Wednesday, June 24, 2009

The "Science" of Economics

Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions.
—Wassily Leontief, Science, Volume 217, 9 July 1982, p. 106.

h/t Barry

Tuesday, June 23, 2009

SPY range-bound with bearish bias

SPY is taking a breather after yesterday's sell-off. Going into the last hour, the bias is bearish without strong conviction. We could get to the day's low 88.80 before the close. Overall we are still bearish with medium term target of 88.15-- later this week.

Saturday, June 20, 2009

Legendary technician sees more upside

Robert Prechter, reknowned Elliot wave theorist and stock market technical analyst, sees another leg up during the current bear market rally.

“These are classic signs of a short- to intermediate-term peak,” he said during an interview today with Bloomberg Radio. “Most bear-market rallies occur in two steps. The first step is probably over. We’ll probably have a reaction for awhile and then, maybe later in the summer, a second leg.”

Is it tradeable?

Friday, June 19, 2009

SPY supports and target

SPY has seen an uptrend on decreasing volume and now showing a divergence from the recent top June 11th. A head and shoulders top can be seen with the right shoulder developing now... I don't think this is a higher low forming because I see a MACD divergence and decreasing volume.

There is still a boatload of psychological support with the 200-d MA at 90.60 and the 50-d MA at 89.94. The next horizontal support is at 88-ish, and that is also the target of the head and shoulders resolution.

Spectre of Deflation

Eclectica Fund

h/t ZeroHedge

Thursday, June 18, 2009

Regional banks: KRE, PNC below support

UUP bottomed?

TLT acting funny

For those of us expecting a pullback in commodities and the general market, this TLT weakness poses a problem...

Morning Snark

Abby Joseph Cohen says the fastest growing part of the US economy the last few years was "exports." So there, the market must go up!

But our biggest exports were toxic financial products.



Commando Trading

Trading contingencies. No matter what trading discipline someone has, they have to have a bias to the market: up, down or sideways.

T.Lo ( talks about "commando trading", which really is the process of making decisions based on certain situations: if this breaks above a certain level, go long; or if it breaks below a support, go short; look for trade set-ups; bull/bear spreads, etc.

But it seems that no matter how disciplined, every trader has a certain bias for the overall market... a place from which to start, it's a must. If you really think the SPY is going to fall to aversion and the long bond is oversold, then why on earth would you waste time looking for long stock opportunities, except to hedge your net short positions?

If your basic thesis is wrong, you are going to have losses. Period. Sure, you can mitigate losses, but losses there will be. So this is the dilemma for all trading, and investing for that matter.

Wednesday, June 17, 2009

IYR and XLF Mamis targets

Mamis bottom chart showing the sentiment readings and targets. Now let's look at some sectors that appear ot be rolling over to see where the targets are. Time series analysis is not my forte, but I'll give rough estimates.

XLF Weekly hit the high week of May 8th and now appears to be rolling over with renewed belief in negative news. Point E Aversion target is 9.50 or below around July 24th.

IYR Weekly. Recent high Point D was reached June 6 and if this is deteriorating we have a target of 25-ish near July 24th.

Tuesday, June 16, 2009

Has the dollar bottomed?

UUP has made a higher high and may be forming a higher low now. This is not a "crowded trade" since nobody is convinced the dollar is in bull mode... reference Tim Seymour on Fast Money (see Eric's post for the video.)

The dollar is still oversold and unpopular and yet is exhibiting some bottoming characteristics as per the Mamis model (below.)

SPY fracturing; Mamis roadmap intact

SPY has had, as Eric said, a lot of technical damage today with some major trend lines being broken.

I am beginning to see how a "renewed belief in negatives" can take this thing over. There is a lot of black space to fall into with next support at 88-ish (sorry for the horizontal line.)

Low volume = complacency. And the next trade for many is to take some profits and I doubt many bulls will try to defend this beast once the noise machine starts up about increased regulation, poor consumer spending, increased savings rate and political unrest overseas.

The dollar is relatively oversold here and may make a bull run with any anxiety. TLT likewise is oversold. Most equity classes and commodities are overbought. You do the math.

Now, let's look at the updated Mamis roadmap of the SPY, with targets all intact.

Monday, June 15, 2009

Short : FNF Update

On May 14th, I presented FNF as a short. and it's time to tighten the stop to 14.60 and/or take half profits. This stock still looks weak but may be forming a basing pattern, currently at resistance. The easiest money is taken and it may bounce for a while.

Friday, June 12, 2009

Achuton: "This is what a recovery looks like..."

Higher interest rates and higher commodity prices are expected when a recession recovers. We still have massive over-capacity with big unemployment numbers and under utilized industrial capacity and large (altho decreasing) inventories. Lakshmin Achuton starts about half-way through:

Mamis Model Review

The Justin Mamis model is intact. The range for the near-term high is 95 to 102, so even another leg up from here would not be too odd.

Moving averages are intact, but no question, this rally is due for a pull back. Cobra has a chart that shows multiple bearish divergences: Chart is Here.

How lucky do you feel?

Thursday, June 11, 2009

Short candidates if market breaks down

Caveat: Do not view these as recommendations, I have no business giving advice.. Invivoanalytics has no responsibility for these analyses; I gave them credit for their Momentum stock list but they have not recommended a position.

TVLT: information technology looks ready to pull back.

PNRA looks weak and may have more downside to come.

HGG makes consumer electronics. Lower high and at trend line support.

Always set buy-stops.

SPY will resolve soon, either way

SPY. The drama just never quits. Now we have this very mature pennant or ascending triangle and the mystery will be solved very soon. The last time we went through this-- two weeks ago-- the SPY broke out to the upside.

Is this a consolidation, or will it break down. Eric votes break down. I still think it will pullback a bit from here, probably back to S1 93.50 or so, but after that, who knows? A break below the cyan line would be a deal breaker, but the thing is that this could happen very fast with a panic move. Be careful.

SPY pivots and target for the day

SPY ran up to R1 with good economic news this morning, but now it's on the third upswing in this channel or pennant or whatever we want to call it. If it breaks above the 95.60 then that could act as support for while

I'm looking for this to pull back to support at either the red trendline or the S1 level (93.23). A break below that likewise would be significant. I closed out some longs this morning, and have some shorts active. I would not hesitate to enter longs with a break above 95.60.

Target is 93.23 on pullback today or tomorrow.

Wednesday, June 10, 2009

SPY hits target...

The last post, SPY target was given as 94.06 which is daily S1. Now we have hit the target and are currently overbought on the short term. I scalped some SSO and am out now. Looking to get some shorts for overnight: CTAS, THOR, LEAP

SPY pivots and target

SPY has dropped precipitously from the open and is currently oversold from a technical standpoint.

We are at S2 and significant trendline support. A close below this level would be very negative for the market.

My guess is that we bounce to S1 (94.06), but I'm holding my shorts for now.

Does Gold follow Elliot Wave mechanics?

GLD. I honestly have no idea about this Elliot wave stuff... I'll defer to Eric.

Teresa Lo has been pointing out that various technicians have been talking about the "inverse" or "reverse" head and shoulders pattern that would signal a breakout to the upside. The problem, as she points out, is that there is no such animal as an "inverse" or "reverse" h/s.

So, my question is whether Elliot wave theory can be applied to the usually enigmatic gold complex? The argument is that Elliot wave theory is predicated on a functioning cerebral cortex, with sentiment based on gaussian distributions, etc... and most gold bugs are operating at the midbrain level.

Disclosure: I recently sold a mutual fund of gold miners (FSAGX) that I have had for years. I still own GLD, but I am looking to reduce my stake.

Tuesday, June 9, 2009

Semiconductor ETF (SMH)

No chart, just an opinion. With Semi's up strong today, CNBC had a guy touting the sector and how to get in.

Tomasulo talking up SMH. He likes SMH but not INTC?!! WTF? SMH is 24% INTC, 14% AMAT and 19% TXN. Of all the ETF's this one is not worth buying, IMO. Tomasulo's reasoning is flawed. 60% of this ETF is three companies.

I like the smaller players in this sector, FWIW: CY and MRVL. Maybe a little speculative for some traders, but if INTC is going to go up, these should fly.

Tech names in other sectors outside of Semi's that are reasonable Lotto tickets: PEGA, FIRE.

SPY Pivots and target for the day

SPY does not want to commit. Tech and specifically semis are strong today. SPY is currently at daily VWAP and is chopping .

Target is tough to figure for the day, but look for sell off toward Pivot. If there is any volume, this will go toward S1 of 93.10. If volume is light, then it may only get half way to S1.

This is almost untradable at the current point.

Eric says we need the dollar to strenghen to weaken the inflation trade. Interesting meme to follow.

Friday, June 5, 2009

SPY pivot reached, as predicted.

SPY has fallen to Pivot, as predicted one hour ago.  It may go further, but I'm going to ride my bike. 

It's been a great week.

Monday I'm in Chgo to watch the Sox beat up the Tigers.

See y'all Tuesday.

Hey, Mobius, WTF?

Mark Mobius, the famed international man of mystery and money manager, is extolling the "explosion" of capital that will lift world markets, or so 
the headline reads.  But, when we read the article, the money quote:

While the “longer-term trend is up” for emerging-market stocks, they may suffer a “correction” of as much as 20 percent in part because some hedge funds are selling shares in a bet they will decline, Mobius said.

Thanks.  I'll sit in cash until we're down 19.5%.  Explosion, indeed.

SPY pivots and prediction for day

SPY pivots are horizontal light blue lines.  We started out at R2 and quickly dropped to Pivot.  Now we have come back up to R1 but a lot of trouble getting above this level despite the positive NFP news.

My projection is that we drop back top Pivot 94.17 today (after hours included), but my conviction on this is weak.  Money looking to get back in and market internals have been strong, so some buyers might be found into the close.  I know; terrible to hedge this.  Gun to my head, we drop to 94.17

 Gold and reflation names hammered, but coming back.  

[BTW, my *single* friend Eric is much smarter (and probably better looking) than I am, and apparently has a penchant for beautiful Turkish babes.  His site is worth the trip.]

Mamis Bottom: 2002 -03 Vs. Now

Justin Mamis looked at the technical  and sentiment analysis of market bottoms.  Let's see where we are now and project into summer.

SPY 2002 -03 market bottom shows a similar pattern with Point C bottom on Oct 02 and Point E Aversion in March 03 (approximately 5 months to the test of the low) before positive market movement takes over.

Where are we now?  If we follow Mamis' lead and assume this market bottom will look like Mamis' model and the 2002 -03 chart, we can draw in some projections.  Point C "Maximum Information Risk, Minimum Price Risk" indicates the March 9th bottom of 666.

We should be approaching Point D "Denial" soon.  My projection calls for a pullback this summer as Point DD "Renewed Belief in Negatives" dominates.  In 2002 -03 the re-test of lows occurred approximately 5 months from the bottom, so that would bring us to August 09 with Point E "Aversion".

Sentiment now is very positive with money managers feeling behind the ball on this rally.  The NFP today is being met with buying... which could be viewed as denial of the magnitude of the problems we are facing in the economy.  

Thursday, June 4, 2009

SPY pivots and targets... [UPDATE]

SPY pivots.  SPY showing constructive pattern, although low volume. Now we have broken above R1 (94.26) after touching it all afternoon.  R2 = 94.87 and that's the target before we pullback.  I'm liking that for today or after hours.

If a break below the white trend line, then look for pivot (93.51).

NFP tomorrow?  Not sure the buzz.


UPDATE   June 5, 0716hrs

After hours, SPY hit the target as predicted 94.93 now.  Take any profits on daytrading account.

Sector performance-- time analysis

Sectors the past 14 days shows some early cycle movement, but with a huge commodities outlier... but that's the weak dollar talking.   We can have a recovery with a weak dollar.  Someone said "synthetic growth" on CNBC... but isn't that how growth should start with Keynesian stimulus?

In this instance, commodities do not follw the classic textbook late cycle pattern.  I think it's odd that "economists" didn't see this coming.  Now the question is whether the dollar weakness will continue, or whether costs of commodities will stall the recovery.  Is the exit for commodities in the offing since the dollar may strengthen?

Just for fun, I looked at the same sectors over longer time periods.  I cannot glean much insight form this, but here they are:

Sectors for 60 days (from the March low) shows massive finanacial sector outperformance, but otherwise fairly broadbased from the lows.

Sectors 400 days (from the Oct 2007 high) doesn't add much to the picture... pretty much what we expect with finnies getting hammered and everything else following.

Also, I put in Aggregate Bond Index (AGG) and it outperformed all sectors going back to mid-2005! 

Wednesday, June 3, 2009

Dollar bounces; Reflation trade falters (UPDATE)

SPY pull backs here due to a US dollar bounce which has hit commodities.  Retail also looks weak on the day.  Banks and health care are holding up okay.

Perspective: SPY is back to Friday.  I'm looking at the red trend line as a Rubicon.  We're below the horizontal breakout point of 93.20.  A close below 92.20 today would be significant.  As I type we are 92.90 which is S3.  My guess is that this will hold, maybe even bounce up to S2 = 93.58.

I wish my regional bank shorts were doing better.  I exited long  FCX at the open, but still have GLD and SLV.  

As an aside, will someone please take Huckman's microphone and shove it up Carl Icahn's ass. Does anyone really care about this shit?  (But I do like SIGA as a biotech name here.)


UPDATE 1602hrs:

Close is 93.55 as predicted (S2 = 93.58).    Eery how those supports work.

Tuesday, June 2, 2009

SPY and the big purple crayons

What's the long view of this market?  I was reviewing the wisdom of the venerable market technician John Murphy who reminds us of the importance of weekly charts.  He also puts emphasis on MACD and Volume, both of which I use (so maybe I have absorbed something.)  I am impressed by how few trading sites take longer views of the indices, and it seems even more helpful now that the perturbation of the Fall is finally abating and we have a renewed need to factor in last summer and the previous year.  I'll start with the SPY.

SPY weekly.  Sure we had this massive deleveraging when everyone (myself included) thought Armageddon was a possibility, but the markets have settled somewhat and now we are approaching a significant downward trendline.  This picks up from last summer when the SPY was already showing some signs of weakness.  Now SPY is at the 200-d MA and approaching the big trendline... if it breaks through, this would be significant.

The horizontal line (sorry, Eric) represents overhead resistance and we have broken through this already, and this should act as support.  Murphy says that the time to buy is when the market is at support, and by all definitions that is exactly where we are now.

Another item I did not put on the chart is that the 38% Fibonacci retracement from the October 2007 market high is 102-ish.  

Let's review the signs:  Overhead resistance breakout, now support (yes), 200-d MA breakout (yes), Long term down trend breakout (not yet),  38% Fib from high (not yet, and this may be where we get turned away at 102).

Murphy also likes to look at the MACD and the rule is that the market is bullish as long as the fast line is above the slow line (it is) and both are below zero (they are).  The histogram, for the record, is showing bullish divergence on the weekly.

One last thing of importance is the volume.  Yes this bull run (or counter trend rally) has been on lower volume when compared to the Fall... BUT one could argue the Fall was a massive dislocation with highly levered fund managers dumping shares in order to raise capital, so of course the volume was crazy.  Compared to a year ago, however, the volume is on par.

While we obviously cannot ignore completely the face-raking that happened in the Fall, if one were to cover up the chart from September to March or even to May, one would see a different picture:  A bear market to be sure, but one that is at significant support/resistance levels and can go higher if the recent trend follows the weekly technical signs.

SPY daily.  Let's drill down to the daily charts and see that big red trend line looming.  Also remember the 38% Fib level from the Oct 2007 high is 102 (not on the chart).

MACD, histogram and volume are not as pretty from a bullish scenario, but by the same token they are not screaming "sell" either.  And remember, Murphy says "weekly signals take precedence over daily signals [on the MACD]."

Review Murphy's Ten Laws of Technical Analysis for a quick and dirty review.

Keep Disciplined!!

"These are the times that try men's souls."  Well, okay, maybe quoting Thomas Paine is a little over-the-top for a hack stock trader, but you get the idea.  When the SPX hit 666 on March 9th, sure it was stomach churning to pull the buy trigger, but not really... As Teresa Lo has said, we had a lot of information risk but hardly any price risk with stock indices at their inflation-adjusted 30 year lows.  Was the world really gonna end?  And if it was, did I really care if my TDAmeritrade account went to zero?  Besides, Teresa made a special point to tell members to BUY on March 10th!  So Idid (with a vengence).

What a difference a couple months make.  My retirement account sure looks prettier, TDAmeritrade is still in business, and the CNBC hotties are downright giddy.  Now we have more price risk as indices have galluped along and the day-to-day decisions are tougher.  Makes we want to sell everything and wait out the summer in my Glenn Beck bomb shelter.

See, here's the deal. I understand all the angst over the recent run, but what do I do with all these longs I have that have done well?

What's the trigger to take profits?

XLE, GDX, FCX, EFA, SLV, GDX, GLD, tech names, emerging markets, small caps and some pharma ... all above the Invivo stops. The biggest mistakes I've made the past two months were taking profits too soon... If I'm going to pay for a service to give me stops, heck, I might as well use them.

I had some shorts, but most got stopped out for (small) losses.

The volatility is still somewhat high but it is dropping; the worst case scenario is that I get stopped out at some point... it'll still be for a profit.  But there is also a chance some of these names go crazy in a melt-up and I need some irons in the fire. I think the chance of a complete crash is low.

Would I sink a ton long into the market now? No, but 
I'm not selling until this market proves it's going to roll over.If I had one concern, it is the high proportion of long holdings in reflation plays, and I may have to re-jigger it a bit. 

Bottom line: not many sectors or stocks are setting up as shorts at the moment. Airlines were on my radar (no pun intended), but if they can post a 6% gain on a day that a plane falls into the ocean and oil hits $70, well, the market is telling me the sector is not rolling over (yet).

Regional banks look weak and retail may drop too, but no set up is screaming to short just yet. Eric made the point that commodities led the last the rally so they prolly won't lead this one, and that is a good piece of conventional wisdom. But for now, I can't sell into this thing even if it's just a bear market rally. My stops are all set, tho, and my finger is on the proverbial (sell) button.