If this were easy I would be rich and retired - but the simple fact is that when you are investing other people's money, there is always the fear of having their money get blasted on any given day.
I wish that I had played every setup that I saw. But it is not that easy. The potential of a -8% day is very sobering.
Alright, enough of that...
First, look at the volume on UNG (Natural Gas). What the...
I own it for myself. I bought more on the weakness this morning. I figure that it has all the same dynamics as the other commodities - which have gone vertical.
Oil rallied off the low, then pulled back for a few weeks and then went vertical. UNG is now 16 days into the retest of its low. The volume is gigantic - so either somebody is buying a ton of it or it is the day-trading epicenter of the Universe.
The charts are still working. I got to day-trade Amazon for bunch of money - it went from $77.5 to $85 in like 3 hours... $85-ish was the old high, so I bailed. MT and STLD went vertical and I sold them the day before they got crushed...
The Financials are set up for a potential breakout - Visa (V), Bank of America (BAC), Wells Fargo (WFC), the Banking Index (KBE)and General Electic (GE) look like they want to go higher. Will they? I have stops in place if they fail.
Caterpillar (CAT) has the same pattern.
Energy has pulled back into support (XLE).
The way I have tried to balance risk in this market is to sell extended holdings and rotate the money into securities near support or near breaking out.
Watch Netflix (NFLX) and see how it trades off of $40. If they can gap it over the 50-day at $42.77, then they could squeeze that sucker into the recent highs in a nanosecond. I'm not telling you to buy it - I am simply telling you that stocks at support have had this miraculous trait of launching through logical short stops and then going vertical on the following short squeeze.
I continue to have to hold my nose and buy. I would love to see a big pullback, but am forced into new holdings each time the markets work higher.
When the real selling shows up, I will know it and I will tell you. That is the difference - I know when to get the hell out of the way. There will be another Bear. The higher they ramp this new liquidity bubble, the more the next Bear will hurt - but does it start in 2009 or 2010 or 2013?????
Thursday, June 4, 2009
Sunday, May 31, 2009
No More High Yielding CDs?
Banks on the brink of going under have been offering excessive CD rates to bring deposits in the door. This practice has cost the FDIC a lot of money as they have to back the CD deposits when these banks ultimately go under.
Well, somebody at the FDIC finally is doing something to protect the taxpayer – they are going to stop insolvent banks from offering excessive CD rate.
http://uk.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2941127620090529
I looked at the highest yielding CDs on bankrate.com and saw the following publically traded banks’ CDs listed –
Corus Bank – trading at 29 cents a share
Nexity Financial – trading at 20 cents per share
AIG - ***********
Advanta Bank – trading at 67 cents
The CD rate environment will now change as good banks will no longer be forced to offer high rate to compete with bad banks.
The real issue though, is that in an efficient economy, risky companies would have to pay more in yields to attract capital. However, with the FDIC guaranteeing CD deposits, bad banks can attract capital while offering low interest rates. If all are guaranteed, then one CD is just as good as another.
The problem now is that with all of the backstops put in place by the government on so many different asset classes, money is not being deployed efficiently relative to potential risk and potential rates of return. If the government won’t let anybody fail, then why bother doing your homework – just go out and buy the highest yielding crap being offered. It is the rigged bond rating agency game taken to a sovereign level.
Now the only thing at risk is the US Dollar, the US Treasury and the US Taxpayer. But take solace, because nobody feels our pain more than Timmy Geithner – or was that Bill Clinton…
Well, somebody at the FDIC finally is doing something to protect the taxpayer – they are going to stop insolvent banks from offering excessive CD rate.
http://uk.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2941127620090529
I looked at the highest yielding CDs on bankrate.com and saw the following publically traded banks’ CDs listed –
Corus Bank – trading at 29 cents a share
Nexity Financial – trading at 20 cents per share
AIG - ***********
Advanta Bank – trading at 67 cents
The CD rate environment will now change as good banks will no longer be forced to offer high rate to compete with bad banks.
The real issue though, is that in an efficient economy, risky companies would have to pay more in yields to attract capital. However, with the FDIC guaranteeing CD deposits, bad banks can attract capital while offering low interest rates. If all are guaranteed, then one CD is just as good as another.
The problem now is that with all of the backstops put in place by the government on so many different asset classes, money is not being deployed efficiently relative to potential risk and potential rates of return. If the government won’t let anybody fail, then why bother doing your homework – just go out and buy the highest yielding crap being offered. It is the rigged bond rating agency game taken to a sovereign level.
Now the only thing at risk is the US Dollar, the US Treasury and the US Taxpayer. But take solace, because nobody feels our pain more than Timmy Geithner – or was that Bill Clinton…
Painting The Tape
“Painting the Tape” is the illegal practice of moving stock amongst market makers to artificially drive prices higher. This is the game that “Penny Stock” firms play as they trade stock back and forth to give the illusion of buying demand, while the stock in question is simply being manipulated higher.
http://www.investopedia.com/terms/p/paintingthetape.asp
Did anybody else notice the ridiculous activity into the close on Friday? The S&P 500 went up 1.6% in the last hour, including being up 0.9% from 3:50 to 3:56 (EDT).
Friday was the end of the Month. Do you think maybe the move had something to do with making May statements look better? The practice of juicing stock prices higher into month end to make statements look better used to be illegal, but nothing is illegal these days. When was somebody actually prosecuted on Wall Street lately?
I wrote the following about KBE on Thursday night –
“The market doesn’t seem capable of moving higher or lower without Financials (KBE). KBE has been sitting around for 4 days. It should move quickly very soon. KBE was at $18.10 a few minutes before the close and then ramped to close at $18.30. It is currently at $18.48 in the aftermarket. My stop buy is at $18.35. I will be really pissed if they gap it up at the open tomorrow and then sell it off hard, trapping the stop buys before taking it down. Such is the market I have to live with…”
Here is the chart of how KBE traded on Thursday and Friday. It gapped up to open at $18.70 on Friday (Red Line) and then dove to $18.15 in 3 minutes…
I was not pleased, but got bailed out as KBE bolted from $18.10 to $18.86 in the last hour of trading.
The Anatomy of a Short Squeeze
If you open up a chart book, you will see a chart pattern called a “Head & Shoulders Top”. The chart of Union Pacific (UNP) fits the definition perfectly. The short sale triggered on Thursday with a break below $45.80. UNP rallied on Thursday to get close to the breakdown point, but there were no doubt a lot of shorts in UNP when it closed on Thursday.
On Friday, UNP gapped up above $45.80 and ramped straight up all day long.
Here is the chart of how UNP traded on Thursday and Friday. See how it gapped up to open at $46.40, then sat around for a few mintues and then gapped up from $45.90 to 46.60 in one minute?
UNP and Transports are an important part of the market. If they crack then the “Green Shoots” bs is invalidated. Maybe people are acutally shipping via rail car again, or maybe the button pushers just wanted to keep the casino going just a little bit longer…
IBM was launched into the last hour of trading on Friday. It did so on massive volume. Somebody big was behind this last hour manipulation.
My concern is that prices were moved for the purpose of making May statements look better. That game is now over and we may now get hosed on Monday. The game continues to be rigged and the big guys who cheat continue to get rewarded.
Who Are the Big Guys?
Here is a chart of the 15 Biggest traders at the NYSE. Goldman is the largest.
With all of those ex-Goldman C-Level people running around the Fed and Washington, I consider Goldman to be the tactical policy execution tool for the Washington/Wall Street alliance.
Last week Goldman traded 866.2 million shares. Of those shares, 11% was traded for Goldman clients (Agency) and 87% was traded for the Goldman house trading account (Principal). In my opinion, Goldman is executing trades for the Government and is getting rich in the process.
This manipulation will work until it doesn’t anymore and then the pitchfork gang will show up and hang these SOBs – because the next crash will be the Dollar and the US Treasury Bond (Municipals too) and the pain caused by that crash will be enough to galvanize real public action.
http://www.nyse.com/pdfs/PT051809.pdf
http://www.investopedia.com/terms/p/paintingthetape.asp
Did anybody else notice the ridiculous activity into the close on Friday? The S&P 500 went up 1.6% in the last hour, including being up 0.9% from 3:50 to 3:56 (EDT).
Friday was the end of the Month. Do you think maybe the move had something to do with making May statements look better? The practice of juicing stock prices higher into month end to make statements look better used to be illegal, but nothing is illegal these days. When was somebody actually prosecuted on Wall Street lately?
I wrote the following about KBE on Thursday night –
“The market doesn’t seem capable of moving higher or lower without Financials (KBE). KBE has been sitting around for 4 days. It should move quickly very soon. KBE was at $18.10 a few minutes before the close and then ramped to close at $18.30. It is currently at $18.48 in the aftermarket. My stop buy is at $18.35. I will be really pissed if they gap it up at the open tomorrow and then sell it off hard, trapping the stop buys before taking it down. Such is the market I have to live with…”
Here is the chart of how KBE traded on Thursday and Friday. It gapped up to open at $18.70 on Friday (Red Line) and then dove to $18.15 in 3 minutes…
I was not pleased, but got bailed out as KBE bolted from $18.10 to $18.86 in the last hour of trading.
The Anatomy of a Short Squeeze
If you open up a chart book, you will see a chart pattern called a “Head & Shoulders Top”. The chart of Union Pacific (UNP) fits the definition perfectly. The short sale triggered on Thursday with a break below $45.80. UNP rallied on Thursday to get close to the breakdown point, but there were no doubt a lot of shorts in UNP when it closed on Thursday.
On Friday, UNP gapped up above $45.80 and ramped straight up all day long.
Here is the chart of how UNP traded on Thursday and Friday. See how it gapped up to open at $46.40, then sat around for a few mintues and then gapped up from $45.90 to 46.60 in one minute?
UNP and Transports are an important part of the market. If they crack then the “Green Shoots” bs is invalidated. Maybe people are acutally shipping via rail car again, or maybe the button pushers just wanted to keep the casino going just a little bit longer…
IBM was launched into the last hour of trading on Friday. It did so on massive volume. Somebody big was behind this last hour manipulation.
My concern is that prices were moved for the purpose of making May statements look better. That game is now over and we may now get hosed on Monday. The game continues to be rigged and the big guys who cheat continue to get rewarded.
Who Are the Big Guys?
Here is a chart of the 15 Biggest traders at the NYSE. Goldman is the largest.
With all of those ex-Goldman C-Level people running around the Fed and Washington, I consider Goldman to be the tactical policy execution tool for the Washington/Wall Street alliance.
Last week Goldman traded 866.2 million shares. Of those shares, 11% was traded for Goldman clients (Agency) and 87% was traded for the Goldman house trading account (Principal). In my opinion, Goldman is executing trades for the Government and is getting rich in the process.
This manipulation will work until it doesn’t anymore and then the pitchfork gang will show up and hang these SOBs – because the next crash will be the Dollar and the US Treasury Bond (Municipals too) and the pain caused by that crash will be enough to galvanize real public action.
http://www.nyse.com/pdfs/PT051809.pdf
Thursday, May 28, 2009
It Doesn't Want to Go Lower
Did you really think that the Fed would allow today’s Treasury Auction to fail?
The money they threw at the market was pretty remarkable. The auction was for $26 billion in 7-year Treasuries and the rumor is that the Fed bought $10 billion of it! We’ll know the facts when the Fed displays today’s purchases tomorrow.
Here is a chart with the 20-year US Treasury ETF (TLT), the S&P 500 ETF (SPY) and the 30-year US Treasury Yield x 10 ($TYX).
You can see that the TLT gapped higher overnight by about 1.2%, driving the S&P to open up by about 0.8%. Bonds got sold off hard over the first few hours of trading and then at 10am, the auction was a “success” so yields collapsed and the prices of stocks and bonds were vertical.
This is pretty much the Line of Death for bond prices. A break from here and the Dollar is toast. Everybody knows this, so the full court press was thrown at the markets after yesterday’s Treasury Auction disaster.
Yesterday Moody’s affirmed the US Credit Rating at AAA and this morning Standard & Poor’s did the same.
Do you think the Fed made some phone calls last night? Probably to Asia, that went something like this –
Fed – “Hello, Central Bank of China? Yes, this is Ben Bernanke and I just want to tell you that you had better start buying our bonds or we are going to tank the Dollar ASAP.”
Central Bank of China – “(grumble) we’ll buy some more of your worthless paper, but you have to hurry up and start the securitization machine again soon so we can sell you guys some more stuff you don’t need, on credit?”
When, not if Interest Rates break out, stocks are toast. Until that time comes, the Fed will keep printing money and risky assets will move as the button pushers rule.
Potential Breakouts
It seems that everybody is expecting a pullback. Isn’t that the ideal time to institute a short squeeze? The markets continue to test the lows of the recent trading range. Each day that passes, the markets work off their Short Term overbought condition and are another day closer to their next big move – up or down.
Here are the charts. I either own these or have stops in place to buy these.
QQQQ (NASDAQ 100 ETF) held the 200-day and is trying to break out of this 24-day consolidation.
IWV (S&P 500 Growth)
I have been telling you since things bottomed that Growth is outperforming Value. IVW is stuck at the 200-day, while IVE (S&P 500 Value) is well below the 200-day. You want to own strength, because Big Money is always selling weakness to buy strength - and in this market, that maxim is magnified with Leverage.
Energy (XLE) is leading, so I am interested if / when XLE breaks out above the 200-day and massive resistance at $52.5.
Shanda (SNDA) is a Chinese Internet company that broke out and rallied hard and then sat around for over a month. It has now broken out of that consolidation and is consolidating yet again. This chart is about as bullish as they come. My goal has been to be patient enough to let the leaders pause and give me a good risk / reward buy point.
All I can do is look for where the Big Boys are buying and go along for the ride, with Stops in place.
IBM is within $3 of where it was at the beginning of April. Let’s see if the Big Boys show up to drive it through resistance.
Amazon (AMZN) has been leading for some time. It has pulled back into the 50-day. The next big move wins.
The market doesn’t seem capable of moving higher or lower without Financials (KBE). KBE has been sitting around for 4 days. It should move quickly very soon. KBE was at $18.10 a few minutes before the close and then ramped to close at $18.30. It is currently at $18.48 in the aftermarket. My stop is to buy at $18.35. I will be really pissed if they gap it up at the open tomorrow and then sell it off hard, trapping the stop buys before taking it down. Such is the market I have to live with…
AEM and GGN are both Gold related and testing significant resistance. I’d really like to be in these if they break out.
Have Already Broken Out
STLD and MT are steel companies that have broken out of long bases. These will either end up looking like POT or MON. But again, I have to take shots when they are there and put stops in place to deal with the ones that fail.
AU is a gold stock that broke out today.
Agriculture (DBA) has been the leading area of commodities. I would love to see it pull back into the $27 range and give me a better entry point. But it may just run for the roses and force my hand.
Major Bottom?
UNG is the Natural Gas ETF. It has crashed since July 2008, and only ticked above the 50-day for a few days in early May. The pattern looks like a double bottom.
Look at the incredible volume today and the last few weeks. Grey bars are buying and Red bars are selling – the Grey bars appear to be winning.
The money they threw at the market was pretty remarkable. The auction was for $26 billion in 7-year Treasuries and the rumor is that the Fed bought $10 billion of it! We’ll know the facts when the Fed displays today’s purchases tomorrow.
Here is a chart with the 20-year US Treasury ETF (TLT), the S&P 500 ETF (SPY) and the 30-year US Treasury Yield x 10 ($TYX).
You can see that the TLT gapped higher overnight by about 1.2%, driving the S&P to open up by about 0.8%. Bonds got sold off hard over the first few hours of trading and then at 10am, the auction was a “success” so yields collapsed and the prices of stocks and bonds were vertical.
This is pretty much the Line of Death for bond prices. A break from here and the Dollar is toast. Everybody knows this, so the full court press was thrown at the markets after yesterday’s Treasury Auction disaster.
Yesterday Moody’s affirmed the US Credit Rating at AAA and this morning Standard & Poor’s did the same.
Do you think the Fed made some phone calls last night? Probably to Asia, that went something like this –
Fed – “Hello, Central Bank of China? Yes, this is Ben Bernanke and I just want to tell you that you had better start buying our bonds or we are going to tank the Dollar ASAP.”
Central Bank of China – “(grumble) we’ll buy some more of your worthless paper, but you have to hurry up and start the securitization machine again soon so we can sell you guys some more stuff you don’t need, on credit?”
When, not if Interest Rates break out, stocks are toast. Until that time comes, the Fed will keep printing money and risky assets will move as the button pushers rule.
Potential Breakouts
It seems that everybody is expecting a pullback. Isn’t that the ideal time to institute a short squeeze? The markets continue to test the lows of the recent trading range. Each day that passes, the markets work off their Short Term overbought condition and are another day closer to their next big move – up or down.
Here are the charts. I either own these or have stops in place to buy these.
QQQQ (NASDAQ 100 ETF) held the 200-day and is trying to break out of this 24-day consolidation.
IWV (S&P 500 Growth)
I have been telling you since things bottomed that Growth is outperforming Value. IVW is stuck at the 200-day, while IVE (S&P 500 Value) is well below the 200-day. You want to own strength, because Big Money is always selling weakness to buy strength - and in this market, that maxim is magnified with Leverage.
Energy (XLE) is leading, so I am interested if / when XLE breaks out above the 200-day and massive resistance at $52.5.
Shanda (SNDA) is a Chinese Internet company that broke out and rallied hard and then sat around for over a month. It has now broken out of that consolidation and is consolidating yet again. This chart is about as bullish as they come. My goal has been to be patient enough to let the leaders pause and give me a good risk / reward buy point.
All I can do is look for where the Big Boys are buying and go along for the ride, with Stops in place.
IBM is within $3 of where it was at the beginning of April. Let’s see if the Big Boys show up to drive it through resistance.
Amazon (AMZN) has been leading for some time. It has pulled back into the 50-day. The next big move wins.
The market doesn’t seem capable of moving higher or lower without Financials (KBE). KBE has been sitting around for 4 days. It should move quickly very soon. KBE was at $18.10 a few minutes before the close and then ramped to close at $18.30. It is currently at $18.48 in the aftermarket. My stop is to buy at $18.35. I will be really pissed if they gap it up at the open tomorrow and then sell it off hard, trapping the stop buys before taking it down. Such is the market I have to live with…
AEM and GGN are both Gold related and testing significant resistance. I’d really like to be in these if they break out.
Have Already Broken Out
STLD and MT are steel companies that have broken out of long bases. These will either end up looking like POT or MON. But again, I have to take shots when they are there and put stops in place to deal with the ones that fail.
AU is a gold stock that broke out today.
Agriculture (DBA) has been the leading area of commodities. I would love to see it pull back into the $27 range and give me a better entry point. But it may just run for the roses and force my hand.
Major Bottom?
UNG is the Natural Gas ETF. It has crashed since July 2008, and only ticked above the 50-day for a few days in early May. The pattern looks like a double bottom.
Look at the incredible volume today and the last few weeks. Grey bars are buying and Red bars are selling – the Grey bars appear to be winning.
Wednesday, May 27, 2009
Lots of Similar Patterns
Many sectors are stuck in narrow trading ranges. The next big move wins to break stocks out for another leg higher or down for a retest of the March lows. Only time will tell.
Commercial Real Estate (VNQ)
VNQ has been in a narrow trading range, tracking below the 200-day (Blue Line). A break above $32.50 is needed to get me interested or a breakdown that shakes out some current shareholders.
Transportation (IYT)
A break of $52.50 would be bad and indicate that a retest of the lows was under way. A break above $55 could carry IYT to retest the $62 high and the 200-day at $63.23.
Financials (KBE)
Financials are in a still pulling back from the May 5th highs and may work down to the old breakout at $15. A break above $18.50 would get me interested.
I want to note that KBE did break above $18.50 this morning and I did not buy it. I was concerned that it would not be able to carry much higher after the size of yesterday’s advance. I was right. I have seen too many failed breakouts recently and am a little leery.
Energy (XLE)
XLE has teste the 20-day (Green Line) on numerous occasions since the March lows (Green Arrows). A break above $50 is good and a break below $47.50 is bad.
Oil Service (OIH)
I had to double check to make sure that this wasn’t the chart of XLE…
Same story as XLE - the 200-day is a brick wall and until it is taken out, nothing happens. Unless something dramatic happens, this will be one of the first things that I own when I start buying.
Homebuilders (XHB)
A break above $12.75 is good and a break of $11.83 is bad. Notice how XHB has already retraced 38% of the March low to May high. That makes this a weak sector, along with Financials and Transports. I want to focus on leaders and not so much on laggards. I will need to watch these groups carefully. Your holdings are either pulling the market higher or hanging on for the ride up – you want the leaders in your portfolio!
Relative Strength in Commodities
I wanted to show you how the different types of Commodities are doing relative to one another. I show them from strongest to weakest.
Agricultural Commodities (DBA)
DBA has been the best performing commodities area. It has been able to break out of a base dating back to early October 2008. It has also cleared the 200-day (Blue Line). I will be looking to buy pullbacks into the Red Line (with a tight stop, of course).
Industrial Metals (DBB)
DBB crashed into the 200-day (Blue Line) and has been pulling back ever since. It now sits on the 50-day (Black Line). A break here could carry price down towards $13.
Energy
Crude Oil (USO) has been a substantial under-performer. It has barely broken above first resistance and is nowhere near its 200-day or the highs of December 2008.
I will focus on the leaders and not the laggards.
All Commodities (DBC)
The entire Commodities Complex can be owned in one ETF – DBC. You can see how DBC has lagged DBA because of its weighting in Energy.
DBC has now been basing (trading sideways) for 6 months, so a break above $23 and the 200-day will be very constructive.
Commercial Real Estate (VNQ)
VNQ has been in a narrow trading range, tracking below the 200-day (Blue Line). A break above $32.50 is needed to get me interested or a breakdown that shakes out some current shareholders.
Transportation (IYT)
A break of $52.50 would be bad and indicate that a retest of the lows was under way. A break above $55 could carry IYT to retest the $62 high and the 200-day at $63.23.
Financials (KBE)
Financials are in a still pulling back from the May 5th highs and may work down to the old breakout at $15. A break above $18.50 would get me interested.
I want to note that KBE did break above $18.50 this morning and I did not buy it. I was concerned that it would not be able to carry much higher after the size of yesterday’s advance. I was right. I have seen too many failed breakouts recently and am a little leery.
Energy (XLE)
XLE has teste the 20-day (Green Line) on numerous occasions since the March lows (Green Arrows). A break above $50 is good and a break below $47.50 is bad.
Oil Service (OIH)
I had to double check to make sure that this wasn’t the chart of XLE…
Same story as XLE - the 200-day is a brick wall and until it is taken out, nothing happens. Unless something dramatic happens, this will be one of the first things that I own when I start buying.
Homebuilders (XHB)
A break above $12.75 is good and a break of $11.83 is bad. Notice how XHB has already retraced 38% of the March low to May high. That makes this a weak sector, along with Financials and Transports. I want to focus on leaders and not so much on laggards. I will need to watch these groups carefully. Your holdings are either pulling the market higher or hanging on for the ride up – you want the leaders in your portfolio!
Relative Strength in Commodities
I wanted to show you how the different types of Commodities are doing relative to one another. I show them from strongest to weakest.
Agricultural Commodities (DBA)
DBA has been the best performing commodities area. It has been able to break out of a base dating back to early October 2008. It has also cleared the 200-day (Blue Line). I will be looking to buy pullbacks into the Red Line (with a tight stop, of course).
Industrial Metals (DBB)
DBB crashed into the 200-day (Blue Line) and has been pulling back ever since. It now sits on the 50-day (Black Line). A break here could carry price down towards $13.
Energy
Crude Oil (USO) has been a substantial under-performer. It has barely broken above first resistance and is nowhere near its 200-day or the highs of December 2008.
I will focus on the leaders and not the laggards.
All Commodities (DBC)
The entire Commodities Complex can be owned in one ETF – DBC. You can see how DBC has lagged DBA because of its weighting in Energy.
DBC has now been basing (trading sideways) for 6 months, so a break above $23 and the 200-day will be very constructive.
NASDAQ 2002 and Today
A few weeks ago I mentioned that I thought the current rally would in some ways mirror the way the Market came off of its lows in 2002 – 2003. Specifically, I mentioned that it would be normal to see the markets oscillate violently about the 200-day moving average (Blue Line).
Here is the NASDAQ ($COMPQ) and how it bottomed in 2002 -2003. See how for three months price violently traded along the 200-day? The trading range was very Bullish and constructive, but also violent and unsettling if you owned stocks (I did back then and remember the time well).
$COMPQ ended up retracing 62% of the initial rally, before putting in a “double bottom” at about 1,263. It then broke out of the 3 month consolidation and sat around for a few weeks (black Circle) before launching for 4 years.
Will the markets play out exactly like 2002 – 2003? Not exactly, but the process may have some similarities. The initial pullback off of the 200-day has been far less violent than in 2002, so the depth of the selling in this consolidation may be less than in 2002 -2003. It just seems that the Big Boys are more willing to commit money more quickly than they did in 2002 -2003.
The other thing to note about the 2002 -2003 bottoming process is that each low slightly undercut the previous low. This served to scare some weak hands into selling. Do not be surprised to see this occur during the next few weeks. This is important, because the best entries into positions have been on violent pullbacks, so reversals will need to watch very closely.
Here is the NASDAQ ($COMPQ) and how it bottomed in 2002 -2003. See how for three months price violently traded along the 200-day? The trading range was very Bullish and constructive, but also violent and unsettling if you owned stocks (I did back then and remember the time well).
$COMPQ ended up retracing 62% of the initial rally, before putting in a “double bottom” at about 1,263. It then broke out of the 3 month consolidation and sat around for a few weeks (black Circle) before launching for 4 years.
Will the markets play out exactly like 2002 – 2003? Not exactly, but the process may have some similarities. The initial pullback off of the 200-day has been far less violent than in 2002, so the depth of the selling in this consolidation may be less than in 2002 -2003. It just seems that the Big Boys are more willing to commit money more quickly than they did in 2002 -2003.
The other thing to note about the 2002 -2003 bottoming process is that each low slightly undercut the previous low. This served to scare some weak hands into selling. Do not be surprised to see this occur during the next few weeks. This is important, because the best entries into positions have been on violent pullbacks, so reversals will need to watch very closely.
Clearly Today’s US Treasury Auction was an Epic Failure
Bonds are Getting Smoked Today
Look at how hard they are getting hit today and how hard they have been hit the last few days!
20-year (TLT) -1.30% today, -7% in 4 days
7 to 10-year (IEF) -0.89%, -3.7% in 4 days
Grandma won’t be sleeping too well when she gets her May 2009 statement…
Keep things in perspective, this note from Acrossthecurve.com –
http://acrossthecurve.com/?p=5730
“Market participants report very heavy paying by convexity based accounts which is the reason for the very long caption for this post. In my years in the bond market the crazed convexity crowd was always the last in for the trade. When they appear the trade is nearly over and it is time to go in the other direction. By definition, they often sell the lowest prices and buy the highest.
So maybe, just maybe, we are nearing a bottom after a brutal move.”
You can read about Convexity here, but essentially what this means is that Convexity players are crying “Uncle” and are just now hedging Bond Portfolios against the negative impact rising Interest Rates have on Bond Prices –
http://en.wikipedia.org/wiki/Bond_convexity
Here is a comparison of the 20-year US Treasury ETF (TLT) and the 30-year US Treasury Yield ($TYX = 30-year yield x 10). As you can see, TLT is now in a zone of massive support. I will be looking to buy a bottoming pattern here, especially with the understanding that the Convexity crowd is now panicking.
Remember, US Treasuries are a safe-haven trade, as is the US Dollar. I just wrote about the likelihood of a trading low in the US Dollar. So maybe something bad is about to occur – I’m thinking North Korea…
Look at how hard they are getting hit today and how hard they have been hit the last few days!
20-year (TLT) -1.30% today, -7% in 4 days
7 to 10-year (IEF) -0.89%, -3.7% in 4 days
Grandma won’t be sleeping too well when she gets her May 2009 statement…
Keep things in perspective, this note from Acrossthecurve.com –
http://acrossthecurve.com/?p=5730
“Market participants report very heavy paying by convexity based accounts which is the reason for the very long caption for this post. In my years in the bond market the crazed convexity crowd was always the last in for the trade. When they appear the trade is nearly over and it is time to go in the other direction. By definition, they often sell the lowest prices and buy the highest.
So maybe, just maybe, we are nearing a bottom after a brutal move.”
You can read about Convexity here, but essentially what this means is that Convexity players are crying “Uncle” and are just now hedging Bond Portfolios against the negative impact rising Interest Rates have on Bond Prices –
http://en.wikipedia.org/wiki/Bond_convexity
Here is a comparison of the 20-year US Treasury ETF (TLT) and the 30-year US Treasury Yield ($TYX = 30-year yield x 10). As you can see, TLT is now in a zone of massive support. I will be looking to buy a bottoming pattern here, especially with the understanding that the Convexity crowd is now panicking.
Remember, US Treasuries are a safe-haven trade, as is the US Dollar. I just wrote about the likelihood of a trading low in the US Dollar. So maybe something bad is about to occur – I’m thinking North Korea…
Subscribe to:
Posts (Atom)
