Another FOMC Rally?
If we have another one-day wonder rally like we did for the last FOMC meeting, a potential target is SPY $87.26. That is the top of the gap that was created at the open on January 14th.
Banks Saved Again
This is the CNBC story that rallied the futures Tuesday after the close. It appears that the banks will be saved yet again. Our government has been “saving” the banks for almost a year now. I reckon we are nearing the first anniversary of our lost decade. Only nine more years to go!
Wow, they bid up the banks on that? What if it was leaked as a trial balloon?
I guess that’s why is called speculation.
newbie: Glad to see I’m not the only one that understood my (somewhat perverse) logic in buying long expiration SPY puts. I gotta say, my entry point was pretty sweet: SPX 930ish, VIX below 40. Still up on the trade, obviously, but off a good 30-40% from the last little scare. One thing to note, it does not pay to trade these options much as their spread is quite high and you need a good up/down swing to make up the difference – so much so that if you could see that kind of swing coming, you might as well just buy options closer to expiration. Buy (sell) and hold is the name of the game with this one (Die P/E ratio, Die!)
Got my 401(k) statement for last year…down 3% on the year. Considering I can only choose a few long only funds (most were down 30-45% on the year) and two small bond funds, I’d say I am satisfied. Thanks to this blog and several others for cluing me in earlier than most.
I’d love to see the details of the “bad bank” scenario. Do they really still not understand the amounts of money involved here? What happens if they need 2, 3, 5, 10 TRILLION to “buy” these crap assets and throw them into the bad bank? Where do you draw the line? Why on Earth do we want to play chicken with bankrupting the nation? More and more, I am falling in line with Karl Denninger’s idea of a “banking holiday” where each bank is reorganized and doesn’t come back until it is deemed solvent. Bondholders become the new stakeholders and equity holders get a fat goose egg. I still have major reservations about the psychological shock this would bring, but it’s gotta happen eventually. Coincidentally, it seems psychology is something most of the current economic theories seem to avoid despite it being a major influence in the markets.
That unemployment number sure isn’t going to be pretty…very silly to see the market going up when all you can read about is more layoffs (see, psychology at it again!).
Almost forgot…a long read, but well worth it:
http://www.bloomberg.com/apps/news?pid=20601109&sid=au4Y7Cudw2Xo&refer=home
The first thing I thought when I heard about Madoff was how in the hell anyone believed he acted alone. I’m sure we’re only half-way through that whole saga.
Looks like Cuomo may have a spine too…what’s next? Getting information from the treasury about the use of TARP funds?
So now the Banks have a government mandate to start the next bubble? Where? Equities? P/E of 70 on SPX.
Food? Global hunger catastrophe? Blame it on global warming like last spring?
T-bonds? Too low return.
XOM?
Larry
There is no bubble. Rumour (eg almost a fact) is Deutsche made 1bln in January, so that’ll be 12 bln in ’09. That’s almost double of the old record in ’07. You see how undervalued banks are? Buy! And on top you’ll get a bad bank…
XOM – you want to hedge against oil price movements?
Dax broke above the short-term downchannels, projects 880-890 – looks like they run the futures up until 870
Month end rally in full swing, I think this chart pretty much says where we go short-term:
http://api.ning.com/files/0jbYLowImpvfXk3cNxKuJ37aW4Ljy95Ov-Wg35M-srm6rJf5rF6MLlL161SbxSLF2Nb9Jx8Ihq-OUMTp7Rhx0jpsT6U94jc4/Untitled.jpg
dblwyo’s friend Nourtel Roubini says that
the U.S. could face 6 million job losses
in 2009.
Sherry
Yerk-
I guess you are the banking expert; so, I
will ask you. If debt got us into this
problem how does more debt get us
out of the problem.
Also one key Govt. person said that we
do not need China to buy our paper we
can have the Fed do it. Will this lead to
the German World War I experience???
Sherry
The chicago school and keynesians say deflationary. The Austrians would say this will create a massive bubble. We just don’t know where and when.
Sherry – he does indeed. His Davos interview (posted link yesterday via BigPic) is worth parsing VERY carefully. Six mil is entirely consistent with prior downturns, the magnitude of this one and the lag structures. In other words it follows my chart.
Not to step in the middle of this cat fight but gov’t debt is backed by the full faith and credit of US. And it’s not leveraged. This is like h.s. chemistry class – we’re in a different phase where the credit markets are so broke that no injections are moving. The banks need to be a) re-capped (puns intended), b) de-toxed, c) re-factored (back to 10:1 instead of 30:1) and d) the shadow-system needs to be brought into the regulatory fold. You are seeing, live and up close, the deepest structural changes in the Finance industry in three decades.
One other thing – the one thing not yet on the table is the write-down of mortgages by both owners and lenders. Necessary, painful and very risky. Until we “cure” Housing and the Credit Markets we cant’ have a normal cyclical downturn. Notice Roubini’s comments that w/o these measures we’re facing a Depression. We’d all better pray that the stimulus works or we’re back to the guns discussions.
Towelie,
Thanks for the input. You did have an excellent entry!
I am not trading the PUTs, just accumulating them at VIX 42 – 45.
Still have a little more to buy. I am also down, but above water on the early buys. I am underwater on my 2nd set of PUTs.
With the bulk of my purchase nearly done I have been scalping the SPY, which has been both fun and defrayed the losses on the PUTs.
Good luck.
Sherry, expert or not, my take is it is unprecedented so no one knoes for sure. Incoherent rumble mode on: The models I trust say the capital stock is overextended, out-dated and cannot provide surplus rents. Growth has become too dependant on debt, eg pulling forward of consumption. Obama could save the car industry if he were to come up with reasons to buy more cars. The car industry was saved in the 50ies because of changes in lifestyle and the move to double-income households. Then they invented car financing to drag the purchase vehicles forward. GM board new the long-term effect of their insane policy since the mid-90ies… Bailing out the banks helps to prevent a systemic crisis and protects banks’ share- and bondholders. It does per se not ignite new lending as banks will not lend to customers with a high risk of default. The hurray over a bad or whatever bank is over the top as the decline in operating earnings will not be stopped – it is an effort to mitigate the errors of the past.
China always buys the US paper, as it receives dollars from the US consumer. China did pre-finance US consumption just like the car companies did. As soon as the consumer doubts he is able to pay the money back, he’ll stop consuming. China is therefore in deep troubles as it has lost its biggest customer. The US will go through a transition period by shrinking an overextended finance sector (with dubious returns) and rebuilding industries which generate sustainable profits. This turn-around will last years. [little deviation: Forresters call of 5-8 is the optimistic case and he is more concerned about what happens then. Access to cheap hydrocarbonates with high energy density is limited and the time window for change is closing rapidly. Unfortunately as the access to cheap energy is reduced, expected profitablity will deline. This will challenge the foundations of our western societies' basic beliefs and assumptions.] US will have to increase its savings rate (which it is already doing) but the decline in asset prices – real bears predict 80%, I’ll settle for 50% but that’s my guess – make any recovery pretty tough. If the Fed buys Treasuries (kind of a left hand, right hand game) someone still has to finance the trade deficit of the US. Dollar depreciation is not a given as other currencies are in even bigger trouble GBP or stained with uncertainties EUR.
Germany 1923 is not an example as the govt purposefully wrecked the currency to show its debtors that it’s broken and to shake out a plethora of internal enemies ready to topple the govt. France and Belgium at that time occupied the Ruhr valley and took possesion of the produced goods esp. coal while the German govt was paying the employees & workers on strike… So far I don’t see intentional destruction of the whole economy being a target of the US govt. Weimar was not about trying to achieve and maintain a heavily skewed wealth distribution, it was a desparate power struggle against imposed Draconian rules. The current interventionism will further damage profitability and make recovery more difficult. Germany always has had a high degree of govt owned banks which caused private banks to be less profitable as they were competing against not-for-profit organisations and huge losses at govt banks due to incompetent lending which served and serves political goals. To sum it up, I see higher inflation in the future (not in the next months) but not hyperinflation. I’m more concerned about a lack of growth prospects.
Get explanation and discussion guys.. I’m no economist so I’m just reading and learning
K;
Not far away from your buy point on ICE.
BBT simply does not like to be under $20. Smokin’!
Thanks dblwyo & Yerk
Dblwyo-
I hope you were able to watch CNBC’s interview
with your friend Roubibi this morning. I was
impressed.
I talked to my Dad last nite and told him what
you said about extracting data. He said you’re
right…firewalls are better today. But if all members
of his team are still alive, and you give them access
to a very special CIA facility, he will give you almost
anything you want in about 9 months. Also said
that while the U.S. has been playing screw-around
China has moved ahead in several key areas.
Sherry
Yerk, You make some good commets there. I am preparing for one of two scenarios like everyone else (high inflation/possibly hyper in final stages of the crisis but deflation for next year or two at least). The key point for me is that in the end, despite very different paths, the end result for average people will be ugly. Here is what I am thinking:
1) Deflation is and will continue to be the primary trend until at least late 2010/2011. The amount of debt being paid off/defaulted on is far in excess of the amount of new debt being issued and the amount of printing being done (last count on printing was roughly 1.2 T but probably higher as of today). Add in the loss of wealth from housing and stocks and the mood of a large segment of the public toward saving and frugality, and the end result is deflation. The amount of debt is extreme and you are correct in saying that one way or another, savings will need to increase. Monetary velocity is also decreasing, which further neutralizes printing. There simply are not enough potential creditworthy borrowers who are able and willing to request credit, and banks will continue to cut back on lending in an environment of increasing unemployment and dropping collateral values. The amount of reserves in the banking system, most of which appear to be sitting in treasuries, is staggering. Banks are not willing and able to lend enough, and consumers are not willing nor able to take on new debt in sufficient numbers to transition to hyper inflation yet. At some point, the deflation, with its pervasive and devastating collapse on tax revenues and the resulting massive deficits assumed by governments, will put the credit profile of many gov’ts in question. The CDS spreads on many governments have exploded in the last 12 months. This brings us to the end game of a sudden, shocking collapse in long term government bonds with exploding rates. Imaging what that will do to the economy. This would usher in a horrific deflationary depression as collapsing treasuries are the destruction of capital and governments will be forced to cut spending in a big way. For now, this scenario remains a possibility.
2) Hyperinflation/high inflation: This is less likely in the near term, but likely in the final hours of this crisis. Of course, no one knows when that is, but the guess here is 2011-2013. Home prices would likely have stopped falling hard and maybe even stabilized, an enormous amount of debt would have already been destroyed, and the amount of printing now exceeds the amount of bad debt in the system. In addition, you will need to have banks able and willing to lend out or otherwise spend their reserves on assets or issuing loans, and a sufficient number of consumers will need to be able/willing to take on debt and use it to buy big ticket items. Velocity will pick up and look out. Although the Fed has said they will take away the excess liquidity, this is BS as they are always behind the eight ball. In this case, the currency collapses rapidly and long term gov’t bonds collapse in a very similar fashion as # 1. Anarchy ensues as martial law is declared, and people desperately try to hide gold/silver coins and keep enough food on hand. Bottles of Smirnoff or whiskey and cigarettes may be used as money in some places. These last points will apply in # 1 as well.
So either way, the extreme leverage calls for some sort of ugly ending, regardless of any temporary, weak recoveries in between – some of which can last 6-12 months. There is essentially a noose on the economy, and the only question is which of the two gallows, high/hyper inflation or deflation, does it fall into. We will survive this but boy, it is going to be one hell of a ride.
JO
Sherry – boy are we off topic but c’est la guerre. Your dad is right but that’s almost exactly my point. Check out the DNI’s 500 re-engineering plan:
http://www.dni.gov/500-day-plan/500-day-plan.htm and Mike McConnell’s Havard KSG forum for a historical and strategic perspective:
http://www.iop.harvard.edu/Multimedia-Center/All-Videos/Today%27s-Challenges,-Tomorrow%27s-Threats-Why-America-Needs-an-Agile-and-Robust-Intelligence-Community
Yerk – nicely put, you’re right and we’re consistent.
dblwyo…Yerk..Jo… THANKS!!!
Very good analysis. The current Kress cycle
sees the worst economic times between
2012 to 2014.
Sherry
I’ve been watching the charts and trying to paper trade before I jump in and try some scalps, and I’ve noticed that there’s a big difference between the signals that the MACD and Stochastics give on the Regular Hours setting verses the Extended Hours setting. Should I prefer one over the other?
By the way, I also just finished chapter 14 of Technical Analysis of Stock Trends, 9th ed. Thanks for the tip on that book, Matt!
The House is supposed to vote on Obama’s stimulus package today(?)
Toby, I’m not familiar with “extended hours”. Logically, perhaps use the “regular hours” because this is not after- or pre-market hours?
I got nothing.
dblwyo…Yerk…Jo-
If you look at the raw U.S unemployment numbers,
it looks to me like the current real unemployment
rate in the U.S. is about 1/2 of that during the
30′s. The U.S. didn’t know how to lie about
economic numbers then…they do now.
Sherry
Sherry, you’re right. A couple of private, quality analysts such as Mish have calculated that the actual true rate is closer to 14 % or so as of now. They have changed the calculation a couple of times in the last couple of decades from what I hear. To think we are only in the 2nd or 3rd inning of this is scary. The official unemployment rate, understated and useless as it is, should easiliy exceed 11/12 % by 2012 in my best guess.
Thanks, George. My charts can be set to show just the regular trading hours, or to factor in the pre- and after- market hours. I was playing around with the settings and found that, but didn’t know if it should make any difference. I’ll stick with the regular hours only setting.
BBC News: “Who Will Rebuild Gaza?” I’ll give you on gUeSs.
Toby, I don’t have those settings although it would be nice. If it looks like you charts are more tuned to the current SPY, SPX, SSO, etc, I would go with that.
Good luck scalping. I think it is going to be another good day to do that.
No guess needed George…get out your wallet.
Sherry
This AM’s spike has my charts skewed with itsy-bitsy candles. I don’t see an option in StockCharts to scale them, anyone know if it is available?
Sherry,
Unemployment is a lagging indicator. E.g., Wall St has always laid off EE’s near bottoms and hired near tops.
May be a lagging indicator Dave, but a high
rate leads to a fast economic contraction
like it did in the 30′s.
Sherry
Hey, i’m calling for a lower SPX (400) than you are.
However, i’ve been buying out-of-the money calls for bear mkt rally.
“No guess needed George…get out your wallet.”
Dave-
I told Dad that everyone here was saying
that things were getting better because
the price of gas had dropped. He said
that when he was young you could buy
6 gal. of gas for $1. Cheap now…but not
then. A lot of people could not afford the $1.
Sherry
JO, dblwyo, sherry- good points, difficult to come to a concise picture… Now talks about spy1100 because of a bad bank (Denninger…). I’d call that severe disconnect with earnings, but so be it. JO #1 has many points going for it from an European perspective.
Is the s&p going to paint an island bottom with a gap at 855?
Dave-
The key to your bear market rally is
SPX 1006. If the SPX has a successful
1006 test, you will get your bear market
rally…if not, you will see a collapse first.
So, cover yourself and buy out-of-the
money puts…you can always roll them.
Sherry
Sherry,
I had to laugh at people like pro-growth Kudlow who took joy in dropping crude. Rising crude prices were a sign of global growth.
Have been buying refiners while people kept getting burned playing for a crude rally.
“U” type double top on SSO/SPY. Reversal high here.
IMF cuts world economic outlook drastically:
http://www.imf.org/external/pubs/ft/survey/so/2009/RES012809A.htm
These guys are pretty good so pay attention.
Sherry – don’t get wrapped up the gov lies memes on inflation, employment, etc. The stats are very good, well thought thru and honestly reported. Those memes have been repeatedly and effectively debunked in numerous places.
Dave Leonhardt at the NYT had a recent column (URL escapes me but in the last two weeks ?) talking about employment and running it way back
BtW – did you see the URLs on nat’l security above ?
dblwyo-
Checked your URL’s. THANKS!!!
Sherry
George… i dont know where to start.. school has been called off today and am here staring at charts. any stocks ready to move? i dont need the exact entry point just a few to follow and act on my own.
Dave-
I’m not big on oscillators, but I do subtract
the SPX 10 DMA from its 3 DMA and use
that as a momentum indicator. Go wild
when the SPX makes a higher high on
lower momentum.
The super big S&P 500 futures players are
currently net short…but are covering some
of their shorts.
Sherry
shorts
K, on days like these you make more money trading outside the regular hours…
Toby,
You’re welcome. You should probably just look at regular trading hours for technicals since that’s where all the volume is.
Matt
Sherry,
I read in a Great Depression book that many of the unemployed workers at that time were actually immigrants who flooded into the country and never had jobs in the first place. It would be interesting to see what the relative unemployment rates would be after adjusting for such a factor.
Matt
K;
If doing scalps today, it will take the 1min until Fed-Speak. Then I am going to switch to the 5min to reduce noise. There is usually 3 moves after the Fed. I plan on catching 2 of them. I don’t know which way it will move, but I’ll let that on happen first, then get the next two.
Right now, I’m scalping anything that moves on the 1min, keeping an eye on the 15min.
am loving fib.
drew a fib on SPX that end of year rally… well well well
http://i43.tinypic.com/281uddc.gif
There’s also that big intraday gap with an expectation it will be filled soon. If SDS crosses the 36MA, there’s a good chance it will try today, otherwise, it will cycle below it until later.
I’ve tried to use fibs. It’s another one of those indicators you have to know where to “draw” from, like where is the last peak and all that.
My fibs always fibbed.
Sherry,
T-bonds have rallied. Can i sell you some ?
now check SDS… end of year slump. set up for the rally (oppisite of SPX). aow the first 2 retracements both end up around 73.02.. and the 3rd line is hypothetical to say if we bounce when it hits 73.02 there’s a reward of at least 81.77 in this trade.
any concerns about the way am doing these that might hurt me?
http://i39.tinypic.com/1zflhzt.gif
Randall,
Nice chart. 887 does indeed look like a potential target. The move up off of the lows of Friday morning has been rather sharp. You would think that the market would want to correct a bit before racing up some more. Perhaps a throw-back rally to the 850 area to test the breakout is in the cards.
Matt
matt to me 889 looks better
SKS is in the same boat as SDS. If it starts setting up good, it’s truck time.
The Fed will most likely say everything is really bad to justify their actions, similar to saying everything was okay before all of this happened to justify not doing anything. I.E., CYA. Can’t blame them though because at this point, they have little control unless a stimulus is provided.
K,
Your fib charts look OK to me. Drawing from the wave tops and troughs is the way to do it.
Matt
K,
Did you chart the futures? That’s where Randall got 887, and there is usually a small difference between the futes and the SPX.
Matt
Matt-
Dad would have a comment. I don’t recall
everything he told me, but I think he
said that Henry Ford closed his plant
and layed off 75,000 workers (no unemployment
insurance)…the big plant in his home town (ACF)
stopped making railroad cars and laid off most
of its workers. Folks were not focused on
buying…they were focused on selling. He
and his Dad raised chickens and his Dad
sold the eggs.
Sherry
Randalls link is of the S&P futures so those are just a tad off from my Spx but we are all looking for 880′s at this point before we reload in shorts if i am reading the sentiment correctly.
Hah just as i was writing you made that connection too. i just looked at his chart and realized.
Dave-
NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Sherry
George ice is looking mighty weak. am $3 away from breakeven. what do yeee say
Sherry,
We don’t need the clearinghouse; just say “Done”. We’ll let Matt clear the trade.
Btw, loved your Maria B & Fuld jokes !!
Dave-
What is Matt’s fee???
Sherry
layoffs by state
http://www.ritholtz.com/blog/2009/01/layoffs-by-state/
$cpc leading the market… Now lower than after the Nov lows…
Sherry,
A one-way ticket to Haiti where he hooks up with Madoff to form a new clearinghouse to guarantee toxic asset trading…and also real estate transactions between CEO spouses.
Matt (K) – quik take on Fib. Today retraces just about to the 50% level (~871) and I have the 68% level as ~887. That’s from Matt’s “Turning Point”.
So in terms of strategy here the idea is to go short/inverse when that level is crossed ? What else to look for ? And then this is a very event-driven market (Bad Bank, stimulus, bailout V3.0).
Sherry,
If TLT closes > 50d, trades off (outtrade); but if it goes to a new low for the day we double up.
well Dblwyo. my take is to short in mid 880′s (if we ever get there). then there might be a possibility of hitting 900 but i’ll just double down until everyone realizes its time to head south for the rest of the winter. lol
Dave-
You’re too much.
Love your jokes.
Sherry
ice bouncing off 36MA and i sold. what a stupid move.
Sherry,
Thank you. Compliments mean more when they come from people i respect (a lot).
Btw, think earlier scarcity of gold coins was due to fear/suspicion that gold futures may have a delivery problem down the road.
If things get bad enough, i want physical gold not paper representation of it. And coins are a lot more convenient than bullion.
but dave.. the real thing is much more expensive!
i almost ened up buying one for 1100
K,
i wish we could buy Maple Leafs & Eagles thru banks. The markup thru dealers is excessive.
IF paper defaults, that will be more expensive. I worry about the explosive growth in ETF’s. Their guarantee/delivery has never been tested.
On a comedy show yesterday they had Oberst Stauffenberg planning the next Putsch. Public sentiment is fed up with bailing out bankers.
If paper defaults, trade lead for gold.
Paper gold will never be delivered. Lead will prevent the delivery.
Dave-
Have Jo buy a ton of Maple Leafs for
us…and send them to us as we
need them.
Sherry
We have room to run until 944, and if that is passed, 1006 is next over the next month to month and a half or so.
I would not short here.
JO
Boeing Co. said Wednesday it plans to slash about 10,000 jobs across its businesses, compared to a prior announcement of 4,500 job cuts from its commercial airplane unit.
Jo-
I see you’re into testing prior highs like
I am.
Sherry
Jo-
I’ll give you an address to send
my Maple Leafs to.
Sherry
I was in cash at the end of the day yesterday. After the futures popped at night, I put on a small short position at 855. This morning, I made some money scalping the NDX from the long side, and I just bought a small tranche of SPY $84 February puts (SZCNH). I also put in a “silly bid” for more puts in case the market decides to go temporarily insane after the Fed announcement. It’s probably too early to start shorting, but the market is beginning to froth at the mouth so I’m dipping a toe in.
K;
You can always get back into ICE and gain back any loss. It could be turning over on the 15min. So, at this point, it doesn’t matter if you sold because it could have peaked intraday. However, it is in a daily stochastic uptrend, so there is more opportunity.
Joke of the day: Putin commenting about selfishness.
http://www.delraycc.com/InterestingMoney/AmazingPicturesOfMoney/tabid/210/Default.aspx
yeah George am not that worried. at least i didnt panic sell back down at $50′s
We use to have bills larger than the $100 bill. Think the NY Fed should issue $5000 bills & $1000 bills with Larry Kudlow & Dennis Kneale’s, respectively, pix on them. This currency would only be payable to bulls because assets always bounce back.
Sherry,
Triple up; “Done”
Gotta hand it to ya, K – you really held with ICE through that big downturn. That was tough.
KUDOS
UYG has my permission to go to $5 today. Hey, I can dream, can’t I?
nw update, hold do not short, wait for 2-3 days, this rally will continue above 900, but will fail short of 940′s reached earlier…
SDS is looking yummy. almost at my fib points.
Hey Dave, I am holding some TBT, I see you comments on TLT which I cannot make out… are you suggesting that load up on TLT?
Dave-
Not time to go wild yet.
Got out at 15 points.
Sherry
narrowminds,
That’s just repartee teasing betw me & Sherry. Most poeple have seen my many posts about bearish on T-bonds (TLT) which is the same as bullish on TBT.
Btw, bearish on T-bonds; relatively bullish on corporates. IM’s have been selling treasuries & buying corporates. Futhermore, spread traders among the smartest traders have been doing that spread trade.
Thanks Dave.
K; Keep us updated on the Fibs please. I’m interested in that.
Thanks
BTW double toping action on BBT 1min.
Out of ICE at 61.70.
SKF down $30… can you spell JUICE?
if you folloed SDS it went below 73.02 for 1 bar and now its 73.25 (might go back down but so far fib proved right.)