dude, bye

Dubai.  Do buy?  Dude, bye!

The Dollar is going ...

The Peterson Institute for International Economics:  … if the post-recession, long-term US fiscal deficit skyrockets, to 10 percent of GDP instead of adjusting to 2 percent—because of uncontrolled spending on health care and Social Security—the current account deficit and foreign debt could explode. By 2030 the current account deficit would soar to more than $5 trillion annually, or more than 15 percent of US GDP, if policymakers fail to take decisive action to reduce the size of future budget deficits once the economy improves enough to do so. As a result, the net foreign debt of the United States would rise to $50 trillion, or more than 140 percent of GDP—far above any conceivably sustainable positions. The nation could be transferring about 7 percent of GDP annually to foreigners by 2030 to service its huge international debt. Projections by William R. Cline (see chapter 2 [pdf] in The Long-Term International Economic Position of the United States)

 

The New York Times: With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019. (From Payback Time - Wave of Debt Payments Facing U.S. Government - Series - NYTimes.com).

 

 

Nasdaq 100 falling below trend line

Check out this chart of QQQQ. 

Back in July 6th, the Q's fell below the trend line, but was able to recover by gapping above the trend line on July 15th.

The thing is, once fall below the trend line, the line becomes a resistance.  Can the Q's pull a July 15th style recovery?  Or will it be turned back by the trend line?  We shall find out tomorrow.

begin bearish bias

Short term bearish bias.  Also, bearish for mid/long term.  Market has topped out at current levels. Shopping season will have nothing to celebrate. Market should head lower around Dec/Jan time frame, if not sooner.

Another month, another round of crazy put buyers

October option activity continues to provide strong base to market.

Almost forgot about the final group of buyers

Put/call ratio is very high. Over-eager bears may become the final group of buyers next 2 weeks.

Market Topping Out?

Back in February, I said the market should come back to 10000 and then head downward. Well, 10000 is an approximate number. Maybe 9600 is close enough.

Benenke

Benanke said "recovery", and that convince a bunch of people to jump into the market.

That ought to be the last batch of "investors" there ...

10 Trade Days Til Expiration

The market has run too fast too far. I think there will be some sort of correction before option expiration day.

Look for the following to correct themselves:

Oil - XOM etc

Commodities sector

IBM, AAPL, etc.

Japan - EWJ

Gold & Silver

Bank Test

Amazing.

The Fed projected the 19 largest banks will suffer a collective potential loss of $599 billion, and this is being casted as positive, not so bad.

The banks are doing okay now because of $700 billion of tax payer charities. But this party won't last for ever.

What's the total market cap of those 19 companies? A lot less than $600 billion, I would think. If they were to lose $600B, then ALL of the current shareholders are toast.

RE: Citi on fire

 

The graph on the following link is very interesting:

 

 http://finance.yahoo.com/tech-ticker/article/226937/How-Bear-Markets-End

 

I think it basically says that we are not done yet.

 

 

http://trendmester.blogspot.com

 

 

Citi on fire

 

The government and major bond holders are willing to buy Citi shares for $3.25 a share, yet the market is selling to down to $1.40.

What gives?

 

I think Citi shares are incredibly cheap right now.

 

 

http://trendmester.blogspot.com

 

 

Oil Matters

Since last December, there’s been a tremendous increase of retail investors trying to speculate on the oil market.

 

Oil is a physical commodity that is traded on the commodities market with monthly delivery dates. Speculators who do not wish to take physical delivery have to rely on future contracts, and have to roll those contracts forward to future months before they expire on the third Friday of each month.

 

This roll-over activity created two interesting phenomenon:

 

(1)     The farther out month contracts are more in-demand than near month contracts. This (among other reasons) have created a phenomenon called ‘Contango’, which basically says current and near month contracts are cheaper than further out month contracts.

(2)     On the near months contracts – current and next month mostly – the contracts are in-demand for about a week after the expiration day of the previous month’s contract. After that the selling takes over until the next expiration day. Part of the reason for this is that funds like USO want to be out of the current month contract by the end of the second week.

 

If you buy USO or other instruments that rely on near term contracts, the Contango will kill you – you’ll lose 10 – 15% each month as the fund rolls over to the next month contract. Compare USO to another fund USL which uses a more Contango-tolerant strategy.

 

For short term trading, buying USO around the third Friday and selling near the end of the month seems like a good strategy.

 

Longer term, we’ll need to see a reduction in Contango before bullishness can take off.

 

 

 

 

Where are we?

Where are we, at this point, in the market?

 

What is clear, is that the market is not falling off a cliff like it did last October. The Dow has been relatively stable in the vicinity of 8000 since then.

 

Prior to October, the market was doing 3-month cycles of going up a little bit then falling off a lot. The market is not doing that either.

 

When we go back to the charts of 2000/Nasdaq, 1990/Nikkei, or 1929/Dow, we see that they all took more than 2 years to reach bottom.

 

The current crash, the crash of 2008, started off a height point at October 2007, and so far has gone on only 1 year and 3 months. So it appears we are not done yet.

 

So, the current period may be more like the Spring of 2008, when the market was consolidating after a fall off.  After consolidation the market picks up some courage and begins to head north, only to fall off later.

 

So the market may head north, if it does, for a couple of months. The upper bound for the Dow should be around 10000 – this number has triple significance: (1) it is the 38% Fibonacci retracement for Dow’s fall from 14000 to 7550; (2) it is the support of the market during 2004-2005 which turns into resistance; (3) it is a natural number boundary – big fat round number reminding people to get out. 

 

What goes up usually comes down. The market should head lower later this year, and may come to its final resting place in the bottom of the valley some time in 2010.  For the Dow, that final resting place should be below 5000, maybe 4000, or lower.

 

After reaching bottom, the market may enter a new 5-year cycle, going up for 2-3 years, in time for Obama to get re-elected, but then heads back to the bottom area toward the middle of the decade.

                                                                                                                                   

A caveat though: Nasdaq, Nikkei, and Dow/1930 were all “round number year” crashes, they all happen at the beginning of a new decade. This time, things were so bad that the market couldn’t wait for a change in the decade. So, things appear to be worse than those 3 times, but will it still follow the same play book?

 

Another caveat for the finance reversal:  the 5-day island was very short, and it was promptly violated a few days later. So finance’s reversal was rather weak and short-term, and we are not ready to attach a long term ‘bullish’ label to this sector.

 

 

 

http://trendmester.blogspot.com

 

 

Oil hitting bottom

 

Crude oil / USO looking to reverse.

 

Basic materials bullish.

 

 

 

http://trendmester.blogspot.com

 

 

Has the market bottomed?

 

Has the market bottomed?  No, if you are talking about long term, then certainly not.  Please take a look at my other blog, http://perpetualbear.blogspot.com/, which has a repost of my article from March 2001, “Demographic reasons for market bubbles”. From the graphs in that article, one can see that the market bottom may be around the year 2015, give or take a few years.

 

For the short term, I think the market will give a chance to see what the Obama spendings will do.

 

Right now, the conventional wisdom is “buy bonds, avoid financials and basic materials”. But the conventional wisdom is usually wrong on the market.  The financials will benefit from the charity of the tax payers. Even if the big banks are nationalized, there will still be a substantial private banking sector in this country.  As to basic materials, they will simply benefit from the Fed’s printing press.

 

The baby boomers are taking money out of stocks and put them into government bonds, at precisely the wrong time.

 

 

http://trendmester.blogspot.com

 

 

The financial sector has reversed

The financial sector has staged island reversal today.

 

 

http://trendmester.blogspot.com

 

 

 

 

Watch out above

Look for money to flee US bonds, and for

- US dollar to go down;
- Commodities to go up;
- US stock may also benefit from the money flow.

Oil may be building a double bottom.


(Is anyone actually reading this blog? I can't tell ...)

.

Watch crude oil and XLE

Crude oil is being pulled both ways: the shrinking economy, or the shrinking dollar.

 

Crude is near the low it set in late December.  If it wants to reverse, now would be a good time, as it would make a nice double bottom.

 

Meanwhile, XLE has basically been in a trading range since October and has not changed much.  It’s waiting for something. If crude should reverse, XLE may go back to the September level and that would be a very nice island reversal.  We can’t expect the oil companies to go the way of the big banks, do we?

 

 

http://trendmester.blogspot.com

 

 

 

 

 

 

More sectors in reversal

 

More sectors have staged technical reversal recently.

 

The international maritime shipping sector has staged island reversal.  The actual reversal has happened a couple of weeks ago – this is a belated report as the sector wasn’t on our watch list.

 

The US treasuries & government bond has staged bearish reversal. This is very significant for two reasons: (1) the interest rate has bottomed, it’s only trajectory going forward is to go up, perhaps eventually heading toward inflationary territory; (2) huge amount of money will flow out from US government bonds, possibly creating bullish reversals in other sectors.

 

Note that there are at least two ETF’s available as vehicles for shorting US bond: PST and TBT.  These two has staged bullish island reversal.

 

The money outflow will perhaps flow into sectors we recently called reversed:

-          Chinese stocks: Shanghai A shares has staged island reversal. Oversea Chinese shares (FXI) and other Pan-China markets (Hong Kong, Taiwan, Singapore, Korea) are on our watch list for possible reversal signals;

-          Gold: could lead precious metals upward.

-          Euro: possibly other foreign currencies as well. Basically the USD is going down to the nether world as the Fed’s printing press is running at full speed.

 

The money may also flow into other sectors. We are watching the energy-related commodities (Crude, Gas) and food-related commodities as these sectors may be in the midst of some sort of bottom building activities.

 

Other commodities and even the real estate sector could attract money but these sectors will continue to be pressured by the economy which has clearly not bottomed.

 

http://trendmester.blogspot.com