Is A Near Term Top In Place?

Volume was huge on Friday’s selling and stank today. Leadership is narrowing and less volume is needed to drive indexes higher with fewer and fewer names that making ever larger percentages of the weighted indexes (Apple is now over 17% of the NASDAQ 100 Index). When Apple finally cracks, it is game over for the Bull Market. The same goes for BIDU.

Recently, the markets have been a story of the Euro Fear Trade. Money is leaving Europe and plowing into the US Market, The US Dollar and Gold. The Euro (FXE) looks like it is going to test the lows of the bottom of the 2008 – 2009 panic.


A Potential Major Top May Be In Place For The Euro
Here is a long term chart of the Euro ($XEU). It looks like the Euro has made a 123 Lower Top. That is not a bullish pattern. The potential top is over 6 years in the making. Yikes! Be on your toes. How many people have told you about the death of the US Dollar? When was the last time that everybody was right at the same time?

Also on this chart is the price of the ETF for Gold (GLD). You can see that Gold broke out when the Euro broke out against the US Dollar in early 2002. It would not surprise me if Gold were putting in a 123 Higher Top here, along with the topping of the Euro. Again, how many people have been telling you to buy Gold recently?


There is no way that the Dollar cracks if the IMF is going to be the World’s bailout machine. The US is the biggest backer of the IMF, so the US Dollar has to stay strong to finance all of these immanent sovereign bailouts. The end game will probably be to roll a lot of junk sovereign debt into the IMF and then hyper-inflate the Dollar.

If Greece were allowed to default, then a lot of Europe’s largest banks would become insolvent – and we know what happened the last time the banks ran out of capital. So now we get the absurdity of Greece contributing to the EU/IMF bailout package that bails out Greece.

Any acceleration of sovereign debt default news is positive for Gold. Gold has been a safe haven during this Euro implosion. It is now at significant resistance. I sold out of Gold (GLD) and Gold Stocks (GDX) Friday and Monday.

The Secular Bull in Gold is probably alive and well, but I would not be surprised if this recent rally in Gold is the last we see out of the yellow metal for a while. I’d love to be able to buy Gold again at under $1,000 per ounce. However, I will keep trading Gold if it keeps going higher.


Here is the chart of the US Dollar ($USD). It sure looks to me like a bottom is trying to form (a 123 Higher Bottom). A trade above 90 confirms the new Bull for the Dollar. I would expect a multi-year Bull Market if 90 is exceeded.


Foreign Markets Have Been Hit
Shanghai bottomed first, so it stands to reason that it should top first as well. Shanghai ($SSEC) is now trading below all moving averages and has broken down out of a 1-year triangle. The pattern targets a minimum pullback to at least 2,100. That said, I have seen a lot of head-fakes recently and this would be the perfect setup to ramp prices back above 3,150 and spark the mother of all short squeezes in China – especially considering that Shanghai has already retraced 38% of its 2008-2009 rally. The natural place to look to short is a weak rally that fails into the 3,000 range.


You can’t tell the future, but you can put yourself in a position to make decisions at key price zones. The Dow Jones World Market Index ($DJW) hit one of those levels on a key date 4/15. DJW has now put in a lower high and is in a short term downtrend.


The same goes for the FTSE.


We are in the first few days of a new month and that has proven to be a good time for stocks, as mutual funds invest the 401k payroll contributions they receive. The NYSE ($NYA) has not been able to clear its 4/15 high. It now appears to have topped for the near term, with the obvious short on the rally into 7,600 last Thursday. 7430 is key support for The NYSE.


Major support on the S&P 500 is 1,150.

The boys who have engineered this rally over the last two months know all the key support levels and how important it is to keep prices marching higher in stocks.

The Metals ETF (XME) has run into resistance at $60. It now sits at key support of $55. The next big move wins. Long term support is at $50-52.


BHP Billiton (BHP) has plunged the last few weeks, and is now touching its 200-day EMA (The General’s Pullback). Maybe we get a sharp reversal up in Metals in the near term. If we do, does it last? If we don’t, then how low does BHP fall? FCX and US Steel (X) look the same.


Financials (XLF) have either topped or a pulling back in a very orderly fashion.


The same goes for Energy (XLE) and Retail (RTH)


So if buyers are exhausted and the markets want to pull back, we are at a logical price level and at a logical time for that to occur. However, if more buyers show up, there are still setups and I will be prepared to join in on the fun.

One more thing, I mentioned in my last post that US Treasuries had reversed back above a failed breakdown and that the Fed would hold down Interest Rates for as long as they needed to forward their policies. Well, long term Treasuries broke out above resistance on Friday and are now trading above all key moving averages. TLT is yielding over 4.25% - not bad in this environment, but it is a trading vehicle.

Bank Whistleblowers Are Starting To Show Up

It turns out that the 18 largest US Banks have all been using Lehman-esque accounting tricks the last five quarters –

From The Wall Street Journal on Friday –

http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html

“Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.”

They lever up and buy Mortgages and other risky assets during the quarter by shorting US Treasuries. Effectively zero interest rates on Treasuries allow these banks to have virtually zero cost in borrowing and shorting them. This allows them to make even larger leveraged bets into risky assets.


Silver Manipulation
It also turns out that several of these same major banks (JPMorgan and HSBC) allegedly have been manipulating the price of Gold and Silver to stabilize the value of the US Dollar, while the Fed is printing Trillions new Dollars to try and prop up the prices of risky assets. Gold is the enemy of a money-printing central bank.

http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O/0#ixzz0knioYd8m


"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.

"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.

These banks take short positions to hold down price and if price goes up, then the Fed makes them whole!

“Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.

Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal.”

“Back in 2007, Morgan Stanley agreed to settle a $4.4-million lawsuit brought by precious-metal clients, who alleged that Morgan offered to buy gold and silver and store it for the investors, but never purchased any metal and still charged them storage fees.”

So these banks “sell” gold to clients, but only have to have 1% of the gold available to deliver to clients. They then charge a “storage fee” for storing this 99% of the Gold purchased, which never existed in the first place!

How about if they only had to buy 1% of the shares of Microsoft that clients bought? What if 99% of the purchase orders in Microsoft never went to market, do you think that would have an impact on the price of Microsoft? If sure would affect demand and by definition, keep the price of Microsoft down.

“According to the e-mails Maguire sent to CFTC regulators, he was spot-on in his expectations of how the precious metals would trade on release of the January jobs report.

This message is to "confirm that the silver manipulation was a great success and played out exactly to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview," Maguire wrote to a staff investigator after the trading day.”

Insiders understand what is going on. For his troubles, Mr. Maguire and his wife were nearly killed by a hit and run driver, two days after the emails were made public.

The bottom line is that everybody knows the markets are rigged. But rigged bubbles can go on for a long time – the old “the markets can stay irrational longer than you can stay solvent…”

From my consultant over the weekend –

“Since 2/23/10 the SPX hasn`t had a pullback of 1.0%, and the last time that happened was over 3 years ago. It is not the rate of advance on light volume that stands out, but it is the persistence of advance which is very unusual.

I could only think of the PPT [plunge protection team] after I read the article in the NY Post today “Trader blows whistle on gold and silver price manipulation” It outlines how the major banks do the Federal Reserve’s bidding in the metals markets to keep the prices of gold and silver down versus the US Dollar. The whistle blower, who is a former GS trader, explained how JPM is stopped out by the Fed for any losses during the intervention tactics. The article also mentions the HSBC bank involvement, but the article also indicates that “They” are trying to shut this whistle blower down. So I ask you, is there a PPT team or not in the equity market, and the answer is definitely yes.

The volatility has collapsed despite the persistence major index advance, but we have another earnings season on tap, and interest rates are pushing new Break Out highs despite the Fed jawboning about keeping rates low for an extended period of time, so the trading volatility should increase. It is also tax selling season, and with Obama`s proposed tax hikes that should generate some volatility.

Keep grinding, for the volatility shall return!”

You can’t predict the future, but SPX in the 1,229 – 1,250 range (maybe as high as 1,300) is a logical place for a meaningful reversal.

Commodities are late stage movers, and they are starting to work. That goes for Commodity-based economies and currencies too.

This Is What Government Intervention Looks Like

The Swiss Franc
The Swiss government decided that the Swiss Franc was getting too strong versus the Euro, so they sold a bunch of Francs to weaken the price. Look at the massive volume on the ETF (FXF) and the abnormal, massive intraday trading volatility!

Now FXF is comfortably back inside the downtrend that mirrors the downtrend of the Euro. Because of the intervention, it is as if FXF never broke out in the first place.


US Treasuries
The 20-year US Treasury ETF (TLT) broke critical support on Monday (Green Line). It did so on fears that the economy is expanding and the Fed will have to raise rates sooner, rather than later. The reality is that The Fed will buy as many bonds as it has to put a cap on interest rates. Today, somebody came in in massive size and punched TLT back up through resistance to get it solidly back into its trading range.

Never bet against the guy with the keys to the printing press… Rates will only rise when it suits the aims of The Fed.

Is Greece The New Lehman?

A few weeks ago, a friend of mine asked me to describe the financial collapse.

The picture of what actually happened became clear when the 2,000 page investigation into Lehman was released a few weeks ago. The conclusion of how Lehman failed goes something like this –

Every Quarter Lehman would take a bunch of bonds worth some fraction of their Face Value and sell them to another bank, with the promise of buying them back after the quarter closed for a similar predetermined value. The sale price would be something close to Face Value, so Lehman would appear to have more assets than they really had.

This game literally went on for years. Until one day, Lehman tried to borrow money from another bank and offered securities as collateral. The other bank investigated the collateral and determined that it was worthless and they asked Lehman for other collateral. Lehman came back and said “we don’t have any other collateral.

The bank immediately called their loan and demanded cash from Lehman. Lehman could not pay and the institutional run on Lehman began. Within days, Lehman was broke. Too much leverage, with worthless collateral led to a negative net worth.

Why do I bring this up? Because the same thing is right now happening with Greece.

Commerzbank will not accept Greek Government Bonds as collateral from Greek Banks! Greece banks have already spent some of the money loaned to them by Commerzbank and now Commerzbank wants its money bank.

How do you say “run on banks” in Greek?

Look at the National Bank of Greece (NBG) falling on massive volume the last two days. That ain’t the short sellers. That’s the poor fundamentals of insolvent Greek banks running out of cash in very large hurry (just as it wasn’t the short sellers who sank Lehman, it was Lehman’s bulls***t accounting that failed Lehman shareholders).

A real bailout of Greece is needed ASAP. But a panic should lead to yet another great buying opportunity if it should materialize.

Yellen Indicates No Inflation Until 2013

From soon to be #2 at the Fed, Janet Yellen today –

http://www.frbsf.org/news/speeches/2010/janet_yellen0323.html

“In light of these continuing headwinds in the financial system, the housing market, and the job market, I expect that the economy will be operating well below its potential for several years. Economists use the term “output gap” to refer to an economy that is operating below its potential. We define potential as the level where GDP would be if the economy were operating at full employment, meaning the highest level of employment we could sustain without triggering a rise in inflation. Obviously, with the unemployment rate so high, we are very far from that full employment level. In fact, the output gap was around negative 6 percent in the fourth quarter of 2009, based on estimates from the nonpartisan Congressional Budget Office, or CBO. That’s an enormous number and it means the U.S. economy was producing 6 percent fewer goods and services than it could have had we been at full employment. In view of my forecast of moderate growth and high unemployment, I don’t expect the output gap to completely disappear until sometime in 2013.

This idea of an output gap has important implications for inflation. We have a tremendous amount of slack in our economy. When unemployment is so high, wages and incomes tend to rise slowly, and producers and retailers have a hard time raising prices. That’s the situation we’re into today, and, as a result, underlying inflation pressures are already very low and trending downward. One simple gauge of these trends comes from looking at the U.S. Commerce Department’s price index for core personal consumption expenditures, which excludes the prices of volatile food and energy products. These prices have risen a modest 1.4 percent over the past 12 months, below the 2 percent rate that I and most of my fellow Fed policymakers consider an appropriate long-term price stability objective. I just predicted that the output gap might not disappear until 2013. If the economy continues to operate below its potential, then core inflation could move lower this year and next. “

She expects deflation over the next two years and no inflation until at least 2013!

The Government is borrowing at a pace of 9% of GDP this year, and growth this year should come in around 3%, or

9% Spending with borrowed money – 6% Output Gap (over capacity) = 3% Growth

What she is telling us is that the Government can print many more trillions of Dollars without worrying about any Inflationary consequences. Put another way, the Fed can keep on letting hedge funds and banks borrow at 0% and lever the money to infinity for at least the foreseeable future.

Thus today’s bonanza in the stock market.

Lots of Breakouts

Leaders have held the 20-day (Green Line) and have popped.

Here is my post mortem on some trades and some potential set ups.

These leaders broke out nicely –




There are many more set up just below resistance and we will see if the big boys move them out as well.

Disk Drives and Semiconductors are leading. I have never seen a time where that was bad.

Look at LRCX holding the 200-day and breaking out of a two-month trading range. KLAC and VSEA are potentially setting up the same way. AMAT looks like LRCX.


I like the looks of Western Digital (WDC – you own it) – holding support and then retaking the 50-day. Watch EMC. I like the gap up out of that big base, off of strong numbers. EMC is just sitting around – “never short a dull market” as the saying goes – hint, hint… JNPR looks similar. CSCO already started moving up today.


The IMF (The US Taxpayer) is going to bail out Greece. That should help to stabilize Europe, but it brings into question the use of the Euro as an alternative to the US Dollar. That will probably mean the EU will have to pay a higher yield to attract capital – time to restart the Dollar Carry Trade!

The Euro (FXE) has a humungous decision to make in the next few days. It is now testing the 61.8% retracement of the November 2008 – December 2009 rally. That’s right, the US Dollar has appreciated 11.1% since December 1st! I have my rules for how to enter. I will be mechanical if they trigger, because this could be a big driver for what goes on in the middle of 2010.


You can plainly see that the Oil Service ETF (OIH) and the Euro ETF (FXE) are highly correlated. The 15-hour EMA (Green Line) is often key support and resistance. If the US is not going to have inflation until 2013 and the Euro zone is paying a higher yield than the US, then the big boys will be looking for exploit the Dollar Carry Trade again at some point.


Let’s see if Commodities will come on line here. A reversal up in the Euro is key. I am watching Copper (JJC) very closely in this multi-week, narrow trading range.


Here is the Canadian Dollar (FXC). It broke out of a multi-month base and has sat around for a few days. Does the chart remind you of EMC or JNPR? A failure back through $97 on volume would not be good and a breakout will be great. Support below $97 is at $93. I am watching FXC closely.

EPP is the ETF for the Pacific Region minus Japan. It is 67% Australia and 30% Hong Kong / Singapore. EPP and FXC have a very close correlation, which tells me that Commodity-based Currencies and Economies have been going nowhere for about six months.


Here is the chart of Occidental Petroleum. It is very similar to the charts of FXC and EPP. Remember, the longer the base, the bigger the move if price can break out. I am watching these asset classes VERY closely.

Like A Brick Wall

The Dollar hit key support and that night, the PM of Greece started to make noises again about the need for a better bailout and the possibility that the Euro could unravel. Again, this isn’t about telling the future, it is about knowing in advance where to look for potential resistance and support levels, and potential moves like this.

The question now is where is the next support level for UDN (or resistance level for the US Dollar)? Does UDN simply retest $26.4 or does it extend like the move for $28.8 to $27.4 and extend down to a level near $25.6?


I don’t care so much about currencies, but I am very interested in their impact on Commodity prices, because Commodities have been key leadership – Energy (OIH, XLE), Metals (XME), Gold (GLD, GDX). I will be closely key levels on these areas.

Oil Service (OIH) got hit for about 7% since the Dollar bottomed. Metals (XME) also was hit for about 6%, but is clearly now at key support.


Gold (GLD) is stuck in a three and a half month trading range. Critical resistance is $111.80

Copper (JJC) is now in its forth consolidation since mid-October. 1 & 2 led to nice rallies, while 3 led to a nasty break. There are some obvious support and resistance levels for JJC. Notice how on Monday, JJC cracked, only to see the market gap up hard at the open, to get back above support. Copper is currently up 40 cents over night, so we’ll see what tomorrow brings…


Apple is right above key support ($218.40 - $219.18). It has been sitting around for about 8 trading days, so a big move soon should not be a surprise.