I wrote the first iteration of this post here (A Massive Chart Dump – P2 Analysis Wrap-Up) on Aug 29. There are three main reasons why I wrote that post at that time, saying that the end of P2 [end of the up trend] would be soon:
1) There was a 5 wave count up from the Aug 18 low that could possibly have served as a C wave to finish P2 (obviously it didn’t) 2) There was a possible ending diagonal setup, identified here: So the Diagonal Walks Up to the Two and Says…, 3) Our first born child was due any day (was actually born on Sept 3) and I knew I would not have time to watch the market anytime around then. So I figured I might as well write a post calling for the top soon, because I might not get a chance while it was actually happening . LOL!
Well, as we all know, Mr. Market does not do anything obviously. And since then we had a big pullback, then a big rally, then a dramatic and confusing spike with a large pullback. … which brings us to now.
So what is up?
That is what I will explore in this post. I will most assuredly not be getting this 100% right. But in the past few weeks we have received a few glimpses of what Mr. Market’s intentions may be. And I will give my interpretation. Hopefully it is useful, or at the very least, an entertaining read.
… On to the analysis!
…. And by "Chart Dump", I don’t mean all these charts belong in the toilet.
I wish Primary 2 was done, I *want* Primary 2 to be done. Why? Several reasons. Mainly because this rally is "fake". It is a countertrend rally in a overall secular bear market. And countertrend rallies are fine. In fact, they can be fun! Traders can make money…
Featured Trades: (OBAMA), (BERNANKE), (TBT), (PCY)
1) Boy, are the Republicans really screwed. I was awed with Obama’s performance on the David Letterman show last night. This guy is relaxed, polished, cool, and a fabulous advocate and salesman of his policies. When asked a question, he is so focused you feel like he is burning holes straight into his interviewer with his laser eyes. Obama has never really stopped campaigning, with five talk show appearances on Sunday, constant reminders about the mess he inherited, and relentless attacks against the right. His online network is still operating with full force. I have noticed that the spending of the government stimulus package is being carefully metered out to create an economic miracle by 2012. What can the Republicans offer? Reigned in government spending? They just doubled that national debt from $5 to $10 trillion. Regulatory reform? The financial system blew itself up on their watch. The environment? Bush came into office arguing that global warming was a myth. A better life? Most Americans have either just lost everything, or saw their net worth drop by half.
The big problem for the GOP is they took their own moderates out and shot them. Moderate ideas and input might get a hearing in this environment. The end result is that the lunatic fringe has taken over the party, like Sarah Palin and Rush Limbaugh. Death panels? No one rational and substantial wants to step up and become the sacrificial lamb, the blame taker. This in fact could be the beginning of a 20 year reign for the Dems, much like Roosevelt brought on from 1932-1952, on the heels of Herbert Hoover’s great stock market crash. The Republicans could be in the wilderness for a really long time. Better structure your portfolio for the one party state before elephants become an endangered species. Think endless trillion dollar budget deficits, a weak dollar, continued massive debt issuance, ultra low interest rates as far as the eye can see, and strong commodity, energy, gold, and silver prices. I’m not trying to be partisan here. I’m just trying to call them as I see them.
2) I spent the evening with David Wessel, the Wall Street Journal economics editor, who has just published In Fed We Trust:…
The United States government is borrowing money like never before. The national debt rose by more than a third over a one-year period, far more than it ever did at any time since World War II.
Rather than crowding out the private sector, Uncle Sam is now standing in for it. Much of the government borrowing went to investments in financial institutions needed to keep them alive. Other hundreds of billions went to a variety of programs aimed at stimulating the private economy, including programs that effectively had the government pick up part of the cost for some home buyers and some auto buyers.
Summary Statistics From The Article
Total domestic debt — the amounts owed by individuals, governments and businesses — climbed just 3.7 percent from the second quarter of 2008 through the second quarter of this year. That is the smallest increase since the Fed started these calculations in the early 1950s.
Over the 12-month period, nonfinancial businesses increased their debt by just 1.3 percent. Since that number is well below the interest rate most of those companies pay, it indicates that they paid back more in old loans than they took out in new ones.
Over the year, total household debt fell by 1.7 percent, and mortgage debt — the largest component of household debt — fell a bit more, at a 1.8 percent pace. This is the 10th recession since the Fed began collecting the numbers, but the first in which the amount of home mortgage debt fell.
Annual Growth Rate of Debt
click on chart for sharper image
Inflationists will no doubt quickly point out that total debt is still growing. However, government bailouts, health care schemes, lending money to corporations to keep them alive, are low-velocity debt that subtract rather than add to real economic growth.
Moreover, Domestic debt declined in the second quarter, falling 0.3 percent to $50.8 trillion.
The article states "Until this recession, the idea that American individuals would ever cut their overall debt levels seemed as likely as an August snowfall in Miami."
Yes, that was exactly the prevailing view. However, those who saw the
Bill Bonner is one of my favorite columnists. On Friday he was discussing The Last Bear.
As they say on Wall Street, a rally ends when the last bear gives up. An old friend had been a source of inspiration for tech bears for many years. He suddenly saw the light and gave up in 1999. Shares he had formerly scorned – often dotcoms with no revenue and no business plans – were suddenly added to his own portfolio. This also heralded a big change – the end of the tech bubble. Tech stocks collapsed. Most disappeared. Then, Stephen Roach became vaguely bullish in 2007, after a long period of doubt and misgivings.
Now it is Jim Grant who has changed his mind. A generation of investors has gotten used to Grant’s ‘doom is nigh’ warnings. Now, he says, it’s a boom that is nigh.
What is remarkable about the Grant conversion is that his vision gives off so little heat and light. His WSJ article shillyshallies around; rehearses the history of previous recessions and comes to rest in front of a flickering match: “The deeper the slump, the zippier the recovery.”
But facts are survivors. They will tell whatever tale their interrogators want to hear. As for opinions, after six months of a stock market rally, the once half empty glass has become half full. We predicted it ourselves. But we’ll let Robert Prechter say, ‘I told you so.’ Even before the rally began, Prechter foretold its story:
“Regardless of extent, it should generate feelings of optimism. At its peak, the President’s popularity will be higher, the government will be taking credit for successfully bailing out the economy, the fed will appear to have saved the banking system and investors will be convinced that the bear market is behind us.”
As to Mr. Obama’s popularity, Prechter was wrong. But 4 out of 5 ain’t bad.
What will happen next, we don’t know. But if we turn bullish on this economy and urge you to buy stocks, it will surely be time to sell them.
Enjoy your weekend,
The Daily Reckoning
From Deflation to Inflation
With the above in mind I note with interest Martin Weiss, a prominent deflationist has changed his stance. Please consider From Deflation to Inflation.
While much has been made of the expiration of the Federal Reserve’s $300 Billion quantitative easing program, there are still many more ways in which the Fed can pump the markets with liquidity that need never be paid back to the recipients. In this article, we take a look at the ramifications of some recent developments with regard to the Treasury and Federal Reserve that will again provide fodder to the equities markets, as well as revisiting our previous work on how money supply has impacted the economy and what it tells us of the potential correction down the road.
As we wrote two days ago, Treasury is effectively winding down its Supplemental Financing Program, the stated intention of which on its inception in September 2008 was to, “drain reserves from the banking system, and therefore offset the reserve impact of recent Federal Reserve lending and liquidity initiatives.” Delving into the mechanics of it, here is what happened:
Treasury announced special auctions for cash management bills, the proceeds of which were placed on deposit with the Federal Reserve in a special account (as opposed to the proceeds being kept by Treasury to fund the government). This allowed the Federal Reserve to use these funds (which topped out at $558.9 Billion in November 2008) to borrow or buy securities primarily from banks and broker dealers to help “unfreeze the credit markets.” The Fed could have simply borrowed or bought securities with money it printed, but this would have expanded its balance sheet by creating excess reserves in the accounts that banks are required to keep with the Fed. These reserves can be multiplied by at least ten times and used by banks for lending. At the time, the Fed was rightfully concerned about inflation becoming unmanageable once the credit markets thawed, and about being able to keep the Fed overnight lending rate (fed funds target rate) above zero. Accordingly, Treasury’s SFP helped to keep the Fed balance sheet under control (if you can call a multiple hundred percentage increase “under control”). The amount of money that flowed into the financial markets from the SFP was the same as it would have been had the Fed printed the money; however, SFP…
The decision regarding whether or not to get vaccinated for swine flu, or have your kids vaccinated, may be easy for some, but is not for others. It depends on how you perceive and value the risks. As is often the case with medical interventions, the risks are not fully known or understood. Even if you’re lucky enough to believe you’ve obtained valid risk percentages to compare, you cannot truly know whether your assumptions accurately reflect reality. And your numbers certainly don’t factor in the unknown.
So as the swine flu vaccine program gets underway, several government-sponsored projects will attempt to determine how safe the vaccine really is. We have a rather unique opportunity to learn a lot more while serving as subjects in this grand experiment.
Go ahead, leave comments and share your thoughts… – Ilene
(WASHINGTON) — More than 3,000 people a day have a heart attack. If you’re one of them the day after your swine flu shot, will you worry the vaccine was to blame and not the more likely culprit, all those burgers and fries?
The government is starting an unprecedented system to track possible side effects as mass flu vaccinations begin next month. The idea is to detect any rare but real problems quickly, and explain the inevitable coincidences that are sure to cause some false alarms.
"Every day, bad things happen to people. When you vaccinate a lot of people in a short period of time, some of those things are going to happen to some people by chance alone," said Dr. Daniel Salmon, a vaccine safety specialist at the Department of Health and Human Services.
Health authorities hope to vaccinate well over half the population in just a few months against swine flu, which doctors call the 2009 H1N1 strain. That would be a feat. No more than 100 million Americans usually get vaccinated against regular winter flu, and never in such a short period.
How many will race for the vaccine depends partly on confidence in its safety. The last mass inoculations against a different swine flu, in 1976, were marred by reports of a rare paralyzing condition, Guillain-Barre syndrome.
We’ve been due for this type of action for some time as conditions had gotten much overbought. Suddenly, “worse than expected” news is really just bad news not spun in another manner. We lose one of the Four Horsemen (RIMM) due to poorly received earnings; and Durable Goods and New Home Sales were in the bad news camp so the selling continued.
Volume remains at a higher level with selling than previously with buying which isn’t good. Breadth today continues negative and that should embolden dip buyers and tape painters with the quarter and month end just a few trading days away.
Zero Hedge has recently presented several declassified documents from the pre-1971 “Nixon Shock” days, that endorse the case for gold as a major historical factor in US monetary and foreign policy, as demonstrated by State Department and CIA disclosure. Gold’s special status in policy and administrative decision-making was a direct factor in Nixon’s choice to abolish the gold reserve at a time of an exploding budget deficit.
Yet what about the days after 1971, and specifically, how did that critical “behind the scenes” organization, the Federal Reserve, perceive and manipulate gold in the post Bretton-Woods world? Was gold, freed from its shackles to the dollar, once again merely a symbolic representation for money?
Zero Hedge presents the smoking gun that may provide responses to all the various open questions, courtesy of a declassified memorandum, written by none other than the then Fed Chairman, addressed to the president of the United States.
On June 3, 1975, Fed Chairman Arthur Burns, sent a “Memorandum For The President” to Gerald Ford, which among others CC:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon’s actions, had only managed to grow in…
The big questions on a lot of folks minds are: "Was That It? and Did We Just Top?" In order to answer those questions let’s look at what the daily index charts off the March 2009 lows have to say about that.
The Nasdaq, Dow and S&P indexes have uptrends that are still intact. The green lines, the blue line and the 50 day moving average are your guides. As of this moment, we see NO TOP on the market.
HOWEVER, IF we see a quick run sometime next week to a retest of the highs and then a pullback off of that retest, those developments will create a double top and we’ll be more apt to call a short term top at that time.
Why does the presence of a Double Top cause us to be more likely to change our position on the market? Because the Double Top is one of the most common early warning alert patterns warning of a change in trend.
HOW TO BUY STOCKS AT SAFE, ALTERNATIVE ENTRY POINTS
So now that the indexes are pulling back, but remain in a clearly defined uptrend above their uptrend lines and 50-day moving averages, we want to focus on stocks that are in the same position and have simply pulled back off of their highs to those support levels. This is called trading in tandem with the market.
Now there are two ways to buy stocks. The first way is to find a stock that has formed a base and buy it when it breaks into new highs above the base. This is called buying a traditional breakout. Here’s a look at some recent breakouts:
As you can see with each of these, after breaking out, they quickly turned tail to retest what was resistance (now should be support), and each of them actually closed under support or back in the base. If you had bought them with a stop loss, chances are after a few feel-good days, you were stopped out.
Now let’s look at the second way:
As you can see here, this issue broke out. But most breakouts…
Officially, 14.9 million Americans are unemployed. That number will double.
The number of people who are unemployed is almost unimaginable: 15 million. According to the Bureau of Labor Statistic’s August 2009 Employment Situation Report, 14.9 million persons are unemployed, 9.1 million are "working part time for economic reasons," and 2.3 million are "marginally attached to the labor force," i.e. they wanted a job but have not actively looked for a job in the past four weeks.
That totals 26.3 million people unemployed or under-employed. In January of this year, the Standard Issue Financial Punditry (SIFP) was parroting "official estimates" that the economy would lose 2 million jobs during this recession. I dismantled that absurd fantasy with an analysis of the employment situation which concluded that 21 million jobs lost is actually an optimistic guesstimate compared to what could transpire in the years ahead--a gradual evaporation of 30-35 million jobs. Sadly, the current numbers fall into the range that I suggested was realistic. (The End of (Paying) Work, January 21, 2009)
We need to understand the dynamics behind the unemployment numbers.
1. Some unemployment is normal; people lose a job or quit and then find another one, usually within six months--at least in times of prosperity. So even in prosperity, 5 to 6 million people are "between jobs" and thus officially unemployed while they draw unemployment benefits.
Thus at least 5 million of the 15 million currently unemployed are "baseline" unemployed, the normal shifting and adjusting of thousands of enterprises and 137 million workers (the size of the civilian workforce as of December 2008).
So while the "official" estimate was 2 million people would lose their jobs due to recession, the actual number is already 10 million. At least 2.3 million have given up looking and 9 million more have had their hours slashed. Note to Ministry of Propaganda: you really need to align slightly with reality or you lose all credibility.
2. The BLS estimates the number of jobs created by the "birth" of new small businesses which it assumes are flying beneath…
The one headline we have been waiting for for over four years has just hit:
BOK KIM SAYS WORLD MAY FACE RATE RISK IF U.S. EXITS FROM QE
Not when, if. And there you have it: if the Fed exits, the world (and most certainly Japan) gets it. Thus, for the sake of the children (who will have inhert about $100 trillion in debt but don't worry: debt is an asset as some "analysts" will promise) Bernanke can never exit. QE...D
And since never is a litte longer than 2016/2017, at some point in the next few years ...
Another day of no economic data left the markets looking for cues. The Nikkei closed with a fractional gain of 0.13%, and the EURO STOXX 50 slipped a fractional 0.10%. So today's focus was on couple of the more dovish Fed presidents, Bullard and Dudley. For an interesting visual of the Fed Presidents on the Dove-Hawk scale, see this graphic from Thomson Reuters. Bullard's presentation is available here. Dudley's speech is available here. But of course it's Bernanke's testimony to Congress tomorrow that will be the main event for Fed watchers. The S&P 500 traded in ...
General Electric (GE) was once revered as one of the bluest of all blue-chip companies in the world. During its glory days, GE was respected as an industrial conglomerate that manufactured some of the world’s best jet engines, locomotives, appliances and even the highly regarded General Electric light bulb. However, as best I can determine, the roots of General Electric’s ultimate demise were established in 1930 when the company, responding to the great depression, formed GE Finance in order to help their customers finance GE appliances over time.
U.S. equity futures traded lower in early pre-market trade following a weaker than expected GDP report from the eurozone for the first quarter. GDP growth rose to -0.2 percent on a quarterly basis from -0.6 percent but missed forecasts of a 0.1 percent contraction. Weakness was notably seen in Germany, France, and Italy in the report, with the annualized rate of growth for Germany dropping to -1.4 percent vs. 0.2 percent growth forecast.
In other news around the markets:
The U.K. had fewer people claim unemployment benefits in April than expected, a positive sign for the labor market as the ...
So, what did the market want today? Nothing it appears. It traded on weak volume and had very little movement. This morning the market hated commodities especially silver, but by days end, the market liked silver, gold and even oil but not the dollar. Why?
Last week the economic reports were tough, with bad misses on more than one occasion. But the market tended to ignore the bad news, probably because money continues to pour into equities from money market funds, long term fixed income, and many struggling foreign economies. On Thursday, investors finally caved to even more bad news from Initial Jobless Claims and weak Housing Starts. Then on Friday, when Michigan Sentiment and Leading Indicators posted large positive surprises, the money came pouring back to generate qui...
VOYA - ING US, Inc. – Shares in ING Group’s U.S. retirement, investment and insurance business are up as much as 8.0% today to $26.98, the highest level since the company’s May 2nd IPO. ING US was rated new ‘buy’ at BTIG LLC with a 12-month target share price of $31.00 today. The stock has rallied nearly 40% over the IPO price of $19.50, and some options traders are positioning for the price of the underlying to extend gains during the second half of the year. November expiry options are the most ac...
Again, not much to add to this market in terms of analysis – nothing matters other than central banks. Last Wednesday/Thursday there were some 9 economic reports, 7 of which were disappointing or could be considered as such and all it got was one rare day down, and then new highs Friday. Markets are up 10 of the past 12 sessions and 17 of 21. Friday's move to 1666 was an exact 1000 point rally from March 2009's 666 bottom. Since this most recent leg of the move has been medium fast rather than a huge spike ala 1999, things are not necessarily overbought on the daily chart but we are seeing extremely rare action on the ...
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I am going to share with you how I manage my IRA and the power of reducing your cost basis. My goal each year is a 20% return in my IRA. Sometimes I make it and sometimes I don't, but I believe that all of my success is due to reducing my cost basis. To illustrate the power of reducing your cost basis here are some trades we did last year. These trades are taken from an educational portfolio we ran in a paper-trading account for a little more than a year.
We bought RIG on 5/15/2012 for $44.13, sold it on 1/18/2013 for $46 but booked a profit of $1,154.
We bought MT on 1/4/2012 for $19.24, sold it on 12/21/2012 for $15 but booked a profit of $454.
We bought CHK on 1/27/2012 for $21.93, sold it on 10/19/2012 for $18 b...
Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
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Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
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