S&P500 reached my bullish target for 2010

S&P500 Mid-term target (From my September,13,2010 post) : "Click on the chart to zoom in."

Back in September 13th 2010 click here. I gave a bullish scenario to my bullish fans. At the time I thought my forecast is too optimistic, but market proved me that with "Bernanke's Put" ($600b QE2) anything is possible. My target for IH&S (inverted head and shoulder) is 1254-1260. I'd like to see what big institutions are going to do when S&P500 would reach these levels. Big institutions could over shoot the market to 1300 level, but 1254-1260 is a very reasonable level for 2010 high. In the short term pay attention to 1232.56 support level. If S&P500 tanks below 1232.86 it means we are headed to retest 1228-1220. As I mentioned many times before as long as S&P500 stays above 1228 bulls will have the upper hand.

S&P500 Should Move Sideway In Second Half Of Dec

Equity Markets usually move side ways or slightly higher in second half of December. Trading volume should be very low because big guys are gone for vacation and won't be back until first week of January, therefore we should not witness any violent moves. If S&P500 tanks below 1232.86 it means we are headed to retest 1228-1220. As I mentioned many times before as long as S&P500 stays above 1228 bulls will have the upper hand.

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:

Pay attention to 1228 support level

Market has became extremely overbought therefore a pull back to 1228 is absolutely constructive. You should get nervous if S&P500 tanks below 1208.
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.

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1228 The Key Level In S&P500

If S&P500 stays above 1228 it means we are going higher. This week is option expiration therefore next couple day would be very volatile.
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.

S&P500 Technical Analysis (12/02/2010)

S&P500 Technical Analysis Chart:
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:

R1:1228 (MAJOR)
R2: 1232

S1:1211
S2:1204 (MAJOR)

Pay attention to 1200 level in S&P500

I got out of my shorts on Friday. I'm in the bull camp. I'm going to ignor Monday market moves. lets see what is going to play out by Tursday. If S&P500 gets above 1200 level, you can jump back in. Please note if S&P500 violates 1170 support level, picture will get ugly.

The Importance Of 1200 Level For S&P500

This week would be very tricky to predict due to short holiday week. Market will be choppy, if you want to get involved you better off to do day-trading. Pay attention to 1200 as psychological barrier. If S&P500 tanks below 1190, it would be very bearish. I'm in the bear camp and looking for 5-10% pull back to 1100-1166.
On the other hand if S&P500 stays above 1196 for a couple days it means bulls have the upper hand.

Resistances:
R1: 1194-1196
R2: 1200
R3: 1220
R4: 1228

Supports:
S1: 1170-1168
S2: 1150
S3: 1131

Related topic:

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QE2 Cartoon

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S&P500 Technical Analysis (11/16/2010)

S&P500 Technical Analysis Chart:

As I mentioned in my previous post (Click here) 1228 acted as strong resistance. S&P500 got close to it and we get the pull back that I was looking for. Big institutions could send the market lower to trap bears and manufacture a new shortsqueeze. What you need to pay attention to would be 1168-1163 support levels. It is critical for bulls to push the S&P500 above 1196. If S&P gets above 1196 it could move higher. If big institutions fail to do so, there is a good chance S&P500 tanks to 1131.
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.

Resistances:
R1: 1194-1196
R2: 1220
R3: 1228

Supports:
S1: 1168-1163
S2: 1150
S3: 1131

S&P500 outlook and possible Ireland & Portugal bailouts

S&P500 Technical Analysis Chart:
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.

QE2 positive and negative effects on the economy

On 11/3/2010 the United States Federal Reserve announced that they are going to spend 600 billion dollars to purchase short term treasury bonds. Fed will buy $75b a month through June. On Oct 28, 2010 Bloomberg reported that the Federal Reserve had surveyed bond dealers for forecasts regarding how much asset purchases they expect from its second round of quantitative easing (QE2), and how much they expect such purchases to effect the market. I think they were better off if they just write a blank check to the Wall Street.

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?

October 2010 Total Unemployment is 17%

Total unemployed table:
Please note that the real unemployed data is much higher than 17%.

James Grant on QE2 and dollar future

Big bear James Grant, editor of Grant’s Interest Rate Observer, on QE2 and dollar future.

S&P500 November 2010 forecast

S&P500 Big Picture:

S&P500 Technical Analysis Chart: S&P500 is going to move violently after Fed announcement on QE2. The Wall Street is not going to get what they are looking for. Bernanke is not going to flood the market with huge sums of money. Quantitative easing will be a gradual process. The QE is a very risky move and could effect dollar value significantly, therefore Fed is not going to take a huge risk and go all the way. Probably they would start with 300-500 billion dollars and see what effects would have on economy or Fed may not give any dollar amount and keep the Wall Street in a dilemma.

If you are betting that Republican congress could do anything for economy there is a good chance that you are going to get disappointed. On historical bases gridlocks are bad for stock market, because nothing is going to be done, democrats and republicans are going to spend their time an energy to fight each others.

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).

As you see in the chart above rally has halted right beneath the upper side the orange channel. S&P500 has been moving in this channel since July 2010. As you see in the chart the recent rally is a clear "a,b,c" move which completes the sub-wave(2). As long as S&P500 stays in this channel bulls would have the upper hand. It would be very hard for bulls to break out of this channel before 5-10% pull back. Big institutions could send the market lower to trap bears and manufacture a new shortsqueeze. I think it's about time bears get active again. What you need to pay attention to would be 1150 and 1100 support levels. 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.

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.


Resistances:
R1: 1194
R2: 1200
R3: 1220

Supports:
S1: 1165
S2: 1150
S3: 1130

Weekly Jobless claim (10/28/2010)

Weekly Jobless claim Graph:
value: 434,000

More trouble ahead of Europe & Ireland (10/28/2010)

Ireland 10 year government bond chart:
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.

Ireland Economy:
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:
agriculture: 5%
industry: 46%
services: 49% (2002 est.)

Labor force:
2.187 million (2009 est.)
country comparison to the world: 116

Labor force - by occupation:
agriculture: 6%
industry: 27%
services: 67% (2006 est.)

Unemployment rate:
11.8% (2009 est.)
country comparison to the world: 132
6.3% (2008 est.)

G20 meetings cartoon!

Be aware of ... crossing!

S&P500 important resistances and supports in fall of 2010

S&P500 broke the 1184 resistance level. Pay attention to 1194, if S&P500 could stays above it for a couple days, it would rally for 1220 level. I anticipating some selling pressure at 1194, lets see if big institutions want to inflate the bubble more!
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.

Resistances:
R1: 1194
R2: 1200
R3: 1220

Supports:
S1: 1165
S2: 1150
S3: 1130

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S&P500 classic short squeeze (10/20/2010)

S&P500 Technical Analysis Chart:
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.

S&P500 Technical Analysis (10/19/2010)

From 1170 to 1184 is the resistance area, in last 4 days S&P500 tried to break it but bulls failed to do so.
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.

Stop The Fed, Quantitative Easing = More banks bailout

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.

LIBOR-OIS 3M (USD)

LIBOR-OIS (USD SWAP) 3M chart: Value: 0.173

I post the LIBOR chart every fridays. Just type Libor in search box (it is located on top left corner). You will see all Libor charts.

S&P500 update (10/15/2010)

I make this very short and right to the point, I will explain the thought process later.
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.

James Grant, On Quantitative Easing(QE)

James Grant interview on Bloomberg:



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.

Tehran Price Index (TEPIX) Technical Analysis (تحلیل تکنیکی شاخص كل بورس اوراق بهادار تهران )

Tehran price index(TEPIX) technical analysis chart:
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.

S&P500 Technical Analysis (10/10/2010)

S&P500 Technical Analysis Chart:
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.

1) Bullish:
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).

Austerity: a Dangerous Idea

The Watson Institute presents Mark Blyth on Austerity from The Global Conversation on Vimeo.

S&P500 vs Gold vs Treasury Bond, get ready for explosion!

S&P500 vs Gold vs Treasury Bond Chart Since Jan-2010: S&P500 vs Gold vs Treasury Bond Chart (Oct-2007 to Oct-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.

Related topics:
S&P500 Technical Analysis (09/19/2010)

October Employment Situation

Non-farm employment graph:
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.

Japan Started The Second Rounds Of Quantitative easing

USD/YEN Technical Analysis Chart:

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.

Side effects:
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:

S&P500 Technical Analysis (10/05/2010)

S&P500 Technical Analysis Chart:
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.

Get ready for the big move in S&P500

S&P500 Technical Analysis Chart:
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.

Portugal Government Bond Signalling Problem

Portugal 10 year government bond chart:

Portugal 10 year government bond yield is 6.39%; it made a new 52-week high of 6.439% recently. It is signalling more problems a head of Europe. So far none of the talking heads in CNBC nor Bloomberg talked about Portugal. Obviously Portugal has a smaller economy compare to Greece, but it shows the European problem is not isolated to Greece. It is fascinating to see after IMF agreed to $147 billion bailout for Greece; market has failed to give its vote of confidence and Greece 10 year government bond yields(11.14%) did not fall as many expected. Please note Ireland is in the same boat, Ireland 10 year government bond yield is 6.50% , I was thinking which one would be the next Greece?

Portugal:

GDP (purchasing power parity):
$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:
agriculture: 2.7%
industry: 23%
services: 74.3% (2009 est.)

Labor force:
5.583 million (2009 est.)
country comparison to the world: 66

Labor force - by occupation:
agriculture: 10%
industry: 30%
services: 60% (2007 est.)

Unemployment rate:
9.5% (2009 est.)
country comparison to the world: 114
7.6% (2008 est.)

Population below poverty line:
18% (2006)

Household income or consumption by percentage share:
lowest 10%: 3.1%
highest 10%: 28.4% (1995 est.)

Distribution of family income - Gini index:
38.5 (2007)
country comparison to the world: 72
35.6 (1995)

Investment (gross fixed):
19.1% of GDP (2009 est.)
country comparison to the world: 103

Budget:
revenues: $94.87 billion
expenditures: $116.4 billion (2009 est.)

Public debt:
76.9% of GDP (2009 est.)
country comparison to the world: 17
66.3% of GDP (2008 est.)

Source: www.cia.gov

James Chanos on Chinese Economy

James Chanos interview with CNBC


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.

Alan Greenspan Interview with PBS

Alan Greenspan believes we must let the Bush tax cut expire.

I'm not a big fan of Greenspan but he has a point.

Market rallied hard in face of bad news!

Sales of new homes had their second-worst month on record in August. The Commerce Department says new homes sales were down by 29% from the same month a year earlier. It revised up from 276,000 to 288,000 signaling that the housing market remains a severe weak spot for the economy. It was 7k units below expectations at 288k annualized but the prior month was revised up by 12k to 288k. The level is just a touch off the May level of 282k which was the lowest since at least 1963. The absolute number of homes for sale fell by 3k to 206k, the lowest since 1968.
source:Yahoo Finance

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.
source:Bloomberg

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.

S&P500 Technical Analysis (09/23/2010)

It seams my first scenario is coming to play(to see the article click here), S&P500 broke the 1131 support level. It's critical for S&P500 to get back above 1131. If S&P500 stays below 1131 for a couple days; it would signal more sell-off in coming days. As I explained in my previous post, if this is a real rally big institutions must step in and buy on heavy volume, otherwise what we witnessed in last couple days was short squeeze, not a real rally. Please note as long as S&P500 stays above 1100; we have a good chance to move higher. We rallied 9.6% in 3 weeks, therefore 3-4% pull back is normal.
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.


Supports:
S1:1131(Major)
S2:1100
S3:1075-80

Related Topics:
S&P500 Technical Analysis (09/19/2010) :

This amazing LOL

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S&P500 Technical Analysis (09/19/2010)

S&P500 Technical Analysis Chart:

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.

First scenario:
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.

Second scenario:
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.

Third scenario:
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.

Treasury Bond Technical Analysis Part-II (09/14/2010)

iShares Barclays 20+ Year Treasury Bond technical analysis chart:
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.

S&P500 Bullish Scenario for 4Q 2010

S&P500 Mid-term target: "Click on the chart to zoom in."

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.

S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4.V)

S&P500 Technical Analysis Chart: "Click on the chart to zoom in."

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.

LIBOR & Ted Spread Chart (09/10/2010)

I post the LIBOR chart every fridays. Just type Libor in search box (it is located on top left corner). You will see all Libor charts.
LIBOR-OIS (USD SWAP) 3M chart: Value: 0.197

Ted Spread Chart:

Value: 16.034

I post the LIBOR & Ted Spread charts every fridays.

New Jobless Claims is not accurate (9/9/2010)

New Jobless Claims Table:
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.

Interview with Michael Lewis, author of "The Big Short."

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)

Treasury Bond Technical Analysis

iShares Barclays 20+ Year Treasury Bond technical analysis chart:
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.

Nouriel Roubini on the U.S. economic growth in the third quarter

Market update (09/03/2010)

Ok ! we got the bounce that I was looking for. S&P500 exceed my previous forecast by 25 point. I was looking for a bounce from 1040 to 1090 but it moved to 1105. Note S&P500 has potential to rally higher as long as it stays above 1075, but I'm going to play aggressive. S&P500 from 1100 to 1131 is a good short entry, stop lost at 1140.
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.

S&P500 Technical Analysis Base On The Elliott Wave Theory (Part-4.IV)

S&P500 Technical Analysis Chart:
S&P500 forecast from 08/06/2010 to 08/25/2010:

"Click on the chart to zoom in."

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).

This is a "dead cat bounce" *1 not a buying opportunity. I would add to my shorts as soon as I see bulls running out of steam. On the other hand if S&P500 gets above 1131 bulls will have the upper hand. In this case S&P500 should rally hard to 1170.

*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.
Source: wisegeek