Tuesday’s Trading – 9/1/09

The good news of the Chicago PMI was sold at 9:45am on Monday, which is a potential signal that traders are using good news to unload inventory. The market has been shrugging off good news for a while now.

SPY finished strong with the help of XLF, however XLF still left a sizable gap behind, along with the other major ETF’s. So the close may only turn out to be a short-lived moral victory for the bulls.

SPY bounced as soon as it neared its August 21st gap, however IWM dove deep into its gap from the same day. The gap held, but IWM did twice as badly as DIA on the day, and the relative under-performance of the small caps demonstrates continued risk avoidance. DIA closed below its August 25th gap, so that is also a sign of weakness.

The IWM pierced its 20SMA, but was able to close above it. And the SPX held the 1014 area, so those are bullish factors.

Not only did the EEM close below its August 21st gap, but it opened a new gap overhead that is triple the size. That’s a statement. China may not have crashed our market, but it certainly has sucked the risk-appetite out of it. Two weeks ago, China knocked our market down in similar fashion and the SPX rebounded the next day and immediately ran to a new high. Maybe it will do so again, but China has proven that its problem was more than a hiccup, and maybe we shouldn’t expect the SPX to shrug it off so quickly this time.

The talking heads on CNBC were unanimous in their opinion of the Shanghai Index: it is a phony market populated buy fools and gamblers, and it has no bearing on the rest of the world’s markets. It sounds to me like the talking heads might be lugging a little bit too much inventory…

SPY rallied into the close on increased volume, as compared to Friday, but it was unable to eat into any of its morning gap. That is a sign of weakness.

The Advance/Decline line rolled over, and its pattern looks very similar to the pattern that it made at the peak in June.

A while ago, I mentioned that I didn’t have to wait in line at the barber on Saturday afternoons any more. Well, it isn’t just my neighborhood. It is a nationwide phenomena, and nothing screams recovery like people cutting their own hair, right? The Wall Street Journal thinks it’s funny, but if the USA is a service economy, and everybody starts to do their own services, where does our economy go?

Monday’s Trading – 8/31/09

On Friday morning, I mentioned the bearish volume action in the IWM. And sure enough, the IWM had a bad day on Friday. Not only did the IWM do much worse than any of the other Big Five ETF’s, but it also closed its August 25th gap. It had dipped below that gap before, but Friday was the first time that it closed below it, and that is another bearish sign.

DIA has the same gap as IWM from the 25th, however it managed to close above it on Friday. DIA was down on the day, though holding that gap can be seen as a bullish signal. On the other hand, DIA’s relative strength to IWM may be a sign of risk aversion as investors head for the safety of the less-volatile large caps. So, DIA is an important ETF to watch on Monday. If it closes below its August 25th gap at 95.14, that would be a rather bleak sign for the market.

I have been talking a lot about the QQQQ’s TARP gap recently, and at the peak of Friday morning’s exhaustion gap, the Q’s tagged the top of the TARP gap at 41.08. That was the close on September 26th, the day before Congress shot down the TARP. However, the Q’s were not able to close there, so the gap is still considered strong resistance. If the Q’s can close above 41.08, that would be a bullish sign for the market, though a return to a gap such as this very often marks an important top.

The SMH broke out of its trading range on Friday and made a new high. So that is an important development. However, it is not a panacea for the Q’s because the cyclical semi stocks have a small weighting in the QQQQ. For example, AMAT only has a 0.6% weighting according to this page.

Friday’s Trading – 8/28/09

If you look at an intra-day chart of IWM on Thursday, you will see strong volume all afternoon. But it wasn’t enough to push IWM into the green. That is a sign that the supply/demand balance may be shifting in favor of supply, which would be bearish. And the market cannot get far without the IWM.

Thursday’s Trading – 8/27/09

The TARP Gap has been holding the Q’s in thrall for almost a month now, and has been very powerful resistance. However, the Q’s are still “crawling along” the lower boundary of the gap in the $40.40 area, so they are steadily eating away at the resistance. On the other hand, that gravestone doji on Tuesday looks a lot like the one that printed on June 11th.

The market looked shaky on Wednesday morning, but the XLF, IWM, and DIA all found support at their Tuesday-morning gaps. However, the IYT fell through its gap and closed beneath it. That could be a problem since many old-timers consider the transports to be an important indicator. The EEM has also fallen below its Tuesday-morning gap, and both of these ETFs should be watched for clues as to which way the market will break. The XLF is struggling with its August 7th intra-day high, and the XME still can’t take out its June peak. Both of those ETF’s will also need to get with the program if the rally is to run higher here.

The market action is looking very similar to that of the June 11th peak. If I remember correctly, everybody was predicting a huge breakout back then. The market did the opposite of what was expected, and punished the bullish fervor with a false breakout, and then a dive.

This time, I get the impression that most traders are betting on a correction. So perhaps the market will give them a false breakdown, and then rocket higher. Just something to think about…

Wednesday’s Trading – 8/26/09

A few days ago while discussing the lack of volume in this rally, I linked to astory about pension funds shunning stocks. But perhaps the problem goes beyond that as described in this piece by ContraryInvestor.com. It seems that foreigners are taking a rather dim view of US financial assets. Here is a quote:

“In short, on a twelve month moving average basis, the foreign community has become a net seller of US government agency paper. This is a first in historical experience…”

This makes sense to me as the USA is relocating its economy to Asia. Why would anybody invest in the financial assets of a country that is dismantling itself? Why not just run ahead of the plan and buy the stocks of Chinese and Indian companies?

So, not only does the stock market face the headwind of reduced leverage, but it must also now face the prospect of fewer sales to foreigners for a long time to come.

Tuesday’s Trading – 8/25/09

Charlie Assparino
In this video you can see the CNBC idiots discussing Goldman Sach’s PR problem without once ever mentioning the billions of taxpayer dollars that were funneled into the company on the sneak via AIG. According to CNBC, GS is perfectly innocent and their critics are simply anti-Semites.

What a bunch of BS. I’ve read a lot of the criticism of GS, and didn’t see a single instance of antisemitism. Maybe it is out there, but I sure didn’t see it.

No Americans
Speaking of racism, in the old days companies would put signs in their window: “Help wanted – No Blacks” or no Irish, or no Jews, or no Italians. Today, IBM has a sign in their window that reads: “No Americans.”

In Zachary Karafool’s Newsweek article which I mentioned yesterday, I find it curious that he felt compelled to bring up IBM’s anti-American hiring policy. As far as I could tell, it was getting practically no press at all, with the media obediently keeping it quiet. And then, a CFR member writes about it in a mainstream news magazine? Curious indeed.

Could it be that our overlords are feeling a little hot under the collar, and feel the need to go on a PR offensive? So, they send out Assparino and Karafool to try and smooth things over?

Can the slithering apologists convince Joe Sixpack that it is OK for Corporate “America” to steal his tax dollars, and ship his job to Asia?

Good luck with that.

Cramer is Revoliting
Here is what Cramer wrote on Monday morning:

“Roubini in an FT article outlines the growing risk of a double-dip recession. Can anyone at least ask the guy why we should believe him when he never saw the recovery coming in the first place? How do people approach any of this with a straight face?”

Cramer acts as if, he himself, has never made a bad call such as this one from August 22, 2008, just weeks before one of the greatest crashes in history:

“I think today’s a real rally. I expect more. The more time we keep ourselves from the July 15 lows the more obvious it will be that my position that those lows will hold will be true. It was a radical proposition when I said it then. It will soon be gospel.”

There he was making an epic idiotic call, and proclaiming it to be gospel! And now he acts as if he is an intellectual titan compared to Roubini. What a delusional pompous ass. I have subscribed to his website for many years, but I will not be renewing. The guy is just revolting.

Note to Cramer: Nobody in the USA got a job. There ain’t no recovery.

Oscar Goes Bulltard
When you see otherwise sensible traders go all bulltard, like Oscar did in this video from Sunday, you can be certain that at least a short-term top is coming soon. Euphoria is almost always a reliable sell signal.

TARP Gap Continues to Loom
Three weeks ago, I mentioned that the QQQQ was up against its TARP gap, and it still is. The Q’s have forayed into the gap, but have been unable to close within it, let alone above it. A proper bull would just gap right back over it, but the Q’s haven’t been able to muster the juice for that. Nevertheless, the Q’s are still within striking distance, and must be watched closely. This is the single most important feature on the current chart landscape.

Monday’s Trading – 8/24/09

Zachary Karafool
I was wondering how Zachary Karabell could get published in the Wall Street Journal and Newsweek.

After all, what kind of fool would write something like this, as he did in Newsweek:

“This is the new world of global business, one in which the U.S. becomes simply a market among markets, and not even the most interesting one. IBM is one of the multinationals that propelled America to the apex of its power, and it is now emblematic of the process of creative destruction pushing America to a new, less dominant, and less comfortable position.”

Not a patriotic American, that’s for sure.

Then I read Karafool’s Wikipedia page and learned that he is a member of the Council on Foreign Relations.

Now it all makes sense.

Karafool is a mouthpiece for our overlords. And he is delivering their message:

“Listen up America: your jobs are being moved to Asia and they ain’t coming back. You are being demoted. You should cheer IBM’s fabulous profits, but they will not hire you, and you will not be able to afford to buy their stock and collect dividends because you will be working at Wallmart for minimum wage selling goods made in China. This is our grand plan for America. Get used to it.”

And you know what? America is getting used to it. The USA is in the process of abdicating its position of global super power.

No Signs of Life

Here in my upscale neighborhood, Miami Beach, I still can’t see any sign whatsoever of the fabulous economic recovery that the stock market is forecasting. I used to have to go my barber on weekday afternoon’s to avoid the weekend crowd. He is very popular, but now I can just waltz in any time on a Saturday afternoon to get my hair cut without having to wait.

In the strip mall, the Italian restaurant had zero customers for three straight hours last Saturday night. The dog-groomer sometimes just closes up shop and goes home because the fashionable ladies simply aren’t getting their purse dogs groomed as often as they used to. The tanning salon will often go for hours with no customers at all. Tanning used to be very important to the club-kid crowd here. It is also easy to park at this strip mall now because the real estate company that used to clog it up is long gone. And the half-hour wait at the car wash is gone too. Even at formerly peak hours, there is never more than one car ahead of me when there used to be four or five back in 2007.

These businesses are away from the tourist areas and cater mostly to locals. I suppose that they are lucky that they still have their doors open, and are probably doing far better than their counterparts in other areas of the country, but still… There you are surrounded by gleaming luxury high-rise condo buildings filled with rich people, and you can’t sell them a car wash for a lousy $7?

From what I can see, this rally is still a candidate for one of the greatest sucker’s rallies in history.

Into the Box

The market broke into the Box of Bulls today, and halted at the first Fibonacci level (click chart to enlarge):


The SPX came up a little shy of the 1029.21 level at the green arrow on the chart. However, the futures hit their first fib level in their box right on the nose (not shown). You will often see the futures hitting important targets before the SPX itself does.

Now look at the red arrow on the chart at June 11th. As soon as the SPX broke into the Box of Miracles and tagged the first fib level, it went into a month-long correction. The market probably won’t repeat history exactly, but at a minimum, I would expect a drop back to the 1014 area to back-test the breakout.

Friday’s Trading – 8/21/09

SPY printed a small double-top on its 1-minute chart at 3:42pm Thursday afternoon. It doesn’t look like much, but I have a feeling that they ran out of shorts to squeeze and switched off the squeeze-bots. Perhaps we will have a narrow-range consolidation day on Friday similar to June 26th or July 17th.

Having impressively filled Monday’s large down-gap already, the QQQQ and IWM still have small gaps left open from last Friday morning. The Q’s need to tag $40.09, and the IWM $57.60. If they can’t do so, the market may need to dive down and see if it can reload some more shorts to feed to the squeeze-bots next week.