Cramerica on Brink of Depression
Now Cramer is calling a bottom and another depression:
“We are on the verge of a Great Depression.”
Did somebody spike the water supply of Cramerica?
Ah Hah! The Real Reason for the Fan-Fred Bailout
“U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.”
Talk about buying votes! Congress just bought half the houses in the country to keep the foreclosed-upon from seeking vengence in the voting both!
Make sure to study the “broadening” pattern on the post prior to this, and watch the comments for updates throughout the day.
Matt,
what else can he do? Compared with Greenspan I’m amazed about the boldness with which Bernanke also used unconventional measures to turn the ship around. To contain the damage he has done to the Fed he now has to be careful as he is risking the Fed’s status as a privately held institution. Cutting is rates is something everyone expects from the Fed, so that’s ok.
Will the rate cute really help – I don’t now. The banks don’t trust another regardless of ,25% and the bad stuff is still there. A multi trillion dollar credit-monster and how many billions left to fight it? Time is running out because banks prefer to make profit on the Fed by raising margins and this delays the trickling down into the economy.
@David: I’m willing to buy SKF below $100. Right now I’m just standing at the sidelines and getting bored by the non-existing action in the markets.
SKF whipping around like crazy again today.
Crash,
sell half of them and wait with the other halt until LEH goes to zero. January should give you enough time.
My luxury problem: What shall I do with my AIG puts?
Sorry typo. Meant < $110 is a good entry point for me. WaMu, AIG, LEH going under and no action in SKF. It’s bothering me to say the least. The market is used to it already as it seems.
Maybe the FED is simply following the cheap treasury rate?
Most of my option quotes on Atrade are 40 minutes old…
It seems as if the market is debating the same issues, since XLF is quite active: will the FED cut rates, and even if they do, will it help?
Crash,
What strike and expiration are your LEH puts?
Rumor that WM is in talks with JPM are false. WM was up big, now dropping fast. Whipping 10% points in the positive/negative.
Crazy!
Charlie;
“SKF whipping around like crazy again today.”
That’s a good thing!
CNBC is really hammering out the propaganda today. They keep saying: “Financials are the best performing sector since the July low.” …Sounds like they are trying to stave something off.
Meanwhile, I can’t help but notice that XLF looks to finish the week down when it was supposed to soar after the Fan-Fred deal on Sunday.
Paul F,
January 2009 with a strike of 5
“Financials are the best performing sector since the July low…” in which they were the worst performing sector at the time.
XLF’s strength since July is why SKF has been a, well, tough thing to hold… let me just put it that way.
The reason XLF has performed well at all is because hedge funds are dumping commodities and unwinding carry trades and the like at a crazy pace. When bullish oil news hits and oil drops a little, you know things are not as they appear.
The bull run in financials probably has more to do with a lack of selling so that commodities can be unloaded. That could reverse at some point.
Was that a intraday double top on the SPX?
oops.. sorry.. ignore that.. wrong timeframe on my chart..
Crash,
Your real risk is that a deal could be done at >$5 a share, so if I held those options, I would cut my exposure in half. If a deal goes thorugh, jan 5 options will be worth about the same as sep 5 options. If a deal doesn’t go through, LEH will probably drop further. With a deal over the weekend already announced, I can’t see LEH sticking around until Jan.
I would sell ALL the Jan options and buy half as many Sep options.
The tape saved itself while I was eating lunch. So far, today’s intra-day pattern is very close to yesterday’s, only it is bit weaker here in the afternoon, and may have made a double-top as Charlie said.
SDS 15 minute MACD keeps creeping up. Almost a confirmation on 30 minute time frame. If this holds, Inverse = High Cotton.
To Crash-critical mass
Charlie;
Which charting program do you use. Or Internet-based?
George,
what does “High Cotton” mean?
Hey George,
using Stockcharts right now.
Okay everyone can hold me accountable here because I’m probably crazy, but I think the market is consolidating for a move higher here for next week. I think it is insane and makes zero sense. But it is what it is.
So get your eggs ready because when I’m wrong you can all throw them at me as hard as you like.
Pooch,
Is it in his letter? I haven’t read it.
Paul,
Thanks. I’m selling at least 1/2 today. I’ll watch the Sept.
Matt can you tell them to stop before I call the men in the white suits to take me away to the rubber room.
Short covering rally into the close??
Crash, nah he is teasing again,throwing out those July 2002 lows again
Hey Zen,
we appreciate your comments too. I think the market is really mixed right now as they don’t know what the gov can or will do over the weekend. There is fear of a big drop and fear of a bailout so both sides of the market are freaking out a bit.
I think the key is that any positions you enter or intend to keep over the weekend might end up underwater come Monday. The longer term trade is down so that is why most of us are favoring that. Not sure what next Mon – Wed will be though.
Zen I will go out on a limb and say Monday big down
I do have a competing hypothesis in my head, however.
There is a little pattern called a three fan pattern. It usually happens on counter-trend corrections and helps to gauge when the counter-trend is done.
If one looks at the SPY 10-minute and draws fanning trendlines, then it looks bearish.
So basically I’m neutral to crazy.
The counter hypothesis to my counter hypothesis, however, is that the fanning trendlines are pretty close together. I would expect them to be a little further apart.
Matt
There may be some “truth” to CNBC’s claim to the financials doing well.
I have watched the regionals for a while (no trades), and a number of them are doing well. And, as someone mentioned earlier, the SKF has not moved as one would expect with the downdraft in LEH and MER. The XLF has held up pretty well considering the LEH fiasco, and the other planes circling behind them ready to crash as well ( MER, AIG, WM).
I have become a believer that we are in a capitalistic market with an underlying socialistic base re the financials. So, short term, I think LEH gets the window opened to them or the FED cuts this weekend, and we bounce Monday.
Thlinking of a pair trade for the weekend, long LEH, short WB hedge (they won’t bail that baby out when it goes down).
Even as I speak, the market has reversed to the upside. Look familiar to anyone ie last Friday?
Charlie;
My keyboard locked up.
I need to get my charts up and I have another method to describe.
If SPY breaks today’s high look for a run to 127.
ok we have a test of the high with a neg. MACD divergence on the 15 min
This is just like yesterday – the market is where it should be sold but no sellers are showing up. At least not yet.
Still neutral here but sticking to my consolidation theory unless sellers show up and really push it down under the 5 MA.
buy now spy 60 min stochs is way up there
sorry not “buy” but “but” I make no recommendations
Check this out. Peter Schiff and his stubborn ego killing his returns. Golly Pete, maybe it’s not inflation after all???
The Price of Sanity in a Time of Madness
In the last few months, many of the investment portfolios recommended by Euro Pacific Capital have experienced the most adverse conditions that I have seen in ten years. At present, the troubles are continuing. Driving the declines has been weakness in foreign currencies that are important to our investors. Some have fallen nearly 20% against the U.S. dollar, pushing down the dollar value of stocks in those markets. Simultaneously oil and gold have seen significant declines from their highs in the early part of 2008, which has punished the share prices of commodity-related stocks. The resulting paper declines in our portfolios have been painful to watch. As I’m sure many of you are aware, all of my own investments adhere strictly to our philosophy, so my concern is not academic.
In such an environment it is natural that some of you may be questioning the basic beliefs that originally led you to Euro Pacific. If economic conditions were unfolding differently than what we had expected, then I would share your concerns. Fortunately for our investors, the scenario that I laid out earlier in the decade, which saw an ugly end to America’s bubble economy, is playing out almost exactly as I had predicted.
The problem as I see it is that the vast majority of global investors are still chasing phantoms and clinging to false hopes. I believe the markets have now diverged from reality. This is not the first time in recent history that this has happened. But in the end reality can be defied only so long, and I am absolutely confident that those who refuse to succumb to the madness will be redeemed. Fortunately for virtually all of our clients, by avoiding margin and other investment gimmicks, they are not forced to sell, and are in position to ride out the tempest.
The latest “catalyst” noted for pushing up the dollar is the government’s recent bailout of Freddie Mac and Fannie Mae. If the market were functioning rationally, the resulting transference of staggering new liabilities to the U.S. Treasury would have been immediately seen as a catastrophe for the dollar. Instead the dollar has rallied.
I believe this counter intuitive reaction results from two forces. First, by transforming trillions of dollars of suspect mortgage backed securities into seemingly bullet-proof Treasury bonds, the move has sparked a relief rally in the dollar as foreign investors no longer have to worry about defaults or markdowns. In fact, to holders of Fannie and Freddie debt, it no longer matters what happens to the housing market. Home prices can drop another 50%, every single homeowner can default on their mortgage, and bond holders will not lose one dime. This has emboldened foreign investors, and temporarily increased demand for both dollars and Freddie and Fannie debt.
Charlie;
OK, Stockcharts. This all depends upon the charts being used.
Here’s another thing I do for scalps and don’t even think about it.
This works on any time frame. Of course, the higher the time frame the longer the wait for a setup and longer the potential move.
For example, on a 1 minute chart, like SKF, use a MACD (Stockcharts, 12,26,9) and when the stochastic bottoms, begin looking for an MACD histogram bar to print above zero with the stochastic moving up. Get into the trade at that point and let the stochastic above 80, kisses, or let the MACD get you out when it starts to turn over.
The 5 minute is great for this action.
I’ve done several of these today based upon the action of the market. I usually get a dollar at a whack. Some will not pan out, but the stochastic will usually get you out in the green.
Rules:
1-Only get into the trade when the stochastic bottoms out at or below 20. Don’t do it otherwise.
2-The stochastic will move up first, then the histogram. It is only valid when the two are in sync.
3-Best when the stock has made a big move down already.
4-For downtrending stocks, this will only be a counter-move and don’t expect much. Great for ranging and uptrends (playing the long side).
5-Use for big moving stocks like SKF, although I use it for anything. The reason for big movers is that like SKF today, I get $1 – 2 -$3 swings – but the biggest benefit is to get some good change. SSO and SDS also good at times after big moves.
Very straightforward.
Charlie;
I may not have explained that well. Was in a rush to get it out.
Darn keyboard.
eli,
I think CNBC is promoting the financial sector today because parent company GE plunged 5% and approached its July low.
Does anybody remember what day that Arab was on CNBC announcing the stake he was going to buy? He and the GE CEO were so smug…
Matt
SSO double top on 5 minute; double bottom on SDS 5 minute.
Test time.
I’m not drinking the Kool-Aid, man.
Although the fincials are holding up, the rally is still being led by commodities. I’ve seen this one before.
“I think CNBC is promoting the financial sector today because parent company GE plunged 5% ”
My thought exactly! Were any of you watching yesterday morning when some ANALyst recommended GE and Mark Haines started ripping the sh*t out of him cuz of GE’s financial arm? It was sweet.
Man, that SDS 15 minute MACD is hanging on with a frog hair. It needs to move up.
I wish somebody would tip the market one way or another. It looks really undecided and I hate sitting in cash when I could be participating.
Crash,
I think I saw that. Mark was quite bearish, in more ways than one.
Thanks George with the explanation. That was very helpful! I think in the past, I tried to trade purely with stochs, but I think my stock settings were wrong and I always got rattled by sudden moves. Not confident enough in the chart to believe what was going on I guess. I would always enter too late or exit too early.
Anyways.. I’m going to try and give it a try sometime soon
George,
Thanks for the technique.
Matt
RE: Peter Schiff… I don’t know if you all have heard of Michael Norman, but he is the complete opposite of Peter Schiff. Hearing them debate is hilarious particularly b/c Norman is very outspoken and gets aggressive.
Yes George thank you… I meant to say thanks earlier for your post to me but forgot!
Paul F,
What would happen to LEH Sept 2.5 options if LEH is sold for $1 or no deal is done and it drops to $1? Is it worth it with a little fun money before the close?
I was thinking that SPY would be able to tag the top purple line on my “broadening” chart today, which would be about $126.50, if the news was OK. While the consumer-sentiment number was good, the retail-sales number was a killer. So maybe that will prevent SPY from finishing with a pop, and this up-wave will end here.
As somebody noted earlier, sentiment recovered because gas went from $4.10 to $3.70. Not good enough.
Hey Matt,
have you been seeing distribution the entire day? Market seems very weak, but looks volatile to pop on any news either way. Do you see a huge risk hanging onto your (i’m guessing) large short position over the weekend?
C’mon Lehman, come to Daddy.
The (powerless) SEC really needs to start cracking down on all this false news that comes out.
eg.
GS going to buy LEH – NOT!
JPM going to buy WM – NOT!
UAUA going bankrupt – NOT..yet..
Crash, yes Schiff follows M3 broad money. Big big mistake. The broad money camp are losing their shirts. M3 is bogus as an indicator of inflation.
The narrow money camp are making big bucks shorting the bubbles in PM and oil. Ludvig von Mises recommended narrow money, but people are too lazy to read him.
You all are welcome.
What I gave was the basic method. Once learned, then it can be modified with variations like any stochastic crossing with MACD histogram or following the histogram after it crosses the zero line like SKF did just now on the 1 minute.
Charlie,
There has been “controlled distribution”, as Marty Chenard calls it, for weeks now.
Yes, there is risk in my short positions, but there is always risk. But since the economy is contracting, I’m not losing any sleep.
Matt
Great point Larry!
What amazes me about some of these braggard pundits is that they have no flexibility because all of THEIR indicators point to inflation. The Aden sisters are the same way and suffering the same fate.
What an odd trading day??
Not enough frog hairs.
Crash,
If a deal is made on a per share basis: ie, you get 0.1 XXX share for each LEH share, then Jan options will be worth more than Sep options (price fluctuates with the shares of the purchasing company). With multiple parties, the deal will more likely be on a cash basis: $x.xx/share and Jan and Sep options will be worth the same (price is constant).
If LEH drops to $1, sep 2.5 would go to $1.5-$2. I don’t think it will drop below $2.
Today we had short-covering in commodities holding up the market – amazing moves.
This has been a good week.
An odd day for a week that saw FNM, FRE, WM and LEH wiped out. AIG on the brink. How this market hangs on is beyond me. We have to be building for something real big real soon.
Yerk, last time I checked Brent Crude was 96.91 USD. Why are the shorts panicking?
All the signs point to a FED rate cut (gold, Euro, commodites up, 13-month down, commodities up, financials not crashing in spectacular fashion, housing holding up).
If they do cut, a lot of the action is priced in. If they don’t then we will see a reversal.
S&P futures moved up about 3 more points after the close so far.
Larry,
It’s got to be interest rates down -> inflation up. There’s no other explanation.
One note is that the bailout lowered interest rates for everything. GSE bonds established a floor above the treasuires that everything else was compared to.
Paul,
I think you’re right. It looks like a rate-cut has been priced in.
Matt
“The current credit depression is more severe than anything seen in a lifetime and unlikely to end any time soon, but Goldman Sachs will probably lead the eventual recovery,” said a Sanford C. Bernstein & Co analyst. “We have never seen anything as deep or as severe as this in the lifetime of anybody working on Wall Street or in the City of London,” said another. (Reuters)
3 mth T-bills yielding 1.41%. It was 1.16% two days before Bear Stearns bail-out. So we need another week to reach that level. And for VIX to get to 30.
The 3-day moving average of the TRIN closed at 0.69 – a very overbought reading.
A rate cut at this time will be very hard to sell. It will be seen as the FED conceding a deep crisis. Year end recovery? – Forget it!
Don’t rule out a year end recovery yet. We could have a big ol crash before that and then a monster rally.
Larry,
my take is
- crude is falling because there is oversupply. Consumption is down and if Ike takes out the refineries in Texas there is oversupply (and may be gasoline shortages at the same time until the processed stuff arrives from Europe). Same happened after Rita/Katrina if my memory serves me.
- Lots of the commodity stocks broke key MA-lines over the last weeks. Now lots are rallying up to the MA (have reached it or will reach it soon). If they don’t manage to break higher, down they go again. Anyone looking for short entries next week?
If I were to know when the chaotic deleveraging will come to an end I would not be typing here…
I think the fed will cut because the stronger dollar allows it, it shows that they are willing to boost the economy but I doubt that it will cause the market to rally.
Today I’ve seen more references being made to CRE. That’s good because it raises the awareness for the next shoe to drop on banking profitability and limits the bullish implications of a solution for LEH over the next months. The best solution for the bulls would be to merge LEH, WM, AIG and MER over the weekend and sell them to a greater fool.
Thanks. Makes sense.
Crude is falling because all the speculators that everyone hated have left and the little that are left are pulling out.
Well, that’s what you get. Look what it did to the market. So high oil wasn’t the only cause of the problem… in fact, lower oil means worse things for the market.
Does anyone of you have historic examples for weeks in which the VIX rose close to 20% and the SPY stayed flat?
And what happened next? VIX down or SPY?
GDX turned out to be a great buy if i actually went with it.
Thanks average guy for the tip yesterday it’s fun watching new stocks.
am glad i was unable to trade today i was calmer than ever.
but did something happen around 10-11am? i started to shiver ehehe.
Now my reason for the fed not wanting to give $ to leh bailout is that WM is on the brink and so is AIG.
about time it denied someone
Larry,
you are welcome. Most likely that the market does the opposite now
Yerk,
that’s a great question to ask as I would like to know too
Taken from the Big Picture…
“We expect a depression in the United States. We expect a depression, very possibly, also in Europe,” Hennecke said on “Worldwide Exchange.”
http://www.cnbc.com/id/26656750/site/14081545/
if I was not short already, I would have shorted the close and make the market prove itself. here’s why:
http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=3&dy=0&id=p34203331392&a=147866981
K
Breakpointtrades.com 10 day free trail
seem like good people
have you made much profit or you;’re just trying 10 days free?
and are they long or short term usually? I am willing to try the 10 day just waiting for market to stabilize a little
Hey David,
thanks for your analysis. I love it when someone posts their fully annotated charts for us to take a look at. Gives us who are learning TA a great way to see how others draw trendlines and identify other hints towards what the market is doing.
K
thanks for the link……i share his views
Wayne Angel was just on Fast Money and said that he can’t see the Fed changing rates. 2% for the next 12 months.
He also confirmed what I suspected: Bernanke is keeping money tight to crush inflation.
He also said something interesting. Since the government only does bailouts during crises, they always get in at the bottom of the market and can turn a profit on the deals that they do. For example, the government turned a profit on the Chrysler deal back in the 1980s, and Angel thinks Bernanke will eventually turn a profit on the paper he got from Bear Sterns because he got such a low price for it. But we will have to see about that. After all, if you buy a fraudulent mortgage, does it really matter if you get a good price for it?
Matt,
It’s below .8 again. See if it will tag it Monday.
Kevin,
What is below .8? The 3-day TRIN?
Matt
K
decided to switch investment styles or i should say the market decided
for me . my previous style minus gold mutual is up 8% ytd
total down 10%
here’s another one I call “NOT THE BOTTOM.”
Not the bottom: here is a chart that will tell you if a bottom has been reached. first note the MACD on the bottom. on a bottom the MACD makes a pointed spike. within two days after the bottom, the fast MACD line slices down through the slow MACD line. nope its not on the chart yet and two days is up. also look at the green horizontal line over the tops of New Lows line chart field. the green line is minimum. there has never been a bottom since April 2007 without new lows hitting the green line. New Lows spiking show fear levels just like the VIX. there is no bottom until a certain amount of fear is reached. http://stockcharts.com/h-sc/ui?s=$NYLOW&p=D&yr=1&mn=6&dy=0&id=p56208758569&a=150513112