06/23/2012 Weekend Update

[Al_Dente]

Startling zh chart on long bonds outperforming $SPX
http://www.zerohedge.com/news/presentin ... s-thinking

So shocking that I had to try recreating it
PROBLEM IS: …. not so easy to get the same results… their chart is 18 months…. mine too…. big difference…
Perhaps the difference is that zh is using a single long bond issued November 2010, and I’m using the benchmark 30yr $USB treasury (black line).
It’s a bit misleading for zh to imply that ALL long bonds outperformed SPX by “nearly three times” ... not to mention it’s a waste of my time.
This “recreation” is as of Wednesday’s close, the same date as the zh article.
http://screencast.com/t/7gt2ekqRHtnw

By Thursday morning the zh clicker recorded that >29,000 people had read that article... which is one reason why zerohedge is “grain-of-salt” unless u can recreate it and prove it, or unless their source is unimpeachable. [In their defense, there is simply NO OTHER place to get so many timely Squid and “Whale” and .gov linked reports…]

[KeiZai]

If someone is thinking about playing volatility next week UVXY is trading at a discount (more than 1$)

http://finance.yahoo.com/q?s=UVXY
http://finance.yahoo.com/q?s=%5EUVXY-IV

btw nice AH move in VIX

[SWalsh]

By Thursday morning the zh clicker recorded that >29,000 people had read that article... which is one reason why zerohedge is “grain-of-salt” unless u can recreate it and prove it, or unless their source is unimpeachable. [In their defense, there is simply NO OTHER place to get so many timely Squid and “Whale” and .gov linked reports…]

I know from speaking privately to Tyler, as well as providing him with some data, that he has quite a range of sources that the general public would find much to costly to obtain.

Glad I could help, again.

[Al_Dente]

Buzz continues about the “diminishing returns” from QE and Operation Twist. This chart visualizes that.
Each shot of intervention-morphine produced progressively weaker bull runs (see top panel chart, the numbers in pink at the base).
[This chart has approximate dates and numbers only].
What’s more interesting to me is the white areas where you can catch a glimpse of what the REAL market looks like absent artificial intervention.
But alas, we are still in the grips of intervention at the moment.
[Hat tip to soku and bullbear52x for great charts illustrating the intervention-trampoline effect].

And now many of the intermediate-to-longer term “Trend Followers” may be buying long, as the “Gerald Appel 5/10/20 Cross” signal illustrates.
Note this is a FOLLOWER strategy, and it FOLLOWS wherever SPY goes; it leads nothing…
It confirmed a buy cross on Wednesday, just in time for the -250 point Dow drop on Thursday !
Just be aware that if a rally ensues, we may have to contend with buying from longer-term trendies, not just short-covering bears.
[As usual, stockcharts does not allow enough real estate, so you have to go to another chart to verify that $COMPQ did indeed confirm the buy signal]

Also watch $VIX under 20.
$VIX below 20 (20% volatility) is historically the line-in-the-sand, the “all clear” number for bulls
…but it MUST STAY below 20 or bulls will reverse to bear.

[SWalsh]

Buzz continues about the “diminishing returns” from QE and Operation Twist.

I have been commentating on the futility of Quantatative Easing since I started posting here. This is nothing new and something I screamed about when QE1 was announced as I already knew what I am providing below. I speak to two economists (those are PhDs and not MBAs selling stocks) regularly. One is a full-time professor who has been telling his students to stay in school and get grants as they will need more education than ever to find a decent job thanks to Bernanke wrecking the economy with this failed policy. Even head of the Council of Economic Advisers, Christine Rhomer, knew to disassociate herself with this. And she is a socialist and still saw this was futile.

John Hussman, PhD spoke of the QE issue in September of 2009 and again in this article in Oct, 2010 entitled, "Bernanke Leaps into a Liquidity Trap ":
http://www.hussmanfunds.com/wmc/wmc101025.htm

(in part)

In 1978, MIT economist Nathaniel Mass developed a framework for the liquidity trap based on microeconomic theory - rational decisions made at the level of individual consumers and firms. The economic dynamics resulting from the model he suggested seem strikingly familiar in the context of the recent economic downturn. They offer a useful way to think about the current economic environment, and appropriate policy responses that might be taken.

"The theory revolves around a set of forces that for a period of time promote cumulative expansion of capital formation, but eventually lead to overexpansion of capital production capacity and then into a situation where excess capacity strongly counteracts expansionary monetary policies."

"The capital boom followed by depression runs much longer than the usual short-term business cycle, and is powerfully driven by capital investment interactions. The weak impact of monetary stimulus on real activity arises because additional money has little force in stimulating additional capital investment during a period of general overcapacity. Instead, money is withheld in idle balances when profitable investment opportunities are scarce."

"Following the monetary intervention, relatively easy money provides a greater incentive to order capital... But now the overcapacity that characterizes the peak in the production of capital goods reaches an even higher level than without the stimulus. This overcapacity eventually makes further investment even less attractive and causes the decline in capital output to proceed from a higher peak and at a faster pace. Due to persistent excess capital which cannot be reduced as fast as labor can be cut back to alleviate excess production, unemployment actually remains higher on the average following the drop in production."

In what reads today as a further warning against Bernanke-style quantitative easing, Mass observed:

"Even aggressive monetary intervention can do little to correct excess capital.. Once excess capacity develops, the forces that previously led to aggressive expansion are almost played out. Efforts to prolong high investment can produce even more excess capital and lead to a more pronounced readjustment later."

Mass concluded his 1978 paper with an observation from economist Robert Gordon:

"Why was the recovery of the 1930's so slow and halting in the United States, and why did it stop so far short of full employment? We have seen that the trouble lay primarily in the lack of inducement to invest. Even with abnormally low interest rates, the economy was unable to generate a volume of investment high enough to raise aggregate demand to the full employment level."


The charts (reproduced from Oct, 2010) illustrate how QE never had a chance. Unfortunately, a deceitful quid pro quo between this corrupt administration, the SEC, and the "banks" exist now in the form of unchecked market manipulation. Their reasoning for the Flash Crash is not just laughable, but clearly a deceitful cover. A better explanation might be that with some pending legislation, the oligarchs that IMF President (2008-2009) Simon Johnson warned about in "The Quiet Coup" article in May of 2009 in The Atlantic Monthly, decided to show Obama who he should fear going after should they decide to sell into an illiquid market with only longs and little public participation.

One will never know if they saw this "crisis" as an opportunity as much of this money made the old saying true, "The rich get richer and the poor get poorer". They have been poisoning the marketplace. Applying leeches now might be a good idea to prevent out ultimate status as "Japan Redux!"

[xfradnex]

Daily Elders. Added XLY/XLP, DIA/SPY, and QQEW/QQQ ratio. Hopefully Dr Al can provide some input into some other new ratio combos.

Xfrandex: Great great XLY:XLP elders ratio. My intermediate-term XLY:XLP ratio held that lousy green up-trend line again, but your shorter-term elders show it creeping from green into blue and red.

$OEX:SPY is a good one, as movement into large caps (OEX 100) typically indicates fear and bear (like now), but at some point the spike is excessive and it becomes a bottom/bounce signal… not sure how your elders would handle that (?)

Another helpful ratio, especially now, is GDX:GLD which measures the strength of the mining stocks compared to physical gold.
And the ratio that tracks the contra-cyclical dollar up = gold-and-commodities down “rule”: $GOLD:$USD might be useful (or GLD:UUP only as a second choice)

Obviously an oil-to-something ratio would be timely, as oil is a such an important proxy for inflationary, pardon, deflationary expectations, but at the moment I don’t have one for you ….. maybe keizai has a killer “oil-to-something” ratio he could suggest

I use high-yield bonds to corporate-bonds ratio HYG:LQD to gauge the strength of junk (risk-on) compared to the “””safer””” corporates.
Translated into your elders: a short term green elder reading would indicate strength in risk-on junk, and reds would be the opposite.
HYG is important as when the bond market smells bear-spy, they usually exit junk bonds first, fast, and in droves (but not at the moment !!).
Perhaps an alternative bond ratio would be better, maybe junk to treasurys… Kezai has one, plus he has other great risk-on/risk-off ratios;
hopefully he’ll pop in here…




Just my 2 cents ….. keep up the good work
An oldie for you…. http://www.youtube.com/watch?v=PSNPpssr ... re=related

ps have to study QQEW/QQQ ratio, that’s an original....fresh.... On a related note, how about an AAPL-to-something ratio

Thank you Dr Al. Here are the results. It looks like AAPL/QQQ is spitting something out. It all over, the Fat Man Sings

[Al_Dente]

PAGING XFRANDEX
Very nice… hypnotic actually
So…. can u say what you use as a signal?
Do u jump in/out on green/red, or do you frontrun on blues…
Or do you use the color profiles more for a general overview and confirmation?

If possible, could u move oex/spy and oex to the left five columns so they appear next to spy?
Never mind if it is too much trouble, it’s just a petty eyeball request, as I’m currently transfixed on the color divergences between those …

Old movie/song was just on at that moment… I like antiques ...this is on now, although Bon Jovi is getting to be an antique himself
http://www.youtube.com/watch?v=RSJbYWPEaxw

Thanks X, see u Monday
[edit: ps: what is the difference between the bright and dark greens and reds? Example: the dark green only shows up on your “A” column (ATR or CCI ?)]

[xfradnex]

PAGING XFRANDEX
Very nice… hypnotic actually
So…. can u say what you use as a signal?
Do u jump in/out on green/red, or do you frontrun on blues…
Or do you use the color profiles more for a general overview and confirmation?

If possible, could u move oex/spy and oex to the left five columns so they appear next to spy?
Never mind if it is too much trouble, it’s just a petty eyeball request, as I’m currently transfixed on the color divergences between those …

Old movie/song was just on at that moment… I like antiques ...this is on now, although Bon Jovi is getting to be an antique himself
http://www.youtube.com/watch?v=RSJbYWPEaxw

Thanks X, see u Monday
[edit: ps: what is the difference between the bright and dark greens and reds? Example: the dark green only shows up on your “A” column (ATR or CCI ?)]

ATR blue = Hi and Low crossing center ATR line for day. I am trying to figure a good way to color code CCI and ATR. ATR have different readings for each stock. I may switch out CCI and ATR out for 2 day, 5 day, and 10 day linear regression lines with position indicators for Close that indicate how many std deviations the close if off the linear regression line (stretch indicator).
A good way to look at the chart is to look at the center section (world indexes) unmagnified; It is easier to see the overall world outlook this way. If there is no pending significant market news and If everthing is green, buy dips. If everything is red short the rips.

I am hoping to find more leading indicators, which you have helped very much. The hardest part will being able to read them.

[rpccharts]

BUY SIGNAL - GOLD

[Mr. BachNut]

This is of no help for next week but watch the third fan line in the months ahead.
Al D. your chart on QE/twist episodes reveals a classic pattern.
Generally, a rally can be considered over if it violates the third in a series of rising fan lines.
This is consistent with Cobra's three push up guideline.
Note the three red fan lines from the March 09 bottom in the chart below.
Next big bear market may be evidenced by breaking the third line.
Eyeballing, it looks like the line will climb to about 1290 by year end.
So, things could get pinchy.
Also note how the break of the prior two lines occurred in fairly dramatic fashion.
Interesting times ahead!

[Petsamo]

If anyone wants to short something, check out XRT (retail stores).



XRT is strong relative to IWM. XRT might continue to be strong, however, if oil continues to fall.

[TraderJoe]

GM to all this weekend..

Question to any that may have the answer. There are 4 fib's moving down, 38.2, 50, 61.8 & 100%. Is there an amount that a fib must be broke for us to conclude the target will be the next fib???

Example- 38.2% fib is 132.20 - Would the SPY need to hit SAY 131.10 (or something) for a person to conclude there is a good chance it will go down to the next fib???

I live in the midwest USA and they say it will hit maybe 105 today (HOT)..

Enjoy your weekend!!!!

[Petsamo]

Germany kicks Greece out of the Euro. So, do you guys suppose we get a huge gap up Monday? Nah

[pezhead9000]

Friday TSM Money Flow block trades: High volume, Negative money flow

MF: -2,821.42
B: 14,413.46
S: 17,234.88
B/S: 0.84

http://online.wsj.com/mdc/public/page/2 ... stcalendar

[TWT]

In my opinion despite last week´s bearish reversal at the 0.618 retracement key resistance supports the “bearish case” that the countertrend bounce off the June 4 low is over, I remain skeptical and I am not going to rush in calling a trend reversal yet, for the simple reason that, if it still matters, the internal structure of the potential reversal has a deficiency for the “bearish case”, since it has a questionable impulsive structure.

Therefore if the current pullback is unfolding a corrective EWP then price has not began yet the trending wave (C) down, hence the odds that price will establish a higher low (Above the June 4 low) are large.

In the 60 min chart below I have my “preferred reading” of the price action off the June 4 low:

#(ABC) up with a truncated wave (5) of (C) on June 20.
#The truncated wave (5) is probably due to a failed Triangle wave (4).
#From my nominal high on Wednesday price has unfolded a 3 wave down leg into Thursday lod = wave (A).
#On Friday price has began a countertrend wave (B) bounce that should fail at the 50 d MA = 1345.
#If my short term scenario is correct one more down leg should complete this small correction in the range 1306.62 – 1303 or at the 200 dMA = 1295.50
#Therefore the overall count from the June 4 low can trace a larger Zig Zag/Double Zig Zag or a Triangle.


If price will unfold a larger Zig Zag/Double Zig Zag then the current wave (B) rebound can reach a speculative trend line resistance in the area of 1400.
This option will “tangle” the intermediate time frame pattern since it may not be a straight forward Zig Zag down instead price could unfold a Flat or a Triangle.

There is another potential option that could play out if price is not able to recover above the 50 dMA and it does not breach the 200 d MA by unfolding a contracting pattern that will conclude with the kick off of the wave (C) down

Regarding the long term time frame EWP I remain bullish:

From the October 2011 lows price is expected to unfold the last Zig Zag (ABC) = wave (Y) up that will establish a major top by completing the wave (X) off the November 2008 low.

The equality extension target for the wave (Y) is at 1678.

In addition, once/if we have the wave (B) in place, we will able to extrapolate the equality extension target for the wave (C) of (Y), which could have an upside potential move of 347.61 points.

Hence, if my scenario is correct, at the April 2 top price has established the wave (A) and now it is involved in carrying out a corrective wave (B) pullback that could also unfold another Zig Zag (ABC) down, but so far there is no certainty regarding the corrective pattern, therefore we cannot rule out a Double ZZ, a Flat or a Triangle.

[ronrico]

Here's an interesting bond/gold relationship. looks near ready to me http://socialtrade.com/item/2471

[Al_Dente]

PAGING MR. BACHNUT
Thank you for this valuable info: “”“… classic pattern. Generally, a rally can be considered over if it violates the third in a series of rising fan lines...”””” That may be part of TA history/folklore now. I’ve been looking for source material on that one for a long time….do u have a source or link for that THIRD break info?

Also, any thoughts on this one?:
The weakness in yield (particularly this year) is so much more pronounced than the artificially-stimulated rise in $SPX.
(The yellow boxes correspond loosely to the yellow boxes on my intervention chart posted earlier. In other words, u r looking here at intervention from the point-of-view of yield $TNX…. which suggests bear-spy much more dramatically, no???)
My view is that $TNX yield played along with the 2009 SPX rise, and the 2011 rise, albeit reluctantly, but it is definitely not playing the bull game this year (your thoughts?)
RSI positive divergence indicates a bounce is due, but on a weekly chart, that could take time to play out.

Just an idle thought:
As $TNX bond yield is roughly the reciprocal of $UST bond price
And $TNX yield closed Friday at 16.72 (1.672%)
And yield can’t go lower than 0 (0%)
Using that, perhaps one of our resident math genies could calculate the perfect longer-term target price for $UST and thus, very roughly, for TLT.
And hopefully they would post/share that info here… TIA

[xfradnex]

PAGING XFRANDEX
Very nice… hypnotic actually
So…. can u say what you use as a signal?
Do u jump in/out on green/red, or do you frontrun on blues…
Or do you use the color profiles more for a general overview and confirmation?

If possible, could u move oex/spy and oex to the left five columns so they appear next to spy?
Never mind if it is too much trouble, it’s just a petty eyeball request, as I’m currently transfixed on the color divergences between those …

Old movie/song was just on at that moment… I like antiques ...this is on now, although Bon Jovi is getting to be an antique himself
http://www.youtube.com/watch?v=RSJbYWPEaxw

Thanks X, see u Monday
[edit: ps: what is the difference between the bright and dark greens and reds? Example: the dark green only shows up on your “A” column (ATR or CCI ?)]

ATR blue = Hi and Low crossing center ATR line for day. I am trying to figure a good way to color code CCI and ATR. ATR have different readings for each stock. I may switch out CCI and ATR out for 2 day, 5 day, and 10 day linear regression lines with position indicators for Close that indicate how many std deviations the close if off the linear regression line (stretch indicator).
A good way to look at the chart is to look at the center section (world indexes) unmagnified; It is easier to see the overall world outlook this way. If there is no pending significant market news and If everthing is green, buy dips. If everything is red short the rips.

I am hoping to find more leading indicators, which you have helped very much. The hardest part will being able to read them.

Found that the latest Green patch in XLY/XLP is lagging the XLY and XLP Green patches (Leading indicator); this could be an indicator for a week of General Red in the Markets.

[xfradnex]

PAGING MR. BACHNUT
Thank you for this valuable info: “”“… classic pattern. Generally, a rally can be considered over if it violates the third in a series of rising fan lines...”””” That may be part of TA history/folklore now. I’ve been looking for source material on that one for a long time….do u have a source or link for that THIRD break info?

Also, any thoughts on this one?:
The weakness in yield (particularly this year) is so much more pronounced than the artificially-stimulated rise in $SPX.
(The yellow boxes correspond loosely to the yellow boxes on my intervention chart posted earlier. In other words, u r looking here at intervention from the point-of-view of yield $TNX…. which suggests bear-spy much more dramatically, no???)
My view is that $TNX yield played along with the 2009 SPX rise, and the 2011 rise, albeit reluctantly, but it is definitely not playing the bull game this year (your thoughts?)
RSI positive divergence indicates a bounce is due, but on a weekly chart, that could take time to play out.

624wkndtnx.png

Just an idle thought:
As $TNX bond yield is roughly the reciprocal of $UST bond price
And $TNX yield closed Friday at 16.72 (1.672%)
And yield can’t go lower than 0 (0%)
Using that, perhaps one of our resident math genies could calculate the perfect longer-term target price for $UST and thus, very roughly, for TLT.
And hopefully they would post/share that info here… TIA

Here is that info on Fans you wantedhttp://www.youtube.com/watch?v=QTEIWK9CaEs your style

[Al_Dente]

PAGING MR. BACHNUT...Thank you for this valuable info: “”“… classic pattern. Generally, a rally can be considered over if it violates the third in a series of rising fan lines...”””” That may be part of TA history/folklore now. I’ve been looking for source material on that one for a long time….do u have a source or link for that THIRD break info?

Here is that info on Fans you wantedhttp://www.youtube.com/watch?v=QTEIWK9CaEs your style

Now THOSE were SOME fans right there, bud

I’m still working on that lousy XLY/XLP ….I usually use WEEKLY chart for a longer term-ish signal.
U just made me switch to daily, where it is indeed in quite a precarious position, broke trend, retest, failure, retest, blabla…
Your elders are even shorter term, which is really really what we need for trading
U r good dude, really really good thx

Finally just for fun… if bored...
Warren Buffett says that before he goes to sleep, he reads his rail car counts (tonnage) to gauge the economy’s strength/weakness.
Ooooooooooooops, “mixed” (aka: bear)... http://www.aar.org/AAR/NewsAndEvents/Fr ... affic.aspx
[Caveat: Buffett’s reports are daily, as he owns the trains…. not a week old)