Why has the dollar been going vertical? Because the mad dash for cash is starting. The Wall Street Journal reported that hedge funds are selling anything to raise cash:
"You couldn't go wrong with gold. It's a very crowded trade. It's been everyone's place to hide. Now people are realizing: Gold does not protect against less consumption," said Mark Lehmann, president of JMP Securities in San Francisco.
Reminds me of this quote:
"In a world awash in credit, in a world of fractional reserve banking, overcapacity, and endless amounts of stuff, cash becomes the real gold standard. How do market participants get cash? They sell stuff. They sell bloated assets. They pay off debt. They even sell gold and precious metals."
The above was blogged right here back on 3/31/2010
In my opinion, Mr. Lehmann nailed it when he noted the problem of less consumption. Less consumption is the last thing the Keynesians need right now. Less consumption is why total money supply is contracting at a pace that International Monetary Research Professor Tim Congdon described as "frightening."
Saturday, May 29, 2010
Wednesday, May 26, 2010
A Gem Of A Quote
From Mr. Practical over at Minyanville:
"Seventy-eight percent of the entire rally from the 2008 lows in US stocks occurred in overnight trading."
From here on I am selling rallies.
"Seventy-eight percent of the entire rally from the 2008 lows in US stocks occurred in overnight trading."
From here on I am selling rallies.
Monday, May 24, 2010
The Real Reason For The May 2010 Crash
It was not a fat finger. It was not a flash crash. It was not cyber terrorism. It was a massive widening of credit spreads.
Finally, two and a half weeks later, a Bloomberg story contains a small clue, buried deep within a seemingly innocuous story about corporate credit spreads. The story quickly turns to the turmoil in Europe, then, near the bottom, just four short paragraphs up from the byline, there it is, in a quote by John Bender, head of U.S. fixed income for Legal & General Investment Management America:
By midday on May 6 “the credit markets were effectively not functioning,” he said. “Bid offers were so wide it was very difficult to get trades done.”
When banks do not lend to each other, everything stops. European banks were not lending. It was Lehman Brothers all over again.
When multinational media corporations put out cover stories within minutes of an event, you are dealing with disinformation. Fat finger? Flash crash? Those things, at best, are effects.
If you want to understand the cause of what's really going on in these markets, wrap your head around credit and debt.
Market Comment:
While I'm becoming less and less inclined to view the price action since April 26th as a B wave, I will continue to test my hypothesis when short-term buy signals appear, though high VIX readings make options expensive.
Finally, two and a half weeks later, a Bloomberg story contains a small clue, buried deep within a seemingly innocuous story about corporate credit spreads. The story quickly turns to the turmoil in Europe, then, near the bottom, just four short paragraphs up from the byline, there it is, in a quote by John Bender, head of U.S. fixed income for Legal & General Investment Management America:
By midday on May 6 “the credit markets were effectively not functioning,” he said. “Bid offers were so wide it was very difficult to get trades done.”
When banks do not lend to each other, everything stops. European banks were not lending. It was Lehman Brothers all over again.
When multinational media corporations put out cover stories within minutes of an event, you are dealing with disinformation. Fat finger? Flash crash? Those things, at best, are effects.
If you want to understand the cause of what's really going on in these markets, wrap your head around credit and debt.
Market Comment:
While I'm becoming less and less inclined to view the price action since April 26th as a B wave, I will continue to test my hypothesis when short-term buy signals appear, though high VIX readings make options expensive.
Wednesday, May 19, 2010
Volume Is Speaking
Today we bounced off the 200 DMA for the second time in 9 trading days. Even omitting the extreme volume from the 5/6 crash day, today's volume is saying there are fewer sellers than the previous test. Using NYSE volume (provided by Tradestation), today's volume was 1.7 billion versus 2.6 billion shares traded on 5/7, the day after the crash and the day we bounced off the 200 DMA. If Richard D. Wyckoff was alive, one of the greatest tape readers there ever was, he would likely say there were far fewer sellers today.
I liked the action in the EURUSD better than the close in the ES, but remain long both using options against my short inventory. Today the OEX options decayed enough for me to add some calls to my long position. Given the way we closed, I feel I'll get another opportunity tomorrow as well.
I rarely pay attention to Jim Cramer, but he said something today that resonated with me. "This market is anticipating a massive implosion. If one doesn't occur in the next 48 hours, we're going higher." I agree.
If we go higher, even if we were to reach new highs, I would not become a bull. I would merely add more to my short inventory. I am, however, open to the possibility that there can be massive fakeouts on the way to the eventual high. There can also be a crash at any time. I always try to be ready for multiple outcomes.
I liked the action in the EURUSD better than the close in the ES, but remain long both using options against my short inventory. Today the OEX options decayed enough for me to add some calls to my long position. Given the way we closed, I feel I'll get another opportunity tomorrow as well.
I rarely pay attention to Jim Cramer, but he said something today that resonated with me. "This market is anticipating a massive implosion. If one doesn't occur in the next 48 hours, we're going higher." I agree.
If we go higher, even if we were to reach new highs, I would not become a bull. I would merely add more to my short inventory. I am, however, open to the possibility that there can be massive fakeouts on the way to the eventual high. There can also be a crash at any time. I always try to be ready for multiple outcomes.
Tuesday, May 18, 2010
Trade Notes
I haven't heard this much bearishness in a long time. I checked in on Fast Money this evening and the tone was dark. Najarian was bearish, Seymour was bearish, Adami reiterated his 950 call. Finerman said it felt like "the night before Lehman." Gartman was as dark as I'd ever seen him. Then there was Richard Russell's crash call today. "Sell everything" he advised. A very shrewd Forex trader I know was horrified by the action of the Aussie today. That it has been the relative strength leader for so long and just broke through the 5/6/2010 crash lows was extremely bearish to him.
For my part, I took detailed inventory of my short book, took some profits from the short side, put on a tiny hedge with some SPY calls, and bought some cheap FXE calls for the Euro, noting that the EURUSD is sitting on the 50% retracement of the .82 low to the 1.60 high. Now I will get a good sleep and let the market tell me what to do next. If we crash, fine. If we bounce, that's great too. Best of luck.
For my part, I took detailed inventory of my short book, took some profits from the short side, put on a tiny hedge with some SPY calls, and bought some cheap FXE calls for the Euro, noting that the EURUSD is sitting on the 50% retracement of the .82 low to the 1.60 high. Now I will get a good sleep and let the market tell me what to do next. If we crash, fine. If we bounce, that's great too. Best of luck.
Friday, May 14, 2010
More Voodoo
I saw it. 105 SLV. In traffic. Again.
Minutes later I saw this on Marketwatch.
Spooky.
Other than that, today was a good day to be a bear. But I'm becoming an uneasy bear here. Volume today was lighter than it was on May 10th, the huge up day. Even more disconcerting was the level of bear giddiness I witnessed today. Talk of yachts that will be purchased and Greek islands that will be owned. Sadly even coming from some traders whom I respect. Note their use of future tense as well. As if it's a sure thing. It's never a sure thing.
For now though, it's Friday. I'll follow this up with some charts and further comments over the weekend. Cheers.
Minutes later I saw this on Marketwatch.
Spooky.
Other than that, today was a good day to be a bear. But I'm becoming an uneasy bear here. Volume today was lighter than it was on May 10th, the huge up day. Even more disconcerting was the level of bear giddiness I witnessed today. Talk of yachts that will be purchased and Greek islands that will be owned. Sadly even coming from some traders whom I respect. Note their use of future tense as well. As if it's a sure thing. It's never a sure thing.
For now though, it's Friday. I'll follow this up with some charts and further comments over the weekend. Cheers.
Thursday, May 13, 2010
Voodoo and More
After the market closed today, I was listening to a financial broadcast in the car while doing some errands. I pulled up behind another car at a stoplight while the announcer was talking about the gold and silver market. Just as I came to a stop, he mentioned SLV, the silver ETF. The license plate of the car in front of me? 105 SLV.
So, not only are there 95% bulls in the silver market according to the Daily Sentiment Index, but apparently the DMV is getting into the act too. While these bulls probably assume that silver will go to 105, I can only wonder: what if SLV goes to 10.50?
It's been a heck of a spring here in the Valley of the Sun. Stunningly beautiful. After the winter rains, the perfume from the blooming desert flowers was positively intoxicating. Now that it has calmed down somewhat, I promise to post more.
Next month, I'll be continuing my digital vagabonding adventures, this time throughout the Pacific Northwest, parts of British Columbia, and the Northern Plains. I look forward to keeping in touch from the road, trading remotely, as well as doing a lot of exploring and boots-on-the-ground research.
I'll have more to say about the markets this weekend.
So, not only are there 95% bulls in the silver market according to the Daily Sentiment Index, but apparently the DMV is getting into the act too. While these bulls probably assume that silver will go to 105, I can only wonder: what if SLV goes to 10.50?
It's been a heck of a spring here in the Valley of the Sun. Stunningly beautiful. After the winter rains, the perfume from the blooming desert flowers was positively intoxicating. Now that it has calmed down somewhat, I promise to post more.
Next month, I'll be continuing my digital vagabonding adventures, this time throughout the Pacific Northwest, parts of British Columbia, and the Northern Plains. I look forward to keeping in touch from the road, trading remotely, as well as doing a lot of exploring and boots-on-the-ground research.
I'll have more to say about the markets this weekend.
What If It's A "B" Wave?
I’d be quite pleased if this really is the start of Primary wave 3 down. I am more than ready for the fireworks to begin. But as I said in a previous post (here): I’m becoming an uneasy bear. Here are a few reasons why:
Friday, I wrote a quick post about Giddy Bears. My feeling is that when traders' banter changes from what levels to take profits at to which yacht or what island to buy, sentiment has clearly changed much too fast. Whenever I hear traders, flush with quick profits, going hog wild and asking questions which amount to “Bertram or Hatteras,” I go on high alert to consider the other side of trade. Suffice to say it’s never good when the party gets started before it takes place.
Turning to the market, I am not happy with Friday’s volume vs. Monday. We went up on Monday with more volume than what we came down with on Friday. I'd prefer it to be the other way around to confirm the downtrend.
Nor am I comforted by the volume in puts vs. calls on the SPY, which I like to use as a proxy for the public. The public is rarely ever right for long.
“The public must always believe, with the strongest conviction, the idea that will make them contribute the most to the market, and one of the things the public has to do is sell low and buy high.” Victor Neiderhoffer
I do not like this chart either. Why? Because I'm a divergence trader, and there isn't any. New highs confirmed the index highs on April 26th. While it’s true there have been major bear markets that have resumed without warning after large bounces such as we’ve had (1937 being an example), maybe this is one such time. Maybe not. This chart is making me cautious not to overly commit.
Nice chart of the crash, huh. It’s the Yen. And what you’re seeing is that there’s still a large carry trade on that is very risk adverse when it has to be.
However, when you look at this monthly chart of the Yen, notice how it’s trying to break out of its downtrend channel. The market crash was a perfect opportunity for the Yen to backtest the downtrend channel. I’m currently interpreting this to mean that the carry trade is still not yet in an overt risk-adverse mode. What would it mean if the Yen weakened (went higher) for another couple months or so?
Same thing with the Euro. This could easily melt all the way to parity for all I care, and you could add me to the list of the Giddy Bears. But what if it bounced here for no good reason other than because that’s what markets do? I could see it heading as high as 1.34 without breaking a sweat.
Likewise, the dollar, as I warned way back on March 9th, finally went higher than anyone expected. What if it decided to cool it for a bit? Put your intermarket analysis hat on and anticipate what these things might mean for the ES.
The market’s job is to screw the most people it can in the shortest amount of time. Always know your risk. Always know where you’d be wrong.
I’m wondering if we need to start considering that the market is getting ready for a epic screw job.
Here's my point. What if this entire move from the April 26th highs is a B wave?
What if the highs of April are wave A of Z? What if we’re tracing a huge triangle here? What if we’re not in primary wave 3 down here, but setting up for a wave C head fake to one more high?
Remember: B waves are phonies.
The good thing is that if we truly are in a primary wave 3 down, we'll know soon enough. This post will be rendered meaningless, I'll be the phonie, and I'll be more than happy to have been proven wrong. It's a small price to pay.
Perhaps the latest cover of Barron's is a small clue.
Friday, I wrote a quick post about Giddy Bears. My feeling is that when traders' banter changes from what levels to take profits at to which yacht or what island to buy, sentiment has clearly changed much too fast. Whenever I hear traders, flush with quick profits, going hog wild and asking questions which amount to “Bertram or Hatteras,” I go on high alert to consider the other side of trade. Suffice to say it’s never good when the party gets started before it takes place.
Turning to the market, I am not happy with Friday’s volume vs. Monday. We went up on Monday with more volume than what we came down with on Friday. I'd prefer it to be the other way around to confirm the downtrend.
Nor am I comforted by the volume in puts vs. calls on the SPY, which I like to use as a proxy for the public. The public is rarely ever right for long.
“The public must always believe, with the strongest conviction, the idea that will make them contribute the most to the market, and one of the things the public has to do is sell low and buy high.” Victor Neiderhoffer
I do not like this chart either. Why? Because I'm a divergence trader, and there isn't any. New highs confirmed the index highs on April 26th. While it’s true there have been major bear markets that have resumed without warning after large bounces such as we’ve had (1937 being an example), maybe this is one such time. Maybe not. This chart is making me cautious not to overly commit.
Nice chart of the crash, huh. It’s the Yen. And what you’re seeing is that there’s still a large carry trade on that is very risk adverse when it has to be.
However, when you look at this monthly chart of the Yen, notice how it’s trying to break out of its downtrend channel. The market crash was a perfect opportunity for the Yen to backtest the downtrend channel. I’m currently interpreting this to mean that the carry trade is still not yet in an overt risk-adverse mode. What would it mean if the Yen weakened (went higher) for another couple months or so?
Same thing with the Euro. This could easily melt all the way to parity for all I care, and you could add me to the list of the Giddy Bears. But what if it bounced here for no good reason other than because that’s what markets do? I could see it heading as high as 1.34 without breaking a sweat.
Likewise, the dollar, as I warned way back on March 9th, finally went higher than anyone expected. What if it decided to cool it for a bit? Put your intermarket analysis hat on and anticipate what these things might mean for the ES.
The market’s job is to screw the most people it can in the shortest amount of time. Always know your risk. Always know where you’d be wrong.
I’m wondering if we need to start considering that the market is getting ready for a epic screw job.
Here's my point. What if this entire move from the April 26th highs is a B wave?
What if the highs of April are wave A of Z? What if we’re tracing a huge triangle here? What if we’re not in primary wave 3 down here, but setting up for a wave C head fake to one more high?
Remember: B waves are phonies.
The good thing is that if we truly are in a primary wave 3 down, we'll know soon enough. This post will be rendered meaningless, I'll be the phonie, and I'll be more than happy to have been proven wrong. It's a small price to pay.
Perhaps the latest cover of Barron's is a small clue.
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