29 OCT 2009, Thursday

1. Well, there's a bounce talked of yesterday...let's see what else they've got to the upside.
2. SH bought at 54.8 (stop @ 53.7), last close 55.6.
3. Recaptured the trendline and the 50 day moving average. Will have to see what they've got in store. 

28 OCT 2009, Wednesday

1. Nice!  SP500 breaking down some more which is good for the SH position (inverse SP).  It has pierced the yellow uptrend line since March 2009 and has also closed below its 50 day moving average...showing some weakness.
2. SH was bought at 54.8 (stop at 53.7), current close is 56.7.
3. The only fly in the ointment is that in doing so it has registered some pretty good short term oversold conditions in a few indicators in the process so one should be prepared for some bounce coming in a day or two.
4. NOTE:  New SP500 highs still can't be ruled out. So caution is still warranted in my opinion.
5. What I'd like to see is a move down into the 1030's then a rally into the 1060's followed by a rollover back down to break the 1030's lows (if that's where it happens).  All conjecture...but that would set up a nice lower high swing to then break into lower swing lows which is the definition of a down trend.
6. Supporting the downside is sentiment.  Below, the investment newsletter writers have a very low number of bears which is conducive to more down in the perverse world of market psychology.  Retail investors are more bullish then they've been in awhile too.

27 OCT 2009, Tuesday

1. A slight up day on SH...Down day on SP500.  Short term do we get a small retrace?  We'll see.

26 OCT 2009, Monday

1. The last few days have been a roller coaster up, down, up, down...will the bear ever catch his prey...or will these silly games continue?
2. Wow! A little follow through to the downside today.  Hey...I'll take what I can get to the short side.
3. The SH buy at 54.8 (stop at 53.7) is back in the black with a close today of 55.5.  This has got to prove itself or it will "be fired" by the stop.
4. So far all we've done in the SP500 is break down from a very short term sideways area which could possibly turn into just another retracement like we've seen the past few months.  But it was very extended so it was worth a shot to find out.
5. Intermediate term the market is still up until the SP500 gets some giddyap to the downside and breaks the yellow uptrend line from the March bottom to now and then some swing lows.
   
    
   

22 OCT 2009, Thursday

1. So, yesterday the bears had their way in a good sized late day sell-off.  But today, this kitty comes along and scared Da Bear...and there was a good sized late day rally that recaptured most of yesterday's sell-off.
2. Chopping up and down at a high level similar to the other tops on the daily chart over the past few months....multi-day flat with little ups and downs.  Tops are hard because they take time...is this a short term top or do we punch higher towards the SP500 1108-1120 area first?  Tough to say...really noone knows.  Certainly is frustrating.  The bulls have been conditioned over the past half year to buy any and all dips...at some point that will fail.  When remains the unanswered question.
3. The hypothetical SH position was stopped in on a buy yesterday at 54.8 and at today's close is underwater at 54.2, stop at 53.7.  Wouldn't be surprised to see a stopout...but it's a hypothetical so let's let the stop do what it is there for, if necessary.
4. When will Da Bears grow a pair like this little guy?

21 OCT 2009, Wednesday

1. Just gotta love Goldman Sucks.  Now I'm not too down on them selectively...it's just that they are the poster child of "Da Boyz".  Anyway...moving on...
2. Was that it?  Was that the top...with a shooting star candle?  Wish I knew with 100% certainty...would really make this easier.  But, alas, the past is ours to remember and learn from, the present is ours to live and enjoy, while the future is the story yet to unfold before us with all its potential twists and turns.
3. Hmmm...interesting day.  Got my "one more jab to the upside" talked of yesterday...Bolted to the upside in the early morning and then chopped around at high levels for 4 hours and in the final hour a ton of selling hit out of the blue bringing it to a negative close.  Interesting.  It even appears that an SH buy was taken at the levels mentioned yesterday which kind of surprised me based upon the day's early strength.  OK...so we'll see how that hypothetical position plays out....consider the stop...or better still, what's your plan?
4. Sentiment of newsletter writers and retail is net bullish...which is not necessarily a good thing.  Another brick falling into place?  We'll have to see how it plays out.  Would be great to see retail get really stomping and snorting bullish...for short sales that is but maybe they got burned too bad the past 2 years and this is as good as it gets. 
5. But, overall, price action is the thing to watch most importantly.  Bar by bar analysis on the daily shows that we've broken below the most recent pivot.  Can it hold and follow through to the downside?  It's a start. 

20 OCT 2009, Tuesday

1. Personally, I'd like to see one more jab to the upside in the SP500...or downside in the SH...but we're in a price zone of interest for a "potential turn".  In additon... 
2. One thing that was of interest today is that even after Apple reported blow-out earnings to the upside, it still closed down from where it opened...admittedly, after a huge gap to the upside...and after an overall monster rally from March 2009...to hit highs smacking into the 2007 highs (but not surpassing)...and then petered out.
3. Another item of interest, is that despite the major indexes continuing to plow forward the number of advancing stocks is beginning to shrink compared to the number of decliners...which is not a good sign for continued health of the indexes overall.  But it can still go up.  There are no gaurantees.
4. Buy SH 54.8 with stop at 53.7?  Your call. 

17 OCT 2009, Saturday

1. Just some perspective...weekends are for stepping back a bit and trying to see the "big picture" which means weekly & monthly charts.
2. The move down from the October 2007 top to the March 2009 bottom was -58%.  To all those that said that the percentage move was huge, incredible, monstrous and unbelievable...if 58% in 17 months was too big...
3. What does that make the current +64% move, in 8 months, from the bottom to the current high?
4. Alright...always looking for alternatives soooo...I took a look back into the "Swinging '70's"...WooHoo!!!  Below is the monthly SP500 chart of what occurred back then and it's annotated so you ought to be able to figure it out.  Sideways slog or quick turn coming?  Dunno...just going to have to take my chances while being aware of the possibilities.
5. Short term still up...need to see lower lows and lower highs to first show some sideways before you can even think of down.

 

16 OCT 2009, Friday

1. All pay homage to mighty Goldman Sachs...one of "Da Boyz".
2. Now remember...they are a bank meaning they are taxpayer backed by FDIC (not to mention the TARP) and, oh yeah, they have connections in high places (ie, Treasury & Federal Reserve) who have stuffed money into them along the past two years.  Now, banks aren't supposed to be taking big risks but these guys do since they are confident that they have you as their backstop if it goes bad for them...and the proof is below in the breakdown of their recent revenue results.  Check out where they are making all their $$$ in the chart below.
   
3. But, before you do...Remember, post 1929 Crash, the Glass Steagle Act was passed and prohibited banks from trading on behalf of themselves specifically because that practice led to "banks gone wild" and eventually to "banks gone bye-bye".  That law was repealed during the Clinton Administration and "Easy Al" Greenspan's tenure as the Federal Reserve Chairman.  And now we have the same setup with Bernanke holding rates even lower than Greenspan did for a long time and the banks are using leverage to the gills for trading.
   
4. We haven't learned anything during our recent "crisis".  It just demonstrates how capitalism is being abused....whatever they make they keep and whatever they lose...well, you keep!  Pretty neat huh?
   
5. What absolute bullshirt!  Once again, this shows how we've just lived through the biggest scam in history.  Bernie Maddoff?  He's a piker!  Goldman says, "Go big or stay at home."
   
6. Wanna see how big the Goldman Sachs "reach" goes?  Watch this video from Glenn Beck.
   

15 OCT 2009, Thursday

1. New highs...going up...overbought gets more overbought. Not much has changed...yet.  Interesting was that the market didn't forge ahead smartly today on Goldman's blowout earnings numbers. Then again, after being up so many days in a row, it was an accomplishment to still close up on the day. 
2. We continue to struggle with a price gap area (SP500 1082-1108) from October 2008 and then we have the 50% retrace level at 1120.  Possible that the gap finally stops this upmove just short of that 1120 level that many are looking at? 
3. This is that area first indicated in this chart here from 24 SEP.  You can check the current daily charts in the side bar and see how close we are now.  Basically we are less than 2.5% from that area which has multiple long term trendlines and a Fibonacci 50% retracement.  In other words, I'm entering a zone in which to be alert.

14 OCT 2009, Wenesday

1. Well...whaddyano...Da Boyz did it!  Amazing what the start of earnings season can do with Intel last night, JP Morgan this morning, Goldman Sucks, Citibank, Google and IBM tomorrow...can lead to emotional swings which may pump this higher into overhead resistance? 
2. SP500 gaps up and closes at 1092.  Effectively, we've entered into a potentially interesting area...now to see if there is any reversal.  My guess is not until next week since Friday is Option Expiration day and Da Boyz may want to cash in their options at higher prices.
3. New highs...going up...overbought gets more overbought.  Not much has changed...yet.  May or may not add more later. 

12 OCT 2009, Monday

1. Above is a chart of the 1970's Bull and Bear moves.  I'm just putting this up to remind myself of the environment I think I'm in .... big ups with big downs for a net "nowhere".
2. Saw this today and it seemed wise to me...."How Do You Sell the Tops?"  According to Raymond James Strategist Jeff Saut, who channels Ed Genstein, you don’t:
   
   “The absolute price of a stock is unimportant. It is the direction of price movement which counts.”
   
   “During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose.
   
   In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.”
   
   
   

10 OCT 2009, Saturday

1. Uh huh...just keep right on telling yourself that.  That way at least someone will believe you.

9 OCT 2009, Friday

1. President Barack Obama has won the Nobel Peace Prize!??
2. Hmmm...Prior US winners...President Carter, Vice President Gore and now President Obama.  Yup!  Seems to me that the Nobel Peace Prize has now officially been degraded to the point of complete worthlessness.  By the way, what exactly did Obama do less than 3 weeks into office that made him even eligible to be nominated for the award in February 2009?  "Nothing to see here folks...move along!"
3. But that's not the wackiest headline for the day:  Saudis ask for aid if world cuts dependence on oil
   There are plenty of needy countries at the U.N. climate talks in Bangkok that make the case they need financial assistance to adapt to the impacts of global warming. Then there are the Saudis.  Saudi Arabia has led a quiet campaign during these and other negotiations — demanding behind closed doors that oil-producing nations get special financial assistance if a new climate pact calls for substantial reductions in the use of fossil fuels . . .  “We are among the economically vulnerable countries,” Al Sabban told The Associated Press on the sidelines of the talks ahead of negotiations in Copenhagen in December for a treaty to replace the Kyoto Protocol, which expires in 2012.”This is very serious for us,” he continued. “We are in the process of diversifying our economy but this will take a long time. We don’t have too many resources.”  Saudi Arabia, which sits atop the world’s largest proven oil reserves, is seeing economic growth slide because of fallout from the global meltdown, but experts still expect the country, flush with cash from oil’s earlier price spike last year, to be better able than other nations to cope with the current crisis.”
   
4. Seriously — is someone pulling our legs?
   
   
   

5 OCT 2009, Monday

1. Happy Birthday to TARP, Happy Birthday to TARP...one year old today.
2. CNN/Money has a pair of nice graphics dissecting how taxpayer monies were spent, along with likely losses.
3. Well...the SP500 has put in lower highs and lower lows on its 60 minute chart for the first time in awhile.  Next, it will be important to see how it fairs when the 60 minute chart takes its next swings upward.  Saw this and thought it a reasonable summary...waiting to see what's next.
4. Janet Tavakoli: Risk of deflationary collapse greater now than in 2007.  Take a listen to the two 5 minute videos....downright cheery.
5. And for even more cheer...the Congressional Budget Office (CBO) states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.
6. They're just scenarios but forewarned is forearmed in my opinion.

3 OCT 2009, Saturday

1. Why do I get the willies when I hear stuff like this? ....
2. Geithner Says Recovery Signs Are ‘Stronger’ Than Expected By Rebecca Christie. Oct 3 (Bloomberg) -- Treasury Secretary Timothy Geithner said signs of economic recovery are “stronger” and have appeared “sooner” than expected, while reiterating it’s not yet time to roll back stimulus programs. Financial conditions have improved “dramatically,” particularly in the U.S., where the housing market has stabilized, Geithner said in a statement issued in Istanbul today. Still, jobless rates are “unacceptably high” and the financial system remains damaged. As a result, it’s too soon for governments to withdraw stimulus, Geithner said.
3. So, Tim, what is it? Strong and sooner than expected or still "damaged" and requires the "unlimited checkbook of the taxpayer"? Well? Which is it? How can you even include both statements together as they are in direct contradiction of one another.
4. Why the willies? It reminds me of Irving Fisher...a famous economist in the early 1900's. The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the Stock Market Crash of 1929, "Stock prices have reached what looks like a permanently high plateau." Irving Fisher stated on October 21 that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher.
5. Sounds slightly similar doesn't it?
6. I intend to get paid by being nervous and reading between the lines of what the elites say and what reality says.

1 OCT 2009, Thursday

1. Investment newsletter writer sentiment above: green is the bulls, red is the bears and black is the SP100. According to the weekly data from Investors Intelligence, bullish sentiment among newsletter writers is toward its highest levels since January 2008. Meanwhile, bears are practically in complete hibernation. At a level of 24%, bearish sentiment is toward 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. Retail Investor Bulls can be found here.
4. Retail Investor Bears can be found here.
5. Overall Retail Investor Sentiment can be found here.
   
   
   

30 SEP 2009, Wednesday

1. Above is a historical chart of the SP500 and it's Price to Earnings ratio which is a traditional valuation model. It shows how much people are willing to pay for the stock of companies based on what the company is earning. Notice anything interesting there?
2. Twelve-month trailing earnings as of the first quarter 2009 were a mere $6.86 for the S&P 500 making for a P/E ratio of 154. According to Standard and Poor's, these earnings are estimated to rise to $7.51 in the second quarter, and $7.61 in the third quarter. Then they're expected to jump to $39.35 in the fourth quarter and $43.58 in the first quarter 2010. Based on this last figure the P/E ratio will decline to 24.
3. Historically the normal range for this very P/E ratio — based on 12-month trailing GAAP earnings — has been between 10 (undervalued) and 20 (overvalued). Hence even if the corporate sector will see the estimated jump in earnings, the stock market is still very expensive.
4. Classic stock market valuation metrics show that this is a highly overvalued market. And overvalued markets can stay overvalued for a long time and even become more overvalued.
5. Earnings season starts again in 2 weeks so we'll see what happens. The last two resulted in two big uplegs despite companies reporting big year over year losses...yet, the market scorched upward. In between them, the market was relatively flat to mild up. This earnings period may be a catalyst. We'll see.

29 SEP 2009, Tuesday

1. YES!!! And so it begins. Above is a sure sign that bullish sentiment may be reaching extremes. When the stock market starts getting front page coverage because it's either up or down alot...the move is usually nearing it's end. Now, sure this is on the Business section of the NY Times and it would be better to see it on the cover of Time, Newsweek, etc but just look at the size of that headline. Heck, I'll take it! A sign is a sign.
2. Well, as the market has been going steadily up this past 7 months (which I'm glad for those that rode it all the way down have now recovered some), I had been stressing defense. In other words, develop an "out" point if it starts going down again. Well, from the low to the recent high the SP500 has gained 62% in 7 months. Folks, that's a 106% annualized rate of return. Now, I don't know what it's like where you live but no tree grows to the sky in my memory and this is one very stretched move with little support underneath it because it was such a straight up move. Up 7 months and it can always keep going up but the risk increases (click to see other multi-month runs).
3. Half way back to the lows? To the lows? Lower? I just am getting that Wiley E. Coyote run off the cliff kind of feeling. Know what I mean?
4. So, now I will pound the table and say it again. Just this time with more authority "DEFENSE, DEFENSE, DEFENSE!!!" Develop an out point. It may even be wise to just scamper to the sidelines for awhile such as into a money market fund of US TBills or an intermediate bond fund of US Treasury Notes (3-7 year duration) to avoid what could be a nasty down swing. Especially if you need the money in 3-5 years, you don't even want to see a normal bear market of down 20% (back into the low 800's on SP500) because you may not have time to recover in that short a period of time.
5. Think up, build a plan and be ready to execute it without hesitation...none, no hesitation at all! If you do reduce stock exposure; do you reduce by 33%, 50%, 75%, 100% from your current allocation? And when? Personal questions to be answered by you! OK, so you reduced your stock exposure by some percentage and now have cash tucked aside in a safe fund as previously discussed. Super! Let whatever is left ride and answer the next question. When will you use that safe cash to increase your stock exposure again; after a market decline of 10%, 15%, 20%, etc? Again, a personal question to be answered by you! But now you're thinking and building a plan. Some will choose to ride every up and down of this rollercoaster. I've got no problem with that because hopefully you've thought about it and that has become your plan. Cool! Work your plan...just don't ride it down only to panic and sell near the bottom as most do.
6. As for me.... I'm not wired that way. My focus is to minimize the losses to the maximum extent possible which leads me to my next point.
7. I'm ready to go on the offensive to the downside again. I've got my bear suit out and have been brushing the dust and lint off of it. I'm ready to put it on at ANY time now because the pieces of the puzzle seem to be falling into place. I am in serious watch mode again.
8. Sure, I put it on briefly in the June timeframe but had to take it back off during that July rip to the upside. That's OK. I had a plan and it didn't work out so I had to change it in order to stay in tune with the waves of the market. Simple enough. You just can't fight the market because as it's said, "The market can remain irrational longer than you can remain solvent."
9. For those wondering...How do you take advantage of the downside? Now's the time to do some quick research for yourself. Look at some Inverse ETF's.
10. Questions? Drop an email or call...but do your homework now because...
11. The Bear has broken out of the jail he was being held in and had some fun with the ladies. But now he has hooked up with some of his old buddies and is looking for some payback.

28 SEP 2009, Monday

1. Sheesh! I can't believe I'm saying this but...It's times like these that require the ole' Paulson & Bernanke tactics on the banks. Remember when they forced the TARP funds into banks that supposedly didn't want or need it?
2. Well, you see, the FDIC insurance fund (DIF) that backs bank accounts in the event of bank failure by law has always been funded by charging banks a fee for it. But banks have been blowing up at great expense to the FDIC. By the way, these bank blowups have been very large because the regulators kept looking the other way when they should have instead closed many banks on the spot instead of "allowing more time"...while the problems just worsened.
3. So, now FDIC is supposedly broke (not true as the lesser preferred option is always US Treasury funding....taxpayers bend over again). Sheila Baird (current FDIC Chair) is asking the banks to prepay their funding to recharge the DIF. Asking???!
4. I say screw that! Hmmm...what about all the banks that got TARP money??? How's about we take the TARP funding back from the banks that just reported RECORD profits supposedly.
5. And further, those that enjoyed these same RECORD profits (cough Goldman cough cough) should get a 20% assessment against those profits they made with taxpayer funded backing. The US taxpayer gave them free money instead of a loan at a high interest rate to compensate for the risk of no pay back. You know, like the banks are doing to you now as they jack credit card rates toward 30%
6. WTF??!

27 SEP 2009, Sunday

1. The good news on housing affordability for our kids.
2. “For some perspective into the all-important US real estate market, today’s chart illustrates the US median price of a single-family home over the past 39 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased – increased.
   That brings us to today’s chart which illustrates how housing prices are currently 30% off their 2005 peak. In fact, a home buyer who bought the median priced single-family home at the 1979 peak has seen that home appreciate by a mere 4%. Not an impressive performance considering that three decades have passed. Over the past two months, single-family home prices have resumed their decline and remain (until proven otherwise) in an accelerated downtrend.”
3. Hoping for lower for them!
4. Quick political thought: If the Fed has been a major source of problems, Congress is much worse. They were the great enablers of the crisis, readily corruptible, bought and paid for by the banking industry and completely failed to provide proper oversight over the financial system. I find Congress to be the worse of two evils — lacking in objectivity, incapable of producing legitimate regulatory review. To be found in “contempt of Congress” would require an improvement in opinion of them. If the Fed is Wall Street’s bitch, than Congress is the Street’s whore.
5. Stock market historical valuations? Hmm...here's one scary picture. The break from norms occurred in the mid 1990's. Are we going to stabilize at a "new norms" level or will return toward historical levels? Dunno. But you can check this link from DecisionPoint.com for some perspective.

26 SEP 2009, Saturday

1. Wow!!! Recently stumbled across this picture and it captures everything about trading and investing...PERFECTLY! The Master Surfer riding the waves?
2. You should be fearful when others are greedy and greedy when others are fearful. It goes counter to normal human emotions because we are social animals. We like to be doing what everyone else is doing or finds acceptable. In other words, we find comfort in being part of the herd which is OK in the middle of moves but not at the turning points.
3. It also explains the "news". Huh? Remember that the market moves and the news follows? Well, don't you think "Da Boyz" leak news when they need to? Sure they do...they play the masses like cheap emotionally driven fiddles! For example, their analysts pound out "Buy" towards the tops (they are selling what you are buying) and then put out their "Downgrades" towards the bottoms (they are buying what you are selling)? Don't trust those lying bastards...they are the wealthiest CON MEN in the history of the world. Think Hank Paulson and his "We are for a strong dollar" or Ben Bernanke's "The economy is fundamentally sound and the sub-prime mortgage issue is contained" commentary. Yeah, right!
4. Instead, think for yourself!!! Huh? What? I've got to work for the money I hope to make? Sheesh...where's the fun in that?
5. Another old saw on Wall Street is that "Bull markets go up on bad news and Bear markets go down on good news" (news lags the market). It is counter-intuitive and it's why it works! So alerts are quietly put out by the market by it's reactions to news items: 1) Market up on what would normally be bad news = enough buying to overcome it and 2) Market down on what would normally be good news = enough selling to overcome it.
6. Simply put, "Da Boyz" prey upon normal human emotions and the thing we get most emotional about is our security. Afterall, all money represents to our primitive lizard wired brains is security: 1) when we have it we can have food, shelter and fun whenever we want (Cool!) and 2) when we don't have it (Oh shit!) we do anything and everything just to ensure our survival and try to get it back.
7. Now for just a simple example of the news: The Federal Reserve’s statement after this weeks FOMC meeting was even more positive about the economic recovery than its previous statements (and by the way stocks shot upward initially and 30 minutes later rolled over and dropped 2%...down on "good news"?). The Fed said “Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing.” However (but...there's always a but), the statement also included enough cautionary phrases to keep analysts guessing as to just how optimistic the Fed really is, as the statement also said that household spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on investment and staffing.”
8. Soooo....which is it Mr. Bernanke??? The news headlines were Fed sees conditions have improved! Woohooo!!! But screw what they say because...
9. What they DID, as was expected, was that they left the Fed Funds Rate at the extreme low range of 0 to .25%, and said “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
10. Soooo...what they said makes the headline news but what they did speaks volumes. Are you listening to the big picture or just the sound bites? Think up!
11. So use the "Cycle of Market Emotions" picture at the top and think "Where am I now?"
    

25 SEP 2009, Friday

1. Let's hope that we can somehow avoid taking that next exit!
2. Hmmm...an update of the upcoming "nobody saw it coming" next leg of the housing / banking swoon???
3. The tall green spikes in 2007-08 was the surge in sub-prime mortgages coming up for interest rate resets. We saw the results of that via climbing foreclosure rates, mortgage backed securities blow-ups, bank failures / bailouts, and falling asset values of properties, stocks and commodities.
4. The tall yellow spikes coming in the next few months are the Option ARM and Alt-A mortgages coming up for interest rate resets. Will we see a re-run? Dunno. But I do know that the stock market tends to look and respond ahead of what's coming by about 6-9 months.
5. The moral of the story: Markets move first then the media invents the "news" to explain why. Or, in other words, the news explaining the move ALWAYS lags behind.

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.