POSITION UPDATE & 3 REASONS BULLS HAVE NO CHANCE IN SEPTEMBER
One more allocation into SPXU coming tomorrow morning. My last. I have a time frame in mind for holding these short positions (in the form of inverse ETFs) of two months. I would like to find a better entry than I did today. But if I give up a point or two, then that is fine. I'm not trying to catch the bottom or top tick. Just building a position in an area that I feel will be rewarding in the months ahead. QE3 will make no difference. The market will continue going down, unless the Fed announces a diabolically radical plan to reverse course. That's not going to happen. I think the chances are slim that any QE3 program is announced on Friday, however. As we go into September, there are two major events on agenda...actually, three major events: 1. The 10 year anniversary of September 11th. This is going to be a reflective period for the country. From a psychological standpoint it is going to bring to light all of the failures of the past 10 years. One way or another the attention will be turned to the economy. The fact that we have basically been standing still since the events of that day. A sensitive market and injured psyche of its participants will certainly not find the news inspiring. While it will not create massive downside, what it will do is put a ceiling on any rally attempts. 2. Earnings warnings. Before the October earnings periods, there will be a host of companies lowering their forecasts in September. This earnings warnings season should see more companies step forward than any of the past few years. 3. On September 30th a Federal budget needs to be passed by Congress. We went through this several months ago and the government was shutdown for a period of time. This time it will be worse. And this time the ramifications to the psyche of the country will be very real. Members of Congress on both sides are still damaged, holding onto resentment as a result of the debt ceiling debate. They will be more determined than ever to hold onto their positions, without chance of compromise when it comes to passing the budget at the end of September. Very simply, this means a budget will not pass. Government will shut down come October. The shutdown will bring into the spotlight the ineffectiveness and dysfunctional nature of government. It will cause doubt. It will cause people to question and reflect on all that is wrong. That's just the psychological damage. There will be numerous fundamental ramifications of government shutdown, as well....
ADDING SPXU
Doubled up my position in SPXU right off the bat here. 20.20 entry roughly.
HAVE YOU REALLY LOOKED AT THE BANKS? I MEAN REALLY LOOKED?
You gotta zoom out. This is an environment where you need perspective. I see the disease of myopia everywhere I look. Look at the big picture. That's where the money is going to be made. The banks. They are an absolute disaster. The markets WILL NOT bottom without financials getting their act together. We are a long ways from that happening judging by the price action in the major financial institutions. Let's have a look at the monthly charts to get a view of the broad landscape. No commentary needed...just look: click to enlarge My 5 year old just walked by and said, "holy shit dad" when he saw the charts. It's that bad. I don't know if these names are going to revisit their 2009 lows. I do know that they are telegraphing a sewer system being discovered inside of one or more of their books in the coming weeks and months. The markets are attempting to factor it in as fast as possible. The only question an investor should have here is as follows: How jaded is the Fed from what occurred in 2008-2009 and how will it effect their decision making if another bank needs a lifeline in 2011-2012? My guess is very jaded. The phrase "moral hazard", I promise you, is being used in more Fed meetings now than at any point in 2008. The Fed is very aware of the political climate and the resistance to further intervention. As a result of these battle wounds, perhaps a different, less market friendly method will be used to deal with the seepage from the ruptured sewer lines that twist and turn their ways throughout the balance sheets of many of the aforementioned institutions. Something to...
LOOKING FOR INCREASED SHORT EXPOSURE
I'm looking to add to my inverse ETF family no later than mid-day Thursday. More than likely I will be adding a good amount tomorrow. I don't feel that the current strength lasts more than a few trading days at most. We'll be through the August lows within the next week or two. September and October will be brutal months for the bulls this year. The market has too many bulls lined up for castration to let go of its grip going into the 4th quarter of the year. It's simply not going to let up. These short bursts, similar to what we experienced today, may be as much as bulls get until late October or...
SHORT-TERM THINKING WILL HAVE YOU SLEEPING WITH THE FISHES
"And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance." -- Reminiscences of a Stock Operator by Edwin Lefevre This famous quote by Jesse Livermore is perhaps the most valuable piece of information from this investment classic. I bring it up because of the epidemic of short-term thinkers that participate in the financial markets today. I have no doubt that most of them are unsuccessful, as the odds become increasingly difficult to overcome the shorter your time frame. The access to infinite information that we enjoy has also caused individuals to become short-term in their frame of thinking. It's the mental plague of modern day society. We do not stick with any thought or idea for longer than a few minutes before we move on to a new piece of information. How can this trained form of thinking not end up seeping its way into our investment or trading regimen? The answer is that it cannot. It makes its way into your trading decisions, often times without you knowing. It comes in the form of overactive trading, excessive analysis, indecisive thoughts, erratic ideas and loss of capital.It makes the financial markets more irritating than anything else. If short-term thinking doesn't ruin you today, I promise that it will tomorrow. The duty of the modern day investor is to filter out information and only rely on the pertinent facts. The facts as I see them today: 1. The financial sector in the United States and Europe is effectively broken. 2. The Fed and ECB realize that their influence in...
6 CHARTS THAT WILL KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
click on charts to enlarge
SO, UM, WHERE IS THE PANIC AGAIN?
It's cool to be a contrarian. It's like being a Michael Jackson fan in the 80's. A Nirvana fan in the 90's. A mortgage broker until 2006. And a foreclosure specialist until present date. All market participants have their favorite ways of measuring fear, greed, depression and despondency. Since August 1st, I have been saying that we are entering a period where contrarian theory will be tested. Watching your favorite indicator for clues as to when and where the market bottom stopped working a couple weeks ago. There is no reason to expect it to suddenly click. Market participants, however, have a way of rationalizing favorite indicators to the point where they can make the color green seem like blue if it appeases their emotional and intellectual market ego. Be careful of that as it means you have one foot in the grave and the other slipping in the mud. Contraianism becomes a costly disease during points in time when markets have a single minded purpose either to the upside or downside. This current decline in the markets kicked off with an excess of pessimism that had a lot of people doubting its validity. According to the study I posted here on July 31st, the fact that the market was ignoring the excess in bearish sentiment made the downside all the more dangerous, only serving to strengthen its validity. Take the excess optimism that has been apparent to everyone in the gold and silver markets for this entire year. Contrarians who attempted to doubt the uptrend and take on short positions have had to deal with a continuous move up for the majority of 2011. There is a time when the "deception mechanism" of the market breaks. Upon breaking, the uptrend or downtrend becomes self-reinforcing and accelerates greatly over time. These are markets that are the most dangerous to those attempting to pick tops or bottoms based on simple "everyone is bullish or bearish" theory. The equity markets have a very simple and accurate means of judging panic and fear. With a commodity like gold, it is one single commodity issue. You don't have any periphery commodity issues that can give you clues as to what gold is going to do. It is a singular entity unto itself. However, with the broad stock indices, you have thousands of stocks that can give you hints as to what certain groups of investors are thinking, loving and hating. I detailed this in my article about Phase 4 Investors in written in February. At present, it is important to look at the most widely, popular names in order to gauge the levels...
A NOTE TO GOLD AND SILVER BULLS: YOUR GIG IS UP
The bell is ringing for the gold and silver bulls. It doesn't mean that a top is due tomorrow at 11am. However, we are getting close to a point where both technical and fundamental factors may begin exerting their influence over gold and silver prices. Not to the upside, either. Let's look at gold and silver from a fundamental standpoint, if that is at all possible. There are three factors that are influencing the gold and silver trade on the upside at present: 1. The inflation trade 2. The fear and panic trade 3. A weak dollar We are entering a point where market participants have awakened to the fact that a continued decline in the markets and therefore, the global economy could have deflationary consequences that end up breaking the inflationary mechanism that is driving gold and silver prices higher. A continued decline in the markets would also serve to boost the US Dollar, similar to the price action we witnessed in 2008 in both gold and USD. Until something better comes along, the USD will always be the reserve currency of last resort when full scale economic, deflationary panic sets in. We are growing closer to that point with each percentage point that the S&P 500 gives up. The fear and panic trade that is driving gold and silver prices will abate with a significant bounce in the markets. I don't think we are at a point yet where that will occur, but we are closer now than we were on Wednesday. The fear premium that is driving gold and silver will disappear rapidly with a multi-week bounce. The main point here is that gold and silver are both caught at a point in their bullish life cycle that macro forces may create an iron ceiling overhead that become impenetrable over the intermediate term. Both the bull case and the bear case have great potential to drive gold and silver lower. With that being said, I would like to see one more spike up. A panic driven move into precious metals that sees gold approach 2000 and silver move above 50. That would be the point where bullish euphoria over precious metals would be at an apex, setting up for a substantial decline. I will be watching. I will update the website once a trade is...
IDEAS BOUNCING AROUND MY HEAD ON A SATURDAY
Analysis of the price action and some of the trends taking place within the markets leads me to believe we have another 6-10 percent on the downside left for the S&P, Dow and Nasdaq Composite. I don't see a sustainable bounce taking place before the 6-10 percent threshold is met. With the ferocity that this market seems to possess, it could happen in the coming week. By sustainable bounce, I mean a move that will be multi-week in nature and test some significant areas of overhead resistance. There is an army of technically significant price vacuums sucking the market down towards them. The bulls don't seem to be in any shape to get in front of the strong suction to the downside. All of these price vacuums are between 6-10 percent below the closing price on Friday depending on which average you look at. I'll go over the specifics, in terms of price levels, reasoning etc. in the weekly review tomorrow. I will also touch on the topic of groups of stocks that haven't even started showing signs of panic yet. This tells me that the bulls continue to hold firm in their favorite stocks. A bottom for this type of move only occurs when all groups of investors are flushed. Thus far, it seems a large portion remain hanging on for their dear lives. They will need to be dealt with before the bulls can ride again. Again, more details on this tomorrow, along with examples to make the concept crystal clear. Lastly, gold and silver are setting up for a fantastic short opportunity here soon. One more move up, on the back of some type of panic move to the upside, will be the perfect setup. I would prefer to short silver over gold, as silver has been the weaker of the two over the past few months. ZSL looks like a good option to gain exposure. I'll provide further review tomorrow. That's what is on my mind this Saturday. Enjoy the...
MORE BAD SIGNS FOR THE BULLS
This article also featured on Forbes We are undergoing a dramatic shift in the parameters of what is seen as "normal" behavior in the financial markets. I don't believe that this is some kind of anomaly as most seem to think. But rather it is the reality of the current market environment. The expansion in volatility. The perceived statistical anomalies taking place with market internals. The lack of reliability of various sentiment and technical indicators. Tell-tale signs of the markets maturing and evolving in order to effectively combat increasingly sophisticated participants. This ain't 1999 anymore sugar. Abnormal has become the new normal. Statistical anomaly has become statistical probability. What has worked in the past is turned into roadkill in 2011. It's similar to you being the only sane guy in an insane asylum. Either you will go insane as a result of your environment or you will pretend like you are insane in order to survive the environment. I have a habit of humanizing the markets. It helps me to deal with and get a better read on exactly what is going on. I like to see the market as an opponent that not only dislikes me, but would like to see a great deal of harm come my way in the most intolerable fashion possible. It feels to me like the market has come to the point where it feels like the participants who are left in the marketplace have figured out its motives a little too well. Think about who the primary players are in 2011: We have large hedge funds. We have high frequency trading shops. We have large institutions like Goldman, Morgan etc. We have governments and sovereign wealth funds. The tourists, stoners and thrill-seekers have left the resort. All that is left are the highly trained and highly motivated professionals versus the market and each other. That leaves the markets with no choice but to behave in a highly erratic, anomalous fashion. When you have a dangerous beast that has been figured out and subsequently cornered, leaving it with few escape routes, there is a 100% chance that erratic, unorthodox and dangerous behavior is the next order of operation. Take yesterday's move, as an example. In its infinite wisdom, the market knew that it had more downside ahead. What caused the spike up over the past several trading days was an imbalance or overabundance of sellers versus buyers. The market wanted to curb that imbalance as best possible before starting its next leg down. The question for the market becomes how to best have the hunters that are pursuing it turn their backs so...