Cloud Trading

What’s that you say? You don’t have your automated trading strategies running in the cloud? WTF?

The SPX had its final-hurrah today up at 1060 just as my “cloud computing” indicator went purple (click to enlarge):

White bars indicate a neutral condition; yellow means caution, red means the rally is toast, and purple is a brick wall. If all four bars go red/purple, then the bulls are about to get tossed on the barbie.

The cloud indicator gives mean-reversion signals. So, I only use it during the middle of the trading day. The first and last hours of trading exhibit positive feedback more often than not, so trend-following strategies usually work better than mean-reversion strategies. However, the color of the cloud often gives a clue about the next morning. Here is how the octo-cloud looked at Friday’s close:

The market was poised to roll down from a stretched condition, and it was indeed weak first thing this morning.

Here it is at today’s close:

Light blue is a bullish signal; green is a buy signal, and navy blue means the market can’t really drop any more without some consolidation first. Even though the market was in a positive-feedback plunge into the close, notice that it flattened out after the cluster of navy blue bars at 15:20pm. It spent 25 minutes consolidating before beginning the next leg down.

If you went short at the close, chances are good that you are in for a bit of squeezing tomorrow morning. But this is a very short-term scalping indicator, and it only predicts the very near future.

I could tell you how this works, but then I’d have to kill you.

Say a Prayer for James Toney

Why is boxing called “The Sweet Science”? Because it’s just slap-fighting with big fluffy mittens. Tonight we will see a demonstration about how boxing doesn’t prepare you for real-world fighting at UFC 118 when champion boxer James Toney gets a beating from a guy who knows how to fight for real, Randy Couture.

Normally, the UFC does not put on this kind of circus act. And that’s a good thing. But since boxing is a competitor to MMA for pay-per-view dollars, I think Dana White probably sees this as a great way to embarrass boxing and take market share.

Update: Well, I was right. Toney didn’t land a single punch, and was instantly taken-down, mounted, pummeled, and choked out.

The Real Gold Catalyst

Why has gold soared during this deflationary depression? Maybe it is forecasting that inflation is right around the corner, or that the USA will default and the dollar will lose its status as the world’s reserve currency.

But what if it’s something completely different? What if gold is really forecasting a military confrontation between the USA and China? The Chinese have been buying quite a lot of gold after all, and are challenging the USA in the South China Sea.

At the bottom of this BBC story, you can see a map showing China’s ridiculously aggressive claims of waters all the way down to Malaysia. And there have been reports of Chinese naval vessels exchanging fire with the locals.

Chinese officials have told the USA that the South China Sea is a “core interest”, which means an area they plan on conquering in the future, like Taiwan.

Further reading: Chess on the High Seas: Dangerous Times for U.S.-China Relations.

Note: As far as I can tell, Marc Faber is rooting for the Chinese. Since he lives in Thailand and has an office in Hong Kong, I suppose that he needs to kowtow to the regional power.

Cramer Short Raid

At the 1:46 mark of this video, you can see Jim Cramer trying to knock the market down when he says:

“I’m predicting mass panic tomorrow morning.”

That was while the market was open. Cramer was trying to cover his motives by pretending to be mocking weak-kneed bulls. But that was obviously a thin veneer over a blatant attempt at market manipulation. Can this be legal?

CNBC also published a story titled: “SEC on Attack, Vows More Action on Crisis.

Note to SEC: While you are “on the attack”, isn’t it time for a anther look at this guy? Is it really a good idea to have the top financial network inciting panic?

Thursday’s Trading – 8/26/2010

The intra-day low on Wednesday came at 10am when the horrific new-homes sales report was released. You would think that would have been a sell signal, but the market rallied for the rest of the day – including the home-builders; the XHB was up 3.15% on the day.

That, of course, was a classic example of the trading maxim: “how the market reacts to news is more important than the news itself.” When the market shrugs-off bad news, then you know it is in rally mode.

So, now we want to know if the market can keep it up as the week ends with a lot of economic data. The market plunged after last Thursday’s unemployment report, so that will be the first test this morning.

IWM Long-Term Trendline

On September 1, 2009, I posted this chart showing the giant inverse head-and-shoulders reversal pattern on the IWM daily chart (click to enlarge):

Then, on September 17, 2009, I posted an update showing the pattern’s target and overhead gaps:

Here is what it looks like now:

Not only did IWM top-out just above the projection of the pattern, but the neckline has served as support for over a year. Not bad, huh?

But on Tuesday, IWM pierced the neckline, though it was able to bounce back above before the close. Will the IWM be able to rally off of this line like it has done several times over the past year? The market is pretty oversold now, so we should get some sort of bounce soon, but how high will it be?

Another potential bullish sign was that the IWM was able to briefly rally up into positive territory around 11:45am on Tuesday. It wasn’t able to close up there of course, but that type of surprising move is what I call a “shot across the bow.” It happens during the bottoming, and topping processes. Initially, it looks like a defeat, but later proves to have shown that the losing team was getting spunky.

Monday’s Trading – 8/23/2010

Imitation Is The Best Form Of Flattery
On August 12th, I wrote:

“The bullish view is that the market is pretty oversold now. As a matter of fact, the McClellan Oscillator is just about where it was before the July rally began.”

Then, four days later, on August 16th, Jeffery Saut of Raymond James wrote:

“Indeed, the McClellan Oscillator traveled into oversold territory last week and is almost as oversold as it was at the end of June, as can be seen in the attendant chart. Recall, an oversold reading from the McClellan Oscillator telegraphed the July rally.”

I may only do this for a hobby, but my memes do get around the industry, do they not? And it was a good analysis too. The SPX did indeed rebound off of that oversold condition, rallying up to 1100, even if it wasn’t able to subsequently hold onto the gains.

Obama’s Deal with Iran
Since CNBC is owned by a prominent member of the military-industrial complex, GE, you have to expect to hear a lot of war-mongering on the channel. And last week, Larry Kudlow was demanding an attack on Iran’s Bushehr Nuclear Power Plant before the Russians fueled it up. But it didn’t happen. At the same time, the media was reporting on the massive withdrawal of US troops from Iraq.

Do you think that it’s a coincidence that both events happened at the same time? I sure don’t. The Shi’ite militia were very well-behaved as the giant conveys rolled through their territory, were they not? Not a single IED exploded, so far as I’ve heard.

I think that it’s pretty obvious that Obama made a deal with the Iranians: we won’t strike your nuclear plant if you call off your militias in Iraq as we withdraw.

I mean, look at Bushehr. It’s just sitting right there on the coast of the Persian Gulf. How hard could it be for an American or Israeli sub to sail into range and launch a volley of cruise missiles at it?

So, it looks to me that Iran got its nuclear plant because it was dealing from a position of strength. Iran is the regional power in the Middle East, and the country which needs containment. But, in a gigantic strategic blunder, we have destroyed their two top enemies: Saddam Hussein and the Taliban. And now they are flexing. It will likely only be a few years before they control a large chunk of Iraq, and the Sunni nations like Saudi Arabia feel an urgent need for nukes of their own.

Akismet Comment De-Spamming
This blog gets a lot of comment spam, which you never see because commenters have to be approved by me before comments show up on the blog. A while ago, I tried to use the WordPress “Akismet” comment filter to automatically block the spambots, but it made too many false positives. But due to a barrage of spam from a certain malaria-infested, Third-World hellhole, I switched it back on a few days ago.

They must have improved the algorithm because it is working much better this time, and has only made one false-positive. There is another anti-spam plugin that I might switch-on in a few days also. In any case, you probably won’t notice anything. However, if you type a long comment, it’s a good idea to copy it before sending it. If your comment just disappears, or says “held for moderation” or something like that, make sure to send me an email – otherwise I might not know that Akismet is blocking you.

If you use your already-approved name and email address, and type original text, then you shouldn’t have a problem. However, if you just copy-and-paste some text from another site, Akismet might think it is spam if it has seen it posted frequently on other WordPress blogs.

Matt vs CNBC

On Wednesday night, I rebutted some propaganda on CNBC and wrote:

“Ten years ago, there were 111 million jobs in the USA’s private economy. Today there are 108 million. Your idiotic global trade system has destroyed this country’s ability to create jobs.”

Two days later on his CNBC show, Larry Kudlow took up the point and said:

“…three million fewer workers in the private sector compared to ten years ago.”

Doesn’t it seem like CNBC is monitoring me and actively trying to counter my memes?

Kudlow then went on to claim that the jobs were eaten by President Obama’s dog. That the government has been growing at the expense of the private economy.

But can that really be true? Sure, Kudlow is right, our government is bloated and in need of a good house-cleaning. Thank you Captain Obvious for telling me something that I have been hearing, literally, since the 1970s. But the idea that the government has assimilated private-sector jobs is preposterous.

Has that Whirlpool plant been taken over by the government? Are the refrigerators manufactured by civil servants now? Of course not. The plant went to Mexico, along with thousands of other plants just like it. Over a million jobs have gone with those plants, compliments of NAFTA. You can drive across the Mexican border and see the maquiladoras! They’re right there! Of course, you will never see footage of them on the TV news or CNBC. But just because Big Media likes to pretend that they don’t exist doesn’t make it so.

Note to CNBC: Show the maquiladoras! I dare you!

Just think what a great propaganda opportunity that would be. You could show the maquiladoras, maybe even the GE plants down there, and then have an “expert” on to explain why it is a fabulous idea to export factories.

And after that, you could have another expert on to explain why Henry Ford’s $5-a-Day Revolution was a dumb idea, and how today’s corporate leaders are so much smarter as they grind wages down to nothing.

India Threatens Tariffs

But who cares? They don’t buy anything from us anyway. As a matter of fact, the gigantic nation of India imports less from the USA than the city of Singapore. Can you imagine?

Note to India: What’s up with that? Why do you shun American products?

In 2009, Singapore imported $22.2 billion, while India imported a paltry $16.4 billion. And with over 1 billion people, that comes to less than $15 per capita – not even a carton of Marlboros.

Recently, Azim Premji, CEO of Indian company Wipro said:

“It’s a simple thing for our government to raise tariffs.”

Simple indeed. And insignificant.

India is upset because the US government is finally taking steps to limit off-shoring and immigration. Here is a ComputerWorld story that explains what Senator Charles Schumer is doing. A quote:

“Students can see that paying hundreds of thousands of dollars for advanced schooling is not worth the cost when the market is being flooded with foreign temporary workers willing do to tech work for far less pay.”

The university where I got my computer-science degree shut down the program years ago. Why? Lack of demand. Students aren’t dumb; they know that tech jobs are reserved for foreigners.

Schumer also has a call-center bill that would tax off-shored customer-service calls. What’s great about a tax like this is that no company has to pay it – as long as they employ Americans.

You can read more on Bob Cringely’s blog:

“I graduated in 2002 from Electrical/Computer Engineering at a top-20 university in North America. Sent out several hundred resumes, each customized to the needs of every employer I could find in the Silicon Valley. Barely heard back from any. Still unemployed even to this day, as is most of my graduating class.”

A Koan for Corporate America – Part 2

In Part 1, I asked Corporate America: “As you bask in the glory of your fabulous global free-trade utopia, maybe you can explain to me why your stock index topped out 10 years ago.”

And now for the answer:

In its prime, the motto of the American Middle Class was “shop ’till you drop.” What did they buy? Lots of products from Corporate America, right? And now that Corporate America has off-shored the Middle Class, they can no longer keep up the spending and have a new motto: “Save ’till the grave”.

That’s pretty obvious. But what else did Americans like to buy from Corporate America?

Stocks.

Lots of stocks.

In fact, during the late 1990s, Americans bought $740 million worth of stock every day.

No more.

Unemployed people don’t buy a whole lot of stock, now do they? As a matter of fact, they sell stock to put food on the table. Hardship withdrawals from retirement accounts are at a record level. And Americans who can save, now prefer bonds because they need the income.

This chart, compliments of DailyJobsUpdate.com, shows that over $100 billion has been pulled out of mutual funds (that invest in US stocks) over the past year (click chart to enlarge):

Is the American love-affair with stock-ownership dead? It’s starting to look that way.

Back here, I explained why Ben Bernanke had no power whatsoever to prevent those 1,100 Whirlpool jobs from going to Mexico. But now let’s consider the stock-market implications:

How many of those American Whirlpool workers do you think held WHR in their portfolios? Probably a good percentage of them, right? And now that their standard of living has probably been permanently reduced (compliments of free trade), chances are good that they will have to sell the stock at some point, if they haven’t already done so.

Now, how many of Whirlpool’s new Mexican workers do you think will add WHR to their portfolios? Do they even have portfolios? After paying for rice, beans, and tortillas, how much money is left over to buy stocks when you are making $1.75 per hour?

Not much.

So, by replacing its former well-paid, free-spending American workers with impoverished foreign workers in China, India, and Mexico, Corporate America has wiped-out its best customer for the stock that it issues.

And there has to be an impact to price/earnings multiples, does there not? While trillions of dollars of cash pile up in Corporate America’s bank account, the S&P 500 languishes. Should we not be expecting more “multiple compression” in our glorious global-economy future?

Recently, fund manager Ken Heebner said that corporate profits were growing so fast that “stocks have to go up.” Maybe they will, but do they “have to”?

Wednesday’s Trading – 8/18/2010

Quiz
It’s hard to believe, but there is one stock sector that is actually above its April peak. Which one is it? See answer below.

Definitely NOT a Sweatshop
Good News! They took down the nets at the iPhone factory in China! No more need to worry about the cogs of the global economy leaping to their deaths. I am not making this up; they had actually put up nets. Now the iPhones will be made without nets, just like a high-wire act in a circus. How exciting!

Higher Low
On Sunday night, I wrote:

“The market looks like it has an opportunity to establish an uptrend line by carving out a higher low.”

And so it did. Instead of whooshing down to the bottom of the range, the SPX has made a higher low at 1080.54. But will it stick? Yes it will, if the market acts the way it did in early July. If you look at the chart that I posted back here, you will see that after the McClellan Oscillator turned up from its oversold condition, the market rallied for another 5 days. And the MacOS is making the same pattern now.

It’s important to keep in mind that if “Bond Mania” lets up just a little bit, stocks could rocket higher than most people think. There’s no sign of that yet, though George has been right about the TLT exhaustion gap so far. And this brings us back to the quiz. If you punch up a chart of the XLU, you will see that the utilities are the only sector at new highs.

I suppose that the rationale is the same as with bonds: if SPY is going to be range-bound, why not hold XLU instead and collect the higher dividend? XLU yields 4.31% vs. SPY’s 2.03%.

Is SPY ready to break out of its range and make the yield-chasing crowd crave stocks once again? Or will SPY break down and make them look like geniuses?

Tuesday’s Trading – 8/17/2010

Withholding-Tax Chart
Last night, I sent out a withholding-tax chart showing an important development. If you are a subscriber to DailyJobsUpdate.com, make sure to check your email.

Kudlow Sez It’s OK
On his CNBC show last night, Larry Kudlow had a guy on who said that the USA has not been exporting jobs. Thanks for clearing that up, Larry. Now maybe you can explain why we have over 40 million people on food stamps. That’s more than the entire population of Canada.

Synchronized Swan Dives

Here is a 60-minute chart of the SPX over the past two months showing twin bear-flag patterns (click to enlarge):

Notice that the current (blue) flag, or pennant, has formed at the same level as the June pennant (red). What does this tell us? That the market is range-bound.

However, last week’s drop (blue “Leg 1”) was from a lower level than the June drop, and halted a bit higher. So, blue Leg 1 is shorter than red Leg 1, and thus the projection of the bear-flag pattern, blue Leg 2, is 15 or so points higher than the June low. So, that is an indication that the market might be able to print a higher low.

Also, as we saw in Friday’s chart, the market is already more over-sold than it was when the red pennant formed. So, that is another factor that might help the market make a higher low.

So, the market looks like it has an opportunity to establish an uptrend line by carving out a higher low. Can it do it? If so, then the next pattern would be a bullish ascending triangle.

Friday’s Trading – 8/13/2010

On Thursday, the SPX struggled all day to recapture the 1088 level, but failed. SPY struggled to close its gap-down at 109.29, but failed. After such drama, the bulls will often throw in the towel, the bears will become emboldened, and the market will take another leg down.

SPY dropped down to touch the top of the July 22nd gap, which I showed on my “extreme targets” chart last week. The gap provided strong support on Thursday, but will the bear be satisfied with that, or will it want to fill the gap?

That’s the bearish view. The bullish view is that the market is pretty oversold now. As a matter of fact, the McClellan Oscillator is just about where it was before the July rally began (click chart to enlarge):

The MacOs is in the top panel, and the SPX is in the lower panel. The black arrow points to where the MacOs is now – below the green oversold line. If you scan to the left, you will find the purple arrow at the same level. Then if you scan down, you will find another purple arrow on June 29th, just before the market bottomed.

The bullish and bearish scenarios can play nice if the market drops a bit more, and then begins a bottoming process before rebounding. Of course, the MacOs can go a lot lower as it did in May. But we had a genuine financial panic back then, so maybe this will be as low as it gets for this swing.

Thursday’s Trading – 8/12/2010

Who didn’t have the rising-wedge pattern on their charts? Everybody had it, right? And yet people were in a raging panic on Wednesday when the wedge did its thing. It just goes to show that the vast majority of investors are fundamentalists who are completely clueless about chart patterns.

Like 2thfixr mentioned Wednesday morning, after a wedge-snap a bear-flag is a good candidate for the next pattern. If the market doesn’t retrace any further upward, then a test of the July 20th low at 1056.88 seems like a good bear-flag target.

Wednesday’s Trading – 8/11/2010

The market got its sugar-rush from the Fed yesterday, but still closed down? That doesn’t strike me as bullish. On the other hand, the McClellan Oscillator has unwound all the way down to neutral while the market hardly gave up any ground. That’s the sort of thing a bull market does. The market is no longer overbought, so if the bears are going to put any points on the board, they need to get busy.