Tuesday, July 31, 2012

Crunch Time.



A quick post is in order. Tomorrow is the day the BTFD crowed has been waiting for. Tomorrow is the day when Ben and co. will save the world like Mario saved Europe. But I think it is still early days for QE in USA but who can say for sure. The danger for the bears will come not from Bernanke, but from the other side of the pond. Like it did in last December. Mario started LTRO and most of us under estimated the liquidity effect it could have on the US stock market. If ECB converts that ESF or “whateverthatshitthingsis” as bank which could then guarantee and convert 1 trillion euro to 7 trillion euro , just by magic. It will not solve anything but will definitely buy time.

More I think about it, more I am convinced that the Fed will open a swap line to ECB or do some other shenanigan and provide them liquidity indirectly and ask ECB to ease instead of staring direct bond buying program.  That will be politically correct as well.

It is really risky to be a bear at this time and yet I do not have the courage to BTFD yet. I still think a major correction is due but ECB has been able to buy good deal of time just by talking. Either way, we are in a range and unless I see a break of the range with conviction, it is not good to let our conviction dictate the trade or investment. Return of capital is more important than return on capital. At least that is what I think. If we must take a trade because we are bored, that would be the dumbest thing to do. Also let us not forget that this is the Presidential Election year cycle.

Bottom line, although I am tempted to short, I am holding on. I may miss an opportunity by being cautious, but I do not mind missing that opportunity just to have surety. Because if the market falls, we can be sure of QE and the subsequent up. That will be easy money.

So trade accordingly. I would advice not to front run. It is better to give up some points at the beginning of a move just to avoid whipsaw and mental agony.

I am out of market action till 8th of August and by that time lots of issues would be clear. I think one more push up is still due before a major correction. I am looking at AUD to top out around 1.07.

Thanks for reading Thanks for reading http://bbfinance.blogspot.com/ . Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Saturday, July 28, 2012

Fear Of Missing Out!



It was a wild week for the market and a grueling one for me.  Let us start by reviewing from the last post:

“Readers know that I am leaning bearish. As a bear, when I see that everyone around is agreeing with me, it scares the day light out of me. If everyone agrees and everyone is right, it would be so easy to make money in stock market. Alas, it is never that easy. “
“Today I closed my short position because I would not be able to monitor it regularly, may be a little too early and left some profits on the table, but hey, no regrets.  The big game is still on and I will be there. For now I think a bounce is brewing, which will kill few bears and trap few more bulls.”
However, for now when everyone has jumped on to the bear side, I would like to step back and wait for a while. I do not trust these bots and dark pools. Moreover, FX has not dropped along with Apple. Euro is still above 1.2062 and AUD has not broken 1.02 yet. They will break down very soon, but for now, the slide has halted.  Short term, the indexes are over sold. This week 173 firms representing 37% of S&P will have their ER. So caution is warranted. “

Now you be the judge.

How do I read this market? I am just amazed that they are able to manipulate the market so easily. As if just by mere wishing. And there are suckers every time ECB or The Fed or their pets mention QE or some sort of bond buying program. Or just simply says, “believe me”. We definitely are walking on quick sand and people still fall for the same BS over and over again.

How do I invest or trade in this market? I do not invest in this market and have been largely in cash for well over two months now. I kept writing that preservation of capital is most important in this environment. I believe that the fundamentals do not justify the stock market going up and requires at least a 20% correction before we can see value again. The sovereigns are struggling and on the verge of bankruptcy or default. The Powers That Be are out of tools and are applying band aid after band aid and are praying each day that passes. The markets are behaving like a terminally ill patient in ICU, who is given blood transfusion and steroids just to keep it alive. When given the shot, it stirs and sits up but the effects of these transfusions are getting shorter and the patient falls back in coma shortly thereafter. At some point, the patient will die.

Understanding that fundamental concept and knowing that manipulators with the active backing of a corrupt governmental system are playing havoc, will help us remain safe. But there are still people out there ( I know, I get comments and emails!) who have faith in the system, who thinks that the market is bigger than the ability of the TBTF banks to manipulate and those who think technical analysis alone will help them make money in this quagmire. Even God cannot save you, guys.

You may ask, very well, now that we know that it is doomed, why are we not short with everything or as Prechter says, short will leverage? Let me explain that with an analogy. Its rainy season and rain is expected. The weather man said at night that tomorrow there will be sun shine. You get up in the morning and see that it is not raining but the sky is over cast. What do you do? I would still take an umbrella while going out but not open it. The situation is somewhat similar here. The dark clouds are hovering over us. The weathermen ( B and D) are telling us that it is not going to rain and everything will be fine. So we remain prepared for the worst but do not open the umbrella either.  I have said repeatedly in the past, never under-estimate the power of these crooks. They can and will distort the market in the short term. TA is powerless in the face of these master puppeteers.  But I take my cue to get out of any short position from TA. Please don’t ask for any particular indicator because there is none. It is a combination of many indicators and judgment call. At the end of the day, we make the call and hope to be lucky. When I got out of the short position on 24th July, I was thinking maybe I got out too quickly. But I was sure of the coming squeeze and I sent out many tweets to that effect.

So what’s next? I think the risk remains to the downside. Against everything negative, low revenue growth,  earnings call misses, global slowdown, looming sovereign default of Eurozone countries and massive , unsustainable debt by USA, only thing holding up the market, is the hope that Bernanke will bring QE on August 1st. By front running QE it is making Bernanke’s job that much difficult. When DOW is 13000, what justification can he have to pump more money? Isn’t the QE been already priced in? Even if QE comes on 1stAugust, which I doubt, how far will it push the market up when the economy is on stall speed at 30000 ft above the ground.  Personally, I do not think we will have the QE this time. Because it will be politically suicidal for Ben when “Audit The Fed” bill has passed congress and the Democratic hack Chuck Schumer is openly urging him for action. Everyone knows that Ben’s is the only game in town and Republicans will tear into him. But It will be there before election. If what I am thinking works out correctly, can you imagine how disappointed the market will be on August 1st? But we cannot be certain.  It is a bad idea to gamble with the retirement savings. If we must play, then take a calculated risk of losing a very small portion of the portfolio and try out to see what happens. But I would advice strong risk management.  Even if we miss this down opportunity, we can be sure of the easy money opportunity coming next because then there will be QE and we can catch the ride up risk free. 

I want to emphasis that this is not the last opportunity and if we have the power dry, (Cash) we can shoot when the ducks are in line. Right now, they are scattered all over. If we allow our conviction and greed to override caution, we will get hurt.

So let the markets go up for the next two days. Some indicators are over bought, some are not. But over bought can remain over bought for a long time and if you want to short just looking at RSI, that would be a mistake. Wait for the short squeeze to end and momentum to fade. Above all, just remove that “fear of missing out” from your head. If no QE 3 on August 1st, then the road is clear for the bears.

Thanks for all the wonderful comments and emails. The coming week is also going to be tough for me but I will tweet as soon as I get an opportunity. So join me in Twitter (@ BBFinanceblog). But the most important thing for today is to enjoy your weekend with your loved ones. Crooks and their manipulated markets can wait.

Tuesday, July 24, 2012

Is The Dream Over?


Is the dream over? The Apple of the eye missed! The world must be coming to an end! So what next?
At this point of writing, ES futures are down about 6-7 handles. Not that bad considering almost all the hedge funds are loaded with Apple to the gill. QQQ fell below $ 62 and is trying to recover. But Apple is down 5% after hours.  It will now fall for much of August and below $ 500 is not unimaginable. I had this discussion with one of our dear reader in the not so distant past when I wrote that Apple is looking ripe for a fall. You can possibly find it in comment section in one of the older posts.

Readers know that I am leaning bearish. As a bear, when I see that everyone around is agreeing with me, it scares the day light out of me. If everyone agrees and everyone is right, it would be so easy to make money in stock market. Alas, it is never that easy.

Today I closed my short position because I would not be able to monitor it regularly, may be a little too early and left some profits on the table, but hey, no regrets.  The big game is still on and I will be there. For now I think a bounce is brewing, which will kill few bears and trap few more bulls.

The day started like I wrote yesterday. Tested the lows of yesterday and broke below. But when the BTFD crown came, they found that the drinking bowl is missing today. Just like I said yesterday but I did not expect it to happen so soon.  I was expecting a bounce and WSJ hack did float the rumour before the close. Only Apple spoiled the party. But we may still get a bounce just to squeeze the shorts. Need to wait few days before loading on the short side again. As my regular readers know, my target is 1200-1220 in SPX.  I remember someone asking me couple of days back whether I still believe in my target! Someone (Anonymous) also called me crazy because I had taken position in FAZ and TZA and other leveraged shorts. There you go.

However, for now when everyone has jumped on to the bear side, I would like to step back and wait for a while. I do not trust these bots and dark pools. Moreover, FX has not dropped along with Apple. Euro is still above 1.2062 and AUD has not broken 1.02 yet. They will break down very soon, but for now, the slide has halted.  Short term, the indexes are over sold. This week 173 firms representing 37% of S&P will have their ER. So caution is warranted.

By the way, I read somewhere that GS is calling for a bottom of the housing market. You know the drill. It is now confirmed that housing has much more to fall.

Last thought for the day, I sent out tweet yesterday that bad things are going to happen. If you have missed it, here is the link again. Hendry: ‘Bad Things are Going to Happen’ - US Business News - CNBC

From tomorrow I may not be able to do regular post for couple of weeks. But I will definitely try to scribble few lines if something interesting happens. Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Monday, July 23, 2012

Bait and Switch.


That is the sound we are going to hear soon from the BTFD crowd.

So far in 2012 we have been conditioned to BTFD. Our brain has been wired to the safety net named Bernanke. That if the stock market ever falls 20 points, he will be there. In fact so much is the disconnect between the US equity market and the rest of the assets class all over the world, that it is not even funny.  But one of these days the sheeples will find that the punch bowl has been removed without so much as a “sorry”. And I think that day of reckoning is damn close.

Was it only last Thursday that we were talking about SPX 1400? I wonder what the next 10-15 days will do the market sentiment.  Most of the damage was done overnight in the futures. As soon as the cash market opened, SPX was down 20 points. So what chance retail had to position itself? After that they were lured to buy the dip throughout the day except the last 5 minutes again. What chance in hell do they have?  Now the futures are going down again. Possibly another gap down tomorrow.

I would like to show you a nice graph from Lance Roberts of XFactor.


So we have to be very careful for the next 10-15 days as anything can happen. I have been writing for many days now that any rip is an opportunity to sell. Unless Ben comes and shows us the colour of the money, there is no reason to be long.

How do I read the tea leave in this backing and filling market? Tomorrow I expect the market to go down and test today’s low at the open. Then a bounce in the afternoon, similar to what we had today, building up the anticipation for Apple ER. We know that Apple ER is both an art and a science and they will definitely blow away all the projection etc. There will be a general bounce and QQQ will possibly reach 64.50+. And then I think the punch bowl will be gone.  This is just a wild guess and please don’t shoot me if the market has some other plan for tomorrow. I am just reading the tea leave and the entrails of the dead bull.

The BTFD crowd is last to get the news but commodities had a real bad day. Silver broke $ 27 level and Crude lost almost 3%. Peter Brandt has some very interesting charts which match with my calls to the T. You may want to check it out. http://peterlbrandt.com/factor-update-july-22-2012/

I somewhat agree with his calls because I think Bonds will spike along with the coming correction of the equities. I also think there will be a flight to safety and margin calls, when folks will be forced to sell everything, including their position in gold and silver. That should take silver down to $ 20. Soft commodities like wheat, corn and sugar will also give back much of its gain. So if you have some profit in the current surge of corn and wheat, you may want to take off some profit and re-enter at a lower level.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Friday, July 20, 2012

Things That Make You Go "Hmmmm".


This headline is not original but I could not find anything more appropriate.

About 10 days back I shared a US $ chart by Chris Kimble. Today he has an update:

Now let us see how far the Dollar goes.  This is consistent with my call for major correction in the equities in the coming days.

Today SPX dived down out of the gate but someone was trying very hard to hold the line as you can see.

Will it hold on Monday?

The last chart of the day is from dshort.com which is self explanatory.


Normally the treasury yield and equities market have moved in tandem but since the beginning of 2012, they have diverged. Is this a temporary phenomenon? If not who will catch up? The red line will come up to blue? With $ 16 trillion debt, can America afford to pay more interest?  If not then the blue line has to come down to the red. The thought itself is so fascinating!

The yield today is lower than it was at the height of the financial crisis. Does the bond market know something which the equities are not aware of?  We will soon find out.

Thanks for reading http://bbfinance.blogspot.com/. I need some stimulus from you guys and as Tim says, please click on to the Ads.  Have fun and enjoy the weekend.

Thursday, July 19, 2012

Bungee Jumping.


My clan, the accountants, must be in high demand with the Fortune 500 companies who report  their earnings every quarter. Because despite a weak economy and bad quarter, companies after companies are beating the projected EPS. Even when the top line is down or costs are high or demands are slow, they will miraculously meet or exceed the EPS even if by a penny. If this is not creative accounting, what else is it? It’s a shame that an accountant never gets nor will ever get a Nobel Prize in creative imagination. They get prize for writing stories, why not a prize for the best accountant creating profit when it is not there. How did they manage to show profit in JPM after over $ 4 billion loss? If the banks had such a great quarter how come most of them are planning layoffs? Of course US Govt. gives very generous helping hand by tweaking the FASB rules or even allowing the Banks to mark securities to books or by not following IFRS.  But manipulation is now accepted fact of life and you cannot wake up who is already awake but is pretending to be asleep.

For two days in a row, while SPX has gone up, XLF , the ETF for financials has closed in red.  Normally financials lead the market. The weakness of the financials do not bode well for the market as a whole. If these TBTF guys can’t beat the market in their own game, what hope the momo chasing investor has in picking up the nickel before the steamroller? At some point of time, things go out of hand. Now it seems is the time for LIBOR to catch up. The reserve for legal trouble will not be enough but they have the Fed to bail them out.

I remember last year, around the same time, asking the same question, how low VIX can go. Here is a graph to explain what I am talking about.

(Hat Tip: NJB Deflator)
I am not so much worried about how the market will play out tomorrow or day after. The hope driven rally is showing signs of topping but the earning season is keeping it going. But very soon the ugly head of realty will rear its head. Do I think that we are coming to an all time top? Yes and no. No because there will be another attempt by the central bankers to re-inflate the balloon. When that happens will we cross the all time of high of 2007 is the question. I expect that test to happen by November. Before that a test of the fall is around the corner. To those who think that SPX will cross 1400, I have one question. Assuming that SPX does reach 1400, that is around 25 points away. After that what? But we will cross the bridge when we come to it.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Wednesday, July 18, 2012

Patience Is Not A Virtue, It Is A Necessity.

Well, the C of the A-B-C in SPX did make a higher high today, although marginally higher. Obviously, everyone is now convinced of the trend change and no longer need any QE or punch bowl. It seems equities have now reached escape velocity and ready to fly to far away galaxies. It does not matter that the world around is not feeling so good. GDP estimates by the Govt. is below 2% in USA and non-existent in Europe. But who cares. At least if you take a look at VIX, you would think that there are no worries in the world and the sky is as blue as it can get. For the 3rd day running, I am showing the weekly chart of VIX and now it is at the same level as it was in 2008 before the crash.

Europe is now out of the memory and many expert chart masters are now giving all clear signal. We cannot even imagine that there can be a massive and sudden correction. Last August SPX dropped 80 points in one day. Because when we are coming down, gravity makes it that much faster. I do not think now is the time to be cute or smart. Even though the cycle top has been reached and my model is calling for an immediate correction, I am willing to wait little more, because the higher it goes, the harder it falls. And it is going up on hot air.
Gold is not responding to the enthusiasm of equities. So let us see how far the shenanigan carries the market. Let me close the post by sharing a chart from Ed Matts.
Either way the end is not very far. I personally prefer the Bearish and Bearish count which fits with my calculations. So let us have some more patience and see how it all unfolds.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Tuesday, July 17, 2012

Boom or Bust?


The last hope of the Bulls is fading quickly. Chairman simply repeated what was in the FOMC meeting, i.e. they are ready to help. But with SPX at 1360+, Crude near $ 90, and given the political situation, he is unable to do much even while his fingers are itching for press “Print”. I think we have a A-B-C counter trend rally which is nearing the end. Whether C will make a higher high and over shoot the sloping trend line, I am not sure. But the short term cycle which caused this pop is topping now.

May a little bit push is remaining but I think we are nearing a major correction. Let us see how it plays out. If Bernanke was giving hint for any future QE, gold did not get the hint. Only equities jumped high in air and remain floated. It seems the only game in town is QE. If it has been priced in, when it comes, how far will the equities go up from here?  I do not see much of an upside for the risk assets as a whole given the economic situation of the world. (Liquidity pumping not withstanding). My thinking is bit simplistic. No QE, no Rip. We will see in couple of days.

VIX is at 16.48 as I write it. Almost at historic low level.

How low you think it can go down from here given all the headwinds?  Even Bernanke agrees with me: "Economic activity appears to have decelerated somewhat during the first half of this year." So what are they celebrating anyway? Hope? Hope is not a good investment strategy. However good the SPX chart may be looking, whatever reversal or reversal you have, hammer, rock or whatever candle pattern is there, it all boils down to central bankers provided liquidity. Without that, nothing.

Only positive I see is the strength of AUD. Even that has no basis given the dependence of AUD on China and the weakness of the Chinese economy. I would be very surprised if we do not see a severe downturn soon. Question now is, how low the 10 year rate will go down to?  And that is bleeding the Pension funds dead by thousand cuts.

There have been some changes in my personal work situation. From July 25th , I may not be able to post on a daily regular basis for at least a month, as I may have to travel extensively.  But as and when I come across important issues, I will definitely reach out to you through Twitter. For now we wait for the end game to begin soon.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle.

Saturday, July 14, 2012

The Week Ahead.


Europe had bit of rest last week. There was not much noise about Spain or Greece. That is funny because Greece is on the verge of getting booted out.
Time is really running out for Greece.

How about Spain. We have not heard about it for few days. Remember all those Spanish Banks who borrowed money from ECB at 1%? Pray what they did with that money? They mostly bought Spanish bonds at 4% coupon rate. Now those same bonds are 7%. So the Spanish Banks are under water within 6 months, they are more in debt and their collateral is less in value and they will be required to submit more collateral to ECB. But they do not have any more assets in their vault except some dead rats.


Lets see what the country of Bunga Bunga Berlusconi is doing. Its debt to GDP is already over 120% and it cannot print any money unlike USA. Its 10 yr rate is around 6% which is way more than any future growth prospect of Italy. 

I do not want to get started with USA any more because it is a train wreck in slow motion.

It is a case when nobody does math anymore. But the MSM is owned and controlled by rich billionaires and business groups who create panic when they need to buy cheap and create euphoria when they need to sell high. So it is no wonder that while the markets are being pumped up higher, there is absolute news blanket. This is going to culminate in SPX 1375 range?

I think we are coming close to an important correction. It has already started. Sell signals have been given. But lets for a moment forget about the technical indicators and step back to think as to who runs the market. Major part of the trading, between 30% to 50% is done through dark Pool, network of private exchanges, which are not revealed to public.

The TBTF banks that run these dark pools are flat broke and they are fudging their books from 2008. Because inside their assets all they have are messed up toxic sludge. They have to , they must get free money from the Fed at 0% and recycle it back to the Fed to get 4%. That is the ultimate ponzi scheme of America. If only they can do it many years, they can survive and continue to draw high salaries and bonus.  That is why we see Sharks and Whales running a hedge fund which generates 30% of their reported profit. Unfortunately. now they will have to close their hedge fund. Even then they lie about the pricing of their CDS and nobody knows what price they are considering to mark it and book profit. These TBTF banks need QE every year just to survive.  QE does not help the economy, QE help the TBTF banks. It is that simple. Obama needs QE to get re-elected so that assets prices gets inflated, 401K looks better and voters mood is right. But they cannot get QE if the stock market is near its high.  And VIX is at its low level since 2007.
Whenever VIX has reached this level, it has lead to a correction. Right now it is at 16.74. May be we will have to wait till it reaches below 16 or even 15. But not beyond that.

I do not see SPX going much higher in 2012. But we have to respect the Presidential Election Cycle and it is highly unlikely that the market will roll over before the election. If we put everything together, it surely points to a mini panic coming soon. At least my cycle says so. If you are an investor, you are well advised to remain in cash and after this correction is through, we will get another buy and hold opportunity.

That’s all for this sunny Saturday.  Thanks for reading http://bbfinance.blogspot.com/ . Join me in Twitter (@BBFinanceblog) if you like to share my comments and market actions. 

Friday, July 13, 2012

Irrational Exuberance Redux.

Are you trying to figure out why the stock market jumped the way it did today? Was there an expectation of stronger economy, higher yield, problems in Euroland solved or Obama managed to create employment for everyone in America? Only worthwhile news I can think of is that Italy was downgraded last night.  But look no further, we are here:
And that is why the bounce.

I did call for a bounce yesterday and said that it will be an opportunity to short at a higher level.
I expect Monday to be small range bound may be tiny red and Tuesday another jump up. Then hopefully game over.

You may ask why did I go short before? For one, we can never exactly time the market. And secondly, that is why we are only half invested and going short in stages.

I took off the most volatile part yesterday and am happy to keep the rest in.

Amongst all the noise and euphoria, Apple was definitely weak today with a jump of only 1%.

By the way, do you remember that bear market correction starts on good news, not on bad news. So by next Tuesday, you will see all the talking heads saying how nice and blue the sky is!

The above tape will be played out in the next few days and I can hardly wait with all the excitement.

Before we go for the weekend party, I have this write up on the investment philosophy by George Soros:
http://www.marketfolly.com/2012/07/george-soros-best-investment-advice.html
Take your time to read it.

So have a great weekend folks. Rest the brain. We will need it functioning well next week.

Thursday, July 12, 2012

Intra-day Bounce And Infinite Patience.


When we are dealing with the derivative of a derivative, we have to be extra cautious. That was the case today with UVXY. The Ultra ETF of VXX.  On a normal day, while I am working on routine staff, from the corner of eyes, I also keep track of the market on 20 different flickering indicators / markets. When the /ES reached 1320-21 level, I stopped what I was doing and started concentrating on the market. For about an hour it refused to break down and something, I am not sure what, may be intuition, made me close the UVXY. I could have hoped that /ES will break down from there and we go down, because that is the ultimate road map. But maybe not today. Whatever it is, I closed the trade and tweeted. I also said that I am expecting a bounce. I am glad I did because UVXY came down to $8 before closing little higher. For the last 4 days, the markets have rallied from the low and have erased the losses somewhat. It does not mean the correction is over. It just means that they are trying their best to honey trap more people. SPX has been down six days in a row and is due for bounce. Tomorrow JPM and WFC earnings report is coming out and both these were green today. So it’s kind of interesting situation right now. But I would definitely stay away from going long here. Rather I would add more short at a higher level if I get a chance.

My call for SPX 1200+/- few points by end of July or 1stweek of August is still very much valid. Any bounce that we may see from tomorrow may not go beyond next three trading days, which is Tuesday, 17thJuly. If we see that SPX has reached around 1365 by then, that would be the invitation of the lifetime to go short. (My views) Last night AUD made a dramatic and sudden fall from 1.0250 to below 1.010. It was no wonder that it was a risk off day to start with. Bonds traded higher, crude moved up and down $ 85-$86 range and gold is trying to claw back some of its losses. Yesterday I added short position on crude and it is updated in the model portfolio.

On different forums I still see folks are either long or getting long hoping for a bounce. And I wonder, is this what is called picking up pennies in front of a steam roller? Why can’t we just wait patiently for a better entry point? But greed is the most motivating factor in stock trading and emotions always win. Folks will have suicidal tendencies and no amount of preaching discipline is going to help.

That’s all for tonight. We just wait patiently for next few days for the market to show its cards. Thanks for reading http://bbfinance.blogspot.com/ . Join me in Twitter (@BBFinanceblog) if you like to share my comments and market actions. 

Wednesday, July 11, 2012

Pivot Point.


You may have already seen this work of art from Banzai and it possibly says everything that we need to know about all the leaders and various talking heads of Wall.St.

Was it a green or red day? While the major indexes are in red, SPY is showing a tiny green. It could have been worse and it will get worse. There were no magic words in the FOMC meeting and the reaction was that of a dejection and despair. I still do not understand who in their right mind is hoping for a QE or liquidity injection in every FOMC meeting. When the SPX is just about 5% below its high for the year and there is no riot in the streets yet. I mean in the streets of USA. But it is already burning in Spain. So the dreaded “A” word has reached the 4th biggest economy of Europe. Yesterday Italy also gave not so subtle hint that they world also ask for bailout in the near future and Finnish finance minister has said what was unthinkable even few months ago, that Finland is ready to leave Euro if push comes to shove. Things are getting interesting.

I think the markets will chop around for the rest of the week given that there is not much of data coming up but it is struggling to hold on at this present level. Only thing that is holding it up is the hope of a good earnings report. And it will be a sell the news kind of event. In my opinion any rip in the next two days will be an opportunity to add to the short position.

Today I added a short position on Crude but somehow the tweet did not go through.  If Crude remains at this level tomorrow, it will be a good opportunity to short.  So now the only thing left to do is: to wait. We are coming up to an extremely volatile period and possibly you can sense the uneasiness. But one word of caution, whatever you do, keep your stops in place. I do not know your risk tolerance level. So use your own discretion for setting stops.

Apple is very close to my short target and as and when it falls below $ 600, there will be lots to travel down. Apple earnings report is due on 17th and it sure going to be fun.

A dear reader had asked about Bonds. Both the 30 year and 10 year is on a buy signal now and will possibly continue till end of July or 1stweek of August, when bonds top and equities bottom.  But this is the final or end of the 30 year bull run of bonds and the next 30 years bear market in bonds are about to start from coming September. My assessment is based on fundamental and cycle analysis but famous chartist Peter L Brandt has a nice post on this subject which is here: http://peterlbrandt.com/treasury-bonds-in-final-blow-off-stage-of-30-year-bull-market/

He lost money in the latest scam and is very much upset about all the day light robbing that goes on in our free capital market. And he rightly pointed out that every penny stolen from investors finds its way in JPM.  

So stay focused and play it safe. Thanks for reading http://bbfinance.blogspot.com/ . Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle. I need more readers to stay motivated. Somehow, the readership of the blog has not grown to the level I expected. So need some stimulus from you guys to spread it around.

Tuesday, July 10, 2012

Recession Anyone?


My apologies for yesterday’s absence. However I sent out Twitter message late at night that I plan to start shorting from today.  In the morning also I sent out tweets that I will be starting to short today. When I saw the bounce failed at 1360, I thought it may be the right opportunity for a low risk entry. I am glad that it worked out nicely. But it is just the beginning and I think the fireworks will continue for few more weeks. If everything goes as planned, we might see SPX 1200. However, markets never go up or down in one straight line. We already have had 4 red days and hence a green day is due. That will be another opportunity to add to the short positions.  After adding our favourite short positions, we just need to sit patiently till Bernanke shows up with money.

I keep pounding the table that there is no growth. No job growth, no income growth, global economy is slowing down and whether you agree or not, USA is in much worse shape than Europe. You don’t see it because Uncle Ben can print and the size of the economy is huge. Here is a very interesting interview with Laxman Achuthan of ECRI.

This is a great interview and given the short time given, he touched upon many important issues. I request you to listen, view it multiple times.

As pointed by Laxman, in the developed world, Recession leads to deflation. Govt. money printing has not been able to stave off deflation, ever. You may ask Japan, who are now printing for the last 20 years and yet Nikkei is down to 9000 from 38000 and their DEBT:GDP is over 200%. Bernanke fears deflation like plague. So it is very much certain that we will see another massive printing soon. But till that happens, markets will head south.  This time, technical will catch up with fundamental.

I am trying to shut out the noise and not get affected by the movement of 5 minute charts. So far the bigger picture has played out to the T. My earlier call of SPX 1365 +/- few points in the 1st week of July has been valid so far and I think we saw the top on July 5th with SPX at 1374. Now let us see how my call of SPX 1200 by end of July plays out.

I want to share with you a US Dollar chart from Chris Kimble

If this plays out, my SPX call may well come true.

The model portfolio has been updated for your reference. I am still holding GLD as I am not sure about the immediate price movement of gold. It has a potential to reach $ 1400/ oz due to deflationary scare, before we see any traction but I have decided to hold on to it for long haul.

Thanks for reading http://bbfinance.blogspot.com/ . Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.

Saturday, July 7, 2012

Doesn't Anyone Do Math Anymore?


While our mind is preoccupied with Europe, nobody seems to remember the mess that USA is in. At least Europe is trying to get its shit together. They have much less debt to GDP compared to US of A. Just look at your backyard swamp and you will see the dragon getting stronger.

 US spend about $ 3.8 Trillion in a year and takes in approx. $ 2.15 trillion in various shapes and forms. That leaves a gaping hole of $ 1.65 trillion a year. 

And the official debt is about $ 16 trillion. In that official debt, we have not, I repeat not, included any unfunded liability for pensions to Government employees, Medicaid and Medicare and Social Security. The estimates of that unfunded liability vary from $ 66 trillion to $ 122.1 Trillion. For e.g. Uncle Sam has promised about $ 700,000 in pension and health benefits to its retired civil servants and so far the only source of that fund is IOU. Now add another $ 17 trillion to that coming from Obamacare. Before we start throwing Millions and Billions and Trillions, do we even know how much they represent? OK. Here we go:

This is one million in $ 100 bill.

And this is 100 million. All crispy $ 100 notes, stacked on a standard pallet.

This is 1 billion. About 10 tons of paper.

And here is the US deficit, $ 16 trillion and changes and not including the unfunded liabilities.

Remember we were talking about that $ 122 trillion deficit sometime back. Here it is in visual cue.

( All the above pictures are from demonocracy.info)

And we are worried about Europe? The total debt of all of Europe is less than 3 trillion dollar.

How much is a trillion anyway?  For an idea, if Jesus Christ spent $ 1 million every day since the day he was born till date, he would still not be able to spend $ 1 trillion. Only politicians can talk about trillion.

So how does America bring its deficit under control. Don’t ask Krugman but some politicians are taking about deficit reduction. Which also means austerity in dirty language. Great news but where can US save money? Let us see where does it spend the money in 1st place?

This is somewhat old chart but the percentages are more or less same.  Well, by the theory of Teapublicans (Who incidentally are equally to blame along with Obama) America will have to save about half of its expenses for only 16 years ( I am not even touching the unfunded liabilities) while hoping that the income will stay at the same level and there will not be any riot or social unrest. Other option is to increase revenue by raising taxes. But half of America does not pay any tax anyway. So double the rate of tax on the rest who pay? Like France? Good luck folks.

Well, if that is not possible, what is the other option? Simple actually. Continue to create money out of nothing till you cannot. It is like playing monopoly games by the kids. With fake money and fake assets. Only this time it is being played by the Governments instead of the kids. With the Fed monetizing the debt, (back door, wink wink!) they have been able to bring the interest rate down to an absurd level. But it is starting to hurt in other places. The pension funds who have some money for the retired folks, ( ordinary folks like teachers or policemen etc) are being forced to look for yield in most risky places. Even social security is getting hurt. And what happens when those who are buying into the Ponzi scheme realize that they are being milked dry and refuse to take part any longer. Just like in Europe? Well, you suddenly have a high rate of interest and inflation. The bond market is crushed and along with that the equities.

We are in a secular bear market. The end of the bear market will come when PE is below 10. Right now it is about 22. We have a fair bit to go. It does not mean that the bust is coming tomorrow but time is running out and there are really no alternatives. If you know or have any idea how they will solve this mess, please share it with us. I do not like to sound like a dooms- dayer. I still think there will be a QE soon to lift the asset prices but have we not had 2 official and many un-official QEs in between? What have we achieved? We are still below the highs of 2007. May be we will see SPX 1500 by November with the help of QE, but it will not lead to full employment or wage growth. It is just another bubble.

My math skill is limited and I am unable to add up to reasonable viable outcome. So please help with your inputs.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. May be your friends can help with an answer.

Friday, July 6, 2012

Why Waiting Is Worth It.

Everyday I talk of manipulation by TBTF banks and dealers. Most don't believe me but read it non the less. You might want to have a 3rd party validation of the rotten heart of finance here.
http://www.economist.com/node/21558281

Yesterday I wrote that we have to be careful of various shenanigans of the manipulators and as we no longer operate in a free market, we have to be careful while shorting. If you have seen the price movement in the last few hours you know what I am talking about. You will also understand why I am not yet short. Yes, we are in the time zone and price zone but we do not have a confirmation of the intermediate term top yet. What if it is a bear trap?  

I am more cautious before jumping in to short the market when some very powerful men in the universe do not want the market to fall. I do not mind giving up the initial 20 points if that helps to get a confirmation and helps me to avoid whipsaw. One thing that is troubling me today is action of VIX. It closed the day with a -2.17% down, even with SPX down almost a full percent. As if the big boyz are not really worried now and they are just working out the extreme overbought level of NYMO. The selling was orderly and there was no panic or unusual volume. It is too good to be true.  So I have decided to wait for few more days to see which way the wind blows.

We will have a bounce from here. That is almost guaranteed. In fact it has already started. It is where that bounce fails, that will tell us if we can short with confidence. I do not want to take up a position today only to cover it tomorrow. And my downside target is 1200-1230. So I have lots of points in sight and I am in no hurry. Once again, it is not necessary to trade just because we are bored or ZH said the world will end tomorrow. Or emotions got better of us and we are afraid that we will miss the opportunity.

In the morning when the market plunged, I am sure many of you cursed me for waiting and wasting time. But I would rather err on the side of caution. There will be many more trading opportunities, but if we lose our capital, we will not be able to catch those opportunities. That is my trading / investment method and I want you to understand where I am coming from. If I am not sure, I will not take a trade. Nobody can win all the time, but at least let me try to reduce the risks.

Coming back to the market, I think we will see two things. To start with, they will kill the bears 1st, so that when the time to short comes, there will not be anybody else left except the BOYZ.  This objective will be achieved in the next few days and along with that there will be technical confirmation of buy signal to bring in momentum chasing lemmings. Those folks will get killed next. In the process SPX may well test 1380 or higher soon. The reversal from 1264 of June 4 can be considered a wave 4 and will end in 3 push up where the 3rd push may or may not make a new high.  That will be my cue. It is all coming to an end and those who are patient, will win.

 Thanks for bearing with me and reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. Hope it rains over the weekend. It is too hot here for doing anything. Your place better be good. Have fun folks.

Thursday, July 5, 2012

Cake Is Still Baking.


The cake is still getting baked. Or at least not ready to cut yet. May be some decorations are due. Which may well happen tomorrow? So far in the week, we have reached 1375 twice and we need to see 1380 tested soon. Tomorrow is NFP day. The ADP report has been better than expected. So will the NFP report will also be better than expectation? If that happens, then the hope of QE is dashed again and only a market panic can induce the required milk of kindness from Bernanke. So kind of crucial day tomorrow when bad news will be good news.

Reuters headline screams that “ Three Central Banks take action in sign of alarm”. There was small 50 Bil. pounds of QE program from BOE. The market shrugged. ECB cut rate below 1 and as there were no mention of LTRO 2, market was disappointed. Euro sold off. PBOC reduced its lending rate. But the commodity sector did not budge.  So next time the Fed brings out QE, it better be huge, or it is not going to matter. It is called the law of diminishing return.

Many of you are itching to short. May be you are already short but I would still urge caution. The technical indicators have not rolled over yet. When it does, we will have a long way to go. So why not wait for confirmation.  Let the beast exhaust itself so that we do not have much fighting to do. I think it will get over soon. So patience is requested.  If tomorrow we see 1380 being tested and S&P fails to hold on to it, maybe we can start to dip our toes to test the water. In case I do, I will send twitter.  So please join me in twitter to get the real time market action. (@BBFinanceblog). In any case, the higher the market goes from here in the next few days, more safe I would feel shorting it. There is no rush.

One thing I would like to stress is, let us not invest or trade with a bias. If they are going to flood the system with freshly minted money and Obama is keen to keep his job at any cost, why should we not join the party? However till they bring in the money, we have a chance to short. But we do not know what all shenanigans TPTB will play and what other tricks they have under their sleeves. So shorting is always a risky proposition under the present situation. It is not a free market and fundamentals have been suppressed.  Therefore, even if we know that things are bad and unsustainable, we should not trade or invest with our belief. Conviction is good, but profit is better.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.


Wednesday, July 4, 2012

While You Are Enjoying The Fireworks....

Just some quick thoughts about the coming days:

  • With NYMO very high, we may see a pullback tomorrow.
  • However the up momentum is still strong and will likely test 1380 in the next few trading days.
  • It is possible to treat this up move as wave 4.
  • While my target for upside is around 1380, it is not something written in stone and can easily over shoot to 1400 +/-. 
  • Do not be in a hurry to short yet, you are not going to miss the opportunity.
  • My target for downside is 1200-1230 by end of July.
  • Market is the final authority of its direction. We just anticipate the turns but never fight it,
Let us now enjoy the barbecue and beer.
 

Tuesday, July 3, 2012

Happy 4th of July, America.


Wish all my American friends a very happy 4th of July.
Everything is going on as scheduled. Nothing new to add for today. I hope to have something interesting to say tomorrow.

Monday, July 2, 2012

Cake Is Getting Baked.


Well, nothing new to write anyway. Its baking time and we have to be patient. While SPX and Nasdaq eked out small green, DOW was in red. McClellan Oscillator in the mean time is trading the danger zone.

But that does not mean that prices cannot go any higher. It is half day trading for tomorrow and closed tomorrow.  So we will have to wait and see where it all reaches by Friday. I hope it goes up and reaches the level of 1380 in SPX which will be a safer place to take any position. In fact lots of things have to line up before we can shoot. I would love to see SPX at 1380, Gold at $ 1650 and Crude at $ 87 by coming Friday.

I am little disappointed with the price action of Gold but with US$ higher for the day, what else can we expect. Crude was also marginally lower. As I have said before, I plan to get out of the GLD in the coming bounce, the final of which I would expect in the next few trading days.

The earning season starts in full swing from next week and it may not be pretty picture coming out. There is no growth story anywhere and borrowing and spending does not mean growth, whatever Hollande may say. If history is any guide, France has always been terrible with money management and unlike their Northern neighbor, the Germans; they refuse to learn from their past mistake. And every time they say “This time is Different”. No wonder France have had sovereign default (9) Nine times in history VS. (3) Three of Germany. Even those three defaults came because of the world wars, in which Germany lost. If I have to put my money somewhere in the World I would chose Canada and Germany. Switzerland or Singapore is too small to withstand global economic shock.  Or even buy income bearing real estate, which will generate income and most likely get back to the original valuation in 5 years time. Everything else will result in loss of capital.

Coming back to short term market movement, Crude is another possible short candidate when it reaches around $ 86.50 or $ 87 level. Chris Kimble has this nice chart to share.

Last but not the least, few days back when GS recommended taking a short position, I wrote that we may be due for a bounce. Today GS closed its short position after hitting 1365. So now it may be safe to short. And it nicely lines up with my earlier call of 1365 by the 1st week of July and a potential top. Is it a coincidence? Possible but more likely, we are getting the manipulation pattern right. Just to be on the safe side, I would like to see 1380 please. Please ?

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.