Wednesday, August 12, 2009

The Now 15-day Consolidation

The NASDAQ 100 (QQQQ) has spent the better part of the last 15 trading days in a narrow range. I mentioned a week ago that QQQQ had consolidated for 5 days after the mid-July moon shot. We are now is day 15 of this consolidation.

Here is how the consolidation looks on the hourly chart. The Blue lines define the first 5-day consolidation. The Black line is now significant resistance. QQQQ failed to break above it yet again today. You can see how this consolidation has allowed the 20-day average to catch up with price (Red Line). QQQQ hit the Red Line this morning and immediately bounced for over 1% in an hour. I would consider a break above the Black Line to be Bullish, with a stop below $39.

I want to show you a comparison of QQQQ and chart of the Large Cap Growth ETF. You can see that these are very much the same chart. Both are in the midst of some pretty meaningful consolidations. Note how price isn’t breaking down, as it seems that nobody wants to sell here, even with the markets overbought – flip the chart over and it is the crash of last year, where nobody wanted to buy when oversold.

Now here is the chart of the Large Cap Value ETF. This ETF seems to be due for a rest in the very near term. I have recently bought sectors in this Index and avoided much of the Technology exposure of the Growth ETF. These sectors are things like Retail, Financials, Real Estate and Transportation.

I really want to sell some of my holdings in the Transportation ETF (IYT) and roll the money into other areas of Transportation that have recently pulled back – like Fedex (FDX). I may or may not sell IYT, but FDX is catching my attention again.

Retail has broken out above $82 and I would like to see it pull back into the $82 range again. But look at how ARO (Areopostale) has been coiling for about a month, right below the breakout level of $37.50. If Big Money shows up to break ARO, then I am interested in going along for the ride.

There are a ton of areas consolidating and I am hoping to be there when they break out.

Financials may be bouncing, but they look like Technology did in the initial bounce of 2003. Leadership this time around has been Technology and Emerging Markets.

There are lots of leaders that have taken a break for a number of days to a number of weeks and I am interested if Big Money shows up to buy them again.

Emerging Markets
Remember how these broke out a few weeks ago? They are now digesting the recent move and I am waiting for the buyers to come back.

Most of Energy has not yet broken out of its base or has broken out and is now sitting right on top of its base. If money is rotating from sector to sector, then at some point Energy should come into play.



Gold is in a 17-month consolidation. In my opinion, it is simply a matter of when Gold works, and not if.

I am overweighted in Gold and Energy. I intentionally avoided Technology after the S&P broke out, confirming the Bull Market. Now, Tech has either paused or pulled back and I am looking for Big Money to stop me in.

I am not recommending anyone buy or sell anything. I am simply going through my thought process. You need to remember that all setups do not work and many that trigger fail miserably. This is a very violent market, and with all of the predatory computers triggering limit orders in Dark Pools, via High Frequency Trading programs, the odds of getting whipsawed are increased to the benefit of the likes of Goldman – and to the detriment of the Average Investor.

Monday, August 10, 2009

Holy Credit Bubble Batman

The US Government added about $500 of debt per American in July.

Now Geithner wants Congress to approve raising the Federal Debt Limit, so that the Government can put the Average American still farther into debt.

Here is a chart of the Total US Credit Market Debt as a Percent of US GDP. The chart only runs through March 2009. Notice the spike that drove the “Reagan Revolution”, the spike from 1994 – 2000 that drove the “Clinton Miracle”, the vertical ramp under Bush 42 and the vertical continuation under Team Obama.

Does anybody in their right mind think this is sustainable? You know how politicians think and that they won’t stop until the markets force them to. So the only issue is how big does this number get before it implodes?

Do you see the spike back in 1930 that followed “The Crash”? It is interesting how a vertical expansion of Credit did not cause that Crash. The Government reversed their loose money policies, the chart collapsed and the “Great Depression” extended into 1937-38.

I mention this, because the Fed and Bernanke keep telling us that they will not make the same mistake of tightening credit that was made in 1937. So how high will they launch this number?

If you believe Bernanke, he wants to grow “Aggregate Demand” (the denominator). So this ratio could fall as the economy expands. But we all know that the only thing keeping the economy from collapsing is that the Government printed $2.5 trillion of new money. I believe that the only ways the Government is going to get this ratio back in line is by increasing the GDP via inflation and a falling US Dollar.

If you look at this chart, you see that the real value of money has to be cut by 67%. **** me…

The Bond Market
The mechanism for controlling the idiocy of the Government is the markets. The market for controlling this idiocy is the Bond Market. The Fed decided that it would strategically purchase Bonds in an effort to manipulate this market. This practice is called Quantitative Easing.

Every couple weeks, the US Treasury raises money by selling newly created bonds, bills and notes. The sale of this paper effectively sets Interest Rates. The more bonds the Fed has to buy, the more the market is telling it that rates are too low. Rates should be higher to reflect either risk of default or inflation.

Here is an amazing piece from Chris Martenson. It is he shows that the Fed is rigging the Bond Auctions. We all know that the Fed is buying Treausries. However, what they are also doing is getting the major Brokerage Firms and Banks to buy the bonds at auction, to make it appear as if there is demand for them – so that rates don’t have to go higher. But then a few days after the auction, the Fed buys these newly created bonds from the banks! It is just blatant manipulation. But it allows the Fed to declare that the auctions were a "success".

It is just a matter of time until US Treasuries collapse and the US Taxpayer is left on the hook with Trillions of Dollars of newly-refinanced Mortgages and newly-created US Treasuries. The seeds have been sown. This is Indian Summer for the markets. This is the “” rally on a broad market scale. It will go up and the creation of credit will go up until it doesn’t any more and then it will all implode. Or you believe that the same geniuses who got us into this mess (and got rich doing it) will be the same ones to get us out of it…