Short Term Chop

I sincerely hope everybody had a wonderful holiday. Mine was full of family and good times. I am well on the way to thoroughly spoiling my grandson. I know what Gampas are for!

So for trading, we’re still inside the pennant. Here’s the SPY



I expect the pennant to complete. No new news to break us in either direction, but I feel that when we do break, it will be a significant tradable trend.

What I’m doing is watching the very short term trends and playing very small. The last time we got this kind of chop, I didn’t adjust my plays, and ended up losing money. So this time I’ll be smarter and just hold back, getting out overnight.

Today I expect a move up, the job numbers are likely to be “better than expected”, so I think we’ll get a partial retrace, but that’s likely to be a head-fake. So I’ll play a little toward the upside and then get out.

Crawling Into Resistance: Another Pennant.

Well, we saw what happened the last pennant we got.



To me, this one looks like the breakout will be to the upside. But that’s technicals. The problem is the dollar and it’s path. As the Euro weakens, the dollar goes up and our market tempers. I don’t think we’ll be hearing anything from the Eurozone PMs in the next week or so, so I kind of expect the market to wiggle around inside the pennant.

We did hear that the ECB wants Greek bondholders to take a bigger haircut than 50%, but the haircut is “voluntary”. I wonder how voluntary that is, because if a bank holds Greek bonds and refuses the haircut, the ECB might just not put them on the “Free Money” list. If the bank’s not real solid with not much Italian and greek bonds, they may refuse the haircut. But I think banks are hedging their bets WRT eurozone bond values.

Here’s one of my favorite indicators, the 3LB of the number of stocks above the 50 day MA. As you can see, we’re still stuck in that vertical bar which we hit as a result of the Central Banks’ statement of the obvious. But it’s higher than midpoint right now at 322.



I hate those huge moves. It throws all my indicators out of whack and I have to read the headlines. Today I learned not to steal gas from pipelines.


I actually wrote some code again. I’ve almost forgotten how to C. Anyway, I automated my herd’s relative strength versus the S&P, which saves me about 2 hours’ time. For the move up, here’s the latest herds report:


DIG : 7%
TAN: 5% (believe it or not)
CUZ XHB XES KRE ITB KBE XOP USO 3% (yes I know CUZ isn’t a true herd)
OIH SMH KCE 2%

SKF –11%
IGV – 5%
SLV –4%
GDX –3% (Ron Paul’s really taking this one on the chin)
IAU GLD IYZ –2%


Anyway, have a great Christmas season and new year.

Tuesday Open Thread

A Warm Summer Day

Break the Resistance line?

It's a foregone conclusion.

The Euro will destruct. The path to destruction is not a foregone conclusion: could be a new treaty where members are kicked out, could be a dissolution, could be a reformation which might include Turkey. "Will See". In any case, it will take time, and the Eurozone will be in our sights for awhile on the psychological side of the market because any solution will take a long time. Same as with our debt resolution.

In the short term, EuroBanks are in serious liquidity trouble, and will sell assets. Will they sell price-depressed assets? Or valuable ones? Like Gold? Is that why gold’s falling? Again, that's not clear but in order to re-capitalize, they will have to raise capital on their own. That model is formed by Merkle. So during this liquidity problem I think we'll see the U$D will strengthen, and the Euro will grow weaker. Putting pressure down on the market.

I will trade this by buying SKF on pullbacks. The reasoning behind this is that US banks are swapping assets with foreign banks, and we know what’s happening in Europe.

Here’s the Stockcharts.com $SPYA50, the number of stocks trading above their 50 day MA.



Notice the chart is at a high, but in actuality, the number is lower than the chart indicates because of the market’s volatility. The current value is dislpayed in the middle and is 245. Just slightly less than half. So we’re seeing yet another turnaround. It’s so fast, the 3LB can’t keep up. And because we’re in the middle, there’s more room to go downward.

Finally, here’s the SPY. I’ve drawn a retracement, (ignoring the bear trap) and it’s interesting how many times we’ve hit the line labeled support/resistance (see the red lines), and how it aligns with the 38% fibo retracement of our latest big move.



So technically speaking if we see a break of this support/resistance line, and we see some significant rise in volume, we could easily have a bear flag formation, and some capitulation down to WolfStreet’s 120 or lower. But volume is the key. Volume will tell us there’s more short money entering. I said before I didn’t think we’d see 120 or below. I still believe that, and will be waiting the next Policy Manager’s statement to halt the market downturn. However, if we don’t get a PM statement soon, well it’s to 120 and below we go.

The next statement may come from S&P. I heard that a French sov debt downgrade is imminent.

Resistance

Thoughts for a Saturday Morning

Almost every trade lately has either broken even or lost money. It seems when I get a setup, the trade goes in my favor but suddenly the market reverses and I get stopped out.

Maybe my stops are too tight because of my fear of headlines. The headlines now don't affect sectors or stocks, they affect the entire market because of the newsreaders’ tie to the computer algos. I'm going to analyze my last few trades, but I can't archive the newsfeed so it's hard to coordinate the market moves with the headlines for analysis purposes.

For awhile there I was doing well with the ETF's, but not the last 1.5 weeks.

I'm still looking for the maybe S&P 1280-1300 at Christmas time, because of the light volume and traders on vacation. But after the trading desks get repopulated when the holidays are over, I agree with a pullback. We have only 10 days until Christmas, so it’s not inconceivable we can stay right around 124-126 and chop the heck out of my setups/trades.

Wolfstreet said: “* S&P500 facing down trendline resistance around 1260/1270, as is daily RSI.
* Daily stochastics show overbuying

”So my bet is we go lower from here, to revisit the 1200.”

In support of this, there is a triple top on the 60 minute chart at 1269, with some fairly significant volume. The volume is low, but for these tops, it’s higher than the usual low.

If the pullback goes all the way to 1200, a) that'll be good for me, finally a trend I can follow, and b)I'll probably be looking for a 130 in spring as opposed to the 140.

If it goes to the 130 in spring, that will be low enough and give time enough for a pullback then rally higher into Nov 8.

Here’s the 60 minute chart, witth the regression channel drawn in by TDAmeritrade’s algo. The vertical bars are drawn at the 60 minute price peaks. Follow them down to the volume line, and you’ll see larger than usual volume there. Chart courtesy of TDAmeritrade Strategy Desk.



My opinion is that we won’t see 1200, not because the chart doesn’t support it, but the PMs will release news headlines on the start of any significant drop, causing the autonewsreaders to feed the algocomputers a positive signal, and poof up we go.

This may be our new Plunger team. I think the PM's got this one figured out, and they don't even have to use the Fed's cash or loans to banks to make it happen.

Yet Another Herds Report

Bloomberg reported today that healthcare is on the move up.

They mis-spoke.

Healthcare is down compared to the S&P by 2% or so. I think maybe the market reporters easily confuse instantaneous performance with where you ought to be putting your money.

Last week, I didn’t see much sector rotation going on. All the reports I've read is that the Beta (individuals tracking the market) is very high. The last herds report show this, that only 2 of the 60 or so herds I follow were over 3% different from the S&P. One standard deviation is quite small, at a little less than 1%.. There are only 5 of my 60 herds which are above two standard deviations for the herds that are better than S&P, and only 3 of my 60 herds which are above two standard deviations for the herds that are worse than S&P..(standard deviation is always positive, so that really means that only 3 of my herds are under the S&P by 2 or more SD’s).

This week is notably different. The SD of advances is 1.7%, and decliners is 1.3%. and there’s lots more herds that fall int the greater than 2 SD’s. Here’s the list; all the caveats are still in place, meaning this is the cumulative 5-day performance compared to the S&P 500

First the top performers:
DIG 6.80% Falling
SLX 5.60% rising
XME 4.80% Flat
$BKX 4.00% rising
$HGX.X 3.90% rising
XES 3.80% Flat
KCE 3.70% rising
XLF 3.70% rising
KOL 3.60% flat
XHB 3.60% Flat
UCC 3.30% rising
KRE 3.10% rising
KBE 3.00% rising
XOP 2.90% Falling
$DJTFVS 2.80% Rising
IAK 2.50% rising
IGV 1.90% rising

Next the worst of the bunch:
VHT -1.90% Falling
SLV -2.00% flat
XLV -2.10% Falling
IBB -2.30% Flat
RTH -2.30% Falling
UTH -2.50% Flat
XLP -2.60% Flat
XLU -2.60% Flat
BBH -2.70% Flat
$DJTFOB -3.10% Falling
USO -4.00% Falling
GLD -4.40% Flat
DBA -5.50% Flat



I’ve been trading long DIG and XME ever since the Internet Monday, (I forget what it’s called exactly) and made some good money only because of the big Tuesday jump. Nothing since then, I made $2 today. Cup o’noodles tonite.

Here's the Stockcharts.com SPXA50. As you can see, it's nearing the top (on the daily chart). Because of the volatility, the weekly chart hasn't turned around yet, but as you can see, we have completed the turnaround. Now we have to see how long we go up up and away!

The Poo Hits the Fan

I was asked my opinion of the potential of a 2000 point rally in the DOW. I think it’s possible, and here’s why

First, I asked some financial people who are lots smarter than me. They explained the liquidity provisions put into place by the central banks. This liquidity puts the US in some short-term jeopardy, but likely removes a significant amount of long-term harm. Basically, no one wants Euros now. One person told me that in Israel, they are trading Euros for pennies on the dollar, and no one is sure what value it will have. In the short term, therefore, the Euro has no value.

You can’t get yourself out of debt if you have no value. Also if you’re in recession because you have no value, you can’t exit that either. And Eurozone recession does definitely spill over to the US. Like it or not.

So the swaps that are arranged allow the Euro to have some basic value, defined by the swap dollar price. This lets banks trade valueless euros for valued dollars, and lets them continue to finance the Eurozone debt. Short term, we hold valueless Euros, and have exposure should the Euro get dissolved.

The Euro won’t get dissolved. Germany and France won’t let it. Germany and France will permit some really troubled countries to exit the Euro so they can inflate and pay off their debt. They won’t be allowed to exit the Euro until they put austerity measures in place. Once they have their locusts under control they will be permitted to exit.

Long term, the Euro will get its value back. The Euros we hold after the swaps with the Fed will have some value. IMHO the value will be less than the swap price, but the Fed intends to continue to devalue the dollar, so the effect may not be too large.

So if you’ve read Peter’s post from Thanksgiving, you could expect to see a significant price drop in the market. That’s if all things are held constant. The liquidity injection threw poo at the fan, and from this chart, you can see the pattern has been violated to the upside:



Basically, this week’s close is above the MA, or if you want to draw the regression channel, it violates the latest downward channel.

Here’s my chart on the short-term fibo levels. I expect to see a pullback to around 122.50 before we start to move up again. I doubt you’ll see a 120.10, but of course, Rock’s been wrong before..



I’m sorry the colors aren’t so vivid, but I think it’s clear enough so you get the idea. We’ve violated the upchannel today (price broke below the moving average). So short term, Rock’s bearish, but long term, I’m full of bull. The only question in my mind is how long it’s going to take for the increase in liquidity in Eurozone to have an effect. That will determine how much of a retracement we will see.

Just for fun, I took the 60 minute chart and removed all the overnight pops. See if you can guess where the support line falls for a pullback on this chart:



So now we have a feeling of several aspects of the market: The PM’s won’t allow the Euro to fail (structurals), the economy is getting better and we’ve taken steps to stop the recession in Europe (psychologicals), earnings have never been better and the SPY is trading around 12/1, well below it’s historical average (fundamentals), so that leaves only the technicals. Well, here’s the chart. Read it carefully.



First note the relatively equally spaced vertical lines. Notice the last one is around June/July 2012. Notice that each relatively evenly spaced line defines an upcycle or a downcycle. Isn’t it interesting that they are so evenly spaced?

Second, notice the regression channel. Note the upper line on the channel comes back to the highest volume point in 2008.

Third notice the red line, where it crosses the center of the regression channel. To make a 2000 point run, we need to get only slightly higher than the center of that regression channel. Target time: June/July 2012.

Yes, I feel we could see a 2000 point run.

Depending on what Timmy and the boys cook up, as you can see by the channel it could go higher. I’m sure they’ll try to move that last black vertical line to the right, say to November 9 or so……

So it comes as no surprise that Timmy will attend the Eurozone conference next week. China’s not coming. Interesting.

All charts are courtesy of TDAmeritrade's StrategyDesk.

Latest Herds Report

This post will summarize the latest herds report. The SPY is still under pressure downward, regardless of the big weekend we just had, so I’ll also identify any of the herds which are making money on the long side. This morning, the pop due to the central banks moving against the ECB caused a turnaround. The last time this happened, the turnaround lasted only 2 days, so keep your stops close.

Also, if anyone wants, I can publish the entire report, or if there’s some herd you’d like to know about WRT relative strength, I can comment that one. Again, relative strength of a stock is being measured against the S&P. So a RS of 2% means that ticker is better than the S&P by 2%, cumulative over the last 5 days.

This report is for a 5 day trading period. Because of the volatility of the market, it doesn’t make much sense to go beyond the current down cycle (or for other reports, up cycles). It doesn’t look like we’ll see the end of this down cycle anytime soon, but I see Bloomberg talking heads constantly talk about an upswing and Santa Rally. Just play the tape. If you want to short, look at the biggest losers in the herd report.

One more word of advice: if you play any of the leveraged ETFs like VXX or SKF or SDS or QLD, make sure you exit after the current trend is done. The math works against you in the event of a turn-around. If you don’t understand this, I’ll put together another post to show the math.

So here’s the report in the form “ticker, relative strength, slope”
The top performers:

XME 4% rising
BBH 3.3% rising
XOP 3% rising
$DJTATO 2% rising
$DJTCNS 2% rising
IBB 2% falling
KOL 2% rising
GLD 1.8% flat
IHE 1.6 falling
SLX 1.6% rising

The worst performers:
SLV –4% flat
$SOX.X -3.4% falling
IRET –2.6% falling
$BKX –2% flat
KBE –1.8% falling
DBA –1.7% falling
IAK –1.3% falling

It is interesting to note that there are 23 sectors with a falling relative strength slope, and 19 with a rising relative strength slope. If they were all valued the same (they aren’t), that would indicate money is flowing out of the market. When I look at the daily SPY, the Money Flow indicator is literally on the bottom, indicating a strong money flow out of the SPY.

The last thing I’d like to present is yesterday’s chart of the number of stocks trading above their 50 day moving average. We have a turnaround in process.

When to Invest

I think my comment was something like “the time to buy is when both the weekly and daily stochastics are oversold (20%)". That was kind of a glib comment, and Mannwich correctly questioned me on it. In fact, we can show that that’s the time to invest, and to refine the time we can use regression analysis (or SMA evaluation) to get a more exact entry point. So here’s the analysis I promised. First, the weekly SPY chart for the time period I wish to explore: April 2008-present. On it you can see the times we hit oversold.: June 2008, Dec 2008, March 2009, May 2010, June 2011, Aug. 2011, and Oct 2011. All the charts below are courtesy of TDAmeritrade StrategyDesk.



As you can see, there are only a few times where the SPY weekly hits the 20% (or oversold) point, and crosses over in the upward direction (I’m writing this from the long viewpoint because everybody hates people who short). (And I’m tired of being hated.) We’ll take a look at these.

The first one hits in June, 2008. Here’s the weekly section of the above chart for this time frame:



At the June point, the price has not gone above the 12-period SMA (blue line). Price starts to break the SMA in Dec/E but returns and doesn’t break the SMA trend line until March, 2009 (it hasn’t broken it’s down channel until that point) so the beginning of the trend reversal happens in March, 2009. Here is the daily chart for that timeframe:



You can see that during the Dec/E, we haven’t returned to oversold. So we have to wait until the daily returns to oversold before entry. The stochastics return to oversold around Jan 14, and break the SMA around Jan 28th, so that’s our entry point. However 2 days later, we have to exit because we’ve broken below the SMA, and it’s turned flat, then negative slope. We don’t get a turn-up of the SMA until March 10. That’s when I would enter again. Notice we get a pullback on the 19th, but because we didn’t drop below the 20% point on the Stochastics, I’d add at those points because of the W formations with the right side higher. See this chart for my exit point:



Your risk appetite should tell you when to exit, but I’d start taking money off the table preparing to exit when the SMA starts turning south, on May 20th. However when we break back above the SMA, I’d add again, looking at those W’s. I wouldn’t exit until June 12 or so, when we get a significant drop below the SMA, and wait for the next setup.


The next time we revisit the 20% point on the weekly is around May, 2010. We don’t start leaving that until July 2010. Here’s the weekly chart for that timeframe:




You can see we cross the SMA around the beginning of July/mid, 2010. But at that point, the SMA is not positive. So any investment entry consideration at that point should be carefully done. Here’s the daily chart:




You can see that we’re not at the oversold point at the beginning of August, so I would have to wait for the daily to return to oversold. This happens around Aug 15, and starts breaking the daily SMA around Sept. 1, 2010. That would mark my entry point. At that point, the weekly stochastics are still on the rise.


The next time we hit the 20% point on the weekly is (arguably) June 2011. Here’s the weekly chart:



We don’t break out over the SMA until October, 2011. Here’s the daily chart:




As you can see around Oct 7 the stochs are on their way up, and we break out over the SMA, so that’s our entry point. I won’t tell you how to manage your risk, but we cross back round Nov 16, so that was my exit point.

This concludes my approach for buying when both the weekly and daily S&P hit oversold. I hope this answers Mannwich’s question adequately.

Remember, I’m not so much a risk taker. I remember my losses vividly. Some people buy as the market goes down. Not me. I am a trend-follower. The last thing I’d like to mention is that you can invert the above analysis if you wish to short.

"Under Pressure"

The daily SPY’s stochastics are oversold. Here’s the chart(Courtesy TDAmeritrade StrategyDesk):




The weekly stochastics are headed down. Remember, when they are both oversold, that’s the one time in the year you need to buy. They only hit oversold maybe once or twice in a year.

I still see some downward psychological pressure on the market. The media is full of the European contagion, but no one has mentioned what happened to the value of the sovereign debt that was purchased 6 months ago. I’m sure the smarter banks have tried to unload that, but I doubt there were many takers. We’ll see what happens when the MSM starts raising this issue. Banks’ values and capitalization are sure to suffer.

Our Super Committee failed, and should be named “Stupor Committee”. I think since they can't be fired for failing, they should be forced to return their salaries and campaign contributions received for the period they were "serving".

More downward psychological pressure: S&P says that we may see another downgrade of US debt. Corporations have figured out how to be profitable even though GDP growth is poor at best and Europe is in a recession. The way these corps may be profitable is through accounting tricks. But job growth in the US is on a rise—tiny, but on a rise. So there are some mixed psychological signals along with somewhat unbelievable fundamental signals.

On the technical side, we see some reasons to pressure the market upwards. Europe hasn’t capitulated even with Italian bonds trading at 7%, and a terrible German bond sale. Germany is under pressure as one of the main support columns for the Euro. If it backs out (Merkle says she wants a fast modification to the treaty, but it’s not likely to happen) the Euro is toast. That’s not gonna happen, don’t look for a UUP boost because of that anytime soon. Also, the daily stochastics for the S&P are oversold (see the above chart). Also, the $SPXA50 from Stockcharts.com shows that the number of stocks trading above their 50 day MA is at a low, and may be ready for a turnaround. (Chart courtesy of Stockcharts.com).



The biggest aspect of the market pressure is from the headlines. What will the headlines give us over the next week or two? If we do see a dip down toward the 1080 floor, I expect a quiet FED will turn a little more lionish and start buying MBS’s and other mortgage derivatives, in hopes that will spur common people to buy homes. It won’t. Common people are still afraid. But that headline will pop us upward for sure. You won’t see the politicians and PM’s do anything, so there won’t be any major headlines on those fronts.

Financials are supposed to lead the market. What happens to the financials, happens to the market. I think the financials are toast. Unknown regulation, and costs associated with it. It seems their bets may be coming home to roost: no more prop trading. Pretty much the only way they have to make money is loans, and nobody is borrowing. Inflation is upon us, feed prices are rising, farmers are making money, and we are all paying them for it. So nobody will want to borrow. You may see some headlines on these issues and more that affect the financials. Look at GS: it’s at 90. That’s the point I’ve seen targeted to take it private.

I will be playing the market on the short side, selling the blips. Because of the costs of borrowing shares, I play the short ETFs like SKF, REW, SRS, SDS, SMN, DUG DUST QID. If it looks like a significant upswing in progress, and I get stopped out of my short plays, I might buy some DIG QLD ROM USD. Saves on the borrowing costs.

Also I will be going home long SKF. Putting my money where my mouth is.

Rock's Thanksgiving

This Thanksgiving, I'm going to have about 10 friends for dinner. I hope they taste good.

Normally, I would post some sage financial analysis junk to make everybody think I know something I truly don’t. But this time, I’m going to post another kind of sage. Here’s a little ditty I wrote about how to prepare a turkey feast. I left out the list of materials, you can ferret it out from the directions.

(I can’t resist it: go look at GDX and ANV—I like them both. (Disclaimer I just entered ANV long. I think their levered cash flow is negative because of the investment they’ve just made in a new mine.)

0. The night before, tear up the bread into pieces no bigger than ¾ inch square, into the black turkey pan while you watch the football game. There may not be a live one, so be sure you’ve got one on tape. Football is necessary. Put the top on the pan, but don’t seal. We want the bread a little stale. Bake the pumpkin pies. Use the recipe on the back of the Libby’s can, but substitute dark brown sugar. Add extra pumpkin pie spice, maybe 2X the amount on the recipe. Mix one package of Lipton onion soup with the sour cream. Cover and refrigerate until tomorrow.

1. Get up at 6:00. AM. This is a requirement. Without doing this, it won’t be Thanksgiving.
2. Pour 2 ounces of Vodka in a glass. Add Ice. Sprinkle Tobasco sauce. Fill with Bloody Mary Mix. Open one pack of celery. Cut off the end of a piece, and stir the mix. Drink..
3. Turn on the oven to 350. Bake the Costco apple pie for 1 hour on a cookie sheet.
4. Open the turkey and wash it out. Remove the giblets and boil for about 20 minutes. Watch out, because they boil-over really easy! Don’t boil the neck. Save the water, but throw the giblets away. You’ll use the water in the stuffing..
5. While the giblets are boiling peel and chop the onions and about 12 stalks of celery. Mix with the broken bread in the black pan. I guess for the 2 loaves of bread, about 5-6 cups of chopped onion and 3-4 cups of chopped celery is about right. I like more onion than celery.
6. Add seasoning. I start with one heaping tablespoon of Bell’s for each ½ loaf of bread. If you used both loaves, that’s 4 heaping tablespoons of Bell’s. Add 1 teaspoon of salt, and ½ tablespoon of pepper. Mix well. Pour in some of the water you’ve saved from the giblets, and make the bread squish together. It takes less water than you may think, so start slowly and mix as you go until you get everything to kind of stick together. Don’t make it soupy, but too dry isn’t good either. Taste. Add salt, pepper and Bells as you think necessary. I usually end up adding more of everything. When the flavor “dances” on your tongue, you’ve got it right. Don’t add butter, it will be just fine. Don’t add raisins, don’t add nuts.
7. Repeat step 2.
8. In the sink, stuff the bird’s butt end first. Pack the stuffing in pretty good. Cookbooks you read tell you to pack it loosely, but don’t. It should use about ½ the stuffing there. Sew it closed with the laces or needles. Stuff the bird’s neck end second. Use ¼ of the stuffing there. Sew it closed.
9. Put the rest of the stuffing in a Corel or glass pan. Sink the turkey neck in the middle, and make little “dimples” with your thumb. Fill the dimples with marjorine. After you get some juice from the turkey, squirt it in to this pan. Cover with foil and bake for 1 hour.
10. Preheat the oven to 450 (hopefully you’ve removed the stuffing and the pie you were baking—if not, repeat step 2). Rinse the black pan. Put the turkey in, baste the outside with butter, cover loosely with aluminum foil. Leave a small hole , don’t cover completely to let some of the steam escape.
11. Put the turkey in the oven. Lower the temp to 350. It’s best if you close the oven door.
12. Repeat step 2.
13. Repeat step 2.
14. Bake the bread, use the breadmaker and just pour in the mix.
15. Repeat step 2. Bring out the chips and dip, and mix ½ the jar of horseradish with a rice-bowl full of seafood sauce, and put out the shrimp. Turn on the football game.
16. I baste the turkey with the juices about every hour. They make these “bulbs” that will suck up the juice, and I squirt that on the turkey. Replace the aluminum foil as necessary to keep it covered. I bake it for about 25-30 minutes per pound. Actually, I bake it until one of the legs relaxes and separates from the body. If it’s not brown, remove the aluminum foil for 20 minutes or so. Mine always browns up just fine when cooked covered.
17. Wash and peel the potatoes, cut into ¼ or 1/5. Boil until tender (25-35 mins)
18. Put the green beans in a glass dish, and mix in the can of mushroom soup. Add some water to make it moist, but not too “soupy”. Salt and pepper to taste. Bake at 350 for 15 minutes after the bubbling starts. Sprinkle the French’s fried onions on top and bake until they brown, and everything’s bubbling.
19. Boil the peas. Salt. If not Green Giant brand, add butter.
20. Cook the squash. I don’t remember how, but I don’t care. Anyway, add a little dark brown sugar. It helps.
21. Drain the potatoes, add a lot of melted butter and about ¼ cup of warmed milk (microwave) and use your mixer to whip the potatoes. Cover and salt and pepper to taste.
22. Repeat step 2.
23. Remove the turkey. It will probably take 2 people, with 2 pancake turners each to get it out. Don’t worry about leaving some behind, it helps the gravy. Cover the turkey with aluminum foil. Mix 2 heaping tablespoons of cornstarch in a glass of water, and add slowly to the turkey drippings. Add ½ teasponn of salt, and 1 teaspoon of pepper, and cook for a few minutes (10 or so), constantly stirring. This actually accomplishes 2 things: it helps get the stuck stuff off the pan so washing’s easier later, and breaks up the leftover stuffing and turkey to mix in the gravy. Taste, add more salt and pepper to taste. Taste often. It’s fun.
24. Sit down and eat. Eat more. Serve the pies with Ice Cream and Reddi-Whip.
25. Let somebody else do the dishes.
26. Repeat step 2, and excuse yourself, closing the bedroom door behind you.

Opposing Forces

Here’s the first chart I’d like to show: The SPY



I’d like to point out that the volume is falling, which my trainer told me that means the price action is not justified. Fewer people are being involved, so there is no commitment on price direction. Additionally, look at the MF (money flow). It’s headed to the lower boundary, meaning money is flowing out of the trade action. Disclaimer: I don’t have the math behind the MF chart. So I’m not completely sure what it is, other than the user’s manual for my StrategyDesk software says that’s what it is.

Now here’s a chart of IWM. As you know, the theory is that IWM leads the way. As you can see on Jul 7, the money flow is out of IWM, which started a fall. The fall was over around July 18, when the money flow was turned around and into IWM. Then on July 22, we again see the money flow start coming out of IWM, and the fall was not over until August 9.



Now shift your observation over to today (the right side of the chart). You see that the money flow is on the bottom, but the price has held up. Interesting. My theory (and I believe Mannwich also) is that the reason we’ve held the price up since around Oct 27 is the new money coming in from Europe (although the preference is the bond market, some spill over into risk is inevitable).

So we have the SPY’s pennant with decreasing volume indicating a break lower. We have IWM with the money flow already at the bottom and Euros heading our way, indicating a move higher. Who’s going to be the winner of these opposing forces?

Let me now look at one of my favorite leading indicators, the 3LB chart of the number of stocks trading above their 50 day MA.



As you can see by looking at July8-Aug8 peiod on this chart, a fall was tracked, and the actual fall started on the July 4 bar. That indicator is before the MoneyFlow was indicating money was coming out of the market. I think we have that again, that around Nov 1, we see the SPXA50 start to fall, and the MF follow around Nov 8.

OK, Rock, what’s your conclusion? I think the fall’s not over yet. I think we’ll see the SPXA50 chart go down to around 150. I think the MF chart will stay below it’s lower line, and money will come out of the market. So I think when we get to the end of the pennant, we’ll break lower.

Here’s one more short-term data point. Mutt’s estimate for a high proved out, but look what happened to the TRIN the last hour. Wow! This is quite bearish, and the aftermarket action confirmed this. I expect a pop down in the morning, making this a Turn-Around-Tuesday.



This is contrary to all my pressure indicators, including Relative Strength. So my regular charts are telling me we’re going higher. Maybe that’s why I haven’t been successful in my setups and trades. So now I will be playing the tape with a lower bias. I’ll take my profits today from the long side, and wait for a setup to the short side and start trying to make money with shorts.

Monday Open Thread

New Herds Report

I'm stealing somebody's day. I think it's D'astro's but he hasn't been around for awhile, so, too bad.

Time for a new herds report.

This report will be a little different than the previous ones. This one will include a new datapoint, called profits. It’s good to have relative strength greater than the market, but it’s even better to have profits.

Of course, with relative strength, you can feel good about your picks even when the market goes down, right? I mean, I lost less than the market, so I feel really good.

Nope.

Need profits. Gotta feed that insatiable hunger in my 40 pound overweight belly that increased in size while I was in Singapore (excuses, excuses…….)

So how do we get profits? Do we invest in individual stock names and pray for no bad headlines to take the wind out of our sails? Nope. Not me. I was doing that, being very very careful with my trades, and found that last year (2010) I increased my net worth 90%, but this year (for the first half year) only about 15%. After about May, I started to trade on volatility (still on individual stock names). I made a little more, but not enough more to make all that work worthwhile.

So I have a new theory. Go long ETFs with strength. Hence the herds report.

We’ve had a run since October 4th. I feel it’s time for a little rest before all the money coming in from Europe takes us higher again, so I’m looking for a pullback of maybe 5%. Well, rather, I’m hoping for a pullback of maybe 5%, because I’m only long at most one position at a time, primarily due to the volatility. I was hoping we’d hit the bottom of the trading range again, but I don’t think so anymore. I think the money flowing in from Europe will push us UpUpandAway again. So here’s my analysis: (the profit picture is since Oct 4) (the relative strength is based on the last 20 day period)

UYM, DIG > 50% profit, relative strength of 18%, RS slopes positive
USD > 40% profit, relative strength of 8.66%, RS slopes positive
UXI > 40% profit, relative strength of 10.2%, RS slopes slightly positive
XOP > 40% profit, relative strength of 14,5%, RS slopes positive
XES > 30% profit, relative strength of 10.2%, RS slopes high and flat
KOL > 30% profit, relative strength of 10.9%, RS slopes slightly positive
UYG > 30% profit, relative strength of 10.5%, RS slopes down
URE > 30% profit, relative strength of 12.9%, RS slopes down
SLX > 30% profit, relative strength of 9.4%, RS slopes slightly positive
XME > 30% profit, relative strength of 9.4%, RS slopes slightly positive
ROM > 30% profit, relative strength of 5.1%, RS slopes flat

If anyone’s interested in weakness (short weakness) I can post the weakest ETFs. It’s just that it’s really hard to short, and everybody hates you if you do.

Or, if anyone’s interested in a particular ETF, I can quickly run the analysis and give the results. I don’t monitor every ETF, so if you’ve got a favorite, let me know.

An update: Here's one of my favorite leading indicators. You know the last 6 days were up, right? But it looks like the 3LB of the number of stocks trading above their 50 day moving average is down.

Weakness

Here’s the chart on which I was basing my suspicion that there was impending weakness in the market. Again, I had no idea that hot, steaming Grease would fall into my lap. I never get that lucky. (please ignore the Relative Strength lines on the chart below, because this is a chart of the SPY and the SPX is the reference for calculating Relative Strength, so the deviations from 0 are due to the rebalancing times necessary for the SPY ETF to buy/sell the index.)



See the Blue line labeled Support/Resistance. Remember from a long time ago, I said that Farley said that if you find many factors then that will make the S/R point stronger. Here we see an overnight pop, good volume, buyers coming in and the price holding, and we see the Stochastics hitting the 80% point. All good indicators for strength.

Then see on the 31st, where the convergence of the price move and the moving average was happening. Also we see the stochs starting to fall and the MACD plummeting. All weakness signs.

I was watching that weakness, trying to decide whether to gamble going short, when we broke the Moving Average short and medium term lines (the blue and black wavy lines) with an overnight pop on the 31st. We held the Support/Resistance line for 5 hours, but no buyers came in to move the market back higher, even though on the daily chart it looked like the market was on an UpUpandAway move. Then, we see for the last 2 hours of the day, we broke convincingly that Support/Resistance line, with increasing volume. Definite weakness. Look at yesterday’s comments, I posted a comment that I saw weakness in the market.

Then I woke to our overnight pop, when I was expecting a short move to around the support line at 125. Because we had broken the Support/Resistance line at 126.50 with committed volume, I didn’t expect my overnight VXX move would be to the positive side. Reward was high, risk was low.

Where to now? Italy will be making headlines, and the market must price that in. There is a resistance line around 123 which seems to be holding with reasonable volumes, so I went long the vxx again there (at 44.90). Until we cross that Resistance line around 123 with good volumes, I’ll believe we are in a (temporary) decline. I’ll be watching the MA’s and will reduce my positions as we get convergence (like we saw around the 28th.

What will move this market in the short term higher? US Earnings are good to OK which is a stabilizing factor, but I believe investors are bailing out of Euro bonds and into “risk assets” like the stock market, and also into the US T’s. I think they’re likely to choose the US market, as opposed to Brazil or Korea, or Japan markets. So at some time (maybe around 1140 (I don’t think we’ll see 1110 again)) we’ll see the new money come in.

The other thing I’d like to mention is that SKF has been falling from 97 to 59. Have a look at the daily chart. So, with the impending default of Grease and Italy, and maybe Spain, do you think the banks are going to take it on the chin? Do you think you might see a move of SKF, maybe to 80 or so? Or even higher? They can’t dump their bonds after all, who would buy them? So they’re toast. And the US banks won’t be making profits anytime soon because the US Government won’t let them. I shorted the banks before when evertybody said they were in trouble, and made a lot of money.

Trade the tape, and keep your stops tight. There's no shame in getting out and back in again.

Here's a chart of the VXX. Notice any similarities to the chart above?

Open Thread

Ok, so Thor stole my day.

My day.

Like I never did it to him.

:-)


“I’ve been down so God Damn long that it looks like up to me” Doors

Bloomberg interviewed Tom DeMark. A smart man, no doubt. He predicted the latest rise to 1255, and hit the timeframe exactly. This may be a misinterpretation of what he said, but this is what I got out of it.

DeMark’s looking at 1973, and a repeat of those trading times, where in 1973 there was an August 23rd low, and an 18% rise in the same timeframe that our Oct 1 low to now exhibited.

He’s saying that he’s looking for several higher closes than yesterday, (now when you read this, day-before yesterday) then back down to 1206.

Still in our trading range, but we got a little higher on the high side. I thought we might have a little higher high because of the commitment volume we had on Aug 3-6. DeMark was saying that the 4-6 sequential higher closes to come in the next few days will be a bulltrap. He also said the fall in Nov 1973 was a sharp downside move.

Me, I’ll just trade the tape. Right now, the tape is telling me we’re headed lower. See the VXX chart below. The MACD is rising, the stochastics are heading higher, we’ve crossed the (blue) short term resistance line convincingly with not enough volume for me to believe there’s conviction here. If I saw a lot of volume, then I’d say look out below. Without that volume, DeMark is likely correct we’ll see some higher closes.



DeMark’s prediction may be right. After a couple of down days, we could see a turnaround and go back up to the 1255 range and have a few higher low closes.

This coincides with Mannwich’s belief that money will be flowing from the Eurozone into the US markets and treasuries (maybe gold too). That money will peter out, and then we go lower. That coincides with DeMark’s stuff, That money may cause a few slightly up days, and when it’s done, we thump back to 1206. Remember the market is like the Queen Elizabeth—it takes some time to reverse course.

These churn markets are really hard to make money. Maybe I should get my day job back. (ha).

The last chart that Thor wants to throw up (*burp*) is the 3LB of the SPXA50 from Stockcharts. This is the chart which shows how many stocks are trading above their 50 day moving average. Looks like it’s at the top. Maybe time to start a reversal?



Well, we had a 4 hour warning on the turnaround. See this updated VXX chart:

On AAPL

AAPL is suffering under the same malaise as HP and Dell. Notebook sales are down, and repairs are up. A lot. People are fixing rather than discarding and buying new. AAPL’s problem is the use of Gorilla glass and the requirement for a special clean room to do the repairs, so only their manufacturer can do it. If they qualify other sources, you’ll see the repair time go down dramatically and yet even more reduction in NB sales.

AAPL needs to find more revenues with good margins this quarter. Even the forecast for phones won't keep their revenues and margins growing, they need margins from Notebooks or other revenue sources.

A multi-billion dollar organization that has a hands-on design and marketing capability and forced focus from the CEO is extremely unusual. This fundamental is probably the main reason for AAPL’s success, and I’m thinking that the consensus approach between marketing, sales, design, product and project management will cause the demise of this success. Steve Jobs, being the tyrant, where it was his way or the highway, kept focus and complete faithfulness of his subordinates. This is AAPLs success. Now the question is posed: how far out of the grave can Steve Jobs’ single-mindedness and control reach?

Could Steve forsee the market trend changes? I don’t think so, because AAPL missed earnings estimates (even though the earnings were stellar), and this miss happened too soon after Steve’s death for any changes to be brought about by his successor(s). I’m thinking Steve did not have a plan to overcome shrinking notebook sales.

So what’s next for AAPL?

Maybe we could use the comments section for ideas, and perhaps if one is good, somebody could forward it to them.

Here’s my $.02.

I used to tell my management that if we wanted to show growth, all we had to do is take a tiny piece of the big guy’s market through either targeted design or marketing initiatives. Even though AAPL’s visibility is high, they really have a very small piece of the smartphone market, which is owned by RIMM and various Android providers. Can they kill RIMM by providing multiple database connectivity and encrypted email (a targeted design)? And perhaps other RIMM features, to replace them in the market.

You know the old saying, “Kick ‘em when they’re up, kick ‘em when they’re down”..

Perhaps the Sprint penetration is the first of several targeted marketing initiatives to come to capitalize in this area.

Exit overnight?

Beyond the research on the relative strength of the herds, I did an analysis of overnight trading.

I don’t understand how such tiny volumes overnight can affect the market at the open in such huge ways. I’ve looked for articles and books that explain it, and haven’t found any. That’s huge leverage, and I’m wondering how the SEC isn’t investigating how this happens. I think it gives less credibility to the market, and influences the small investor to go find something else. Anyway, that rant over, here’s the information:

Since Sept 1, we’ve had 3 cycles on the S&P. From Sept 1-9 there was a down phase, 12-16 an upswing, 19-21 a down phase, 22-26 an upswing, 27-Oct 3 a down phase, and from Oct 4 to now an upswing. I recorded the overnight change for each day during those three cycles in the SPY and in SKF. Here are the results.

1. In any individual down or up phase, there is no trend in the overnight spreads. One might expect in a down phase, for example, the overnight spread to be down. It is not.
2. The SPY is flat from Sept 1 to today. The summation of the pop up overnight total is 12.08, and down is 13.88. So basically, it’s flat.
3. The SKF is up $2, from 72.81 to 74.95 today. That’s pretty flat, with just a $2 increase. However, the summation of the pop up overnight total is 31.65, and the down is 23.15, the standard deviation is .34, which is significant.

As we know, the SPY is an average of 500 stocks. The SKF is an inverse ETF of the banks, and is therefore a small (inverse) segment of the SPY. The data trend might indicate that if you invest in a small sector ETF, you need to stay in overnight in order to realize a net 0 gain, however if you invest in a broad-based ETF, it doesn’t matter if you stay in or get out to realize a net 0 gain.

A sample of 2 ETFs is too small to prove any theorem, and I’d love to continue this study, but it takes a lot of time to do all these calculations. If anyone knows of an automatic way to do it, let me know in a comment.

One more thing I’d like to mention in this post. My favorite indicator, which based on earlier analysis leads the market price, the $SPXA50 from Stockcharts,com is trending up. Based on where we are, it seems the market will extend higher. Here’s the chart:



I had commented earlier that at the turnaround on Oct 4, if we saw volume follow-through the next day or two, I believed we would get a higher high, and may break out of our trading range. We did see significant volume, and Based on the SPXA50, these seem to reinforce this probability.

I was looking for a turn-around, but I’m usually early. The SPXA50 says I’m early again.

Weekend Open Thread

Popping up in our trading range

I see the SPY support confirmed, by big volume, after our dip below 1115. If I see volume follow through in here, then I think the next move upward will have commitment and will be looking for a higher high (that is, above 1195). If I don’t see volume follow through at the 1115 area, I think the next leg up will see a lower high. All that’s assuming we stay in our trading range.

However, If Cobra's right, and with bad news out of Europe (they're saying recession now) we see 1000, then I think the next move up will fail and we'll ultimately go still lower. Lower highs, lower lows, combined with a weak earnings season would give me that feeling. Probably lower by the end of the year; we've had a downtrend in December 2 of the last 3 years. The one year where the trend was up was because the market was held up by the Bernank’s weakening of the dollar.

There's a lot of support at the 1115-1120 area. Look at the volume 8/05-8/11 and 9/21-9/23. If this leg downward goes below that, with all that committed volume holding it up, I think Cobra's going to be proven correct.

If we go to 1000, look for policy makers to do something to move the market up.

We're still in the trading range. I don't think we'll break out, even on a weak earnings season. I saw a report on Bloomberg that said that money has pretty much stopped coming out of the market. The report said that with no money coming in means we’ll stay in the range. It said the movement is typically a result of share buybacks by corporations, that this is the source of new money coming in to the market.

So here’s an interim herds report.

First, over the last 20 days, we haven’t made any money long. However, several ETFs have performed better than the S&P, showing strength.

RTH: 5.5% is the best. RTH is mostly retail. The homebuilders ETF is in the pits. So I'm wondering how retail is doing so well.

$DJULTC and XLU: 5% Utilities are safe havens during downtrends. People look to them for dividends as the value drops.

SMH, XLK: 3.9%. Tech. However, the NASDAQ has not been leading the SPY, which is bearish. So they’ve still participated in the downtrend.

Then we have BBH at 3.8%, IGV at 2.6%, and ITA at 2.5%.

The worst are TAN at –44%, SLV at –27%, KOL at –25%, and XME at –21%. These may be oversold now, and perhaps an investment in First Solar or Alcoa (who hit a 52 week low the other day) could pay off. But that’s gambling, I’d rather invest in strength as we go up.

This week’s herds report

I stole Thorsday again.

So Rock is back looking at relative strength to see where money is currently flowing. The list is sorted best to worst relative strength, and the numbers indicate the percentages of these herds are leading or trailing the S&P index. If you have a favorite herd that’s not here, let me know and I’ll add it. I try to select sector-based herds which are hard to find for some sectors. Some herds are balanced across several sectors, and I don’t follow them. The Dow Jones money report shows money is flowing out of the markets, making low volumes cause big swings (VXX is at almost 52 as of this writing).

Note that Gold and Silver are now in the worst positions. Just a few short weeks ago, they were the only ones making money. How quickly sentiments change, and a clear indicator you can’t turn your back for a minute. I got stopped out of my gold investment positions, but haven’t reinvested in anything. Looks like oils are also getting tanked. And the Solars are still in the cellar.

Notice money is flowing into banks. I find this very surprising, but maybe the banks were so beat up that investors think it’s time to get back in. I think the jury's still out, in case PIIGS write down their debt. I don’t trade financials, for religious reasons. IAK is insurance, and qualifies in the “financials”.

Note also $DJTCNS has turned around in the last 5 days. Again, the housing sector was so beat down, it may be that the housing materials (the first to recover in a real recovery) is seeing some investment. $DJTCNS has LOWE, HD, Owens-corning, etc. It’s not the homebuilders.

On an individual note, AAPL and IBM have both had nice pullbacks, and it may be time to put them on your watchlist. The Nasdaq has been trailing the S&P for the last several days, so I’m looking for a continued downpressure on the markets, Like I said before, I’d like to see a hit or crossover of 1140 before we get a turnaround, to make a meaningful move up. We’re almost there, I’m thinking by Monday, with a Turnaround Tuesday of next week.

The format of this table is ETF, 5 day relative strength, and relative strength trend.
IAK 0.031 Rising
$BKX 0.03 Rising
UCC 0.03 Flat
$DJTCNS 0.027 Rising
KIE 0.026 Rising
XLF 0.023 Rising
ITA 0.022 Rising
KBE 0.022 Rising
ITB 0.019 Flat
KRE 0.016 Flat
$DJTATO 0.014 Rising
$DJT 0.013 Rising
$DJTENG 0.013 Rising
DIG 0.013 Rising
IGV 0.013 Rising
KCE 0.012 Flat
IXJ 0.011 Falling
XHB 0.011 Flat
$DRG.X 0.009 Flat
$DJTFOB 0.008 Falling
USO 0.008 Rising
$OIX.X 0.006 Rising
IHI 0.006 Falling
$HIG.X 0.005 Flat
UTH 0.004 Flat
$DJTCHE 0.003 Rising
IXI 0.001 Rising
SLX 0 Rising
XLU -0.001 Falling
XRT -0.001 Falling
KOL -0.002 Rising
$DJULTC -0.003 Falling
XLK -0.003 Falling
XLV -0.003 Falling
$DJTFVS -0.004 Rising
VHT -0.007 Falling
IYH -0.008 Falling
IHE -0.009 Falling
IYE -0.01 Rising
RTH -0.01 Falling
SMH -0.01 Falling
GEX -0.011 Rising
XLP -0.011 Falling
BBH -0.012 Falling
$DJTTR -0.013 Falling
IYZ -0.013 Flat
ICF -0.015 Flat
IRET -0.02 Falling
DBA -0.021 Flat
$SOX.X -0.027 Falling
IBB -0.029 Falling
XME -0.029 Rising
XBI -0.034 Falling
$DJTBAS -0.035 Rising
XOP -0.039 Flat
XES -0.04 Rising
OIH -0.051 Rising
TAN -0.069 Flat
GLD -0.1 Falling
GDX -0.103 Rising
SLV -0.174 Flat

Going Shopping

If we hold the 1120 line, that will give me confidence that there are buyers here. If there are buyers here, then that means we’ll likely retrace the latest pullback, albeit slowly and painfully. Here’s the SPY.



You can see the two boundaries I’ve drawn for the upper and lower edges of the range. If we fall below that range, well, in my opinion, it’s “look out below”. But I don’t think that will happen. On the right, you’ll see the Fibonacci breakdown of the move from 121 to 113. The 38% retracement is at 116, and I’m looking for a quick rebound to that point. After that I think it will be a 5-10 day painful move up. On the technical side, I see the stochastics haven’t returned to the 20% level, but the large move due to the words of the Fed has basically reset that number as thought it were at 20%. Of course, the darkside of me looks at the large selloff and increasing volume over the last couple of days, and I’m thinking those words were leaked to a few friends.

Markets are reacting as though there were a monumental change overnight. That’s just not so. There is nothing new that should have caused such a large overnight move. So I’m anticipating bargain hunters will come in, probably overnight again, and do some buying.

Time for us to go shopping, I think.

Because of the volatility in individual names, I’m thinking of focusing on ETF’s but there are a few names that deserve an honorable mention. Two of them are

1. IBM. The relative strength of IBM is unbelievable. Here’s the chart:



You can see the 5-day relative strength is over 5% better than the S&P, and even the 20 day is almost 5% better. They don’t get much better than that. So IBM’s had a pullback and it’s time to buy.


2. AAPL. Again, a monument to relative strength



You can see the 5 day relative strength is again over 5%, but look at the 20 day, it’s over 9%! This stock is a deal on a pullback. Which we just had. BTW, look at the slope of the relative strength curve, both the 5 day and the 20 day.

Now you may ask why we would buy stocks that don’t pull back with the market, instead of stocks that fell off a cliff, hoping for a rebound. Remember this: RIMM. If you bought RIMM after it fell off a cliff, hoping for a rebound, it would have taken you to the cleaners.

Buy strength. Short weakness. Never short AAPL or IBM.

Now let’s think about the general economy, and it’s strengths and weaknesses. In 2008 when we had the big fall, we all knew the banks were weak. If we’d bought SKF at 25, it went over 200. We shoulda known. I did know, but I had no courage for my conviction. So what’s weak this time, and what’s going strong?

My opinion is that we’re still in recession and never left it. As a result, we see deflation in assets happening, at least until the asset is no longer offered. (once an asset reaches a certain low price, then it’s value may go infinite due to the inherent shortage at that price). I see nothing on the horizon to pull the world out of this negative spiral, and it could be that we will continue this sawtooth price action down to the old 666. It may take awhile, though, so in the meantime, where do we trade?

I don’t have a clear gut feel this time, except I’d love to figure out how to short the European banks. So let’s see what the market says:

The worst ETFs are:
KOL DIG TAN XES SLX XOP XME and OIH. Their relative strength is between 3% to 13% lower than the S&P. What this tells me is that the most basic resources are in the worst shape: coal’s not necessary because we don’t need as much energy. Oil and gas are terrible again because we don’t need as much energy. Most energy is used to create and transport things, and we don’t need that now. TAN’s down a lot because we don’t need more energy, and the cost premium for alternative energy solutions is still prohibitive. And of course steel. We don’t need the things.

The best ETFs are:
IRET XLU GDX $DRG.X $DJULTC IHE GLD BBH RTH IBB. Look at all the biotechs in there. Also, we’ve got the golds and gold creators. Also, we’ve got real estate (rental, not builders), utilities, and retail. The basic stuff we need to survive or take a long term hedge on our debt.

So this tells us that we don’t need more stuff and aren’t buying it, but we are buying pharmas and the necessities, with a hedge on the golds.

So, if you believe we’re at the bottom of the price swing with yesterday’s action, then buy long from the best ETFs. If you believe we’re at the precipice about to fall of the edge of the financial cliff, then short the worst ETFs.

Or use these categories to trade individual stocks and concentrate your risk.

As an aside, it is interesting to note that the slope of the relative strength curve is negative for the worst ETFs, and positive for the best ETFs (except for one single deviation). This says that compared to the overall S&P, the worst ETFs are getting worser, and the best ETFs are betting better.

And yes I know worser isn’t a word.

Trending or chop

Sorry about dropping out of sight. I had an unexpected turn of events, but everything is working itself out. If nothing else from working the markets, I should have learned patience.

All we’re going to trade on is news out of Europe. It’s the markets versus the policy makers. The policy makers are the tactical managers of the markets. Right now it’s the policy makers’ responsibility to move the markets up to save the retirement programs, so you’re going to see “cooked” policy statements. Like “orderly default”. That’s a little like “jumbo shrimp” or “military intelligence”. The drop over the weekend was caused by the policy makers losing headway. This morning, the news is full of “Greece is running out of money” rather than “bankers take steps to support Greece”. The PM’s don’t realize that the situation is worsening and as a result, they must be on top of everything everyday, covering the situation in words.

A lot of headlines to trade off right now. Obama’s numbers have hit a new low. July business inventories fell last quarter, but are up this quarter by a tiny amount. No change in retail inventory, though. The news is bad, the market is up (on low volume).

Reports are 1000 is the buy level being watched. I think it will be awhile before we see 1000, so I’m trading long with reasonable tight stops. This week I’m looking for a pullback with a turnaround midweek (or perhaps even Tuesday) to go higher. Did you see Prada’s numbers? If the PMs do their job and spin the words, we’ll see that happen.

Margaret Brennan of Bloomberg reported that hedge funds are net short right now. So it’s time to shop for stocks. The short-covering rally will be incredible. (Remember Hedge fund managers are “retiring” and I’ve heard a lot of reports on Bloomie that “even pros are finding it difficult to make money in this market”. I’ve been long overnight now 4 nights with full positions, but I exited over the weekend, because the PM’s take a break then, but the bad news doesn’t. If we get some good news out of Europe, I think we might see the mother of all short-covering rallys.

“When the VIX is high, you buy. When the VIX is low, you go”. So where do we shop? Because of the volatility right now in individual names, I’m thinking to start buying mutual funds again. This will mitigate my individual stock exposure in an incredibly volatile market. I’ve had some fun day trading the trending ultras. It’s pretty easy.

So here’s my report on the funds: Sorry it gets all stuck together, but if you want to work with it, you can cut this and paste it into Word, replace the spaces with a “,”, and import it into Excel as a CSV file.

The order is
Fund, relative strength to S&P, 5 day rel str trend, my notes on what the ticker is.
$BKX -0.01 falling KBW bank sector index
$DJT 0.01 Flat DJ 20 Transports
$DJTCHE -.01 falling Chemicals Titans
$DJTATO 0.02 Rising
$DJTBAS -0.03 Rising
$DJTCHE 0.007 Rising
$DJTENG -0.015 Rising Dow Jones Oil & Gas Titans
$DJTCNS -0.004 Rising
$DJTFOB -0.016 Falling DJ food titans
$DJTFVS -0.005 Flat DJ titans financial
$DJTTR 0.04 Rising DJ Transports Avg Total R
$DJULTC 0.02 Rising DJ US Large Corp Tech index
$DRG.X -0.02 Rising NYSE ARCA Pharms index
$HIG.X -0.01 Flat
$OIX.X -0.01 Flat
$SOX.X 0.02 falling Philx Semiconductor sector
BBH 0.02 Rising Biotech Holders Tr Depository Recpts
DBA -0.07 Falling
DIG -0.004 Falling
GDX -0.02 Rising Gminers
GEX -0.02 Falling
GLD -0.04 Falling Gold
IAK 0 falling Ishares Imsurance index
IBB 0.004 Rising iShares NASDAQ Bio index
ICF -0.01 Flat Cohen &St Realty
IGV 0.02 falling Ishares NA Software
IHE -0.006 Rising Ishares DJ Pharma index
IHI 0.001 Rising Ishares DJ Med devices
IRET -0.06 Falling Investors Real Estate Trust
ITA 0.018 Flat
ITB -0.006 Flat
IXI 0.01 Flat
IXJ 0.02 Rising Ishares Tr S&P Global Healthcare
IYE -0.014 Flat Ishares tr DJ US energy
IYH -0.009 Rising Ishares Tr DJ US Healthcare
IYZ -0.009 Rising Telecomms
KBE -0.016 Falling SPDR KBW Banks
KCE -0.003 Falling SPDR CAP
KIE -0.016 Falling SPDR Insurance
KOL -0.07 Falling Coals
KRE -0.01 Falling SPDR KBW regional Bnaks
OIH -0.03 Falling Oil Svc Holders
RTH 0.012 Rising Retail Holder's Trust JWN=0.12, flat TIF=0.16, high URBN=.24, high
SLV -0.046 Rising
SLX -0.018 Flat Steels
SMH 0.018 Falling Semi trust holders dep rcpt
TAN -0.104 Falling Solars
UCC 0 Falling Proshares consumer Services
USO -0.06 Falling
UTH -0.01 Flat Utilities holders Trust depository rcpt
VHT -0.005 Rising Vanguard World FDS Healthcare
XBI -0.001 Flat SPDR S&P Biotech
XES -0.023 Falling S&P SPDR Oil & Gas Equipment
XHB -0.004 Flat
XLF -0.017 Falling SPDR SBI INT Financial
XLK 0.01 Flat SPDR tr SBI int-Tech
XLP -0.014 Rising
XLU -0.009 Rising Utils
XLV -0.015 Rising SPDR Tr SBI healthcare
XME -0.03 Falling Metals and Mining
XOP -0.014 Flat SPDR Oil & Gas
XRT -0.004 Falling SPDR S&P retail

Doing a quick sort, the worst performers are
TAN DBA KOL IRET USO SLV GLD $DJTBAS
And the only rising trends are SLV and $DJTBAS

The best performers are
$DJTTR IXJ IGV, BBH $SOX.X $DJULTC $DJTATO

I think I know Thor is into F, and it seems autos are doing well. One of the best performers and a rising relative strength trend.

I read a report this AM that the money flow is out of the market. Looks like Mutt’s observation that the pressure is downward is accurate.

Grece that wheel

Two weeks ago I mentioned Thursday Sep 1 as the first challenge in a raising s&p from the bottom on Aug 9.

Similarly to Aug 9 it played to the day so, yes I'm very glad of the results even though I'm still ways off of the 20 independent calls that I have for a target, in order to evaluate how reliable this kind of out of the box approach is. From Sep 1 we came down, being yesterday the lower mark and of course all because of Grece.

Is going to be a very very unexpected black swan because nobody knows that Grece is having um...some problems.Months ago the chinese appeared backing them up, but with such a secrecy and in such a haste (and being informed only in morning papers all over the world), that probably left some loose ends over there. So they are in problems again.

I was puzzled past Friday when the certainty of a Monday butchery in the equity markets because of a higly unexpected default from Grece.

Bringing the entire civilization to their knees. Don't get me wrong there are counterparty risk but this is what markets are made of; risk. Utterly collapse come with surprise, especially when banksters can make big coin "enabling" that kind of regrettable outcomes, particularly if being bailed out by taxpayers.

Two bailouts in a row (or three years appart) is not highly probable. Bankers know that so they are ranting but there's not going to be a few trillions waiting for them again, just to remain afloat.

Is clear for them that this time is different.They can ransack civilization but not that often.

What are they going to do? Just another big seizure and expect not being nationalized or chop into pieces? They are more sophisticated than that.

The pendulum is moving away from them and the focus is going to become main street otherwise no aggregate demand is going to appear and no more bussines for them. Anyway they are going to be protected if they don't blackmail too much.

Proof of that was Germany letting the entire globe known that they were going to beef up their banks if Grece defaults.

Which lead us to one of the very reason why the crisis became really scary. It wasn't the drying up of the commercial paper for corporations when Lehman brothers collapsed, the trauma.It was their collapse by itself what paralized the financial world and made it's way through the whole economy.

Of course there were lot other reasons but in markets perception is crucial in order to make people willing to bet money to an outcome. Germany was arresting that (perception) issue.

Monetary sovereign nations are going to respond "manufacturing" money and as long as the perception by the population is that they have the power to do that without the public certainty that things are spinning out of control, banksters are going to suck it up because is in their best interest to keep the wheel of economic activity moving, otherwise they are simply toast.

There's not room for a new massive bailout if regular people's lives don't improve, banksters got their trillions and I bet thet are pretty content with that.

For the s&p I'm expecting some important move by the end of the month sep 26-28 I'll study in more detail and post this weekend.

Dan


PS: I'm as perceptive as a caveman but I finally noticed that I'm almost writing alone here and two places for a weekly post is a bit much.
I'll just keep posting at dastrostockmarket.com and let other people make efforts in trying to accompany Rock's good and solid work.
Cheers

M’s, W's, and Relative Strength

Sorry about Rock’s unavailability over the last couple of weeks, but we’re finally seeing some progress on the home front. I’ve been out of the trading scene for the relocation and unpacking weeks, so don’t have any real feeling about the progress of the tape. And, I haven't had time to catch up on the blog comments.

A couple weeks ago, I commented that I felt we would see significant chop around the 1100-1200 range. I can’t remember the numbers exactly, but looking at the tape action , it seems this chop is in fact happening. I don't like this chop especially with big overnight moves. I haven't been trading, but it's hard to make money with this kind of market.

It seems we’re starting to do the turnaround, with the previous 110.27 low still intact. Looking more closely at the numbers, it seems we may be forming a series of w’s where the right side is higher than the left. This is bullish in the long run, but it takes nerves of steel to stay in over the long term during this chop.

I think the big question is what will break us out of this chop, and in which direction the breakout will happen. Here are the factors I’m considering:

1. The breakup of the Euro. If Merkle decides to support the greek sovereign debt problem, she’s likely out of a job, and will be replaced with someone without that sentiment. I think I heard the greek 2-year bonds are running around 50%. Wow.
2. Dollar strength is likely to improve. I need to get out of my RMB investment. There will still be the “flight to quality”, and as Japan proved, the condition of a country's economy is of no concern for the strength of its currency.
3. Bank contagion over exposure to euro debt. The reports I’ve seen indicate the US bank exposure is fairly low and containable. Maybe Buffet’s right and a long position in the banks should be considered. Every time I hear what Buffet is doing, I short his position short-term and prepare to get out on a reversal. It’s made money for me every time.
4. Nobody’s paying attention to the debt ceiling anymore. Now, Job creation is the focus. Who cares about debt. Just our grandchildren, I guess (too bad they don't know it yet). It seems the world agrees, with the strength of the dollar reflected in this support.
5. As I’ve said before, we’re in recession. The numbers are beginning to show it, so to fix it, the government needs to adjust the price of housing lower. This is easily done, so the government numbers will show we’re not in recession. This is a 2 edged sword, because it basically ties Bernank’s ability to do anything—why do something when we’re not in or headed to official recession?
6. The market almost always falls after the President speaks.
7. The confidence numbers are low. This is one statistic the government economists can’t fudge. This will be very difficult for Obama to overcome in any election, so he’s really got to try to do something in the short term. IMHO, nothing can be done in the short term so he’s burnt toast.
8. Austerity programs cause economic downturns. “Ok, Princess, how low can you go?”

So where’s the money flowing during this downtrend leg (besides out of the market, in general)? To try to get caught up, I’ve done yet another herds 5-day RELATIVE STRENGTH analysis. Here it is. First, the worst performers:

TAN -9%
KRE -4.8%
$BKX KCE KBE –4.4%
XLF –3.3%
UCC –3%
IAK XES -2.6%

And the best performers:

$DRG.X IHE IYH XLV IBB 2%
XLU 2.5%
GLD 9.6%
GDX 10%

From an investment perspective, the only ones making money are GLD and GDX. It’s interesting that the Solars are taking the pipe big time.

Again, the “Relative Strength” is a cumulative 5-day performance relative to the performance of the SPX index.

Trade safe in this chop, folks.