financials are offering the trade of a lifetime here. Most of the banks will double and triple in less than two weeks. If they don't - the entire system will fail. I would put that opinion in the minority here.

Look for some significant regulation changes out of the SEC and some major support for the banks. All the BKX did today was satisfy its daily target on the charts. Don't get caught up in the hype that the S&P will be in the 600s soon. It won't.

The market still exhibited tenacious strength with the BKX down almost 20%. That's unprecedented and it speaks to the overall exhaustion of selling pressure and underlying support.

For tomorrow - hold that line.

9:40 - Buying FAS @ 8.30

January 1991

2009-01-19T23:44:00.002-05:00

The closest domestic market to the present that encompasses a true financial crisis was the 1990-1991 bear market. Although it is the "baby" bear to the current "mother" bear - similarities can be drawn. The outcomes and scales of financial contagion are vastly different - the reflexes and emotions presented in the charts are not.

The Facts

2009-01-17T13:50:00.036-05:00

Just the facts.

More of the same with my concentration on the banking sector index - the BKX. Some really interesting information has been coming out of that area of the market as of late. It is what turned me from overwhelmingly bearish to quite bullish in a matter of days. To make a long story short, the overall market (SPX) is significantly outperforming the BKX; and it appears as though the banking sector is on the verge of being completely washed out (as of Friday). The significance being that the market passed a very large test of the December and November lows last week. The banking sector, however, overshot the November 21st lows by roughly 9 percent. That's amazing relative strength for the overall indices.

THAT SPEAKS VERY LOUDLY TO THESE EARS.

It's rare for the overall market to hold up so well in the face of a crashing banking sector. However, this market appears at the moment to have exhausted the contagion of selling pressure that was overwhelmingly evident this fall. This geometry also squares nicely with the posture of the BKX:SPX ratio (see prior posts). From the standpoints of symmetry, the chart looks ready to swing the other way - and by extension, pull the market through some key overhead resistance.

To break things down further and shed some additional color to this thesis, let's look at the facts:

The BKX has crashed and rallied four times in the past year. The BKX, SPX and VIX changes are measured from 1 year prior to date of the low (edit 1/21/09 for new low on BKX):

BKX Low BKX/Change SPX/Change VIX/Change BKX Retracement Rally Trough to Peak

March 10 -34% -9% +109% +14% 9 Days

July 15 -58% -21% +88% +41% 19 Days

Nov 21 -57% -44% +191% +37% 7 Days

Jan 20 -70% -39% +108% ? ?

What's truly noteworthy is the diminished VIX readings accompanying the latest BKX low. The market appears to be saying it has digested the bulk of the financial crisis and is ready to stabilize. If the banking sector can begin to walk again; and more importantly, LEAD, the shorts will be forced to cover in mass.

From a technical standpoint, the BKX has reached its downside targets on both the weekly and P&L charts.

The VIX also looks vulnerable to a strong downside retracement.

The YEN and the USD look very similar as well. Japan's telegraphed intentions last month to intervene in their currency and equity markets could add gasoline to an otherwise combustible mixture.

The McClellan oscillator also appears to be oversold as well as extreme readings evident in the equity put/call ratios.

I am also quite aware of the rare historical parallels this market avails itself too. And quite frankly, the diminished nature of this retracement rally would be without precedent. In December I was in the camp of waiting for another low to reveal itself in the charts, but at this juncture in time with the overwhelming evidence pointing towards the contrary, I will give history the benefit of the doubt. In that instance, we should expect at the very least a 50% retracement of losses. A 60% retracement would also be within the realm of possibility as well.

To date, we have retraced only 19% of the losses that began last August. At the rally's high-point in early January, the market had retraced only 35% of the losses. I find it comforting that this latest weakness retraced on a closing basis 50% of the gains from the November 21st low. From a technical standpoint that is healthy and it appears to be setting the stage for the next leg up. We shall all have a front row seat.

Freaky Friday

2009-01-16T12:59:00.000-05:00

Broadening Bottom - Update

2009-01-16T07:47:00.003-05:00

A Bigger Monster

2009-01-15T21:21:00.003-05:00

Continuing this weeks theme of fractal analysis, here's a much broader chart of the BKX:SPX going back some 14 years. It looks just like this years chart doesn't it? You could even boldly theorize that the market may have made a much more significant bottom than we first believed. I still need to go over this in more detail - but it is fascinating nonetheless.

It basically boils down to this - The financial institutions and banking industry is the lifeblood and circulatory system of progress. If they are about to be rebooted, re-capitalized and leaders again - the overall market may just follow suit.

Perhaps that's just silliness, but this chart sure makes you think.

Fractals - it's in all of us.

the Monster

2009-01-15T14:29:00.012-05:00

I give you the banking sector index (BKX) : S&P 500 ratio.

The moment of truth is truly here...

I just can't get over the symmetry in these charts. It's breathtaking.

Never miss an opportunity to overanalyze, so here goes:

Looking at this chart it is blatantly obvious where all the volatility and fear was captured. If my interpretation is correct, the market will transition to a much quieter (comparitively) and stable trading range. You could say this week was the going away party for fear as we were coming in to test the July lows. Coming out of this test (as long as it holds...), the market should slowly creep higher. It will not be anything like this fall - so I would advise traders to adjust accordingly. This will be hard to get use to after working through chaos for the last six months or so.

Much like an adrenaline junkie reporter adjusting to life in the suburbs after living through a warzone, it will take some getting use to Pleasantville.

Mirror Mirror

2009-01-15T13:21:00.001-05:00

Yen Update

2009-01-15T11:30:00.002-05:00

Looks like a nice double top on the weekly chart.

This is one of the tenets that changed my trading posture to long from short this week.

The equity markets look to be just testing important lows this week. I still like em'.

The New Trading Range

2009-01-15T10:00:00.001-05:00

hopefully...

What Is A Fractal?

2009-01-14T23:34:00.013-05:00

Why is this guy harping on fractals? The term fractal was actually coined by a gentleman named Benoit Mandelbrot (the Mandelbrot set) - and yes, he is the mentor of the now famous market philosopher and hedge fund advisor Nassim Taleb. Mandelbrot's work on crisis theory and fractal geometry greatly cultured Taleb's prescient observations of the coming financial tsunami. Here's a brief explanation of fractals by Alan Beck.

What Is a Fractal?

And who is this guy Mandelbrot?

by Alan Beck

The word "fractal" was coined less than twenty years ago by one of history's most creative mathematicians, Benoit Mandelbrot, whose seminal work, The Fractal Geometry of Nature, first introduced and explained concepts underlying this new vision. Although prior mathematical thinkers like Cantor, Hausdorff, Julia, Koch, Peano, Poincare, Richardson, Sierpinski, Weierstrass and others had attained isolated insights of fractal understanding, such ideas were largely ignored until Mandelbrot's genius forged them at a single blow into a gorgeously coherent and fruitful discipline.

Mandelbrot derived the term "fractal" from the Latin verb frangere, meaning to break or fragment. Basically, a fractal is any pattern that reveals greater complexity as it is enlarged. Thus, fractals graphically portray the notion of "worlds within worlds" which has obsessed Western culture from its tenth-century beginnings.

Traditional Euclidean patterns appear simpler as they are magnified; as you home in on one area, the shape looks more and more like a straight line. In the language of calculus such curves are differentiable. The trajectory of an artillery shell is a classic example. But fractals, like dendritic branches of lightning or bumps of broccoli, are not differentiable: the closer you come, the more detail you see. Infinity is implicit and invisible in the computations of calculus but explicit and graphically manifest in fractals.

Whether generated by computers or natural processes, all fractals are spun from what scientists call a "positive feedback loop." Something--data or matter--goes in one "end," undergoes a given, often very slight, modification and comes out the other. Fractals are produced when the output is fed back into the system as input again and again.

Fractals show us that the simplest engines of change often produce exquisitely elaborate patterns. Such systems are at work all around us, from the stock market to the stars. And to the fractal artist, Mandelbrot's insights echo Kandinsky's assertion that "the process of creation is the same in art and nature."

Here is a perfect example of fractals in the charts. One chart displays the market through the 60-Minute timeframe. The other displays the market through the 1-Minute timeframe. Pretty identical - just like a fern! I know it's hard to see where this is all going - and frankly they have yet to bear fruit - but I believe they give a clue of a market that is about to bust itself wide open to the upside in the coming weeks. I am disappointed with myself in closing out my SDS position WAY too prematurely. My timing has been running two steps ahead instead of in the present. More later on.

For those pattern traders out there, it's called a Broadening Bottom. A great reference for traders is any one of Thomas Bulkowski's texts on charting patterns. The reference on this pattern is from his web site http://thepatternsite.com/chartpatterns.html He's really a gold mine.

Another Fractal

2009-01-14T08:39:00.008-05:00

This patterns stamp is higher highs and lower lows. Eventually it can break out to the upside and not look back for quite a while. We shall see.

Important support on the SPY's around 85.20. I can see at the moment that these levels are being bumped up against in pre-market activity. Warrants a trade. Adding another tranche of sso @ 23.60.

I REALLY LIKE THIS MARKET HERE.

O.K- stop cheerleading, it's bad for the soul.

Downtrend Broken?

2009-01-13T15:42:00.003-05:00

They may take it back by the close-

4:00 pm - Looks like the break held. Doesn't mean much, but it's a start. At this point, this market looks primed to trap those remaining dogmatic bears. I wouldn't want to be holding on options expiration week directly prior to Captain America taking the helm.

Don't underestimate the power of Hope - Just want to make sure it's going up the "Slope of Hope" and not down.

Yen Update

2009-01-13T09:39:00.002-05:00

My Last Rule

2009-01-12T17:02:00.006-05:00

A wise and successful trader reserves his last rule as the exception to them. I am stealing that play from the book and letting this position run (long the S&P). My trading intuition has been good lately - just early. Unfortunately, if your time horizons are narrow - you can miss the meat of the move. Granted, I am familiar with the dark alternative.

I think the long side has quite a bit more meat here. It's counter-intuitive, I like that.

Other things I like:

- The Yen's bounce seems wasted and technically weak
- New lows continue to recede
- Volatility is on the cusp of breaking below transition (see previous post)
- The BKX may have successfully tested the November lows today - They may begin to lead ( however whimsically)
- Treasury yields have been rising
- Credit markets improving dramatically (see FCT)
- Higher highs and higher lows in the equity market
- "V" bottom thesis due to intermediate low and not "The" low
- Obama
- History - Closest historical parallels (1873 & 1929 autumn crash lows) retraced 50-60% of the market losses and ran into April and May time frame.

Things that worry me:

-Low Volume
-The BKX may be getting ready to go over the edge (see P&L chart)
-Striking similarity to 2002-2003 technical framework (going 50-100pts below 850 on retest - No V bottom)
-Congress
-Dennis Kneale

BKX:SPX

2009-01-12T11:59:00.003-05:00

This ratio has helped in the past in determining intermediate bottoms for the financials and by extension - the equity markets. Looks like we are pulling up to a test today.

The break in July was a test of the long term bottom from 2000. If you remember, the financials exploded higher from there.

In any case, I am willing to give the market a chance here for a healthy reversal.

Retracement

2009-01-09T10:38:00.006-05:00

The market has hit almost the 61.8 retracement level from this rally's low in December. I was expecting it to bounce off the 50 around 900. In any case, if we breach the 889 in a meaningful way consider this past weeks analysis dribble.

I do like how the Yen is rallying right back to the break today (see lower post). It has relieved the oversold pressure that was present a few days ago in very short order. I think it will roll over again next week.

Go Time

2009-01-09T09:47:00.002-05:00

If this replicates, now is the time for buyers to step up. If not, abort...

5:25pm - I still like this market - all in all a healthy pullback. More later this weekend.

YenBoning & Vix Update

2009-01-09T08:18:00.005-05:00

Here is a vix chart repost from last year. We were in the "character change" posture earlier in the week. It looks like it may get back there. The yen has clearly broken out of the channel from the fall, this should usher in more upside in the equity markets.

So Far, So Good...

2009-01-08T17:00:00.005-05:00

The market seems to be following the fractal script I presented earlier in the week. Will tomorrow provide a 90/10 day just like the March 21st 2007 rally? Then it was the Fed dropping some key language that pushed the bears over the edge. Perhaps the jobs report will provide that catalyst. Based on the shrinking weekly jobs claims it just may.

A bit of a gamble though, since we all know that the January jobs report is notorious for subtracting/adding quite a few from the previous monthly BLS revisions.

A Talking Tape

2009-01-07T21:38:00.005-05:00

As every trader knows, the stock market rarely does the obvious in the short term. That is why the deck is overwhelmingly stacked against active traders who feel the need to take part in the daily madness. Although it is far from random, the market has a way of taking the scenic route from time to time. It's healthy and quite necessary to shake the weak hands from the tape and to go against the grain of the market's zeitgeist. It is this very trait that makes administrating short term trading opinions so difficult and a fools game. You give enough opinions (Cramer), and you may be right half the time.

In any case, where this soap boxing leads me to is the formation of a broad market trading thesis for the first quarter of this year. I have been vacillating back and forth between expecting an immanent return of the bear market and the reality of how the market is trading. Like I have mentioned before, dogma can get you into trouble trading. It is why economists make such lousy traders.

With that said, I believe the stock market should make many new lows this year - I just think they will occur after the first quarter. As a trader, one of my greatest strengths is my memory of price and metric patters in the market and my ability to take a pattern in a previous time frame/horizon and apply it appropriately to the present. Lot's of traders keep a dairy. I mostly access it by memory and then go back to the appropriate time frame to utilize the chart as a guide. I suppose it could be called an informal use of fractal analysis, since I take a representative pattern in one time horizon (example-daily chart) and apply it to another (example-10 minute chart). To make it relevant to entering and exiting a trade, the trader has to remember the psychology and fundamentals of the market at that specific time. Like I've mentioned previously, I am not a pure technician - more like a hybrid trader that takes the pulse of the market both technically and fundamentally with armchair psychology to round things out.

So where does that leave us today?

What I have been seeing recently is a very resilient and stable (comparatively) stock market. The market came out of the November lows fairly rapidly and stalled throughout December. As expected, the fundamentals have deteriorated with each passing week - as well as consumer sentiment. Currency markets have remained volatile and full of inertia. I was initially waiting for the Euro to resume its terminal descent, but have recently put off that theory based on the actions of the Fed and the actions of other foreign central banks (primarily Japan). I believe in the short term (weeks) the Yen has room to weaken even further. Granted it is because of their telegraphed future intervention into both their currency and stock markets - but who's counting anyway? This is why I always mention trades are moving targets - especially when the markets are being manipulated by the Fed and foreign central banks.

I would put the inflection point for the current market's posture in mid December when Japan notified the markets of their intent to weaken the Yen and to even buy stocks in the Nikkei. This has worked in the short term - eventually it won't. A loose target for the Yen would be around 100.

From a technical perspective, the last three weeks remind me a great deal of the stock market's behavior coming out of the 2006 market correction. Granted I am compressing a great deal of tape into a much shorter time horizon, but that is the essence and application of fractal analysis. All of the market's emotions and behaviors are repetitive and represented on many different time horizons and scales. It is the market's DNA - its thumbprint - and it is captured in the charts. Getting back to 2006, the market bottomed in July and slowly crawled out of the fog into autumn. Housing markets had just peaked and the stock market appeared to be skating on very thin ice. Oil was screaming higher as well as gold. Henry Paulson was running towards the Treasury waving a Chinese flag and warning of protectionism. Many traders and research shops didn't see the catalyst for the final leg of that bull market until it was halfway past them. The market kept crawling higher - methodically - repetitively.

Unfortunately, the meat of this market's assent is probably over. But that does not mean it will fall out of bed tomorrow and test or make new lows next month. Here are two charts for comparison. The time horizon's and scales are vastly different, the price action and metric patterns are quite similar. Factoring for like sentiment and psychology; and the benefit of knowing how the 2006-2007 market resolved the impending structural, fundamental and technical problems - I would deem the chart useful as a fractal guide.

To review -

I am looking for the equity markets to make new highs over the coming weeks - followed by a test of price action similar or slightly higher than today's closing high - followed by a new marginal high. In essence - whipsaw, with highs in between.

After that, I expect the bear to continue its course.

Analog of The Day

2009-01-07T10:24:00.010-05:00

10:30 AM - The 2007 February Mini-crash. Very similar tape, although now expressed in the 10 minute bar.

12:00 PM - I am selling my SDS @ 68.50 for a loss of 4%. I will look for a better entry later in the month.

This afternoon I may be looking to acquire some SSO. If memory serves me, we will get a lower print then.

1:00 PM - Bought SSO @ 27.10

3:30 PM - Looks like I was a bit too anxious. Should have taken my advise earlier and waited. No worries.

2002-2003 S&P

2009-01-07T09:28:00.004-05:00

It is fascinating that we are traveling so closely through the same price levels of the 2002-2003 bear market. It is because they are the only technical roads leftover from the previous bear. If and when we break through the November lows, the market will take on a different character, namely one of panic.

As for today, I think the market bounces around 914. Right now the tape has teflon to it, I wouldn't be surprised to see a pretty descent reversal.

Always Loved A Good Conspiracy

2009-01-07T08:37:00.005-05:00

From Barry Ritholtz's site http://www.ritholtz.com/blog/ comes a very interesting read on the commodity rebalancing trade going on right now. So much from gleaning anything from the gold/silver ratio...poof, it's gone.

"The major commodities indices are being rebalanced, and I am forced once again to question their timing.

Recall the last major rebalance: At the time, I had been challenged by Larry Kudlow to find a smoking gun for the sudden 2006 collapse of Oil prices a month or two before the mid-term election.

That challenge led us to discover the actual mechanism — the GSCI rebalancing. Just 3 months prior to the election, GS decided to significantly lower the weight of Oil and Natural Gas, effective a month prior to the election. Prices plummeted, albeit temporarily.

There was a cost to this: Subsequent performance of the index, reweighted with less energy, was negatively impacted, as energy prices for the following 2 years boomed, until Oil peaked at $147. The reweighted indices performed much wore than they would have had they not been changed in ‘06.

Bill King noted yesterday:

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI — which JP Morgan estimates has $25bn in funds tracking it — the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index… Accordingly, JP Morgan sees the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent…Nevertheless, gold tanked on Monday on expectation of a weighting reduction of gold in the DJ-AIGCI Index …This harkens memories of July 2006 when Goldman greatly reduced the weighting of gasoline, which precipitated a huge collapse in gasoline prices ahead of the 2006 midterm elections.

I have no idea why the managers of these indices made these changes, but they are certainly curious.

I consider these contra-indicated: In a time of massive Fed credit creation and Treasury money printing, they oddly want less exposure to Gold. And with the worldwide recession getting worse, they want more exposure to Oil. Both of these are poorly timed macro-trades.

There are two things I can tell you about the index rebalancing: First, the last such contra-indicated changes were steamrolled over by the market, and cost investors in these indices to miss out on a huge move in Oil via the lower weightings.

Second, it won’t take long before people start to consider the political ramifications of goosing energy prices 2 weeks before the Obama administration is sworn in.

I have no clue what the motivation is for these moves, nor do I knows what what they were in 2006. But they are looking increasingly curious and ill timed. Once is a coincidence. Twice makes you pay close attention. After the third such move, expect to see the index managers dragged before a Congressional panel . . ."

And straight from JP Morgan:

"In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil."
http://aaronandmoses.blogspot.com/2009/01/gold-sells-off-on-commodity-rebalancing.html

The next thing we will see is enormous gold sales by the IMF. Can we blame them? These are the only tools left in the bag.

S&P Line In The Sand

2009-01-07T08:33:00.003-05:00

On the Edge

2009-01-06T13:22:00.006-05:00

~940 looks like the closing target

Very Very Sad

2009-01-06T12:38:00.002-05:00

The implications of shorting VW.

Testing Disqus

2009-01-06T11:14:00.001-05:00

Disqus enabled...I think.

The Stock Ticker "YEN"

2009-01-06T09:14:00.002-05:00

What's the beta on currencies these days? When currencies stop trading like stocks, a bottom will be close. For now, the velocity of these moves is important to observe. All of the momentum (chaos) is being maintained within the system, the currencies just rise and fall with it. These central bankers and Fed officials will soon realize that the only remedy for theses pains is time. There is no painless way around that. Japan learned this a decade ago, and apparently even they forgot it. Ah, the limitations of a democracy - a new administration get's to repeat the same mistakes again and again...

Fractal Analysis

2009-01-05T22:04:00.004-05:00

Here is a new script for the next week or so.

Tomorrow we make a new high - followed by an immediate retracement of gains back to the ~ 860 by the end of the week or beginning of next week. Markets whipsaw back through old highs and make slightly higher print followed by the great unwind below 700.

Here is a similar fractal using a different time horizon (daily) verses our current tape represented in the 10 minute frame.

My Gut

2009-01-05T19:51:00.009-05:00

To me, these daily grinds are mostly noise at this point. But if I had to guess, this uptrend culminates around 950. Based on what I see in the oscillators, I think we have one more good move up- then watch out below. So many of the metrics I follow are coiling to jump higher (bearish), otherwise they would have broken down by now. Whether it is the gold/silver ratio, the gold/S&P ratio, the Yen or the Dollar; they all look primed to break out to new highs. And those critical component leaders of the equity markets, the BKX and the Transports, look ready to tip toe to new lows. Because the equity markets are trapped in an adverse feedback loop, it does help to look at the previous tape for any parallels. Granted this fall was extreme, but I do not think volatility will revert to the mean any time soon.

It does look like the treasury market is starting to crack. Another leg added to the mother-of-all-adverse-feedback-loops.

This bear started with a correction in housing- that led to a correction in the stock market - which further corrected the housing market - which further corrected the stock market - which eventually corrected commodities - which eventually crashed the stock market - which eventually crashed the housing market - which eventually crashed the commodities market - which led to a bailed-out nation - which led to a crash in the treasuries market - which led to the end of life as we know it.

Rinse, repeat.

But hey, Jim Cramer is bullish on stocks here, yeah baby!

Nov 3-5th & Jan 2-7th

2009-01-05T12:40:00.005-05:00

Some striking similarities between these two tapes. Could it be this easy? Doubtful, but you never know...We could get a move to my pivot around 938-940 before sliding.

The only reason I am floating this is because of the similarities in the currency markets and precious metals markets and their kinetic relationships to each other. Let me put it this way, by the end of the week I expect the equity indexes to be significantly lower than they are right now.

BKX Update

2009-01-05T11:21:00.000-05:00

YenBoning

2009-01-05T03:54:00.001-05:00

Is jawboning and intervention in currency markets ever a constructive tool in the monetary policy arsenal? It may move markets in the short term, but eventually it unwinds itself as well as the creditability of the doctor administrating the "medicine". Looks like Japan is ready to make the same mistake it has for the last two decades.

Bloomberg News
Shirakawa Says BOJ May Consider Measures to Address Yen’s Rise

By Fumishige Asano and Masumi Suga

Jan. 4 (Bloomberg) -- The Bank of Japan may consider measures including monetary policy to counter the rising yen as the economy faces severe conditions in 2009, Governor Masaaki Shirakawa said.

“This year will be very tough for the economy,” Shirakawa told public broadcaster NHK today. “The strong yen at a time of rapid decline in the global economy has a big negative impact on our economy in the short term.”

His comments follow signals last month from Finance Minister Shoichi Nakagawa that Japan was ready to intervene in the foreign-exchange market for the first time in four years. With the nation’s economy already in recession along with the U.S. and Europe, the surging yen is adding to pressure on exporters including Japan Toyota Motor Corp., which expects its first operating loss in 71 years.

Technically speaking, they have picked a pretty good spot to jawbone. Whether it breaks the Yen out of the uptrend is up to the markets and up to the magnitude of jawboning and intervention.

Mr. Shedlock over at Mish's Global and Economic Trend Analysis has some excellent pieces on this already. See:

http://globaleconomicanalysis.blogspot.com/2008/12/japan-announces-currency-and-stock.html

Japan Announces Currency and Stock Market Intervention

Countries are now playing a game of "Top This" to see who can do the dumbest things. Please consider the following: Japan plans to buy $227 billion in shares to boost market

Japan's government said Thursday it is submitting a bill to parliament allowing for the purchase of 20 trillion yen ($227 billion) in stock to help stabilize the Japanese stock market, Kyodo news reported. Under the bill, the Banks' Shareholding Acquisition Corporation, originally created in January 2002, would resume buying shares from banks and other entities, the Japanese news agency reported. The bill would be introduced early next month "with an eye to implementing the measure by the end of March," the report quoted lawmakers as saying.

The Liberal Democratic Party had initially considered just 10 trillion in stock purchases, but the size was roughly doubled to 20 trillion yen at the request of its ruling coalition partner, the New Komeito party, the report said.
If stocks are ready to go up they will. If not they won't. Intervention will accomplish nothing other than create an environment of suspicion that stocks need to be propped up or they would fall. When intervention starts, investors are deprived of normal market signals and will not know if share prices have really bottomed or not. This silliness by Japan is going to create massive mistrust, and massive mistrust is never good for the markets.

More Currency Intervention Madness

Not content with stock market lunacy alone, Nakagawa Says Japan May Take Currency Action
The yen fell against the euro on speculation the Bank of Japan will today lower borrowing costs and say it will buy commercial paper to combat a global recession.

The yen may also weaken for a second day against the dollar on speculation Japanese officials will intervene to stem its surge to a 13-year high. The dollar declined against the euro, heading for its biggest weekly loss since the 15-nation currency’s 1999 debut, after the Federal Reserve introduced near- zero interest rates and said it would focus on buying debt, a policy known as quantitative easing.

“It’s clear the BOJ has to respond with some combination of rate cuts and additional measures to improve liquidity,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The alternative of doing nothing would be taken as tacit approval of sharp yen appreciation.”
It is absolutely not clear that Japan needs to do anything here. In fact, it is absolutely clear that Japan should not do a thing. It has been proven time and time again that currency intervention does not work.

Please consider Currency Intervention And Other Conspiracies.
.... Note those numbers. Japan spent hundreds of billions in 2003 starting in August, attempting to prop up the dollar.

Japan halted its currency intervention in March of 2004 according to the International Herald Tribune article EU officials soften stance on yen's weakness.

Yen vs. Japan's Intervention 2003-2004

click on chart for sharper image

If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen.
Japan is prepared to embark on a fool's mission twice. Once with the Yen and a second time with their stock market. Neither can possibly work and the latter will create massive mistrust. - Mike Shedlock (Mish)

Deja Vu - Bear Market Psychology

2009-01-03T22:29:00.005-05:00

Just as Warren Buffet and Jeremy Grantham were "early" to exit the bull market in 1998 and 1996, respectively, the same is happening now with wise and prudent bear fund managers. News that Bill Fleckenstein has closed his short only fund does not strike me as the bottom for this bear. You will hear the same thing from the likes of marque short managers such as Jim Chanos, Doug Kass and Steven Leuthold. This is the natural arc of money management. Those that were prescient and captured the initial explosive returns are prudent to pull their powder in for the next move. To me it indicates that the final capitulation has yet to arrive. Irrational exuberance, now irrational armageddon is appoaching. The psychology of the market always remains the same, we just happen to be on the dark side this time. Food for thought.

Clairvoyance

2009-01-03T21:07:00.004-05:00

A repost from December 10th. Check that Dow corollary on the building.

I almost always arrive early. I guess that's the gift of clairvoyance. One of these days I will figure out how to use it...

Round Trip Vix

2009-01-02T16:45:00.000-05:00

Data Glitch?

2009-01-02T11:16:00.001-05:00

Breaking 918 looks like it will take it to 938. This can't go on much longer. Next week will be brutal.

Trade #1

2008-12-31T13:16:00.003-05:00

All the stars seem to be lining up nicely.

- The dollar looks ready to rally.
- The VIX looks exhausted, but hasn't collapsed below trend.
- The S&P is heavily overbought.
- The gold/silver ratio has come in, but hasn't collapsed below trend.
- The BKX has rallied to the top of the downtrend.

For the record I am a buyer of SDS here.

Long SDS @ 71.25

BKX

2008-12-31T11:23:00.001-05:00

EURO

2008-12-31T09:30:00.002-05:00

S&P Bullish Percentage Chart

2008-12-31T01:43:00.004-05:00

Although many see the strength in the S&P bullish percentage chart as a positive - I see it as a contrary indicator. Sure it's data mining, but it's creative data mining...

Every interim high has been flagged by this chart since the bear started roaring. What do you think?

Pattern Trading

2008-12-31T00:47:00.003-05:00

One possibility is to close tomorrow around 859-860. That would set the market up for a gap down open on Friday below the pivotal 850. I believe there is a decent chance the market behaves like it did one day prior to the November election and directly after the election. Momentum has been holding this thing up on fumes - once it subsides, watch out.

_________________

Post market close update - 12/31 4:45

Last 5 minutes of that market was a window into its soul. Wrong about the call for today, but the next few sessions should be interesting. All said, it was a lower high on extremely light volume. If the market wanted to really explode, today was the day to take out 918. Have a happy and healthy New Year.

Last Gasps?

2008-12-30T10:44:00.003-05:00

A Break - But is it real?

2008-12-29T16:19:00.001-05:00

Reading the TIPs

2008-12-29T13:44:00.003-05:00

Grail-Flag

2008-12-29T09:33:00.004-05:00

So many metrics are coiled - the gold/silver ratio looks ready to go higher. I am looking for another bout of risk aversion in the coming weeks.

Transports look like they may have spent all their ammo.

Taking Stock

2008-12-28T22:38:00.005-05:00

Wow am I exhausted. After countless trips around the Tri-State area we are back in town. A tremendous holiday for all - especially the little ones.

In any case, let me get back on the proverbial bike and start riding again - if not, the atrophy will take hold and it will be back to that blissful ignorance I remember so well as a child - or more truthfully, as a young man.

Over the course of the last month, the markets have been reseting their traps for another violent move. Who's to say it won't be that "equal and opposite reaction" - a bull charge of the likes we haven't seen since the early 1930's. It really does seem absurd to not be bullish on the markets in the short term. The bearish equivalent of greed perhaps? How much risk could possibly remain after being bisected in a matter of months? Isn't everyone tired of guessing the bottom? Hardly.

I can't say with any tangible description or reference; but I suppose the old phrase will apply - I will know it when I see (or hear) it. And frankly, there has been a bull market in bottom feeding and rather orderly markets (equity) considering the alternative to capitalism. Anecdotally, that doesn't help the markets in the near term. Here are a few things churning inside me.

I realize I keep coming back to the same reference points - but just as a trial lawyer methodically builds his case - I have been refining my perspective and trading thesis towards this market. The targets are always moving against sliding landscapes - the secret is to keep framing and observing the primary subject and its relationship and kinetic reaction to the current landscape at hand. I am not a pure technician. Far from it, I use technical analysis as a tool in the development of the thesis. Consider it my forensics lab. It isn't full proof - and it is still at the mercy of human error and misjudgement. If the detective only relied on the forensic report he would rarely be able to piece together a representable version of the story. Likewise, charts need to be placed within the broader context of market psychology, fundamentals and the intangible art of reading the Matrix. If it was a pure science the formula for success would be readily available and patented for sale at the neighborhood drug store - the smooth returns of Bernie Madoff would be legit! But as we all know, it isn't a pure science and just as much an interpretive art.

Here are some technicals that I am reading.

The Transports appear on the cusp - again. And just as I have mentioned in the past, the Transports have led us into every major market bottom. Those Dow Theorist really do deserve a merit badge. If I could be so brazen, it appear tomorrow will decide the near term fate of the Transports - and I suppose by extension, the overall market.

Although there appears to be two camps for interpreting the VIX - it has been cut in half in a rather timely fashion with very little benefit extended towards the equity markets. The same goes for the dollar's weakness as well.

The Holy Grail of Pain

2008-12-23T15:46:00.003-05:00

Have a Happy Holiday - I will be back soon.

As for the market - those lows from November look increasingly vulnerable. They may reflate things at some point in the future - but certainly not tomorrow and probably not next year.

Revisiting "A" Gameplan

2008-12-22T23:13:00.006-05:00

This was a chart I built on November 17th of this year. Just thought it might be good to revisit.

Here's a little mock up of the varying boom and bust cycles starting in 1994 or so. One interpretation may be that we are currently going through the second and more destructive deflationary wave.

This was from a post on December 1st of this year:

We are currently experiencing the practical application of the old adage "Markets can stay irrational, longer than you can stay solvent". Or perhaps today's version, "Markets can get oversold and remain oversold longer than you can remain solvent." Many of the traders in the past year have received a crash course in this axiom. Their guidposts that they follow on a daily and weekly basis have become the Bonneville salt flats. Wide open, barren, desolate, hard and fast if you find momentum.

I think traders looking for a sustained rally here may be asking for too much. Isn't everyone from Barton Biggs to Marc Faber waiting for that? Granted Barton Biggs has been saying that for no less than a year and a half, I firmly believe that on a longer term trading horizon (weeks and months) the carnage in the financial sector (BKX) foreshadows considerable downside to the overall market. The fact that this is a financial crisis of the likes there are few comparisons, and that the financials constitute the single largest (~16%) percentage of the S&P 500, it should be no surprise that the 2002 lows will be substantially violated; and I am not talking about 741 verses 768. We are talking about a possible 40% decline from the lows.

EKG = VIX

2008-12-19T21:21:00.007-05:00

Just as the EKG presents the indisputable artifact of a heart attack, the VIX displays the same for a crashing market. If we look back at the October 2002 lows and compared the print of the VIX then to the VIX now, we see remarkably similar emotions in the charts. See for yourself. I took the liberty of indicating where the November 13th and Nov 27th lows on the S&P would be on the 2002 VIX chart. As you can see, the final capitulation low on the S&P prints a lower VIX then the double tops.

To me it looks like the groundhog has seen his shadow and we may be in for six more weeks of winter.

The Frown of Citigroup

2008-12-19T14:47:00.002-05:00

Big Moves Coming

2008-12-19T10:59:00.005-05:00

I just wanted to point out, that I typically do not day trade the market. On occasion there's blatant set-ups that are scalped, but primarily I look for bigger trends. I believe we are going to experience the next leg shortly. Very shortly.

In the bulls favor is short-term momentum, government intervention and anxious hedge fund managers eager to close the performance differential before the year end.

In the bears favor is headwinds created by currency dislocations, commodity dislocations and under-performance of the markets technical leaders - banks (BKX) & transports ($Tran).

Some loosely compiled stats from the November 21st low:

Small Caps + 24%
Big Caps +17%
Tech + 16%
Banks + 15%
Transports + 12%

Silver + 19%
Gold + 13%
Oil - 26%

Options Vapor

2008-12-19T09:59:00.002-05:00

VIX & SPX

2008-12-18T13:29:00.002-05:00

H&S Tops in The Leaders - Transports & Banks

2008-12-18T10:39:00.003-05:00

Zirp - Helplessly Bernanke

2008-12-18T10:07:00.001-05:00

I would like to preface this by saying I have the utmost respect for our Chairman. He's just in the wrong place at the wrong time.

With that said, some entertainment, courtesy of Neil Young's Helpless, as seen through the eyes of Bernanke. A GuidePostings original production...

Still Scraping - Tick- Tock- Tick- Tock

2008-12-17T13:31:00.002-05:00

A Little Perspective

2008-12-17T12:40:00.005-05:00

The equity market's extremely weak under-performance compared to the dollar weakness/euro strength is quite bearish. If we are robbing from Peter, Paul is getting the shaft. I can not really see much more strength in the Euro from here in the near term. Inquiring minds want to know.

Does This Look Like A Healthy Chart?

2008-12-16T23:28:00.002-05:00

Talk about bait and switch. The pundits on CNBC high five one another while the equity markets go up a few percent and the dollar goes down the same. Robbing Peter to pay Paul. When our currency stabilizes and stops trading like a stock I will buy this market hand over fist. Until then, it's just a pink pong ball going down the stairs.

This Is All Well And Good...

2008-12-16T22:36:00.002-05:00

But one of these mornings in the very near future, this will all fall apart quickly.

The more I look over the charts, the more I feel comfortable with not buying this tape. More tomorrow.

One For The Bulls Quiver

2008-12-16T16:42:00.004-05:00

Confusion, Confusion. No one said this would be easy.

P&F charts can be very helpful. Today the bulls broke out and projected the S&P to over 1000. Something to consider. Strongly consider...

Another bull nugget. The Transports are showing a "P&F Bear Trap".
My dogma just got a little weaker.

Deja Vu - December 2007 Post Fed

2008-12-16T15:44:00.003-05:00

Still Scraping...For Now

2008-12-16T15:20:00.004-05:00

I see no need to panic. The first move (and just like last December - go check the charts) is typically the false one.

I Love Charts - The Theme Song

2008-12-16T12:07:00.002-05:00

I was putting my little guys shoes on yesterday morning when his feet started tapping. Before I knew it he was dancing to,

"I like charts, because charts rule. A chart is a handy dandy scientific tool. It gives you information you can see with your eyes, a chart let's you visualize."

How could you not love public television.

Mirror Image

2008-12-16T10:04:00.002-05:00

Forget LIBOR

2008-12-16T09:45:00.002-05:00

Forget LIBOR, I have been using FCT as my proxy of the credit markets. Don't listen to the pollyana's on CNBC, the credit markets are worsening.

FCT -

First Trust/Four Corners Senior Floating Rate Income Fund II operates as a diversified and closed-end management investment company. The fund invests in a portfolio of senior secured floating rate corporate loans. Its investment portfolio includes investments in consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, telecommunication services, and utilities sectors.

Never a good idea to prognosticate on patterns alone, but this market is sure trending like late September. It is probably hyperbole to get as cute as pointing to trends and saying this is what's coming, but it is something to consider with this very repetitive tape. It will work until it doesn't.

The one thing that did get me a little cautious was the weakness in the gld/slv ratio. It is something to watch.