Archive for October, 2008

S&P 500 Crash Count Update

Here’s Mish’s Elliott Wave analysis, after the rally on Tues, continuing a discussion in which he suggests that we will have a wave 4 up before a larger wave down in the future.

S&P 500 Crash Count – Wave 3 Update 

If you are just tuning in, this post will not make a lot of sense unless you first read S&P 500 Crash Count. Inquiring minds (especially long term buy and hold types) will also want to check out S&P 500 Crash Count Compared To Nikkei Index.

Here is an update of the S&P 500 Elliott Wave Count.

Wave 3 May Be Complete

click on chart for sharper image

The crash wave (wave 3) may be complete. Technically today’s massive rally could still be a part of wave 4 of 3 up, but judging from the action in other indices, the most likely count is that wave 3 is complete.

However, we have seen several massive one day wonder type rallies fail during wave 3. So this count, while likely, is by no means certain. The weekly chart may make things more clear.

$SPX – Weekly Chart


click on chart for sharper image

IF wave 3 is complete (Red Numbers) then by definition wave 4 up has started. Then IF wave 4 retraces 50% of the wave 3 of 3 down, see the Fibonacci lines in the first chart, there may be quite a bit of rally still ahead.

Putting this all into place, the action would look like this.

$SPX Monthly Chart

click on chart for sharper image

A healthy pullback followed by a close above Tuesday’s high will make it more likely this count is indeed the correct one.

Mike "Mish" Shedlock

 





Thursday Morning

We got huge moves in both directions following yesterday's half-point cut.

I was negative on the rally and we went as far as to pick the DXD (ultra-short Dow) calls at 3:46 with the Dow topping out at 9,350 as I said to members: "I don’t know that Europe is going to have such an easy time cutting rates with oil up 8% and other commodities going up as they are now up sharply against the weak Euro and the ECB has a very definite inflation-fighting mandate."  Still, I was as surprised as anybody to see DXD fly from $71 to $77.50 in the last 14 minutes of trading.  Looking at the futures (7am) I may have been wrong to be so bearish about the Fed statement but the commentary struck me as very negative and, with the GDP and Unemployment hitting us at 8:30 and then the weekend looming, I couldn't see not covering into what looked like a pretty irrational rally.

Pre-market, we are back up to roughly 9,150, the mid-point of yesterday's trading.  Holding Tuesday's close will, of course, give us a small victory for the week but, as I pointed out in yesterday's Big Chart Review, it doesn't mean much unless we can take back LAST Tuesday's highs which are: Dow 9,265, S&P 985, Nasdaq 1,770, NYSE 6,051, Russell 546 and SOX 243.  The Hang Seng (15,041) and the Nikkei (9,306) made valiant attempts to get back to last week's levels with massive gains this morning but the Hang Seng still finished down 712 points since 10/21 and the Nikkei, despite a 10% gain on the day, fell 277 points shy of the mark.  Both had strong finishes and may follow through tomorrow if the US looks good today but it's going to be a real level test ahead of the weekend.

[money is still tight]In addition to our half-point cut yesterday, the IMF offered up $100Bn in an expanded loan fund and we discussed China's cut to 6.66% yesterday.  Norway dropped rates to 4.75%, it's second cut in 2 weeks and Taiwan dropped rates to 3% while Japan is discussing halving their 0.5% rate to 0.25%.  Meanwhile, junk bond rates are exploding to 16% as corporations scramble for cash.  Last year…
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Apple – Buyback?

Note on the AAPL buyback rumor.  Courtesy of Trader Mark at Fund My Mutual Fund

Apple (AAPL) Surging on Talk of Share Buyback

 Some interesting comments on the blog of late debating the merits of buying stocks with dividends versus not. I don’t have a problem buying stocks without dividends since many stocks I focus on are relatively young and in high growth states. In markets like this they are punished since the growth is questioned; but if they have "must have" products or in highly defensible niches that fear is usually very overblown. The other issue is many companies don’t like to issue dividends even if they can (see Microsoft for a long time) because it means they’ve turned from a growth stock to a value stock. So more important than actually spitting off dividends is the ABILITY to spit off dividends (i.e. high cash on balance sheet and positive cash flow).

Stock buybacks have interestingly mean almost nothing in this horrid market – usually this has

proven to be a great defense but the selloff is so relentless stocks with buybacks are punished just the same as those without. But in this respite in the market, Apple (AAPL) is surging on reports they might finally deploy their $25 billion war chest. This company is a splendid cash cow as the chart shows. Right now about 1/3rd of its market value is cash.

  • Apple is sitting on a huge cash reserve — $24.5 billion as of September and growing at the rate of $8 to $10 billion a year – that’s doing almost nothing for it.
  • The money is earning about $1.55% interest after taxes, according to a report issued Wednesday by Bernstein Research’s Toni Sacconaghi, at a time when the company’s stock is trading at a unusually low (for Apple) multiple of 15 times earnings.
  • “Mathematically,” he wrote “share buybacks boost EPS only if a stock’s P/E multiple is lower than the reciprocal of the after-tax interest rate earned on cash.”
  • Apple has been trading at 30 to 40 times earnings in recent years, which Sacconaghi believes is one reason Apple has not initiated a stock repurchase program in the past 5 years.
  • But today, according to Sacconaghi’s model, Apple is trading at about 18 times his fiscal year 2009 earnings estimate


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Fed Cuts 50 Basis Points

Courtesy of Mish

Fed Cuts 50 Basis Points, Another Bernanke Theory Blows Up

 

As expected the Fed cut the Fed Funds Rate 50 basis points to 1.0% Here is the FOMC Press Release.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.

When the Fed follows up with any additional cuts, a new low in Fed Funds Rate will be set. Remember that Bernanke wanted to put a floor in rates at 2%.

Part of the bailout package passed by Congress was to allow the Fed to pay interest on reserves. Paying interest on reserves was supposed to put a floor in…
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Fear Bubble

No reason why fear couldn’t join the other bubbles of recent past,…

Is the Fear Bubble Bursting?

There have been quite a few bubbles and mini-bubbles that have burst over the past year or so. A short list would probably include China; housing; oil; fertilizer; solar; dry bulk carriers; etc.

What about a fear bubble?

We have overshot on just about everything else, so maybe it’s time we overshot the whole business of overshooting. Fear and volatility have become so much a part of the everyday existence for those who work in the investment world that it is all too easy to take them for granted.

When I see a contract on Intrade that allows people to bet on the end of western civilization, then I’ll know things have gone too far. I haven’t seen such a contract yet, but I feel obliged to note that there is a contract for The U.S. Economy to go into a Depression in 2009, with a depression defined as “a cumulative decline in GDP of more than 10.0% over four consecutive quarters.”

Looking at previous bubbles, I wonder if the fear bubble is analogous to an oil bubble. You see macroeconomic events moving inexorably in the same direction day after day and you begin to assume the future is a predestined march down what looks like an unavoidable path.

On Monday, in Fear Is on the Decline, I talked about signs I was seeing that fear was already “starting to leave the markets.” The VIX has already fallen more than 15% from Monday’s close and there is a good chance it will be at least another decade before it sees the 80s again.

Roger Ehrenberg is out with another thoughtful piece, Is Volatility Embedded in the System for a Generation? In it, Roger paints a picture of a financial crisis receding only to the point that it exposes gaping fundamental holes in the economy, the substantial risk of a Japan-style deflation, and a Fed so determined to prevent deflation that their easy money policy leads to runaway inflation and ultimately some sort of cruel game of low growth inflation-deflation ping pong.

In such an environment, which I would not consider to be too far-fetched,
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Swing trading virtual portfolio – Optrader

We had a couple of very good weeks in the swing trading virtual portfolio. The virtual portfolio is up 32.51% since September 2nd and 684.51% this year.

Our strategy to take profits fast worked pretty well in this environment, where we could book significant profits fast. I expect the volatility to drop and we should be able to stay in trades longer.

Thank you everyone again for your participation in the comments and congrats for some great trades, especially trading ES!

To learn more about the swing trading virtual portfolio (strategy, membership etc.), please click here

- Optrader





Swing trading virtual portfolio – Optrader

We had a couple of very good weeks in the swing trading virtual portfolio. The virtual portfolio is up 32.51% since September 2nd and 684.51% this year.

Our strategy to take profits fast worked pretty well in this environment, where we could book significant profits fast. I expect the volatility to drop and we should be able to stay in trades longer.

Thank you everyone again for your participation in the comments and congrats for some great trades, especially trading ES!

To learn more about the swing trading virtual portfolio (strategy, membership etc.), please click here

To view the full strategy, please click here

- Optrader





Casino investors breathe a sigh of relief as MGM Mirage shelves expansion plans

Today’s tickers: MGM, LVL, XHB, RYL, RIGL & LM

MGM – MGM Mirage – Investors showed their true colors following a 67% decline in profits at Vegas casino and leisure company. The rebound today of more than a quarter of its share price to $13.27 tells us that it was short sellers earlier who tried to take it down. The company was less than optimistic in announcing losses and noted it was shelving expansionary plans until the capital markets were more solid and there were signs of life at the casinos. Calls were in demand in the November contract between strike prices of 12 through 20 while a decent chunk of 10 strike puts was bought for a premium of 1.40 after the shares had recovered. There was also healthy two way activity in the December puts at both 10 and 12.5 strikes. That tells us that the rebound was largely short covering and shares might not yet be out of the mess.

LVS – Las Vegas Sands Corp. – Hand-in-hand with MGM goes Las Vegas Sands, whose shares recovered by a huge 80% to stand at $8.91 today. The move sparked call option buying in the November contract from strikes as low as 5.0 all the way through 17.5. More curiously was activity in the put options where investors chose to go long November 7.5 at a premium of 1.50, while selling short the December 10 strike. Our scanners indicate that some 16% of overall open interest is in play today. Implied volatility subsided from a reading of 293% to 231%.

XHB – SPDRS S&P Homebuilder ETF – Around one quarter of overall option open interest was trading this morning on the homebuilder ETF. This could represent some repositioning across different calendar months. The basket of shares rallied 4.4% to $13.05 while November puts at 18, 19 and 20 saw option volume of 18,000 contracts each. In the January 12 strike some 15,000 contracts were sold for a premium of 2.0 out of total volume of 23,000 in the series. Similar volume was also found at the 15 strike, which traded to mid-market prices.

RYL – Ryland Group Inc. – An investor appears to be rolling out of front month protective puts at the 25 strike and buying January protection across the 12.5, 15 and 20 strike prices. That would appear to indicate that despite an 11% jump in…
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Not-So-Invisible Hand

THE NOT-SO-INVISIBLE HAND:
HOW THE PLUNGE PROTECTION TEAM
KILLED THE FREE MARKET

Courtesy of Ellen Brown, at Web Of Debt

“We’re now no different from any of those Western European semi-socialist welfare states that we love to deride. Italy? Sure, it’s had four governments since last Thursday, but none of them would have allowed this to go on; the Italians know how to rig an economy.”

– Bill Saporito, “How We Became the United States of France,” Time (September 21, 2008)

October 24 marks the 79th anniversary of the October 1929 stock market crash. Heavy selling started on Thursday, October 24, 1929, and accelerated the following week on Black Monday and Black Tuesday, October 28 and 29. Many feared a repeat of this disaster on Friday, October 24, 2008, after Japan’s Nikkei stock average fell nearly 10% during the night, Hong Kong’s Hang Seng fell 8%, and Germany’s and Britain’s fell 5%.

“In a stunning turn of events,” reported Yahoo! Finance, “the futures for the major indices were ‘lock limit’ down before the start of trading Friday, meaning they had hit a 5% threshold that prevented them from trading any lower until the stock market opened Friday.” Traders prepared for the worst, but remarkably, disaster was averted. The U.S. market fell only 3.5%, just another “ordinary” bearish day.

Why the more modest drop in the U.S., where the financial debacle originated and should have hit hardest? Suspicious observers saw the covert hand of the Plunge Protection Team (PPT), the group set up under President Reagan to maintain market “stability” by manipulating markets behind the scenes. Bill Murphy commented in LeMetropoleCafe.com:

“Today the Muppets on CNBC were remarking how well our market acted, not falling apart as expected. All day long they spoke of how our market was acting differently today than every other stock market in the world. Well hello, the other countries don’t have a PPT, which is WHY our market is so different.

“There are those who might think what the PPT is doing is right. What they don’t realize is their making ‘Everything is fine’ for so long, and not allowing the market to trade freely . . . like allowing the stock market to fall the way it should, has kept the individual in the market . . . when they might have been SCARED out
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Which Way Wednesday? Fed Edition!

How much of a rate cut do we "need"?

Will half a point be enough for the markets or is .75 to even a full point cut already priced in?  Either way we are looking at 1% or lower on the Fed Funds rate as we actually cross the line and become Japan.  On a global basis, without cuts also coming from the ECB there will be a lot of disappointment anyway as free money is now being priced into the markets, which allows us to defy some pretty ugly data this week.

We discussed the TERRIBLE consumer confidence numbers in last night's post and this morning we get Durable Goods Orders, which are also almost certain to be low (especially ex-Transports) followed by Crude Inventories, which are predicted to rise by 4M barrels as demand destruction is now being baked into the weekly estimates.  Tomorrow is the scariest day of the week as we will get a very big Chain Deflator number due to the difference between the rapidly declining import price of oil and the stubbornly high prices paid at the pump.  This will push consumer prices up over 4% for Q3 and will very likely spook the market tomorrow morning so we'll be playing for that and, of course, we also get the Q3 GDP data, which will be dragged down near zero due to a 25% decline in Residential Construction (about 1% loss on GDP) and not helped much by consumer spending.  Still, zero is NOT a recession so that's the line in the sand for the US, where 0.1% growth in GDP is the entire economy of all by 50 other countries.

Today we expect follow-through as we finished at (and this is amazing) the 10% rule on yesterday's close, making a move to 12.5% almost a certainty and a 15% total gain a very strong possibility.  12.5% is our 1,000-point goal for the Dow on Fed news and, of course, a bigger than .50 cut should lead to bigger gains.  We have no doubt about the boost from the Fed – the question is whether or not we hold the levels.  To get a sense of that, we need to keep our eye on other markets and see how they perform at their critical levels so let's take a look at the Big Chart for today:

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Phil's Favorites

Oil companies are thinking about a low-carbon future, but aren't making big investments in it yet

 

Oil companies are thinking about a low-carbon future, but aren't making big investments in it yet

Oil pump jacks in Williston, N.D. AP Photo/Eric Gay

Courtesy of Lewis Fulton, University of California, Davis and Daniel Sperling, University of California, Davis

The global oil industry stands at a crossroads. Corporate leaders are weighing how closely to stay wedded to their legacy business ...



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Zero Hedge

EU Reportedly Pushes Decision On Brexit Delay Until Friday

Courtesy of ZeroHedge View original post here.

Amid rumors that UK PM Boris Johnson might capitulate and agree to delay Brexit Day until the end of January, reports have surfaced claiming that the EU won't release its decision on postponement until Friday.

  • EU DECISION ON BREXIT DELAY WILL PROBABLY COME FRIDAY: OFFICIALS

Sources from within No. 10 Downing Street have reportedly been talking with reporters all day, claiming that if there is an extension, the Johnson government will opt to push for an election, and that the conservatives will campaign on their plan.

...



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Kimble Charting Solutions

S&P Needs This Key Indicator To Experience A Breakout!

Courtesy of Chris Kimble

Is a leading Tech sector about to send the broad market a key message? In our opinion, yes!

This chart looks at the Semiconductor/S&P ratio over the past couple of years.

When the ratio peaked around March of last year at (1), numerous indices in the states (NYSE, Mid-Caps, Small Caps) and around the world (EEM & EFA) started to create a series of lower highs.

The SMH/SPY ratio is again testing the highs of early 2018 at (2).

Many indices in the states and around the world, need this ratio to continue to move higher/experience if the...



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Insider Scoop

A Peek Into The Markets: US Stock Futures Down; Crude Oil Falls 1%

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. The FHFA house price index for August will be released at 9:00 a.m. ET.

Futures for the Dow Jones Industrial Average dropped 27 points to 26,736 while the Standard & Poor’s 500 index futures traded fell 2.75 points to 2,991.75. Futures for the Nasdaq 100 index fell 5.25 points to 7,853.50.

...



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Digital Currencies

Blockchain voting is vulnerable to hackers, software glitches and bad ID photos - among other problems

 

Blockchain voting is vulnerable to hackers, software glitches and bad ID photos – among other problems

How secure is online voting with blockchain technology? WhiteDragon/Shutterstock.com

Courtesy of Nir Kshetri, University of North Carolina – Greensboro

A developing technology called “blockchain” has gotten attention from election officials, startups and even Democratic presidential candidate Andrew Yang as a ...



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Lee's Free Thinking

Repo Market Bank Regulations and the Slings And Arrows of Outrageous Leverage

 

Repo Market Bank Regulations and the Slings And Arrows of Outrageous Leverage

Courtesy of 

Are repo market regulations really behind the money market’s problems? That’s what bankers and their hired mouthpieces are saying.

So I need to get a few things off my chest about this notion that post financial crash Dodd-Frank bank regulations are the cause of the current repo market problems.

It’s total bullsh*t. The bankers and their superleveraged hed...



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The Technical Traders

Daily Market Forecast and Trading Patterns

Courtesy of Technical Traders

CLICK HERE TO GET REAL TIME TRADE ALERTS!

...

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Chart School

Gold Stocks Review

Courtesy of Read the Ticker

Gold stocks are swinging back forth between the range, and a break out swing higher is due. Gold stocks are holding a near perfect Wyckoff accumulation pattern. All should get ready to play this sector. Yet we must recognize that gold stocks are a one of the most crazy rides at the stock market fair, so play very carefully.

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GDX PnF chart from within the video

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Important channels around the HUI.
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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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