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Friday, April 27, 2012

Here I am back in Chicago gearing up for my gig on the floor of the Merc this afternoon. I am hoping to meet one of my favorite guys Rick Santelli. The folks hosting the gig know him well so if he is there and I get a chance to talk with him, I will relay his comments.

As it relates to the stock indexes, by the way I define short term trend, it is still down in spite of this lift off we are getting.


 


We did get an early notice of a possible trend change when the trend line broke here a couple of days ago. Sometimes these breaks can be false although generally they are pretty reliable. I would like to see a higher short term low now higher than the one 4 days ago for final confirmation of the trend changing to back up again. It certainly appears this is in the works.  Since I am in the "green room" waiting for an 11 am tip off here, I turned on CNBC for a twice a year check in. I do like Joe Kernan, I think he is a guy I would like to play a round of golf with. When they released the GDP numbers Bob Pisani made a very interesting comment. He said with the numbers the futures should have dropped quite a bit more, and the fact they did a quick 3 point dip and rally to new highs was QE3. 

In other words it is completely main stream now that the FED is manipulating the ES contract. It is mind boggling that this is so widely accepted. However, CNBC had a director from the CFTC on and they were discussing speculators manipulating the markets. They zeroed in on 10% as being a threshold that a speculator should not be able to exceed as a reasonable guideline for new regulations. This seems reasonable to me. Then Kernan asked why then the FED was allowed to own more than 10% of the treasuries and why they should have unlimited position size? He stated that it is basically we only resent people having large size and influencing markets, when they go in a direction counter to what we want.

This is the crux of the whole matter now isn't it?

This is exactly what I have been saying all along. If the FED were shorting the ES or otherwise manipulating it down, all hell would break loose. Since they are manipulating it up it is ok, every one's 401k's are rising, life is good. We don't have free markets any more is really the bottom line and it is sad. It is true that if the government got out of the way, markets would likely drop sharply initially. However, they would find equilibrium at some point and begin a natural rise based on fundamentals, that would be much more healthy. For those of you who think we should have everything based on GOLD, economic growth would be severely limited by that, you need to think about what you are asking for. I do not have the answer, and don't really care what it is. I trade short term, but I think just pointing these various things out is prudent.

If Pisani's comments are right, the FED is really day trading, and that is very alarming to me. However, it does tell us which way to look doesn't it? If we know they will move the market up even on a small dip like this, that means buy dips aggressively.

It looks like the trend is turning back up, so off we go again. I am still looking to short the markets soon, but just because I have cyclical things calling for a turn, that does not mean I can just blindly sell a strong market.

Have a nice weekend

4 comments:

Anonymous said...

Congrats on the Chicago trip! Looking forward to reading more. -- Mark

Michael Tredr said...

i knew on monday when the ES rallied up from Monday's lows that my short was gonna get crushed. And that's what happened. The thing that keeps me awake now that I'm long is wondering how much more buying the FED can do. I keep thinking they may have started running out of bullets just as I've reversed my bias on the broader indices. This is something I'll be thinking about during the weekend. Hope you're having fun in Chicago!

Anonymous said...

I am in total agreement with you about something (fed) buying futures. I also am aware that everyone is thinking is. it really reminds me of axiom number 10.

Anyways do you a pinch formation forming on the russell index. I see it on multiple time frame and i am waiting for a qualified trend break for a short entry.

Have ever read any of martin armstrongs work?

Chris Johnston said...

I don't pay attention to the pinch and paunch formations and not for any particular reason. I just try to not look at too many things at once.

As far as the Fed and it's buying power, it is for all intents and purposes unlimited. However it is in terms of the details, that they are pushing this, it would only be limited by the ink supply in the US. As long as there is ink to print money, they can continue to do it.

It really does us no good to focus on this simply because there is nothing that is going to be done to curb whatever it is exactly that they are doing, and it is basically a condition of the game now. They are driving a trend.

My short term indicators are now out of sell mode and back into buy mode so no shorts for me in the Bernanke's ( formerly known as the stock indexes )

I quit following Armstrong once he landed on the moon! Oops wrong Armstrong I guess, no never heard of him. Then again nobody ever heard of me either!