Matt Trivisonno’s Blog

Say Goodbye to GM
Llewellyn H. Rockwell, Jr. thinks that Detroit’s struggle to land a bailout may be the beginning of a new political trend:

“The government looks poised for a fantastic gridlock that will let the liquidation take place so that we can move toward a good recovery.”

I’ve been hearing people say that if GM goes, the entire auto industry goes with it. Could that possibly be true? Will every single auto plant and parts plant in the country shut down? Will Toyota close up shop and go back to Japan? Will Tesla stop making their electric super car? Is it really impossible to reduce excess capacity without the world ending? Is our choice really between too many auto makers or none at all? This strikes me as a bit of an exaggeration.

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A third bearish rising wedge pattern has formed on SPY’s 60-minute chart since the October 10th low. See my last post on the subject for further details. Click chart to enlarge:

I made a lot of money shorting wedge “B”, so I am shorting wedge “C” as we speak.

This next chart is from “the” bottom in October 2002:

It has the shape of a rising wedge, but the two break-away gaps on the 11th and the 15th gave the heads-up that something very bullish was happening.

Our current wedge has no such impressive gaps, and in fact, the futures have been very saggy in the morning. This gives me the feeling that the market doesn’t really want to rally and is being frog-marched by the big mutual funds who are running a month-end window-dressing short squeeze just like they did with wedge “B” at the end of October.

But, even if this is “the” bottom, I am comfortable shorting this wedge because prices will almost certainly correct back to this level in the near future. At that point, I could admit defeat and get out even. Of course, I think the chances of this being “the” bottom are about 0.00% because the economy is contracting hard and there is no sign that the Fed’s stimulus is able to escape the gravitational pull of the black hole that we call the banking system. In October 2002, the economy was actually getting better, so the fundamental background is dramatically different here in 2008.

So, I will be watching for gaps, and evaluating the nature of the selling on the first down day. If volume is light when the market corrects, then I may admit defeat at start looking for an exit.

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On Sunday night, Bloomberg will release its analyst estimates for next week’s economic reports. The estimate for next Friday’s jobs report could be -300k. During this recession, we will probably chalk-up a couple of -400k reports at some point.

If I had any long positions, I would close them out on Friday before reality intrudes upon the rally next week. Don’t forget, the market plunges ahead of the jobs report, not after it.

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Matt Nesto thinks the bottom may be in once again. His reasoning? The consumer staples were a lagging sector today. (He made comments to that effect on CNBC around 4:10pm) Seems like flimsy reasoning to me. The last time he called the bottom it was because the month began with an “O”. That call was on October 31st when the S&P 500 closed at 969. The S&P then rolled over and plunged more than 200 points over the next three weeks.

Note to Nesto: don’t make bottom calls at the end of the month. There is this thing called “month end window dressing.” Look into it.

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Hanging Men
Many daily charts now have bearish hanging-man candlestick patterns. Take a look at the XLF and IWM for especially good examples, and QQQQ and SPY fit the pattern pretty closely too.

Grantham Says the Bear Ain’t Done
In this interview, famed value investor Jeremy Grantham who manages $100 billion gives 2-1 odds that the market will go down a lot in 2009, and wouldn’t be surprised to see the S&P 500 at 600. He says that earnings will be mercilessly crushed for the next year or two. In the account that he manages for his sister, he has her in 80% cash. He also said that making Greenspan Fed chairman was a dumb idea because he was a follower of Ayn Rand.

Russia Preparing to Take Alaska Back?
After the USA collapses and splits into six new countries in the spring, Alaska will be left high and dry and ripe for the plucking. So says a Russian scholar.

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Take a look at this monthly BKX banking-index chart (click to enlarge):

Notice that after plunging through the 2002 lows, the BKX staged a “throw back” rally back up (blue arrow) to those levels in September. The BKX failed to recapture the 2002 lows, rolled over and plunged hard. This may be a good template for what the S&P 500 may do in the next few months. I will be betting that way.

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The TRIN sell signal that I wrote about on Monday has intensified. Since it is a three-day average, Thursday’s selling has dropped off and Tuesday’s buying has been added on. So the average now stands at 0.68 and is the most overbought reading since February 26, 2008 when it hit 0.62 during another month-end mark-up period. Funny how that works, right? By March 10, 2008, the S&P 500 had dropped over 100 points (click chart to enlarge):

Probably the only way that this signal could be wrong would be if the masses were stampeding back into stocks. And since SPY’s daily volume has dropped for three straight days, I’m guessing that is not the case. So, I added to my short positions on Tuesday and will keep selling into strength until I have a huge mound of triple-short ETF’s on hand for when this month-end markup is done.

October’s month-end markup gave us a fantastic shorting opportunity, and this month’s chart pattern isn’t looking too different. As I mentioned back then, the SEC is probably giving the wink to the big funds to run up stocks, which is normally against the law on the last day or two of the month. It’s a huge gift for a short trade.

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For those of you playing for a seasonal rally, take a look at this 15-minute SPY chart for the three days around Thanksgiving 2006 (click to enlarge):

SPY plunged from 141 down to 138 - and that was during an egregious bull market with an historic lack of volatility!

Note: I chose 2006 because it stuck in my memory.

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The red-hot poker that stabbed the bears Friday and Monday afternoons was missing-in-action today. But it’s not like they didn’t try! Take a look at this minute chart of the S&P 500 futures showing the action around 3pm (click to enlarge):

At 2:55pm, a surge of buying began that was 3 or 4 times the previous volume average. The previous chart pattern did not look like a breakout was coming and there was no news at the time. So, this was very likely somebody trying to run another last-hour squeeze play.

They got the futes up to 860, but could not spark another giant rally. Why not? Because the crowd is leaning long and they are fresh out of shorts to squeeze. I’ll bet that they don’t try again tomorrow.

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I am not long or short Citigroup, or any financial ETF’s, but I find the chart amusing:

Citi is up huge this week, yet all of the candles on its chart are red indicating constant selling pressure. How does it do that? All of its gains have been made on opening gaps. Once the stock is open, the selling resumes. I’m thinking that somebody big does not want to be in the stock. Mutual funds are probably exiting it.

Citi’s crazy chart seems appropriate for the premier zombie corporation leading America into its very own, Japanese-style Lost Decade.

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