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Sunday, December 18, 2011


LIFE'S GREATEST IRONY



So many people are crying foul about the attempt by our government to creep further and further into our lives. Here is the ironic part of this. First, we know they would love to dictate virtually every single thing in our lives, some officials have even admitted as much. There are also many liberals including Douchefett who want to outlaw trading. They reason that we are just not competent enough to do this successfully. The real problem with it is that it gives us freedom from them, if we are able to do it successfully. Here is where the irony comes in. In as much as they would love to control the markets completely, they really have not implemented a plan other than the PPT, which was created while Reagan was at the helm. Even though they have not created a concrete plan, their incompetence has resulted in them having almost full control in an ass backward way. I doubt they want the market to be struggling right now, we have the most important political battle in our modern history going on. It is a battle as to whether the European socialist model can work here or not. A strong market would support socialism, the path Barry is trying to take us down. Were the market to continue to stay strong they will claim it is due to his policies which are socialist. They will argue that it was his policies that saved the market. If it were to rebel against his policies and decline, this would really be a problem. It is his last bastion of strength. It is the only thing he can try to claim has benefited from his policies. Almost everything else except stocks has tanked on his watch.

When they kick the can down the road, and continue to do more of what got us in trouble in the first place, they actually do wind up controlling the markets. The irony is that it is being done in a way that is unintended and is not pushing them in the direction they desire. Every time a loan is agreed to for some other deadbeat who can't pay it, initially everyone celebrates, which is what they want. However, the feedback loop is getting very short on these types of things. What is happening now is very quickly, within a day or two everyone realizes these agreements are disastrous, and equities get clanked. In other words, the market is beginning to get a bit immune to this stuff. Buy the rumor sell the fact, etcc..

My degree of bullishness for the balance of the year has changed quite a bit as readers know, due to the lack of any type of rally of any kind being launched here. We do still have the year end games that institutions play that they are not supposed to, window dressing. What a shock it is that something which is illegal, gets and endless hall pass. This kind of reminds me of when Austin Powers after being frozen in time came back and said he was shocked that Liberace was gay, "I never saw that one coming" was his exact quote. So lets assume for the moment, that the year end window dressing does happen and stocks move up the next two weeks. They should, but some of my short term indicators are actually indicating now a potential sell in a day or two, if we start to move back down. Contra seasonal moves can be very powerful when they come along. If we to do begin to move down during this period, I think that is very troubling and will likely mean there is a risk of a big rollover here.

This has not happened yet, and there is still a chance for them to save this, but time is running out. If we just step back and look at what is happening overall, this is what we see. First, a very strong dollar, and commodities falling sharply. It also appears the mustard is finally off the Gold hot dog. We have Bond prices soaring once again. Although rising Bond prices is generally bullish at some point for stocks due to the money flowing to the greatest returns phenomenon, it is often bad in the very short term, for equity prices. The reason for that is that it almost tells us things are worse than they appear on the surface.

My bigger picture view has always been that we are in a deflationary period and the dollar would soar while stock prices went back down. Anyone who has read here over the last couple of years is well aware of that position. I do not talk about it much because it really has nothing to do with how I trade on a short term basis. It can cloud my judgement, so mentally I kick that view to the curb other than larger picture discussions like this. From a short term standpoint, I was looking for some rallies in the currencies and dollar weakness. I was wrong about that obviously. We are trading contra seasonally in many markets right now which is why you should never bet the farm on the seasonals alone. Seasonals do come in and out of favor. I do like trades backed by them, but it is not mandatory.

This coming week I look for early strength the first day or two, then it will be time to consider if that strength should be faded or not. I cannot make that determination at this moment, I will just have to see how my tools look if and when this happens. Here are a couple of markets that could be setup for sells, but just as we have seen for a very long time now, most markets look the same.




This is the British Pound, and take your pick I suppose between the Euro and this. They are the two weakest currencies and have small pullbacks happening right now. If they start to move back down going with that is likely a good play. We have strayed away from the seasonal pattern here in recent weeks, but we are at a spot where we typically get a decline, so this is one I am watching. Since the Euro has already taken out it's low, any strength there should be sold. I will likely split my bet between these two if I do this trade. The opposite of course is just to buy the DX, which is always a possible solution to debating amongst currencies as to which one to play.

The next chart is a market that bears watching, Bonds. I know there are some readers who think this is a bubble. The only reason I say it is not a bubble is that it is going up in direct correlation with fundamentals. To me a bubble is something that moves way up in price for reasons that are not directly tied to fundamentals. This is why I think Gold is one, it is why I thought housing was one, it is why I thought the Internet craze was one. All 3 of those examples have price moving way out of sync with what have been the historical fundamentals. I know people will argue the fiat currency crap, but that is not a fundamental. That is an opinion about what might happen. There is absolutely no historical data supporting any relationship there at all. It may be the correct prediction of a "different this time" argument, but it is not based in historical data. The following chart is one from Porter Stansberrys service. He is one of the biggest gold bulls out there. Ironically, he posted this chart to support one of his arguments not related to Gold. However, here is what I found very interesting about this chart. It shows the almost identical level of Government spending vs Unemployment that we had in 1982, the last gold top. Why wouldn't that support a Gold decline like we had last time? I would guess the answer to that is probably that it is not a fundamental that fits their argument, therefore it is not applicable? I don't know if this chart has any further correlation to Gold prices at all, I just thought it was ironic that one of the world's biggest Gold bulls happened to put this into his newsletter, when it showed a potentially opposite scenario for what he is predicting.



We certainly could argue that the government is artificially keeping rates low and that makes it a bubble. However, the government has always controlled interest rates, so they have always been the determinant of where they would be going. In any case, I think this market is setting up a sell signal. Whether or not it is the big one that people who call it a bubble argue or not I cannot tell you. I don't care quite frankly. I also don't care if Gold goes up or down. I do care about what they do when I am in trades in them for obvious reasons.



We are nearing the time of the year when yields typically rise. If you look at the chart we also have a huge divergence building in the POIV indicator. As we have seen the in DX market, these types of conditions can work themselves off without the market crashing. There is nothing I know of that is always right. If I ever find it you won't find it posted in this blog, I will hog it too myself. Overall, this tool is the best there is for divergences from all the things I have studied. For me to get in this trade, It is going to take some time for some type of lower short term high or something to form. This would not likely happen this coming week.

Lets look for early strength and a few potential sells to setup this week. One last chart to show that may negate what my short term indicators are seeing as potential sells. Check out this last chart and the huge Small Spec short position the the Naz. I have shown the projection of what has happened on average in the past when this has developed, and it is very bullish. This is why I am saying it needs to be evaluated after a couple of days as to whether a bounce would be a sell. We may just power higher here.



I came across this after my initial up load of this post so hopefully everyone sees this.


Good Trading


3 comments:

John M said...

I find myself in general agreement with your market evalutions and, as usual, in disagreement with your political views. Pretty amazing, in a way, I suppose, but to think that Obooboo is or wants to take us to socialism--which still is wrongfully discredited as a general idea and is just as generally proven in almost every rational country that has adapted major portions of the philosophy--I stress the word rational--well, to think that Obambam is of a socialist bent is to completely and willfully misread this incredibly malleable and ideologically uncaring politician for something he is not. This kind of misunderstanding of the dangerous, centerless person that he actually is, will only help ensure that he continues for four more years. Which, considering the alternatives on display, may not be the worst of all choices, even if I gag while I say that.

Robert said...

Chris,

Really enjoy your articles, except when you slam gold all the time .You keep saying gold is in a bubble . Despite the fact that precious metals has been the #1 sector over the past decade, it represents approximately 1% of the holdings of the average investors’ portfolio. Arguably, there has never been such perverse under-ownership of an asset class in market history. This is an absolute rebuttal to all the nonsensical babble of “gold bubbles” and “silver bubbles”. Obviously a sector cannot be in a “bubble” (which by definition is a market mania) when the asset class remains a secret and/or mystery to the vast majority of the investment community.
How you can kep calling gold a bubble makes no sence, the facts just do not support your claim

Anonymous said...

cattle is extremely resilient! It won't stay down!