Tuesday, January 31, 2012

Nightly Report. January 31, 2012.


 Today’s market action can be summed up as “WTF”?  But that is the nature of the topping process after a long bull run. Like an accelerating car, it has to slow down, stop and reverse. And if it is running till the gas runs out, may be one final push before stalling.

There is no reason for the equities or risk currencies to go higher except liquidity induced push. And for various reasons, that is not forthcoming from the Fed. I am very sure that the Fed will create a wealth affect right before the Presidential election.  But that is far away. For now we have to get past this week before we can see some decent pull-back in the equities.

Situation in Europe is as confusing as ever. Now the hair-cut figure has grown to 70% and even that does not guarantee any deal. Other PIIGS are closely watching and will demand the same relief. So far as Germany is concerned, it just wants to be prepared for the eventual split of Euro. Sarko is going to have the tough time.

Although I said that there is no reason for the equities to go higher, if the SPX comes close to 1300 level or breaches it, I plan to go long for a day or two. Someone out there is trying very hard for the last many trading sessions not to let SPX fall through 1300. Today was another bearish reversal day and that makes it two in four days. And yet we are holding on! 

I would like to show you a chart from Chris Kimble which is self explanatory.


Sooner rather than later, all the negative divergences will catch up with the market. NYMO is giving a sell signal with daily MACD turning over. But NASI is still on buy signal.
Thus there are conflicting TA signals and it will not be resolved unless and until the market moved decisively one way or other. I am expecting that we will get decent pull-back starting from next week. 

Monday, January 30, 2012

Interesting Monday.


I wrote on Friday that it was the calm before the storm. But given the size and nature of the overextended / overbought market, the sell-off has not been that severe, at least not yet.

Greece will default no matter what. Question is when. One report is saying that it will happen in the early March. (http://www.examiner.com/international-trade-in-national/greece-plans-orderly-exit-of-the-eurozone ) But I think early April is more likely. Germany is tired of handing out money to Greece and they are only buying time. Question remains of contagion. Have LTRO been able to provide a cushion to the European banks from the coming shock? Next in line is Portugal and Spain. But short term trading in Wall St. is devoid of fundamentals. It is all about set up. So today SPX gaped down in the open but reduced the gap at the close. It was all about squeeze the short and keeping the bulls interested. If you look at the variances between Euro/USD, AUD/USD and GBP/USD, you will see that it is more of short squeeze than a rally.
SPX touched the Fib.23.6 level and reversed. Let us see how it behaves tomorrow and day after.

The US Dollar rebounded of key support area at the 38.2% Fib. extension. If this level holds we will see more weakness in equity in the next few days.

The general consensus is that we have a top in SPX at intraday high of 1333. But I think we have not seen the end of the Bull Run yet. This high may be tested very soon and rejected before we can call a short term top and before we see some sustained weakness.  As I always ask myself, where we are in terms of the sentiment?

Yesterday Mr. Gábor Jandó shared an interesting chart in Cobra’s forum which is as follows:

According to him, we may have a final blowout before meaningful reversal.  It is very likely that we will have this situation. So for now, we have to trade like day traders. Take each day and adjust our trading strategy.  The market will do the most unexpected thing to hurt maximum number of traders and so lets be prepared for the worst.

Thank you for reading http://bbfinance.blogspot.com/  and following me on Twitter. (@BBFinanceblog).

Friday, January 27, 2012

Calm Before The Storm.


GDP report came weaker than expected. Fitch downgrades five European countries. And SPX barely moved! You still think news drives the market and there is no market manipulation! Which rational investor will buy equities when countries are downgraded? All the power to the believers.

Today was a kind of consolidation day where the purpose of the day was to kill the short and bring in the wavering bulls. The problem as I see it, the capitulation is not complete yet. The SSI (Speculative Sentiment Index) is still negative for the Euro and AUD.  The SSI has to turn positive before we can see any meaningful pull back.
AUD completed the week at the top of the range and I think there is not much room to go higher from here. But I have been proven wrong in the past. Even now I think the cycle for AUD has topped and it should go down. But so far it is not listening. From 9 AM Eastern, AUD started the upward journey and followed the trendline. The trendline was broken only after 4 PM Eastern after the close of NYSE. Let us see how it behaves next week.
NYMO is also hanging on and refusing to break down below the trend line. So the change of trend is not confirmed yet.
From a TA point of view, it is possible for SPX to move towards 1200 level in the next seven to ten trading days.  But that is based on the assumption that TA is allowed to work independently.
The correction, when it comes may not comply with the TA parameters. What makes me worried about the correction is the huge long position that the commercials have in Euro for last so many months. At some point of time, they will take profit from their long position. When that happens, indexes will go through the roof. Take a look at the latest COT report.
The million dollar question is, when? I wish I knew.

For now however, US $ is testing the support at 9871-9823 region and in near term, may see a bounce which is consistent with the reversal in equities and other risk assets.
Thank you for reading http://bbfinance.blogspot.com/  and following me on Twitter. (@BBFinanceblog). Have a relaxing weekend folks.

Thursday, January 26, 2012

The Evil Plan.



In a regular bull market the rise in share prices is backed by general growth in economy, wage growth, falling unemployment and all good things. In a bear market, it is the opposite. There is recession or fear of recession, credit is unavailable, unemployment is high and mood is gloomy. That is what fundamental analysis tells us.

If that is correct, where do you think the world is today? Is it in a growth phase or declining phase? There is no Nobel Prize for guessing the correct answer. But the question is if the world economy is in a declining stage, why the stock prices keep getting higher. The answer to that riddle is found in the continuous flow of liquidity injected by the CBs of the world. They are trying to solve the problem of solvency with more liquidity. In the process, they are buying time, hoping somehow, miracle will happen, growth will return and we will return to the goldilocks economy.

What do the small investors do in such a situation? If we short the market now, we will see that for the next one year or so, stock prices zooming higher and at some point we will be forced to cover our short position. So the best course of action may be to run with the hare and hunt with the hound.

Many do not believe that the stock market can be manipulated. They argue that it is so big, how can anyone manipulate it. But the fact is the big Ponzi scheme that is stock market is utterly rigged by the fifty TBTFBs of the world who control 90% of the trading and most of it through black pool trading which we never know. These are the same powerful bunch who borrow money from the FED or ECB at zero % rate of interest and then give back the same money to the FED at 3% ( buying treasuries). Thus, the Fed monetizes the debt at back door and banksters make risk free money from the tax payers.

As there is no immediate trend, they set up the market and create volatility. For the last two weeks they have created an expectation of a bull market where prices just keep going up.  Slowly all the bears are throwing in the towel and joining the buy program. Equity mutual funds are again seeing inflow of money. Retail is now afraid that they might miss the bus and are too eager to join. The free cash levels of the equity mutual funds are at all time low. Rydex money market funds have only $669 million now vs. $1.5 billion at October 2011 market bottom. The game plan is working. While retail is buying at the top, someone is selling these shares to them. You can again guess who are that someone. Today the believers of the rally are saying that one day sale does not derail such a strong bullish move.  While they would be correct in a normal market, this market is anything but normal.

When almost everyone is in, then the Boyz will take out the carpet under our feet. For the next two/ three week, we will see that a bearish environment will be created. ZH, CNBC will be filled with stories how Europe is falling apart. The retail will again sell cheap.
   
This pattern will be repeated many times in 2012 and if we can remember this game plan and play accordingly, we can come out alive in this market. Timing will be the key. As an individual trader we are pitted against these behemoths that have the best brains, best technologies and almost unlimited resources at their disposal. Our only chance is to find a quantifiable edge. That may be cycle analysis, TA, COT report, Liquidity analysis, market sentiment analysis or whatever works. Sometimes nothing seems to work, like now. But even in such situation two eternal drivers of the stock market work. Greed and Fear.

Today morning when the markets opened higher and kept going higher, those who were on the sideline, joined the buy express. Those who were short, closed their short to cut down further losses.  And now the almost entire Fed rally has been wiped off. Will they buy the dips tomorrow? May be we will see some buying in the morning just to convince the doubters.

But the evil plan is: wash, rinse, repeat.

Wednesday, January 25, 2012

New Bull Market or Irrational Exuberance?


Are we in a new bull market? Surely the Boyz would like us to believe that. Remember that time in not so distant April 2011 when the famous perma bear David Rosenberg capitulated and accepted that may be a new bull market has started.  Ironically that was the top of the market.

What we see today is pure and simple irrational exuberance. Nothing Uncle Ben said today was new, except that they will maintain the ZIRP till 2013 or infinity. There was no talk of QE3. On the other hand, everything that we know in TA is way out of sync and over extended. But we have been in such set up many times before and yet our collective memory is no better than a goldfish. As much as we talk of being a contrarian investor, we still fall victim of collective emotion and greed.

If the purpose of this set up was to lure in investors, they have been quite successful.  Investors have take out money out of the equity mutual funds in the last eight months of 2011, selling into the stock market decline. Now as per the ICI data for the week of January 11, 2012,: “Equity funds had estimated inflows of $1.43 billion for the week, compared to estimated outflows of $9.37 billion in the previous week.” Investors have now bought in the hype that the new bull market is here and now and they do not want to miss the bus.
The fact is none of the reasons that are being given for the rally are true. Neither fundamental nor technical. 

Last year, when everyone was sure that the market collapse is imminent, I was possibly only one saying that the world is not going to end. Now when everyone and his uncle are convinced of a new bull market, I dare to say that we are being set up and a bigger correction is around the corner.

Today it may sound like a broken record but one week is not a long time in the life time. We will see.

Tuesday, January 24, 2012

Market Manipulation 101


ES closes the last four days as follows:
1310.50, 1310.75, 1311 and today 1310.50
Does anybody still think that there is no market manipulation? As usual, volume was almost non-existent and well below average.

Given that we are being set up nicely, where the retail is encouraged to buy buy buy by various talking heads of CNBC and other MSM, this itself should raise the red flag that there is cliff ahead.

Everything is screaming for a reversal but the money flowing in from Europe is keeping the US stock markets alive. Some of the reversal patterns are so rare that they happen once in a while and yet we are hanging on. Can the market defy gravity forever?  Unless there is more free money infused by the Fed, it cannot. So may be one more day we will have to bear the agony. In the mean time, gold down, silver down, oil down, copper down and equities barely moved!

Today we had a 3rd consecutive doji  or tri star pattern in SPX. It can be a good reversal pattern but given the fact that so many reversal patterns have not yet delivered, let us not be too excited about this one either.  When the reversal comes, it will be short and swift because I think there are unfinished businesses on the upside. 

AUD retraced back some of its earlier losses and is now testing the 1.05 level. Aussie economic data will be out tonight. The technical outlook suggests that AUD may have put an interim top. The ATR (Average True Range) suggests that the topside breach may be a head fake.

Another carry trade favourite pair AUD/JPY  also seems to hot the resistance.

Apple blew past the top line and bottom line projection. But there should be no surprise there.  After market it is trading at $ 452.50 after reaching a high of $460. This was the only thing left to convince the retail to join the buy express and buy the dip.  IFM on the other hand came out with their dire projection of the world growth and no deal has yet been reached on the Greece debt.  So neither technically nor fundamentally, I am able to convince myself that the bull market is here. May be after some 50-75 points correction, it will be nicer bait but at this moment, it is not that inviting.

But it seems to be working at some level. During the “buying stampede” which typically last between 17 to 25 trading sessions, even the weak stocks have been bid.  You can see for yourself where we are at this point of time. With the bullish sentiment at extreme high level, it is just a matter of time.
Tomorrow morning is going to be interesting. With the huge up from APPL and expectations of more free money, the markets may open higher. But when everyone is agreed that the market will move up, it has a tendency to do the opposite.  

Thank you for reading my not so cheerful thoughts at http://bbfinance.blogspot.com/ and following me at Twitter. (@BBFinanceblog). I am looking forward to write something more interesting in the coming days and weeks and not be stuck at the anticipation of correction.

Monday, January 23, 2012

AUD Reaches Measured Level.

Hat tip to Jamie Seattete, currency trader.

The AUDUSD has exceeded the trendline that extends off of the July and October highs and has reached the 100% extension of the rally from 9861 (2 equal legs). An extension of strength targets channel resistance at about 10650 on Tuesday. 10490 is short term support. While the rally looks tired at these levels (extremely low volatility for example), the upside demands respect above 10458.

Time To Wake-Up And Smell The Coffee.


We ended the day with a spinning top candle in SPX and red in DOW as well as Nasdaq. And the volume was non-existent. So far the much anticipate correction has not materialized in any meaningful way. But even when I am trying to become bullish, I am unable to find much upside in the market. 16 SPX points after 1300, SPX is sitting just below the long term falling trend line, with all parameters and indicators over stretched.
Many reasons have been given for the continued rise of the stock market. Seasonality, Greece deal, QE3 etc. Apart from seasonality, none of the other reasons are good enough. But seasonality also called for a correction in mid-January, which has not come. And without more free money from the Fed and ECB, this extended Santa rally cannot be sustained. This is a game we have seen many times over. I am not a bear per-se. So I am happy to participate in any rally and gain from it even when it is not supported by fundamentals and even when I do not believe in it. But I would rather not join in any such rally at a late stage.


Or if you would like, we are close to the “Oh Sh*t” moment as highlighted by Doug Short.

The market manipulators are doing their best to make people believe in tooth fairy. So far all their efforts have resulted in paltry 16 SPX points and have taken the market to the edge of the cliff.  GS advised its client to short 10 year treasury. In other words, they want client’s money to come out of bonds and go into equities, equities which are now at the top of the range and are at serious risk of gut-check.  Is it because they want to get out of equities at the top? Normally, it is a good practice to do opposite of what GS says. I think 10 year Treasury has reached its downside price target for now and there is not much room to go down any further.  A look at TLT will show that it is sitting on a long term support and is oversold.
Today VIX BB sell set up was triggered.  Yesterday, VIX closed outside the BB and today it closed inside BB and in green.  Such a set up signifies reversal in the market.  Whether the reversal starts tomorrow or few days after does not matter. It is not a question of if; it is a matter of when and how far. Longer we will have to wait for the correction, more significant it will be.

I think tomorrow morning we will see SPX will re-test the high of today and in all likelihood fail and roll over.  If markets were going up either on the hope of the Greek debt deal, that hope has now been dashed, per ZH.  Also it seems S&P has started downgrading the European banks. How far it is true, we will have to wait and see.  There is a lot of tail risk coming out of Europe and while technical rally has taken us this far, the next six months are going to be painful. Also I do not think QE3 is coming anytime soon. Whether we get one last up move in US stock markets will depend on how quickly we resolve this current overbought condition.


That leaves us with the situation that there is no more free money, at least for now. Will the market now wake up and smell the coffee?

Saturday, January 21, 2012

The Week Ahead.


After the surreal week when equities defied all logic and reasoning only to gain 15 SPX points, the hangover from the party may be due next week. In the process, all trading parameters have been trashed to the extreme and if there is anything called super overbought, it is here and now. But we all know that markets can remain irrational longer than we can remain solvent or sane. So we see die-hard bears throwing in towels. When such a thing happens, you know that the reversal is round the corner.

The situation is not a cut and dry one. I expect a higher high in February before weakness returns with a vengeance. By May of 2012, the bulls will forget that they were ever so ecstatic. The mood will swing from euphoria to eternal gloom. But we have some unfinished business before that.  For now let us take a short term view of only the next week and see what is possibly in store.

Given that indexes are due for a decent pull back, question is when is that going to happen. For answer let us look at AUD which has the highest correlation with SPX. AUD has reached 100% of FIB extension on Friday, January 20th, and the coming week we may see a sell off. The following is from David Song, currency analyst.

“The Australian dollar advanced to a fresh monthly high of 1.0480 following the rise in risk-taking behavior, but the high-yielding currency may come under pressure next week as the fundamental outlook for the region deteriorates. Indeed, the 4Q Consumer Price report highlights the biggest event risk for the Aussie, and the development may trigger a selloff in the AUD/USD as the headline reading for inflation is expected to expand at a slower pace during the last three-months of 2011.
In turn, the Reserve Bank of Australia is widely expected to further reduce borrowing costs this year, and we will maintain a bearish outlook for the high-yielding currency as interest rate expectations remain weak. According to Credit Suisse overnight index swaps, market participants see the RBA lowering the cash rate by another 100bp over the next 12-months, and the weakening outlook for growth and inflation is likely to heighten speculation for additional monetary support as the central bank tries to balance the risks surrounding the economy. At the same time, the slowing recovery in China – Australia’s largest trading partner – fosters a bearish outlook for the AUD/USD as the world’s second largest economy faces an increased risk for a ‘hard-landing,’ and we may see the RBA aggressively scale back the slew of rate hikes from 2009 as the region faces a protracted recovery.
As the rally in the AUD/USD tapers off ahead of 1.0500, the weakening outlook for growth and inflation is expected to drag on the exchange rate, and we expect to see a short-term reversal next week as long as the relative strength index holds below 70.”

Yesterday I posted about the RSI divergence in AUD, (http://bbfinance.blogspot.com/2012/01/aud-trend_20.html ) and the before that I have posted that AUD has reached the top of the triangle (http://bbfinance.blogspot.com/2012/01/bend-in-road.html ) . It seems that AUD is running out of steam short term and may now test the lower trendline of the triangle. And the AUD cycle tops early next week.

 The following chart shows the daily correlation between AUD and SPX. You will note that from time to time, SPX diverges from AUD but eventually comes back closer. 
If now is the time for correction for both AUD and SPX, we may see some violent movement in SPX in the next week. Of course nobody knows what will be the extent of the correction because many other factors are in play and given that a high is due in February, the correction this time may not be for long either. It will be an opportunity for trapped short holders to get out of the position with the skin intact. A bigger and better opportunity to short is coming by Mid-February.  

The year 2012 is going to be more like 2011. No one can afford to be perma- bull or perma-bear and investors will find it hard as ever. While we may see SPX 1000 being tested by May 2012, we may also see SPX 1500 being probed in October 2012. So let us not get carried over by end of the world stories. Nor let us believe the buy hype because fundamentals do not justify. It will be a liquidity driven market, run by the TBTF banks, for the TBTF banks.  That is the only way they will be able to make profit and write off the toxic assets in their balance sheet. Otherwise they are all dead men walking. The Fed, ECB, Governments and TPTB (the powers that be) know this and encourage this with their printing press.

So let us ride the BS when we can. Let us run with the hare and hunt with the hound and keep the holding period short.  

Thank you for visiting http://bbfinance.blogspot.com/ and following me in Twitter (@BBFinanceblog). Please share it with your friends and circle. And enjoy the weekend.

Friday, January 20, 2012

End Of A Surreal Week.


What a week! Let me accept the fact that I have not expected the last fifteen SPX points this week. I was ready for it in the 1st week of January but not now. Each and every indicator we can think of is stretched beyond imagination and if this logic defying situation continues longer, the retracement will be that much harder.

Throughout the day, I have been following the moves of AUD and at the end of the day, it tagged 100% of fib. extension. (http://bbfinance.blogspot.com/2012/01/aud-tags-100-fib.html )

It also developed a RSI divergence at the 240 minute chart which needs to be resolved. (http://bbfinance.blogspot.com/2012/01/aud-trend_20.html )

The late gain in SPX is correlated with the gain on AUD.

When everything else fails, we have to look at what is working and at this point only thing that seems to be working is the following analogy which I showed yesterday.

Let us see if we get the long awaited correction on Monday/ Tuesday of next week. A short panic would be nice. The original plan was to go long by the last week of January following a correction and go short in the 1st week of February following the top.  Depending on the price action in the early part of next week, I may close my short position, go long for a while and flip to short again.

Trading is not about being right all the time. It is about being right more often and quickly adjusting and minimizing the loss. While the retail has been absent in the current rally, the mutual funds have totally committed themselves and the available cash with the institutional investors is at record low.

The big sell off is round the corner but a higher high is going to come before that. I would love to take part in both. But will have to wait till next week for that.

Thank you for all your support and comments. Please share this blog in your Facebook / retweet to your friends. Have a nice and relaxing weekend folks. 

AUD Tags 100% Fib.


While AUD broke above the trend line, the RSI divergence shown earlier in the 240 minute chart remain valid for the next week as well.
It has reached 100% of Fib. extension and risk remains for a sharp correction.

AUD Faces Trend line Resistance.

AUD action will define SPX move in the coming days. 

AUD Trend

Hat Tip to CVecchioFX

Thursday, January 19, 2012

A Bend In The Road?


The last two days were really hectic with no internet connection and fifteen hour flight etc. As such I could not post anything and my apologies for the absence.

In the mean time, the stock market in USA has been a one way street. It has so far defied all logic and divergences. It has gone from extreme to further extreme. But such extremes are not backed by any fundamentals. We all know that seasonality pushes the stock prices higher at this time of the year but usually there is a correction during mid-January which has not happened yet.

I was looking for SPX 1300+ during the 1st week of January but it did not come then. I was also expecting a mild correction and continuation of the rally in the 1st week of February. So far the correction has been elusive. The problem with such situation is that without a correction not much upside can be expected in February.

I wanted to check if my models are totally wrong or are they just ahead of time. (Just like Prechter!) One of the best ways to check is to find out what other Gurus are saying. These are the people who have track record little better than Prechter and while nobody is correct all the time, it is better when success rates are higher than failure rate.

So I first turned to Charles Nenner. According to Mr. Nenner the short term upside price target for Emini is 1312. And today ES reached a high of 1311.5. We will see if Mr. Nenner is right this time.

Next I turned to Tom Demark. He gave an interview in Bloomberg on December 22nd. You can view it here; http://www.bloomberg.com/video/83290816/ . His upside price projection for SPX is 1313-1340.But he also expected to reach this target by the 1st week of January. One interesting point made by him is if SPX takes out the high of October 27, then it will create three successive high and that will be the top. We have now satisfied his two conditions for a top. We have reached the upside price target and SPX has created three successive highs as seen in the following chart.
Another person who makes a very good use of analog is Eric Swarts. The following chart is from him.
According to his analogy, the top was in today with pull back imminent before a final push in February. That fits well with my original model.

I also wanted to see what FX is doing. AUD has been my favourite indicator for SPX with a very high (almost 99% in 2012) correlation.
From the daily bar it seems that an AUD/USD top is either in place today or will be with one more try. It is at the falling resistance level and at the top of the triangle.
On the other hand USD has been falling from the start of the year and has now created an inverse HS pattern. The DJ-USD index support is at 9900 level and it seems that support is going to hold. While I do not expect DJ-USD index to run away over 10200 levels immediately, I think it will test the neck line as early as next week.

Bottom line, I am continuing with my short position. There are times when the model gets extended and I think now is one of those times. So instead of looking for the bottom by 20th January, I will now look for a short term bottom by around 24th – 26th January and then go for final pop in a long while by the 1st week of February.

Thank you for your encouraging comments and emails and for visiting http://bbfinance.blogspot.com/ .Please join me in Twitter (@BBFinanceblog) to get an unbiased market analysis filtered of noise. Share it/ forward it/ retweet it to your friends and circle. We will see how the market goes in the next few days but we will prevail. For now let me catch up with some sleep.

Sunday, January 15, 2012

Air Travel Sucks.


As the US stock markets are closed on Monday, we can take the queue from the futures and Asian / European markets about the coming week. In any case, it is expected to be a red week. January option expiration, MLK week and mid-January seasonality, all points to a lower direction. And in any case, markets are over bought, over extended and need to be corrected. So at least for the next week I am bearish.

Since there is not much of analysis to do, I thought I will take this opportunity to write about various airlines which  I have had the fortune / misfortune of flying with. I travel a lot. So I have come across various airlines and sometimes it seems to me that the airlines are micro chromosomes of the countries where they come from. They represent the culture and economy of the originating country.

On a long haul, I would definitely prefer to avoid any American airliner. Be it American Airlines, Delta or United. These airlines treat their customers as dirt. The crews are mostly unhelpful and rude. Foods served are stale and positively unimaginative. At the end of flight, one is just plain happy that the ordeal has ended. No wonder these airlines cannot make money. I fly often between Toronto and Boston and even when it cost me more money, I fly by Air-Canada and avoid United or Delta like plague. I am not sure what is wrong with these American Airlines or why the staffs are so grumpy always or so unhelpful. They think they are doing us a favour by allowing us to fly with them. Arrogance and incompetence drip all over. But I do not think they really represent America. Or do they?

If I am flying to Far East, my favourite airlines are Singapore Airlines or Kathy Pacific. I prefer them over Korean or Japanese airlines. If I am flying to India, I would prefer Air India or Jet Airways. Air India is good when it takes off. The problem is, more often than not we are not sure if it will take off. If I am flying to Middle East, I would prefer Emirates over Etihad Airlines.

While flying to Europe, my favourite is Lufthansa followed by KLM. I do not understand why British Airlines charge more than other European Airlines because their service is not that great. I absolutely despise Air-France or Alitalia. Folks there are absolutely arrogant and revolting. At least you can expect food to be little better in Air-France but Alitalia is a looser in all counts. If you have the misfortune of flying with Alitalia, you might think that Italy is the armpit of Europe. The airports also say a lot about the country you are flying to.
The airport in New Delhi is one of the nicest and finest I have come across. It goes to show that India is trying to change for better. Changi airport in Singapore is also great and so is the Hong Kong airport. The Abu Dhabi airport is oh so average. But Milan airport represents a third world country twenty years back. It seems that Italy as a country has some serious identity problem. They know that they have lost it but unwilling to accept the truth. It is surprising that except Frankfort or Holland airport; most of the airports in Europe are stuck in the past. May be that’s what is the problem with Europe. They are stuck in their past. Even the regional airports in China are better than most of the major European airports.

For a business traveler, flying is the unavoidable pain in the ass. So over years, I have learnt that it is not worth saving few dollars to book a cheaper flight in some crappy airlines. It is important that you are treated with respect while on board. But flying with different airlines in different parts of the world possibly gives an advanced notice about what is happening with various countries. Which countries are on the rise and which ones are on decline. There is no better leading macro-economic indicator than the airlines.

Send your comments about your flying experiences and your favourite or not so favourite airlines. Let us amuse ourselves till we plunge in the market action from Tuesday. Thanks for your comments and emails and following me in Twitter. (@BBFinanceblog) 

Saturday, January 14, 2012

Freaking Out On Friday.


If a fifteen hour non-stop flight is not enough to tire out anyone, I had to deal with a snow storm in the morning and two hour drive back to hotel. But after a twelve hour rest, here I am, catching up with what happened while I was in transit.

Seems that we had the start of our downturn on Friday. And then S&P came out with downgrade of most of Europe at the close of business on Friday. How is it going to play when the markets open on Tuesday? We can only guess. A severely overbought market, all indicators and parameters at extreme, divergences at every level, cycles down, retail sentiment at extreme bullish level and now the top of the cherry comes in the form the downgrade.  We have seen market gap open for the most part of January. Now we will possibly see markets gap down. How much and how far, we will have to wait and see.

In my last post (http://bbfinance.blogspot.com/2012/01/head-fake.html ) I wrote that the high of Thursday was possibly a head-fake and when I am back by next week, I hope to have the pleasure of closing my short position profitably. Now let me keep praying to God.

We are as good as our last trade. And despite all our calculations and indicators/ parameters showing a change of trend, markets can remain irrational for much longer than we can anticipate. The last week had shown us that. In situations like this, we need conviction and patience. I have urged my readers to have patience and told them repeatedly that now is not the time to throw in the towel on equity short. I hope my stand will be vindicated.

I do not want to give you another lecture on how Europe is toasted and why everything will fall off the cliff. Because I do not believe in that scenario. We will get a sell off next week, which we knew will come.  No need of Elliot wave 3 or ZH crazy antics. The sentiment will turn from one extreme to another and those who were dreaming of SPX 1400, will now talk of SPX 1100. I also said that when others are greedy, we should be fearful and when others are fearful, we should be greedy. I was amazed that people were buying dips on Friday afternoon and willing to hold on to long positions on a long weekend and that too in a stretched market. That shows extreme confidence on the part of retail trades and we all know what comes after extreme bullishness.  All I can say now is that news is noise and do not base your trading on news.

Monday, the US markets are closed but it will be interesting to see how the Asian and European markets end. In the mean time, let me wrap up my trip fruitfully and I will join you by January 19 to participate in the American markets.

Thank you guys for all your comments and emails. Please share this blog and retweet to your friends and circle. Tell your friends to visit http://bbfinance.blogspot.com/ and join me in Twitter. (@BBFinanceblog) Let us all profit from the World of Finance.

Thursday, January 12, 2012

Head Fake?


Regular readers know that I am neither a Bull nor a Bear. I take trade based on expected market direction. Most of the time the trades give positive results fairly quickly. However there are times when I have to sweat it out a bit. Sometimes bad karma hands out a loss. Now is the time for sweat. As I wrote yesterday, I took the short trade 4 days ahead and now 16 SPX points wrong.  Out of many parameters, few key parameters gave an early signal of market turn and I think I was impatient. Lessons learned and system strengthened. But I am fully committed to the short trade.

In the morning post  (http://bbfinance.blogspot.com/2012/01/now-is-not-time.html ) I wrote that now is not the time to close the short on equity. Remember the saying; “Be fearful when others are greedy and be greedy when others are fearful”. Now is the time to be fearful.  In the early morning when Emini futures were flying past 1300, was there someone dreaming of SPX 1400 very soon? Obviously retail is chasing the rally. VIX is in 20s and for 2nd day running, index only put/call ratio is at 1.25 and equity put/call ratio is at 0.57. In other words, retailers are super bullish and why not. SPX 1400, here I come!

But nothing really changed. The charts of DOW and SPX of yesterday are still in play. The long term resistance did not break. Overbought became more overbought. Extreme reading in many indicators became more extreme. As there is no QE in operation, these extremes and divergences cannot exist for ever. Sooner, rather than later, we will see the market balancing itself. The longer this imbalances continue, severe the correction will be. I can go on listing various divergences and extremes and present many charts here but the bottom line is, these indicators are there for a purpose. If all parameters and indicators fail for all the time, there would be no trading.

Once again I quote Phil Davis; “Anyway, the point is - I DO know how to be bullish and we WILL be able to make money if we have a genuine bull rally and we are NOT going to miss anything by simply waiting to see if the data matches up with the enthusiasm.  I simply am not seeing it yet.” I could not have said it any better. Only thing I did wrong, I did not wait, when my first intuition was to wait out and not take a position before the direction becomes clear. Now I am paying the price of my lack of discipline. Talk of leaving cash on the table!  

If you look at the charts above, you will see that most of the gains of October were given back in November. There is no defining trend. We just play between overbought and oversold. January option expiration is next week which is horrible for bulls, at least statistically. So we will see what tomorrow brings.

Tomorrow morning I will be off to Asia and would not be able to see the fun. But I am back by 19th January and I think I would have the pleasure of closing the position with profit. I will be posting on and off for the next few days so please keep visiting.

Thank you for your continued support. Please join me in my Twitter (@BBFinanceblog) and refer your friends to http://bbfinance.blogspot.com/ . I need more readers / viewers to keep myself motivated.


P.S Modified the chart of DOW

Recoupling.

The following is from ZeroHedge / Bloomberg.
Knowing their bias, I would say that this is too extreme at this point.
May be we will see this achieved in end of February.
But before that we will have opportunities on the long side as well.
Stay tuned.

Now Is Not The Time.

Now is not the time to throw in the towel on Equity short positions.
If anything, I would add to the short.
The following is a quote from one fellow blogger, Credit Bubble Stocks:
"A trading process that attempts to avoid any drawdowns by violently and immediately covering shorts and selling longs at the first sign of difficulty is unlikely to work. If it was possible to invest without drawdowns, then no one would need any capital to invest; you could leverage infinitely on margin."
We are not momentum chasing lemmings. We know what is coming and we are positioned for it.
Once again, have patience bears!

Wednesday, January 11, 2012

Patience, Bears.


The force of correction is being held back artificially to lure in more late stage bulls. It is like a overflowing dam which now is now ready to burst and sweep away everything in its path. The market is way overbought and way out of schedule for correction. I expect that prices will correct more than normal to bring it back on the track.

In the morning post (http://bbfinance.blogspot.com/2012/01/exciting-wednesday.html ) I said if for whatever reason the correction does not starts today do not be disheartened if you are short.  I said it will make another attempt to re-test the high and so it did. Although technically SPX closed in green, it did not take out yesterday’s high. And SPX is showing seven consecutive green hourly bars. Also VIX and SPX both closed in green today. From past experience I think the selling will start very soon, may be from tomorrow.

 The charts which I showed in the morning are still in play. Dow is still within the trend line and symmetric triangle and unable to break the long term resistance.
Stochastic RSI is severely overbought.

SPX is also unable to break the long term resistance and ended up with seven green hourly bars, with overbought Stochastic RSI.
The McClellan Oscillator is overbought as well and every technical indicator is screaming bloody murder. If anyone thinks that SPX will go to 1400 from here, s/he must be drinking some cool aid! ( I know my gracious host Tim is a bear, so this line is not for you TimJ )

After I closed my long position on January 4, I was complaining that I am unable to find direction. For almost seven trading days, the indexes were moving within a range. The price action of yesterday has cleared the direction going forward. In the hindsight I am short four days early and eleven SPX points wrong. I should have been short today. Today was the perfect set up for being short. But then hindsight is always 20/20.

One of my indicators is interest rate for bonds. One easy measure of interest rate on bonds is TNX. SPX and TNX move in the same direction. When TNX rises, SPX rises. When TNX falls, SPX falls. That is when things are normal. But in a trap, that correlation is broken, like now.
Either interest rates will have to come up and catch up with the stock market or the stock market will have to come down and meet interest rate. Knowing that Uncle Ben is not going to raise interest rate anytime soon, the anomaly will be resolved only one way i.e. with a major correction of the stock market.

According to my timing model, we will see a bottom by January 20-23rd. And a hundred point plus corrections in five / six trading days would be something worth waiting for. The seasonality factor also agrees with me. January 16 is MLK day and a market holiday. I now quote the following from www.tradingtheodds.com written by Mr. Frank;

“Table I below shows all occurrences, the S&P 500s performance during Martin Luther King, Jr. Day week ( 1 to 4 sessions ), and the maximum gain and maximum drawdown – on a close to close basis – during the period under review, assumed one went long on close of the session immediately preceding Martin Luther King, Jr. Day in the past (like on close of January 14, 2011).

Probabilities and odds for a higher / lower close one and two sessions later (Tuesday to Wednesday next week) are more or less evenly distributed, but are heavily tilt in favor of the downside at the end of Martin Luther King, Jr. Day week (day #4). The S&P 500 closed at a higher level at the end of the week on only 4, and up 1.0%+ only once, but lower on 9occurrences, and down -1.0%+ on 7 occurrences. The median weekly change since addition to the list of exchange holidays is -1.41%, and the S&P 500 did not manage a single close above the previous’ end-of-week close during Martin Luther King, Jr. Day week on 4 out of those 13 occurrences.
Conclusions:
If the market is really ‘due‘ for a short-term correction, the next week might provide a favorable (seasonal) opportunity for the bears. “

The market is due for a correction and that seasonality fits perfectly with my cycle analysis which is showing a bottom around that time frame. So, to those of us who are short (before time) I would urge patience. We have been here before. Yes, there is a bit of sweating but I can tell you, it will worth it.

Thank you for reading http://bbfinance.blogspot.com/ and following me on Twitter (BBFinanceblog). Please retweet and share on Facebook with your friends. As always, I look forward to your comments and suggestions.

Exciting Wednesday.


The correction in stock market is coming for sure. Please emphasize on the word “correction”. It should start today but for whatever reason if it does not, don’t be disheartened, assuming you are short. In the worst case it may make another attempt to revisit the high of yesterday. But long term resistance is in place which will be very difficult to break in this attempt. I cannot find much upside but stock market is its own master and does not listen to me.

Let us look at the DOW chart. I have drawn a trend line, touching various points.
It closes exactly at 12515. And Dow touched that point and came back. The resistance at 12500 is huge. Dow has formed a symmetric triangle and only place left is down.

Same situation with SPX. The trend line resistance is at 1292 and there the SPX turned back.  It made a kind of double top (high of 10/27) but a close above this level will take SPX to 1305 not much further.
Although we are looking for a correction but the bull is not dead and gone. I will write about that around January 20. Before that we have some unfinished business to complete. Let’s see how it goes today.

Tuesday, January 10, 2012

Treacherous Tuesday.


As I mentioned in the morning, it was the third push up from the triangle and the pushes are now complete. Before today, the last seven trading days was a churn. The market was going round in circle and was making it difficult to find any direction. With today’s price action the direction of the market is becoming much clear. I will have to wait for tomorrow to decide whether I will close my short position on January 12 or 20. But either way I expect the market to go down from here. But may be one last attempt to retest today’s high will be made tomorrow.

It was just 11 point gain in SPX for the day. And I think the market will soon give back those 11 points and some more. The interesting thing to notice is how the sentiment changes. Before the year end, when I was talking about Santa Rally, there was general skepticism around. Not many believe that SPX will come close to 1300. And yet today, there is talk of SPX crossing 1400!

But I think it will be 1240 before 1400. The picture will be clear at close tomorrow. The pivot point tonight is whether AUD can hold 1.0260. As per CBOE, the equity put call ratio today was 0.65, indicating retailers are ultra bullish and index put call ratio was 1.40, meaning big guns have purchased more puts and are hedging for a downturn. In the mean time various divergences are cropping up all over the place. $NYHGH:$NYLOW vs. SPX shows a huge divergence.
(Hat tip to Alex. Grant)

I am not a TA guy so I have problem finding positives and room for more upside from the current charts. I have difficulty in believing that the Q4 results will be great but that would not stop the Banksters to jam up the market.  I quote the following from Phil Davis;” This is, of course, a gold mine for the Banksters, who KNOW they are going to jack up the Futures so they just wait for a nice dip, buy from the Retailers (using the money we lend them for free through the Fed) and then they jack up the Futures and dump it on the suckers who chase the rally in the morning.  It's nothing more than a 3-Card Monty game where EVERYONE is in on the scam except the mark – and that mark is the retail investor!  “

But it is not our job to question the market. We just want to be the right side of it. We just don’t want to be fooled again and again. We do not want to chase the bus or fall for the trap. If the Gods of the markets want SPX to be at 1400, we have no quarrel with that and we will be happy to accept it. Let others scream and shout how impossible and wrong it is.  

On the other side, Elliot Wave guys are going all over the place. Their Guru is calling today’s move as end of cycle 2 and asking everyone to be super short with a stop loss of 1360 in SPX. (What a joke, another 5 % up). Some other wave guys who collect $100 per month are calling it wave 5.  I do not understand this theory of major wave, minor wave, infant wave even stillborn wave  and ignorant of this wonderful magical science. So I would rather stick with my own system which says not to worry.

My problem is I will be travelling to Asia on business tour from January 13 and will not be here in North America for about a week. And I do not want to keep open positions unattended.  So for me, it is very crucial to find out the direction of the market. I am sure about the correction but will have to get a hang on the magnitude of it. So, for me, tomorrow is very crucial.

Thank you for visiting http://bbfinance.blogspot.com/ and following me in Twitter. (@BBFinanceblog) Hope my trades will be useful to you and they will be profitable like they have been in the past. Please send your comments and suggestions and retweet / share it with your friends and circle.

Trading Journal, January 10, 2012

Purchased;
Call, VXX $35 Feb.2012 @ 1.40

Making New High.

We all have seen the futures rising and making new high for the year. If this extends to the trading session and it looks like it will, then it will clear the future course of action.
If you remember, I was expecting the Santa Rally to top around 1300 level in SPX but it did not and instead stopped around 1280. It might make one last attempt. A look at the SPX chart shows that it is an ascending triangle and there have been only two push up so far.
There will be a third push and subsequent failure. So I am keeping my short position because even at this break out level, it will be out by only 10-15 points. In fact I plan to add VXX today. 
We have been in this position before. So we will sweat it out a bit but once this zone of indecision is taken out, then the downside is much more.

Monday, January 9, 2012

Sleepy Monday.


January seasonality is being played out true to textbook. And the earning season is upon us. So while the top is in, do not expect major downside. There will be correction alright but I do not think it will be very deep. Let us look at SPX chart from various time frames. The 1st one is the daily chart.
The lines were drawn on January 4, when I closed my long position. Nothing has changed from that day.  SPX is in the same channel unable to break the 1282 level or exceed the October high. And Stochastic RSI is overbought for a while now.
Hourly SPX chart is clearly showing a symmetric triangle with a sloping trend line. And it will break soon. The 1st breakout is normally the false breakout. I expect SPX will make another attempt tomorrow to break the sloping trend line and turn down.
Five minute SPX chart clearly shows that it has made numerous attempts to break 1282 but failed every time.  As we are in the down cycle, I do not expect it to break tomorrow either. If anything another failed attempt will be the final push.

Today earning season kicked off with Alcoa. Without accounting hoodwinking, it actually made a loss of $34 mil. Or 3 cents per share.  The loss from continuing operations was $193 million, or 18 cents per share, compared with a profit of $172 million, or 15 cents per share in the same quarter of 2010. And it converted the loss into profit with some ingenious accounting entry. That too after reporting higher revenue. How long it takes the market to find out the scam and sell? Alcoa actually burned cash in Q4.

Something happened in the Tech. sector which I have not been able to figure out yet. Google sold off hard and closed down over 4 %. Apple also sold off although not much. QQQ is down but Compq is positive. Overall the NYSE volume was much lower than even December. There is a huge price volume negative divergence for last many sessions and it would count at some point. Plus there are over $ 140 billion bond sale scheduled this week.Commodity sector was weak despite US $ not doing much.
    
I am short from last Thursday (January 5) close. I mentioned in my Friday post (http://bbfinance.blogspot.com/2012/01/there-is-no-decoupling.html ) that my heart is not into shorting this cycle. I will close all my short position by close of 12th January.  And then I plan to spend the rest of January on the side line. My models are telling me that January is going to be a very rough sea without any clear direction. It is going to be so choppy that it will make even a sailor seasick. On one hand January effect and earning season will try to keep the market elevated. On the other hand FX and TA will try to bring the market down.  POMO by the Fed and bond sales by NY Fed will add to this choppiness.  So after I have closed this short position, I better be market neutral.  However I still expect some correction in the next few days.

Thank you for sharing my thoughts by reading http://bbfinance.blogspot.com/ . Please share the posts with your friends and family who may benefit from it. Send your comments and suggestions and follow me on Twitter (@BBFinance) to know my trades as they happen. Wish you a good evening and successful trading. 

Sunday, January 8, 2012

Euro USD For A Change.

Not much commentary is needed. But European sessions have not opened and Japan is closed today.
So much may change between now and morning. 

Here We Go Again. AUD At Risk of Heading Down.

From my FX Dealer;
The AUD/USD closed the week well below the 23.6% Fibonacci extension taken from the August 1st and October 27th crests at 1.0365. Interim resistance stands at the 1.03-figure backed by the 1.0365 with the 200-day moving average holding just higher at 1.0413. The medium-term bias for the pair remains weighted to the downside with support targets held at the 100-day moving average just below the 1.02-handle. Subsequent floors are seen at the 38.2% extension at 1.0120 and parity.
Just for info. There are other reasons why indexes will go down this week. How much and how far, is to be seen.