24 SEP 2009, Thursday

1. Uh oh....just the Eye of the Storm?
2. WOW!!! We got a down day yesterday. I mean a down day. You know? When the price closes less than the day before? LOL...note the sarcasm. "Da Boyz" had been levitating this thing right into the Federal Reserve Open Market Committee meeting yesterday where they announced "no change" on interest rates...big surprise huh? OK, so now do they let it corrrect a little and ramp it back up into early October to get the last bit of automatic IRA money in at higher prices? We'll see! But, indeed "Da Boyz" have got the sheeple conditioned to buy the dips which is just what they need so they can sell their inventory to the "bagholders".
3. So, how might this work? Below, on the SP500 chart, I was drawing a few long term trendlines and lo and behold something interesting popped up: 1) On the upper left you'll see the value 1121 (boxed) which is the 50% retracement of the whole downmove, 2) light blue trendline sloping downward connects the October 2007 highs and the 2008 highs, 3) dark purple trendline sloping upward connects the October 2002 lows and the March 2003 lows, 4) next, the yellow up trendlines contain the entire move up from March 2009 and the steeper one contains the most recent up move since mid-July.
4. Hmmm.....look where they all coincide in another few weeks???
5. Don't believe in trendlines? Let me demonstrate....(and, by the way this really pisses me off because my charting service didn't have the SP500 history earlier than 1985 until mid May this year so I was forced to extrapolate off of Dow Industrials data which was a stretch....now I've got SP500 data back to 1971)...but I digress...back to demonstrating the power of simple trendlines at times...
6. Look at the very bottom of the price chart and you'll see a light blue upsloping (looks almost flat even) trendline. See it? Well, that trendline connects the August 1982 lows and the October 1987 lows. Hmmm...seems to be about where that huge downmove halted in the high 600's. Dang I wish I had that data in March...would have increased my confidence immeasurably.
7. Oh well....everyday is a new adventure. I've been trading this market while it defies gravity and am watching for trend change signs. Breaking and staying below those yellow trendlines will be first then a lower swing high followed by a lower swing low.
8. You can see the horizontal support and resistance areas...look for the multi day peaks and valleys. Initial minor support is the late August highs with initial major support at the early September lows.
   

The Master Surfer (as Master Trader)

Interesting analogy...

A master surfer chooses the time of day and the kind of tide to surf that best fits his style and skills.
A master surfer does not try to surf all day long — he patiently waits and surfs when he knows the conditions are right, then commits all his attention and skill.
A master surfer, upon catching a wave, will closely monitor whether in fact it’s as “good” as he initially had thought – he does not commit all his attention and energy until he is certain – and if it’s not the right wave, he pulls out and knowingly waits for the kind of wave with which he is more familiar – one that will break predictably and give him the ride he’s looking for.
The master surfer looks for a challenging, elegant, satisfying ride — not a reckless thrill. He’s already been through that developmental stage.
A master surfer can recognize a rogue wave for what it is – a wave that could wipe him out. He avoids it. There are always waves coming in to shore 24/7.
A master surfer does not feel as though he must attend to each and every one. When the currents are obviously strong and unpredictable, a master surfer knows to sit on the beach and watch, and learn.
A master surfer knows and understands the cycles of the tides.
A master surfer does not surf when tired or injured.
A master surfer rarely tries to ride a wave all the way in to the beach. Rather, having had a successful ride, he exits the wave when he experiences the momentum waning and returns to a place in the sea where he can patiently wait for the next good wave.
A master surfer is objective, unemotional, humble, respectful, fully-engaged, grateful for his gifts and trusting of the skill-set he has amassed over the years.
A master surfer watches and learns from the successes and mistakes of other surfers.
A master surfer knows he always must listen and learn from the ocean, which is constantly changing.
A master surfer can sense the shifting currents beneath the seas, based on his knowledge of weather, moon cycles, reefs, and seasons.
A master surfer gets as much satisfaction (and sometimes more) sitting on the beach, watching from a distance as perfect waves form and break, as he does actually surfing the waves – through active observation, he stores up further information so that his discretionary powers are all the more astute and his technique all the more refined.
A master surfer does not venture into unfamiliar rough and choppy water expecting to find a predictable wave to ride.
A master surfer always takes time to stand on the beach and study the mood of the ocean before jumping in and paddling past the breakers to catch his first wave of the day – he never impulsively jumps right in to catch the first wave.

Ironically....Remember, it is impossible to be a trader and be happy: (A) Wrong side of the trade? Wish you weren't in it at all, (B) Right side of the trade? Wish you had a larger position, (C) Right side of the trade and had all your cash in that position? Wish you had a bigger account. Of course, (B) and (C) are always welcomed!

It's all psychology...the markets test your head more than anything else. They paint very enticing circumstances to set the trap for some while, at the same time, they are pushing those on the other side of the trade to their pain point. They can also push to maximum confusion points for both bulls and bears alike (ie, I can see it going either way...swell). This is all to test your head...the market will uncover the psychologically weak everytime.

Plan your trade and trade your plan.

21 SEP 2009, Monday

1. Below, and above is from Mish Shedlock's blog which I read all the time.
2. The above chart shows several different possibilities of what may happen. These are not the only patterns in play. However, the odds are increasing that one of these patterns is it.
3. That rising wedge can now be counted as an a-b-c-d-e bearish rising wedge, possibly representing a massive corrective "B" wave up. With that labeling, the 5 waves down into March is an "A". In this scenario, wave "C" will take out the March low. This is the most bearish outlook. It would match what happened in the Great Depression.
4. A second likely possibility is a "bottom may be in but we are not going anywhere for a long time" scenario. Perhaps new lows are made ultimately, perhaps not. Such a scenario would play out similar to Japan's "Lost Two Decades". This means that we'll be on a up-down rollercoaster between the near term highs and the March lows for another few years.
5. The least likely possibility but one that needs to be considered is a scenario in which the rising wedge breaks upward in a sustained way (as opposed to temporary headfake). Were this to happen, it would likely be in connection with a collapsing US$. Although a possibility, bearish US$ sentiment is so extreme that it's not a strong likelihood at this point.
6. Take your pick of the 3 scenarios...or make up one of your own. ;)
7. Fundamentally, technically, and sentimentally conditions are ripe for a strong retrace of a major portion of this move up. But.... That does not mean it will happen.
8. However, you need to consider what your willing to risk / give-back of this big upmove.
9. Being out wishing you were in is always preferable to being in wishing you were out.
   

20 SEP 2009, Sunday

1. WTF!!! When the f**k is this shirt going to stop???!
2. The current extreme government manipulation of what were, in the past, only lightly manipulated markets is absolutely out of hand. Your government is using your tax dollars to prop up markets from housing to autos to stocks and bonds....enjoy it while it works but, also, remember the government couldn't even run a used car turn in program. The Fed does this through "Da Boyz" network. This is how....and why the risks are too high for the system to be able to function properly instead of being on a permanent tightrope walk.
3. The Fed basically temporarily provides "freshly printed" money to "Da Boyz" via asset purchases/transfers through "Open Market Operations". And then "Da Boyz" put the "new found free money" to work pumping the chosen asset of the day by using leverage of 30-40 times. Prior to 2005, they were only permitted to use a maximum leverage ratio of 12:1. But the financial industry lobbyists "BOUGHT"....errrr, excuse me....influenced Congress to raise the leverage ratio.
4. The 12:1 leverage ratio prevented financial implosions like we just experienced since 2007. Look at it this way...if you're using leverage of 30-40% and the asset you own drops in value by 2.5-3.3%, you are completely wiped out. Pfffftttt!!! KAPUT! You then have to sell other stuff to raise the money to meet your margin call. If enough of "Da Boyz" are trapped in losing positions and have to raise cash at the same time, their volumes will completely destabilize and swamp the markets. Think of someone yelling "fire" in a crowded theatre...the folks that are first to the exits get out OK...the rest of the folks get killed....the "Quick and the Dead."
5. That's how it works. And that's why the crap came apart so fast in Fall 2008. Think now...FOR REAL....THINK!!! When was the last time you didn't typically see 3% fluctuations in the stock market??? I'll get back to this thought in a minute but first...
6. And now that these institutions are now all considered banks, they're backed by FDIC!!! YUP...you're tax dollars again. And Congress HAS NOT YET reduced their leverage back to the 12:1 level which would lessen the likelihood of loss to the taxpayers. And if they are banks, why are they even able to run hedge funds and proprietary trading desks (Glass-Steagle prohibited this), not for the benefit of their customers, but for the benefit of themselves...once again USING YOUR TAX DOLLARS! Instead, those banks are swinging big risky positions because "Hell, we're not at risk! We'll be made whole by the Treasury." FORKERS! FORKING BOOSTARDS!!!
7. Hmmm....back to the 3% loss thought. Current market is acting just like 2006 and 2007, accelerated straight upmoves with no corrections (ie, >3% drops). Made me think then, and now, Hmmm..."Da Boyz" own a lot of crap and are trying pump the prices higher to entice the retail guy into the "All's Safe...I can buy now" mode. One question, is it possible that the retail guy is on strike...he ain't buying it? Does this scare "Da Boyz" because they got this crap on their books all levered up and no suckers to sell it to? If that's the case, are they doing everything they can to avoid that small downswing and potentially a recurrence of last fall? Possible? I dunno but I don't like this nonsense one bit...it reeks of a bull trap.
8. Me personally??? If I were in a crowded theatre I'd make sure that I were seated next to an exit. And when I smell smoke, I'm moving...no need to wait for the "Fire" call.
9. Closing thoughts from Paul Krugman (Nobel Prize winning economist)...."A lot of what we think we know about recession and recovery comes from the experience of the 70s and 80s. But the recessions of that era were very different from the recessions since then. Each of the slumps — 1969-70, 1973-75, and the double-dip slump from 1979 to 1982 — were caused, basically, by high interest rates imposed by the Fed to control inflation. In each case housing tanked, then bounced back when interest rates were allowed to fall again.... Post-moderation recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand." And that means that the Fed can't just cut interest rates and boost housing. This recession is very different than the early '80s. This time housing will remain under pressure until the number of excess housing units (both owner occupied and rentals) decline to more normal levels. Soooo....an "Immaculate Recovery" coming? Very unlikely.
10. This is not your father's economy / stock market anymore. Welcome to a brave new world.
11. PS - In September 2008, a large money market fund "broke the buck" of a run induced due to the crap paper it held in it's portfolio. That means that each share was less than $1. In order to maintain confidence, the US Treasury instituted (for the first time ever) temporary backing for all money market funds. The backing was renewed twice during the past year. However, on Friday 18 September, it was quietly allowed to expire. If you're in money market funds, you may want to look at what they contain and, if necessary, switch to a money market fund of US Treasury Bills. It will be a slightly smaller return but at least you know what you own and it has the full backing of the US taxpayer.

18 SEP 2009, Friday

1. Since at least the middle of 2003, notice how perfectly the 20-month simple moving average of the S&P 500 has perfectly acted as a long-term trend indicator. Circled in pink, notice how each touch of this moving average led to a resumption of the dominant trend. From 2003 through 2007, the dominant trend was obviously "up." Then, in January of 2008, the S&P 500 finally cracked support of its 20-month MA for the first time in nearly five years. At that moment, the 20-month MA became the new resistance level. This is because the basic rule of technical analysis dictates a prior level of support will become the new resistance level, after the support is broken. This was proven to be true in May of 2008, when the index rallied into new resistance of that 20-month MA, only to swiftly move lower after bumping into it. Now, for the first time since then, the benchmark S&P 500 is again testing that pivotal, long-term resistance level.
2. Even though the 20-month moving average has perfectly acted as support, then resistance, for the past six years, this does NOT mean you should immediately dump all your long positions and start selling short. The first thing to consider is an index will frequently exceed a closely-watched level of support or resistance by as much as two to three percent before the support/resistance level has any effect. This is known as an "undercut," and frequently provides traders with a very low-risk area to enter new positions in the direction of the dominant trend. In this case, that would be a long-term downtrend, but the same concept applies when an uptrending ETF or stock "undercuts" support of its 50-day moving average. Quite often, the brief violation of the 50-day MA provides an ideal buy entry for traders anticipating a resumption of the dominant uptrend.
3. In addition to realizing the S&P 500 could easily probe above its 20-month moving average by several percent before pulling back, one must also remember that each bar on the chart above represents an entire month of trading. As such, the S&P could easily hang out around its 20-month MA for several months before resuming its long-term downtrend, or perhaps reversing it. In 2003, 2005, and 2006, the S&P 500 touched its 20-month MA for two consecutive months before moving higher. Therefore, because the time frame of this chart is so long, actionable trading decisions should not be based on it. Nevertheless, some traders may consider resistance of the 20-month moving average to be a good reason to at least lighten up on long-term stock investments, into strength of the market's current rally. As always, this is not meant to be advice, but merely a presentation of the technical facts before us. Overall, this 20-month moving average merely tells us the broad market is coming into a key inflection point, in which stocks will either "make it or break it."
4. Below show's retracement levels from the Fall 2008 top to the Spring 2009 bottom. Will it make it to the 50% halfway mark?
5. Dunno...there is a big gap there on the SPY and gaps can act as resistance areas. The floor traders are watching that area of 1073 to 1103. We're smacking into the bottom of that range now. Do we fill it or does it fail trying?
6. Watching...patiently.

17 SEP 2009, Thursday

1. I've been wondering where the Bear is. And today I found out.
2. The Bear was swept up by Obama's Team, swiftly placed in the Rendition Program and rumor is that he's being waterboarded in one of the caves behind NY's Niagara Falls.
3. The American Red Cross urged the government to allow an animal rights visit to check on the Bear's condition. The Red Cross case worker reports that the Bear, although having lost some weight, appears to be as strong as ever. And now he's mad to!
4. The Red Cross worker also told me that the Bear stated he snagged a spoon from the cafeteria and has been preparing his escape by secretly digging through the floor of his cell.
5. Orange is just not his color.
6. He needs to be free to roam the canyons of Wall and Broad!

15 SEP 2009, Tuesday

1. Someone gets it! America Has Been Taken Hostage. Hat tip to Dylan Rattigan for being one of the few folks in the financial media who has been constantly calling for investigation, adjudication and incarceration, as necessary. This guy even did this to his personal detriment. He hosted a show, "Fast Money" on CNBC, and was very outspoken until his masters fired him. Perhaps he was too outspoken?
2. Federal Reserve Chief, Ben Bernanke, declared in a speech today that the recession was "likely over".
3. GREAT! But first let's look at some of his other "calls" in the recent past:
4. The same guy that said: March 28th, 2007 – Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.” June 20th, 2007 – Bernanke: (the subprime fallout) ``will not affect the economy overall.'' October 15th, 2007 – Bernanke: "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions." February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." June 9th, 2008 – Bernanke: Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned, July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, "… in no danger of failing.","…adequately capitalized" September 19th, 2008 - Bernanke: "most severe financial crisis" in the post-World War II era. Investment banks are seeing "tremendous runs on their cash," Bernanke said. "Without action, they will fail soon."
5. Ooopsies!

14 SEP 2009, Monday

1. US Open Tennis Men's Semi-final 2009
   Roger Federer’s best point in tennis history. (Click to see "The SHOT!")
2. Those of us who like to play tennis can only dream of making a fantastic shot like this. It’s nice to know it is possible. I would say more, but the return speaks for itself.
3. By the way, this market appears to be on a mission...but what is it?
4. Simply put, I was alert in mid February for a possible swing up. After the initial upmove, I waited for a normal retracement...which never came. (I hate when that happens.) I think that most institutional traders were in the same spot and were forced to buy as the market moved too far away from them resulting in this buying panic. Annoying? Yes, indeed. Worrying about it? Nope. There are plenty of ups and downs, all the time. In the meantime, I have to trade the squiggles.
5. The whole move up has been powerful. Much more than I would've imagined based upon fundamentals...since nothing has really changed. My problem has been that I don't chase trades as I've learned over time that it doesn't work out well for me. Instead I look for pullbacks when bullish and pushups when bearish.
6. Currently, the SP500 has poked above the 1044 level which was an October 2008 up spike. Not much resistance there and if it breaks through does it go to the 50% retracement of the down move at 1120 (which has been an important price area several times since 1998) or does it go to the big breakdown which occurred at the 1225 area? I'm seeing alot of talk of these two areas...perhaps too much?
7. Can it do it without retracements? Hard to imagine...but Ms. Market has shown us, over the past 2 years, she can do anything.
8. Or does it fail sooner? Questions, questions, questions.
9. The fast move down in the fall of 2008 trapped a lot of people who had bought stocks. As the market moves up toward those levels, those people may start selling to lock in smaller losses or even break-evens for the lucky ones. Especially, since the odds of this move further extending are not too good.
10. Just as selling panics exhaust, so do buying panics. I'm waiting for my shorting opportunity very patiently...and it is pushing up and getting more overbought so I know which way I'm leaning.
11. I'm expecting another sizeable (> -20%) move down into late 2010 - mid 2011. When and from what price it starts are the only unanswered question as far as my thinking goes. The move is losing upward momentum and I'm taking potshots at it along the way. This SP500 1050-1075 price area is looking interesting to me...and it would "doink" those looking for the higher areas discussed earlier. Ms. Market at her best.

11 SEP 2009, Friday

1. Never forget!
2. Below are a few Power Point Presentations that may help you to remember.
3. 911 Attacks.
4. World Trade Center tribute. If you have Power Point, you might want to download this one and play it since their is a background audio track for it.
5. 911 Aftermath.
6. Never, ever forget!

10 SEP 2009, Thursday

1. The S&P 500 has rallied to a new interim high 52.7% above the March 9th low. Actually the index first topped the 50% mark on August 21st — approximately 24 weeks after the March low.
2. When was the last time we had such a speedy 50% rally? Above is a chart of the S&P Composite since January 1928, which is as far back as I have daily data for this index. These 24-week wonders are highlighted in red.
3. Not since 1932, near the bottom of the Crash of 1929, have we seen such dramatic gains.
4. How many hours of work does it take the average person (earns $18.65/hr) to purchase the SP500? Below. Interesting perspective on whether or not the market is expensive.
   

9 SEP 2009, Wednesday

1. And this is why I'm so befuddled. How the heck can this expenditure be covered? I guess that I'm just too simple minded to get it!
2. Sure...why not? Let's just layer on a huge additional expenditure to the federal deficit.
3. Let's just see how much it can stand!??
4. I must be a freaking dinosaur...living in a world I just don't recognize...
5. Free lunch everyday...for everyone....
6. Only one question...how do you pay for it?
7. Who pays for it?
8. Doesn't it have to be paid for?
9. Yes...I'm a dinosaur.
10. Interesting times.

8 SEP 2009, Tuesday

1. The chart above shows percentage swings and how many trading days / calendar days to complete those swings over the past 2 years for reference. Click it to enlarge.
2. Alright...it's post Labor Day. "Da Boyz" are back from the Hamptons and they swing the big bucks. We'll have to see what they want to do.
3. The market continues making higher swing highs so it is definitely going up. Volatility is increasing intraday which is indicative of a bull/bear battle beginning. Who wins and for how long is the question? Trading this market has been very difficult. I'm looking forward to trying to get into a position that I can hold for awhile.
4. I feel like a hunter that's been sitting in this darned tree stand forever waiting for the next target. But that's Ms. Market for you. She'll do whatever she needs to do to frustrate the most people in order to get them off balance and lose focus. Then...WHAM!

5 SEP 2009, Saturday

1. Reminder above...Hurricane Season is not yet over.
2. Despite all the rhetoric in the media and noise in government statistics, this bear market is unfolding as it usually does including the extremes in pessimism nearing the lows and optimism nearing the highs. Despite the recent five month rally the SPX is still 34% below its bull market high. The three historical bear markets that many are referencing are: 1929-1932, 1937-1942 and 1973-1974. The market lost over 50% of its value in all three bear markets, but they all ended differently. In 1973-1974 the bear market ended in 23 months, without an intervening 50% rally, and then struggled higher for the next several years. In 1937-1942 the bear market lost 50% of its value, rallied more than 50%, then retested its low three years later, (60 months overall). In 1929-1932 the bear market lost 50% of its value, rallied more than 50%, and then broke to much lower lows for an 89% total loss in 34 months. Take your pick! In every case, however, the bear market lasted longer than 17 months top to bottom. Expect a retest or break to lower lows as a distinct potential. The equity markets continue to remain very risky.
3. As long as the 1030 area holds the next leg down of the downtrend should follow.
4. The bulls are not going down without a fight.

4 SEP 2009, Friday

1. A Quick History Lesson
2. The U.S. Post Service was established in 1775. So they've had 234 years to make it work. It is broke.
3. Social Security was established in 1935. They've had 74 years to make it work. It is broke.
4. Fannie Mae was established in 1938. They've had 71 years to make it work. It is broke.
5. Freddie Mac was established in 1970. They've had 39 years to make it work. It is broke.
6. The War on Poverty started in 1964. They've had 45 years to make it work. About $1 trillion of taxpayer money is confiscated each year and transferred to “the poor.” It hasn't worked.
7. Medicare and Medicaid were established in 1965. They've had 44 years to make it work. They are both broke.
8. AMTRAK was established in 1970. They've had 39 years to make it work. Last year it had to be bailed out and today continues running at a loss.
9. $787 billion stimulus of 2009. It has yet to create a single new private-sector job.
10. Cash for Clunkers in 2009 went broke after 80% of the cars purchased turned out to be produced by foreign companies.
11. The U.S. government has demonstrated a very low success rate in operating businesses.
12. Is it any wonder why I favor less, not more, government?
13. Let's get back to the Federal Government envisioned by the Constitution and return responsibility (and tax dollars) back to the states where the citizenry can watch / control government much closer.
    

27 AUG 2009, Thursday

1. Yesterday, the sentiment of newsletter writers was highlighted.
2. The flip side is the retail investors as shown in the chart above.
3. While the so-called pros are bullish, individual investors apparently need more convincing. According to this week's survey of the American Association of the Individual Investors (AAII), only 1/3 of investors surveyed are currently bullish, while nearly half (49%) are bearish. Based on these surveys at least, not everyone is bullish.
4. Sooo, maybe some more upside will get them excited too?
5. We'll see.

26 AUG 2009, Wednesday

1. Investment newsletter writers are decidedly less bearish than they've been in some time. According to the weekly data from Investors Intelltigence, bullish sentiment among newsletter writers is at its highest levels since January 2008. Meanwhile, bears are practically in complete hibernation. At a level of 19.8%, bearish sentiment is at its lowest level since late 2007.
2. Sentiment is not necessarily a timing tool because it can go to extremes and stay there for long periods. But it is useful to determine the risk environment.
3. Afterall, once everyone is bullish who is left to power the buy side? Except Goldman Sachs High Frequency Traders (ie, extraordinarily high speed computers)...of course!
   

25 AUG 2009, Tuesday

1. Bawney Frank is the Banking Queen!

24 AUG 2009, Monday

1. Lifted the above chart from evilspeculator.com. It pretty much sums it up. (Double clicking on charts/pics makes them bigger.)
2. We get a small daily correction...down to 1010? Then we ramp up toward the 1050 area? He thinks higher toward 1100. Which would be fine with me, too. The higher the price, the better the short! Time wise? Don't know...early to mid September? Who knows? It just seems like we're in the final innings.
3. Soooo, I am getting ready to shut down long trades soon and just try to focus on the short side. I'm just trying to avoid being too early.
4. Of course, it doesn't have to immediately reverse either. It could just enter into a consolidation range while "Da Boyz" sell their inventory to the now very hungry retail investor. But that's OK...Down is what I want but I'll take side to down, too.
5. Some good examples of tops after big rallies can be found at this link that shows Japan's Nikkei Dow during the deflationary 1990's.
6. Can this keep going up. Sure, anything can happen! I just try to lean where the probabilities are greatest. If I have a plan and work my plan, that is the correct thing to do win or lose.
7. To all investors that have been in this upmove from March, it's been one heck of a move 54% in almost 6 months. That's a 100% annualized rate of return! Is that realistic? Make your plans now on what you will do to protect yourself. There is no rule saying that you always have to be exposed to stocks. Cash is a position. You can always go back in when you choose to.
8. You don't want this guy to get at your accounts again.

21 AUG 2009, Friday

1. Hmmm...economy is blowing up, banking system is blowing up and Social Security is now blowing up faster due to high unemployment and reduced payroll taxes for the government. Graph above shows that Social Security is getting ready to go in the red (outlays exceed revenue) a decade earlier than anticipated. Medicare is already in the red as of last year.
2. Why? Oh, why in the hell are the President and Congress all hyped up on creating the biggest expansion of government in history? I suppose I just don't get it. What I do get is that we have a responsibility to our posterity (kids, grandkids, etc). We're supposed to hand them a country on solid footing. Not a bag of hot steaming dog doo.
3. To our leaders...want a crisis to solve? Don't do anything new. No global warming, no nationalized health care, stop the cash for clunkers and cash for houses nonsense, too. Just fix the stuff that's broke now and return them to sustainability!!!
4. To the market...more on the weekend...FIN-A-FREAKING-LY!!! We've broken out of the chop to the upside and appear to be in the final stretch. It's possible that we just tipped into the "a few weeks or days" to go.
5. Watching!

18 AUG 2009, Tuesday

1. Vote for Obama-Care....or the dog gets it!!!
2. I'll miss you Rover!
   

17 AUG 2009, Monday

1. Does this look normal to you? Me neither. Bear trap being set? Dunno...but it is absolutely amazing how "Da Boyz" paint the tape.
2. 2.5 weeks of price action wiped out in the first 10 minutes (all happened overnight) today and then it just goes flat line for the bulk of the day?
3. Always interesting!

16 AUG 2009, Sunday

1. Areas I'm watching.

14 AUG 2009, Friday

1. Above chart shows "Lame Loans" on bank balance sheets. These are loans that are more than likely going to default. The thing that gets me is this whole rally has been built on the "temporary" suspension of normal accounting standards by FASB which occurred in mid March. To buy time for the banks, they were no longer required to value loans at current value and they could carry it at a price they like. Now, what are the chances that all the crap loans that were on their books have improved as the recession deepened? FDIC (taxpayer) is still responsible to back the banks that go bust. Typically, the longer they wait the worse the problems are getting as can be seen by the increasing number of bank failures. The thing that scares me is what happens when the FASB standards are put back in place. BOOM!!! This has been a mirage.
2. Excellent...and short...video of a gentleman attending one of the Town Hall meetings in Maine. He basically sums it up when he says "Don't trade your freedom for so called safety."
3. Current price action is coiling in a tight range similar to early June. This creates a lot of confusion. June's looked more like it would break down which it did for a short time followed by the recent explosive move upward. The current range is starting to look like it could break to the upside for the final surge. Dunno? Have to wait and see.
4. Indicators are all uncomfortably overbought (snagged from another blog) and sentiment for the small investor is showing too many bulls. Which, of course, makes me nervous...Looking for shorting opportunity. Could be coming soon...waiting...watching.
5. Watching these areas...we're stuck at 1010
   SP500 Resistance: 1010, 1050, 1100, 1130
   SP500 Support: 970, 940, 910, 870, 830

11 AUG 2009, Tuesday

1. Political thought for the day...especially with all that's been going on this past 2 years (old Chinese curse goes "May you live in interesting times....uhuh!).....
2. The ONLY difference between the Republicans and the Democrats is that the Dems tell you right up front that they intend to gang-rape you. Meanwhile, the Republicans claim to intend to protect you, but as soon as you look the other way they violate you from behind without warning. Ain't it grand!!?
3. Well, market is finally doing something today besides grinding in a multi-day tight range. Tomorrow is the FOMC meet so it's pretty tough to be confident as to which way things might go.
4. With this tight consolidation at high levels, it may be preparing for an overdue correction. What I'd like is a shallow and brief correction with a renewed push up to slightly higher highs and then the failure. Then I'd be quite interested in potential shorts again.
5. But "You can't always get what you want."
   

6 AUG 2009, Thursday

1. So, I went to my computer this morning and...Hey! Someone took one of my monitors!
2. What is that? NORAD???

4 AUG 2009, Tuesday

1. Happy Coast Guard Retired Day!
2. Markets...up 16.2% in 19 days!!? At this pace I guess we'll be at all time highs by late September some time. Tongue in cheek, of course. But moves like this are rare indeed. Statistically speaking...a definite outlier on the tail of the bell curve. Amazing stuff!
3. It can keep going without me. No problem. Seems like an outright buying panic or a rig by "Da Boyz". And, if it is "Da Boyz", they are doing a mighty fine job of painting this tape. Heck, they've even pushed it to the upside of the 60 week moving average these past two days. And I use that as a guide as to the longer term environment. So, new bull market? Not if it fails here at the 60 week moving average.
4. But the problem remains that it is very overbought right now by many measures. For example: the market is currently 8.25% above it's 30 week moving average (stretched). Heck, during the entire bull market 2003-2007 there were only 2 weeks where it got that far above it...they both occured in 2003 (one week was 8.1% and another was 8.7%). Throughout 2004-2007, 6-6.25% was it's maximum distance.
5. Another item for perspective...the low to high spread for the entire year of 2004 was 15.1%...for the entire year of 2005 it was 13.1%. In the past 19 days we've bested entire years during the last bull market. Wild!!!
6. So, I'm willing to watch from the sidelines and just do some day trades. As I've said before...I never, ever, ever chase a move...and this one has just gotten silly.

3 AUG 2009, Monday

1. OK Ms. Market...whatcha gonna do? Watching ya.
   

2 AUG 2009, Sunday

1. More on investor sentiment...
2. The prior post detailed the Investors Intelligence sentiment numbers (bullish / bearish percentages). They are the investment newsletter writers. Typically, these are folks who've been around awhile and have seen a number of different investment environments.
3. The links tonight will show a slightly different story. It details the percent bulls and bears reported by the American Association of Individual Investors. Basically, it is a survey of retail investors...or the little guys. These, unfortunately, are the folks that tend to get too bullish and trapped or too bearish and trapped. They are the folks that "Da Boyz" are watching because they become the bag holders....remember the childhood game of "Hot Potato"?
4. This recent move up has got more folks optimistic. It shows more bulls and fewer bears than it has in over a year. They're not at extremes and, over time, the levels can shift as denoted by the red and green bands. But, I do like to watch the response to price action. For example, in the 9 JUL blog entry I noticed ~55% bears among this group and said that there was a possibility of a bounce in prices. It played out...more than I thought and was a reason why I wasn't committed to my short position.
5. Another point...in MAR 2009, the retail guys were at bearish extremes not seen since the 1987 Crash. I was alert to a possible turn. But....there's always a but, isn't there...when you look at the % Bears chart you'll understand. I was looking for a bounce and restest in that indicator for investor safety...unfortunately, it didn't happen. What I mean is a wiggle (comes out of the bands and goes back into the bands) at the lower levels like you see in early 2005, late 2005, mid 2006, early 2008. Instead, we got a straight up shot which is unusual for this group. You can see similar action in the % Bulls. Take a look....
6. AAII Bearish %
7. AAII Bullish %
8. NOTE: Sentiment is not a timing tool so much as it is an alert as to the environment. The emotions can hold for quite some time, too, before they get exhausted.
9. Welcome to August! A new month...let's see what happens! Currently, short and intermediate over bought while the long term is neutral.

30 JUL 2009, Thursday

1. Sentiment isn't at extremes it's seen over the past 12 months. Which is supportive of some possible additional upside. Especially into the beginning days of the month, when mutual funds get all that "automatic" IRA money and then have to put it to work...after prices have conveniently been marked higher by "Da Boyz".
2. Although, the old "magazine cover" indicator is kind of interesting here. Note the asterisk and what it stands for.
3. The magazine cover indicator is kind of interesting for contrary opinion. It goes like this...when some big trend in the economy finally makes the cover of a main stream magazine, that trend is probably over or about to reverse. Afterall, economics are boring and it takes a lot to make a magazine cover as "the" story. For example: remember the guy hugging a house on the cover of Time with a headline of "Home Sweet Home"...came out right about the top of the housing market. I still remember one back in March 2002 on US News and World Report...a big bad growling grizzly bear face filled the cover just before a spirited bounce.
4. If you see a bull goring a bear on a cover...antenna up!

29 JUL 2009, Wednesday

1. Above is a chart of inflation adjusted SP500 earnings since 1935. Investors typically buy stocks when a company is showing good earnings or has some new innovation which will improve earnings over time. Well, I guess you could always say "It can't get much worse."
2. It's information like this that has me rubbing my eyes and looking at this recent rally and saying, "Huh?" But then again, that's economic fundamentals information and the stock market doesn't always reflect it. When Ms. Market wants to party, she will! And if she parties too hard and gets a hangover, you don't want to be anywhere near her.
3. Soooo, I just take a step back and look at the bigger picture for perspective. FACT: It took 2 years for the SP500 to lose 57%. FACT: It's taken a mere 5 months to gain 47%. FACT: The inital down move in 1929 was 49% followed by an approximate 6 month rally of 52%. (Click the link to see a price chart from that period.) Then, more downside followed. FACT: Huge rallies often follow huge drops. OPINION: I do not think this is a new bull market. Instead, it's been one of those huge "bounce" rallies. The earnings picture, unemployment situation, excess credit/debt overhang and prospects of big tax hikes to cover enormous federal deficits don't provide the underpinnings for a solid recovery, yet.
4. That 1929-1932 chart gives me a very healthy respect for Ms. Market. She is not one to toy with. My personal opinion is that our 1929-1932 crash may have been the 75% Tech Crash 2000-2002....Perhaps, we're more in a situation like this 1937-1942 chart. In the 1937-38 period, the Dow experienced a drop of 51% followed by a 7 month rally of 59%. If we're in a period similar to this, I still respect that we may be moving in to that 1938 peak with this recent straight up move. Then, more downside followed.
5. In both instances, you'll notice the similarities of the moves: ~50% down followed by a half year rally of ~50%. Hmmm...where are we now? Similar spot...down 57% and now up 47% in 5 months. Not saying it'll go that way, but I really really do not trust this market and I'm watching it very closely.
6. The booming markets of 1982-2000 are over. You can no longer just "set it and forget it". Instead, you have to be a little more thoughtful and active. Throughout history, the stock market has demonstrated two types of environments: 1) slow steady upsloping prices and 2) basically flat action but huge up/down swings contained in the wide "flat". As you can see in the picture at the bottom, these environments tend to last approximately 18 years and they alternate. You'll notice the type of environment we are in now.


7. The current rally is a gift to those that rode the market all the way down. It affords an opportunity to take a smaller loss and to raise some cash by exiting completely or even 50%. That way, you'll have cash to redeploy at a future opportunity. These are very personal questions which everyone has to ask and answer for themselves occassionally. Some will choose to "just ride it out." I merely hope to provide some "background history" so that you can make more informed decisions.
8. Finally, I never, ever, ever chase a move. Those that get to the table late don't get to eat and just end up doing the dishes.

27 JUL 2009, Monday

1. Dow above 9,000 this past week. Gee...guess it's time to celebrate. Not so fast Jethro.
2. As discussed in the 9 JUL blog entry, it appeared that there were becoming a few too many "retail" bears way too fast on the price drop in early July. Thought we could see a decent bounce but, I admit, I didn't think it'd move anything like this...SP500 up 12.3% in 10 days??? Holy raped ape, Batman. One thing that the markets have demonstrated these past few years is to "expect the unexpected!"
3. I was waiting for this recent rise as a potential opportunity to enter some short sales. I waited patiently for it to come up...waited...waited...then pounced! But it just kept scorching upward so I was forced to buy back the position, take the loss and lick my wounds. Now, I'm waiting for my next opportunity. Many trading blogs I read are all saying the same thing...technical analysis isn't working right now. Well, neither is entering trades based on economic fundamentals. It's something to behold. Is there more? Or is it on an exhaustion run? Dunno...I'm watching price levels (Support and Resistance) for clues. Straight runs (either direction) like this are always tough. Could be more upside after some correction or consolidation but, to me, this is getting stretched because I don't see the economic fundamentals have changed sufficiently to support it.
4. Sure feels like a pump to the next level to get everyone feeling..."It's getting away from me!" People will do the darndest things when emotional and "Da Boyz" know it. Think of it like this: retail guy is the fish, "Da Boyz" are the fisherman. "Da Boyz" go down to the lake, toss in the lure, see the fish going for it and tug it back a little. The fish sees the "meal" pulling away and charges it only to have the fisherman pull it away again. This goes on for a bit until the fish is determined to "get it this time". Oh, and he gets it...hook, line and sinker...much to the fisherman's delight.
5. It's going up again as proven by this recent breakout to new highs for the move. Be careful out there. Geez, I worry too much...but staying alert has always aided me.
6. SP500 Resistance: 1010, 1050, 1100, 1130...(to infinity and beyond?)
7. SP500 Support: 940, 910, 870, 830...(to the Abyss?)
   

18 JUL 2009, Saturday

1. Government revenues are getting hammered at all levels.


2. First graph shows change in sales tax revenues for states. The consumer has closed his wallet which means that the already struggling states will have to make deeper spending cuts and/or raise taxes and fees (another word for tax) to fill the holes in their budgets.


3. Second graph shows Federal income tax withholdings which automatically come out of people's paychecks. With a drop that steep, it indicates that a lot of paychecks have disappeared due to the high level of unemployment. So again, reduced spending (yeah right) or increased taxes.


4. Simple question...why are the Feds on the biggest government expansion binge in history? This demonstrates the sad "Overdrawn? How can I be overdrawn? I still have checks!" mentality.


5. The Usual Suspects...

17 JUL 2009, Friday

1. Sooo...how exactly does Goldman Sachs make $4 billion in 3 months (click link). They do it through what's known as "High Frequency Trading" via a couple of supercomputers constantly swapping orders back and forth in milliseconds to raise or drop prices to where they want.
2. The problem with this? Hmm....didn't they get TARP Money (recently paid back), get more TARP money that was funneled to them through AIG as a payment? Our tax dollars are the backstop for this?
3. Another thing, didn't they have to become a bank when they verged on implosion? And who backs banks? FDIC??? Your tax dollars at risk again...especially if this all goes sour because then you'll make good on their deposits. Reminder: After the 1929 Crash, Glass Steagle was a law put into place to stop commercial banks from trading because many banks were destroyed. Ahem, that law was repealed under the Clinton Administration. Deja vu?
4. You should be scared....this reminds me of the mindset of 2 particular periods that were gut wrenching when they failed...the computerized Portfolio Insurance prior to the 1987 Crash and the Computer Modeling by Long Term Capital Management in 1998. Neither ended well as I recall. In both instances, the precepts of the computer models failed miserably because the programmers planned on normal trading environments with no sudden shocks. When the sudden shock did happen, the computers dutifully went about doing what they were programmed to do at a faster and faster pace, with more and more leverage, until...BOOM! Thing is, that the humans trust their programs to the bitter end. However, at some point, all machines fail and require human oversight / intervention.
5. Predicition: If there's a sudden shock, the subsequent crash will be blamed on HFT. Then the headlines will be "The end of the financial world" which will then require more bailouts. Seeing a trend here? The US Taxpayer is slowly but surely being robbed in the biggest bank heist of history by guys in suits, not ski masks.
6. Oddly enough, Friday 17 July 1998 was the closing high before LTCM went poof...and it happened after a straight up run like we're having now...maybe it means something, maybe not.
7. UPDATE: 24 JUL... HFT is a Scam!

11 JUL 2009, Saturday

1. Party like a rock star...
2. The screw just keeps turning.

10 JUL 2009, Friday

1. Above chart demonstrates that auto loans, home and home equity loans, and credit cards are at record delinquency rates.
2. Americans simply borrowed and spent way too much during the halcyon days of the early-to-mid 2000s. They were counting on ever-rising home values to bail them out from high-risk loans. The lending industry actively egged them on, as did policymakers at the Fed, who kept interest rates too low for too long. And now, the "debt hangover". OUCH!
3. Who can buy anything if they're doing all they can to pay off loans? Where will the consumer come up with the dough to power the economy?
4. This is not shaping up as a typical recession.
   

9 JUL 2009, Thursday

1. Interesting...in the recent stock market pullback, bearish sentiment has raced to it's highest level since the March bottom. Other indicators are getting short term oversold as well. Perhaps we might get another push upward. The question is how much? Back toward the recent highs and fail or breakout above? The 55% bears area has been associated with bottoms in the past. It can be either a short term bounce or a long term move and that is why it's important to watch subsequent price action for clues.
2. Per normal, Ms. Market does everything that she can to hurt the most people. And, she is making it very confusing since the end of May...a little something for both the bulls and the bears. Which side is she setting up for the longer term slam? Don't know...day by day...but I've got my ideas.
3. As I've said, we are in a long term bear market. A guide for that is the 60 week moving average that you can find on the weekly charts. Above it, long term bull...below, long term bear. NOTE: It's a guide, not an answer. You can also use it as guide when you get really extended away from it...possible corrective return move toward it pending.
4. I'd like to see the push a little higher so I can establish shorts at better prices...but will be trading both sides, as necessary, until this sorts itself out. Short term, I watch the 30 & 60 day moving averages as guides on the daily chart. When I'm bullish, I'll be looking to buy weakness as prices retrace toward them. And when I'm bearish, I'll be looking to sell strength as prices retrace toward them.

7 JUL 2009, Tuesday

1. Global Warming? Sure but Al Gore has it completely backwards. Surprised? I'm not!
2. The above chart shows what ice core samples reveal. The 0 year is present day and as you move right, you do so in increments of 100,000 years. Ice core data indicates that Mother Earth has experienced cyclical rise and falls of CO2 throughout history. We're just in one of those rises.
3. What causes it? A (completely independent of man) natural warming cycle of the earth.  Perhaps it's associated with the 11 year solar activity cycle (second chart)?  Note the low peak in the late 1960's that led to the cry from scientists of a "coming Ice Age"...see article in Point 8. 
4. As the earth warms, gases (CO2 is one of them) normally trapped in solution of the cool waters of the ocean are released into the atmosphere. Warm water can't hold as much gas as cool water and releases it through the surface to the atmosphere. You can't see it...but it is happening and can be measured. But as a good demonstration...ever notice how boiling water releases gas bubbles?
5. Soooo...as the earth warms...all on its own...VOILA! More CO2. The CO2 increase follows the temperature increase...it does not cause it.
6. To all you Global Warmers out there, we're about to get slammed with one of the biggest tax increases in history through "Cap and Trade". Thanks, you idiots.
7. You can read more here if you like.
8. Oh yeah, one more thing...remember in the 1970's when the scientists were screaming about the coming Ice Age? Read about it...
9. These naturally recurring earthly warming and cooling cycles are such long cycles that the human mind and life span just can't grasp them. So my thoughts? Not much to worry about here Chicken Little.
10. George Carlin and a perspective on Mother Earth.
11. InformationisBeautiful.net skeptics vs consensus graphic.

4 JUL 2009, Saturday

1. Happy Independence Day!!!
2. Ban on short selling again? WTF??? Government..."Get out of my way!" They must be afraid of something...what is it, what do they see that we don't?
3. One of the factors that the lawyers at the SEC don’t understand is the importance short sellers play in cushioning collapses. A brief excerpt from Barry Ritholtz's Bailout Nation: “In September 2008, with the crisis in full flower, [SEC Chief Christopher] Cox made shorting financial stocks illegal. Apparently, he was unaware that fierce market sell-offs often end with short sellers covering their positions, locking in profits on their bearish bets. With short sellers out of the market, the downturn became even fiercer. From the market highs of October 2007, the S&P 500 and the Dow Jones Industrial Average were cut in half in 12 months. Much of the damage came after the no-shorting rule went into effect.” Don't believe it? Click the link and look at the chart. As you can see...it was a very swift 34% decline over the 5 weeks following the short sale ban and eventually led to a 47% decline from the ban into the March 2009 lows. Shorts are a shock absorber!
4. Were Bear Stearns, Lehman, Merrill Lynch, GM and Chrysler solid companies wrongfully "attacked and brought down" by the shorts? No! They were being shorted because they were badly run companies which were already bankrupt...the rest of the world just didn't know it yet. Now they do.

2 JUL 2009, Thursday

1. Percent job loss rate comparisons by post WWII recessions.
2. It's really ugly out there.
3. Perhaps we're reaching the trough point where it will moderate some? Or, put another way, "They can't fire everyone. Can they?"

1 JUL 2009, Wednesday

1. Housing as an investment? Over the long term, it typically tracks right along with the inflation rate. What we recently experienced was, well, just insane.
2. Goldman Sucks...err...Sachs. Fantastic article in the current issue of the Rolling Stone demonstrates how Goldman Sachs has it's hand in your pocket almost every step of the way. It's a long read but well worth the time. Un-freaking-believable...this guy really connected the dots.
   

30 JUN 2009, Tuesday

1. First half of 2009 is over! Thank goodness...historically, this period has been unique in it's moves and their speed. It was something for everyone...the bears AND the bulls! Now after last night's brief intermission (ie, sleep), let's get right back to work.
   

28 JUN 2009, Sunday

1. Yup! That sure seems about right these days...what the heck is going on!!!
2. Below chart is interesting...stock market capitalization vs Gross Domestic Product. Look at the best buy and hold timeframes for a "where we are"?