Wednesday, August 31, 2011

SPX technicals

It is very encouraging for traders to see some order returning to market. SPX is trading nice and smooth and is responding to technicals. We pointed out over the last few sessions that 1190 - 1200 area breakout would take us to 1208, and the breach of that would take us to 1220 - 30 area. It has been reached and 1220 and 1230 were the short trigger on both days. Long above 1200 to this 1220 - 30 area with those 3 scaleouts 1208, 1220, and 1230 was the ultimate reward. Now 1230 becomes resistance. Should 1220 not hold as support, quick trip to 1208 is in order, and breach below 1208 sends us to 1200, which better hold, or we go down to 1190. Essentially that would be a round trip. But let's not get too bearish here just yet. Scaleouts and stop trailing on this short is a must.

Tuesday, August 30, 2011

Confused Fed = SPX down

SPX got sold hard @ 1220. Big money likes to sell ahead of well-publicised levels. It was helped by confused and scared Fed. These bankers are making no sense, coherent argument, or economic reason for their disarrayed actions. They dissent, only to suggest no dissent will come later. They vote with Chairman to show the united voice, even though they would like to take no such action at all. Their nervousness has the market worried that it may be too late to save US from recession, or that they do not have the right solution for the ongoing problem.
Oh well, since the Fed will guide us nowhere fast, we will trade by the holy grail of investing - charts. 1220 is a resistance, sold once and may be retested again shortly. On the second attempt, if broken, we possibly see 1230, which I say will be sold hard again. If 1220 is double top, move below 1200 will be painful and quick, just like today's late day sell-off. It is imperative to trail the stops in either direction. This confusion is to continue for a while longer...

FOMC minutes matter NOT, after Kocherlakota and Evans

If Evans' remarks this morning were not enough to confuse the traders, Mr. Kocherlakota threw his share into the mix. He was one of three dissenters at the last FOMC meeting, where he apposed the decision to keep rates at 0% for 2 yrs. Today he said that he will not dissent again, in order to make it look like Fed speaks with one voice. But sir, why dissent in the first place? Now I want to know who else would like to dissent but will not? We will never know. FOMC minutes will not reveal that.
Is this why market started to turn around after Kocherlakota's remarks hit the wires? I am really starting to think that market is getting ready to punish the Fed with a vote of no confidence. Especially after such a public disarray. But let's wait for the circus at 2 pm. I have two scenarios, both are not pretty - sell here, or sell at 1220-30.

I have to say - this is ludicrous

Fund managers, being interviewed on TV, are all chartists now. They are freely throwing moving averages and chart patterns along with P/E calculations in the same sentence.
I find this extremely funny. I would like to hear the conversation their subordinates are having with their clients, who call to ask what to do. "Well sir/ma'am, we are waiting to retest the 1101 bottom and then we'll go to new highs, we think your money is safe with us, as you are practically unable to catch the bottom, do not sell the lows". Can someone please pull the plug on these professional liars. They were all screaming "retest of lows and then new highs" all the way down in 2008. Finally, market found lows in March of 2009. Are we at new highs now? What good did it do to devastate the portfolio with 55%+ decline?
Do me a favor and stop trusting anyone but yourself with your money. Nobody will do for you what you will do for yourself. Big guys are just as wrong as small. They make bigger mistakes. This morning Bill Gross admitted missing the big rally in bonds. But give him a credit, at least he had the guts to say it out loud.

Market Update @ 10:30

It is 10:30 am edt in US, and it already seems like we have had a full day of trading. We got so much news that I have to stop for a minute and take a deep breath.

It all started in Europe (of course). S&P says double dip is in order in Europe. Haha, are we going to listen to them this time? These are the same guys who downgraded US debt.
Then BOI came out and said that growth in Italy is going to be below 1% for 2011 and 2012. Bummer! Who would have thunk? This was followed by a very poorly received Italian bond auction. Can you folks imagine what would be the outcome had ECB not been buying their bonds for the last few weeks?
Then US was awaken at 8:05 am by central bank earthquake from Evans. This gentleman must be the most dovish person walking the planet earth. He said that employment numbers point to recession. Chomping at the bit, he plain out wants to do QE3 yesterday. He denies anything to do with commodity inflation, and as the matter of fact, wants Fed to target inflation @ 3%. Say what??? Gold is up $40 now.
If this was not enough, @ 10 am we got the worst consumer confidence survey in two years.

Do you want to end the day here? Or take a break until 2 pm, when FOMC minutes will be released??

Watch SPX @ 1208. We breach decisively, we fly up to 1220. We get rejected, and especially if close below 1200, we dive. 1190 support is important in that scenario.

Monday, August 29, 2011

SPX update follow-up

Like I said earlier today, no need to fight the rally. Staying long to 1208 and scaling out on the way there is prudent. This said, leaving a runner to see if 1208 possible breach takes on some serious stops and becomes a bigger run with help of new technical breakout longs to 1220-30 area, could be the ultimate reward.
After that, I think that big money is waiting to reload their shorts there @ 1220-30 area. Provided we get rejected there, we will start a new leg down. I still see a lower low on SPX, below 1101. That will become the low for 2011. Possible target is 1070.

Quick SPX Update

It does not matter that volume is low, or that half the traders are not on the trading floor at NYSE, price is king, it wants to test resistance at 1208 on SPX, for whatever the reasons are. It may double top there, but one should not stand in the way. If double top comes, there will be plenty of time to join the trade on the way down. For now either you are long or out.

Sunday, August 28, 2011

Market Thoughts for Week of Aug 29

First of all, I hope that all of my fellow traders on US East Coast are safe after the monster hurricane.

I would like to begin my outlook for next week by expressing my deep dissatisfaction with two of the most influential central bankers on planet. I am not a blind basher, constant critic, or central bank hater. I am a trader with simple view of economics. These two gentlemen were at the helm when hell broke loose in 2008, and I should say absolutely missed what was developing for years right under their noses. They are the ones who then pushed the "panic" button while they were totally unprepared to deal with collapse of the financial system. Obviously, printing their way out of the problem was not the solution, and has now created even bigger problem with govt debt. Now they are sounding all academic and informative about the steps their respective governments need to take to get out of that debt and restore the growth, while they are telling us they have yet more tools left in their tool box. Shame on you gentlemen! Your tool box is full of Monopoly money. You just change the color of the paper and add another 0 at the end.
This brings me to next week's outlook.

On Monday Trichet is in Brussels to explain what mess Europe is in. Yet another one of useless meetings is going to take place while there is absolutely no solution to utter and unmitigated calamity. With DAX trading in bear market territory, it is just a matter of time before the "market solution" brings confused European central bankers and politicians to the eventual decision to recapitalize their insolvent banks. They are definitely running out of that time fast.
Dear traders, please read Madame Lagarde's speech at Jackson Hole. Somehow I think it becomes Europe's Bible for the next year or so.

On Tuesday it will be a total circus moment when FOMC minutes are released. Hold on to your chairs, so you do not fall off of them, when you read ludicrous explanation why only after a few short months since Chairman's press conference, where he stated that easy monetary policy may be reversed in two meetings, we now get 0% rates for 2 years. I know I will be keeping my hands away from my computer so I do not press "sell" button ten times over. Remember my comment about dissatisfaction? This is the most confused Fed I have ever seen.

US econodata will dominate the rest of the week. Housing, consumer confidence, ADP, factory orders, Chicago PMI, ISM Mfg PMI, and weekly claims, will all be a precursor to the most important event of the week - NFP. I have to tell you a scary dream I am having - NFP went negative in August. Please hit me on the head so I wake up and do not have this nightmare. By the way, anything less than 50K will be considered in the same manner as negative. This said, market may interpret this development as a positive (can you imagine?) due to expectation of another "glorious" stimulus package from US govt, which may be announced in September, starting with Obama's speech right after Labor Day. Market has done funnier things before...

Good luck next week!

Saturday, August 27, 2011

Trichet, Lagarde speeches: tales of two bankers

Trichet refuses to budge on rates. He said that he will not let unconventional measures interfere with monetary policy. Would be nice if he hinted he knows what exactly to do. If he does, why has he not done it yet? He said that ECB would react to market crash. Oh, so they have not crashed yet?

LaGarde plain out sounded a warning. She said that world economies have entered a difficult phase. She is very worried that central banks and sovereign governments are behind the curve in their response to the alarming developments on debt and growth. I wonder if Trichet was hiding under his chair while she said that.

Friday, August 26, 2011

Bernanke and Merkel to Trichet: Ball is in your court

As Trichet's speech is coming up tomorrow, he got no helping hand from Merkel and Bernanke today.
Bernanke said: clean up your mess. And Merkel said: we are being blackmailed by markets.
LOL, Frau Merkel, markets do not blackmail, they predict. Markets see a total calamity coming up in your neck of the woods. DAX is down due to your inability to govern the union of deeply indebted nations. If you want you can continue to ignore.
Somehow I think Trichet will buckle under the pressure tomorrow. He does not want to leave the legacy of ailing Eurozone economy due to high rates. We will get a dovish speech tomorrow. Trichet will cut the rates before he ends his term.

Are we insane? He is the same Bernanke!

We are grasping for every word to hint us, to lead us, to move us one way or the other. A word by the same man who told us:

"Subprime mortgage will be contained"
"Extended period of time means a few meetings"

What happened after those two statements by none other than Federal Reserve Chairman is embedded in history forever. Subprime mortgage brought down entire financial system to its knees. And just after a few months passed by since "a few meetings" easy monetary policy, we now have 2013 as a target for tightening.

Are we insane to listen to the same influential and utterly wrong individual to guide us through yet another recession??

EUR/USD Update

It is all over the place today. Traders are coming and going. I am a dollar bull here. With all the talk of QE3 we are not getting anything else from Fed, at least for now. In Europe recession is rearing its ugly head. We will start looking better, even if our growth is 1%. After initial pop, Euro bulls will realize that anything ECB does will be extremely diluting for Euro. Eventually they end up doing TARP and print their way out of trouble with their own QE.

Did Bernanke just tell ECB to cut rates??

I am reading through the speech and can not stop thinking that Fed Chairman just told ECB to deal with their mess. They have been too tight and slow to understand what damage they did to their economy. We get a speech from Trichet tomorrow. I am seeing a very interesting disconnect between Euro and SPX this morning, in the last 30 minutes. It looks like market is betting on a cut in Europe, albeit a "gradual" one.

Thursday, August 25, 2011

What did Buffett's BAC deal change?

Nothing. It added no real value to BAC's stock, as he bought the preferred. It added capital, but at very high 6% cost. It did not change all the challenges BAC is still to face. It did not alter the way BAC is perceived on the street - the last financial to invest in due to Countrywide overhang. It added extra angst among the common stock investors, especially very prominent ones, who feel duped and disadvantaged, and are voting with their shares, like Doug Kass, who sold today and called the deal "stupid". It made BAC look extremely desperate and untrustworthy, only days after they announced no need for cash.
I can go on. There are no positives in this deal for BAC, and financials, and the market overall. The only positive is for Buffett. Way to go, sir!
This deal shows yet again that we are heading way the heck lower in the overall market, regardless of what "the Buffett put" for BAC is. It marked yet another short-term top for already battered sector. Financials and the market kept on falling for another 6 months after everyone quickly proclaimed the bottom in Sep 2008, when Buffett did a similar deal with Goldman.
I do not feel more confident due to this deal, not a bit at all!!!

It is NOT all about Europe

I am so tired of hearing "it is all about Europe". We get it already. What about US? What about China? What about Brazil? What about India? All of these markets are in a bear territory or almost there. All economic reports from fast-growing nations are flashing major warnings. I have been saying it is about Europe many months ago. Now it is about the entire world going into recession or prolonged stagnation. Many of the emerging markets started rolling over in November. Developed markets are catching up now. Europe is just an excuse to sell all markets together. It is way more than about Europe now.  

Another HFT Day

Folks, do not let these machines get you off your game. Zoom out, take a little longer-than-a-day view, and exhale. We almost filled a 1194 SPX gap and got a strong rejection. Technicals worked and markets have spoken. Nothing changed, it is still a bear for now. If we start taking out these 1190 - 1200 levels, then you know more upside coming. Other than that, sell the rallies mentality continues.

On another development. It looks like dollar index is getting ready to break out to the upside. I do not want to overstate this development, but this is huge.

Buffett's BofA deal is eerie!!!

I am astonished that Mr. Buffett makes spur-of-the-moment investment decisions while in bathtub. Nonetheless, his "steamy" decision to invest in BAC is reminiscent of his Goldman Sachs investment in Sep of 2008. So many folks are trying to draw parallels with 2008. Well they are going to cringe this morning. Stock market kept on falling hard after Buffett's GS deal in 2008. Bottom did not come for another 6 months.

All I can say is what an opportunity for market to dump today! Be careful folks, do not end up holding the bag.

SOX signals NDX rollover

As all media is glued to Apple saga today, I would like everyone who will read this post to quickly glance at SOX.
Philadelphia semiconductor index has foretold the entire market story. Well, it is diverging again and is once again flagging NDX rollover. As SOX goes so goes NDX, and as NDX goes so goes the whole market.
We have gotten a doze of bad news out of the Semis sector over the last few days from AMAT and MU. But really, who in the right state of mind expects the transition from personal computers to mobile devices to not take anything less than a dramatic toll on Semis? So many of them are not positioned for this fast-paced change.  

Wednesday, August 24, 2011

Jackson Hole is not about Bernanke

I have a feeling something big is going to be brewed in Jackson Hole. And it is not QE3. Bernanke, Trichet, and their Co's are there to cook up a deal. Even though this is an annual event, scheduled well in advance, and not that they could not do it over the conference call. But the markets have deteriorated tremendously in the last month. I see that Lagarde is going to give a speech as well (last moment addition). Coincidence? I am in a bear camp for the next few weeks to a month, but as the markets progress towards the lows again, the new facility/deal/whatever you wanna call it will be there waiting. They start in WY and tell nobody about it. They wait for politicians to agree, they also wait for same politicians to try to calm the markets down first. But politicians will fail I bet, and that is when ECB/FED/IMF will act. And of course, I am talking about the European bank bailout, a la TARP/TALF. Meanwhile put your helmets back on until everyone returns from vacations in September.

Market Update

It is second day of gains for equities. SPX futures are continuing to trade within the uptrend channel established over the last two sessions. We are at the top of the channel, with pivotal speech coming up on Friday. I have been a doubter of the rally, and still am. But no reason to fight it, just wait for a rollover if bearish. Free time while waiting comes handy during summer month. Relax and wait for a signal, we will trade fast and furious once the price breaks down below the channel. Worried longs will puke and confident shorts will pound the markets. We have to retest the 1077 ES_F low to be sure there is nothing else below. I still think the selling is not over yet...

Dollar Index Signal Coming?

$DXY is not selling off. With all the QE3 and recession worries it just hangs in there tough. Folks, I am not a predictor, but I really think this is the time it shoots through the down trendline and kills the risk trade for a month or two. Watch it with your two eyes and do not let it sneak up on you. In 2008 this was the trade of the year (besides selling equities). I think we are at the same point here!

Econodata Aug 24

We are continuing to get bad data from Europe. Business climate from Germany and Belgium was horrific. Also industrial Eurozone orders were negative (surprised by a full percent). I am totally dumbfounded what the heck EUR/USD is doing up here. I know, I am not the only one. This is almost a paradox, that with all the recent data the currency of the recession-bound economy would go up. Is the market wrong, or is it "fixed"?

US durable goods came in higher than expected. Everyone rushed to the wires to denounce recession worries. Well, let's look under the hood. While the headline number is greatly helped by autos and aircraft, the other important components were weak. Here is the breakdown for negative new orders:

Communications Equipment -24.8%
Computers and related -7.4%
Appliances -1.8%
Machinery -1.5%
Capital Goods (excluding aircraft) -1.5%

Let's not forget the regional data from Philly and Richmond Fed. It pointed to lower orders all around. Looking at above numbers all cyclical components are very weak.
Please excuse my wet blanket, but I think this report is highly suspect. And if anything, Tech and Industrials will hurt once this data is digested.

Tuesday, August 23, 2011

Who will be downgraded next?

Japan's sovereign and its major banks' debt was just downgraded by Moody's. While I am not interested in this development, as there is no real risk of Japanese default, I am very interested who the rating agencies will downgrade next. It will not be US, as S&P already did it, and both Moody's and Fitch affirmed their AAA ratings.
I think EUR/USD is down 40 pips on the worry that European country (and I bet a very important one) could be downgraded next. We have been getting all kinds of econodata which point out to major weakness in Europe. Rating agencies had some time to crunch the numbers. Let's see what they come up with...

This is purely a speculation based on price action tonight...

What changed since yesterday?

Nothing. Do not try to make sense out of this market. It is trading on sentiment, intra-day momentum, and lack of conviction. Money is traveling between assets and tries to find home on daily basis. It was out of gold and into equities today. Tomorrow your guess is as good as mine. Liquidity is poor in summer months, it does not take a lot to move this market. Today the opening was ripe for higher prices, futures came back to the pivots, where they also filled the gaps. After all econodata was out of the way, shorts decided there was nothing else down there for them to hunt, so they covered well in advance of Bernanke's speech on Friday. So I ask where to from here? I think we will chop around in 15-20 point SPX range and wait for Jackson Hole. Should the chairman give us QE3, there is 1194 gap to fill. But if he does not save the world in Wyoming, we will retest the 1077 ES_F SPX futures low within a week.

Quick Technical Follow-up

SPX futures ES_F closed above 1153.25 thus negating the bear flag I mentioned earlier. Market wants to go up. It is ok to be wrong as long as you did not push the trigger too early. Waiting for that entry on the signal you have set up is the key. Signal is the break below the flag. Many would be aggressive and enter inside the flag. Today is the example why you always wait and stay patient. Now the picture changed and bears are on the defensive a bit. But really not by much, since the overall trend has reversed towards the downside. What happened today is by no means a game changer, but just a negation of a pattern. There is an uptrend channel now from y/day lows. Let this be the signal. If broken down decisively then you know that market is in trouble.

Market Technicals

There is a bear flag developing on stock index futures' 4 hr chart. Yours truly has no idea where we are going during the day, but I do know we are heading down from here in the next month or two. Bear flags are precursors of a measured move down. Flag pole distance is 95 points on $ES_F which would imply a move down to 1051 (based on current top of the flag @ 1146). You will need to adjust the numbers as they fluctuate, but the picture remains the same, as long as we do not trade and close above 1153.25
Bears are clearly in full control of this market. Longs would rather hope that this is a correction within a bull. Their hope is the fact that S&P500 and Dow did not make new absolute lows below 8/9 low. But we had a new weekly closing low, and Transports and Philly SOX made new lows. Somehow I am not sure that the bull is alive. If we do not reverse the negative news flow, then I do not think that 1051 will be the absolute bottom. If we completed a bull market 5 wave move at 1370, then this is just a first wave down in a bear. Can you folks imagine where we will complete this move?? Scary to think. I have a 943 SPX target on my list. But let's not get too far ahead of ourselves. There will be another vicious bounce or two on the way there. Just like we had on 8/9 - 8/17.

Good luck!

Econodata - bad is good

Markets are rallying on bad data. Where have we seen this before? Ah, August 2010 QE2 announcement, now I remember.

European PMIs were mixed, manufacturing sucked (with EZ below 50), services were respectable. Europe is not a service-based economy, so manufacturing is the key there.
Investor and consumer sentiment/confidence were awful.

China PMI printed below 50 for the second time in a row. I am not surprised, neither is the market. China is not immune.

Canada's retail sales were negative. Our neighbors north of the border are feeling our pain now. We will go down together...

US new home sales below 300K. We do not need more homes, please. Richmond Fed cratered (just like Philly). This is going to negatively affect ISM for sure.

So we are now celebrating a death of the growth with a rally :)

Monday, August 22, 2011

If I was Bernanke's advisor, I would...

tell him NOT to hint of QE3 in his Friday's speech. Instead, I would remind him of the following:

1. It is time for Fed to be independent again. Let no politics dictate the monetary policy. The politicians will have their spotlight on Sep. 6 to solve the country's economic problems. Growth has to come from private sector with help of govt's pro-growth policies, thus creating jobs.
2. Fed should make sure there is no inflation. PPI and CPI are at elevated levels. Fed should not respond to every market rout, and prop asset prices as they slump. Fed should not try to alter business cycle by inflating assets that have to correct after relentless rise. Fed should not blow bubbles!
3. Fed should provide liquidity in frozen markets. But Fed should make sure no banks grow beyond unimaginable size unsupervised, that they would need $107B to stay afloat, like Morgan Stanley in 2008. This said, Fed should not impede lending by overregulating healthy banks, thus punishing them for the sins of few.
4. Fed should do a better job forecasting the economy. It was just a few meetings ago that Fed thought it would tighten the monetary policy. Staff has to be improved and/or replaced. Fed's credibility is at stake!!
5. Fed just recently said that it would stay easy for 2 years. So Fed should not do QE3 because it will destroy the dollar and send American consumer's buying power into the dumpster, thus sending our country into depression!!

Why has Euro not collapsed yet?

I think I may have the answer.

The main reason why Euro has not collapsed yet is - CHINA.
If your largest customer needed a short-term loan to stay afloat, would you lend them the money? Of course you would, if your business greatly depended on them. Well, China's exports are going to Eurozone (their largest importer) and is the only reason China has such stellar growth. Their export-based economy is thriving while Europe is stagnant. China has not yet been able to generate domestic demand big enough to support itself. And even if it did, the only reason would be because of their new working class employed at factories which supply the goods to overseas. If Europe cuts back on their imports from China, it would be the game end. I do not even want to tell you the consequences of 1.3 billion of hungry people revolting all at once. So China has been buying everything in sight with a big E written on it - from Irish, Greek, Spanish, and Italian debt, to Euro currency on the open market. Euro is not dead because of China, to the dismay of so many traders who are betting against it. Big Panda's pockets are deep enough to overpower all of our Euro shorts.
My question is how much longer can they keep the Euro up? Unfortunately, I do not have the answer to this question...

If QE3, Why is Dollar Not at New Lows?

Forex traders are some of the smartest out there. Market is rallying this morning on the notion that Bernanke will hint on QE3 on Friday. Well, if that is the case, then why is the dollar still above its 2011 lows? Many will say that dollar is holding up because of the risk aversion. I get that, but we also have swissy, yen, and treasuries to hide in. Forex traders know that QE3 on Friday is a pipe dream.  There will be no QE3 hint on Friday based on the way dollar behaves, in my opinion. Bernanke may perhaps hint on QE Lite, which is reshuffling of maturities on balance sheet (sell near-dated and buy long-dated). But that is it. We had elevated PPI and CPI last week, which killed any QE3 hopes. So I think that equity traders are way ahead of themselves today. Beware of risk on Friday when disappointment hits those traders with high expectations.

Sunday, August 21, 2011

Market Thoughts Week of Aug 22

I think I say this every weekend, but we are going to have a very interesting week coming up.

On economic docket we have very important news from Europe and US. I will be watching Eurozone PMIs (Mfg and Svc) on Tue. for more possible weakness out of largest economy of the world. In US we will have more manufacturing data in the form of Richmond Fed (same day), and Durable Goods Orders on Wed.
On Fri. we most likely will get US GDP downward revision.

Fedspeak will dominate the end of the week. On Fri. Bernanke and Trichet on Sat. will tell us how they will save the world, or NOT. Those two gentlemen would rather be hiding now, as they are almost being asked to put on their superman suits, and quickly fly to the rescue of every economically failing part of the world, primarily their own. I suggest traders calm their excitement down, and be prepared for major disappointment. When I saw PPI and CPI this past week, I already knew QE3 is a far shot. At best we will get a hike reversal by ECB.
I think we get a better chance of the two of them cooking something up (starting in WY) for banks' support in Europe. I say that it would mean more to the markets at this particular time. I am looking for establishment of TARP, or TALF, or something of that sort from ECB with help of FED. This will take time and approval from govts. They can not do this without the help of US Treasury. So I am looking for some serious confusion and later a necessary collaboration between Bernanke, Trichet, and Geithner. After all, we are talking about saving the world. All of this could involve China later, as they are the ultimate buyer of last resort. We are a little over our heads here in the Western world :)  Many of you, who think all of what I just said is a fantasy, will rethink after another 10% decline in world markets in the next month or two, after European banking crisis takes the front stage, and Italy's and Spain's debt starts trading north of 6% yield. So my prediction is EFSF/ESM evolves into a European TARP/TALF. If we hear this in WY we rally like nuts! I am skeptical they have it ready.

Technical picture on US and European markets is ugly. Many markets closed at their respective year-to-date lows. SPX closed below 1130 on weekly basis. This, in my opinion, portends more downward pressure and eventual bear territory close for many developed world markets. By the way, many of the developed and emerging markets are already there, we are merely catching up. There will be vicious rally or two to stop out complacent shorts, but overall trend will continue down :(
I want you to watch two of the best cyclical indicators on planet: Dow Transports and Philly Semiconductor Index. They both closed at new lows, below last week's lows!

Saturday, August 20, 2011

Is Oil Sending a Signal?

As traders we get to wear a lot of hats. Besides digesting corporate news, earnings, and balance sheets, we also have to understand various macro issues affecting the market like economy, business cycle, government policies, and geopolitics. The latter was an early contributor to this year's market turbulence. The Arab Spring, which President Obama talks about in his every speech, contributed to the downturn of world economy. And he is very correct to point that out. It all began there. Oil went up and caused an energy shock to economies around the world. Libya is still off-line and is not coming back any time soon. Fighting there has intensified again. And now we have another serious problem brewing! Folks, I want you to start paying a very close attention to what is happening in Syria, Egypt, and Israel right now. Have one of your eyes on the newswires all the time. I am not scaring you, nor trying to be an alarmist. But when I hear those three countries being mentioned in the same news report, it sends goosebumps down my spine. We have been preoccupied with macroeconomics, government policies, and sovereign debt concerns. Geopolitics fell off the radar for a while. Well, I say they are just around the corner, and we are to be ready for some turbulence due to the latest developments. Keep your eyes on oil, Brent specifically. It will react first. It was up on Friday while all stock markets went down a lot.

This is just my opinion... 

Friday, August 19, 2011

Weekly SPX Close Below 1130 = More Down

I was waiting to see if SPX will hold the close on weekly basis above 1130. It did not. So I have to say that this means more down for S&P500 in the next month or two. We will go up and down but general trend will continue down for some time. We need to repair the damage but falling has to stop first. My targets on the downside are: 1100, 1080, 1066, 1044, 1040, 1030, 1020, 1011, 1007, 993, 980, 956, and 943.
It is very scary to think we are going there, but we could if economic, political, and corporate news continue to be as ugly as they are now. We will get more downward revisions for economy and earnings, besides more bad news on sovereign debt. Protect yourself on the downside and be ready for wild snapbacks on better than expected news. Be safe...

Thursday, August 18, 2011

Test Of Lows?

If, and that's a big IF, today's lows hold, traders will try to build on this higher low (compared to last week's low) development tomorrow. I am not biased either way after being wrong about expiration holding around 1200. The moves are quick and violent, yet they are responding to technicals a bit better than last week. Of course as soon as I say it, they get wild and uncontrollable. Still the fact that no new lows were put in is going to energize bottom fishers. Jackson Hole next week will be a catalyst for some players to buy against. Some sellers may just cover and avoid possible risk of sharp rally. Let's see what happens... 

Econodata Aug 18

That was an atrocious Philly FED!! Businesses were sitting around watching congress fight over bunch of nothing in July. So MFGs got no orders out of that inaction.
Combine that with elevated PPI and CPI you get stagnation.
R word is flying around again. Ben Bernanke is probably going to have to say something more significant at Jackson Hole. But did he already do that at last FOMC meeting? That 0% rate for 2 yrs is like QE3. What more can the man do?
And Mr. Trichet is going to need to reverse hikes for sure. Do we really have a "meeting of the minds" in Wyoming now? We are going to need a herd of rabbits pulled out of their hats in order to keep US and European economies from tipping into recession.

That initial dump on the open accelerated after the ugly econodata. I am still in the camp of VIX north of 40 being sold into expiration, resulting in a bounce for stocks. But this is just one trader's opinion :)

Market Observation Pre-Open

Stock Indices are in fib retrace. NDX will hit 50% at the open. SPX and Dow are lagging in decline, currently down roughly 38.2%, but nearing 50% as I type. These sharp pullbacks before OpEx are suspect, as OpEx usually brings upside bias. VIX calls will be flying, but I will not be surprised to see aggressive selling into that. Hence, after an initial move down at the open we may see short covering and a rally into the close develop.

As always, use your research and follow your plans.

Wednesday, August 17, 2011

Markets Are Not Ready To Breakout

SPX is not ready to breakout of a tight 20 point range. This is all due to OpEx this week. Beautiful setups and great range trading opportunities both ways. Price is reacting a lot better to technicals this week. I am sure all of that will go to hell soon as HFT shenanigans are just around the corner :) This is just a short reprieve before intra-day madness is back. I am keeping my stops wider and time frame longer. We are probably about 20 SPX points away from a roll over. Way too many folks want to short 1240 - 50. Aggressive traders will front run that level by 10 - 20 points. Action will feed on itself from there and wheels will come off the rally wagon fast.
As for EUR/USD 1.45 is a solid resistance, top of the range. I see a possible easing by ECB as a trigger for a trip back down to 1.40 very soon. If today's PPI will be followed by higher than expected CPI tomorrow, FED will not be able to do a huge QE.

Tuesday, August 16, 2011

$SPX OPEX Pinning

There is a possible pinning of SPX @ 1200 this week. As Merkozy presser ended, you could see sellers rolling in, but SPX held 1180 and rallied back towards 1200. It will be a chop fest around this range until OPEX is out of the way. On Friday (index options expire Thu night) we will break out of this tight 1180 - 1200 range one way or the other. We will quickly gain or loose 20 points. I hope it goes to 1220 for a selling opportunity. Long to that level with stop below 1180 could be prudent. Do your own research though :)

Which way for EUR/USD?

I think that due to no immediate support from Merkozy today, it is time for ECB to fire the bazooka. I think that Mr. Trichet will reverse a hike or two. It was unnecessary and has stifled the growth in Eurozone, bringing it to a grinding halt in Q2. As soon as this happens it will remove the attractiveness of Euro vs Dollar in terms of interest rate, and therefore will weigh on the pair.  Based on this EUR/USD will fall to 1.40 very quickly. I think that ECB will not wait for their next meeting to do this, as the market will force their hand in the next week or so. They very rarely act in between the meetings, but considering the German and French Q2 GDP data, the urgency is real. They have to come to their senses and catch the economy before it falls into recession.
FED will answer with their own cannon shot on this side of the pond in the form of another round of QE. This will hold the EUR/USD fall at that time. 1.40 - 1.45 range will be with us for a while.

What do you think??

Recession is Coming

Folks, I do not care about the "significant" meeting in Paris. What I care about is the fact that we are staring at yet another recession. Let's not kid ourselves, after the GDP numbers released today out of Europe (largest economy on planet), how can we say no recession is in the cards? Bright minds out there are hoping that slow growth is what we will have. But we know better than that. All stock markets around the world are now pointing to start of recession before the end of the year. We need to be ready for further declines and new lows still to come. Hope is not a form of trading, it is a derivative of buy-and-hold strategy. Traders will be ahead of investors - quite frankly they already are.

Econodata Aug 16

Europe is not growing. German GDP was 0.1% q/q and Eurozone GDP was 0.2% q/q. At this pace Europe is going to fall into recession before the end of the year. Markets in Europe are having a second thought about the rally. It is up to Merkel/Sarkozy meeting to provide the catalyst for further gains. Should nothing concrete and groundbreaking come out of that meeting, markets in Europe will retest the lows in a matter of days.

UK inflation is alarming. Compounded with stagnation it is a sure recipe for disaster. Riots in London and other cities brought the social instability issues forward. Is this the beginning of something scary and uncontrollable? I sure hope not!

US Capacity Utilization and Industrial Production was better than expected. Import prices were higher by 0.3%. FED is praying for none of that price instability as they are getting ready to embark on QE3. Tomorrow we will get PPI and CPI on Thursday. Those numbers need to be in-line but not much higher, otherwise FED's hands will be tied.

Monday, August 15, 2011

EUR/USD Move could be a Fake

I am skeptical but not shorting into this. Here is my take:

We had an established range 1.4150 - 1.4425 in place. We broke out of that range today, helped by a triangle breakout within the range. So we are on the top of the box and are waiting for headlines from tomorrow's Sarkozy/Merkel meeting. If the headlines are not supportive of this move - then it is over. Euro will head back down to 1.41 at best and perhaps 1.40 at worst. It will stop there and wait for EFSF/ESM September votes, imho. If the headlines are supportive, then Euro will use the top of the box as a launch pad and needs to break above 1.4535 and close above it on hourly basis for continuation to occur. Should that happen, this move is legit and will rip higher, with 1.47 as the next target and 1.4940 after that.
I was surprised by today's move, as there was absolutely no reason for it fundamentally. I did miss it completely, I have to be honest. I understand that there were some worried shorts covering ahead of the love fest tomorrow. Beware of possible reversal above 1.45 after stops there are done.
Tomorrow's DR1 is 1.4531 with daily upper BB there as well.

Market Update $S&P 500

This was a respectable 100 point rally off the lows of last week. One has to wonder if it is running out of steam. SPX is nearing the 50% retracement. Many big players like to front run widely-publicized levels and make others chase. I will not be surprised this time to be nothing different. As all traders are glued to 1250 level - neckline of broken head and shoulders, I am watching for 1220 - 30 zone to be the sell signal for "smart money". But this is just my personal opinion...

Did $GOOG $MMI deal just put $NDX top in??

I will not pretend to be a mobile market expert. But I think GOOG just put NDX near-term top in by buying MMI. I understand why they did it: patents, footprint, AAPL dominance, blah, blah, blah. But all I really care about is the following:

AAPL = 12% of NDX and GOOG = 6% of NDX

So, with two giants battling it out, both stocks will be under pressure for a while.
GOOG will be a waiting game, show me story, and a risk. Breakdown:
Waiting game for regulatory approval. We remember how DCLK deal weighed on shares. And let's not forget simple arbitrage, folks.
Show me story, because they are going to have to show how the patent portfolio and all the manufacturing biz they acquired will be divested/implemented/synergized.
Risk is that Android partners walk, and do it rather fast, even though they signed off on the deal. Just not ready to do it today yet.

And AAPL shares will be weighed down by a formidable threat of a very strong competitor arising from this deal.

So you get 18% of NDX stuck in a mud and going nowhere fast because of MMI acquisition by GOOG.

I know, I will get some angry comments now :)

Sunday, August 14, 2011

Market Thoughts for Week of August 15

It has been a crazy week. After a brief interruption and decision to regroup, I am ready to battle on a completely different level. My day-trading hat is gone for good. My swing-trading and position-trading hats are still on. I am letting the machines have their spotlight during the day. They are unable to mess with what I will do now. I quite frankly got tired of being a fly on elephant's back.

We are going to have a very interesting week. It will once again be dominated by Europe. This time ECB will not matter, it is up to two main countries of Eurozone to bail out Spain and Italy. Traders will be waiting for headlines out of Paris on Tuesday, yours truly included. I bet many traders are going to have their fingers on the sell button. I do want to see what comes out of there first though. But I am not putting too much hope on this meeting in terms of major decisions.
Also a very important parliament session is coming up in Netherlands on EFSF/ESM funding increase. If it fails - God help Europe. I have a funny question about ESM: Spain and Italy combined are 30% contributors to the bailout fund. How the heck is this fund viable if they themselves need a bailout? I smell a rat...

We will have more Econodata to digest. The most important for me will be German Preliminary GDP, and US Mfg Data. If German growth disappoints, especially after flat French GDP, then they will have a serious problem in Europe (not that they don't already). If Empire State, Philly FED, and US industrial production disappoint, then we will have a serious problem in US. I do not have to tell you how the week will end, should these two largest economies' problems take center stage. World-wide recession fears will be flying around again. Folks, in recession almost nothing does well on stock market.

Bunch of retail earnings coming up in US. I will watch retail for stock market direction in 2nd half of the year. Back to school through Christmas is a crucial period for them. After the stock market correction, combined with Washington circus, is anyone in shopping mood? Funny enough, sometimes people go shopping when they are depressed. UoM consumer sentiment was the lowest I can remember, but retail sales were good in July. Retailers reported well last week and all projected 3rd quarter on track or above. With consumer spending being 70% of GDP, it is the only reason we are not in recession yet. Weekly chain store sales will be my main indicator to watch, besides monthly retail sales figures. I will keep you updated here...

Technical picture on SPX will matter greatly. Oversold conditions are producing a nice bounce for longs to reduce exposure and shorts to enter at higher levels. People will be coming and going, it will be a total confusion fest. I will keep my stops wide due to HFT intra-day shenanigans. We have to learn how to live with them. SEC probe should start soon. I am hoping they take their madness out on HFT, after Madoff fiasco. Speaking of SEC, they said that they are not considering a short selling ban in US. I praise their decision. This said, after European short selling ban, their traders took a supersonic flight across the pond (I loved those Concordes) and beat our financials senseless on Friday. And this is with Dow up 125. Can you say unintended consequences?

Friday, August 12, 2011

European Short Selling Ban

I will say this again - will not matter. We had the same thing happen in 2008. Band aid on the gushing wound. I understand that officials panic and carry out silly decisions. But experience shows us that in 2008, after a very brief reprieve, derivatives and regular selling by longs continued through the ban, and those stocks eventually fell by a lot for another 6 months, regardless. Shorts can use options, futures, ETFs, ADRs trading on other exchanges, and CDSs to express their bearish opinion on these stocks. European officials are putting a blame on traders for what is essentially their problem of ineffective fiscal governance. It is really funny what happened though. They are protecting the banks who now hold govt debt, which was used to bail these banks out in the first place. If this is not a pyramid which is going to collapse, then I do not know what is.

Econodata Aug 12

After some vacuum we got some data today. Let's digest:

France did not grow in Q2. GDP was flat @ 0.00% q/q. Great, now you tell me how ESFS gets all the gazillion of euros it needs to bailout Italy and Spain? S&P is furiously crunching numbers this morning I bet, reconsidering their AAA rating on France due to no growth. That 4th European rating agency idea is going to get some more wind if France gets downgraded, I say. Once that happens, S&P's days are numbered.
European industrial production was a negative 0.7% m/m. Oh deep joy, maybe we finally can get some factories in US to pick up the slack from Europe? And we wanna get paid in Euros please.
French CPI was negative 0.4% m/m. Mr. Trichet should have listened to Mr. Bernanke's transitory commodity inflation arguments.
French payrolls were better. Now why can't we get that here? No growth but hiring, socialism at its best...
This is not weighing on Euro even a bit this morning. I think maybe "risk on" is helping it, combined with an anticipation of Tuesday love fest, and European-wide short selling ban (on this later today).

Retail sales rocked in July. Can the American consumer please save the world, again? Even ex-autos and gas it was a respectable 0.5% m/m increase. How the hell are we going to have recession with these numbers? I am confused why the entire world stock markets are pointing to one, but they do. Sometimes deep corrections look like bears, I have to point out. Recession outcome will depend on the duration of this market correction. If we stay here long, investor confidence will be damaged greatly, pushing us into recession.
We have UoM cons. conf. coming up @ 9:55 am.  I will update...

Mr. Kocherlakota just came out and said why he dissented. Ouch, what a blow to the Chairman. Is this the first time FOMC member went to such extent to explain in detail why he disagrees with policy decision? We got "iPad-eating" Dudley coming up at 10 am. I will update...

UoM - UGLY!! But is anyone surprised? US AAA rating gone, we ain't good ole USA no more :) Combine that with stock market rout, and you got a freaked out consumer. She ain't gonna shop until this Sunday, at least :)

"iPad-eating" Dudley sounds extremely dovish this morning. When does he ever not? He is pushing the "panic" button about now. Can you say QE3?? What the heck are they waiting for? Jackson Hole? These central bankers are so predictable. Where is Greenspan when you need him? We need some suspense and excitement! Can we please have a breakout in EUR/USD already? I am falling asleep...

Thursday, August 11, 2011

Man vs Machine - Part II

It is no surprise that all TV financial channels are now buzzing about HFT destruction of the market. I have been a huge opponent of the phenomenon. All those who say there would be no market without them should wake up and realize that there will be no market soon, if they are not stopped. They pretty much killed any profitable day traders, the real guys who provided liquidity and knew how to grind it out during the day. I pretty much suspended  any day trading activity 3 days ago. Thank god I know how to swing trade. And that is what I will do from here on. These wild and manipulative machines are welcome to kill each other in the process. I refuse to be the bait.

Here is a very good explanation of what is going on:

What is this rally about?

Relief from possible European short selling ban, and yet another kissing moment between Merkel and Sarkozy next Tuesday, are sending shorts scrambling to cover. Whatever the reasons are, traders have to trade. We have a support @ 1100 on SPX, and a lid on it @ 1170. We can sit around and strategize why one or the other will give, or simply use those two to trade the range. Until we go above 1170 or below 1100 we will have no direction. Furthermore, this 70 point box is a gift from heaven. Now we have a clear objective once breakout occurs.
So after this observation I have new near-term targets for SPX: 1240 on the upside and 1030 on the downside.

I absolutely think that a boatload of longs who are looking to break even will sell in between 1240 and 1250. Shorts will reload there as well, inside 50-61.8% retracement zone. If the timing coincides with Tuesday meeting of the love birds in Europe, it is a definite sell for me if all they do is exchange the vows. When did you see anything concrete decided without German parliament? Those folks are having bailout fatigue by now. We have seen this movie before. If there is something huge to be decided there, why is Euro only up 29 pips??

And if 1100 on SPX breaks, 1030 is a logical target - right around last years low.

Let's trade this! Screw the machines!

Here We Go Again

European authorities are preparing to ban short selling. Have these folks not learned anything from 2008? If they think it is bad now, wait for liquidity to dry up, as market makers walk away. What is wrong with their memory? It has only been 3 yrs. Markets kept on falling after initial short covering in 2008. Well, I guess I should not be surprised, I predicted 3 days ago that this would happen within days :)
Forget about normal market conditions under these circumstances...

Safer Trading Conditions?

Is the market starting to react to technicals? $ES_F has pulled back to 61.8% fib, and $NQ_F has pulled back to 50% fib from their Tuesday's highs, and bounced. We have a rally under way in both during the Asian session. Who knows if this is the start of normal conditions for technicals. I absolutely hated the last 3 days. There were no credible setups for trading (except the actual lows precisely on WS2). Sometimes we just sit it out and let the machines completely take over. Dumb black boxes just grind it out and then want us to chase. I refuse!! I will wait for my setups and take a trade when criteria are met. I want to see at least one good trade go through. Let's see if ES_F hits 1202 and NQ_F 2214. Then we know there is some order returning to markets. Still waiting...

Wednesday, August 10, 2011

Dollar Index Says Market is in Trouble

Unless you are Ron Paul, you know that Dollar is not collapsing and has been in bottoming formation since May 2. That was the day stock markets around the world and all commodities hit the top. Coincidence? Hardly. If you are a trader, you have tuned out all the noise from TV and looked at the chart. It says that Dollar Index is about to break out to the upside and do some serious damage to the risk assets around the world. Haven't we already had a 20% decline from the top? You ain't seen nothing yet. With every day DXY does not take out its lows you have to get more concerned. If S&P US debt rating downgrade and FED telling us that funds rate will stay at 0% for 2 years did not send the dollar to the dumpster, you have to think what will. Can you folks imagine where the dollar would be had it not been grounded by the weight of these two events? Dollar is the ultimate safety hedge against systemic risk, well, I guess second after gold now :)

Stay on top of DXY chart and be ready for a breakout. Should it happen all risk will be sold hard. Just look at daily chart from August of 2008 and plot it over all risk assets. But that breakout has to happen first.

please read my disclaimer at the bottom of this page to understand the risks of trading

Tuesday, August 9, 2011

Man vs Machine

And I thought trading was addictive. Can't stop blogging :)

The machines may have taken over the market. But we, men, think better than machines. While the machines will be buying ahead of every bid and drive SPX up into a major resistance zone at 50 - 61.8% retracement, we, men, have some time to think what to do once it gets there. Wise thing to do at that time could be to sell. Why? Here is my take:

All major world markets are pointing to a recession. After 11 sessions of distribution-type (with multiple 90% down breadth days) sell-off, the following markets are in a bear territory:

Brazil -30%
Honk Kong -23%
Germany -22%
China -20%
Korea -20%
Australia -20%
France -20%

These are the backbone of the world, the once touted source of growth for S&P 500 companies, the reason we were going up while our economy was in a slow growth. Now we are catching up with reality folks. World-wide recession is here. These US indices are in a bear territory, even after today's astonishing rally:

Russell 2000 -20%
Dow Jones Transports -20%
PHLX Semiconductor Index -27%

Still not convinced? World-wide recession is now well-confirmed by commodities: CRB Index is down 15% from the high made just on May 2. Care to look inside? Most important components and major indicators of growth - Oil is down 30% (after today's rally), and gasoline is down 20%. Oh but people have to eat, right? Wheat and sugar are down 24%.

FED all but confirmed it. Poor, scared central bankers have lost their marbles today and said that FED funds will be at 0% for 2 years. This is the same FED, who's Chairman told us at his last press conference that "extended period" means the next few meetings. Can a blind squirrel see better than him? No wonder 3 FED voting members dissented, probably thinking that the man has lost his mind. When the heck was the last time FED ever told us the exact policy duration? So why do we need FED for the next 2 years? Gold (better than VIX fear indicator) goes to $2000 now. Thanks a lot!

So, is the yield what today's rally was all about? If you are a fund manager, where do you put the money when 10 yr note is yielding 2.2%? Those guys realized in the last hour of trading that the lower they pay for S&P 500 the better yield they get. Here is your reason for rally. It was definitely not because FED predicted no growth for the next two years.
I am not trying to throw a wet blanket on "historic" rally. But we are up one stinking day after a "historic" decline. Dead cats bounce too, after a 20-story fall (sorry cat lovers). I care not to look at percentage gain, but rather a whole picture. Had it not been for FED meeting and their pledge to keep the rate at 0% for the rest of our lives, where would we be at the end of today?
Who said it is safe to go back in? Same fund managers who were screaming "do not panic" during 2008, as they were selling like nuts to all of investors, who's money they were managing in the first place. If we sell, they are out of work.

You will have to draw your own conclusions from the data above. I am not saying to sell blindly. But as we near the 50% retracement, this market will once again become vulnerable to the same shenanigans of HFT. You will have to chase the downside once again, with no credible retracement to short. We can not overpower these machines, but we can be in front of them, for a change. Men, be wise this time...

I guess I am not the only one

Someone else has noticed the man vs machine pehomenon of today's market. I have complained about this for years. Why more prominent figures in finance world have not complained is beyond me. This said, the sell-off we just had can not be blamed on computers alone. We are heading into word-wide recession, and the FED just confirmed it.

Monday, August 8, 2011

Financial Armageddon II??

Was the inevitable simply delayed? Market buckled under the weight of all the bad news, thrown at it from every possible direction. This sell-off is predicting nothing short of a world-wide recession. I have to ask one question: have we gotten to the point of no return because the machines are trading? I have been doing this long enough to see that I constantly trade against a faceless, emotionless, money taking machine - HFT (high frequency traders). This selling has exacerbated the investor sentiment which will lead to recession. We could have escaped it had it not been for this bear market (20%+) sell-off in 11 short sessions. I did not envision such a steep decline in such a short period of time, even though I knew we were heading for turbulent August.
Risk off folks!! Reassess your goals, positions, trading techniques, the whole psyche, and most important - your comfort level. I may have reached mine today. Reason? No place to hide except cash. I am in all cash and will stop blogging until I start trading again. Overreaction? Am I missing the bottom? Perhaps, but I lived through 2008 Armageddon to know how hard it is to trade around that, both long and short. Those who are not familiar, look up what happened to sellers around short-selling bans (we are going to have one now as well, with-in days I bet), and buyers who tried to catch the bottom - one never came until 55-60% was wiped off the indexes.
As I type, Asian markets are crashing between 5 and 9% after being open just 2 hours. Machines do not think, feel, or care - they sell at any price and any level. I am not a machine :)
I choose to preserve my capital, step aside, and observe. Market will still be here when I decide it fits my criteria and comfort level. Be safe... 

What a day!

Today many indices hit a bear market territory. There was no place to hide as everything got hit. Liquidation is the word. I am not sure what one can do other than reduce exposure to the market. It is very interesting that all levels were broken and no support was given at all. Emotional selling has no boundaries and always overshoots. Was today a capitulation day? Hard to say, as the selling continued and no real buying was there to counter. We could have a few more days of this to settle the margin calls. Stay safe...

Sunday, August 7, 2011

Market Update Asian Open

First the breaking news. G20 and G7 fin. min. and c.b. leadership was in conference call fever this weekend. The result - ECB will buy Italian and Spanish bonds, and G7 will intervene in FX. Wow!! I am stunned at how fast they got things done. I hope they used Cisco's teleconferencing equipment, it is reporting Q2 earnings this week :)

It is very interesting that Armageddon II is not happening, at least for now. Japan, Korea, and Australia opened an hour ago and are down, but not to the extent that anyone expected - 1.2%. Of course it is early in the session and China, Hong Kong, Taiwan, and other Asian markets are not open yet. US stock index futures are down but once again not by enormous amount, - 1.7%.
I am not trying to diminish the importance of what is going on, but 24 hours TV coverage of the market turmoil this weekend was absolutely crazy. Folks, once the market's bad news make the front page of your local newspaper, it is usually the end and not the beginning of a sell-off. I am not a cheerleader, not trying to pump and dump, and not making any statements about the bottom. I am saying this is very close to capitulation, and tomorrow during US cash session may be it. So be ready, but do not catch the falling knife, wait for a bottom first. Speaking of which, I would like to say to those who were in trading business in 2008 - today feels like Bear Stearns tradable bottom. A lot of similarities... This said, I am not calling for 2008 Armageddon all over again, way too much cash around on corporate balance sheets.

And now on a cheery note. I have a funny question. What will we call S&P 500 once S&P goes out of business as a consequence of their US debt downgrade?

Saturday, August 6, 2011

Market Thoughts for Week of Aug 8

1. S&P's US debt downgrade finally came. I say it has now been more than priced in. Market is a discounting mechanism. This trade has been on since smaller than $4T deal was reached. Market is down 14% from just a month ago (thought #2). Sell on rumor buy on news. Market will forget about this in a day. TV heads will not :)

2. Market is down 14% from the top on July 7. I actually count intraday low of Fri on this calculation. So let's play with numbers, because I have a good comparison. In 2010 SPX was down 14% on 5/25 from top on 4/26. One month and 14%, coincidence? Hardly, and here is why. Just like this time, there were worries about new recession (thought #3), end of QE1, and European debt crisis. Sounds familiar? We have recession worries, end of QE2, and European debt crisis now (thought #5). Two differences now are US debt drama, and blockbuster earnings - they cancel each other out, as I said in my previous week thoughts.
One month later, in June of 2010, SPX retraced back 50% of the loss. Let's see where we are on Sep 5 2011. 50% retracement would be 1260, which also happens to be former support (now resistance), and flat on the year.

3. After Friday's NFP one has to think about how we are going to have a recession with these numbers. Just not adding up yet, folks. I will not go into deep details, as they are available on BLS's website. All I will say is we are in slow growth and not a recession yet. Let's watch the econodata for further deterioration before we proclaim the R word for good. And let's not forget FED (thought #4), they will not stand by, they have been trigger finger itchy all the way.

4. FED meeting on Tuesday is very important. This is the meeting in which they can further tweak the language to hint about QE direction. I really think that after NFP on Friday they can wait for another jobs report before deciding on QE3. So maybe they hint us on QELite this time, as they decide to reinvest interest on their current portfolio. Not a bad thing folks! They need to stop the market rout which may tip the economy into recession. Commodity prices are way down, and no signs of inflation anywhere now (per latest PCE data). Food and gas costs are down. Please do not listen to TV screaming heads that we are heading for inflation disaster, we still have deflation, we really do. The biggest asset we own - house is still declining in price.

5. Europe may be the most important theme next week. Italy and Spain may decide that austerity will be accelerated. While this does not bode well for their economies in the short run, it will let ECB buy their bonds (as early as next week), and calm down the whole contagion fear. I say this is the real deal folks!!

6. Be ready for more volatility but do not overreact on both sides. I do not think we are heading down much more than 1130 on SPX. At the same time 1260 is now a pretty tight lid on the upside. New trading range??

Friday, August 5, 2011

Trichet Knew Yesterday

This explains why he was incoherent at his presser. The deal was not ready, and it looks like Italian and Spanish govts are agreeing to quicker and steeper austerity. Let's see what the heads say on their pressers later on today. And it looks like we got Geithner on the horn with them as well. What the ****?? Bailout frenzy about to begin! LOL

NFP - A Hope

It is very important for market to get good news to change the negative sentiment. We got some this morning from NFP. Better than expected data is going to be a relief. Watch for more positive econodata (if it comes) to reverse the notion that US economy is heading for recession. I think that market can deal with slow growth, but not a recession.

Side note FED decision on Tue. is not accompanied by a press conference. Thank God! I can just imagine what Bernanke would have to say to reporters in order to calm the markets. Statement language will be scrutinized for possible QE3 hint. Can we please take care of this mess without govt's help? Let the markets work their magic, I say. Somehow I think they (FED) panic and do QE3 anyway.

Thursday, August 4, 2011

Is this the bottom?

One never comes until we stop asking. Hate to repeat myself, but this is true. You do not know where the bottom is, nobody does. Once price is far away from it, then you know. Once price tested, and perhaps retested the same low level, and held it or bounced hard from it, then you know. Once there was so much pain inflicted on those who bottom fished, and the ones who puked everything out as stock prices moved down in integers, then you know.
So do I know if today was the bottom? Stop asking please, and tell others to stop too; and then we will hit one soon.

Be Very Careful if You are Novice

If you are a new investor or trader, you may be learning your first lesson of how markets work. This sell-off is fast, vicious, and devastating to many new traders, and quite frankly seasoned ones as well. Big guys are not immune to this sell-off either. Big guys make big mistakes. Be very careful! Stay focused and pay attention to your size, stops, entries, and exits. I am not trying to teach you how to trade, I am trying to warn those who are staying in front of the freight train with no plan how to get off the tracks when it approaches. No need to be a hero, no need to catch a falling knife, no need to blow your account in one trade! Use caution and be patient, after the market bottoms, you will have all the time in the world to get back in. Leave this bottom fishing to only the most professional and experienced traders, with large and seasoned accounts, who can withstand the level of volatility we are experiencing. Be safe...

$DXY Update

All of the $DXY components are now cooperating (with exception of CHF today). The long dollar index trade I mentioned last week is in full mode. Possible roadkill could be a FED meeting next week. I bet many market participants are now thinking that Mr. Bernanke will announce QE3 at the meeting. I have been saying all along, no end to QE any time soon. He calls it something else and goes on with it, I say. So those who held on to the trade are smart to scale out and tighten up the stops. You never go broke taking profits. Should QE3 not be announced at the meeting, and Mr. Trichet finally comes to his senses and stops raising, we may have a pretty good continuation of this DXY long trade.
Good luck!

Stock Market Update

Panic is in the air. I am the first to tell you no bottom is near until we stop asking. On TV everyone is a bottom picker as I type. Falling wedge I mentioned yesterday has been broken. Caution and stops are prudent. There are no heroes left to stay at the gate of the fort to protect these possible bottoms. Let the market do what it wants, and follow it as best you can. I still think that long trade (just a trade) is here. But I thought that 20 SPX points ago as well. Market always does the expected in the most unexpected way.

EUR/USD - Quick Press Conf. Observation

Is it just me or did Mr. Trichet sound like Greenspan this morning? He is usually very clear on what he will do, but totally confused the heck out of me today. I am not sure he himself knows what to do. Or maybe he has already gotten the message from markets and knows, that if he does not follow, the consequences are dire. I feel like it is time for him to stop raising and let the European economy recover from shocks. But who am I to tell him what to do?

Market Update

Central banks rule! If you like volatility, this is your day. At the time I type S&P futures have established a 28 point range. Folks, it is not even US cash session open yet. So we had 3 rate decisions from BOJ, BOE, & ECB, and a Yen intervention from MOF/BOJ, and are in press conference by Mr. Trichet as I type, and had a Spanish bond auction. WOW, this would mark the end of the day by far, but we have not even traded one share of US stock yet. Be ready for a wild ride today, as market gets its positioning in front of the grand daddy of all economic reports - NFP, tomorrow @ 8:30 am. Do you know which way you will go??

My view on this is - volatility almost never happens at tops. Am I calling for the bottom? I am not. But a trade opportunity on the long side has finally arrived for sure.

Wednesday, August 3, 2011

Yen Intervention

I have always been a skeptic of forex interventions, especially unilateral. But there is some hope about this latest move by MOF and BOJ to weaken Yen tonight. Here are a few reasons.

1. Fundamentals. First of all, this intervention comes in very hard economic times for Japan. Not only is Japanese economy continuing to suffer from deflation and slow growth, but it has been exacerbated by recent quake and nuclear crisis. Japan's demographics are getting increasingly worse, and their consumption power is dwindling fast. To compound the problem, world economy is slowing down, putting Japan's export economy at high risk.

2. Technicals. Before many of you say: "stop this voodoo chart magic". Forex traders look at charts as a holy grail. One can not deny that a double bottom has now developed on USD/JPY chart. This is perhaps a total coincidence (I doubt), but a major reason why JPY is diving hard as I type. The last time Japan intervened was in collaboration with other central banks. This time is unilateral. JPY traders are ignoring this very important fact because they do not want to fight the charts. Look for USD/JPY to build on gains in the coming days. Very important will be a backtest of 78.90, which is last intervention base. It is in progress as I type. Should the price close above 78.90 on daily chart, USD/JPY shorts beware! Let's see what happens...

Market is in Falling Wedge

Market is falling, and I get excited, because I like extremes and falling wedges. For those who do not know - falling wedge is a bullish reversal pattern. Now, it is important to understand how you trade it. You wait for a breakout and buy the pullback. Do not catch the falling knife. Is this easy enough to understand? If not, comment on the message and I will explain further.

SPX has breached the low of the year @ 1249, and almost reached two important targets below that. 1230 and 1220 are looming and are major points of support. Hence, I seriously doubt we get to 1200 before we go back up and backtest 200 dsma once more. Everyone and their brother is now focused on the same chart, head and shoulders, and neckline. What happens when everybody wants the same thing?

Watch for this steep falling wedge to break out and produce a major short-covering rally. Is this the bottom? One never comes until we stop asking.

UPDATE @ 4 pm
Market roars back into close. Wedge breakout in progress. Be careful as many players are waiting for rallys to sell into. Trade wisely, take profits, scale out, trail stops.

Forex Report

What a day in CHF trading. SNB finally said "enough is enough". SNB verbal intervention will be followed by real action immediately, so says SNB. Traders are scratching their heads and are asking what SNB will do to ease? No direct intervention has been seen so far. But in forex verbal intervention is sometimes good enough. A major easing campaign is in the works to weaken CHF by reducing the interest rate band down to 0.00-0.25%, said SNB.

If this was not enough, Japanese gov't has decided that JPY strength is unacceptable for too much longer. Intervention talk is picking up and it seems like every gov't official is on the wires hourly. Traders better tighten up the stops there as well. BOJ meets late on Thu night (our time). Let's see what they do...

All of this is screwing up the DXY basket. EUR and GBP are higher. I am not really crazy about doing much but observe. Way too many trade opportunities somewhere else to associate yourself with confusion in FX, for now.

UPDATE 9:15 pm edt
Japan just intervened. JPY is diving hard. Looks like unilateral though. Let's see how long-lasting this one is...

Oil Futures Update

One can not escape the fact that "death cross" has developed in WTI crude oil futures. Death cross is when 50 dsma crosses below 200 dsma. The price is firmly below $95, which becomes resistance now. It is only a matter of time before it tests $90 low, made on 6/27. It looks like we could be in Elliott wave 5 on daily. If you are short, you are happy and trailing your stop down. Let it test $90 and see what the outcome is, if you want to fish for bottom. I think that a lot of it depends on what SPX does. Oil is @ 100% correlation to equities lately. API showed a big draw last night. EIA is out in 5 minutes. Let's see what happens...

Build of 1 mil barrels - way off from API. Let's get that test of $90 over with. 

Econodata Aug 3

Market was desperate for some good data. Well, we are getting some today in the form of services PMI from around the world, (Europe mostly, for a change). EZ, Geman, French, UK, and even Italian PMI came in slightly better than expected (with Italian still contracting though below 50). Also retail sales in EZ were much better than expected.
Is this a precursor for US ISM Non-Mfg @ 10 am edt? Also how about monthly retail comp. store sales on Thu? I know many will say: "no connection - two continents". But the fact is econodata has been traveling in bunches lately. Let's see...

ISM Non-Mfg lower than expected. Also factory orders lower than expected as well. Not good at all folks. My question is: when does market start to react to bad data as good for yet another big stimulus?? President Obama will want to start it now for his reelection. So far we are just dwindling down the 2nd half recovery theory.

Tuesday, August 2, 2011

When to do the opposite?

I have written before about how when many traders want the same thing, it usually results in the opposite. We are at that specific moment as I type. SPX just closed below 200 dsma for the first time since 9/10/2010. Now everyone is on TV all of a sudden, and they are telling us how they all predicted it, and it is just going to die. Well, I just do not think so. While this was a very weak close, and by all textbooks you should not fight the 200 dsma signal, I really think that market is setting up to punish late shorts. Vicious short covering could produce a rally big enough even 200 dsma can not stop. I think that 200 dsma gets violated a few times on both sides. We eventually will go down to test 1200, but I doubt it happens in the next few days. I say we will see 1295 before 1200, just to confuse those TV heads.

UPDATE Aug 4 @ 4:10 pm
This was not the time to do the opposite :) SPX closed @ 1200 today.

$SPX and $NDX Technicals

S&P 500 and NASDAQ 100 are selling off on notion that US economy is heading for recession. I think that we are on the precipice of a possible QE3 announcement.
This said, let's address the technicals. I posted yesterday that SPX is fighting 200dsma from below and NDX is fighting 50dsma from above. We are having the same fight as I type.

Levels below for SPX, should 200dsma lid hold: 1258, 1249, 1230, 1220, 1187, 1160, 1130.

NDX levels below, should 50 dsma break:  2300, 2283, 2255, 2218, 2190, 2150, 2085, 2060. NDX looks to be in much better shape though, (for now).

I seriously doubt we get a straight down move. A lot of bottom pickers are waiting to reload here and at flat on the year line. I suspect market sucks them in first and then dumps majorly, only to rebound after they are all stopped out on the announcement of QE3. I know, this is all a hypothesis, but isn't that what we traders always do? Be ready...

Mr. Bernanke, Mr. Market is Calling

Pick up on line one, please. It is time for Helicopter Ben to do what he does best - rain money on us.
Consumer spending came in @ negative 0.2% this morning. With no inflation anywhere, both Core PCE and Personal Income came in @ 0.1%, and all the weak econodata released in the last month, it is obviously no-brainer for FED to announce the beginning of QE3. Let's call it something else and go on with it already. I would say before the end of August, Mr. Bernanke will announce the savior program to help the market cope with the idea that US Economy is heading for yet another possible recession, or stagnation, or anemic growth at best.
DXY is weaker this morning, equities are not falling off the cliff, and gold is skyrocketing. I believe it is all a result of the notion that QE3 is about to start. Mr. Market is way ahead of you, sir. Yield on 10-yr Note is now the lowest since November of last year. Please follow us, once again, we have no time to wait. 

UPDATE Aug 2 @ 2:05
Full-fledged panic on market.
Watch "FED speak" to hint us on possible QE3 in the next week or two. They will "whisper" their thoughts into our ears first. They are getting market's message loud and clear now (no pun intended).

Monday, August 1, 2011

Market Update Aug 1

We are having second thoughts about the debt deal, and aggravating the decline by having second thoughts about the economy recovering in 2nd half. The latter is no surprise to me, and to be frank, the former is not as well - it is not 11 pm tonight yet, I guess. Are our politicians trying to repeat TARP Vote Part One?

SPX is below 200dsma. NDX is fighting 50dsma. Daily Stochastic is going into oversold. Brave souls who are still selling here better watch out for vicious short-covering rally on any debt deal hint. Market is looking for an excuse to punish you (late shorts). Early shorts are to trail stops down and enjoy. Longs are to forget any heroic attempts to save the market. We still have ISM Non-Mfg PMI, ADP, and NFP later in the week. Just take small positions and quick trades, 200dsma is a resistance for now, but probably gets violated on both sides, as stops get scooped. These are hard times to be in a trade for any longer than a day.

Good luck and be safe!! 

Econodata Aug 1

Parade of weak manufacturing data from around the world.
UK, Spain, Irish, Taiwan, and HSBC China PMIs came in below 50, which signifies contraction. Germany, France, Italy, and EZ PMIs came in just above 50. This is weighing on stocks around the world as I type. There is no better indicator than manufacturing sector on where the economies are heading.

We await ISM Mfg PMI @ 10 am. I will update you then.

50.9 a lot weaker than expected.

You wanna go long market? You better have a direct line to Mr. Bernanke, and know something we all do not know.