December 28 2007 Beware of wise men bearing gifts…
Or not so wise men. We understand that Alan Greenspan is now being called “Double Bubble”. Well, allow the wolves of Laissez Faire Capitalism run wild and inherit the wind. Coming soon: our rant titled “Pigs in Pokes”. Watch for it.
Here, two years of the Dow vividly illustrating the sideways, Mule, market. Our stop is well placed for the long term investor. Light footed speculators will be merrily trading the current momentum. Nobody knows what is going to happen. But given the depressing implications of the bursting of the real estate bubble the market is not doing that badly.
Seven months of mule market, with a kick in the pants for everyone, bulls and bears alike. Definitive and lengthy price action outside the widest zones will be necessary to begin a new market — be it bull or bear.
The way to treat this breakout of the gold market is as a breakout and buy it. The only shadow on it is that it is late in the triangle. In these cases, where we are suspicious we usually take the trade, set a trading stop and watch closely. Also the size of the trade would be smaller than the old buy signals.
The CRB index. Your true inflation indicator. We believe it is tradable by educated speculators. Some don’t. It’s going a lot higher. For us trading it would involve a fairly complex process of portfolio hedging and real time monitoring. Won’t be happening anytime soon. Probably some good CTAs out there doing it.
This upwave of the dollar is not over technically. But the long trade is over and it’s day to day. Our experienced gut tells us that the bottom is somewhere in here. When the Chinese and the Oil typhoons start scooping up US assets signals of the end are starting. Of course those earlier purchases of Rockefeller Center left 1000 year old egg on their faces. Would that constitute a loss of face?
December 21 2007 And on Christmas the tooth fairy brought everyone a year end rally…
But he didn’t bring the readers any clean charts. He left the same old messy working charts. As is obvious (?) this mule market is divided into zones of support and resistance. Given the downward momentum up till Tuesday of the week just passed we thought prices would test the lower end of the range. Then, surprise they conformed to the middle zone, beginning to create the symmetry we looked for a month ago. Call it serendipity, or synchronicity or random meaningless movement the right shoulder of this thing is exhibiting some resemblance to the left shoulder. Meaning: most likely more of the same. We would not be surprised to see the right shoulder terminate early.
Good methodology dictates that new strategies not be undertaken until the sideways pattern works itself out.
Again noticing strange coincidences look where the immediate downwave in OIL reversed. We don’t see any end to the trend in oil, and when we do we’ll start yelling. This formation does not constitute a sideways pattern as yet, but it does reflect the struggles going on in the physical market.
In fact oil is overbought and overpriced. Tell that to the Iraqis But when you’re addicted to black coke it seems cheap. Maybe we should invade Venezuela.
We forget who it was just now (Ed Seykoda?), but some prominent speculator said, I can’t believe how long it took me to believe what I was seeing.
What you see here is the classical triangle, and good practice dictates that a definitive breakout should be traded. What we’re having trouble believingis that a resolution can take place any time soon. There is a rule of course which says that the farther out in the triangle the prices work the less significant is the breakout. So it looks like more sideways from here. It could easily swing between 782 and 852 for some time.
Strange little pattern in the dollar. Doesn’t look like a flag, which would be bullish, but like upwards drift, which could be bearish. A move up from here could put the trendstop at the bottom of the little drift pattern. Right now the trend stop is under the downwave just under 76.
God rest ye merry gentlemen (and gentleladies) Let nothing you dismay — not the pundits predicting recession, not the grinch politicians, not wars and rumors of wars. These too shall pass.
Merry Christmas from:
john magee technical analysis::dor
December 14 2007 Uunh We think that’s whiplash we’ve got….
Isn’t it interesting that the Dow should turn on a dime at the horizontal resistance line? All the Rupert Murdoch controlled media blamed it on the Fed’s only doling out a quarter point discount rate drop.
You of course knew that mule market dynamics ruled and that it was just a question of where the wave would fizzle out. There are zones within zones here. What is freaky is that several weeks back we remarked that it looked to us like the pattern wanted some action on the right to match the May to July rectangle. Well, we are getting it. Whether the pattern will tighten up to that narrower range we doubt, but clearly more sideways is in store.
Gold in a well defined triangle. Would we buy it here? Maybe, but we’d have a carefully calculated stop, and it might not be a basing point stop. If we were long term long we wouldn’t worry about it.
Speaking of whiplash, the TLT cracked the whip and snapped a few vertabrae. But it didn’t cancel the short signal. Every market is treacherous now.
The Fed lowers the discount rate, the dollar takes off. Today’s action is a buy signal. Handle with care.
7 come 11? No, we were just toying with the chart. While this is daily chart we are toying with the idea that the dollar cycles in 7 week increments.
Probably means nothing, but who knows.
IYR has a lot of room to go down. And is in a convinced down trend.
BEARX one of those bear funds has done pretty well in these markets. We don’t know beans about them. And we certainly don’t recommend them. Actually we don’t recommend anything but neck braces. We don’t do that kind of research. But if looking for a hedging medium you might do your fundamental due diligence.
We also have whiplash over Congress and Bush. And extreme nausea. The other day Bush signed a 200 billion $ war bill, and vetoed the Children’s Health insurance bill. Too expensive. The fearless Democrats kowtowed and crawled away. What a country.
December 7 2007 Home sweet home mortgage crisis
Where are the brokers’ yachts, mansions and private jets? Not in any subprime danger, lest they should be brought to justice and lose their ill gotten bonuses. Wall Street since before it was a street, when it was only a tree on a cow path, has been creating pokes and putting pigs in them. It’s in the genes. Pigs creating pokes. On the other hand overweening greed run amok is always interesting — like watching crashes at a NASCAR race. As long as you’re not part of the wreck. As for watching, we’re watching this little upwave with interest. Our educated estimate is that it will bounce off the top of the range and come back down.
In TLT you don’t need to wait for a basing point. Those three down bars and two gaps are enough sell signal for the aggressive investor. We’re not supposed to say that — disciplined analysts wait for the stop to be taken out. But frankly we are in stormy seas here, and in addition we have always admitted the existence of conditions which trumped the trend stop.
The present is one of those times. Everything is up in the air and gears are shifting. A time for trading and being wary.
We took a look at all the Dow 30 stocks. Here you see C. Maybe you’d rather not. Broken support lines should be honored whatever the issue. The Dow is a mixture of frightening charts like this, messy sideways charts and some winners. Over all not an encouraging sight. Readers will remember our concept of the natural hedge — long the index, short the weak members (or proxies) of it.
Again, to emphasize — we are not in a bull market. We are in a sideways market. Every issue in a portfolio should be analyzed and a stop established, entered and honored.
Gold in a triangle. We expect it to enter a trading range. Do we still expect higher gold prices? Yes, and there may be some blood shed here.
This dollar rally has a long way to go to get serious, but traders should certainly be long, and investors should be seriously considering hedging or taking their well deserved short profits.
This is emphatically not a kosher bottom (Happy Hanukah). But change is in the wind. Just because it’s not kosher doesn’t mean it won’t bite you if you’re short. The dollar is radically oversold. Time for all those wandering dollars to come home and buy Citibank and lots of other American assets.
Remember! The watch word of the moment is watch out.
November 30 2007
The panic of November 27, 2007
We awoke from a stupor (or didn’t awake from a stupor) November 27 and looked at the chart of the Dow and thought the market had taken out our stop. Every analytical faculty we had said that shouldn’t have happened and after we checked our work (and the chart, and awoke from the stupor
again) we saw that indeed it didn’t happen. So we recomputed and went around in circles with spreadsheets and finally emerged with the Dow chart shown here with a kosher chart which we will stand behind, if not in front of.
This week’s action reinforces our analysis that the Dow (and the market) is in a trading range and we just bounced off the bottom. Our letter at Cloudy with a chance of Meatballs seems to us well timed and well thought out (except for the stops — use those here as a guideline.)
The IEF and TLT, as we observed awhile back have given a number of buy signals, and if the Fed keeps lowering interest rates should continue their uptrend.
We remarked in the meatballs letter that the markets felt like we were at the end of something rather than the beginning. We were in fact at the end of the downwave (for this five minutes) in the Dow, the upwave in gold and oil and, evidently the downwave in the dollar. The dollar is severely
oversold. It is laughable (even with an Administration which is Opera Buffo) that the dollar should trade at such a discount to the Euro. There is stillno sign of a long term bottom in the dollar, but that doesn’t mean that this isn’t the start of something big. We expect more upwave here. (You know to run for the exits when we say “expect”, right?) Substitute or expect that short term traders are long, following the immediate trend.
OIL has finished its upwave for the moment. While there is a Basing Point about 52- we wouldn’t stop it tight. If Cheney nukes Iran it could go through the roof. (will? go through the roof.)
Gold has also finished its upwave. See our previous comments. A nice runaway gap, exhaustion gap and island reversal. Not for buying. Holding and trading.
We’ll be right on it when we see a buy signal.
In general we’re not for the death penalty. But we’re willing to make an exception for politicians and their “pigs to the trough” buddies in the mortgage business. The politicians (representatives of the lenders) are blocking the empowering of bankruptcy courts to restructure mortgage loans to relieve the poor suckers who got sucked into teaser rate loans. Usury laws are what we need.
November 28 2007 Not a valid signal
Monday’s action did not constitute a valid sell signal in our opinion. Volume was suspiciously low and price action is well within the defined trading range. If another close below the basing point stop occurs we will evaluate it. More Friday.
November 23 2007 Who’s afraid of the big bad Dow?
Which you may have heard just issued a sell signal pretty generally acknowledged by the most prominent Dow Theorists. The signal is kissing close to our stop, which is interesting. Classical trend following methodology says that you sit through sideways markets until the trend is proven to have reversed.
Our strategy is more sophisticated than that, considering the availability of natural hedging. We can easily see that a portfolio should be 50% long 50% short at this point. We wouldn’t even disapprove of taking chips off the table during this uncertain massive trading range. The thing is the
volatility and range have been such that we could be stopped out without a true trend range having occurred. If so, that’s it. The rest of this week’s letter is found at Cloudy with a chance of Meatballs.
Lots of possible interpretations here: double top, sideways sidewinder, complex top, broadening top — all portending stormy weather.
November 16 2007 Waiting for the last turkey to drop — or shoe or boot or whatever, or the last chicken little to fall.
Actually, chickens aside, it’s as we have drolly remarked, a mule market — that is a sideways sidewinder. All ambiguity will be removed if the stop, which is pretty close is taken out. Time to carefully evaluate whether stocks are worth the headache. Obviously this evaluation is made based on any individual issue’s pattern. And longs are not ready to be carelessly flung aside. We have often said that capital should flow to the areas that are moving — right now metals, energy, short sub prime issues, etc.
Sometimes we watch what we say, so casually, with amazement. Our comments on gold last week were dead right on. Perfect in fact. Given the laws of statistics this sort of thing has to occur randomly from time to time. Beautiful island reversal at the top. Now we wait for the downwave to exhaust itself, then buy more.
OIL neatly turned last week along with everything else. But then it gapped up. This presents traders with something of a problem. Theoretically youm should buy the gap. The problem is the schizoid nature of the oil markets right now. Oh, well, it’s only money and if you stop it just under the low and watch the intraday activity you’re just proved you are a speculator.
Investors will be watching with interest to see where the downwave stops. Present basing point marked with stop.
The Qs took a big hit lately, but once again it is time to wait and see how the downwave plays out. Intrepid shooter might buy here, but it is not the conservative thing to do.
That is, stay long till the stop is taken out. A long way down there below the August low. There is a tenuous basing point at the September low. Right now we thing everything is in flux and up for grabs.
Everything turned last week including the dollar. At the moment this qualifies as no more than a death rattle rally, but that is how bottoms start being put in. Long term traders would have their (short) stops above the October high. Traders would be out or long. Again, at present there is no sign whatsoever of a bottom in the dollar. It is a bottomless well — or a black hole to China.
November 9 2007 How many more boots are going to fall, anyway? This looks like Ferdinand Marcos’ shoe closet.
Or maybe Imelda Marcos’. The boots just keep on falling. Clearly (clearly?) in spite of the media some serious volatility is going on. (As our readers know we usually discount the media 180 degrees. They do aid the ignorant unwashed in establishing the public mood.) Clearly (?) we have forming here some kind of top or trading zone. We have spoken at length about hedging, shorting, etc, and about alternative signals for exits, other than the basing point method shown here with the new stop. Even long term investors might want to begin to question prospects over the next year. Defensive postures are in order.
Or tilting the portfolio to issues which are moving. (Gold, Silver, Oil)
Meantime look at the serendipity of the stop calculated from the basing point and the 2006 trendline. It makes one feel clever (like primitive man making the sun come up by drumming.) One thing is certain: close below the stop and we are sideways. Owning Enrons never did appeal to us.
In IEF here the treasuries have given another buy signal.
Uranium (USU here) has boomed and busted, and probably will again. It looks like it’s putting in a bottom at this time and aggressive speculators might be looking for bottom fish in this and other issues. Nuclear power may be coming back into fashion after all. The trend lines clearly (?) mark entry points for aggressive and conservative investors. The upper line, as in many bear patterns may be a bit high because of geometrical constraints (a curving line might be better).
These steeple patterns, in gold, always topple over at some point. Problem is you never know when. Long term holders will be just watching with interest to see where the downwave turns. Futures traders should probably be hedging at this point. Closing of the last gap would be negative.
We would certainly be buyers when the downwave is put in. Buying here is playing with fire.
One of the factors in the dollar’s fall is the pound. Another steeple like pattern AND a gap which is mostly covered. Startling. Looks like a steeple top reversal to us. We would have been out on Friday’s action. What it means for the rest of the dollar is yet to be seen.
November 3 2007 Someone asked us what is going on with the market?
Everybody is jumpy we said.
Meanwhile, while everyone was jumping we identified a new basing point and raised the stop as indicated in the chart. It’s hard not to be tranquil or even sleepy when you are a long term trend follower. You could have panicked when the Dow was down 300+ points. But why spoil your digestion unless you’re day trading.
C (not shown) keeps bleeding and probably will. Remember, a hedge a day keeps the bear away.
While the stocks are in turmoil OIL rises like cream to the top. We expect that our readers are capable of calculating their own stops, and this BP is skinny and abbreviated. But it will do.
A long term look at the gold market. This last wave up looks a little overextended, but the trend speaks for itself. There is no technical resistance overhead. There is plenty of enmity to high priced gold. If we were managing the government’s gold reserves right now we would dump a boatload of gold — and buy it back lower.
There will be a reactionary downwave.
The general investor should just stay long. This party is not over yet.
And over in the dollar pit the futures here continue the smooth slide to worthlessness (for everybody else in the world). (Buy! Buy! American assets with overvalued Euros.)
Are you embarrassed that the loony is worth more than the dollar?
Nothing against the Canooks (of course we might have to bomb them since they have oil) who (SIC) we prefer to many residents of Southern California (USC). (We’ll see them Nov 10.)
Dollar debacle. What is missing from this chart? No, not the trendlines. We took them out to leave the stark naked reality (our contribution to investment porn).
What’s missing is any sign whatsoever of the formation of a bottom.
Roll out the barrel and we’ll have a barrel of — actually we’ll be over the oil barrel if the Arabs decide to start demanding euros instead of dollars for their drug.
October 27 2007 Full Moon and empty purse — actually not so empty
Not so empty if readers took hints given months ago. (Re: gold, oil)
Here after the ghostly reappearance of October 19 black Monday did not reoccur. Here we are in a well known technical pattern sometimes called the panic sell off model. It is here reproduced in such miniature that it may well be over. Ordinarily we would wait for the low to be tested on a bigger occurrence. That may already have happened Monday. In fact the down wave here is clearly within normal bounds and we would say that the condition remains bullish. (Today. We may change our minds tomorrow.)
How many years have we been long gold?
For recent readers the recent buy signals are indicated, as we noted when they occurred. And (yawn) here is another one or two, Thursday and Friday.
Worth watching out: A sudden closing of the gap in next few days might cancel this signal.
Meanwhile back at the oil patch that idea is working out well too.
Remember. We never say BUY THIS AND BE RICH NEXT WEEK. Hop over to the Fools for advice like that. We point out obvious situations and expect our readers to get the hint.
Has the market already discounted an attack on Iran? What about the attack on Venezuela? Who else has oil out there that we can attack? Bolivia?
Hints are not needed in the case of the dollar.
As plain as the nose on lying Pinocchio’s face. At the end of long old trends (or late in their lives) bloodbaths may occur as traders attempt to catch the bottom. Bloodbaths on both sides. All those sloped lines overhead tells the reader how much work must be done to arrest and reverse this trend.
Note: there is absolutely no sign whatsoever that the dollar is bottoming. AND vicious rallies are expected here. We wouldn’t bet against this trend (our evil twin Karnak might if he got a message from the Mother Ship).
October 19 2007 Market turns into pumpkin. So what?
If you were there for the original in 1987 this pre-Halloween Friday looked like just another normal day. 1. We have ad nauseam advised hedged portfolios. 2. Considering the wave preceding this (1681 points) the present downwave (to this point) is not out of proportion. 3. Upwaves are followed by downwaves. The stop is still down there as indicated. 4. The purpose of downwaves is to shake out the late comers and the weak hands. If overly concerned go short against the box here. Or day trade. We expect (note, expect) that the volatility and erratic behavior of the last four months will continue for sometime. Last week we speculated that a massive top might be in formation. Might be.
And — gold turned out to be a good hedge against this sort of thing. Silver and gold took a little gas, but they are still better than the gas the stocks took.
Funny thing. Oil looked pretty good too while stocks went spelunking.
Remember $100 oil. Remember you heard it here first.
Readers who are familiar with our work and the 9th edition know our theory of Natural Hedges: Be long the index and short the weak members of it — or proxies therefor. A handsome double top in C and bungee pattern lately. The industry may still be ripe for shorting and the chart may be telling us more than the companies themselves are telling us. Wouldn’t be the first time.
Oh how the mighty have fallen. And keep falling.
Will the dollar never stop falling? Frankly we think the dollar may be a barometer for big economic changes. Richard Nixon destroyed the gold standard. Will George Bush destroy the dollar?
Well, he’s destroyed the rest of US assets (prestige, moral authority, international reputation, etc) so why leave out the dollar?
October 12 2007 Is the bloom off the bubble? Or put another way
are we seeing the market through rose tinted bubbles?
The most perceptive and educated observers of the market are girding themselves for the crash. Have been for some years now. We stopped doing that back in ’95 and ’97 and ’99 and … At present only our evil twin, Karnak, makes predictions and forecasts. (See Niles Bohr truism.) Some time back in the ’90s someone asked Blair Hull whether he could predict the market and he said yes.
How far out? they asked. 90 seconds, said Hull. Karnak loves to predict and forecast and speculate and undoubtedly will do so again in the near future. In our more rational moments we prefer to examine what is happening at the moment and project out 90 seconds or so to think about what might happen next. Most of the time this is not important as the ultimate guardian against forecasting is our stop tagging along behind us and in general keeping us from making fools of ourselves. Today’s NY Times talks at some length about Paul Tudor Jones (II) and Robert Prechter. Prechter is on record as predicting really nasty times ahead. At times in the past he has made calls that seemed prescient. Hank Pruden predicted (using some (quite possibly) important tools that the Dow is going to 14400. Do we believe Prechter or Pruden? No. Do we keep an eye on them. Yes, and on everything else, including sun spots, phases of the moon and investment decisions of our sister-in-law (as a negative indicator). Also length and furriness of squirrel coats, who wins the super bowl, global warming and any black helicopters hovering overhead. (Maybe aliens, maybe Ben about to drop money on us.)
Then there are our time tested techniques and methodology which help keep us from doing foolish things. One of these rules is to buy new highs. Last week we had new highs. Another rule is be chary of old old trends. right now we’re chary. But there is no immediate sign of the bear. And the stop procedure still has us long. Intrepid investors might well buy some more. The more cautious win by just staying long. The action here at the new high is somewhat schizophrenic — if not squirrely. (Remember the density of the squirrel coats?)In gold the action is a little squirrely also but instead of reading tea leaves (which we also pay attention to) why don’t we just say that either a consolidation or a downwave is to be expected here. The technical risk is large here (stop way under the August low), but if you want to whipsaw yourself you could put it under the nearby low. If it goes up you’re golden. If it goes down you’re out and you try again to get long later.
The Qs have been on a tear. Along with everything else they are taking a breather here. But the present (90 day not 90 second) patterns show nothing but bullishness.
The dollar shows nothing but bearishness. Lower than George Bush’s opinion polls. The world economic situation is being adversely affected by the shameful state of the dollar. What? Aren’t the happy world masses eating up our computers and ipods and airplanes. Not the real problem. The Chinese yuan tied to the dollar is beggaring the world. One wonders how we will pay for our feckless policies re the dollar — Opening the door for Beijing to gobble up Taiwan? Watching Boeing technology being used to destroy our aircraft industry? Being forced to study Chinese by our new owners?
Aren’t we a laugh a minute? Sometimes we think about billing ourselves as “The Standup Economist” or ” the Comedian’s Alan Greenspan” (but Uncle Alan already beat us to that with his latest comic dances around his previous economic positions (contorted)). (Dances with BS.)
If the immediate is bullish what is the 90 second prognosis? Here is a zoom out view of the Dow. Could the market be forming a massive top? Yes. A massive complex top. From the formation here we might be looking at a complex head and shoulders with the left shoulder in place and the head being formed. Judging from what is in place and what would have to be completed before the apocalypse 6 (m/l) months more would be involved in the rest of the pattern. In 1987 many issues were forming tops like this which were aborted by the Reagan Crash of 1987. Considering the similarity of Bush’s policies to Reagan’s it makes one shudder.
Don’t worry. Be happy.
October 5 2007 The witching month arrives. Will the market turn into
Breakout? Maybe. After having our knuckles rapped the last breakout in July we tend to be skeptical Market action is, of course, intended to condition the uneducated investor to do the wrong thing. But every occurrence is unique and should be evaluated as such. Always of course using the body of technical knowledge and — importantly — experience. All this makes us look a little askance at this breakout Dow theorists will be a little itchy since this is a new high, but the Transportations have not made a new high. For us this is a little academic, since our stop is still resting back there (basis DIA).
OIL the stop is 5% under that Basing Point. (BP)
The oil uptrend is inexorable. As long as our government continues to monkey with oil powers and refuses to enact conservation measures we will grow rich on oil. (We is us traders. Not we Americans. We Americans will grow poor on oil and the way our government and its “oil biddiness” cronies run our country.)
GLD. Same as oil. Government pursues ruinous economic policies, traders buy gold.
$100 oil. $1000 gold.
Technically the stop is still below the August low (non marked BP).
The $Dollar. The barometer of US prestige and moral authority in the world. Hit all time low. Is that it? We’re not predicting. Analyzing the chart there is no bottom in place, and none of the important trendlines are broken. And, for traders, a little rally has begun. If you want to get long the dollar (which you should if you are a European) build a factory. Preferably by tearing down 1600 Pennsylvania Avenue and putting up something productive there. An enormous fertilizer factory has been operating there, but it appears there is no longer a demand for its product.
Note the tightest downtrend line is broken.
Goofy as it may seem (and frankly these markets look goofy, if not giddy to us), this looks like a buy signal in the Qs. If you just look at the charts and listen to the news you would think that Goldilocks had landed with her sleigh filled with delights.
Frankly to us it looks like late 1999. We are looking at some real estate issues to short. If you have any favorites let us know.
September 28 2007 What we need is another Rate cut……
We remarked recently that the market was a remorseless vampire, constantly in need of fresh blood. Now we are already reading that people are talking of the need for another rate cut. While it is true that the sub-prime mess has not been resolved such talk is indicative of the fragile state of the market.
This market is as neurotic as a cat. A lot of expensive people and hedge funds got hosed lately. Maybe they think another rate cut will help them get well. We think for the big boys bankruptcy is an attractive option (for the market in general, if not for them). We also in this case are very much in favor of punitive measures for the guilty. Unfortunately we can’t put the administration and the Fed in jail. Shame. The odds now are for higher prices we think. But what we think doesn’t matter anyway, because the chart says we are still long.
Big difference between thinking and analyzing.
As night doth follow the day so it follows that a down wave must follow this up wave. Readers who have taken the hint have seen some of the pain taken out of the tubing of the dollar. This looks like more upside before the downwave.
Oil is also hedging the slide in the dollar. We have said many times here that it is a long term position. The stop is still well back of the August low.
Woe is the dollar. Making new lows. But we sort of think (that’s sort of like not analyzing and not thinking, but sort of speculating) that this might be a bear trap. Certainly if we were trading the dollar we would be on a day to day basis. The stop on long term shorts is over the horizontal line above 81. Only aggressive speculators would be putting on new shorts here. Only suicidal bottom fishers would be getting long. This is one of those hot potatoes. You can get your fingers burned either way. All those down sloping lines represent trend lines that must be broken before the dollar’s downfall is reversed. We do think that when it comes off the bottom it will tear the heads off a few shorts.
Do you know what next month is? The 20th anniversary of the great crash. And the month of great crashes. Stay tuned.
September 21 2007 What a difference a week (and a Fed rate cut) can make
Believing that the crisis is over would be a dangerous thing to do at this point. The Fed’s rate cut is just a band aid. The radical surgery needed must be done at the Congressional level. So it behooves investors to watch out for their own backsides and portfolios. That said the technical signs seem to point to momentum on the upside. In fact the three days at the end of the chart might be a flag in the making. That would augur a break above the last high. Once again we strongly urge qualified readers to include some shorts in their portfolios. We will comment on reader requests to review short candidates.
Our comments last week on the bond ETFs (TLT, IEF) were spot on. They were ready to be tossed.
Of our two favorite phrases — I told you so, and it’s your fault I told you so bears repeating about the metals.
Now traders would be stopping the metals up close — maybe even bailing. Investors will be snoozing and waiting to see where the soon to be expected downwave peters out. Another method is Magee’s old technique of progressive stops. Each day raise the stop to a hair under the low of the day and see where the market comes to get it. Easy money.
We were thinking of perhaps a little light comedy to amuse you after the giddy events of the week. Instead here’s a little farce. Everybody knows (since Ronald Reagan (the great credit card abuser)) that deficits don’t matter and neither do trade balances nor fiscal policy. The world runs on bull S— (at least in Washington, where King George the II has out Reaganed Reagan with the national credit card. You will note that all the important lines on the dollar chart run down. And that is where the dollar keeps going. We sense (an uneasy intuition, not an economic analysis) that the country is teetering on the edge of a depressive mood — the neoconservative Iraq war, the laissez faire (non regulated)subprime crisis, the prospect of another year of George in Wonderland. All kinds of opportunities for obscene profits. Rejoice!
We couldn’t say good bye for the week on such a low note. So here we present the options analyst’s all time favorite cartoon.
September 14 2007 Guaranteed continuing bungee markets
Today was, naturally, a bungee day also, but an interesting one. It almost had the characteristics of a one day reversal. Steep sell off to the low of the day then uptrend all day long. It is worth noting that until now none of these short waves has qualified as a basing point. The September wave low has now done that by making three days away. That should be bullish, and the short downtrend from July’s high is broken. The dominant trend is sideways. Expect more turbulence until the 18th when the Fed is rumored to lower interest rates. Then expect real turbulence.
This wave of the IEF may be ending. The quick closing of the gap and today’s action look like the marks of a wave high. If we were trading we’d be out. If we were trending we’d have a stop around 83. This is much tighter than we would ordinarily put a stop, but we’re suspicious.
This mood is reinforced by what looks like a one day reversal in gold. If we were trading we’d be out of that too. The trend stop is so far away that it’s irrelevant. Under the August low where it should be.
Well, at least some things are trending. Namely the dollar sinking into Dante’s inferno, where it will be comfortable with the Bushies and neo cons (surely in the first circle of hell) who are responsible for this nadir of the dollar, for this nadir of US prestige, for this andir of the trade imbalance, for this nadir of the moral character of the nation and this nadir of American moral authority.
Well, look on the bright side. There is no where to go but up from here. After a bottom is formed, of course.
September 7 2007 Whichever way the news blows
We remarked on the (perhaps doji) inside day yesterday that it might spawn a long day shortly. If you don’t like our predictions wait a minute. Today, about 250 points of chicken little activity, sky falling, world ending etc etc. This market will go whichever way the news blows. And mostly the news is blowing south these days. There may be some breathing spaces and quiet moments until September 18 (Fed meeting) or until the Fed does something before the 18th. Overall though we expect continued turbulence and bungee markets until the mood of the news changes or until some government solution is presented for the subprime problem.
On the 30 minute chart the short term trend changed to down with the penetration of the previous low, and now the previous important low at 13040 (m/l), if taken out would confirm the short term downtrend. After that there is a long chasm down to the low below 125.60. In fact that low has not been tested yet and the present action may be intended as a test of that point.
OIL has, as seen here made a solid bottom and should continue to appreciate.
GLD. What can we say? WE’ve been long gold for years. You should be too. Here it is breaking away from the trading range it has been in — or appears to be.
Analyzing the dollar you see that the upwave of August did not reach the high of July, in fact only came back about halfway. Short is the way to be and today put an exclamation point on it.
10 cent dollar.
IEF. Like TLT we have been observing the strong trends in these issues. Today looks like a breakaway gap.
So everything is not going down. Diversified portfolios should shield the prudent investor at least partially from bungee markets.
August 31 2007 Up, down, up down.
Most of the time an analyst can nod wisely and say “the trend will continue.” Yesterday that enabled us to perfectly predict what would happen today — more bungee. Will there be more bungee Tuesday? The present trend is likely to continue. No daily basing point (see 9th Edition) has been established, so, daily uncertainty.
Seriously, the present turmoil will continue. Bush implied that 80,000 of the 2.2 million mortgages in trouble would get some kind of government help. It reminds one of what (gasp) the Great Liberal Satan Ted Kennedy said of Republicans: “A moderate Republican is one who will throw you a 10 foot rope when you are drowning 12 feet from shore.”
The prospect of some government relief along with oracle like vagueness from Ben Bernanke activated the bungee again. Of course if this government relief is like the Hurricane Katrina relief the market will wind up around 1000. That’s 3 zeros, not four. It would take a perfect storm, but, hey, with a little help from an incompetent government, why not?
On the daily chart some bullishness with the penetration of the tight downtrend line. On the 30 minute chart an uptrend established with the penetration of the line.
Without significant government intervention this subprime problem is like a cancer in the colon of the economy. Solution: bankrupt the predatory lenders. Refinance the borrowers at affordable rates at the bankrupt asset value. Put the predatory lenders in jail.
Buy signal in GLD. Note gap. New readers will have noticed that we never recommend an issue. We just point out the obvious (and sometimes not so obvious) to the general investor. Our readers are smart people and make their own decisions. We believe that the precious metals and oil will hedge against the improvident and greed driven decisions which have driven the market for 7 years.
What? Pop the credit bubble and bring down the real estate market? Laissez Faire. Laissez le bon temps roulez. Don’t worry about regulation. the market will take care of any problems.
Unfortunately when a tipping point occurs the market no longer takes care of any problems.
Investors however may hide in refuges in plain sight. We have been talking about IEF and TLT as interest rate hedges for months. Regardez vous.
We have mentioned the REIT issues as good shorts in the past. At the moment as here in IYR they are grinding sideways, so not a sale at this point, but worth a trade if it breaks down. And worth staying short, if short. We would be hesitant to trade them long at this moment. As an example you could stop IYR above the July high (conservative) or above the Aug high (aggressive).
Don’t belabor your brain over Labor Day. The point of this letter is to remove stress strain and anxiety from the market and substitute sardonic amusement.
August 24 Betwixt Devil and Deep Blue Sea
The Dow is now smack into resistance and today slid through it. The two critical points now are the August high and the August low. Ordinarily we would expect prices to test the low and that may happen. If it does not it speaks for bull strength. Otherwise the August high must be taken out to put the market back onto stable ground. We read the low volume as typical for post frenzy behavior. The exaggerated volume doesn’t look like distribution to us, but like panic selling. Probably by hedge funds, who got their hedges clipped recently.
We still don’t see any signs of a top here. And we invite readers to suggest any shorts they are considering, because we think this panic is only the first boot falling in the subprime scandal.
The 16th (reversal day) also marked a reversal day for gold. The tight downwave marked here by the last downtrend line is an ideal entry point for the trader, and Friday confirms it. Still a trading market and a long term investment.
The dollar continues lower, with a gap to pound home the message. Longs, out. Sell the gap. As the chart shows an enormous effort will be necessary to arrest the dollar downtrend — breaking of theoverhead downtrend line and a close above the June high.
Oh how the mighty have fallen.
August 18 2007 Herd spooks and stampedes. Stop holds.
So far. Our stop of course, like Dow Theory stops is a close only stop. The first chart is a weekly chart of the DIA. Often it is valuable to gain perspective by standing above the daily fray (which often frays the nerves) and taking a zoom out view, as here. If we look at the weekly chart we see that there has been no real downwave since the March low. Except for this one. Make no mistake. This is a serious downwave and the panic it has inspired shows how jumpy the investment community is. This is exacerbated by the hedge funds. When we saw the number of hedge funds accumulate to 9,000+ we said that the hedge funds are (were) now the public. The simple fact is that there aren’t 9,000 competent (much less excellent) fund managers. So that population will follow the bell shaped curve rule regarding competence. We are already seeing the left tail of that curve go bankrupt and insolvent.
The daily Dow chart here shows both the panic and the results of the Fed’s lowering the discount rate. Thursday’s price action is a picture perfect picture of a one day reversal. Note that this was the day before the Fed’s announcement. Want to bet that the word was not out before the close? On days like this the trader closes his short position and reverses. The long tail down probed for stops and attempted to induce more panic, but the “smart money” saw it as an opportunity to snap up bargains — and snooker some slow witted shorts. Which they did the next day, Friday.
In case you were wondering — the new moon was prominent and there was a huge earthquake in Peru. Our judgement right now is that the low made here may well hold, but judgments are only good the day they are made. Tomorrow (Monday) may be a different story.
Here in the 3d chart again a weekly look at OIL, showing no significant downwave since May, except the present one. The Basing Point is marked in May. The stop would be 5 or 6% under that point.
SLV would be construed as downtrending. We would honor the stop based on the Basing Point at 117 (plus the 6% filter). Again a weekly chart. We are not abandoning our long term prognosis for silver. It like gold is undergoing a period of consolidation.
A weekly chart of the dollar is interesting. The long term downtrend is not broken, but if the dollar works in 7 week cycles it’s time for a continuation of the two week trend begun in August. We wouldn’t be buying any Euro or pound assets right now.
August 13 2007 Dead cats, live cats, bear cats …
We spent the week of the great anguish in the Sierras chasing trout, kayaking the lake and looking for comfortable places to read and decode French drama. (None of your Freedom Fries for us.) As may be seen here in the DIA the market drama of the week is much exaggerated. So far. The stop is so far away that it is dozing. The purpose of these scary weeks is to get rid of those investors who don’t deserve to profit from long term trends and who invest late, just at the time the “smart money” is willing to charitably give up their holdings. We are watching with rapt interest (sacre bleu) the continuing drama. Interruptions in the trend, downwaves and such can represent the beginnings of top formations. Also the bottom of this downwave is not confirmed yet.
In the SPY you might see a broadening formation developing. Here too we see that the bottom of the downwave is not yet definitive. Very aggressive traders might try to buy this. Prudent investors will wait for the pattern to work itself out. These comments apply in general to most of the individual stocks in the market which have mimiced this pattern.
The IYF, measure of the health of the financial sector is at a tipping point. Several long term trend lines are broken and prices are sitting on the last line of any importance. Price is also in a support zone. And support is deep. But a confirmed downtrend in the IYF would not be healthy for the market in general.
The long term downtrend in the dollar is dramatized by this line chart. Not drawn here (but viewable in previous letters) the downtrend line from 2002 is not yet broken. But it is approaching.
Red rover, red rover, Karl Rove move on over. Probably no more villainous that any other power hungry ideologue — but what a country, where moral sentiment is so debased that partizans praise a man whose assistant was sentenced to jail and who was praised by the cream of Washingtonia. A case where the milk was obviously curdled.
August 3 2007 More scary stuff….dead cats, live cats, cool cats
A great deal more sliding would be necessary to change the trend of this bull market. We could possibly be forming a top but this doesn’t look like one yet.
The quality of the bounces here after the sell off is not encouraging, and the NYC (not shown) and the Qs and the $TRAN are also not encouraging. But the price pattern of the DIA is not totally pessimistic. The stop is interestingly placed at a more or less analogous place to the S&P (not shown).
The bonds turned (IEF) with the Dow top and there is the feeling of a turning point, but feelings don’t make trades. Market behavior makes trades, and right now we are waiting to see if prices take out our stop.
The dollar bounce certainly looks like a dead cat at this point, after a strong showing at the start, but the short term trend from here is now in doubt. The long term is still down.
BZH like all the REITs look like dead cats, or dead ducks. Almost all of them look shortable.
July 27 2007 May you live in interesting times….
But does it have to be this interesting? market moves which sound catastrophic when heard on Market Week are put in perspective when posted on the chart. Ad nauseam we have belabored our graduate students (a beleaguered captive audience) with the paradigm of the markets: Upwave, downwave. One must follow the other as the night doth the day. The stop shown on the chart is calculated from the bottom of the rectangle. Traders naturally would have been jumping ship from Monday on. Investors should be watching with detached interest to see if the stop is hit. All this still doesn’t look like a top to us.
It looks like hedge fund and fund manager panic. They have been jumpier than a litter of cats on a hot tin roof lately. Of course there is a game of Old Maid going on here, or musical chairs (as Keynes would say).
OIL (unlike the bull trap in the Dow) bounced off the breakout line. $100 oil. Two bit American government. Or plugged nickel.
As the Dow plunged the IEF provided a haven for refugee capital. This is most probably of limited duration we think and while long is the way to be short term, short is the way to be long term. (Congratulations on this turn of phrase which is worthy of Pope.) (Alexander, not Benedict.)
And! While you were distracted, like a thief in the night (or like Alberto Gonzales in the obscurity of the Justice Department) the dollar came to life, ending any shorts and putting traders long. From the looks this little explosion should carry some distance.
As for the sub-prime market panic, which they say this is, we regard it as an excuse to take the market down and relieve the tension.
July 21 2007 Boo.
The purpose of these air pockets is to scare out arrivistes who have just jumped on the bandwagon. Jumping on the bandwagon is exactly what should have been done when prices broke out of the rectangle. A classic signal, and Friday’s action was classic too. Old chartists called it a throwback (or the beginning of one). This is the retreat of prices to the breakout line. The natural result of profit taking and selling of breakouts (which we consider a foolish occupation in general, but every case is unique.)
As we have said there is no overhead resistance in these markets. Markets on steroids.
We have frequently remarked that OIL or some other petroleum substitute should have a place in a portfolio. $100 oil would not surprise us.
After a few weeks of consolidation the pace has picked up. Here in the Qs which didn’t even form a rectangle but continued to make higher highs.
While it is always dangerous to speculate (but great fun anyway) this upwave should (might) (could) (who knows) persist for another 5 or 600 points. (IDLE AND DANGEROUS SPECULATION.) Remember we do not stand behind our forecasts. AND there is no sign whatsoever of topping behavior here.
Nor is there any sign of immediate bottoming behavior in the dollar. As we have speculated elsewhere we think the dollar is in the process of forming a massive bottom. But as can be seen here it is in the process of drifting lower. Just like the US in international popularity polls. (And global respect.)
Not illustrated here things are picking up in the precious metals too.
War is good for the economy and business.
July 14 2007 Vive la Bastille! and vive la France! and vive la Chine!
France, where the government is afraid of the people, unlike the USA where the people are afraid of the government. (And where their health system puts ours to shame.) And China, where they just executed the head of their FDA. Why can’t we execute the head of our FDA? Corruption? What corruption? We are miles ahead of those guys. Our corruption is way better than theirs. Ours is legal. We call it campaign contributions. Our Supreme Court, bought with corrupt money calls it “free speech”.
Just a little innocent fun to get your day off to a good start.
Fun is in order. The first rule of trends is that the trend tends to continue. The first rule of following trends is not to exit your position before the trend has changed. The Dow formed a near picture perfect rectangle which proved to be a continuation pattern when prices rocketed (BLASTED) through the upper boundary, validating the repetitive analysis we have been presenting
since May. Folks, there is no (NO) resistance overhead. And, oh, by the way that can change faster than you can get to France on Southwest Airlines. Not to speak of slow boats to China. We say this because all (ALL) action in the market is viewed with suspicion. The market loves to set traps. This breakout fits our analysis as a valid move but we only remain committed to a position until the stop is hit, then we go look for fun elsewhere.
We used the Qs as an indicator last week, inferring from its behavior that the Dow would follow. Sure enough. and then blasted off itself. This bull market is jumpier than a kid in a cemetery at midnight on Halloween but there are no stumbling blocks in front of the major indices.
We have remarked a number of times lately that we thought the metals even though still in a trading pattern had more reward than risk in them. This remains true and long term positions can be taken here.
The dollar is still on its way down. Very brave speculators might jump on it short. We might for a few hours, but when they (you know, them) get ready to bag the short sellers it will be like Jaws II. Bloody waters.
Remember that most important adage about the market spoken by that inimitable eminence gris Lee Richartz — Never be in a hurry to do something stupid.
July 6 2007 Utter futility and corrupt political systems
The utter futility of trying to make long term decisions looking at short term data has been amply illustrated in the month of June. The classical and proven method of holding your positions until a true trend change has demonstrated its eternal verity once again. What we have from June to present is a near classical rectangle — a possible reversal but more probably a consolidation. Nervous
Nellies spooked out by the first few days of June are too close to the action. That’s for traders. Rectangles can be reversals, but we can look around for other hints as to what’s going on.
In the Qs prices have taken off, a probable indicator of future prices in the broad market. In fact, prices are surging.
Close readers will detect the addition of an important trendline to the 10 year dollar chart — that starting near note 1 and passing through note 2. This line is unbroken at present. However the proximity of this line and the double bottom pattern from 2005 to present put us on notice that significant long term changes are in prospect. When this dollar downtrend is changed we will need trucks to haul away the profits.
AND. Not yet.
In essentially a couple of days the dollar took back any long profits. The horizontal line just above 82 proved crucial. At the moment this is a trading market — short — You will be able to hear us in London and Zurich when we get long — yahoo, the dollar rides again. Timing –may have something to do with the 08 election.
After viewing the movie Sicko we had a horrible moment of enlightenment. Our government is undoubtedly one of the most corrupt in the world. Where is Paul Wolfowitz when we need him? Where is Scooter Libby? Only Paris Hilton remains untarnished — purified by those days in jail Scooter didn’t spend.
June 29 2007 the long view for traders with long view vision.
10 years of the dollar index. We suggested buying the euro at 82 and selling it at 1.34. Those were easy and obvious. What appears to be happening now is (possibly) the formation of a double bottom (05-07).
That makes sense to us, AND it’s not complete yet. Brave souls and rash speculators (is that an oxymoron?) might be probing on the daily frame (called bottom fishing). Using the breaking of the downtrend line from 06 is also a possibility. And the neckline of this possible double bottom is a ways off — about 92.
Our analysis indicates that the bull market in gold is not over.
If you had to make a bet on interest rates you would have to bet they are going higher (i.e., bottom of the chart). The Chinese have suppressed interest rates up to the present, but we suspect that policy is ending.
We commented at length on TLT, re interest rates, but did not show the screaming rise in volume on the turn. The final plunge was a bear trap for investors and free money for traders.
Long Term Yield since 1930. This could be one of the markets of a lifetime. The main problem lies in not being killed in the short term turbulence.
Today we saw a guy with an earring made from a fishing line bobber (small) and he was wearing a button that said, “SATAN always asks himself, what would CHENEY do?”
Actually we suspect that is what they are all asking in Washington, but it probably takes the form of “What deal do I have to make with the devil to be reelected?
We ask ourselves what will Bernanke do? Does he know that higher interest rates cause inflation?
June 22, 2007 What a difference a week makes…
The Dow attempted to take out the June high and retreated. We might see more of the kind of activity which followed the February drop. Classical chart analysis says that this is a perfectly normal downwave and is most likely a consolidation. At any rate it is overdue considering the run since March. The retracement is so shallow that taking out the low would not be a disaster. And — this retracement gives us a place to put a Basing Point and establish a higher stop. That stop is 124.42, basis DIA which serves as a reference point for the other markets.
If it is any value, the powerful NYC made a new high which strengthens the case that what we are now seeing in the markets in general is a consolidation in spite of extreme itchiness among professionals and pundits.
GLD continues sideways and we continue to stick with our long term commitment. Unless you hear otherwise we won’t bother you with it until the shooting starts again. Inflation? What inflation? Debased dollar? What? Ours?
The dollar is in a minor uptrend. The international economic situation would argue against further deterioration and for a stronger dollar. Which is what the chart is saying. But the trend is so short that little can be made of it. Except — great speculators make much of little things. We will be johnny on the spot when the conservative trend signal is given.
June 15 2007 The signals that didn’t bark in the night…..
This downwave is not confirmed yet, but it is worth noting the events which did not occur, as Sherlock Holmes said. First of all the extent of the downwave is very shallow. Second the sell off (or panic) bottom was never even tested, as though everybody looked around and said, OK did that spook them out? Not much of a sell off. Half hearted. These events which did not occur didn’t occur because this is a really strong trend. it’s really hard to fake out people who have so much money in their pockets and liquidity in their wallets and stars in their eyes. Everyman a billionaire! And a pheasant in every pot!
Even the Q’s made new highs (well, sort of new).
Does this mean that we are no longer suspicious, bearish and paranoid? No, it just means that we are reading the charts. We keep saying, you can’t open the flood gates on a Hoover Dam of liquidity and open the sluice gates to finance a war in Iraq without hypoing corporate profits.
Remember we separate our personal feelings and the message of the charts.
That was an exhaustion gap at the end there. Meaning agile traders are out and the really agile ones recognized it as such and took profits on the gap day and even reversed. Higher interest rates are still ahead.
The dollar continues to look stronger. The minor trend is now up.
June 8 2007 Boo!
Do you know why the markets took a tumble? It wasn’t interest rates or Goldman Sachs or the G8. Totally technical. From March 14 to June 1 the Dow ran off 1753 points, or 15% without a downwave. Hello. Wednesday we told our graduate seminar that the downwave was due. That’s the way it works folks. Upwave, downwave. But what do we do now? What do we do now? Yawn. We wait to see how far this down wave carries. If it takes out our stop down around 118 the trade is over. Otherwise we get an anchor point for a new trendline and a new Basing Point and raise our stop. Sometimes we feel sorry for investors who don’t have any system or methodology, but that doesn’t stop us from taking their money away from them. That’s just business, as they said in The Godfather.
The IEF made money for shorts. This one was like embarrassing it was so easy.
Traders would have their stops just above Thursday’s bar. Determined trend traders would have it above last week’s high, or would be using a basing point.
Silver and gold threw off a false trading signal. The gap was worth buying, just as the gap in IEF was worth shorting. Got closed. Get out. Short term traders would already be out. Investors would be yawning.
Lower prices in these instruments would be an engraved invitation to bet the house. (Unless it’s in California.)
If you bought the dollar on the May trendline penetration (like a good speculator should have) you are still long. Not yet time for investors to be long. Often when we are trading these instruments we go to hourly bars, but that is a sport for professionals or gunslingers.
3500 dead American solders in Iraq. A new milestone. Also new milestones for the Democrats in Congress. For cowardice. And for the President, for chutzpah Hey congersmen and congerswomen, you ain’t going to bluff no Texans.
June 1 2007 Wake up. Each day is a new day.
Thursday and Friday were interesting days. Looked like short term signals all over the place. Short term signals of course precede long term signals. Wasn’t it Larry Williams who said every trend starts with an explosion? A number of minor explosions Thursday and Friday.
The SPY broke out. There is no resistance overhead except metaphysical resistance, or malevolent hedge fund plots.
We told you so. Higher interest rates. An attention getting gap in the IEF, a hedging instrument for traders who are nervous with futures. We have called attention to this downtrend for some time.
And, what’s this? A signal in the SLV? Yes. We would actually be surprised to see the metals bull market resume at this time, and a buy here is a speculator’s buy (in futures) but we have been saying till we are red white and blue in the face that a portfolio should have some metals for ballast.
We won’t think the dollar has finally made a bottom and turned until the point at 85 has been solidly taken out. But short term traders would be long at this point. Long term traders (years and hedgers) would still be short but even long termers can benefit from short term hedging.
Clueless TB patient makes an effort to infect the world by traveling half way around the globe on airlines just to spread the joy. Says “I really didn’t mean to harm anyone.” Would it be justifiable homicide to off him? Or would it be like killing a dog with rabies? Clueless (which shall remain nameless) international power spreads war germ in Middle East and says “Who me? I thought it would be good for the area.”
May 26 2007 Long term thinking in a real time world
The charts here speak for themselves loudly, but sometimes we need a hearing aid — especially when the media is making so much noise you can’t hear yourself long term think. A lot of pros and hedge funds among others are shorting the market because they think it’s overextended. This is one of the problems with oscillators. Market goes from being overbought to very overbought then horrendously overbought and your capital goes from a lot to a little because you shorted it.
5 years of DIA. Folks this is known in the trade as a breakout. There is no resistance above this point — except rational exuberance. Technicians buy breakouts. They are not always profitable, but it is almost always the thing to do.
The silver bull market is not over. If anything you could call it a rising triangle (m+l), and at the very least a consolidation.
We continue to think that the dollar is in the process of making a bottom but it is not yet time to get long term long. Short term, short traders are facing an up-wave and shouldn’t stand in its way.
Great powers have strong currency. We anticipate that an enlightened administration in 2008-9 will institute policies that will put the dollar back on the path to strength.
The present administration will continue spending until the till is empty. Nice for the market, but bad long term. OK for them — they won’t be here long term. Neither will their party in its present form. On the other hand Peter Segal of NPR joked today that the November elections had transplanted some spine to the Democratic Party. But that the transplant was rejected this week when the Congress rolled over and produced the war finance bill King George wanted. It’s OK folks. War is good for this economy. What a country. What? A country?
Is there any reason the CRB bull market should end (in consolidation at the moment)? Not that we can see — even with a stronger dollar.
You could get depressed out of your head over the weekend. It is Memorial Day, after all.
If it weren’t for the beer and BBQ.
Remember the Maine, and Iwo Jima and Mission Accomplished.
May 19 2007 Paranoiac uneasiness besets ….
The old experienced technician when he contemplates the state of the markets at present. This is obviously the time to tell the J.P. Morgan story. J.P. (nose and all) took the train down from New York to Pittsburgh to visit his steel investments. Toured the mills with the General Manager. Furnaces roaring, steel produced at record rates, happy steelers running around like Wagnerian ants. End of tour J.P. asks GM to sum it all up. “Couldn’t be better,” said the GM. He went back to his hotel that night and sent a telegram (this was before email) to his broker in New York. “Sell all my steel. Stop. J.P.”
In the present case there are reasons to think it might get better. The ice-caps are not the only thing melting. All restraints on credit have melted and if you have a pulse someone will find out and send you a credit card. Somebody sent George Bush a credit card and he ballooned the national debt into the stratosphere. And!! he’s not done spending, folks. Thomas Jefferson died insolvent. And in an age of honor his grandchildren finally paid off all his debts. Dear readers, your great great great grandchildren will be paying off George Bush’s debts.
So the oldest rule in the books still holds true. Hold your longs until the trend proves to have changed.
Lessons: The DIA stop is still 118.75, as we noted in our March 16 letter. This may be used as a reference point for the other markets. Now we are waiting for a down-wave. If it takes out that stop this part of the game is over. If not bulls rejoice. The Qs have hit the top of the broadening zone and paused. Interesting. The precious metals are still in consolidation. The long term trend of the dollar remains down, but there is some sideways business which might result in a trend reversal is going on.
As is clear from the treasuries nothing is really clear. The fed is clearly at sixes and sevens and also at tens and twenties. Obviously it is just a matter of time before rates go up.
Wolfowitz got what was coming to him. Gonzalez is getting what is coming to him. And probably will indefinitely. The American people are getting what they deserve, and if you’re not getting rich something is the matter.
Personally it grieves us to see the body bags coming in and the dollars pouring out.
May 13 2007 In Oakland they believe. In the market we disbelieve…
Belief may help basketball teams (even the Warriors) but it makes for bad trading. Actually disbelieving is not good for your trading either. What is good for your trading and investing is analyzing and trusting the chart. What these charts say of the equities is that there is a roaring bullmarket on. For all intents and purposes there has not been a retracement since mid April. Believe it or not. Also no new Basing Point has been made since February. So the stop from February is still in force.
The Qs continue to look a little suspicious (because of the broadening pattern) but you have to be long. In recent markets a number of broadening patterns have shown up, and proven to be continuation patterns.
Even the almighty dollar has turned up after a little weekly broadening pattern. Short term shorts would be out now. As can be seen from this chart you can’t even see the bottom. The chart says traders out, investors who are short the dollar be alert.
Oil is probably making a bottom. The breakout line is shown. As long as US oil policies stay incredibly intact (read stupid and improvident) we don’t see much risk and if King George blows up Iran (or Venezuela) oil could do a Mad Max on us.
May 4 2007 Many lessons, one big quandary..
A sort of fan formed in the DIA. The lesson here of course is that breaking of the first tight downtrend line yields the most profit. Also the most risk, because the other two lines and the breakout might not occur. Other lessons are seen in our previous letters when the panic sell off occurred, where we
emarked on the Wyckoff models for dealing with panic sell offs. Naturally speculators and conservative investors are making different kinds of trades here, the least risky being buying the gaps after the third fan line, and buying after the horizontal breakout line.
Now we are faced with the quandary — this is a market in runaway stage. Maybe even blow-off mode. Buying more here is an invitation to a problem as it requires more than average skill, so the average investor should probably sit on his longs and wait for a new basing point. What the market is saying right now is, what sub-prime lending crisis? what budget deficit? what the hell, let’s party until George Bush puts out the lights and goes home to Crawford (or jail? Why don’t we prosecute our ex-presidents? We know why he’s not being impeached — the democrats want him around to turn and twist in the wind and furnish a horrible example for the 2008 election. But should
that rule out jail?)
What one does in these situations is scale down the size of the trade and set a rigorous stop behind it. This would be true of the DJ Utilities below also.
Silver and the metals, (except for copper which is resuming its bull trend) are coiling, with steadily decreasing ranges. You would think there would be some resolution in a month or so, but boredom can go on for months. (Just look at the chart for the Dow Jones company. Then look at the options for Dow Jones and tell us that lying cheating and stealing are alive and well and insiders ripped the heads off options sellers. A crooked deal we imagine, but it is a Republican administration and laissez faire theft is in style.
The dollar continues its journey to Hades, or perdition. The text notes indicate our reevaluation of the downtrend. We were thinking 80.43 as a support area, and a longer look showed us the absolute low is 78.43. Still a mint to be made on the short side.
For adventuresome speculators only, but more than one way to play this knowledge.
We keep looking at the DJ Utilities as a great trade. Once again if not already long here a small size trade might be entered if you hold your breath. We get itchy at these altitudes, especially when looking at the panic that resulted when China said boo and the market jumped out of its pants.
The metals and OIL are coiling. We would certainly buy breakouts, and might even add on a little here.
Oh, and in case you’re curious about how the market be headed way high let us inform you that the Bush Administration just admitted that $500B (billion) has been invested in Iraq. Expected rate of return -25%. Expected capital loss $500B. And we can’t even put them in jail!
April 27 2007 A week of follow-through just in case there are any bears left out there — or if there are to see if they have any bearskin left…
Frequently breakouts are followed by “throwbacks” to the breakout line. The way this market is running we may well not see a retracement. The Dow and the S&P are both running and there is now a deep zone of support from the Feb high to the Mar low. Round and round she goes, and where she stops nobody knows.
Readers don’t know where she stops, but they know where their stops are.
The dollar is also running. Running down like an unwound clock. The chart shows (text) where the bottom is. Our analysis says that all this is the process of putting in a long term bottom for the dollar. When it is complete we will sound the alarm.
The metals are in a long term consolidation. A common habit. We would sit on them and wait. Meanwhile long the indices the utilities and war stocks. Short the prospects of the present administration and Henry (I didn’t do it) Gonzalez and Doolittle and the other scuzzes who are finally being brought to justice. Surveying all the president’s men reminds us something someone once said to us in NY — it might have been Michael Bloomburg —
First rate executives hire first rate managers. Second rate executives hire third rate managers. Good work Brownie, Rummie, Wolfie, Harriet, Henry, Jackie, Tommie, my god it looks like the indictment list from the Reagan Administration (or Nixon’s).
April 20 2007 What a difference a week makes…
From messing around to running away. The strength of the breakout leaves little doubt as to authenticity. Add to that the fact that the market shrugged off the latest Chinese syndrome drill when the Shanghai market hit an air pocket. The market definitely knows something we don’t. We suspect that what it knows is that the sheep will be coming to the shearing, and the shearers (your friendly local professional) will humor them for awhile before the slaughter begins. They know that their agility will enable them to leap clear of the ship before it sinks. Five days with signals as clear as the Hollywood sign. If you peeled off some layers of your portfolio you might even put one back on.
The early warning breakout was over the third line of the fan here and the gap away from the horizontal line was the exclamation point. Two events are possible here. A retracement to the breakout line and a return to the previous range (i.e. false breakout). Just eyeballing and guesstimating we think (note, think) that the market could spurt higher. If there are any shorts left out there they will be looking for a hole to hide in.
How much higher? Well, our colleague Hank Pruden says the market is going to 14,400. We had the amused smirk wiped off our face and are just following what the chart says.
There is a gold signal also. Still ambiguous, but worth taking for the adventurous.
Meanwhile the dollar is headed back south to test the bottom. Chart readers, and our readers can see clearly what happens when trend lines are broken (proceeded by a clear rectangle formation). This business can be astoundingly simple at times. And the analysis of the dollar here is a sterling example.
Study this case if you are new to chart analysis.
April 13 (Friday the…) 2007 Spring has sprung and it’s snowing like crazy. What is happening to this country and who’s to blame…. No, he’s on first…
We look at the people who watch the earnings and employment figures and all those other things and shake our heads and think they’re kind of cuckoo, while we wait for the first cuckoo to appear. The first robin appeared, but he froze to death. So how does that affect the building statistics? When that red red cuckoo comes cooking along… Did we have too much to drink for Easter or is it the egg coloring or… Who’s to say… anyway the DIA chart says that there are some new trendlines — the one started in July 06 and (unmarked) a very short term on the present rally uptrend. Taking out the Feb/Mar bottom here would be very serious, but we have s top down there somewhat below the horizontal line.
What is really going on is showed best by combining this with the SPY chart inconveniently placed below. We are in a rally or consolidation from the China meltdown, which furnished a much needed anchor point for a trendline.
Meanwhile, consonant with the fact that most of our dollars have been shipped to China the dollar index broke through the previous important bottom. Traders should be short term short and ready to take long investment positions. As seen from the chart the long term bottom is down there aways When it hits and bottoms there will be some fabulous trades to be made.
The SPY like most everything else show the interim nature of everything that is going on.
As does the silver which we suspect will resume (or is still in) its bull market.
April 9 2007 Bambi lays an egg for Easter…
We never really believed that Bambi was her name anyway. It was not really believable. Anyway she’s in a different business now. Talking heads — just as venal as politicians and financial letter writers. Is Maria still around? Hewing to Magee’s advice long ago we ignore the news so thoroughly that we don’t even know when there is a new deer in the headlights. Basically that other world — the one which runs on earnings and fundamentals is shifting from foot to foot waiting for the other shoe to drop — or maybe the first shoe.
Perhaps it would be better said discount the news and always keep an ear to the ground.
They probably have their eyes on the wrong walnut shell. Here in the DIA we see that we are still in the retracement pattern. Two fan lines. No resolution so far.
What we should be watching is the interest rates.
Looks like Bambi got run over in the TLT and is road kill. So is the TLT. This gap down is most ominous.
It looks to us like somebody knows something, but is not telling. What evil lurks…..? The chart knows.
Note that the metals continue in up waves with air pockets.
Well, back to the egg salad.
March 30 2007 Easter Bunny just over horizon and Greenspan keeps laying eggs
Traders used to worry about what Uncle Alan had for breakfast. Now Bernanke worries about what Alan has for breakfast. With Greenspan muttering about a recession and Bernanke worried about sub prime mortgages what should we be worrying about? The chart.
It says that we are in a downwave whose outcome is not yet determined. But, as with our previous stance we remain long until the stops are taken out. The indices are just where the metals are also — hanging.
OIL on the other hand is moving a bit. We remarked that we thought a bottom had been made, and it is certainly worth a speculation. It is into resistance now, but the last week or so is full of signals for the venturesome — and maybe even some investment by shy persons.
Here is what your weak dollar policies will get you. A weak dollar. The Euro at 1.34. Looking at this chart and the dollar index we think we might be nearing a long term trend change to a stronger dollar. The charts do not yet say that, but there are hints –specifically that the dollar is near long term support on bottom looking patterns and the foreigns at long term top levels.
Currency trends can be scandalously profitable.
A $2 pound? Really. We’re going to have to get a tin cup and sit on the street outside the Ritz (not the Paris Hilton) in London. Limeys (or les roastbifs, as the F—oops, the Freedoms–perhaps, les grenouilles? say) day tripping to New York for the shopping bargains.
That’s OK. We’re investing our capital in a democratic Mid-East… Uh… Incidentally, what are the dividends going to be from this Mid-East investment?
6 years of feckless foreign policy disasters and economic gross malfeasance have put the country between iraq and a hard place. Mainly we have managed to outsource our jobs and technology to China in exchange for cheap t shirts. In the process we have constructed a pipeline to China which flows night and day with a weakening dollar. Look on these dollars as hostages to a regime of thugs and juvenile delinquents. If they want Taiwan they’ll get it without any complaints from us. They can destroy us by dumping out debt on the market.
Well, here’s to a stronger safer America. Have a nice Easter and don’t take any wooden Easter eggs.
March 26 2007 More of the same, or same same…or more of the same same…
Lower lows, higher highs off the China syndrome market. That might hint at another test of the sell off lows. In the meantime what is happening is in the meantime, by which we mean watching and waiting is what’s happening. It is worth noting that this long wave from July 06 has not had a correction of any significance whatsoever except for the current pullback. Wave followers know that long waves can be both profitable and perplexing. But the principle of waiting for the wave to top and recede and than advance again in order to set the stop at the new wave low is so solid and has kept trend followers in big markets through pull back after pull back.
All the charts that we have looked at show that we are in an interregnum – or intermission. Some like the 20 year rates are worth noticing. Early identification of patterns can leave egg on your face, just in time for Easter. But If this is a head and shoulders we could see higher 20 year rates with all that implies. At any rate we wouldn’t be long the TLT at this point. We would be waiting. That’s what we do most of the time anyway, and that’s why we have so much time to indulge in the devil’s game of cheap cynicism.
Today’s cheap cynicism is lovingly dedicated to the new Congressional leadership where the French (Argh, no, not those guys, call it the Freedom phrase) plus ça change should be embroidered on the red white and blue if not on the blue white and red. Or, better the phrase, vive l’extortion, which is what our new leaders are doing, extorting lobbyists for their campaign chests.
Are these poltroons and crooks and hypocrites responsible for the fall of the dollar? Yes and all the other evil and meretricious things which are happening in this our beleaguered country. The dollar is coming back to test the support zone. We will be enthusiastic buyers if it gets down to 81 and we expect with a new administration (which can’t come fast enough for us) an uptrend in the dollar.
There is no question that the euro is either at the top or near a top, as our sister in law has just changed a bushel of dollars to buy a condo in Croatia, ah, romance, a condo in Croatia. (instead of Serbian gunboats.)
Grind your teeth. New poltroons will be in charge of the civil war in Iraq and your friends will be calling you to donate to George Bush jr’s presidential library. (He can read?)
March 16 2007 Beware the Ides of plus one — an interesting week (Old Chinese curse: May you live in interesting times…)
The less than interesting thing about the NYSE is that trading is not continuous so you wake up Monday morning and discover that they have ripped your head off on the opening. Currency markets will eventually deprive NY traders of their 18th century model. In the meantime traders will be feverishly working over the weekend trying to figure out what to do Monday. Chartists already know of course. Thursday we had another panic sell off and automatic bounce, all in one day. What to do, what to do. But not for us. We know the crucial stop is at 118.75 in the DIA. Hit it and we go to the beach. Now we watch to see if there is another test of the Thursday bottom.
A possible hint of things to come (and not a bullish one) is in the Qs. This looks suspiciously like a broadening top which is never a positive sign. But there have been broadening formations before in these markets. In this case in the Qs there is a fairly obvious stop, 40.73, a bit above the horizontal
line determined from other points. This long wave got overextended by any measurement, and the corrective downwave could take back more than this without invalidating the bull trend. But, as
in the case of Enron, if the stops are violated the wise action is to go to the sidelines.
GLD appears to be stabilizing. We would be buyers here with a stop under the nearby low. We do not think the full effects of the huge 9 year rounding bottom have been realized yet. In fact –speculating once again — we think we are in a relatively quiet cross current in the commodities and the metals which will be broken by some as yet unforeseen Chinese fire drill or terrorist attack or Iranian war or impeachment or sale of Ben and Jerry’s to Saudi Wahabbist interests. Who knows? We live in interesting times.
March 9 2007 A tempest in a Chinese teapot?
Could be. There is a model of panic sell offs by Wyckoff. We won’t go into it at great length here except to say that in all likelihood it would be completely expected to see the bottom in the major indices tested again. Lack of a test is a sign of market strength. These “corrections” or “sell-offs”
are in the natural order of things. Their purpose is to spook the weak hands, and that appears to have happened here. In order to avoid being ejected from the market you trail your stops below wave lows where the panic and sheep running have a hard time reaching them. So far none of the majors has reached our stops as we have noted for a couple of weeks. So the bull market is still on. Our stop setting method is explained in Chapter 28 and 28.1, and shortly we will offer an ebook here which will be a comprehensive treatment of the subject. Stay tuned.
In the classic Wyckoff sell-off we expect a panic, an automatic bounce and then a further test of the panic bottom. V bottoms are quite possible. There have been a couple of automatic bounces here. Very agile traders (if we had been trading it) would have taken a flyer last Friday, buying an exhausted bounce try. Since trend traders should still be long — and certainly not have sold on the sell off — a new tight downtrend line will develop here from the Feb top and offer a reentry both for traders and for those who take this as a buying opportunity. Exemplary strength would be an invitation to lighten up even more, but core portfolios (legs 1 and 2 of a scaling position) should still be long.
TLT and the 20 year treasury gives a sell signal here. A handsome gap out of what might be a tiny triangle.
More or less the same comments about sell offs apply to the gold market also, but it’s a different animal. Long term positions are in no danger and moderately bold investors and traders might be buying here. Stop under the nearest low. This is not yet a basing point wave low.
March 2 2007 Ours not to question why….
Actually, we do know why. The Dow had picked up around 18% from wave bottom on this wave without a correction. That alone is enough to account for the China syndrome (market melting down to China, for those of you who are not nuclear engineers). All the aware participants knew sat around the trading floor looking at each other waiting to see who would blink first. Or who would rush for the last available musical chair. So the explanation for the “market break” is completely technical. Now that we know why let us explain what it means. Nobody knows. Nothing has changed in the short term economy. It is still rosy. Unaware traders are now aware of the interdependent character of world markets. The long term prospects for the economy are as grim as ever. The Bush administration has done damage it will take a decade to repair. (Equal time for Democrats: Phooey Styner is now extorting the lobbyists who used to suck up to Hastert and Delay. Plus ça change.) But now everybody is looking at each other and saying, Is that it? All a question of public mood, but Greenspan’s comments that the recession cometh is not a good auger. So much for speculation. What does the chart say? A clear message to short term traders. Head for the hills and wait to see what develops. We have been saying for months that long term investors should be lightening up and finding shorts. Lighten up some more and honor any stops which are hit in long positions. If you are uncertain as to where stops should be read Chapter 28 and 28.1 of the 9th edition. Or send a query.
The DIA and the SPY gave a clear sell signal — note gap and panic sell day — to short termers. As we noted last week the stop in the DIA is 118.75 and a similar stop for the SPY for long term traders. We think prudent caution is in order here. We theorized at great length that this entire wave was a bull trap. The way not to lose a foot in it is to honor the stop signals.
The metals gave a sell signal also. Certainly for short term traders. We have not bothered to worry about our long term positions here yet. Worriers would have stop about 5% under 120.
Oh, we forgot to tell you all the reasons for the sell off. Full moon. Eclipse. Chinese New Year. Al Gore’s winning the Oscar.
February 27 2007 SEE LAST WEEK’S LETTER.
We have been wondering for some time when the music would stop, and what would make it stop. Ah so, China. If interested the stop in the DIA is 118.75.
If we were speculating we’d be out. If we were long term investors we would wait for the stop to be hit.
February 16 2007 Ah, sweet Valentines from Bernanke raise market spirits
Gary Anderson (equitypm.com) spoke at the TSAASF (tsaasf.org) meeting this week and showed some of his tools for market analysis. Two striking graphics showed a remarkable similarity between present conditions and those of 1987. As is probably obvious from our letters of the past few months we have been getting that old 1987 feeling, so the graphics were just projections of our more inchoate chart reading and crystal ball gazing. Will those technical similarities produce the same Niagara Falls like chart pattern and avalanche in the market? Only Karnak and Allah know for sure.
As for you, dear reader, we repeat here what we have said many times. A well constructed portfolio has some good shorts in it. If the marble does roll off the table it will hit the floor softer if it’s parachuted by some shorts. (Is the National Book Award Committee alert to these letters? What prose! What metaphors! What similes! What the —? Anyway, every since Herb Caen died we have been bereft, only now to discover that we are indeed, channeling Herb Caen.)
No news is good news in the Dow. Unless you count Gary Anderson’s news as bad news. While the NDX (not shown) looks toppy and in a trading range the Dow marches upward over a path of disbelief and bearishness among analysts with any brains. Unfortunately it’s not brains you get paid for.
A trading lesson in the OIL. Or two lessons. The trendline combined with the upwave length started a downwave. One lesson, the trendline. The other that a downwave (or consolidation) follows an upwave as the night doth the day.) The upwavae which started in January has not had a downwave until what is on right now. At this point you wait with your stop below the Jan low to see where the next trendline will be drawn.
For all intents and purposes no downwave has occurred on this wave in gold either. Readers who pay attention should be rolling in enough profits in GLD to pay for this letter (and the editor) many times over.
February 9 2007 The other markets–buy signs everywhere.
Friday was a little strange on the face of it in the S&P. Sometimes it’s difficult to tell if people are spooking or it’s just the traders jumping on the short term trend. At any rate it was expected. Five days of very compressed range will invariably be following by some fireworks in volatility. The pattern
follows along with previous waves in the market, short sharp and then a downdraft. But this bull will not be discouraged, so far. Meanwhile buy signals are all over the place in other issues. SLV silver gave
its first signal in January and is looking at the December high. We expect it
to meet some temporary resistance there. The long term stop is back there under 120. Sorry it’s so expensive, but that’s life.
The DJU has given a number of signals. If you buy it now plan on a reaction, on which you could add to a scale in position.
Strong signal in GLD. Investors in gold will do well over the long term.
People talk about a Goldilocks market. they should be talking about an Alice in Wonderland market to go with the science fiction fantasy delivered to the Congress as a budget. Budgets like the latest are made for short term enrichment of thieves and scoundrels (plenty of those in Washington). When the music stops the slow witted will find there are no chairs to sit on — and may not be for years.
Stay tuned. We’re cooking up a whole post of cheap cynicism laced with vitriol.
February 4 2007 No new news. All old news.
Which is to say that this little bull keeps bulling along, so why not look at some other charts? A few weeks ago we conjectured that a corner of some sort had been turned. Evidently it wasn’t turned in stocks, as this trend continues intact, and really without even any signs of deterioration. Then almost independently the dollar is bouncing off the bottom (as we speculated it might) and the metals
are in big consolidation patterns, some of quite large ranges. The CRB made a picture perfect island reversal and sent all sentient beings a buy signal with the breakaway gap. Not a lot is meant until it clears the recent high of December, but it is a straw in the wind. Gold bounced off a resistance line and continued its sideways trend. Pictures us blue in the face saying that gold is an investment for the general investor, and a wonderful speculation (along with the silver) for the speculator.
The ups and downs are intended to line the pockets of the pros and frustrate amateurs. Mature readers of this letter will frustrate the pros by sitting on SLV and GLD.
We remarked on the volume climax in OIL and expected higher oil prices. We think OIL is good part of any portfolio. Purchases should be staged in in tranches — maybe three to five. Strong movement above the long term trendline would warrant a second tranche.
In December we published the dollar index letter which said it was time to get ready to buy the dollar. Good timing. The dollar has rallied and now is in the process of consolidating. It could be a reversal of course. Even if it is a reversal the outcome is pretty certain — stronger dollar over the long run.
January 26 2007 Hunt for the killers….
The most important thing that happened this week was that Howard Hunt died. There is every reason to think that Hunt was involved in the assassination of John Kennedy. The NY Times completely ignored the question in its obituary. Wikipedia is a little more informative. Being amateur conspiracists we think he was in on the kill. These things occupy our minds when there is time to kill and we get bored with saying the same thing week after week: trend intact, and alive and strong and as yet no sign of the sharp reversal we think is inevitable. We think it remains intact because the public (i.e. the pundits, analysts, advisors, hedge funds etc.) expect it to fall apart. As a minor pundit (minor minor?) that’s what we think too. As chart analysts we think that long is the way to be. It’s really tedious when your gut tells you one thing and the charts tell you another. Chart rules.
January 19 2007 Life is short, Art is dead…
The most important thing that happened this week was that Art Buchwald died. Our favorite thing he said was “I’m not a Democrat or a Republican. I’m against whoever is in power.” He shoulda stuck around to satirize this market. Because like it or not it gets farther and farther out on a limb. And it is also a real bull market, against all belief and against Richard Russell and everyone else who thinks.
But, then, why shouldn’t it be an Alice in Wonderland market? We have an Alice in unreality government and an Alice in fantasy economy and a president in iraqiland. Hey. We never thought we’d miss Reagan and Nixon. And Harding. And Hoover. And Coolidge. And Taft. Come to think of it, these guys are in a great historical karass.
John Magee labored at great length in The General Semantics of Wall Street to convince us not to worry about the why of things, but about the what and how. Early American zen masters. So man is an animal which needs to know why, even when the why is invented. It’s the economy stupid! Anytime you pump $500B (that they admit to) into a war you done got economic stimulus. Open the money floodgates, Let the super rich off the tax hook, PARTY!
Bernanke dropped the first boot the other day when he pointed out the mastadon in the hearing room: It’s social security and medicare stupid.
So eat drink and be merry and stay long while lightening up. We don’t see any signs at the moment saying slippery road ahead. Except that ironically the Democrats could upset the bandwagon by trying to reestablish fiscal responsibility in
Washington. No good deed goes unpunished.
The charts speak for themselves. Bulls in the indexes, cows in the corn (or at least in the CRB which is sideways– a mule by any other name).
The silver and gold are sideways and the dollar is bouncing off the bottom.
Is the end of the world as we know it still at hand? Not while this party is going on. It’s been postponed for the moment.
And that whistle you hear coming down the tracks? Ignore it. Means nothing.
January 12 2007 Never one to throw iraqs at wasp nests…
But always willing to climb out on a limb and paint ourselves into a corner. Which is what the bulls have on this market. A corner. We suspect however that there is no exit from this corner, and that success is not just around the corner, not here nor in Iraq. Which is our long way of explaining what this hot air balloon is filled with: namely hot money financing the war in Iraq is lifting this balloon. Wait. Is there any metaphor we haven’t mixed? If so please send an application to our publisher who will do with it what he does with all our other pleas, exhortations, brilliant ideas, plaints, etc. Fertilize the ocean with it, evidently. What we were trying to say when we wandered into the labyrinth of metaphor was that with hot money in a hot air balloon you just have to stay on board the balloon until it bursts. Well, we’ll try to anticipate it, as our recommended strategy has done over the past several months — lighten up but don’t jump off. If we think we see the avalanche starting during the week we will post an email to the group list: http://groups.google.com/group/edwards-magee/about
Here we are moving back to take a stereoscopic view of the markets. (There’s nothing that can be said about the microscopic view — it just keeps on keeping on.) From the yellow notes you can see the important trendlines which are so far away from the present price they might as well be in Iraq.
Among other considerations being long (even while lightening up) is probably the thing to do right now, considering that everyone in the country is expecting a vicious correction (Motley Fools, 25%). When everybody is expecting something, no matter how smart they are, they have become the public, and the public is on balance wrong about 85% of the time. Dividing 85% by pi we get …. the pi in your eye ratio, which says copper the public’s bet. So you think we drank too much at New Years? No, looking at these charts gives us vertigo.
The near term trend lines are so steep that they have no practical use. And there has been no downwave on which to base a new trendline. You can, of course always set a money management stop — say 5 -7 % under the market. We have been racking our brains (what’s left of them after New Years) about crashes — studying some of the great crashes of our experience — looking for the clue. At the moment we think that a trigger for a crash might be sudden sharp long down days on steadily expanding volume. More on this later. Our letter on the dollar remarked a few weeks ago that the dollar was approaching long (really long) term support. No sooner were the letters out of our computer than the worm turned and started eating shorts alive. We don’t think it’s the end of the bottom, but it may be the beginning of the…. Is anyone still listening?
Didn’t the oil speculators hear about the new war in Iran? You would think from this chart that oil was headed for new lows, and, as Damon Runyon and Napoleon said, that’s the way to bet. But remember, it’s a slippery issue. We wouldn’t want to be long OIL as we said earlier. In fact you could be short — but remember this is a riverboat gambler’s game. Of course, King George just tried to go all in on Iraq.
Stranger and stranger. Look for our new editorial policy of abusing Democrats. Coming soon.
January 5 2007 Is this the beginning of the end? Or the end of the beginning? Or the beginning of the …..
Well, whatever. No doubt it’s the beginning of the year. The main doubts are about that volume the last day of the year. It is a little too exaggerated to be just year end tax selling. Once again we would be scaling out. Clearly some kind of corner is being turned, or some kind of tipping point is being tipped.
Richard Russell also thinks this is a weird market and is due to be corrected — violently we think.
Keynes is in order here: A game of Old Maid is being played and the card is being passed from hand to hand. Woe to the investor holding it when the music ends.
A close up of the year end action. Four especially squirrely days. When Motorola can be taken down 8-9% in a day the market is sending you a message, just as the sea sends you a message in the Bermuda Triangle. If we saw down days accelerate on volume next week we would increase our selling. The second low of November is a crucial benchmark.
As we previously remarked copper looked to be in a descending triangle (Bermuda as it turned out). For copper this means lower prices and for our readers who took the hint to the wise of being short the metals for trading purposes it’s party time. For the economy (US and world) it is an ominous sign.
‘The center of the universe is the U.S. dollar, and it’s dead — only no one has officially told it yet.’
— Peter Grandich, Grandich Letter
Oops. What is that I see before me, the handle towards my hand? A live dollar? At the very least the dollar making a bottom.
Metals, oil, commodities in a downdraft, dollar biting shorts, stocks looking nervous and toppy. As the Chinese say, may you live in interesting times.
See above for link to 15 year analysis of the dollar.