Sunday, March 10, 2013


For those of us who study the markets each day something is becoming crystal clear during this record setting rally. The FED has focused it's buying/influencing specifically on the S&P 500 Index. If you perused the board during the last 3 years most of the time you would see almost every stock pacing the 5 min chart of the ES, they all went up and down directly in sync with each other. This is not happening anymore.

Readers have seen this chart of the SMH from me before. I have the ES over layed on top of it in green so you can see the divergences. At point #1 the ES sailed merrily along for a couple of months making new highs while the SMH started to roll over, wham the ES followed. If we go forward to point #2 and the lows we see the ES was going sharply down and had been for 3 months. The SMH did also make a new low but barely, it was showing a considerable amount of relative strength. The ES followed. Now we are at point 3 and once again we have the ES sailing along to new highs and yet the SMH has failed to make a new high from where it was about a month ago. What we see is about a two month lag that has been triggering reversals. That would take us into about May 1st, hmmm what a coincidence that is. That is also a time when much of the cyclical analysis tells us to look for a turn and also when the typical seasonal high takes place. We certainly have a major red light developing starting about mid April.

What we will need to do is take a look at technical things come mid April to see if anything might be brewing there. It is too soon to tell now. However, one thing is pretty clear. The FED whether they are outright buying futures through their secret accounts with some of the big firms, or just calling the banks and telling them to front run monetary actions they are doing, they seem to have zeroed in their focus on just the S&P 500. All you have to do is look at the prop trading records of banks to see that something illegal is likely going one between the FED and their trading rooms. Nobody is as good as these traders, they go weeks without a single loss at times. There is nobody who has ever been that good, EVER. If they were they would be running their own hedge funds and making ungodly amounts of money instead of $100k working for a bank. Of course at the hedge funds they would not be getting these "timely" phone calls or whatever other means of communicating might be going on to front run. In any event, it is clear the focus is right on the ES at this point.

I don't think any of us like this kind of stuff but it is what it is. We have certainly learned in the last 4 years that laws mean nothing to the current government and they do what they want in spite of what anyone thinks or wants. Here is how I plan on using this information. As we look at many individual stocks now we are seeing several in weak positions unlike what we have seen in the last few years. When we get a break down in the ES, I plan on really pressing bets on the short side in individual stocks that are relatively weaker than the ES. Once the back drop of this rally is removed, the tide should go out quickly on the weaker boats. We don't see any obvious signs of this yet but we do have a time zone established now to be ready. What might be an interesting study and I would love some reader who is more web savvy than me to do is the following. Analyze prior May's POMO actions. Have the number of POMO days been lower during May than other months? I wonder if this year since there is a lot at stake in keeping this going, if they will have a lot of POMO days in May to try and keep this from rolling over?

We need to keep in mind the huge overall up bias in stocks over time and just look to dodge the big dips if we can when they come along. It is too soon to tell now if we have one coming or not, but we do have some internal signs that things are weakening a little bit.

B of A Update

I think we all got a kick out of my announced mission against B of A last year. Just to review I had stated I was angry enough at them that I was going to try and make $1 Million dollars shorting the stock and then write a book about how I did it. Alas, PFG came along and almost wiped me off the map, so that whole mission went south. In fact it was only having money set aside for that mission that saved my family from complete ruin when PFG collapsed. That money has allowed me to still trade and start to recover albeit slowly since the hit was very big. As a result in some ass backwards way I owe B of A a debt of gratitude. I would have been ruined if I did not hate them so much, BIZARRE! The world works in strange ways at times and no stranger thing has ever happened to me than this.

As I have thought about the PFG situation and talked to a former manager at US Bank about PFG, I have come to a new mission. He told me that when large amounts are withdrawn from a segregated account, at least two signatures of managers are required and at times more than that. Since the bank investigation has only mentioned one low level person, it is clear to me that once again something funny is going on with a bank being protected. The general feeling is the bank law suits are not going to go anywhere. If that is true it means that US Bank on some level according to my interview of this guy, was likely complicit and is going to walk. It is time for me to focus on them in my shorting mission. I think some day it may come out what was going on during this period of time as to why the banks are being so tightly protected by the Federal government, but for now all we can do is speculate as to why it is taking place. It does not matter to me, it is happening and the reasons do not really matter. Here is the chart of USB.

There is nothing here at the moment. I will keep showing this chart over time and update people on my progress. I am not going to be a fool and just short this to short it. However, at times I get much more focused on futures and lose sight of individual stocks. In this case I am going to stay on top of this one and see if I can clobber it a few times. This is going to take some time but it is time to start now. For now I see no reason to short this but hopefully in mid April things will change. I also don't have anywhere near the capital base I had a year ago due to PFG so making big money shorting this stock is going to take time if I can pull it off.

This coming week a small pull back would not be a surprise in stocks but trying to step in front of this and short it is crazy in my view. If you happen to be lucky enough to catch the top in the ES good for you, but trying to top pick is not something I do. I did try to short the ES on that one break we had last month that was false and the trade lost money. I looks like a dumb trade now and perhaps it was, but it did break some support levels. At this point in time we are in new high ground so there has not been any sign of a break down. I want to see some short term weakness when looking for a reversal as opposed to just selling new highs hoping I guess right. I have been there and done that and that is the reason I no longer try it. Newsletter readers, ADX is speaking here still.

Good Trading

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