Rally Shmally

Call me a complacent bear, but I think the market has an ass kicking in store for the bulls.

Yes, that's a new low for the banking index. Yes, there may be a major pop due to government shenanigans. Yes, it will probably be a fantastic shorting opportunity.

Stocks on the NYSE are increasingly volatile and less bullish, so until I see some X's here, I'm selling the rips.

If banks can plumb new depths, why not housing? This too looks ripe for bear raping rally, but in the end, this too will fall.

Here is the real bearish smoking gun. The NASI has made a new O, and the floor is a long way down from here. Grab your parachutes!

Bonds failed to rally with the rest of the market, and I trust debt traders more than the equity schmoes. A Treasury sell off will be a huge tell for a sustained market rally.

Despite my bearish leanings, I'm actually long a smidgen of URE. I successfully shorted it towards the end of the day, but over covered my position, and didn't realize this till after the close.

Tomorrow will be a big day, and with the VIX floating around 50, I imagine the swings will be crazy. According to my indicators, the environment still favors cash and short term trading, so there is no need to rush into new long term investments.

Internal Investigation

A few ratios to discern the state of the market.

My NASDAQ indicator printed a new X today despite today's fall. Lower volatility is bullish.

The BXM:SPX ratio is banging against the 10sma again, hopefully it will act as resistance and the spread will turn around (bullish).

The continuing fall in Treasury yields is quite discomforting. Either it is fear or a part of some fund strategy that I have yet to understand.

Some suggest that the VIX:VXV is signaling a sell, but I don't see that quite yet.

Although oil is falling in dollar terms, it has yet to make a new low in gold. I'm cautiously bullish on oil, but not with much confidence.

Mixed messages all around, but I'm still buying the dips. Risks are still very high, and the potential for government currency intervention makes prediction particularly difficult.

Market Movements

With the dollar going down faster than my H.S. prom date, let's see where we stand.

The emerging markets like Brazil and India are breaking downtrends and upper bollingers.

LQD continues to rip north on large volume, but I'm getting out for larger returns in precious metals.

While there are many gold miners, few are trading at 52 week highs. RGLD is best of breed until further notice.

The USD has pierced a lower Bollinger, so deflation fears may turn into inflationary ones.

Despite the down day in USO, $WTIC was up today, I'm looking to leverage long oil.

Here comes the wave of "quantitative easing." Sell the rips in the dollar and buy something tangible like a company that makes shiny things. This could get ugly.

State of the Market

The market continues to rally as the Fed lowers key lending rates.

Rate cuts are having a negative effect on US bonds relative to foreign ones.

Up volume significantly outweighed down volume, continuing the bullish theme.

More stocks are trading above their 50dma on lower volatility.

New highs are becoming more prevalent as this index makes a new X.

The oddest thing about today's action was LOWER treasury yields... What The Fuck?!?

The action in Treasuries is mystifying, but it isn't stopping me from trading gold and silver related stocks. The USD has been getting trashed, and while I expect a few bounces, the writing is on the wall. We're still in high risk territory, and the whipsaws will continue, but I'm buying the dip in the strongest sectors.

State Of The Market

Even with today's negative action, my indicator was positive.

We're at the levels that preceded the last down leg. Will it be different this time?

Short treasuries and short gold is breaking down, so people are still shunning risk.

The yield on the 30 year looks ready to make new lows.

I've been too busy to trade the last few sessions as I focus on other income streams. The action still looks choppy, but buying the dip is not crazy. Risk management remains critical in this volatile environment, but if you've made it this far, you know that already.

Interesting Indexes

Some indexes are beginning to show real signs of life.

Brazil's Bovespa has broken a downtrend and Bollinger Band, so I'm looking to buy on dips.

Gold miners have been putting in an uptrend longer than any index I cover. With so much political uncertainty, I can't say I'm surprised. Nevertheless, stay cautious if you're looking for "safety".

Maybe the insurance business isn't dead after all.

Silver continues to put in a nice basing pattern, which suggests another buy on the dip opportunity.

The USD has shown its first signs of weakening. Hopefully this sucker won't go straight down.

Bulls continue to have something to cheer about as a return to risk emerges from this battered market. Buying dips in commodity markets making technical breakouts is an old trade, but it might be coming back en vogue, at least for a bounce. Since we're in a bear market, stay flexible, and expect a good deal of volatile sideways consolidation.

UUP & $USD Divergence?

Any one have thoughts on the following divergence?

The relatively new Dollar Bullish ETF UUP is indicating a new downtrend.

On the other hand, the $USD, a index with a bit more trading history, seems to be at the lower range of an uptrend.

Since they share a 1:1 correlation, this aberration might be explained by the graphing technique I'm employing. The charts are scaled by average true range over some really long period I've arbitrarily set (9999999). Since UUP has little trading history and less long term volatility, it might exhibiting a closer relationship to its relative trend line. Due to its longer indexical history, $USD has a greater range, and thus the scale is probably reflecting it's volatility. I suspect that many traders will be getting short UUP due to the chart, but perhaps it would be better to investigate the nature of the underlying $USD.

To put this into perspective, let me detail my past Thanksgiving. After a glorious feast centered around a enormous Turducken, I went out for a smoke with a few friends. A curious looking fellow who was clearly unemployed and missing a few screws came up to us and began a classic rant. "9/11 was an inside job, Planet X is coming, 2012, New World," yadda yadda. Since I believe all that shit, it was embarrassing to hear it from a clearly deranged lowlife for whom I have little sympathy. The nail in the coffin was his insistence upon an economic collapse, and the fall of the dollar, which is more conspiratorial logic that I agree with. Then it hit me.

When the unemployed and homeless are shorting the dollar, beware. All logic screams that the dollar should fall. We've all seen the charts, we know the debt burden is incalculable, we know that the Fed can print money. But the dollar is rising. Scores of analysts with enough degrees to melt the steel core of the WTC say that the dollar must fall. It isn't. Trade what you see, not what you believe.

Turkey Talk

A few ratios and some interesting developments.

US Equity / US Bonds have reached a prior level of support. Watch for resistance.

Another day of advancing volume significantly outweighing declining volume.

The US Dollar looks ready to break its recent and sharp uptrend, implying slowing momentum.

Silver is putting in a nice base, and is beginning to look like a buy.

More evidence of a potential reversal in sentiment is coming to light, but risks remain high.

6 Months Later

A tip of the hat to people who can actually blog for more than a month... I certainly couldn't. Now that we're plumbing the abyss of financial Armageddon, it seems prudent to comment on these so-called historical times.

Does anyone remember Hank Paulson's "strong dollar policy"? People (including myself) scoffed at ol' Hankie every time he uttered those words. I wonder if any of those people still think its funny.

Since late July, the USD has been one of the best performing assets since the massive unwinding began. The "worthless greenback" is proving its value in this crisis, and plenty of the fuckers who stubbornly said it was going to zero are eating their hats as their poorly managed accounts get liquidated.

Via fortune and tact, I'm emerging from the wreckage unscathed. How?

Technical analysis.

Over the last 3 weeks, the major averages NEVER closed above their 5 day moving averages... NEVER. Since early September, the Nasdaq has been falling below a declining 50 & 200 day moving average. These are not conditions for investors as the biggest players are clearly selling.

Those who say this is the product of irrational decision making have never faced a margin call. Finance is a feedback loop, and the system is experiencing an auto catalytic flight to low yield currencies. Selling will beget more selling so long as there are leveraged participants on the wrong side of the trend facing forced redemption and margin calls.

For a weather vane in this storm, watch TBT, ProShares 20 year treasury double inverse ETF. Expect this to rise once people stop shitting themselves and notice the high yields offered by companies with low debt.

Market Metaphors for the Maligned and Miserable Market Mavens

This past weekend I got drunker than the American consumer, only to find myself locked out of a friend's apartment like a depositor in a bank run. Like Mike Shedlock, I rang the bells and made some calls, but too no avail, for my cries fell upon unattenuated ears, similar to the monkeys on Capitol Hill. A companion gave me a boost as strong as a 100bps slashing of the fed funds rate, enabling me to swing high up on a fire escape like the October 2007 market. I pounded on the windows and screamed louder than a retiree looking at their 401k this coming Tuesday, hoping to wake my host, who was as unresponsive as the risk managers at Merrill. Apparently I was peering into the wrong apartment, because I was chastised by a neighbor, reminiscent of a dialogue between Peter Schiff and Tom Atkins. "What the fuck are you doing on the fire escape," said the would be Peter Schiff. "Errrr, ummmm, dahhhh," I said with my best Tom Atkins impression. Thankfully, my slumbering friend had arisen in the great cacophony, and opened the door (please insert metaphor). Like a fool, I could have used my pals window to enter safely, but I got suckered into talking the fire escape down. Like the mortgage backed securities market, the ladder only budged in fast and jerky downward motions. Finally, when I assumed things were safe, I got on the ladder, only to be shocked like a value investor who is looking for a bottom in MBIA. My foot was slammed by the metal rungs, caught between metal and a hard place, much like the Federal Reserve in periods of stagflation. More battered and bruised than the emerging markets, I finally made it to the ground, and hobbling into the apartment, which offered about as much relative safety as utilities. The next morning, there was the inevitable bit of swelling that comes with such accidents, but like a market bounce, it didn't last too long. Sadly, authorities had been notified, and my host was rather perturbed by the whole affair, making me as popular as Angelo Mozilo. Good luck Tuesday, ya'll gonna need it.

I don't know what tomorrow will bring, though I expect some high volume capitulation a la August 18th some time this week. Luckily I sold my GXC Friday for a nice 1-day 3.5% gain, though I may have shot myself in the foot by covering SLV, and buying a little GDX. I'm still short gold, and I will probably purchase some SCC and SRS if they make new highs on Tuesday. The blood in the emerging markets is impressive, but we are a long way from rivers of red in the street. I suspect there is a great deal of panic at leveraged hedgies unwinding unsustainable trades, but that is idle speculation. Yen and Swiss Franc are the safest bets in these environments, as carry trades unwind. I guess there will be strengthening in the USD as well, but I can't imagine how long that will last, for I believe the powers that be will try and inflate our way out of the remarkable trade deficit we've amassed over the years. I know I've been calling for a bounce for a few days now, and it hasn't materialized. This has been a bit of a lesson in the "trade what you see, now what you believe department," and I hope to improve my trading as my longer term macroeconomic thesis of American economic collapse comes to pass.