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.