Tuesday, December 21, 2010
Monday, December 20, 2010
I would use US dollar as a reliable precursor for market moves in next 2 weeks. Pay attention to 80.63 as first line of defence dollar bears are going to short the dollar at this level, if dollar get above 80.63 it means it has potential to rally to 82.62 or as high as 83.71.
US Dollar technical analysis chart:
Base on my analysis if dollar stays above 80.63 for 2 days it means S&P500 will tank to 1228-1220. I expect a big fight at 1228-1220, between optimists and pessimists. On Elliot wave analysis; we are in sub-wave (5) but it is possible that sub wave (5) continue as high as 1300 (see the chart [Alt]:5).
S&P500 technical analysis chart:
As you know by now I'm a contrarian analyst therefore I'm going against the crowd, everybody is bullish therefore I'm looking to short stock and go long treasury as soon as I could detect some weakness in market, please note this is a swing trade not a position trade.
The only thing that has potential to take the US stock market down is European crisis. Despite IMF bailout of Greece, bond vigilantes are causing the Greece 10 year government bond to move higher it yield 11.9048% . As financial analyst I would say, game over for Greece. They don't have any chance anymore they are going to default with in a couple months. Bond traders are asking for 8.45% yield to lend money to Ireland for the next 10 year, after ECB (European Central Bank) announced that they are going to bail out Ireland 10 year bond yield fell from recent high of ~9.47 to ~7.95, but in recent days it started to move higher. We are witnessing the exact same scenario for Portugal 10 year government bond; it fell from ~7.20% to ~5.80% and in recent days has move higher. It would be interesting to see what is going to play out in Europe when Spain government bond get above 9%.
Spain 10 year government bond yield from 1993 to 2010:
Wednesday, December 15, 2010
I've talked about the importance of 1228 level in S&P500. As long as S&P500 stays above 1228 bulls should have the upper hand.
Sunday, December 12, 2010
David Stockman former Reagan White House budget director says the tax deal emerging in Washington is "Keynesian flimflam" that won't help stimulate the economy. In an interview with Simon Constable, he rails against the current system of deficit financing and warns the U.S. faces a crisis of indebtedness in the long run.
Tuesday, December 7, 2010
1228 is the most important resistance of 2007-2009 bear market. I would not get into thought prosess because it gets too complicated. All you need to know is that 1128 is critical for bulls.
In technical analysis, we consider 1228 as the key level. Technicians believe if market gets above it S&P500 will shoot for the previous high (2007 high).
The way I react to 1228 is different from other analysts. I believe if market stays above 1228 for a couple days it would be very bullish.
Please note that big institutions usually send the stock above key levels for a day or two to trap average investors before sweeping the chair beneath their foot; and sending the market lower.
Thursday, December 2, 2010
I'm looking for a pull back to 1211. There are 2 scenarios could come to play:
1) Continuation: S&P500 could continue to move higher with out any pull back; it could take out the 1228 resistance level and shoots higher. I give 10%chance to this scenario.
2) "U" shape move: market could tanks to 1211 then by end of the day, S&P500 rallies hard and gets above 1221.53 it would be very positive. I give 80% chance to this scenario.
Please note there is 10% chance that S&P500 breaks 1204 support level. if S&P500 violates 1204 it mean last 2 days move was just a short-squeeze.
These are Supports and Resistance levels:
Monday, November 29, 2010
Tuesday, November 23, 2010
On the other hand if S&P500 stays above 1196 for a couple days it means bulls have the upper hand.
Monday, November 22, 2010
Tuesday, November 16, 2010
The last line of defence is 1075 if S&P500 tanks below 1075 it would be impossible for bulls to send the market higher in coming weeks. Due to huge rally a 5-10% pull back is absolutely normal, but you need to get worry if S&P500 breaks the lower side the up trend channel(see the chart in gray color). This channel started back in March 6th 2009. If S&P500 violates it; picture would get very ugly.
Sunday, November 7, 2010
S&P500 cut through 1220 resistance level like a hot knife through butter. What you need to pay attention in coming week is 1228 resistance level. Please note 1228 is the most important resistance; bulls are going to have a hard time to break 1228. I'm looking for 5-10% pull back in comming days. If S&P500 gets above 1228 and big institutions manage to hold the S&P500 above it for a couple days, S&P500 could rally to 1300. S&P may run out of steam at 1253, but it is not as important as 1300 level. Therefore if S&P500 stays above 1228 I would say the rally should continue to 1300 with out any problem.
Ireland 10 year government bond chart: The only event that has the potential to reverse the rally would be European sovereign debt crisis. I have talked about Ireland many times. Ireland government bond yield made a new high of 7.72% recently. Bond market is sending a clear signal to Ireland's president Mary McAleese, that we do not trust your economics policies.The cost of insuring Irish debt rose. Theoretically 7.72% yield means bond market does not have any faith in Patrick Honohan Governor of the Central Bank of Ireland. Ireland will be the next Greece, IMF has no other options beside bail them out. Portugal 10 year government bond yield made a new high of 6.655%. Portugal will be the next right after Ireland in bailout line.
Credit-default swaps on Irish government debt surged 30 basis points to a record 590, according to data provider CMA. On Friday 11/05/2010 the spread (difference in yield), between Irish bonds and benchmark German bonds rose as much as 25 basis points to a new high of 534 basis points. As I explained previously Ireland economy with $172.5 billion GDP is too small to cause a systematic risk, but due to extreme overbought stock market condition the Wall Street could use anything as an excuse to sell.
The Fed has re-embarked on a policy of quantitative easing. Its first round of quantitative easing, QE1, started in November 2008 and ended in March 2010.
What did Fed achieve by QE1?
The Federal Reserve purchased $1.25 trillion of agency mortgage-backed securities (MBS) and about $175 billion of agency debt. With QE1, the Fed's newly printed dollars were used (for the most part) to purchase illiquid assets such as mortgage backed securities from the large commercial banks. The cash received for these securities is being held on deposit at the Federal Reserve Banks. What all of this means, however, is that in essence, QE1 created very little velocity of money because the cash created in the first program did not move through the system. On the other hand due to absent of Mark-to-market accounting rule Fed over paid MBS and banks pocketed huge sums of money. Oh yes! they did it.
What does Fed hope to achieve by QE2?
Indeed, I'm not sure that the Federal Reserve or anybody else fully understands how quantitative easing works. The typical explanation between economists is that the Fed's purchases of longer-maturity securities will bring down the interest rates on these securities. The lower interest rates on longer-maturity securities will then induce the nonbank private sector to borrow and spend more. Also, the lower interest rates on longer-maturity securities will make equities more attractive investments at the margin, thereby causing a really in equity prices, which, in turn, will induce the private sector to increase its current spending on goods and services via a wealth effect. Fed hopes by purchasing treasury bonds keep the interest rate low, therefore when Option ARMs resets homeowners could take advantage of lower interest rate which theoretically could save many homeowners from defaulting on their mortgages.
What's wrong with QE2?
1) Liquidity traps: "After interest rate has fallen to a certain level, liquidity preference is virtually absolute in the sense that almost everyone prefers cash to holding a debt at so low a rate of interest. In this event, the monetary authority would have lost effective control." - John Maynard Keynes, The General Theory.
2) Lowering interest rates hurts savers, retirees, and even small-town banks that cannot access the monetary pumping from the Fed and must rely on their depositors. The Fed argument on helping home owners won’t be as easy as it sounds, because when home owners are 30-40% under water they cannot refinance; therefore low interest rate would not do any good. It makes more sense to use strategic default instead of continuing paying mortgage of a house that its value has fallen sharply.
3)Hyper inflation and dollar devaluation. Printing so much money would cause the dollar loses its value and ultimately we could have a very high inflation in the US. We are privileged to print a piece of paper and call it dollar and export it to the rest of world to import goods. What could happen to our economy if Bernake cause the dollar to loose its status as world reserve currency? What could be the side effects of money printing policies? The rest of the world does not need this extra liquidity, and this is where the second problem emerges. Several emerging economies, such as Brazil and China, are already close to overheating; and the euro zone and Japan can ill afford further appreciation in their currencies.
In my opinion quantitative easing(QE2) is just a different way to inject money into insolvent financial institutions. It would be a political suicide to tell to American taxpayers that they want to bailout insolvent banks once again therefore they are going to use QE2 as a cover up. Bernake wants to help Zombie banks by buying Treasury bonds. In last couple months banks has bought huge sums of treasury bonds, and they will be the sellers to Fed. So when Fed buys bond financial institutions are going to pocket the money. Bernanke argues that QE2 could cause the wealth effect, it means when the stocks value increase people should feel wealthy therefore there is a chance they are going to spend more, and spending more would jump start the economy. I don't buy his argument because stock market rallied about 80% since March 2009 but there is no wealth effect so far! What is the guaranty we get it this time? If he is right why Japan central bank could not get any wealth effect after a decade of quantitative easing?
Saturday, November 6, 2010
Thursday, November 4, 2010
Monday, November 1, 2010
As I forecasted last week we witnessed selling pressure at 1194. If big institutions want to inflate the bubble more they have to keep the S&P500 above 1194. I'm going to stay in bear camp, I think the risk is to the down side. This is nothing more than asset bubble that is based on speculation on second round of quantitative easing (QE2).
It is critical for market to stay above 1195 by November 30th and rally above 1220 by end of this year. If big institutions fail to take out these two levels it means they want to send the market lower.
Thursday, October 28, 2010
Europe did not dodge the bullet, just look at Ireland 10 year government bond yield. It made a new 52 weeks high of 7.07% . Market sending a clear signal to Ireland's president Mary McAleese, that we do not trust your economics policies. Ireland economy is too small to cause a systematic risk but due to extreme overbought stock market condition the Wall Street could use anything as an excuse to sell.
GDP (purchasing power parity):
$172.5 billion (2009 est.)
country comparison to the world: 57
$186.7 billion (2008 est.)
$193.4 billion (2007 est.)
note: data are in 2009 US dollars
GDP (official exchange rate):
$227.8 billion (2009 est.)
GDP - real growth rate:
-7.6% (2009 est.)
country comparison to the world: 204
-3.5% (2008 est.)
5.6% (2007 est.)
GDP - per capita (PPP):
$41,000 (2009 est.)
country comparison to the world: 18
$44,900 (2008 est.)
$47,100 (2007 est.)
note: data are in 2009 US dollars
GDP - composition by sector:
services: 49% (2002 est.)
2.187 million (2009 est.)
country comparison to the world: 116
Labor force - by occupation:
services: 67% (2006 est.)
11.8% (2009 est.)
country comparison to the world: 132
6.3% (2008 est.)
Monday, October 25, 2010
I'm going to stay in bear camp, I think the risk is to the down side. This is nothing more than asset bubble that is based on speculation on second round of quantitative easing (QE2).
On long term out look, it is critical for market to stay above 1194 by Oct 30th. If S&P500 fails to get above 1220 by end of this year; it would be very bearish.
Saturday, October 23, 2010
Wednesday, October 20, 2010
I'm going to stick to my gun, they cannot fool me. This is a classic short squeeze. WE ARE GOING DOWN. I already explained the thought process, therefore I'm not going to repeat myself. To read my previous post please click here.
As you see in the chart big institutions could squeeze the weak handed shorts and we got the classic short squeeze. From technical point of view it was interesting to see rally stopped right beneath the up trend channel( see the chart in purple). The parallel blue lines indicate a potential down trend channel. If S&P500 wants to rollover, it must break 1150 and 1131 support levels.
In my opinion exaggerated moves in Forex market is the force behind equity market in recent days. There is a good chance that US dollar has found an intermediate bottom near 76.14. If dollar holds to this level S&P500 will rollover. Please note I would close my short positions if S&P500 could close above 1186; it means rally has some legs.
Tuesday, October 19, 2010
At this point 2 scenarios could come to play:
1) S&P500 could continue to grind higher, if S&P500 break out from resistance area(1170-1184) it would rally to 1220-1200 .Please note S&P500 must stay above 1150 support level.
2) In the case 1150 support level fails to hold we could go as low as 1070, it means S&P500 would drop 100 points.
1070 is critical if S&P500 violates it, game over for bulls.
I went short when S&P500 was near 1182. Base on last couple days actions, I'm betting on more sell-off in coming days. But I'm open to possibility that S&P500 could grind higher to 1200 area. Please note that this rally is base on speculation on second round of Quantitative Easing (QE2), if Fed does not come with the number that Wall Street expects we are going to get sell-off.
Sunday, October 17, 2010
I know most of you don't even bother to read the news and you don't care about politics, but we need to wake up. These idiots cannot do this to our country. I listened to Ben Bernanke chairman of the United States Federal Reserve speech on Friday. He is determined to start the second round of quantitative easing(QE2). You are not patriotic if you wouldn't grab a phone and call your legislature. This madness must be stopped.
EQ won't work, as I explained in my previous articles Japan has been doing it over a decade, look at the Japanese debt-to-GDP ratio (it is approaching 200%), look at the Nikkei-225 performance it is down near 75% from its pick. It is clear it did not work for them; it won't work for us either.
This madness must be stopped.
Friday, October 15, 2010
S&P500 will go down. Market acting very weak, just get out. I'm short since Wednesday. I went short when S&P500 fell below 1182. I'm going to hold to my short even if S&P500 rallys.
Thursday, October 14, 2010
James Grant. PhD is one of notorious bears in The Wall Street, He even keeps a stuffed bear in his office! I'm not kidding, he really does.
Despite his extreme bearish opinion but he has a point; QE2 is not going to work, Bernanke policy is going to hurt our economy on the long run. As I discussed in my previous articles Japan has been doing QE over decade. It didn't work for them, it won't work for us either. Bernanke is delusional, he thinks we can inflate our way out this problems. I hope I see a day that Bernanke, Henry Paulson and Geithner are charged on mishandling the economy and corruption.
Wednesday, October 13, 2010
I've been asked to give my analysis on Tehran price index(TEPIX)(شاخص كل).
As you see in the chart above TEPIX has enjoyed a strong rally (+136% from Feb 2009), but from September 2010 to October 7th it has moved side way. At this point I'm not sure if this is a flat top formation or a consolidation phase before next leg higher. Base on my analysis 167888 support level, must not get violated if Tehran price index wants to rally higher.
Since October 9th Tehran price index starts to move lower, that made many Iranian investors nervous. This is despite the fact that majority of exchanges all over the globe has moved higher.
Mishandling the economy by president Ahmadinejad has caused extreme fluctuation in currency market. Value of Iranian-Rial has fallen sharply against the U.S. dollar and Euro.
In recent weeks ordinary Iranian rushed to banks to exchange their national currency with the U.S. dollar. Situation got so bad that Iranian Central Bank announced that they stopped selling Euro and U.S. dollar.
If you follow the Forex market you should know that the U.S. dollar has fallen sharply against Japanese yen, Euro, Australian dollar...
The oil sector, makes the majority of Iranian GDP, therefore you should expect when the value of commodities increase the Iranian Rial like other commodity based currencies moves higher, but due to lack of confidence to Ahmadinejad economic policies, Rial has experienced sharp sell-off. I think the unrest in currency market is behind the recent Iranian stock market sell-off.
From 2001 to 2009, Tehran Price Index(شاخص كل) has moved in a triangle formation which from technical point of view is very bullish (positive). TEPIX hit the upper leg of the triangle three times(see the chart red arrows) and finally it broke out in a parabolic move. This parabolic move is actually a very defined uptrend channel(see the chart black parallel channel ). As long as TEPIX would not violate the channel it would have potential to rally, therefore in my opinion there is no need to panic. I forecast at least 6.22% drop to 16788 in comming days. Pay attention to 16788 as the first line of defense; if it fails to hold Tehran Price Index will free fall to 14100 level. In spring of 2010 TEPIX stuck in 14100 area for many weeks, big financial institutions did not let it tank beneath the 14100, therefore I expect banks to jump back and start to buy again.
Please note in the case that 14100 fails to hold the upper leg of triangle (see chart in green line) could act as support. Base on technical if Tehran Price Index tanks below 15100 it's officially in a bear market. In the case 14100 does not hold things will get ugly.
Sunday, October 10, 2010
Irrationally exuberant is back again. Traders think everything is back to normal, but reality is that fundamentally nothing has happened, Friday unemployment data supposed to be -8000 instead we got -95,000! Greece, Ireland and Portugal did not come out of the ditch yet. Japan has started the second round of QE2(quantitative easing) They have been doing it for over a decade, just look at Nikkei-225 it is clear that QE does not work. In December 29th 1989 Nikkei 225 made the all time high of 38,957.44; it means despite all government interventions Nikkei-225 has fallen 75.14%! Please see my post on Japan quantitative easing.
Non-farm employment graph:
To me QE2 is equal to financial suicide, and Ben Bernanke(Chairman of the United States Federal Reserve) will be the next to jump start the QE2 soon. We are in earning season therefore technical analysis would not work. Earning news will be the force behind the market. Financial analysts lower the bar that will help most of S&P500 companies to beat the expectations. the 2011 earning growth has been reduced by 15.74% from 17.80 to 15.00 percent.
I will point 3 scenarios that could come to play.
As I mentioned a couple weeks ago, if S&P500 gets above 1150 it will shoot for 1170.
in the case S&P500 breaks 1170 and stays above it for 3 days it would shoot for 1200-1220.
Pay attention to 1170-1180 as major resistance area.
what makes it such an important area is the fact that there are so many bulls who trapped between 1180 to 1220 who pray to god that market rallies to get even.
2) Bearish : If S&P500 fails to stays above 1170, it could tank as low as 1070. It's critical that 1070 holds because it marks the lower side the uptrend channel (see the chart in orange)
3) Dooms day: If 1070 fails to hold bulls are in trouble. In this case S&P would tank to 1010 or as low as 950. which mark the completion of sub-wave (3).
Friday, October 8, 2010
It is very rare that equities, gold and bonds all climb strongly (see the chart), but this unusual synchronicity is being driven by expectations of another round of quantitative easing by the US Federal Reserve. There is no way these 3 are going to rally together for a long time. One of them is going to blow up. I warns that now it's up to the Federal Reserve to meet those expectations or the upward momentum could be reversed very soon.
On technical aspect, we are extremely overbought. In my September 19th post I talked about possible rally with out any meaningful pullback. I was looking for S&P500 to rally to 1170 to complete the sub-wave (2). We are getting close to my target, today high was 1167.73 ; from now on earrings are going to move the market. Please note sub-wave (2) could ended anywhere from 1170-1180.
Please pay attention to 1150 support , it must not get violated if big institutions want to send the market higher.
S&P500 Technical Analysis (09/19/2010)
Non-farm employment in September declined 95,000, following a -54,000 dip in August. Economists median forecast was -8,000 but it fall significantly more than consensus. Government payrolls declined 159,000 after decreasing 150,000 in August. It was due to loss of 77,000 temporary Census 2010 jobs.
Wednesday, October 6, 2010
Japan is going to do more Quantitative Easing (QE). They plan for a 5 trillion yen fund to purchase bonds, commercial paper, ETFs & REITs.
Quantitative Easing(QE) is monetary policy used by central banks to increase the supply of money to buy financial assets, including government bonds, corporate bonds and mortgage-backed securities, from financial institutions in a process referred to as open market operations and hoping to increase lending and economic activity in the process. QE is a very risky strategy and on the long run could trigger higher inflation than desired or even hyperinflation. Money printing, by central banks could result in currency eventually becomes worthless.
Since May 2010, and prior to the currency intervention, Japan's currency strengthened by about 11% against the dollar--not to mention against the Chinese yuan--while strengthening 13 percent on a trade-weighted basis over the same period. A combination of a slowing global economy and a stronger currency has created a nearly impossible situation for Japan's exporters. Japan's second-quarter growth slowed sharply and unexpectedly as exports languished and domestic demand remained weak. The contrast between Japan's paltry second-quarter growth, flattered by deflation in real terms, and Germany's export-enhanced strong second-quarter growth--the result of the euro weakening in the face of southern Europe's rising debt crisis--underscored the benefits for exporting nations of a weaker currency.
Japan's chronically strong yen is symptomatic of the problems facing its economy in an environment of weakening global growth. It is important to remember that the stronger yen is not aberrant, as Japan's government has sometimes claimed, but rather is indicative of Japan's underlying deflation problem. Slower global growth exacerbates Japan's excess capacity, especially in the traded-goods sector. As a result, deflation persists or intensifies. Additional deflation strengthens the yen in two ways. First, it raises the real return on assets in Japan and therefore attracts funds either from foreign investment or through repatriation by domestic investors. The repatriation by domestic investors is intensified by the fact that the stronger yen means losses on their foreign investments denominated in foreign currencies. So, in response to the stronger yen, more foreign investment is repatriated, thereby adding further to yen strength and Japan's deflationary pressure.
In simple word, Japan is in somewhat of a currency-based liquidity trap, the underlying determinants of which suggest that without some exogenous shock designed to weaken or at least stabilize the yen, the deflationary appreciation of Japan's currency will continue. In this troublesome environment, Japan's new Democratic Party of Japan government and the Ministry of Finance have been at odds with the Bank of Japan. The government has been advocating aggressive measures to stabilize and weaken the yen, whereas the Bank of Japan apparently has wished to be more cautious. The Bank of Japan is reluctant to undertake quantitative easing that could be interpreted as an endorsement of the heavy borrowing required by Japan's government to finance its large deficits.
What they hope to achieve:
Japan with new round of quantitative easing, hopes to boost exports and steer its economy away from deflation. But Japan's problems are not unique; in the wake of the financial crisis, economies worldwide are facing a global shortage of demand and competing for their share of exports.
A side effect will be that this new money is expected to raise consumer prices giving people another incentive to buy now rather than later.
Of course there are risks. First, a central bank can lose money on its purchases, money that will ultimately have to be underwritten by taxpayers either with higher future taxation or by the central bank creating more money and risking higher future inflation. Second, go too far with creating and spending money and you will destroy the value of the currency. Inflation or even hyperinflation is the result. Third, if a descent into QE destroys confidence in an economy rather than gives reassurance that the authorities are on the case it can be counter-productive.
The other reason for the Bank of Japan's resistance to pursue aggressive quantitative easing is the fear of runaway inflation that might result from rapid money creation. Setting the price-level target is important because it preordains a tightening or reversal of easing policies from the Bank of Japan as soon as the price level rises above a path consistent with the modest 1 percent inflation target. By undertaking this round of quantitative easing, the Bank of Japan is not guaranteeing unlimited purchases of foreign currency or Japanese government bonds, but only an amount sufficient to weaken the yen and thereby cap Japan's damaging, self-reinforcing path to further deflation. Despite the Japanese efforts to devalue Yen against other currency investors rush to buy Japanese Yen and caused a sharp drop in USD/JPY . As you see in chart above it Japanese Yen acting very strong against US dollar, from technical aspect it has at least 3.5% more to go. Pay attention to 80.00 level. It should act as strong support level in coming weeks.
This strategy is not isolated to Japan. The USA, UK, and European union has joined the club. Market anticipates second run of QE in the US would start by November 2010.
When Federal bank of reserve starts to buy the US treasury it caused the flattening yield curve. My short term target for 10 Year US Treasury yield is 2.039%. In my opinion QE2 is just a different way to inject money into insolvent financial institutions. It would be a political suicide to tell to American taxpayers that they want to bailout insolvent banks once again therefore they are going to use QE2 as a cover up. Bernake(Chairman of the United States Federal Reserve) wants to help Zombie banks by buying Treasury bonds. In last couple months banks has bought huge sums of treasury bonds, and they will be the sellers to Fed. So when Fed buys bond financial institutions are going to pocket the money. Bernanke argues that QE2 could cause the wealth effect, it means when the stocks value increase people should feel wealthy therefore there is a chance they are going to spend more, and spending more would jump start the economy. I don't buy his argument because stock market rallied about 80% since March 2009 but there is no wealth effect so far! What is the guaranty we get it this time? If he is right why Japan central bank could not get any wealth effect after a decade of quantitative easing?
10 Year US Treasury:
Tuesday, October 5, 2010
OK! we got the big move that I talked about last week. S&P500 broke out from 1131-1150 range on high volume, to me today rally was a nice short squeeze. What I want to see is the continuation in coming days. If this is a real move we must continue to move higher. Note S&P500 must not violate 1150. If S&P500 drop blow 1150 and 1131 it would be very bearish.
On fundamentals nothing has happened to improve European crisis. Price of European over nigh lending (Euro Interbank Offered Rate:0.956% €) is increasing. The risk premium is increasing European banks charging each other more to lend, therefore I would be very cautious. Please pay attention to possible violation of 1150 & 1131 as tell-tale sign of weakness.
On Elliott wave analysis we are in "c" wave of sub-wave (2). The wave "c" could move as high as 1170. If S&P500 violates 1131 and breaks 1070 bulls would have no chance to move the market higher. In this case my target for sub-wave (3) is somewhere between 1010 to 950. On the other hand if S&P500 gets above 1170 it would shoot for 1220. If S&P500 stays above 1170 for 2-3 days it means my wave count is incorrect, and S&P500 would not tank to 950 anytime soon.
Wednesday, September 29, 2010
S&P500 has been developing ascending triangle pattern(see the chart in blue), which is bullish. It been moving in a very narrow range(1131 to 1150). It's about time to break from it. I don't know which direction ,but market is going to break out very violently. If I want to pick; I would say, if by Friday S&P500 fails to get above 1150; there is 40% chance that we are going to witness a very violent move lower.
On the Elliot wave analysis we are in sub-wave (2), if S&P500 moves below 1100; I can say for sure the sub-wave (3) is initiated. On the other hand if S&P500 gets above 1150 and stay above it for a 2 days it will shoot for 1170.
Monday, September 27, 2010
$232.6 billion (2009 est.)
country comparison to the world: 50
$239.1 billion (2008 est.)
$239.1 billion (2007 est.)
note: data are in 2009 US dollars
GDP (official exchange rate):
$227.9 billion (2009 est.)
GDP - real growth rate:
-2.7% (2009 est.)
country comparison to the world: 160
0% (2008 est.)
1.9% (2007 est.)
GDP - per capita (PPP):
$21,700 (2009 est.)
country comparison to the world: 56
$22,400 (2008 est.)
$22,500 (2007 est.)
note: data are in 2009 US dollars
GDP - composition by sector:
services: 74.3% (2009 est.)
5.583 million (2009 est.)
country comparison to the world: 66
Labor force - by occupation:
services: 60% (2007 est.)
9.5% (2009 est.)
country comparison to the world: 114
7.6% (2008 est.)
Population below poverty line:
Household income or consumption by percentage share:
lowest 10%: 3.1%
highest 10%: 28.4% (1995 est.)
Distribution of family income - Gini index:
country comparison to the world: 72
Investment (gross fixed):
19.1% of GDP (2009 est.)
country comparison to the world: 103
revenues: $94.87 billion
expenditures: $116.4 billion (2009 est.)
76.9% of GDP (2009 est.)
country comparison to the world: 17
66.3% of GDP (2008 est.)
Sunday, September 26, 2010
James S. Chanos is the founder Kynikos Associates LP. He manages $6.7 billion. He is one of the top 5 bears in the US. He is famous in holding his short positions for very long period. He made a name by shorting Enron in 2000. Obviously he talks his book; he has have so many interviews all over the media in last couple months on Chinese housing market. China has taken some preventing action to stop the bubble from bursting they hope by tightening the lending standard for second homes and their own version of bank stress test they could have soft landing, lets hope they get it right. If Chanos is right and Chinese economy tanks; we are in a big trouble. What would happen to the US treasury if China stops to buy them? What would happen to the US dollar? I don't even what to think about it. I hope we would not see it happens in our lifetime.
His fundamental analysis on Chinese real estate makes sense to me. Since June 2009 I have been thinking to short them, but technical look very strong therefore I'm going to hold until I see weakness in charts.
Saturday, September 25, 2010
Friday, September 24, 2010
The cost to insure Ireland’s debt climbed to a record, leading a surge in European sovereign credit-default swaps, on concern Anglo Irish Bank Corp. won’t pay back bondholders in full. Contracts on Ireland jumped 23 basis points to 487 basis points at 12:50 p.m. in London, according to data provider CMA. Swaps on subordinated debt of Anglo Irish, which was nationalized last year, now cost 5 million euros ($6.7 million) in advance and 500,000 euros annually to insure 10 million euros of debt for five years.
The Commerce Department said durable goods orders dropped 1.3% after a revised 0.7% increase in July. Markets had expected orders to fall 1.0% from a previously reported 0.4% gain. The decline last month reflected a 40.2% plunge in non-defense aircraft orders after a 69.1% surge in July.
If you are scratching your head and asking yourself this is not good news why markets shoot up? You are not alone. That's why we call stock market casino, it's a different species, it does not care what economics data says on the short run. The only explanation could be weekly option expiration, there is a good chance that big institutions sold lots of weekly put options therefore they bought futures overnight to cause a short squeeze in opening to protect their positions. For those who are not familiar with derivatives I need to explain when an option contract does not hit the strike price by expiration day it become worthless and option seller collect 100% premium.
I would not base by trade on one day action therefore I would not make any changes in my positions. Please note if S&P500 stays above 1131 by Tuesday you have no business to be bearish.
Thursday, September 23, 2010
At this point I'm not sure if this is a pullback or we are rolling over, therefore I recommend to play safe and lock profits.
S&P500 Technical Analysis (09/19/2010) :
Sunday, September 19, 2010
Market is extremely overbought; there are 3 scenarios for coming weeks. I will give you all the possibilities and I would tell you which one I think has the biggest potential.
S&P500 would roll over in coming days. It should tank to 1085 or as low as 1075. It’s critical for bulls that 1075 level holds. I think this scenario has the highest probability.
S&P500 moves above 1131 for a couple days then it gaps open lower this is the last thing bulls want to see in this case S&P500 should tank to 1085 or lower.
S&P500 grind higher with out any reasonable pull back in this case it could rally to 1170, then rolls over.
On the Elliott wave analysis I could suggest a new set up. There is a good possibility that we did not start the sub-wave (3) yet. Therefore wave (2) could made of the a,b,c pattern. If S&P500 violate 1075 level it means from July to mid-September we were in wave (2). This would be a nightmare for bulls. Because wave (3) is the vicious of 5 waves structure. Please note there is an alternative for wave "C" it could end as high as 1170.I pointed in the chart as [alt-c]. If S&P500 breaks the 1075 it means the (a,b,c) pattern was accurate and the wave (3) should end somewhere between 1010 to 950.
Tuesday, September 14, 2010
iShares Barclays 20+ Year Treasury Bond previous forecast(09/03/2010): In my September 3rd post, I mentioned there is a 25% chance that TLT move up to ~105.28 level then we get a pull back. TLT just did that; it rallied to 105.78 and pulled back .Please note as long as the up trend is intact,bulls have the upper hand. Pay attention to 102.7 support level, if it gets violated you have no business to be bullish on bonds. In this case TLT should tank to 98-97 levels. On the upside pay attention to 109.5 level if TLT gets above it bond bears will get squeeze.
Monday, September 13, 2010
I'm a bear as long as S&P500 stays below 1131, but I would like to point a bullish scenario for my bullish readers. The year 2009 has taught us that in this casino(stock market) any thing is possible, therefore I decide to point a very bullish scenario for bulls.
What we have in the chart above is an Inverted Head & Shoulders pattern. This is a very bullish set up. Base on technical analysis if S&P500 gets above 1131 we should witness an extreme rally to 1220 to 1260 by end of 2010 forth quarter. Please note if we get a fake out move above 1131-1150 for a couple days then S&P500 rolls over we would tank to 950 in matter of days.
Sunday, September 12, 2010
Next week would be impossible to predict, due to Triple Witching Day. But here is my analysis on market. I hope it helps my readers to make sense of market.
the upper side the channel got hit for the second time. S&P500 broke out the down trend channel (see the chart in blue), which is very bullish. We have to wait to see if S&P500 can take out the 1131 or not? I think it's a fake out not a real thing, but if S&P500 could stay above 1131 shorts will get squeeze and we'll get a strong rally to 1170 in coming weeks.
I was looking for a rally from 1040 to 1090, but S&P500 exceed my forecast by 19 points. I think we already seen the completion of sub-wave "IV" and we should head lower to complete the sub-wave "V". What we need to pay attention in coming weeks would be 1131 level in the upside. If big institutions want to squeeze the shorts and send the market higher they must push the S&P above 1131. If S&P500 falls back into the down trend channel bears would have the upper hand. Please note if S&P500 rolls over and heads lower it could get a bounce from 1075-1066, but if S&P500 stays below 1075 for a couple days GAME OVER for bulls. In this case it should head for 1010 or lower.
Friday, September 10, 2010
LIBOR-OIS (USD SWAP) 3M chart: Value: 0.197
I post the LIBOR & Ted Spread charts every fridays.
Thursday, September 9, 2010
Today the New Jobless Claims was 451K. It is not accurate, because 9 states including California and Virginia gave their estimate instead of actual data and the U.S. Bureau of Labor Statistics guessed the new jobless claims data for 7 others states. Oh yes! they made up some number instead of actual data. Their excuse was due to Labor day short week, they were not able to provide the data on time.
Tuesday, September 7, 2010
I highly recommend my readers to watch this interview.
Michael Lewis, author of "Liars'
Poker," talks with Bloomberg's Erik Schatzker about the subprime mortgage crisis and his new book "The Big Short." The book is a chronicle of four sets of players in the
subprime mortgage market who had the foresight and gumption to short the riskiest mortgage deals: Steve Eisman of FrontPoint, Greg Lippmann at Deutsche Bank, three partners at Cornwall Capital, and Michael Burry of Scion Capital. (Source Bloomberg)
Chart above is very clear therefore I make it short. I pointed a up trend channel in the chart, as long as TLT stays in this channel bulls have the upper hand, there is nothing bearish in chart, the up trend channel still is intact, and TLT is above 200 SMA(see the chart in orange color). What you need to pay attention in coming days would be 102.70 support level. It's critical in the short term that TLT stays above this level. At this point I give 30% chance to violation of up trend and move below 101. There is 25% chance it rallies to 105.28 then it could roll over. on the other hand if it gets above 105 and stays above it for a couple days there is 45% chance TLT makes a new high.
Friday, September 3, 2010
If S&P500 stays above 1131 for a couple days you have no business to be bearish. Lets see what's going to play out by next week.
Wednesday, August 25, 2010
S&P500 forecast from 08/06/2010 to 08/25/2010:
The wave structure is getting complicated. At this point I'm not sure if today low (1039.38) is the 3rd wave or not? Therefore I'm going to use "alt-III" as the alternative wave until I get some clarity on the market direction. If S&P500 could rally to 1080 it should mark the 4th wave(see the chart "alt-IV"). I give only 20% chance for rally to 1080-1090. S&P500 should rollover at 1080-1090 and heads lower to 1010. If S&P500 breaks 1010 there is 80% chance S&P500 tanks to 950. If the 1010 level fails to hold, it means my original wave counts was correct and 1039.38 is not the wave-III. In this case 1010 will be the 3rd wave (wave-III) and 970-950 will be the wave-V that marks the end to sub-wave(3).
*1: The dead cat bounce is a reference to a short period of recovery for a given security. While there may be a temporary and modest rise in stock price for the security, the momentum quickly ceases and the price either levels out or begins to drop again. Generally the degree of increase in the price of a stock is limited, and may involve a stock that was not considered favorable in the first place.
Friday, August 20, 2010
Wednesday, August 18, 2010
Last weekend I said "I'm looking for move lower to 1070" and S&P500 just did that on Monday S&P500 tanked to 1070 and we got the bounce. Now we have to wait to see if this is a dead cat bounce or we are making the next leg up. As you see in the chart we could make a new up trend channel, (see the chart in dashed orange line). what i like to see before make any conclusion would be a strong rally and break the 1131. At this point I give 45% chance to rally to 1115 then S&P500 should roll over. Please note we must be open to possibility of rally higher, but it would be very unlikely.
I give 55% chance to move lower with in next 2 weeks. what you need to pay attention to the violation of 1070 and 1056 levels. If S&P500 tanks below 1040, we should visit 950 in no time.
Tuesday, August 17, 2010
Nice short squeeze! we should wait to see if 1096 would hold or not. If S&P500 tanks below 1096 you should close your long positions, and go to cash. If S&P500 would not stay above 1096 it would conform the bull trap. Note if we get a bounce from 1088 it would be very positive. As long as S&P stays below 1096 bears will have the upper hand.
He has a point. This is what I have been saying all this time. The 2009 rally was nothing more than inventory cycle. Fundamentals would not support the Wall Street wishful thinking about new bull market. We never came out of the recession in the first place.
Sunday, August 15, 2010
"Click on the chart to zoom in."
So far my forecast worked out very well. Pay attention to 1070-1066 for the possible bounce. Next week will be hard to predict, but I think bears would have the upper hand as long as S&P500 stays below 1096. I would give just 30% chance for rally higher, my bullish target would be 1096-1115. To me 1115 is too extreme but we should be open to unusual events. If S&P500 breaks below 1070, I would give 70% chance for continuation of downtrend to 1056-1040.
Here are some important supports and resistances for the S&P500 in the coming week: