07/27/2012 Weekend Update

[Harapa]

[edit: PAGING Harapa]

Boss: Here’s an extension ...GL2u
Just PM me if u need more; I’m working on “qualifying” for the mkt gymnastic finals

729wknd20001000.png

Thank you very much for doing this. If this holds true one should expect a bigger move (percent wise) in IWM relative to SPY?

[Al_Dente]

Harapa: ‘’’“If this holds true one should expect a bigger move (percent wise) in IWM relative to SPY?‘’’’

I don’t know the answer to that
I would expect at minimum a reversion to the DEFAULT bolinger centerline on that 2000/1000 ratio chart

But now I’m on market Volleyball…. and beer…..awaiting “prime time” ...

[Mr. BachNut]

Friday's action (especially when combined with Thursdays) has characteristics of either a kick-off move or an exhaustive move (gap opens followed by big moves on big volume). If this was the kick-off to the next leg of the rally from the June low, there is an argument that the mid-point of the rally may lurk somewhere between Thursday's low and Friday's high. This means new highs coming, and perhaps by a considerable margin. If this was an exhaustive move, indices should rollover soon (like tomorrow) and Friday's move (not necessarily Thursdays) should be fully retraced sometime this week. [With some imagination, it may be conceivable that Thursday was a kick-off and Friday was exhaustive, but I don't want to over analyze.]

Warning: next comments probably biased by me being on the wrong side of the market last week...

Technically, things look quite bullish, but I remain open to a downturn in the days ahead. Why? 1) Technically, things were quite bearish only last Monday. The recent pattern has been swings back and forth. So, if the pattern continues, the next swing down may not be far away. This rally so far is not a trend. 2) To use Elliott Wave language, the move from the June low has seemed corrective rather than impulsive. We are now into a fourth push up (usually only two or three) and there is still a fair bit of distance to get back to the May 1 high. I don't do counts, but I understand that lots of zig zagging with limited progress are the template of corrective patterns. So, while Thurs/Fri may be the start of a break up and out, the rally to this point doesn't have a very bullish character. 3) My sense is that more defensive sectors have been leading in the rally (though Thurs/Fri may have changed that somewhat). I would like to see more aggressive sectors get moving. Perhaps Al Dente's Russell chart is signalling that those horses are about to go. 4) Lastly, the Thurs/Fri move lacked breadth. The MO is up but only moderately given the price move, and the ARMs index plunged. The Russell accelerating would clear this. However, if the market doesn't sell off tomorrow and if breadth doesn't pick up significantly, I'll have an ARMs sell warning will go into effect for the rest of the week.

[joe-gamma]

Thanks for rut-rui charts Al!

Harapa: maybe it says IWM tends to lead faster on downside? here is another view iwm:rui with iwm vs spy(performance)....also 8-55 ma crossover seems to be LongTerm hint at strength of overall equity health?

thanks for decisionpoint link

[Mr. BachNut]

I actually think the most striking move last week was in treasuries. That market has been so rock solid, and it got a major clocking. If that was a kick-off to big institutional moves out of treasuries (I am not sure that it was), it could be really really bullish equities. Not to mention the weak $ action...

[xfradnex]

I actually think the most striking move last week was in treasuries. That market has been so rock solid, and it got a major clocking. If that was a kick-off to big institutional moves out of treasuries (I am not sure that it was), it could be really really bullish equities. Not to mention the weak $ action...

Could be Europeans getting out of US Treasuries.

[TradingJackal]

Could be Europeans getting out of US Treasuries.

Why would the Europeans (specifically) do that?

[Harapa]

Thanks for rut-rui charts Al!

Harapa: maybe it says IWM tends to lead faster on downside? here is another view iwm:rui with iwm vs spy(performance)....also 8-55 ma crossover seems to be LongTerm hint at strength of overall equity health?

thanks for decisionpoint link

iwm-rui 727.png

I think markets are weak by number of measures, however, indices continue to churn up. There are now clear divergences between large cap and small cap, something which were not apparent before begining of Aug 2011 waterfall decline. We may be nearing a real top. Trade safely

Dr. Al: Thanks for your response to my question. Tomorrow is going to be a fun day (SP500 futures already down by ~5 points in early going).

[Mr. BachNut]

Could be Europeans getting out of US Treasuries.

Why would the Europeans (specifically) do that?

I may be off on this but the European banks have been suffering from a shortage of collateral to secure their borrowing. They have been holding and or accumulating treasuries because TSYs are collateral they can count on while other stuff they own (Spanish soveriegns for instance) they cannot. It's not like the yield is very attractive but they can avoid shrinking their balance sheet. However, if the ECB et al. is going to "do what it takes," perhaps they won't be needing the treasuries so much and can rely on Mario Draghi...

[joe-gamma]

Could be Europeans getting out of US Treasuries.

Why would the Europeans (specifically) do that?

Could also be covering before they go on holiday for 2-3 weeeks.....The meritocracy could be timing their "Moral suasion" perfectly, also utilizing substantial bearish sentiment to heighten the knee-jerk reaction.....

GL, this week should help clarify some stuff.

[TradingJackal]

How trustworthy is this guy? Writes BOA says that Fed will launch 600 million of QE in September. If we rally on this rumor, we will sell in September after setting a new high in August.
http://www.marketwatch.com/story/asia-r ... 2012-07-29

Further reading provides an amusing mistake -
A recurring complaint from Beijing over U.S. QE is that this policy is devaluing its $3.3 trillion billion holdings of foreign reserves, the bulk of which are held in U.S. Treasurys.
TRILLION BILLION

[xfradnex]

Could be Europeans getting out of US Treasuries.

Why would the Europeans (specifically) do that?

I may be off on this but the European banks have been suffering from a shortage of collateral to secure their borrowing. They have been holding and or accumulating treasuries because TSYs are collateral they can count on while other stuff they own (Spanish soveriegns for instance) they cannot. It's not like the yield is very attractive but they can avoid shrinking their balance sheet. However, if the ECB et al. is going to "do what it takes," perhaps they won't be needing the treasuries so much and can rely on Mario Draghi...

Draghi will save all But I agree.

Check this out http://www.sfgate.com/business/networth ... 717793.php. Money could be moving in and out of anywhere, when yields do not look attractive. I am assuming that many European bank/countries will need to retrieve what they stashed away (when their budgets run dry).