Ratios to Reason

There is evidence of new trends emerging in the market.

US bonds look ready to head lower relative to their foreign counterparts. Will another cycle of credit shock prevent this trend?

Although the SPX indicator remains bullish, the NASDAQ is now bearish for the first time since the end of November. This implies an environment of increased volatility with a lower percentage of stocks trading above their 50dma.

The spread between the SPX buy write and its underlying is currently bearish because it is rising. Moreover, the 10sma is beginning to flatten, so a break of recent resistance would be even more bearish.

The Yen is rising against the USD and that doesn't bode well for equities. Perhaps it will retest the recent highs before the BOJ acts again.

Treasuries are technically in a downtrend relative to gold, and that puts the dollar in jeopardy. Perhaps another round of credit crisis will bring money back to the ol' U.S. of A.

The market looks poised to break lower, but there isn't enough cause for alarm to run to the exits yet. Increasing volatility is certainly a bearish symptom, and considering the massive run up since the November lows, a move lower is quite reasonable. The numbers being released Friday are utterly meaningless, but the reaction will be critical.

On a side note, it's good to be back online with a working computer. Although the imbeciles at Office Depot raped my face and charged 100+ clams for an AC power adapter, I will have the last laugh; their awesome 14 day return policy is effectively a free rental. Now that I've bought another on Buy.com for 29.99, maybe I'll swallow the power chord and floss my intestinal tract before returning this P.O.S. adapter to the Office Despots.

Tuesday's Tidbits

Hooray, an up day! Here are some things to consider.

My bullish SPX indicator lives to see another day, perhaps it'll make a new X by the week's end.

FINALLY, the BXM/SPX spread is heading lower, and that is a sign of more aggressive risk taking which is good for equities. Due to the overbought condition, a gap open tomorrow in the SPX should be faded if this chart can't get below the 10sma.

The equity/bond spread has stabilized over the last month, but I suspect we're in for a breakout to the upper Bollinger.

Hrmmm, this is tricky. The Yen might be worth getting back into, but that doesn't jive with my reflation scenario. USD/YEN is a must watch because of the chart below.

Japan has broken its massive downtrend, and looks capable of hitting the upper Bollinger. If the Japanese market is rising with a strengthening Yen, I think I'll go invest in Japan to take advantage of the equity and forex trends.

Jibbidy jabbber jab, I don't want to repeat myself tonight. I could talk this shit all day, but it's pointless when I have better things to write. We're still going up, but don't bet the farm, because the decreasing volatility is still high and can make you loose your shit faster than a hooker with rubber sheets.

Rendering Ratios

One final chart post for the weekend.

My NASDAQ indicator keeps printing X's signaling lower volatility and more bullish stocks.

The intervention I was looking for here is underway. Don't fight the BOJ until you see another X printed.

Gold and precious metals like silver continue to put in nice uptrend work. This remains the best sector for any long bets.

More NASDAQ stocks are trading above their 50dma on lower volatility, another bullish sign.

The only thing holding back the inflation trade is the strength of long term Treasuries.

Nothing too crazy in this mix, but I like to keep track of EVERYTHING. Sometimes it feels like busy work, but you never know where future insight will lie. Next up, getting my X-mas wish list ready.

Ratios and Such

It has been a wild week thus far, here are some internals.

Banks are back into a bullish position, goddamn whiplash got me.

There was a new X made in my primary market indicator, which is a great sign for equities. Risks are still high, but if the dollar continues to fall, this should continue to rise.

Transports have yet to turn around, and that is holding the market back.

All eyes on the BOJ. Now it is their turn to print money at our governments behest in the interest of maintaining "global economic stability." God bless America, otherwise we'll nuke you.

The NASDAQ summation index is still rising, so I'm staying long anything except the USD.

We're coming into the final options expiration of the year, and it sure is getting hairy out there. The dollar is the most important variable, and it's fate rests upon the willingness of foreign central banks to play our game. I'm fairly confident that the US will emerge from this looming crisis, but I'm holding shiny yellow stuff so I can sleep at night. I still can't get my head around the move in Treasuries, but who cares when equities are moving up?

Monday Mutterings

I hope to God that the chart below is a misprint and not a premonition.

If bonds make a move like that, this crisis is going to take a turn for the worst.

Though we closed positive Friday, my indicator fell, suggesting a bearish divergence in an uptrend. Buy on the dip is still in play, but sell on the rip may soon be in order.

The spread between US Equity and Bonds is battling with resistance. A resumption of the downtrend is likely, but has yet to be confirmed.

Yen versus USD continues to be a winning trade.

Priced in gold, the 30Y Treasury has pulled into support. Until this trend breaks lower, inflation plays will move lower or sideways.

This market is giving lots of mixed messages. I'm expecting range bound trading if volume is low, and a volatile break down if shares start to move. This means I'm most unprepared for high volume accumulation and mark up, so I will be watching for such action like a hawk.

On another note, I'm starting a computer service company in Seattle, so if anyone has arcane suggestions, please feel free to leave a note.

Tale Of The Tape

This market continues to exhibit an upward bias, so keep buying the dip. Risks remain high.

The markets haven't looked this bullish and stable since Obama was elected.

The spread between Buywrite and Buy 'N' Hold indexes made a new low and violated the lower Bollinger Band, signaling a potential trend change.

The falling spread between US Equity and Bonds indicates an increasing appetite for risk.

The Yen vs the Dollar continues to look strong. Though it is a bearish trades, it hasn't suffered in the recent rally.

The McClellan Oscillator is overbought by recent historical measures, but we're in unprecedented times.

Shorting this market is suicidal for all but the quickest. Ride the wave up, but know that it will come back down. I'm interested in accumulating breakout stocks on pullbacks, so I'm not bottom fishing. I will hedge by getting long SKF or buying Yen.

Fuck the Fucking Fuckers

My Internet was down all day, no trading, no shorting, nothing. I swear there is a conspiracy afoot to prevent me from trading on these awesome days. I missed the Geithner rally a few weeks back under the same circumstances.

Anyhow, the markets look ready to churn lower now that volume has come back in. The bulls have one more day to prove themselves, otherwise this market is going down faster than a 5 dollar whore.

SKF is my favorite, and I wouldn't be surprised to see it at 300 in a few days if the bears maintain control tomorrow. Capital preservation and keen risk management remain the name of the game. TLT, FXY and UUP are still the strongest trades, and have the greatest psychological aversion amongst small investors. Nevertheless, GLD is pulling into potential support, so look for range bound trading, or the resumption of a new downtrend.

Blamo!

The market shat on the bulls Friday, which made tons of cheddar in SRS, SKF, TWM, DXD. UDN, FXF and FXY are trading at all time highs, and continue to show strength as the markets weaken. Commodities were mixed as DBA moved lower w/ USO, and the precious metals IAU and SLV remain unchanged. GDX, EEB and SLX collapsed today, falling between 2 and 4%.

If the emerging market continues to weaken, I suspect we will visit the January lows, so keep the long trades hedged, or on a short leash. If EEB stays below 50, I will either exit or reduce my position. I'm still market neutral with a short dollar bias, but if the XLF can stay below 26.20, I will increase my position in SKF. Banking indexes have fallen roughly 7% in the last 2 days, and look poised for further deterioration.

IAU and SLV continue to offer a safe haven in this fiasco. Even though they are trading at lofty nominal heights, adjusted for inflation, there is plenty of room hard assets to run. Right now the Dow @ 12300 is worth ~13oz of Gold @ 960. I suspect this ratio will continue to favor gold, considering that sometime in 2000, the Dow was worth more than 40oz of Gold when it traded ~300. Peter Schiff predicts that the fall of paper equities will bring the ratio to a 1:1 parity, and points to the 1970's as a similar phenomenon. This implies a DJIA trading @ 5000 w/ Gold @ 5000. While I'm not quite as optimistic (pessimistic?) as Peter (not yet anyhow), 5:1 seem achievable without much difficulty. Dow @ 10000 and Gold @ 2000? Sounds good to me.


On another note, what happens when a civil judgment is entered against you in NYC for public urination?

Before the Open

It has been a helluva week... Finally found a good pot dealer in the neighborhood, some super duper smoke, so I've been doing a lot of photo editing and not too much trading. I have a comment from a wise trader who caught the huge reversal in financials trading UYG, a solid counter trend move that I have much respect for, and seek to emulate in the future. My macro perspective of the market (weakening American economy in real estate, finance and discretionary) hindered my ability to see the obvious out performance of the aforementioned sectors in the recent mess. I got burned shorting real estate in the reversal, SRS from 130-122, though I've bought it back ~107, SKF ~102, and SCC ~94. What really caused my surprise was not the correction in SRS, but rather, the lack of upside in GDX (which proceeded to happen the next day), which gave me a helluva scare. Needless to say, I'm short the usual suspects via SCC, SRS, SKF and long precious metals via GDX, GLD and SLV yet again. Yen and Franc will continue to strengthen over the next few months as the mess spreads. IBKR had great earnings once again, but continues to struggle in the lower 30's, I guess it is hard to swim against the current. I'm still keeping a small position in BPT, huge dividend, and solid looking chart touching support. I'm also a tiny bit long energy and basic materials via UYM and DIG, but I expect to close these positions Monday, seeing as I was using them to hedge my bets over the weekend.

The Good, The Bad, The Ugly

Didn't spend much time watching the markets today, settling instead for an informal lunch, matchmaking a friend from overseas with my father... but that is hardly why you read this site, so here is today's news.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.