Sometimes There Is No Trade.

1284 has been taken back but barely just.  The market seems to be moving along the script written and depending on what action Draghi takes tomorrow, it might aim for the stars. How far it will go up is anybody’s guess. We better keep in mind that it is a counter trend rally and expecting the market to go up when the trend is down is again an expensive proposition. Unless you are nimble trader, do not even bother with the bounce and wait for the correction to get over. If you must, you may even think of shorting it when a sizable bounce has been achieved. Then again, you must know what you are doing.

I read a lot of fellow bloggers, traders, rational thinkers as well as irrational nuts. In my life time, I have followed many Pandits only to find that nobody knows any better. Sometimes however we come across words said or written which are profound and strike a chord right away. The following is an example of such. It came from Josh Brown of The Reformed Broker:

·         It is okay to admit when you don't have an edge.

·         It is okay to say that you simply have no idea what's happening next.

·         It is okay to sit out the possibility of an oversold bounce or a big snapback rally.

·         It is okay to shut down the trading software and shut your mouth.

·         There are forces at work here that many do not respect.  There is "unprecedented" and then there is this, whatever the hell this turns out to be.

·         You have a trading plan for bank runs?  For the spontaneous dissolution of the world's largest economy?  Congratulations on that, you're the only one.

·         I understand that sentiment is so bad that literally any positive news will mean a sharp spike in the markets.  But so what?

·         And what happens after?  Why does anyone think that this spike will be sustainable in the absence of actual improvement on the China/Europe/US employment front?  Why would anyone other than the most nimble traders be worried about missing it?

·         And also, it can always get worse.

·         Respect the fact that we have no idea how far this can go before it has "gone too far".  Respect the fact that once again, there is no leadership, no Man Behind the Curtain and that even the best and brightest and most connected and well-read are themselves grasping at straws here.

·         There is no solution, only a choice of what may be the least bad.  There is no consensus, no one alive has ever seen anything like this.

·         I opt not to try to be cute here.  I opt to look and listen and bide my time.

·         Sometimes there simply is no trade.  I believe this is one of those times.

I have printed it out and now it is right before my eyes where I can see it all the time and remind myself to have proper discipline. The 1^st rule of the game: do not lose money. The 2^ndrule: Read rule # 1.

Among all the bounces in all sectors, Crude will possibly give the best opportunity for a short term trade. Because it is so oversold. I will decide tomorrow whether to take a trade in Crude. But only when it is safe.

There is nothing much to say today. Everyone is tired of bad news.  The funny thing is, none of the news coming out of Europe is new and they were there even in 2011. I remember last year I wrote about the pink elephant in the room that is Italy followed by Spain. Nobody seems to remember Italy yet but believe me it will come. But I think the biggest danger to the world capitalism will come from USA.  USA has already started to monetize debt through back door and in six months time, they will be forced to do it openly. Bernanke will fight the scare of deflation with more money printing and when the bubble burst, USA will have massive inflation. It seem to be far away but it will arrive one fine day.

For now, we just wait and plan how best to save our capital. Thanks for reading http://bbfinance.blogspot.com/. Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

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Muppets Beware.

There were two possible signals that a bottom of some kind is close. Keep in mind, searching for top and bottom is the most expensive hobby. However some signs are hard to miss. First, CNBC ran special program (http://video.cnbc.com/gallery/?video=3000093787) “Markets in turmoil” where Cramer tries to scare the hell out of retail. If you have seen this man in action and have compared his recommendation for the last five years, you should know to do just the opposite of what he says. Secondly, GS comes with potential for return of bear market. ( http://www.bloomberg.com/news/2012-06-04/goldman-sachs-sees-potential-for-s-p-500-bear-market-on-europe.html) I know GS loves the Muppets and have the welfare of all Muppets in its heart. Therefore, Muppets, beware. Most likely they want to buy your stocks cheap when they know that QE is around the corner.

I am still not bullish and would have liked the 200 DMA taken back at the least. But a huge red day closed in tiny little green can be considered as a bullish reversal. More so when everything is so much oversold on a daily basis. The markets will be driven by wild reumour and I do hope (not a good strategy) that something comes out of Europe which will give some boost to the market.

Euro reversed in a big way and with it Crude and copper.  I still think we are following last year’s model but that is based on the assumption that further QE will not come before August 1. If Bernanke comes with the money on June 20, as GS expects, then the situation changes altogether. We should be ready for such an eventuality because this is an election year.  Technically speaking there is a positive divergence in the price action and RSI.

So for now I will go with my earlier theory of a bounce and continuation of sell thereafter. Come to think of it, we are exactly at the same place in SPX where we were on Jan. 3^rd. So all the noise and bull rage of the last few months were for nothing? Why do we chase the markets on a 5 minute chart?  

Anyway, US $ actually lost for the last 3 trading days.

 Do you see a pattern here? A correction of US$ coupled with a bounce in equities, crude and other risk assets would correct the extreme oversold conditions for now.

Egan-Jones poked in the feel good bubble with a late in the day downgrade of UK.  But there is G7 meeting tomorrow and the market will catch anything that is catchable to get a bounce. As I have said many times, at this point of time, a bounce is a sell. We wait for clear direction and save our capital.

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Better Be Lucky Than Smart.

We are standing at a very interesting fork on the road. Which way will it go and which road shall we take. This is important because we want to be where the puck will be next. At the same time we are aware of the danger of front running. The mind keeps telling that we are missing the last great opportunity. The meltdown is here and if we do not join, the train will leave without us.  Our job is to rationally analyze all the arguments and see which one has better odds. Wining is not guaranteed. Never. That is why it is said that “better be lucky than smart”.

Back to the markets. Few days back I wrote that 1283 will be a good support area and  ( http://bbfinance.blogspot.ca/2012/05/same-boring-stuff.html ) unless we see the range broken either way, it is better to sit in cash. Luckily, there is no penalty for sitting on cash, at least not yet. But now that 200DMA has been broken, will it open the floodgate to lower price? Lets us see the both sides of the argument.

Yes we will see much lower price:

·         200 DMA has been broken and the selling momentum is strong.

·         Europe is getting worse and there is no sign of any intervention from ECB.

·         Economy is stalling here in USA.

·         Unemployment remains a major problem in USA.

·         China is heading towards a hard landing.

·         Commodity sector is in bear market territory.

No, we will see a bounce:

·         The sentiment is too bearish.

·         Commodities and Euro is over sold.

·         This is an election year and election year price movement patterns are different.

·         Greece is not going to leave Euro-zone because everyone knows that a Grexit will be the disaster which will make Lehman look like a trailer.

·         The Fed will intervene. Bad news is good news.

These are some which I could come up with and I am sure there are many more on both sides. Given all that information, what is the verdict?

As you know, I am a believer of cycles. They come in various forms, short term, intermediate term, long term. The intermediate term cycle does not bottom till Mid-July but very short term cycle is bottoming just about now. When I combine the cycle analysis with the technical analysis I get the following picture:

·         The next level of support is around 1260 and below that 1200.

·         It is not going to be one straight line down.

·         I expect to see a bounce starting next week but it will be just a bounce. Max. upside target remains 1360-1380.

·         Selling is not over yet.

·         There will be QE3 or 4 whatever you call it. But Bernanke has only two possible dates to announce, June 20 or August 1. I think it will start from August 1.

This is the road map I have in mind but the market is the boss. If it keeps going down next Monday or Tuesday, I would not fight with it. But if you have been in cash, like I have been writing all these days, you will have enough fire power to get in at excellent prices. I think we are not at the end game stage yet and we will see one more upswing before everything starts to unravel. If 1283/1285 level holds on Monday, I may do a bit of bottom fishing but that is for traders who can get in and out quickly. Absolutely not for investors. Investors better wait for good trends to develop. Do not underestimate the powers of the CBs and I think we will again see concerted efforts by all the central bankers to re-inflate the balloon.

I would like to share a chart from Bespoke. It is a kind of analog and I do not have much faith in analog. So take this with a pinch of salt.

I personally think we are following the old script of 2010 and 2011 with minor variations. Let us see how the story unfolds this year. Patience is the key.

Hope you are enjoying the weekend. Thanks for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

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Will The Bounce Hold?

This is what I said yesterday: “we might see a lower low intraday tomorrow but more likely than not, we will also see a bounce”. And we got just that. How far the bounce will go? We will know tomorrow how much fuel is left in the rocket and whether it will go to another planet far away. So no front running. Going against a trend and running with a countertrend rally is an expensive proposition, which I have learned painfully.

The interesting thing that happened in the market today, both VIX and SPX closed at red. VIX is showing a spinning top. I also see a kind of double top.

It kept changing throughout the day. In the morning it was solid green, 30 minutes before close it was a hanging man and at close a spinning top. This shows that there is fair amount of indecision in the market. Greed and fear are fighting for supremacy and if nothing bad comes out of Europe, most likely greed will win, short term. At least I am trying to keep my greed in check.

1300 level in SPX held for now and I sincerely hope and expect that it will now test the 50DMA which is around 1368. Today it looks doubtful whether it will reach there and that is result of the negative sentiment build up. But all that can change in 3 huge up trading days and folks will be talking of new bull run! Zuckers all.

That reminds me of Mr. Zuck. While he is having the fun, his FaceCrook shares had a rare reversal of fortune in the last 2 hours and ended the day in green. After IPO, the share had six red, two green and one eh! days. Talk about hype. And still it is at almost 90 time valuation of its current earnings and possibly 30 times expected earnings. Who all are buying this? What am I missing? It was a great example of greater fool theory beautifully executed by the company insiders who bailed out at the right time. The FB share will have free fall after its next quarterly earnings report and I am very sure it will be counted in penny stocks by 2014.

So where do we go from here? Nowhere actually. We wait patiently for the set up to be complete before we make our next move.  For the last week or so, the markets are churning in a range.

Unless it brakes the range and goes either way, there is nothing much to do. Thanks for reading http://bbfinance.blogspot.com. Please re-tweet, forward, post it on your wall and share it anyway you can. My Twitter id is @BBFinanceblog and Stockcharts : Worldoffinance.  

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Same Boring Stuff!

I know it is kind of boring to read the same thing. “Hold on”, “don’t do anything”, “this market is not for investors” so on and so forth. But what else can I say. If we got excited yesterday and jumped in, we would have been very sad today. Even if there is bounce on the way, a better entry is always welcome. So where in the grand scheme of things we are right now? It is just my guess and please do your due diligence, but if we compare the price action of last year, I think we are here:

The areas circled.

Here is an interesting tit bit from Bespoke

 Ya, ya I know I know. SPX is going to 1250 1^st before any bounce or so they say. The funny thing is when everyone and their grandma agree on same thing, opposite happens. The sentiment is as bearish as it can get. We are almost getting to the point where we are getting bored and develop fatigue about news from Europe. There is no end of bad news from Europe and about Europe. But I tend to agree with Nassim Taleb. Forget Europe, it is USA which is a bigger problem. http://www.bloomberg.com/news/2012-05-30/taleb-says-euro-breakup-not-a-big-deal-as-u-s-scariest.html

Remember my post about the giant Ponzi scheme few days back?

Coming back to the markets here at Ponzistan, we might see a lower low intraday tomorrow but more likely than not, we will also see a bounce.  The FOMC is still three weeks away and it does not serve much purpose to tank the market too much now. The Chairman will not be able to take any action. Technically speaking, now is the right time for a bounce.  Can the market go lower from here? Sure it can. 200 DMA of SPX is at 1283 and would be a good support level. That is about 2% below from here. But the potential for upside is more at this point.  As and when the equities go up, commodities will also go up, including gold. However, I would still stay away from going long gold at this point of time.

I am not suggesting that you start buying tomorrow. All I am saying is: maybe we should not jump on the short side now and just stay in cash and see how things develop.  I know, again the same old suggestion. Boring.

Anyway, thanks for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

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Floating The Balloon.

There are many theories why SPX had an amazing 1.2% or 14.6 handle jump today. Some say it was because of the reumour that  ECB will re-capitalize the broke banks. Others are talking about some sort of secrete communication between the Fed and ECB. Many others are calling for a bottom and end of the correction. But have we not called for the counter trend rally for days now? It was only to be expected and I am rather disappointed with the speed or momentum of the bounce. Earlier I was expecting a bounce up-to 1400. Now I would be happy if we reach 1360. Already McClellan Oscillator is reaching close to 100.

I have written before, this will be a short squeeze rally, killing the bears and laying trap for bulls. But I have not yet decided to jump in. Because I think this bounce will not last long and we will resume selling soon. I do not think the correction is over.

Despite the general bullishness in the market, the horror story was reserved for Facebook, now below $ 29. Is it possible to cancel an IPO and demand a complete refund? Commodities are not showing much enthusiasm matching the equity. Copper is still around $3.47. Crude have not been able to break $ 91 and dear o dear Gold lost intraday and sitting at $ 1555. Euro broke through $ 1.25 and is at the lowest for the year. Spanish yields are reaching the stage where Greece was two years back. And ECB is yet to come up with money. To top it all, Egan Jones downgraded Spain. Why the euphoria then? Because that is all written, so! No treasuries sell scheduled this week, so no need to create panic. Clear the short term oversold conditions and is ready for fresh plunge. It is that simple. In the process if some momentum chasing lemmings join the buy express, all the better.

It is all good if you are a day trader. But God save you in this market if you are an investor and you listen to all the talking heads and decide now is the time to buy or you will miss the bus like last Jan-March. I think and I may well be wrong, that right now, “Cash is King” and I am waiting on the sideline to see how far the bounce goes.  We have penned the coming course of action many times over and so far it is following the script with minor variations. So save us from temptation God!

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

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Weekend Rambling.

Everything so far suggests that we will see a re-run of last summer.  Like last year, Europe is at the front and centre of everything. Last summer QE2 was getting over. This summer Operation Twist is at its end stage. What is new this year VS. last year is US Presidential election. More the reason for free money. I keep looking at last year’s price action and I get a feeling that the Algos are following the same program with minor variations. Even in 2011, they were following the program of 2010. In effect it is the same program for last 3 years. Take a look at the weekly chart of SPX.

Why would it be any different this year?

The bounce so far has been weak. But that can change quickly. All it needs for the Fed to open its swap lines to ECB. I would have liked if NYMO was at lower level but it is already approaching zero. It is easier to stage a bounce from oversold level.

The counter trend bounce therefore may not be very strong.  Again, if we look at the daily chart of SPX, the Fibonacci retrace levels indicate many different levels of bounce but the one I am looking at is the 61.8% or 1368. That also happens to be the 40 DMA. If it goes past that level, the next one is 50DMA of 1374.

Let us see how it plays out this week.

The settlement for last week’s huge treasury sale will be this week. This may put some pressure on price action on Tuesday. But with no major treasury sales due for the rest of the month, there is less need to create panic and drive the rates down. That may be another factor whereby the master manipulators let the treasury yield rise a little bit and allow the stock market to go up with it.  Already the futures have opened higher but the markets are closed on Monday in USA so it does not really matter what happens between now and tomorrow.

The Fed knows that it has painted itself in a corner but it is reluctant to accept that. Everyone in the corridors of power knows what the challenges facing USA are. There is a Seven Trillion Dollar asteroid     ( yes, trillion with a capital T) coming in the way of USA in 2013. That will knock off 4% of the GDP and will put USA in recession. The first causality will be the Banks  and they need all the free money that are available.  If you do not remember what Bernanke said in last April regarding the looming danger, here it is to refresh your memory:

"It's very important to say that, if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that I think there is absolutely no chance that the Fed could or would have any ability to offset, whatsoever, that effect on the economy," "I am concerned that if all the tax increases and spending cuts that are associated with current law would take place, absent congressional actions, that would be a significant risk to the recovery."

In any event, the “recovery” that the Fed chairman talks about is the recovery of the TBTF banks that he represents and not the recovery of the main st.  But that is the fact of life and all your representatives are also the representatives of the big businesses. So now the effort is on to find a solution to the coming disaster. http://www.reuters.com/article/2012/05/27/us-usa-congress-taxmageddon-idUSBRE84Q08320120527

Given all that why do you think SPX will go up at all, let alone going to 1500 if there is no easy money from Bernanke? Just because Obama wants to get re-elected does not mean anything to the real money bags! To go there, we need fuel which is QE. If any opposing congressman wants to protest against the Fed giving free money to the banks before election, the best way to shut him is to give him a call from his broker or banker that the world is coming to an end and his shares are now valued much less.  (Except Ron Paul may be) Problem with the giant Ponzi scheme that the Fed and congress are playing is like riding a tiger. They cannot get down without getting killed.

We look at Fibonacci level, over sold or over bought or some other crap to find out what the stock market will do next but the real answer for the stock market going up or down can be found somewhere else.  For the retail investors, who have lost money every time s/he has tried to beat the system with various system, I can only say that be very afraid. Preserve what you have and do not fall prey to the schemes like the FB IPO or some other get rich quick scheme.  This rally is to be sold into. Raise cash and be patient.  We have not seen anything yet but remember timing is everything. The 1^st rule of investing is “Preserve Capital”. And be clear to yourself, are you investing or gambling.

Hope you are enjoying the “Memorial Day” long weekend. While you are having fun, it will be nice if you remember that they have killed 1000s of young men and women in the name of honour and glory in needless war which did not protect American or made it any safer. We are not even thinking of many thousand innocent civilians who got killed, maimed, ruined as incidental casualties of war. And yet the real source of the problem, the states from where it all emanates like Pakistan or Saudi Arabia, are our friends!

Thank you for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and invite others to join. (Twitter @ BBFinanceblog)(Stocktwits: Worldoffinance)

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