Sunday, May 27, 2012

Weekend Rambling.

Everything so far suggests that we will see a re-run of last summer.  Like last year, Europe is at the front and centre of everything. Last summer QE2 was getting over. This summer Operation Twist is at its end stage. What is new this year VS. last year is US Presidential election. More the reason for free money. I keep looking at last year’s price action and I get a feeling that the Algos are following the same program with minor variations. Even in 2011, they were following the program of 2010. In effect it is the same program for last 3 years. Take a look at the weekly chart of SPX.

Why would it be any different this year?

The bounce so far has been weak. But that can change quickly. All it needs for the Fed to open its swap lines to ECB. I would have liked if NYMO was at lower level but it is already approaching zero. It is easier to stage a bounce from oversold level.

The counter trend bounce therefore may not be very strong.  Again, if we look at the daily chart of SPX, the Fibonacci retrace levels indicate many different levels of bounce but the one I am looking at is the 61.8% or 1368. That also happens to be the 40 DMA. If it goes past that level, the next one is 50DMA of 1374.

Let us see how it plays out this week.

The settlement for last week’s huge treasury sale will be this week. This may put some pressure on price action on Tuesday. But with no major treasury sales due for the rest of the month, there is less need to create panic and drive the rates down. That may be another factor whereby the master manipulators let the treasury yield rise a little bit and allow the stock market to go up with it.  Already the futures have opened higher but the markets are closed on Monday in USA so it does not really matter what happens between now and tomorrow.

The Fed knows that it has painted itself in a corner but it is reluctant to accept that. Everyone in the corridors of power knows what the challenges facing USA are. There is a Seven Trillion Dollar asteroid     ( yes, trillion with a capital T) coming in the way of USA in 2013. That will knock off 4% of the GDP and will put USA in recession. The first causality will be the Banks  and they need all the free money that are available.  If you do not remember what Bernanke said in last April regarding the looming danger, here it is to refresh your memory:

"It's very important to say that, if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that I think there is absolutely no chance that the Fed could or would have any ability to offset, whatsoever, that effect on the economy," "I am concerned that if all the tax increases and spending cuts that are associated with current law would take place, absent congressional actions, that would be a significant risk to the recovery."

In any event, the “recovery” that the Fed chairman talks about is the recovery of the TBTF banks that he represents and not the recovery of the main st.  But that is the fact of life and all your representatives are also the representatives of the big businesses. So now the effort is on to find a solution to the coming disaster.

Given all that why do you think SPX will go up at all, let alone going to 1500 if there is no easy money from Bernanke? Just because Obama wants to get re-elected does not mean anything to the real money bags! To go there, we need fuel which is QE. If any opposing congressman wants to protest against the Fed giving free money to the banks before election, the best way to shut him is to give him a call from his broker or banker that the world is coming to an end and his shares are now valued much less.  (Except Ron Paul may be) Problem with the giant Ponzi scheme that the Fed and congress are playing is like riding a tiger. They cannot get down without getting killed.

We look at Fibonacci level, over sold or over bought or some other crap to find out what the stock market will do next but the real answer for the stock market going up or down can be found somewhere else.  For the retail investors, who have lost money every time s/he has tried to beat the system with various system, I can only say that be very afraid. Preserve what you have and do not fall prey to the schemes like the FB IPO or some other get rich quick scheme.  This rally is to be sold into. Raise cash and be patient.  We have not seen anything yet but remember timing is everything. The 1st rule of investing is “Preserve Capital”. And be clear to yourself, are you investing or gambling.

Hope you are enjoying the “Memorial Day” long weekend. While you are having fun, it will be nice if you remember that they have killed 1000s of young men and women in the name of honour and glory in needless war which did not protect American or made it any safer. We are not even thinking of many thousand innocent civilians who got killed, maimed, ruined as incidental casualties of war. And yet the real source of the problem, the states from where it all emanates like Pakistan or Saudi Arabia, are our friends!

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