Blog Motto Update

The first Blog Motto (shown at the top of each page under the title) that I put on this blog was “The S&P 500 Bear-Market Rally is Almost Over.” I put that on in early May.

Then, I updated the motto to “The S&P 500 Bear-Market Rally is Over. Look Out Below!” I announced that change in a post titled: I Called the Top on May 21st. Yep, I knew it was the top only two days after the fact. How did I do that? Frankly, I didn’t really do anything more than basic chart-reading with techniques that are at least a hundred years old.

Now that the March-to-May bear-market rally is clearly over, it is time for another motto update. This one I don’t expect to last very long:

“The S&P 500 Will Take Out the March Low Soon”

By “low”, I mean the lowest intra-day print on March 17th of 1257. By “take out”, I mean that the S&P 500 will close below that point. After it trades underneath 1257 for three days and confirms the break-down, I will update the motto again.

I’m posting this late Monday night because I think the low can be taken out at any day now, including Tuesday, July 1st.

The Missing Bounce

On June 11th, when the XLF first approached the March low, it snapped back hard and rallied for three days in a vicious incineration of late-coming shorts. That bounce didn’t make a lot of sense because the BKX banking index had plunged through its March low previously. Why did anybody think the XLF would be different? Beats me, but we still had a lot of bottom-fishers at that time.

If you compare the current SPY chart to the XLF chart on June 11th, you will see that SPY’s bounce is being rather conspicuous in its absence. We should have had a strong bounce today. We should have had late-coming shorts running around in flames like you see in the movies. But it didn’t happen.

In fact, it looks like SPY was levitated solely by funds trying to get energy stocks onto their sheets before the quarter closed so that they could show their investors how smart they were this quarter. (Of course, if you look at the XLE chart, you will see that energy stocks are clearly being distributed as all the recent high-volume bars are red. So, don’t think that energy stocks will hold the market up going forward.)

It also appears that a lot of bears were keeping their powder dry until the quarter-end window-dressing was out of the way, and they rushed to get their short positions on before the close.

SPY’s bounce off of its March low has gone missing because traders have seen this movie before. The XLF bounce will not repeat because traders already know how such a bounce will turn out.

Bob Pisani kept telling us today how the beginning of July has historically almost always been positive, and that is certainly the case. But the beginning of this particular July is going to be tragic – for the bulls, that is.

Late to the QID Party?

In my last couple of posts I mentioned “late to the party” shorts. An example of this is Pete Najarian, who on Thursday’s edition of “Fast Money” recommended QID to short tech. If you took his recommendation and bought some QID in the after-market, or Friday morning, you are already under water on the trade, and may count yourself amongst the “dumb money” crowd.

Why are you dumb? Because you shorted tech at a moment when the market was very over-sold and sentiment was very negative. The only time that makes for a good Fast-Money style short-term trade is right before a true crash. And how often does that happen? Not very, right? If the market crashes on Monday, consider yourself lucky.

QID is at $44. The cost basis for my QID position is $38, and while I was building that position, I didn’t hear a peep about it on Fast Money. So, that makes me the smart money, and Fast Money the dumb money. Funny thing is that on the Friday episode of Fast Money, they put up an intra-day chart for Apple heralding a potential reversal. I predicted that traders would spot a potential reversal in tech in my last post which I published just before Fast Money came on the air Friday.

So now Fast Money got you to short tech on Thursday, and then warned you about a potential tech reversal on Friday. What should you do? I think the chances are very good we will get a short-squeeze rally on Monday. And the more late-shorts that piled on, the more potentially vicious the short-squeeze. If you want to remain part of the dumb-money crowd, you can barf up your QID at a loss and go long with some Apple. That would be really dumb.

However, if you want to get smarter, hold your tech shorts. Endure the pain until you feel like barfing up, and then add to your position. Yep, being the smart money is that hard, and few traders can do it.

Fast Money also had a guy on who told viewers to ignore oscillators. More dumb. Oscillators aren’t magic; they are just another technical indicator. While there are zillions of technical, fundamental, and sentiment indicators, and we must chose which ones we use since we can’t watch them all, none of them are evil – especially oscillators. In fact, I would hazard to say that most traders could dramatically improve their entry points by not looking at prices and blindly trading based on a sort-term oscillator.

In fact, I used an oscillator to top-tick tech on June 5th. That’s right, I bought a tranche of QID right at the very top. Pretty snazzy, huh?

Take that Fast Money!

Big Funds Win Tiny Moral Victory in Disastrous Quarter-End

Today’s drama was whether or not the Dow would close in “official” bear-market territory of 20% below the high set on October 9, 2007 of 14,164. The magic number was 11,331, and though the Dow dipped under that number, it was able to close above at 11,346.

This is important because the big mutual funds were desperate to prevent the giant “BEAR MARKET” headlines in the media over the weekend. There will still be headlines, but they won’t be as big and as highly-placed. So, the funds won a tiny moral victory after taking a brutal beating during a period when they are usually able to paint happy faces on the charts.

So far, it doesn’t look like the public has begun to pull its money out of mutual funds in a panic yet. They poured money into the market during the March-May bear-market rally, and will surely pull it out soon.

Over the weekend, we will probably hear stories about how a bear market was narrowly averted, and that the S&P 500 successfully tested its March low. That, of course, is BS, but it may be enough to hold back the tsunami for a few more days.

While it is illegal for funds to run their stocks up at the end of a quarter, they are allowed to bid underneath, at that is what they did today. When the market did not crack, some late-to-the-party shorts got nervous and bailed out. So, if you look at the charts, especially the QQQQ chart, you will see what looks like a nascent reversal pattern.

A good deal of traders will look at the charts over the weekend and conclude that a short-term bottom is forming. And with the big funds bidding underneath again on Monday, the last day of the month, we could get a short-squeeze rally.

The market burned off a good deal of its over-sold condition by going more-or-less sideways today, but it is still over-sold. In this state, the market looks for an excuse to rally. Late-to-the-party shorts with some gains are easily spooked, and when they buy-to-cover they push prices up frightening more shorts, and that’s how a short squeeze is ignited.

The big funds cannot push stocks up on Monday, but their support could spark a rally. Or we could have another sideways day like today. Of course, if the public decides to panic, then the market could dive on Monday as redemptions flood the mutual funds and force them to dump stock.

The SPY calls that I bought this morning (see previous post) are under water, but don’t worry about me. My large SDS and SKF postions kept me flat on the day. If the market is able to rally early next week, I will sell my SPY calls and use the cash, plus all my remaining cash to go fully short. The economy, outside of the tax-rebate checks, continues to decelerate and I don’t think it is possible for the S&P 500 to hold the March lows.

Short Squeeze Today?

I just bought a few SPY call options to play a potential short-squeeze rally today. This is only for fun, and my portfolio remains dramatically short overall.

The market is very over-sold at the moment, and every trader “knows” that we are going down some more. So, this looks like a good time to fade the crowd. Also, don’t forget that the quarter is not over, and while the big funds cannot take stocks up here, they will bid underneath and that will discourage shorts.

With both oil and bonds up this morning, stocks should be falling, but they are not. That means the big funds are probably at work.

My trade was at 10:30am, and I bought the July $129 SPY calls at $2.56.

How I’m Playing the S&P 500 Crash

I don’t have time to write a lot now, so this will be brief. I may update this post later, so be sure to check back.

Basically, I’m looking for a replay of the XLF chart. When XLF approached the March low, it snapped back viciously to shake-out all the late-coming shorts and rallied for 3-4 days before resuming its descent. SPY should do roughly the same thing. There are a lot of late-coming shorts piling on now, and SPY is within striking distance of the March low, so we could see this as early as Friday.

Smart-money shorts will see huge profits on their screens, and will begin to take them. The shorts with the biggest balls will even go long. That will start the short squeeze, and since the market is so over-sold, the dead-cat bounce could run for a few days.

I have huge piles of SDS, QID, TWM, SKF, SPY puts, and QQQQ puts, and I may take a few more profits at the March low. Then again, just in case this things snaps completely, I might not. I have some cash on hand to short the peak of the expected short-covering rally, so I may not temp fate. But you get the idea, right?

Taking a Few Profits

At 3:30pm, I sold a small number of my SPY puts. I bought them at $3.55 three weeks ago, and sold them at $10. So, that was almost a triple, and the annualized rate of return is some insanely huge number.

The market is rather dramatically over-sold here, so perhaps it can manage a dead-cat bounce soon. I wanted to have just a little cash on hand to fire into any potential rally. I am still leveraged short with less than 10% cash.

Another Sloppy Mark-Up Rally

With oil falling almost 2%, you would think that the S&P 500 could muster more than a 0.58% rally – especially during the quarter-end “mark up” period, but it couldn’t. Rather lame, don’t you think?

And did you see Jim Cramer during his “Stop Trading” segment on CNCB this afternoon? He was shot out of a cannon! I had no idea what he was babbling about, but it doesn’t take much to get the bulls excited these days. That’s how you can tell that the bulls are really suffering, and running on nothing but hope. Eight points on the S&P 500, and they are breaking out the champaign. Ridiculous.

On Monday, I wrote:

“Maybe the XLF can mount a throw-back rally up to the March low, where I’m sure it will be rejected.”

…and that is exactly what happened today. A rather dramatic pop-and-flop, no?

The bears are just pouncing on any sort of rally…

Doing Some Put Shopping

The model that I use is now showing that the S&P 500 is more short-term over-bought than it has been in several days. So, I bought some August $132 SPY puts. The trade was just before noon, and the price I got was $3.75. The last bid today was $3.90, so I already have a profit.

The model did not say that the NASDAQ-100 was over-bought yet, so I didn’t pull the trigger until just before the close. Today’s mark-up rally was so sloppy that I just couldn’t resist. I bought some August $47 QQQQ puts for $1.57. The last bid today was $1.62, so that trade is in the green also.

I used about 50% of my remaining cash. I will be keeping my eye on IWM and XLF puts as the month-end mark-up rally continues with the goal of having every penny short by the end of the month.

(Note: This post was updated since I first posted it around noon.)

Mark-Up Rally Attempt Defeated

The mark-up elves were hard at work today trying to paint the tape a pretty green color for their end-of-quarter results, but took a bit of a beating. Things were going well until oil began to creep up in the afternoon. I found it amusing watching them try to keep the short-squeeze going with their buy-programs.

In the end, they were only able to keep the major indices from being a route. They won in the financial sector since that is where there was the most shorts to squeeze, but even that was a close thing as the XLF almost flopped over in the afternoon. And though they tried to hold up the IWM, they took a major beating there, though of course, the Russell 2000 doesn’t make headlines, so that particular piece of ugly news won’t reach the investing masses.

Will they be back to try again tomorrow? I don’t know. It takes a lot of capital to run one of these mark-up squeezes, and if you can’t turn around and dump stock on the traders that you suck in and squeeze out, you might be looking at some serious losses instead of the usual slam-dunk profits. But perhaps they saved their biggest guns for the FOMC announcement. I sure hope so, because I really need that one last rally so that I can deploy my 17% cash to the short side at attractive prices.

On CNBC today, the anchors were reading some fresh BS off of their teleprompters: “The Dow is up double-digits!” A rather odd way of stating things when the Dow is up a couple of dozen points, don’t you think? If I didn’t know any better, I might think that they were trying to assist the mark-up elves…

Finally, somebody in the financial press is agreeing with me on an oil breakout. In the Columnist Conversation at RealMoney.com, Alan Farley wrote (at 4:54pm):

“Crude oil is setting up for a -very- big move. The US Oil Fund (USO) posted a NR7 inside day on Tuesday, in its 14th session within a tight consolidation pattern.”

As Farley mentioned, it looks like oil traders are geared-up for lovey-dovey talk from the FOMC tomorrow, which would sink the dollar and launch oil. The mark-up elves were also trying to steer the momentum for a stock rally on dovish talk, but they didn’t have as much luck as the oil traders.

I have a lot more to say, and a lot of correct predictions to crow about, but I have a cold and am about to flop over here, so let me start to wrap up. A few days ago, I pointed out the bear-flag pattern on the IWM chart, and said that the IWM was toast. Take a look at the IWM chart now; it’s a wreck! That was the last of the major indices to crack. My TWM did well today.

And finally, Jim Cramer is baffled:

“It is that kind of nasty market. No rhyme and no reason.”

No reason!? All I can see are reasons! The world is clearly ending! You can’t even count the reasons! Cramer’s attitude is an indication that the bulls have not even begun to contemplate capitulating, and that means that there is lots more room on the downside. The Vix actually declined a percent today!

Bubbles Reach Burnett’s Brain

Erin Burnett, the bubbly CNBC host, is clearly suffering from bubbles in her brain. This morning, she was blathering about how the USA can’t “drill its way out” of its energy problems. She did “calculations” showing that it was impossible.

Of course, it was bubble-heads just like her doing the same “calculations” five years ago that got the USA into the situation that it now finds itself: rapidly transferring its vast wealth to oil-producing nations.

I’m sorry, but this “producing energy won’t produce energy” argument just doesn’t pass the idiot test.

Burnett argued that the USA must break its “oil addiction.” OK, but exactly how much scientific progress can be made on alternative energy technology when the lights go out in the lab? How much progress can occur when your civilization is grinding to a halt?

Here is one of Burnett’s quotes about how men can impress her from Wikipedia:

“Family is important to me, so round-trip business-class tickets to Australia and New Zealand for my parents would earn you big points in my book.”

Burnett’s potential dating-pool of men is rapidly shrinking as jet fuel prices soar. And if she has to rely upon battery-powered airplanes, it might be a long time before she sees her parents again. Maybe Burnett is hoping for a trans-Pacific railroad like Florida’s proposed rail line to Europe.

Ironically, later in the day, Burnett had to read lines off of the teleprompter about how Texas was the USA’s top energy-producing state. Thank god Texas is not filled with bubble heads.

Note: Burnett’s comments were directed at economic Sad Sack, Larry Kudlow, who sat in for Mark Haines on CNCB this morning. Kudlow finally got something right with his new “drill, drill, drill” slogan. This is a dramatic improvement over his previous slogan: “Jump up and down and clap your hands for 0.6% GDP growth!”

Market Fails to Crash

The market failed to crash today as I predicted last week in “$150 Oil to Crash Stock Market on Monday.” Was I crazy to predict such a thing on a specific day? Of course, but what do I care? I have no paying subscribers, no advertisers, and no boss, so I can write any crazy thing I want!

But oil looked like it was going to break out there for a while today, right? So, I was close, and if you would have bought oil and shorted the S&P 500 the morning after I posted, you would have made some nice money.

The oil chart remains in a strong pattern. The same bull-flag that I charted in my post is still in effect.

So far, my “Sentiment Sinks, But So Will Market” post seems to be working well. I’m hoping that today’s feeble gap-up open won’t be the week’s only rally since I have some cash that I want to deploy short. But the meme got around fast and I think a lot of traders planning on trying to buy the negative-sentiment this week had second thoughts.

The good news is that the end of the quarter is coming up, and we can expect the big funds to engage in some serious mark-up. Perhaps they will try to paint the Fed’s meaningless announcement on Wednesday with a bullish brush, and ignite a short squeeze. Don’t forget that when volume is light, they can do this any time they feel like it. And there is indeed plenty of short kindling for them to work with right now. So, I will be keeping any eye out for their buy-programs to take advantage of the low, low prices on put options that they create, and hopefully deploy my remaining cash short on Thursday afternoon or Friday.

I have 18% cash at the moment and am just looking for a nice rally to fire it into. Some of that cash was raised this morning when I sold 25% of my SKF position. Doug Kass (this link should be a freebee on TheStreet.com) seems to have barfed up his Citigroup position, so I think that might be a good contrary signal on the financials. Maybe the XLF can mount a throw-back rally up to the March low, where I’m sure it will be rejected. If it can, it won’t be with the help of the big funds who don’t want any toxic financials on their sheets as the quarter ends (as Jim Cramer pointed out today), but short-squeezes can happen at any time. If we get such a rally, I would likely by some more SKF there as it approached the March-low, which is now resistance.

Last week I said that the Russell 2000 was toast. Today it cracked, by my reckoning, as it closed under the “third fan line” from the March low. (I made a lot of money today, so you will have to make your own damn charts!) But look at the SPY, QQQQ, and IWM, which now all have well-established down-trend lines. The SPY is actually threatening to break out of its down-trend channel to the downside.

Ladies and Gentlemen, after this week’s bogus mark-up rally, I will likely declare this market to be a free-fire zone for the bear army.

Yes, it is that ugly.

UPS’s bomb after the bell was no accident. I have been saying that just about all of the news will be bad going forward, and UPS is just another specimen. But there are a lot of idiots that still think that the economy will turn up in the second half. In fact, Maria Bartiromo interviewed two of them after the bell today. The two fools actually stated that the business cycle was turning up and stocks will do well. Idiots! Is the cycle turning up when Detroit is going out of business? When airlines are shutting down? When banks are falling off the face of the earth? Don’t the home-builders usually have something to do with a recovery?

Yes, it is that stupid.

Israel to Nuke Iran

  1. Iran’s nuclear facilities are deep underground, and constructed in long corridors that would require extensive bombing to destroy.
  2. Israel’s air force is small, and perhaps not capable of flying the necessary number of bombing missions to take out Iran’s facilities with conventional weapons.
  3. Iran is not on Israel’s border, and Israel has the same “battlefield access” problem that the USA had when it initiated hostilities with the Taliban in Afghanistan.
  4. Tactical nukes may be Israel’s only viable option for a successful mission.

Israel also has to worry about Syria. Recall that during Israel’s invasion of Lebanon during the Summer of 2006, the Israeli’s did not send in their heavy divisions. Those forces had to be held in reserve to counter a possible incursion by the Syrians. The Israelis were forced to suffer a defeat in Lebanon because of the threat from Syria.

The same is true today. If the Israeli air force flies off to Iran, the Syrian air force may see an opportunity to strike Israel. So, this potential war could begin with the Israelis first destroying the Syrian air force in a surprise attack while they are still on the ground, and a simultaneous launch of submarine-based missiles at Iran’s air defenses and nuclear facilities. If the missiles fail, then with the Syrians out of the way, the Israeli air force could fly to Iran and drop a couple of small tactical nukes to finish the job.

Israel’s very public “practice bombing mission” was probably a feint. By practicing the mission with the Greeks, a member of NATO, there was no chance of the secret being kept. So, they make the Iranians watch for an air raid while the real air raid takes place in Syria, and the strike on Iran comes from the opposite direction via Israel’s submarine force.

Why did the USA leak the story to the New York Times on Friday? Perhaps the purpose was to assist the Israelis with the feint. Or perhaps it was a “good cop, bad cop” strategy to pressure the Iranians. (Let’s hope that’s the case.) Or maybe it was the USA’s way of absolving itself: “We tried to deter those crazy Israelis” and perhaps minimize OPEC retaliation.

My guess is that the USA is assisting the Israels with the feint. Even though a $5 gasoline price might be sufficient in itself to lose the election for the Republicans, president Bush has not released any oil from the Strategic Petroleum Reserve (SPR). Why? Perhaps he knows that oil will be needed to deal with a potential Arab oil embargo after the strike on Iran, or perhaps it will be needed to keep the US military’s tanks and jets running in Iraq and Afghanistan as Iran launches its cruise missiles at tankers in the Persian Gulf.

Oil did not break out of its upper trading-range on Friday after news of Israel’s practice bombing-mission was published. The strike on Iran is probably already baked into oil prices, but perhaps a nuclear strike is not.

As the USA drives its collective SUV off of a cliff to collect the insurance money and buy a Toyota Prius, you would think this rather dramatic “demand destruction” would put at least a small dent in the price of oil, but it has not. It is likely that those “in the know” have been accumulating long oil positions in front of the strike on Iran.

On the other hand, maybe we really are running out of oil. On Friday night, Kudlow had on Marcel R. Coutu, CEO of Canadian Oil Sands Trust who said (about 38 minutes into the show) that oil was going higher:

“Longer term, we just see the price moving up further because the problem is that all of the producers around the world who are doing their darndest to add to supply are just not keeping up to declines so, we’re in what hopefully won’t turn into a crisis situation here because it’s pinching in pretty sharply here over the next five-to-ten years.”

Of course, CEO’s almost always paint a rosy picture to boost their stock prices. But Coutu used the word “crisis”, which gave me a good jolt – the man is genuinely alarmed. It’s hard to see how oil loses here until after it causes a global recession.

Barron’s thinks that oil will fall and that was this week’s cover story. If this prediction works out the same way as their “Buy GM” cover story did three weeks ago, then oil will soar. Since Barron’s published the GM story, GM’s stock has dropped from $17.44 to $13.79 – a rather spectacularly bad call – and GM is now “circling the drain” as Jim Cramer put it last week. I for one, will not be shorting oil based on this Barron’s story.

Note: I have no oil or commodities positions, but I am short the market via SDS, QID, TWM, SKF, SPY puts, and QQQQ puts.

Sentiment Sinks, But So Will Market

Some measures of investor sentiment have sunk to extreme lows, which in the past has been a good contrary indicator and a buy signal. For example, see the chart of the Investor’s Intelligence Survey at Bespoke. SentimenTrader.com also publishes its “Dumb Money” index, which is literally 100% reliable. (If you are not a member, but are a RealMoney.com member, you can see the latest chart here.) And there are more such indicators.

Do not ignore these indicators. They are now a piece in the puzzle and all pieces must fit.

So, how does the piece fit? First, prices are the best indicator of sentiment. If you look at the IWM chart, you will not see any fear, let alone panic. The QQQQ chart is looking shaky, but again, not panicky. The SPY chart looks unpleasant, but also not panicky. Even the XLF chart is not falling off the face of the earth, but is in a well-defined down-trend channel. However, if you look at the DJIA chart, you will see impending doom. Of course, the DJIA is a price-weighted index, and means nothing. However, a lot of traders are still in the habit of looking at it, and I suspect it has an out-sized impact on the sentiment surveys.

So, some of the negativity is un-justified at this point, and that is proven by the Vix. The DJIA was not scary enough last week to motivate an excess of put buying. Neither the Vix, nor the sentiment indicators, are down to their March lows yet. But they will be. They will be. Historically, the S&P 500 rarely strays far from the banks; see the chart here. And since the banks are testing the October 2002 low, so will SPY – unless “it’s different this time.”

There is room for sentiment to worsen before we get a negative-sentiment rally. See the article here for Ned Davis’s opinion:

“We may need more extreme pessimistic sentiment before we can call sentiment clear-cut bullish.”

Negative sentiment doesn’t just pop-up out of nowhere. In fact, it is negative sentiment that is causing the market to fall here. The wheels are coming off of the banking system and the economy, and the crowd has it right. If you have read The Wisdom of Crowds, you know that groups of ordinary people can perform jaw-dropping feats of computation. It’s not a good idea to fight the crowd while it is rational. You can only beat the crowd when it goes crazy, and traders have not reached that point yet. But it is coming, and that would be a good time to take some profits on short positions, and definitely not a good time to press short bets.

A few years ago, Laszlo Birinyi published a detailed study of sentiment surveys and found that they are not good timing tools. I think that they are important indicators, but can’t be used for short-term timing. Birinyi probably agrees that they are important now since he now publishes his own blogger sentiment survey every Monday.

Nevertheless, there is a group of traders gearing-up to bet on a negative-sentiment rally this week. One example titled “Brazen and Raw Negativity” comments on the extreme negativity of hedge-fund managers:

“Have all of these managers already made their negative bets? Who is left to sell or short?”

This group of traders trying to fade sentiment will be defeated in the coming week. First, additional short sellers are not needed to push stocks down. All that is needed is for bids to be pulled, and stocks can free-fall. Also, short-sellers are not the only sellers in the market. The public is still sitting on some very nice gains in tech stocks, and Russell-2000 stocks, and they will rush to lock-in profits as soon as the QQQQ and IWM crack.

There is also no potential good news coming that will reverse the market. Banks are still white-washing the numbers and plan to continue doing so, the Iranians will not give up their nuclear program, the economy is continuing to contract, and while some earnings reports may be OK, guidance for the next quarter will almost certainly be reduced for most companies. The Fed is being conspicuous in it’s silence over plunging bank shares, and unless a giant meteor filled with oil crashes into, and fills the Grand Canyon with light crude, there is no catalyst to spark a rally here.

So, all the pieces of the puzzle fit like this: some traders will bet on the sentiment data this week and cause one last rally. It will fail, the market will plunge through the March lows, sentiment will pin-the-needle on the gauges as befits this historic crash, and at the height of the panic, some short sellers will begin to take profits. Their buying will trigger a vicious snap-back that will squeeze the late-coming shorts and burn off all of the negative sentiment. Then the next leg down will begin, and will run until there is some sort of spark-of-life in the economy.

I would put some more detail onto the above scenario, but this post is long enough as it is. You get the idea though, right?

A few more notes:

Item: Take a look at the QQQQ chart. Notice the sharp, and very high-volume rally on Thursday. I believe that was the “last hurrah” for tech as it could not break-out even with oil falling almost $5. The chart pattern is now almost identical to that of SPY when I correctly predicted its demise in “Stick a Fork in the SPY” on June 3rd. QQQQ closed under the “third fan line” on Friday (as I draw the lines) and IWM is very close to doing the same.

Item: Jim Cramer has turned rabidly against financial stocks. While late-to-the-party, he usually arrives in time to make a few bucks. However, he is still in denial about tech, so that is a sign that there are lots of bulls who still have not barfed-up their pet techs. I will likely be adding to my QID position this week.

Item: Stick a fork in the XLE. Homework: draw three fan lines from the March low and you will see that XLE has rolled over. NOT good for the S&P 500.

Note: I have some ideas about the Israeli/Iranian situation and will try to post them tomorrow.

My Bernanke-Shoots-Blanks Meme Spreads

Many bullish forecasts are primarily based upon the Fed reducing interest rates to 2%. Back on June 9th, I predicted that the rate cuts would do nothing for the economy in a post titled “Bernanke Shoots Blanks“.

On Friday, my meme made it to Kudlow. At about 8 minutes into the show, economist Arthur Laffer (inventor of The Laffer Curve), made the same points that I made. Here is one of his quotes when Kudlow tried to counter with the Fed’s loaning of treasuries to banks:

“…that doesn’t expand the ability of member banks to make loans.”

Exactly! The Fed “stimulus” is doing nothing because the banking system is broken!

Note: Laffer cited the monetary base, and I use the True Money Supply, but it is the same difference.

Everybody knows that the tax-rebate checks provide only a temporary boost for retailers and create no jobs. Everybody knows that second-half earnings estimates need to come down. And now everybody knows that the Fed is powerless to stimulate the economy.

The bulls have nothing to support their argument except for some improperly-deflated GDP numbers, which nobody seems to be taking seriously any more.

I don’t know how many traders watch Kudlow on Friday nights, but Laffer’s comments will get around and bids will soon disappear.

Matt 1, Doug Kass 0

Last week, I posted my “No Bottom for XLF” piece where I correctly predicted that XLF’s March low would not hold. If you look in the comments of that post, you will see hedge-fund manager Doug Kass taking issue with my call.

The results? Kass, a star at RealMoney.com and on Kudlow, was crushed. As you are probably aware, XLF plunged through the March low, rallied back a bit on Friday, but still closed below the lowest print on March 17th.

Any other hedgies wanna come get some?

Here is another amusing anecdote: on Monday morning, after JPMorgan downgraded GE, Kass posted:

“Seems to me that as Grandma Koufax used to say, “Dougie, you can’t get killed falling off the curb!” And that phrase might apply to GE, which has been a non-participator in the market’s rally over the last few years.”

Well, there was another 5.8% of curb for GE to fall off of.

Note to Grandma Koufax: Don’t quit your day job!

P.S. I bet heavily on my analysis by shorting the XLF via SKF and made a huge profit.

I Just Let a Few SKF Go

I just took huge profits on about 20% of my SKF position. As I have mentioned in recent posts, I am exercising my discipline to buy-to-cover on weakness, and short on strength. I also want to have maximum firepower to short tech in case there is one more bounce before the big crash.

The BKX is only down 1% as I write, and the QQQQ is down almost 3%, so my prediction from a week or so ago that tech could take over the lead on the downside might be coming true.

Florida to Build Railroad to Europe

Richard Fader, a spokesman for the Florida State Department told Trivisonno.com:

“You would think that with the cheap dollar, more tourists would be coming to Florida from overseas. However, we have recently learned that there is some sort of problem with jet fuel costs. While it is true that we might have as many as 21 billion barrels of oil off of our coast, we feel it is only fair to let the Cubans drill it.

“The USA has lots of coal, and we make good trains. So, the State of Florida thinks that the best solution to the problem is to build a railroad under the Atlantic Ocean so that our European friends can once again visit us.

We are a very well thought-out state unlike those dummies in Texas who drill all those un-sightly holes in their state.”

We here at Trivisonno.com heartily endorse this proposal. As the Miami Beach tourist business dries up, it’s time to take action!

Crude Down $5 and S&P 500 Up Only 5 Points?

With oil down almost $5 today, you might have expected a to see a gigantic rally in stocks. But it didn’t happen, and today’s action once again underscores the weakness of this market.

SPY, QQQQ, IWM, and XLF all had increased volume, so it does look like some of the money coming out of oil rotated into those ETF’s. However, a day like today is perfect for large institutions to dump a lot of stock with nobody noticing. The jump in SPY volume probably should have produced a larger gain, but perhaps a big-dog was selling hard into the rally…

SPY, IWM, and XLF remained within their down-trend channels, though QQQQ is now peeking above it’s down-trend line. Normally, you want to see a 2-3% penetration of a trend-line before declaring it defunct, and QQQQ has not achieved that yet.

The model that I use didn’t quite make it to a short-term over-bought reading today, but just before the close I bought some more QQQQ puts.

Oddly enough, the bull-flag formation on the oil chart that I wrote about yesterday is still intact. USO moved down to the lower-end of its recent trading range, and today’s big drop moved USO from short-term over-bought to short-term over-sold. So, today may have only served to coil-up oil for a strike higher. However, the pick-up in volume is not something that you want to see in a bull-flag. Gun-to-head, I would buy it. The fact that the chart didn’t breakdown after news of price-hikes in China, and higher production from Saudi Arabia, is pretty remarkable. The oil price-chart remains in a very strong pattern.

The lies from the bankers continued today with Citigroup taking the top spot on Mount Lie-More. Once again I ask, what good is fundamental analysis of these companies when all that you have to analyze are lies?

Crescenzi’s Credibility Crumbles

Economist Tony Crescenzi wrote a piece on RealMoney.com today titled: “Jobless Claims Dip” regarding this morning’s unemployment report.

Nowhere in the piece did Crescenzi mention that the most important metric for this data-series actually got worse. We will need to go to Bloomberg to get objective reporting:

“The four-week moving average for initial claims, a less volatile measure, increased to 375,250 from 372,000.”

I have been reading Crescenzi for many years and am aware that he is an optimistic perma-bull, but I certainly don’t expect him to whitewash important data. This is a shameful way for a professional economist to behave.