For The Sake Of Tim’s Sanity (by Runedge)

This is a somewhat redundant post considering what a few have put up the past few days but it's worth staying focused on where we are right now versus where we were back in April right at the highs.  This post I wrote on Sunday night so ignore the comment on ES futures.  It's interesting to note that oil caught a bid today while equities caught yet another low volume bid.

The current market action is eerily similar to that of the April 2010 highs and subsequent correction. Granted Fed QE is still in operation unlike April, yet POMO is beginning to show less ability to move markets.  The key comparisons are as follows:

  • + In both run ups to the high, the middle bollinger band was not tested until just before the top was in.   
  • + Both runs up did not touch the lower bollinger band at all during the move up.
  • + Both tops showed massive divergence on the MACD
  • + The move that pierced the middle bollinger band in both run ups was a massive red candle down. The candle on Friday was more powerful than the similar candle in April for it set a new high, failed to hold that high and closed on the low.   Both candles also found support at the prior low where the middle bollinger was first tested.
  • + This is the key in understanding where we go from here.  After the big red candle back in April, the next two days did move up, yet failed to make new highs before finally rolling over.  Looking at the Asian markets right now and the ES futures, we may be in a similar attempted move up.

Personally, I think enough damage has been done from a technical standpoint, combined with questionable macro news (UK starting a new recession for example, US missing GDP on Friday, etc). I think many are not fully understanding what is happening in Egypt.  To me it's not an Egypt story.  No, I think it's a global revolution story.  People have been oppressed for years and have finally had enough. Bears may be emboldened again should the market attempt to move up.  It sets up a great trade with your stops at the prior highs should the market experience a move up the next few days.

The majority are expecting the market to move down on Monday, I would imagine and we know how that never works out.  Even with the Fed and POMO and a market that always seems to catch a bid, the risk reward here favors the short trade to purely cash trade in my opinion.  I remain short and hedged via credit call spreads but until a clear direction is shown, I won't be adding to my current position.

 

 

Submitted by Runedge.  If you want to follow my blog please visit - Ultra Trading


QE2 Speculation and Summary

Some random thoughts ...

• QE2 Changes: I'm hearing speculation that the Fed might taper off the QE2 purchases of treasury securities to "promote a smooth transition in markets". Currently the plan is to purchase $600 billion in Treasury securities by the end of Q2 or about $75 billion per month. The speculation is that the size will remain the same ($600 billion), but that the Fed will taper off the purchases through the end of Q3 or so.

That is what the Fed did with previous purchase programs. In August 2009 for Treasury securities:
To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
And the same decision in September 2009 for MBS:
Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.
• Egypt. I continue to read the Al Jazeera Egypt live blog (the link changes for each day Egypt time). Hopefully there will be a positive and peaceful outcome for the Egyptian people.

A common email question is about the impact on the U.S. economy. My view is this could impact the U.S. by pushing up oil prices, especially if 1) protests spreads to larger oil producers in the Middle East, or 2) the Suez canal is closed. Both seem unlikely in the short term, although my view could change with events. Oil prices have already risen, also from the WSJ: Brent Crude Tops $100. Here is some analysis from Professor Hamilton at Econbrowser: Geopolitical unrest and world oil markets

Q4 2010: Homeownership Rate Falls to 1998 Levels

This is based on the Housing Vacancies and Homeownership survey. What is important about this survey is the trends for the homeownership rate, and homeowner and rental vacancy rates. This shows a sharp drop in the rental vacancy rate as many households move from owning to renting and also suggests the excess housing inventory is being absorbed.

In the Graph Gallery: Homeownership rate, Homeowner vacancy rate, Rental vacancy rate.

• The Chicago PMI was Strong, the Dallas Fed Index was Weak. The Chicago PMI is far more useful as an indicator for the economy the the Dallas Fed index, and the Chicago PMI was very strong (including for employment). I expect the ISM manufacturing index tomorrow to show strong expansion in January (similar to December).

Personal Income and Outlays Report for December. Includes graph for Real PCE, Personal Saving and Real Personal Income less Transfer Payments. Personal consumption has been increasing faster than personal income - that probably isn't sustainable.

• From the Federal Reserve The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices. In general banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans) - and a special question showed banks are more "upbeat" on delinquencies and charge-offs in 2011 ...

• Some research from the San Francisco Fed: Estimating the Macroeconomic Effects of the Fed's Asset Purchases

• Some research from the Cleveland Fed: High Unemployment after the Recession: Mostly Cyclical, but Adjusting Slowly

And from the weekend:
Summary for Week ending January 29th
Schedule for Week of January 30th
BLS Employment Revisions on Feb 4th

Monday Reads

Soem longer form reads on my Instapaper:

• Normal Recovery? No Way (Comstock)
• Why Egypt’s popular rebellion is the greatest historical event in a decade (Canonical.org)
• Want an MBA? Don’t bother (Economist)
• Demand Media’s Planet of the Algorithms (BusinessWeek)
• The shocking truth about the electric Volt (Washington Post)
• Sabermetrician In Exile (Yahoo Sports)
• The art of good writing (FT.com)
• How Egypt Switched Off the Internet (GigaOm)

What are you reading?

Rice Closes Limit Up


Stocks closed nicely up, and why not: the investing public which is now bored with any revolution longer than 15 minutes did not see things burning, people getting shot or buildings getting blown up (and there was that whole Flip That Bond thing earlier) so it makes all the sense in the world. Yet a far more notable move was that of Rice, which traded more or less as expected earlier in the day. As can be seen on the chart below, RRH jumped by 50 cents, the maximum allowed before a limit up lock, to close $15.51 on the CBOT, which is 5.5 cents away from the one year high. We are fairly confident that tomorrow we will see a new 52 week high, as evil, evil speculators decide to go for the ultimate PBOC put. But before that happens, if we are correct that the world's spec crowd will test the inflationary equivalent of the global Bernanke put, it will go far higher. And when Al Jazeera starts sending riot pictures not from Egypt, but from the heart of Asia (consumption data here), we are 100% confident it will get very messy, very quick.

 

What Happened To Friday’s News?

Friday all the financial sites were raging as to why the US equity markets were taking a pounding on the back of the news from Egypt.  Today, nothing changed and in fact some will argue it worsened yet it astounds me how short a memory these market writers have and suddenly, today, Egypt was set aside so that the Market could continue it’s long streak of Monday melt-ups.   It just goes to show that we have become a society with perhaps the shortest memory and attention spans ever. 

Who Woulda Thunk It?

Hillary Clinton likes pantsuits with a skosh more room.

Abby Cohen is bullish on the market.

And down-days in equities are quickly snuffed out by the next session.

These are truisms in our lives. Still, I can't help but think this sort of thing got old a long time ago.

0131-disappointment

I have nothing additional to say about the markets right now. I'll do a post this evening. Any guest writers out there, please feel free to contribute.


Human Planet, BBC One

Human Planet is an awe-inspiring, jaw-dropping, heart-stopping landmark series that marvels at mankind’s incredible relationship with nature in the world today.

Uniquely in the animal kingdom, humans have managed to adapt and thrive in every environment on Earth. Each episode takes you to the extremes of our planet: the arctic, mountains, oceans, jungles, grasslands, deserts, rivers and even the urban jungle. Here you will meet people who survive by building complex, exciting and often mutually beneficial relationships with their animal neighbours and the hostile elements of the natural world.

Human Planet crews have filmed in around 80 locations, bringing you many stories that have never been told on television before. The team has trekked with HD cameras and state of the art gear to film from the air, from the ground and underwater. The result: a “cinematic experience” created by world-class natural history and documentary camera crews and programme makers.

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