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Thursday, March 31, 2011

Fannie and Freddie

During my morning commute this week, I have been listening to a series on NPR's Planet Money on Fannie Mae and Freddie Mac. I've found the series very informative and insightful and thought I would share it with the group.

'Kill Them, Bury Them': The Rise Of Fannie And Freddie

Self-Fulfilling Prophecy: The Bailout Of Fannie And Freddie

Fannie And Freddie's Rise And Fall

What's Next: Life After Fannie And Freddie

Wednesday, March 30, 2011

The Master Swing Trader: Double top pattern

I think this topic may be timely now.

We may wish to look for tops in either stocks, sectors or markets after our little pullback, and before we break through our previous top. I know Mannwich has said the top is in, but Farley says we often get inversion points revisited and tested. Right now, with the Fed still buying, we may go up for awhile. Let’s see if we can use Farley’s top definition.

Farley is a little inconsistent in his definitions of topping. He says that a top is a single event, and conversely, a bottom is a process. As we all know, Dss says that a top is a process, and the top may not be clarified for some months after the event.

I believe Dss.

Here is a pattern which Farley identifies as a Double Top (which clearly shows it s a process, so maybe Farley’s editor missed the section or he didn’t have one)



Things to know about this pattern not on the chart are:
1. The SPY was retreating, the 3LB was in a clear downtrend.
2. The average volume for TEX was 2.2Million, and on the two days that were down throwing it out of the up channel were about 1.2 million. Very light volume, almost 50% of the average. That means there may be no commitment to the price action.

Commenting on the chart:
The tops are almost exactly at the same price point.

The Stochastics are overbought with a clear trough in between the tops.

A W pattern was not formed, because the stochs never returned to the overbought conditionl This reinforces this pattern is likely to be an "M"

The relative strength is falling. That is, this stock is weaker than the market.

There is likely a strong support point at around 32.40.

It’s hard to tell from the screen capture, but the stochs’s %K and %D have crossed over.

IMHO, this is a classic double-top.

To test this we should establish a position with a stop-loss.



We establish the position just as it falls out of it's up-channel, and confirms a downward price direction. Now we follow it. As it moves in our direction, we may add to the short position. And we may move our stop higher. We would do this because as the stock establishes a down-channel, we aren’t sure where the top of the channel is. What I do is reduce my position if the stock moves against me, and add when it moves in my direction until it gets beyond my stop limit, then I just move to a trailing stop. Let's see what happened:



TEX has established a clear down-channel. The stochs have turned over and are headed south. Relative strength has fallen. Now we have to be careful to make sure TEX doesn't violate the down-channel, so we might set our stop at 37.41, above the channel. Or, we might take some shares off as it moves upward in the channel, adding when it turns around.

Tuesday, March 29, 2011

Results

Well, judging the result of my predictive incursion in stocks discussed late November gives me an 8 right- 9 wrong ratio and I was thinking for a while what happened to the ones that I mentioned and follow more regularly. Let's see.

EZPW up70% High now.

ACAS up 70% High for second time now.

BSX up 30%. 10% below it's high now. I thought that could go up and I thought too that by August 26 have made the bottom, will see. It's low was 5 days later but with all the market (so just luck because everything went up).

RNWK I abandoned it in Oct for being a non performing, resumed the move up but doesn't count.Wrong.

MBI Mentioned that made a top for a while very accurately. Stop following it closely and kept a few calls just to remember it, but done with it.

EK Even though I saw that will be in deep trouble at the risk of getting killed I consider it wrong because it surprised me the scope of the drop in such a short time so, if I get surprise means that I'm wrong because is one that I followed.

ZQK When made the double top in Nov I stopped paying attention so even though the previous climb was a credit I didn't see that still have more potential to go up that was a failure. So it was a wash.

SOMX I got long dated calls in Jan. The chance to start moving up in January didn't materialized and the strong one should be around April 13 (that's why I got long term calls) I consider it wrong unless by mid April starts moving decisively up in that case I will consider it only a positive because the January window is not even close in it's importance to April. Will see.

SPPI Even though it moved up 50% in 45 days I considered that it had potential.I Got long dated calls before Christmas the stock is up +/- 35% and my expectation is an important but really important run in the coming months with chances of a correction in early April, now I will hedge with puts for a while. Will see if performs as expected.

NVTL Mentioned late Sep-early Oct that I like it but out of discipline I wouldn't touch it until Nov to see what happen. Move 40% more until Oct 25th, made the lower high Nov 2nd, and went down retracing 100% of the up move and some more. Right both times.

ITMN I like it but like NVTL I wouldn't touch it probably out of cowardice Lol. Went up 230% from that moment.

In this case the results are 8 positives 3 negatives.
Counting NVTL twice. The move up that kept going for almost another more month and the reversal from Nov until now.

Of course the samples are not the same size and still very small but I'm not being exhaustive here, just informative.

So what the hell this tells me?

That if I know the stocks(meaning a lot of time studying them)I become familiar with them and my prediction performance in this case hit around 70% right- 30% wrong, a tad less pathetic than in the Nov group wich is 47% right- 53% wrong.

I need to get consistently and average of 80-85% with several more samples as a way to develop confidence that is not merely chance. Sound severe but well, you don't know me...unbearable.

Okay so the point to make is; know your shit reallly reallly good.
It doesn't have to be too cute of a method, hey I choose Astrology so anything will be fine as long as it provides confidence, something that stands the test of time, something that you can rely on.

Narcissism it only clouds our judgement making us believe that we have something when in reality we got nothing but only hope.
So develop something that you start feeling comfortable with and go back in history and test it. History is the only laboratory that we have to test ideas. And don't expect that what happened in the past is going to happen again as a whole block now because it never does.

Know your stuff and test it, and test it, and test it until some guiding principle start making itself evident as time progresses with some clarity.

Check the quality of I-Man's calls, his last one was spectacular, (kudos I-dude) but the guy put lots of work, there's no shortcuts in this, just hard work to maybe have a chance.

And all this hard work helps temper us and start recognizing lesson #2:

Don't get emotional in the markets. If someone is emotional doesn't have any relevant knowledge. And emotions are not a strategy but just lack of work.

Well I'm working with a new batch of cookies probably will have them almost wrappped next week.

Wolfie good luck! and glad you put yourself on the line is a good way to control (at least for me) narcissism, because what is said stays in the open.

Good luck everybody.

Dan

Monday, March 28, 2011

Manny Monday Open Thread

What does the week have in store for us? Full steam ahead? Or a pause followed by another leg down?

Friday, March 25, 2011

March 26, 2011 Linkfest

Adios Panama Canal: PRC's Colombia Railway Plan

Social Media's Massive Failure, 41,000,006 reasons why I think we're in a bubble

Google’s $125 Million Digital Library Accord Rejected by Judge

133 US cities now have their own broadband networks

Chavez says capitalism may have ended life on Mars

The Stoner Arms Dealers. The War on Terror!

Secret Fears of the Super-Rich

WolfStreet 2 Cents for a coffee

Hello all. I believe markets may be facing an important resistance today. Therefore, I thought it could be interesting to share my short-term perspective for the SP500.

I'll describe what I think is going on, and suggest a strategy for trading it. I've added 2 charts (weekly and daily SP500) to illustrate this set up.

I hope you'll find at least some information that may point you towards a profitable decision, whether you're long or short.

==

Significant hints for assessing the potential of further correction

  • 1330 / 1350 is a very strong area of resistance

  • Broken up trendline: As can be seen on the charts, we've broken a significant up trendline on March10th

  • Weekly RSI has also broken up its slighlty older up trendline, which I've found is a relevant signal of either a pause, or reversal in the trend

Where we are
“Is this correction over ???”

That's the question traders have been heavily discussing since markets started correcting, from the 1344.07 high of Feb18 2011 on the SP500.

So far, 1249.05 is the lowest we've been, making this down move a mere 7.6% correction. That's a really shallow move, which I'm not even sure does qualify as a correction.

Anyway, the SP500 has since retaken several technical levels: 1261 , 1280 , 1294 and 1303. And it's currently testing what I personally feel is the last possible stop if we are still in a correction : the 1312 mark.

2 technical resistances (emphasized in a bright blue color on the daily chart) add up at this level: first a significant horizontal line, then the downtrend line that we're testing for the third time since the top.

That's where we have what I believe is a high-probability opportunity for getting short.

Possible strategy for trading it

  • What to short: if the move plays out as planned, any of the weakest stocks will do for a good ride.

  • Point for entry: from my POV, yesterday is the right time. :p . More seriously, today is a good timing for aggressive traders wanting to play this scenario.

  • First target: 1230. Potential : 6.1%. Of course we won't move in a straight line from 1312 to 1230. That's where trailing stops come in handy. The action to take once/if we get there will depend on the charts.

  • Stop loss: either 1333 (1.8%) or 1344.1 (2.6%) makes good basis around which to define the stop loss.

Weekly SP500,
March2008 - March2011
Daily SP500
with possible
targets and stop losses,
December2009 - March2011

Some words of caution
I've mentioned all this previously, but doesn't hurt putting it all in one place.

Who I am
  • profession: software developer

  • trading as a hobby for 2 years

  • I don't claim to have any superior trading skills that would grant my analysis some kind of authority. As you are well aware, I'm still learning, and with less experience than most of regulars on this blog. I just think that sharing my work fits with the spirit of this blog.

Trading record
  • I've lost BIG money trying to short the market from 2008 to 2010. I know that, over that period, I've been utterly reckless and undisciplined in my trading..

  • I'm rebuilding decent capital, as well as practicing my trading skills, with the goal of getting started again somewhere in late 2011/2012
  • Tasting cold steel for real hasn't put me off trading. Quite the opposite, it's a motivator for building my own trading system, which I'm continuously testing and tuning through virtual trading. You can see my current virtual portfolio here (pseudo is "lloydb"..) if you're interested.

  • Last word, about this virtual portfolio:note that it's already my 7th to 10th virtual portfolio, since I've dumped the previous ones each time it went wrong too far... I've started this one in early January 2011. Therefore, despite having locked great profits since, I'm aware that only time will tell if that was just a string of lucky trade, or if I'm able to generate steady profits in the long run.


That's it for now. Have a great day all! ;) (and sorry for posting that late)

Thursday, March 24, 2011

Cuts As Far As The Eye Can See

Rock is out on business this week so I will be filling in.

I came across an on the long term budget difficulties for the State of California and a chart from the report really stuck out for me. I was aware that many of the states were going to be facing large budget deficits over the next several years, but I didn't know until today, just how bad that problem was going to become. Take a look.




All of these deficits will be money cut from state budgets, money being pulled out by way of less spending, less hiring, and less economic output. These budget shortfalls will be occurring at the same time the Boomer generation enters retirement and starts drawing down their retirement savings. All of which is coming to fruition in an extremely anti tax environment in this country.

Wednesday, March 23, 2011

The Master Swing Trader: Pattern Cycles

“Bull, Bear, Top, Bottom, Breakout, Breakdown, High, Low. That’s about it”. Farley’s recommendation is to recognize pattern cycles within these constraints, and trade them. His recommendation is to identify Support/Resistance price points, and trade between them. He spends quite a lot of effort in teaching how to identify these points, and when to enter the trade.

Over the next couple of weeks, I’d like to explore some of his observations and trading patterns, because I think they have merit, at least for discussion and thought. Additionally, after I get back, as I find examples of Farley’s patterns, I’ll post comments and a link to the chart, so you can see setups. You can of course, do the same, and since practice makes perfect, we might comment on these setups that are found.

I’ve already discussed the infamous W and M patterns. This shows one technique that he mentions, but does not elaborate on. In another book (I forget which one), the idea was proposed that if you identify a pattern, such as a W, that you should rotate it 180 degrees to see if you would trade the inverse. If not, don’t trade it.

Farley wants the swing trader to identify the specific cycle, identify the S/R locations which were built by price and volume action prior to the pattern appearing, and trade at the pattern’s turning point. I tried to do this, and failed. Now, I look for the pattern to complete, and trade the momentum on the other side of the pattern. This for me has become much more successful, because I set the stop loss point at the point of the pattern completion, and I can look for volume confirmation of the pattern after the pattern completes.

Without volume confirmation, your pattern is pretty much “a wing and a prayer”. (I almost used the word worthless, but every pattern does have it’s worth). If you get strong buying (or selling) volume after the completion of a pattern, you know the algos liked the setup and the probability is high that the trend will continue. At that point, I change my stop-loss to a trailing stop, and add to my position.

“Try to execute positions just as countertrend movement ends and the primary trend reasserts itself”. In other words, when the market and stock trend is up, look for the pattern on a pullback. When the market and stock trend is down, look for the pattern on a rally. Then, as I said above, look for the pattern to complete with conviction from sellers and buyers.

The last thing that I’d like to mention in this post is that Farley recommends trading with the trend. Don’t fight the tape. When the market is trending higher, don’t short a stock. He says that you can be successful in doing this, but you have to be nimble and able to exit positions rapidly. Remember that like right now, there are thousands and thousands of traders (and the Fed, and other forces) trying to push the market higher. If you short now, you need to be nimble and set your stop-loss tight.

Farley says to look for the pattern to be established in a longer timeframe, and look for confirmation in shorter time frames. This means to look on the daily chart for the pattern to develop, look in the 60 minute chart for the inflection point in that pattern, then look at the 3-minute or 5-minute chart to enter. He says don’t delay to enter. If you do, you’ve lost the opportunity. Remember that opportunities are easily found, but losses are difficult to recover. So I delay a little, looking for volume confirmation.

When I return, I’ll do some examples, but this post is getting too long now. And I have to get ready to go.

Tuesday, March 22, 2011

Second half

Continuing with the second half of the stocks addressed on Nov 22.

VAR Probably will have a correction in 5 or 6 days.Will see. And by Feb 17-18 should find a bottom.
Second option is keep going up and black out by Feb 17-18 but I prefer a lot more the first scenario.

Wrong even though the second option mentioned that keeps going up till feb 17-18 for the kind of chart I consider it wrong.

-----------------------------

BKE It got a huge drop ending in August and recovered. Probably will keep going up. Be carefull right now for 4-5 days could reverse violently and if keeps going late January first week of Feb could see a big top.

Wrong didn't move much and the top was Feb 22 not in the first week of Feb.
-----------------------------

MEE Starting Dec 03 2010, this is bad. Kind of like Oh my God, that's bad! That kind of bad.
Probably can muster up something but at the earliest will be March. Anyways is bad, really bad.

MEE Wrong before getting killed (acquired) made a jump.
-----------------------------

MW Nothing to write home about could follow the trend but in Apr-May can be a different story.

Wrong. I know April-May is not here yet but drop a 20% in December.
--------------------------

DFS For the next 3 months doesn't look with a lot of upside.

Wrong. The next 3 months went up around 13% not much but went up.
--------------------------

DKS A trend follower. Anyway is going to have it's explosions but they are going to be quieter and quieter after April 2011.

Right. It follow the trend.The last movement is one of it's explosions.Will see if quiet down after April.
-------------------------

KLAC Is going to be range bound for several months.So long and short long and short could be one strategy.

Wrong. Went up 20%.
-------------------------

NTAP Could keep going till Jan 11-13 or (if the market goes down) by January 20 and or March 13 could be good times for a move up but I don't see too much potential to the upside at that point.

Right. Kept going up till Jan 12 retested Jan 14 and drop. Went for another leg up in Feb. failed and drop 25% till March 15.
-------------------------

RL Starting the new year could have a big drop I would be very careful around Jan 5. I doubt that it'll go up much.

Right. Started Jan 4 the drop and lasted around 8 days. It went up only 10% in four months.
-------------------------

MIPPS It had a nice run up probably can keep going one more month then probably will start some long consolidation. Will see.

Right. Kept going a month and a half and reverted.More than consolidation is a drop, so wrong about that.
------------------------

Well next week I'll draw some conclusions.

I mentioned in the previous post that around Friday and Monday comes the meat part in an up move.It move up both days but still couldn't break 1300 in the S&P. Will see if the uptrend still works shortly.

Dan

Monday, March 21, 2011

Manny Mondays - Are The Markets Mispricing Risk....Again?

Morning all! Late Friday afternoon I threw out the question of whether or not the markets were being a bit too "complacent" in light of the Japan situation and an increasingly unstable geopolitical situation in North Africa and the Middle East. I've been of the mindset that this environment is eerily similar to the complacency (or resilience, whatever one wishes to label it) that we saw in the markets in late '07/'08 (remember, "subprime is contained?") when most of the dips and corrections were continually bought all the way until September '08 when it all came crashing down, launching us on a ride of epic proportions for the next fix months until the lows in early March '09. Since then it's been up, up and away for the markets with any/all shallow dips being forcefully bought.

Well, lo and behold, I noticed the following NY Times article by Jeff Sommer that ran on Saturday night which addresses this issue, among other related ones, and asks whether or not the markets can truly "grasp" (or have its prices accurately reflect) the fallout from the current crisis (I would say CRISES, plural, but never mind):

A Crisis That Markets Can’t Grasp

A couple of key excerpts:

Like everyone else, corporate executives, economists and financial analysts in Tokyo, New York, London and beyond struggled last week to wrap their heads around the scale of this disaster. But, as they so often do, the analysts quickly fell to work assessing the implications for companies, markets and economies. At times, it was almost surreal: On Tuesday, Laszlo Birinyi, a prominent stock market analyst based in Westport, Conn., e-mailed around a succinct report titled “Nuclear Meltdowns at a Glance.”

This is what happens on Wall Street. If you’re not immersed in the culture, it might be hard to understand the cool calculus that is applied to world events, however dire those events might be. After the quake hit on March 11, the CNBC anchor Larry Kudlow told viewers, “The human toll here looks to be much worse than the economic toll, and we can be grateful for that.” He later apologized.


Later in the article, Sommer also invokes the name of Nassim Taleb of "Black Swan" fame:

Nassim Taleb, the author and market theorist who popularized the phrase “black swan” in his 2007 best seller, argues that we have psychological biases that blind us to the enormous role played by rare events — like a 9.0-magnitude earthquake. And yet we rely on history for guidance.

According to the article, despite these seemingly circling black swans (or least gray ones), the S&P only went down 1.9% for last week, and market strategists such as Birinyi and Lakshman Achuthan remain bullish on the prospects of the U.S:

On Wednesday, Mr. Birinyi’s research firm sent out another report, this one titled “S.& P. 500 Enters Modest Correction.” His firm predicted a slight decline in the American stock market.

“If the averages hold,” the report said, “the S.& P. 500 will bottom at 1,232 on 3/31/11.”

Lakshman Achuthan, the managing director of the Economic Cycle Research Institute, a private forecasting group with an excellent track record, says that Japan’s economy, which he believes is already in recession, won’t appreciably affect the direction of the economy in the United States. The disaster, however, “ensures that Japan is in a recession,” he said.

As Sommer points out, the markets are essentially "highly complex counting machines" with day to day movements mostly being the "white noise of global capitalism". So how do we know the markets are now accurately pricing in/reflecting the risk of everything abroad and the headwinds here at at home going forward (e.g. ahem, a continually, slowly deteriorating housing market, stagnant job market & small business environment, etc.), especially since everything in our global economy and markets are now so tightly linked, and in light of an historic rally from the March '09 lows? Most importantly, how can we not question things a little now after we saw how badly mispriced risk, and the markets, were at key times during the height of the dot.com and recent credit/housing bubbles? Be sure to go read the whole article and let me know your thoughts.

On another note, Manny Mondays will be out of commission next Monday, so there will be no post from yours truly. Anyone want to take that day and post something in my absence? I'll be back the following Monday, April 4th!

Friday, March 18, 2011

March 19, 2011 Linkfest



XKCD chart on Fukushima radiation. Damn good graphic.

The Carnage in Uranium Spot Prices

A legacy from the 1800s leaves Tokyo facing blackouts

Why Arabs Need Their Foreign Mercenaries, Egyptian Constitutional Reform, Take 1

Anyone Else Notice That The Nations Abstaining in the U.N. Libya Vote Were the BRICS?

кормление, 21st Century Edition

Corruption 'threatens India's economic growth'

AC/DC Controversy of the 1880s Applies to Natural Gas Today: Reflections After 2011 MIT Energy Conference

Investors Put Their Money On StarStreet As They Open Two New Sports Stock Markets, Data-driven finance: A new class of internet start-ups is trying to turn data into money

Borders hopes to exit bankruptcy by September

Ray Kurzweil's Slippery Futurism

Dubai on Empty

Friday Potpouri

We all wish for more exciting markets and our wishes were granted this past week, except no one wants an earthquake or war to make it happen.

Here is Michael Lewis expanding upon his prescient article of 23 years ago:
Just Imagine Big Tokyo Quake, 23 Years Later: Michael Lewis
Back in 1988, I left a job on Wall Street to write for a living. Amazed that magazine editors would pay me to travel anywhere in the world so long as I could convince them there was a story to be told about the place, I began casting around for stories about places I wanted to go. The first place I wanted to go was Japan.

Can we actually be seeing some sort of claw back from FDIC lawsuits accusing the executive's of gross negligence? Pass the popcorn.

WAMU Execs Sued By FDIC
A U.S. government regulator sued three former top executives at Washington Mutual Bank for their role in the biggest bank failure in the nation's history, accusing them of recklessly making billions of dollars in shoddy home loans.

WAMU Execs and Their Wives Sued by FDIC
The wives of Washington Mutual Inc.'s two top executives when the nation's largest thrift collapsed in 2008 were accused by the Federal Deposit Insurance Corp. of illegally moving cash and houses into trusts in an effort to shield the assets from legal claims.

Somewhere in the world someone cares about this:

Bootup: Facebook ‘likes’ worth more than Tweets, study finds
Today in technology: In its second analysis of how social media intersects with commerce, event management company Eventbrite finds a single ‘like’ on Facebook to be far more profitable than a mention on Twitter. Google Inc. launches a new service for non-profits on Wednesday, details of online retailer Amazon.com Inc.’s upcoming App Store for Android devices leaks and Apple Inc. chief executive Steve Jobs just may be the uncle of cartoon legend Homer Simpson.

Thursday, March 17, 2011

New Music Thorsday

I thought with the news as it has been of late, people might enjoy a bit of a break. So without further delay, I bring you our first official New Music Thorsday!

First on our list is a vintage musical genre new to me called Exotica, who's Wikipedia entry is as follows.

Exotica is a musical genre, named after the 1957 Martin Denny album of the same title, popular during the 1950s to mid-1960s, typically with the suburban set who came of age during World War II. The musical colloquialism, exotica, means tropical ersatz: the non-native, pseudo experience of Oceania (Polynesia, Melanesia, Micronesia, Southeast Asia, and especially Hawaii).[1] Denny described the musical style as "a combination of the South Pacific and the Orient...what a lot of people imagined the islands to be like...it's pure fantasy though."[2] While the South Seas forms the core region, exotica reflects the "musical impressions" of every place from standard travel destinations to the mythical "shangri-las" dreamt of by armchair safari-ers.[1]



Next up is British Artist by the name of James Blake who I was introduced to by a co-worker.

From his Rolling Stone write-up:

U.K. dance music subgenres don't usually produce soulful singer-songwriters – there was no Marvin Gaye of grime, no Bill Withers of Balearic house. But in James Blake, the squish-grooved London club throb called dubstep just got its very own emotive song stylist. Blake uses neosoul keyboards, blip beats and layered snips of his heart-starved warbling to create softly roiling slow jams. Like Radiohead, Blake's sonic empty spaces highlight ­human distance: His cover of Feist's "Limit to Your Love" dangles lyrics about a dying relationship above trip-hop fizz, and when he does inch toward happiness on "Wilhelm Scream," he makes finding true love sound like entering a void. "All that I know is I'm falling," he sings over a swirl of black digitalia. Yep, falling right into the mystic.



Moving on to a more familiar name - Seal, who is back with what I would consider his best piece of work since Seal IV. Below is my favorite song from this album, a love song written for his wife (Heidi Klume) The video itself is beautifully done and their obvious love for each other always brings a tear to my eye. It's a shmaltzy song, but there's something in the video for you guys, Heidi is nearly naked ;-)



Finishing up is at long last new music from one of my favorite singer/songwriter George Michael. An interpretation of True Faith, a song by 80's band New Order. I may be one of the few people who likes what he's done with the song, but I ask that you give it a try. Please note that although it may sound like it's heavily autotuned, what you are hearing is something called a digital harmonizer, George's voice is clearly discernible as the mid-tone.

Wednesday, March 16, 2011

Coincidences?

Next week another Farley. This week, I just want to show some interesting correlations that I’ve found and been directed to. I wish I could give credit where credit is due, but honestly I can’t remember where or how I found this stuff. I will say that reading Minyanville has been helpful, and of course this blog. Minyanville is becoming less helpful, as time goes on.

Anyway, I came across Stockcharts.com through AmenRa’s introduction of the 3LB to me. The 3LB is available there, and is a kind of point-and-figure charting technique which establishes a mathematical requirement to make a vertical bar. In a sense, it removes the chop and noise of a quickly changing market. It has quieted my entry-exit strategy a lot. So I was looking around on Stockcharts.com and found they have a bunch of indices that may prove to be useful. I found a ticker $SPXA50. This ticker is an index which shows how many stocks are trading above their 50 day moving average.

The other day, Dss was saying interesting things about market internals, so I’ve been reviewing some of the internals available at Stockcharts.com. Just for fun, I thought I’d overlay the $SPX.X (S&P 500 index) with the $SPXA50 index, and found found a highly interesting correlation. When you look at the pullbacks in the price chart of the S&P they are led by a trending down of the $SPXA50, except for one pullback which I’ve labeled pullback 4, which seems to coincide exactly in time. I did the best I could to line-up the two charts vertically. I did verify the start of the pullback timings using a feature that Stockcharts has called “interactive charts. Anyway, have a look:



This indicates that the $SPXA50 is a leading indicator to the price action of the S&P500..

It is interesting, is it not? The other thing to notice is the depth of the pullbacks on the A50. I could talk myself into believing that the depth of pullback indicates how deep the pullback will be on the price chart. Remember if you look at this, to calculate percentages, not absolutes, because the base continues to change.

One other comment is the pullback we’re in seems not too strong, from an A50 standpoint. But the A50’s not turned around yet. It is just that it’s slope is not so steep.

Tuesday, March 15, 2011

What kind of swan?

Events in Japan made me postpone the discussion about the performance of the second batch of stocks from late November.

It's very sad what's happening and comes to mind the idea of some atomic curse for the japanese population. My hope is that they overcome the tragedies (earthquakes, tsunamis, volcano and nuclear spills) to get back to at least a certain kind of life where a sense of normalcy can piously mask what probably is going to be a permanent scar for a generation, this asumming that things don't spiral out of control like in a real black swan which I still don't think is present.

These are to me catastrophies but a black swan could be (if it's possible to imagine it), containments metal walls that unbelievably crumble (because more earthquakes or poor damage control or whatever) ending with half country obliterated from life, unusable, fleeing to the Korean Peninsula for safety, conflicts starting to escalate...and then panic will feed a black swan. I think cooler heads will prevail thanks to common sense.

But talking about common sense I was badly surprise reading MSM about the nuclear reactors and it's inmediate shutdown when the earthquake hit. About needing 48 hs to cool the fuel.

Not much common sense I saw in a sort of plan that doesn't provide for itself to complete the shutdown process safely without external input (electricity), the back up generators being low enough to the ground to get caught by the water (who designed this?) instead of being in an antiseismic structure 70 meters above ground and water stored already and ready to be pumped till everything stops.
Waste rods inside the main chamber with the risk of overheating and of course compounding the risk. The nuclear facilities close to the population instead of being deep in the mountains so if an earthquake hit it and damage them, being able to bury the damn thing with tons of concrete.

At that moment I thought that maybe common sense best practices weren't follow as I naturally assume in that kind of sensitive work.So that alone increases the odds of black swans and poor designs that we experience here (New Orleans-levees) it happened there too. This is very fertile terrain for unimaginable events because the cockiness of believing that an earthquake is not going to alter power lines, and if it does diesel generators are going to work even put close to the ground. And if they don't work we have batteries for 8 hours while the cool down requires days...

That's the point folks, when shit happens what we thought was under control and is not, we panic, black swans dwell right there.

The Nikkei is down 12% today, that is either panic or some big fish get caught flatfooted and the market is destroying him and making everybody nervous.

Overconfidence is at the root of tragic events with lack of common sense. Again hope cool heads prevail.


The market sounds panicky and I want to see what happens between Thursday to Monday.The drop yesterday night make me more wary of a clean break to the upside without more consolidation.

I was expecting several weeks ago an up move around now, the peak for that impulse is this weekend. There's not too much time left.

Anyway I'm more skeptic after the drop in the futures few hours ago below the lowest (in the past couple months) that we can move swiftly up, chances are that more retesting will come, at the minimum.

And if fails to brake up by late next week I'll be clearly on the correection camp for a while, so at the latest in 10-11 days we will get clarity about the direction that everything will take.April-May still remains like my primary target.

Still calls sppi- somx
spy puts and a less spy calls for insurance, if wrong.

Dan

Monday, March 14, 2011

Manny Mondays - The Whitewash Continues

Morning all! So after the farce that was the FCIC findings basically amounted to everyone being guilty of something that led to the meltdown, which basically equates to nobody being truly responsible (or accountable) for anything, it seems the whitewash of real causes and culprits of the financial and economic meltdown continues unabated. Sadly, now that the equity markets are up over 90% off the March '09 lows and the economy is in recovery, not many people seem to care. The wonders of a short collective memory never cease.

The first article appeared late last week in the Huffington Post: Fed Report Finds No Wrongful Foreclosures By Banks, where, in findings that were highly Onion-worthy, the Fed found that no abuses occurred by the mortgage servicers during the foreclosure process. No, that is not a typo, they found not a single abuse, but that is mainly because their definition of the word "abuse" was conveniently and predictably narrowly defined:

During a public meeting attended by Fed chairman Ben Bernanke, consumer advocates on the panel criticized the central bank's examiners for narrowly defining what constitutes a "wrongful foreclosure." At least one member of the panel, comprised of consumer finance experts not employed by the Fed, voiced concerns that the public would not take the Fed's findings of improper practices seriously, since the wide-ranging review did not find a single homeowner who was wrongfully foreclosed upon.

Members of the panel were briefed on the report's findings on Wednesday by Fed staff during a closed-door meeting. It appears the results were not supposed to have been disclosed Thursday.

The Fed's findings seem to support claims from the banking industry, which has admitted to sloppy practices but has maintained that the homeowners whose homes have been repossessed were substantially behind on their payments.


The second one appeared in the Sunday NY Times: A Swift Deal May Not Be a Sound One, written by Gretchen Morgensen, where, it seems the state attorneys general are curiously in a rush to settle with the banks and to, in effect, sweep the abuses the Fed couldn't find under the proverbial rug. The wheels of predation, I mean, commerce, must continue under all circumstances, it seems. After all, there's a stock market rally to support.

While some might argue that a rapid approach will help borrowers, it is apt to benefit the banks far more. Hurrying to strike a deal means less time to devote to understanding how pernicious the foreclosure practices were at the nation’s largest institutions. How can you determine appropriate penalties for troubling practices when you haven’t conducted a full-fledged investigation?

Remember that the attorneys general who are participating in this settlement process have been a coalition only since October. Two people who have been briefed on the discussions, but who asked for anonymity because the deal was not final, told me last week that no witnesses had been interviewed and that the coalition had sent out just one request for documents — and it has not yet been answered.

And, yet, along comes a 27-page outline of remedies that the banks would have to abide by in their loan servicing and foreclosure businesses. Talk has also circulated that the banks would have to cough up $20 billion to close the deal, though there are no figures in the outline.


The final piece that I found interesting was over at Zero Hedge, where, it seems the SEC is prepared to not hold anyone responsible at Lehman for the Repo 105 accounting machinations, likely because that would similar inquiries would need to be made with TBTF titans, Citi and BofA, and it's clear that nothing can be done to call into question their "turnaround" stories. Apparently the different layers of the rotten onion must remain sealed. Go read the whole post here: Letting No Disaster Go To Waste, SEC Prepares To Let Lehman Executives Walk For Repo 105 Fraud.

All of this makes me wonder if a Mr. Jeffrey Skilling is sitting in a remote MN hinterlands cell lamenting being just a tad early in his machinations and not causing a "big enough" crisis. Otherwise, he may likely be not only be a free man, but still working in a big, powerful executive job somewhere. I guess this further proves the old cliche about the importance of timing.

Friday, March 11, 2011

March 12, 2011 Linkfest





Trends, Cycles and Waves Part 1 The 15-20 year mega-earthquake cycle

Arab Revolutions Through the WikiLeaks Lens, Libya and the Iraq syndrome

China’s Thirst Makes Wahaha’s ‘Poorest Boss’ the Richest

Asian Swaps Clearinghouse Faces Fragmentation Risk, ISDA Says

Apple May Sell 600,000 New IPads in Debut, Topping Original

Are You Ready for the New Peer-to-Peer Economy?.Ah, I miss the old scams...

Fed Recovery Flawed as Companies Get Credit Denied to Consumers. "“The 2007-2009 recession period looks different from previous economic cycles,” John McElravey, a bond analyst at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a March 8 report. “Consumer credit outstanding contracted much more sharply than in other periods, and the return to positive growth rates has been relatively slow.”"

Carlyle Group Lost $105 Million On A Fictional Chinese Forestry Company, And It Will Make The Same Mistake Again
, China Media Express: all will be revealed. Maurice! What have you done!

Sole survivor sitting on a $5b fortune. I'd like to find the other half of this story, if I had the time.

Frano Selak: 'world's luckiest man' gives away his lottery fortune

Herds

Just to recap:
My dream was that a bunch of people were walking, and we were crossing the border from Illinois to Wisconsin (I knew because there’s this sign with a Jersey cow on it, saying “Welcome to Wisconsin”). We met a guy walking the other way who said “Where are you going”, and I responded “To find the herds and milk the cows”.

When you pick a stock, you really can’t pick one to outperform when everything is going up. So you need to wait for a pullback, and see which ones pull back the least. These are the ones that fewer people were willing to sell. We measure all the herds against the S&P 500 index, right or wrong, that’s the choice.

So here are the herds, and their relative performance to the S&P, based on the last 20 days performance (our pullback started around 20 trading days ago). I sorted them from biggest pullback to smallest pullback.

Now, some folks trade ETFs (I've selected these ETFs because they seem to reflect the behavior of the individual sectors, they are not a smattering of stocks from numerous sectors). I don't as a rule (I do GDX and GLD sometimes). But if you see a sector hasn't pulled back, you may want to go into that sector and see what's a best performer. Like AAPL is pretty good in it's sector.

I ran into ICan's problem of getting columns to line up, so I prepared some excel spreadhsheet images. I hope this works.



Thursday, March 10, 2011

Where is Oil Going From Here?

With chaos in the Middle East, gridlock in Washington, and continued contraction in state and local governments, can the price of oil go much higher without causing the whole sorry house of cards to come crashing down? Is this our black our swan? Who would pay the price politically were we to have a sudden and sharp turn for the worse?

Wednesday, March 9, 2011

The Master Swing Trader:Moving Averages

Farley says that MAs are classic momentum tools that define both trend and natural pullback levels. He indicates that moving averages as an important Support/Resistance factor. And, as we know from a previous post, it takes more than a few S/R factors to add up to actually give a stock support (or resistance) After looking into MAs, I for sure concur that even mentioning a MA in a separate support context can be meaningless. Farley goes on to mention the 20 day MA is short-term, 50-day MA is intermediate term, and of course 200 day is long-term.

Farley mentions that you may want to adjust the MA periods for different time-charts. For example, he suggests a 5, 8, and 13 period MA for 1 through 60 minute charts. I'm going to demo a few MA concepts in the charts below, so I hope you get the idea of how MAs really work.

Farley also talks about MACD, or Moving Average Convergence/Divergence. This is simply how far apart two Moving Average indicators are, and whether the shorter timeframe MA is higher in price than the longer MA (which is a bullish-upward-moving chart). Here is a chart of GDX which shows a 20-day MA in blue, and a 50 day MA in black. It shows how the 50-day MA acts as a support indicator or “natural pullback” point, as Farley would say. Also indicated are the crossovers which are also 0 points on the MACD chart beneath. The blue line is the convergence/divergence factor on the MACD pane.. You should also notice that the MACD factors (20, 50) coincide with the moving averages I’ve selected for the price pane. This is important so the MACD will indicate the convergence/divergence of the Moving Averages you’ve chosen for the price chart.



For those who worry about the small errors in the crossover points, the MACD is calculated based on the close of the day, and the MAs are calculated based on the previous closes. So you would expect to see the MA crossover to happen before the MACD crossover in a downtrend, and expect the opposite in an uptrend. Anyway…

So I studied MACD, and moving averages. And they have a basic flaw. You cannot use one set of MA time periods. Here’s why. This next chart is a daily chart of CLR, and as you can see, the same 20,50 day moving averages show complete trash. Looking at it, I don’t see one support or resistance point where the MA was actually effective in pointing out one of those support/resistance points.



However, here is the same time-period chart, with the MA’s adjusted for 8 day (blue) and 13 day (black). I’ll leave it up to the reader to identify the numerous support and resistance points identified by the moving averages. Even the crossovers make sense now.



Why is this so? Our moving average theory obviously falls apart, unless we adjust the periods. The basic problem is volatility. The volatility of a stock, that is how much it rises or falls in a given timeframe, adjusts the meaningfulness of our moving averages. For a high volatility stock, a shorter MA period is required. For a lower volatility stock, a longer MA period is required.

After studying MA’s, I believe they are very difficult to manage. I have not yet come across a formula for setting the MA’s time periods because I haven’t come across a per-stock volatility index. And besides, to adjust the MA’s everytime I change to a different ticker is a time-consuming task. I kind of think MA’s are semi-worthless until you take the time to play around with the periods to see what fits that stock’s given volatility for the elapsed time you’re looking at.

Monday, March 7, 2011

Day of half reckoning

Hello everybody, well here they are, half of the stocks that I mentioned in November just to keep track of what happened.


XOM Among the best of the pack. If keeps grinding up now will last at leat to the second week of February. Posible correction Jan16-29.

Correct.Up only 20% but smooth ride.Second have of Jan only saw consolidation not correction.
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MA Another with first class potential.If it drop will be little now. If it drops more should be till around Jan 21 and snapp back.September 2010 saw her bottom for a long while. Mid 2011 could be excellent for her.

Wrong, drop 20% with the wikileaks, spent all time recovering.Could still perform good by mid 2011 we are not there yet.
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TDW First days of July 2010 made the low for the year.Could keep going up now indeed but I'll pay attention to the first two weeks of December because there's risk to repeat the same impulsiveness observed in July so watch out.
After that is probably moving very steadily in a measure up movement till at least mid february 2011.

Correct moved more than XOM but less smoth by early Feb.Good one.
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EMC Is going to drop. Maybe not right now (it can keep going up with the trend) but I would be carefull. Around Dec 8 is the first weak spot and/or March-April 2011.
It should see a sizable drop or start chopping even though the trend goes up and when the trend stops she should correct 25%-30%. (Percentage numbers doesn't come with Astrology I mentioned them to offer a picture of what I would expect).

Who knows will see March-April first.
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PLCE This is good probably will outperform the trend in case it goes up but nothing spectacular.
But a very good one.

Wrong.Went up 15% the first two weeks but made a top there.
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PVG There are reasons to believe that this could have a very huge run up right now, like end of Nov early Dec. Can correct a little more but not for long.Keep an eye on any strong movement because can keep going and going. If I'm right by March can display an important 3-4 months leg up in a chart.

Hmmm, the run up was only 10% so was wrong, correct about doing it early december. will see what happens by March regarding a multimonth movement.
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HTS During the second week of December can finally resolve the choppiness.
It very much depends what the trend do at that time. There are good things but all in all honestly I don't like it too much. Will see.

Correct that resolve the choppiness by mid Dec that's very important to me.I'm trying to develop timing.Correct about that I didn't like it. Wrong because as of today it recovered and is at the same price level that in Nov.
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URBN This is a very good one could jump more then start consolidating something but will resume to the upside; good for a long term (couple years) of course with ups and downs but is very good.

Mmmm too early to tell.It didn't jump just kept consolidating 3 months.Will see next couple years.LOL.
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SLB I don't like this too much (to the upside) till mid 2011 to clear several things and at that point the trend could not be helping much.Even though can have it's moment late Feb mid March 2011 after that not too impresive.

Wrong. Will see if late Feb mid March instead of having it's moment means the opposite (a reversal).
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BJ I don't see it going anywhere for months. Will see how wrong I am LOL.
Probably reach a top for a while and will start correcting-chopping.

Correct. The graph is pure choppiness.
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DRQ It got chances to keep going up.Sure, but I will be terrorized if I had to be long around Christmas (26 really) and Feb 16. Of course is going to come down sometime and the first two dates are what I mentioned above, if it survives should be a good profit but man that's risky.

Somehow correct if we measure the drop between Dec 14 and Jan 10 we will get Dec 26 like the axis, the center of the correction, but the important thing is that pricewise is wrong by Christmass didn't dropped.
Very correct about Feb 16 at that point stop in it's track the up move and drop.
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Will present the second batch next week and see if it's worth as a methodology to research stocks.
Dan

Manny Mondays - A Trip Down Memory Lane

Morning all! It's hard to believe, but Saturday, 3/5 marked the two year anniversary of THE low in the markets. Since then it's been up, up, up and away, with a few (VERY few) pullbacks along the way, the biggest one being from late April - the end of June last year when the S&P pulled back/corrected about 15% from 1,217 to 1,030. The S&P now stands at 1,321, up approximately 94% from those March '09 lows. A pretty amazing run that has confounded many along the way.

Since that time, it's basically been a moonshot higher with a few very shallow pullbacks and any dips being regularly bought en masse, the last semi-significant one being from 8/4 to 8/27 when the S&P drifted downward about 7% from 1,127 to 1,047. Each subsequent pullback has been shorter and shallower, with the dips being continually bought. Here's the three year chart (pretty amazing to look at):

S&P - three year chart

However, in looking at the chart and recent action lately, I'm beginning to wonder if we're not reaching an important inflection point where this rally may not only be finally tiring and petering out, but where we might see a bigger sell off and correction and possibly even very soon, marking if not THE top in this two year plus march upward, A significant top nevertheless, in the markets.

The market has recently seen volatility creep back in over the past couple of weeks, with the bulls and bears duking out. In the past, this has been a key characteristic of market tops. Take a look at some of the shorter term charts:

S&P - one week chart

S&P - one month chart

S&P - 3 month chart

S&P - six month chart

I know that calling tops, especially now, has been a sucker's game, for the most part, but what does everyone think? Where do we go from here? Is this most recent, and very short, shallow "correcton" over, with yet another push higher in offing? Or, do we go higher from here, or simply go sideways for a while?

Friday, March 4, 2011

March 5, 2011 Linkfest

Underlying Shifts in the Natural Gas Market

Somehow important: Utah Considers Return to Gold, Silver Coins

A revolution against neoliberalism?, "We know the way to Tahrir Square"

T-shirts and tat mark Egypt’s revolution. First, they ignore you, then they laugh at you, then they fight you, then you win and they offer you the latest Tahrir Square celebrity tour.

Muhammad Yunus disputes Grameen sacking

Hong Kong’s Tsang Gives Cash, Tax Rebates in Budget U-Turn

Godson: China shuns US silicon with faux x86 superchip. I'm curious about your opinion on this, Rock.

Facebook Investor Peter Thiel: Palantir Is The Next Facebook Or Google

Supreme Court finds AT&T isn't a person

How We Train Our Cops to Fear Islam

You’re ooonly cheating yourself, The Robbers Cave Experiment

Friday Potpouri

Thor called my attention to this fascinating article at Prag Cap:

Revisiting the Mysterious Buyer

"Back in 2009 I wrote a story about some odd occurrences in the market. Anyone who keeps a pretty close eye on the market can remember the period during QE1 (see here for the correlation between POMO and equities). After the summer rally of 2009 volume fell off a cliff. But the rally powered higher. And much of it came from enormous institutional trades that were placed during quiet periods of the trading day. It was not unusual to see the futures surge 0.25% on no news on randomly huge volume. Now, this might not seem unusual to the casual reader, but the orders were odd in that there was an usual sense of urgency from these institutions. They were not just placing orders. They were placing orders beyond the ask price in what appeared like an intentional attempt to move the market rather than obtain the best price."

Another overnight observation was also noted by Dr. Brett Steenbarger:

Why the Markets Seem to go No Where

"Recently, on my research blog, I investigated trading patterns involving movements in the first hour of the day, the midday hours, and the last hour of the day. While I found a few patterns worthy of note, my eventual conclusion was that the statistical edges in intraday patterns were far less promising than the ones I had obtained over swing timeframes of 3-5 days. I notice, too, that the Trading Markets PowerRatings exploit edges over a five-day period. I don't think that's accidental. Having run literally hundreds of historical analyses, I have yet to find a recent intraday pattern that provides an edge comparable to the swing timeframe patterns I'm noticing."

More insights from Dr. Brett, one of the best sites on the internet:

Core Ideas in Trading Psychology

"The key idea is that, as a trader, you want to think about markets like a scientist. You make observations, you formulate theories about what is happening in markets, you express those theories as hypotheses, and you test those hypotheses with specific trades that you place. Over time, your trading experience either validates your market understanding or contradicts it, supporting or leading to modification of your basic theories."

How Market Internals Helped You To Avoid March 1 Gap Flap Trap

“How can you know in advance/in real time whether a breakout is real or a trap?”


In Ten Years Will Egypt Look Like Poland or Pakistan?

"The battle for Libya is stealing the headlines, and for good reason. But economic prospects for the Middle East turn on the direction Egypt takes.

A decade from now, will Egypt look more like Poland, an Eastern European post-communism success, or more like Pakistan, an economically dysfunctional breeding ground for terrorists?

The Middle East sorely needs a success story. As Latin America prospers and growth in sub-Saharan Africa picks up, the Middle East and North Africa stand out as economic disappointments, especially for their huge cohorts of unemployed youth."




Looking forward to my vacation, see everyone in a week!

Thursday, March 3, 2011

I came across this story from 2002 online the other day and though I'd share it with the group. It peaked an interest in me so I did some research and I was frankly shocked at what I discovered.

First the article itself.

To Work and Die in Juarez

Early last fall, authorities in the gray-brown factory city of Ciudad Juarez, across the Rio Grande from El Paso, Texas, were prepared to declare a triumph. For nine months, no women's bodies had been found dumped in a field or ditch or along the side of a road. Officials were ready to say that Ciudad Juarez's eight-year series of rape-murders was finally over.

And so Mexico's fourth-largest city retains its nickname as "the capital of murdered women." The city of 1.5 million, where an acrid haze of factory smoke and car exhaust hangs in the air, is known for having one of the highest crime rates in Mexico; in 2001 alone, drug traffickers were blamed for more than 60 execution-style murders. But Juarez is most notorious as a place that draws tens of thousands of young women from small, poor towns to take $55-a-week jobs in assembly plants, known as maquiladoras, operated by some of the wealthiest corporations in the world -- companies like General Electric, Alcoa, and DuPont. More than 60 percent of maquiladora workers are women and girls, many as young as 13 or 14.


As I said I was shocked, I had no idea this kind of injustice was going on not only right in our own backyard, but it is largely a result of American business.

It got me thinking, about the huge injustices we have imparted upon our southern neighbor. My position on the ongoing "War on Drugs" should be well known by now, and here we have American companies not only abandoning the workers of their home country, but taking rank advantage of the foreign workers they now employ in their international manufacturing centers. Many of these very same companies actively rig the tax system to their own benefit.

How have we abandoned the moral responsibility we once wore so well. Can we ever, as a people get it back?

Wednesday, March 2, 2011

Rock's view of QE futures

@Ican:
From this weekend’s thread, I believe Bailout Ben will continue with a new QE when this one runs out.

First, we all know the repurchase of the treasuries is a “tailwind” for equities. Ben said so when he testified before congress yesterday. We have no visibility into whom the Fed is buying from, but I suspect it’s mostly from Europe in order to backstop the Euro. If the Euro fails, or devalues substantially, the dollar will rise, and equities will fall. Ben has said he wants to see the stock market pushed up because in his belief, that will stimulate the economy and job creation. But that's an "also" reason.

I have it on good authority that Ben's not buying from China. It's a sealed bid process and the Fed doesn't have to tell. China has hired brokers, but somehow, I of course have no idea how, that information gets out, and the Fed doesn't accept those brokers' bids. Now think why: If the dollar continues to fall, when the RMB value goes up, we'll owe the Chinese less and less. It's a great plan. The other one this is helping is the Rock. Rock bought a whole lot of RMB from HSBC who have a 6% return (that's no typo) if you invest in RMB for 6 months, plus a 2% interest. I had to do this because I am so fearful of trading huge blocks of stocks, it is very frightening. I borrowed on my homes from Wells Fargo (who says they aren't loaning?) at a little over 4%, and I'm getting an 8% return. Not so bad.

But Rock's return pales in light of Ben's return on his buyback program. Assuming QE continues to be successful.

QE will continue until China fully floats.

We have seen failure of the job creation philosophy during QE1 and QE2. One can argue about job creation, and what the numbers say, and how the numbers are created, etc, but we see articles like Emmanuel117 posted that says R&D is moving offshore. Manufacturing jobs have already moved offshore, and because of the housing collapse, all the jobs tied to the housing market have disappeared, with no industry stepping up to fill the void.

I believe this is not what Ben was hoping for. I believe he was hoping by QE1 And QE2 propping up the market, some industries would prosper and suddenly demand would strike, causing these industries to prosper and add jobs, which would spread like a virus.

It didn’t happen. Yet. Frankly, I believe it won’t happen.

Now Ben has several new problems to face. The first is credibility. Ben is incredible. So to improve this, he is making more press announcements and putting his best shiny face forward in the press and hopefully sell the enthusiasm and heightened mood to the American consumer. And as my comment from the other day, he is trying to show he has some personality.

The second is pension funds, also called “entitlements”. Not only are the banks under water and should mark-to-market philosophy change, many will fail, but also the pension funds are under water as well. Should the market plummet, the pension funds will go broke fast, because expenditures won’t match the income from the value of the funds (plus the payments from entitlees). And the trend for fund income is down: state and local governments are shedding headcount and therefore lowering the fund income; income tax revenues are down so FICA wages are lower and FICA income is down.

The third which is beginning to raise it’s head is the credit rating of the US which is being impacted by the national debt (not Ben’s problem) plus Ben’s buyback policies, causing rating agencies’ impending reduction of the value of US debt. That's why Ben is continually saying that Congress has to get their act together and get spending down.

I hate to be doom and gloom, but I see no upside in the near term because there is no critical need at the consumer level, neither in the US, nor worldwide. Everybody’s got a TV or access to one. Cars are being replaced, but again, no critical need (and assembly lines have been substantially mechanized). Food is being grown, but again the robots have replaced workers. New housing starts are effectively zero. There’s no critical need that I see which will create jobs. And once there is a critical need, it will take a long time to retrain the construction workers, the flooring layers, the stonemasons, the toilet casting foundry workers, all those workers that won’t have the skill to fill a position in the new critical need field.

We’re toast.

The only method Ben has is the repurchase of Treasuries or other assets that will keep the market artificially high and hope for the best. Interest is already effectively 0.

So there will be a QE3.

How will I trade this? I plan to spend more time with fundamentals, and start paring my watchlists to companies showing an uptrend in revenues (not income, so the evaluations will be difficult and time-consuming, each requiring multiple balance sheet study). I believe consumer goods companies won’t be showing uptrends in revenues, but companies supplying technology or components in a B2B environment will be the ones prospering. IBM, Oracle, Qualcomm come to mind. Also I plan to watch more carefully the structurals so that when the US puts a fine on Chinese Steel Pipe, I’ll go buy X (I already did that when it fell to the bottom of it’s uptrend channel).

I know y'all will cheer that there's no charts this week. But I could ask to replace one of the other posters, because I have a Rock's view of Moving Averages already created.

ICan, thanks for asking.