Thursday, July 31, 2008

The most possible outcome for the setup on NDX

of course all my very humble opinion :)

closed KLAC at 38 .21 in AH

There should be a better shorting opportunity after suckers are done loading

They blame Greenspan again

But I blame the following chart setup. Market sold off because it was vulnerable, it wanted to sell off. This pattern would resolve this way whether Greenspan say it or not.

WYNN is in the basket

short at 100

shorted KLAC at 38.7

thanks for the info Ati

looks more bearish now

doesnt it?

added USO long from 100

GDP is out , futures sold off

Oh my, its getting pretty deep. I'd better put my hip boots on.
Based on the current numbers, Q4 GDP will have to be revised to a negative number. Now as I understand, negative job growth plus negative GDP, means worse consumer confidence and spending?
Crude is higher again aaaaand what lovely morning !

Check this out again for a reminder:
This is what I expected

NQs reversed right from the trend line

Wednesday, July 30, 2008

Commodity stocks are not commodities

You may see many energy stocks down despite higher crude oil prices. The following chart alone shows the possibility that these stocks should drop within the coming storm. If the market will take them down despite the strength in underlying commodities, you imagine what sort of storm is headed towards you.

Its comiiiiinnnnnnn.......

Each time they thought they caught the bottom, they got caught in something else. Are you ready for the next episode?

Ohh I know I know we are oversold and we are due for a big bounce and sentiment is so bearish. Shorts will suffer if not jailed by Paulson and rumor mongers who wasted uncle Lehman will pay what they took from those "honest" and hard working corporate bag holders.

But I am going to give you a one single reason why this wont happen. Ready? That is the gravity. The gravity is so strong that these corpses must first hit the bottom to rise to the surface. It is that simple.

My best guess at the moment is we will see LEH around $7, MER around $11 at the end of this round.

Other possible short candidates

I got more setup alarms today for MMM UTX IFN IYR and WYNN

All are shortable, I will be watching closely.

I expect a large gap down tomorrow

should take out todays lows in the first 10 mins.

One of the charts I am relying on is AAPL which says $150 before the week ends.

shorted MS at 39

Will add USO when tests 100

hopefully it does !

Nasdaq internals collapsing

I think this is part of the big picture we talked about a few days ago. During this final leg down, the most vulnerable sectors should be tech and commodity related stocks.

I take this internal collapse as an early sign for what is coming for Nasdaq.

I want to thank Atilla for his constant reminders about the big picture which made me initiate short positions in tech and long in Crude oil yesterday.

Crude oil reversed as predicted, internals are getting weakening

shorted MER at 28

for Atilla :)

Elvis has left the building.

Obamanomics Is a Recipe for Recession


What if I told you that a prominent global political figure in recent months has proposed: abrogating key features of his government's contracts with energy companies; unilaterally renegotiating his country's international economic treaties; dramatically raising marginal tax rates on the "rich" to levels not seen in his country in three decades (which would make them among the highest in the world); and changing his country's social insurance system into explicit welfare by severing the link between taxes and benefits?

The first name that came to mind would probably not be Barack Obama, possibly our nation's next president. Yet despite his obvious general intelligence, and uplifting and motivational eloquence, Sen. Obama reveals this startling economic illiteracy in his policy proposals and economic pronouncements. From the property rights and rule of (contract) law foundations of a successful market economy to the specifics of tax, spending, energy, regulatory and trade policy, if the proposals espoused by candidate Obama ever became law, the American economy would suffer a serious setback.

To be sure, Mr. Obama has been clouding these positions as he heads into the general election and, once elected, presidents sometimes see the world differently than when they are running. Some cite Bill Clinton's move to the economic policy center following his Hillary health-care and 1994 Congressional election debacles as a possible Obama model. But candidate Obama starts much further left on spending, taxes, trade and regulation than candidate Clinton. A move as large as Mr. Clinton's toward the center would still leave Mr. Obama on the economic left.

Also, by 1995 the country had a Republican Congress to limit President Clinton's big government agenda, whereas most political pundits predict strengthened Democratic majorities in both Houses in 2009. Because newly elected presidents usually try to implement the policies they campaigned on, Mr. Obama's proposals are worth exploring in some depth. I'll discuss taxes and trade, although the story on his other proposals is similar.

First, taxes. The table nearby demonstrates what could happen to marginal tax rates in an Obama administration. Mr. Obama would raise the top marginal rates on earnings, dividends and capital gains passed in 2001 and 2003, and phase out itemized deductions for high income taxpayers. He would uncap Social Security taxes, which currently are levied on the first $102,000 of earnings. The result is a remarkable reduction in work incentives for our most economically productive citizens.

The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents -- a reduction of one-third in the after-tax wage!

Despite the rhetoric, that's not just on "rich" individuals. It's also on a lot of small businesses and two-earner middle-aged middle-class couples in their peak earnings years in high cost-of-living areas. (His large increase in energy taxes, not documented here, would disproportionately harm low-income Americans. And, while he says he will not raise taxes on the middle class, he'll need many more tax hikes to pay for his big increase in spending.)

On dividends the story is about as bad, with rates rising from 50.4% to 65.6%, and after-tax returns falling over 30%. Even a small response of work and investment to these lower returns means such tax rates, sooner or later, would seriously damage the economy.

On economic policy, the president proposes and Congress disposes, so presidents often wind up getting the favorite policy of powerful senators or congressmen. Thus, while Mr. Obama also proposes an alternative minimum tax (AMT) patch, he could instead wind up with the permanent abolition plan for the AMT proposed by the Ways and Means Committee Chairman Charlie Rangel (D., N.Y.) -- a 4.6% additional hike in the marginal rate with no deductibility of state income taxes. Marginal tax rates would then approach 70%, levels not seen since the 1970s and among the highest in the world. The after-tax return to work -- the take-home wage for more time or effort -- would be cut by more than 40%.

Now trade. In the primaries, Sen. Obama was famously protectionist, claiming he would rip up and renegotiate the North American Free Trade Agreement (Nafta). Since its passage (for which former President Bill Clinton ran a brave anchor leg, given opposition to trade liberalization in his party), Nafta has risen to almost mythological proportions as a metaphor for the alleged harm done by trade, globalization and the pace of technological change.

Yet since Nafta was passed (relative to the comparable period before passage), U.S. manufacturing output grew more rapidly and reached an all-time high last year; the average unemployment rate declined as employment grew 24%; real hourly compensation in the business sector grew twice as fast as before; agricultural exports destined for Canada and Mexico have grown substantially and trade among the three nations has tripled; Mexican wages have risen each year since the peso crisis of 1994; and the two binational Nafta environmental institutions have provided nearly $1 billion for 135 environmental infrastructure projects along the U.S.-Mexico border.

In short, it would be hard, on balance, for any objective person to argue that Nafta has injured the U.S. economy, reduced U.S. wages, destroyed American manufacturing, harmed our agriculture, damaged Mexican labor, failed to expand trade, or worsened the border environment. But perhaps I am not objective, since Nafta originated in meetings James Baker and I had early in the Bush 41 administration with Pepe Cordoba, chief of staff to Mexico's President Carlos Salinas.

Mr. Obama has also opposed other important free-trade agreements, including those with Colombia, South Korea and Central America. He has spoken eloquently about America's responsibility to help alleviate global poverty -- even to the point of saying it would help defeat terrorism -- but he has yet to endorse, let alone forcefully advocate, the single most potent policy for doing so: a successful completion of the Doha round of global trade liberalization. Worse yet, he wants to put restrictions into trade treaties that would damage the ability of poor countries to compete. And he seems to see no inconsistency in his desire to improve America's standing in the eyes of the rest of the world and turning his back on more than six decades of bipartisan American presidential leadership on global trade expansion. When trade rules are not being improved, nontariff barriers develop to offset the liberalization from the current rules. So no trade liberalization means creeping protectionism.

History teaches us that high taxes and protectionism are not conducive to a thriving economy, the extreme case being the higher taxes and tariffs that deepened the Great Depression. While such a policy mix would be a real change, as philosophers remind us, change is not always progress.

Tuesday, July 29, 2008

Next Lehman

MER traded 293M shares today, this is the highest volume any investment bank traded on a single day in the history of human race.


1- Merrill Lynch & Co. said Tuesday its 380 million-share follow-on offering priced at $22.50 each, raising a total of $8.55 billion.
The transaction includes an over-allotment option for up to 57 million additional shares.
Merrill Lynch successfully priced the largest follow-on offering in U.S. history, demonstrating investors' confidence in the strength of Merrill Lynch's core businesses, premier brand and global franchise

2- Merrill Lynch & Co. said it will sell CDO holdings for 22 cents on the dollar, liquidating $30.6 billion of collateralized debt obligations at a fifth of their face value.

3- The bank has also revealed it expects to write-off another $6 billion of mortgage-related debts in this current financial quarter.
The announcement comes just a week after Merrill Lynch posted a quarterly loss of $5 billion.

4- The Bank has also been forced to seek $9 billion in fresh capital to help it deal with the continuing credit crisis.

I believe in Markets and the market will price MER accordingly in coming weeks.

MER today punched through these lifetime trends on 293M shares which should eventually blossom into a massive breakdown.

The day of reckoning is rapidly approaching. Those who followed me for years will remember that in the beginning of 2007, I predicted a crash that should happen no later than October 2008. I had posted two charts, one for GOLD , one for SPX. All coming to fruition.

Are you ready for a new financial system, new society , new fiascoes , successes and legends. Are you ready !!!

shorted USB and KIM

29.95 and 36.1 respectively

Crude might have put an important low

Solar stocks took off already. Interestingly buying accelerated right after crude closed.

I will be adding to USO when breaks out of 100

I think this is the beginning point of the final leg down to OEX 500 area

shorted NFLX at 30.4

long USO at 97.2

shorted TRA at 53

shorted AMZN at 78.5

short RIMM from 116.4

shorted AAPL at 158

also looking to short RIMM

Looking to initiate shorts in Techs and Commodities today

One of the things I learned from Atilla that in a cyclical bear market move, the cycle never ends before it takes everything down. When the market begins to drop like a waterfall, his usual line was "there will be no unturned stone now"

I believe we are entering into this stage. There maybe an attempted rally here but risk/reward is attractive to initiate short position in those that relatively held well by now.

Monday, July 28, 2008

This is what I expect

This has no tradable value , just my prediction.

Capitulation is needed.

I agree with Atilla that the markets will need a final washout move to reverse. In the past , the most vulnerable sectors during the final capitulation move were technology and energy. I will be looking to short some tech names tomorrow.

Closing all shorts in financials

XLF is at 20.50 as I write this

Sunday, July 27, 2008

Favourite Sites and Indicators / Indices


  • Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for market reports in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
  • ISEE Sentiment Index is a unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction.
  • You can use this Heat Map to review the spectrum of sectoral relative strength during the day.
  • Federal Reserve Bank of New York: After the crash of 2008, there was a significant shift towards protective and socialist policies. Direct market manipulations and interventions by NY Fed became one of the daily routines, therefore we began watching NY Fed as if it is a COT (commitment of traders) report.

Saturday, July 26, 2008

What happens when the banks fail

Well you know what happened when IndyMac failed: Banks ($BKX) rallied from 46.52 to 72.53, or 53.76% in 6 days.

Here is a study on historical bank failures and market response.

Since we had 2 more banks failed on Friday, I think it may not be wise to short until fireworks is over. I don't know if Atilla knew this before but looks like he may be right for the next few days.

Is this the reason OEX traders got extremely bullish on Friday as mentioned by Atilla yesterday?

We will see.

Are we in 2001?

According to this chart, Atilla could be right. It is amazing that we closely track 2001 on daily basis. The following comparision chart suggests we make new swing highs which could coincide the Fed meeting on August 5.

Get ready to short Home Builders and REITS

Few days ago, when the news of rescue spread on media, I said HGX and DJR indices were about to put a massive top.

July 23 - Expect a massive top on HGX

Top tick was printed on that day. Now if we attempt to test those highs which I think can happen on Monday, I thgink it will be an epic shorting opportunity.

BTW I agree with Solomon overall but I think he is early little bit.


Housing rescue bill heads to Bush for signature
Saturday July 26, 11:40 am ET
By Julie Hirschfeld Davis, Associated Press Writer
Congress passes relief for 400,000 strapped homeowners, help for troubled mortgage giants

WASHINGTON (AP) -- Congress passed a housing rescue bill Saturday aimed at sparing 400,000 struggling homeowners from foreclosure. President Bush is expected to sign the measure quickly.

The measure, approved by a 72-13 vote during a rare weekend session in the Senate, lets homeowners who cannot afford their monthly payments refinance into more affordable government-backed loans rather than losing their homes. The bill also offers a temporary financial lifeline to the troubled mortgage companies Fannie Mae and Freddie Mac, and tightens controls over them.

There would be higher limits on loans that Fannie Mae and Freddie Mac can buy and the Federal Housing Administration can insure. The loans would be capped at $625,000.

Those ailing companies back or own $5 trillion in mortgages, or nearly half the nation's total. The rescue plan is intended to prevent the two pillars of the home loan market from failing and causing broader market turmoil.

Bush initially said the proposal was a burdensome bailout for irresponsible borrowers and lenders. But he dropped a threat to veto it this week after Treasury Secretary Henry M. Paulson argued that the support for Fannie Mae and Freddie Mac was vital to calming markets in the U.S. and abroad.

Bush opposed $3.9 billion in the bill that would help neighborhoods devastated by the housing crisis buy and fix up foreclosed properties. The administration argues this would hurt homeowners by giving lenders an incentive to foreclose rather than help people stay in their homes.

Supporters said the bill was a long-overdue response to the mortgage meltdown and would help boost the sagging economy. Democrats bashed Republicans for delaying the measure and forcing the Saturday session.

The House approved the bill on Wednesday.

Sectoral Setup

In my opinion , the market is about to enter the final climactic phase which should ideally decimate the last standing sectors like fertilizers.

Although Atilla sees some bullish signs in option and COT data at the moment, I think any bounce is shortable from here on. I have learned almost everything about the stock market from Atilla, looks like we are seeing things differently at the moment. I am sure he will agree with me when he sees the following charts of fertilizers which are about to sell off sharply. These charts constitutes another evidence that the market is about to enter the final stage that should end with a selling climax.

I will be entering shorts on these early next week.

Friday, July 25, 2008

Huge breakouts on quarterly charts

And they are all commodities. These are long term breakouts like 25-30 year channels and they should result in multiyear rallies if not decade. We will see increase in starvation and hunger, currency devaluations all around the world and global stagflation that will eventually confirm the current eternal bear market. Two years ago, those who followed my comments may remember how I emphasized the importance of 76 level on Dollar index. It was the trend line that acted like a backbone of the currency for decades. As you know it was broken on massive volume last year. That was the tell that commodities would eventually break out in similar fashion.

Something is going on

If this is not a data error, I have never seen OEX P/C ratio this low in my entire life! I believe it has something to do a news that will likely come out on Sunday night and could be related to FNM / FRE duo...

Also commercials covered SP while suckers increased their short exposure... I think some upside is in order. However commercials also went heavily long on crude oil which I was expecting this week.

And this confirms that another confusing upside ream may be impending...
Options in financial ETF becomes a crowd favorite
Fri Jul 25, 2008 7:46pm EDT

By Doris Frankel

CHICAGO (Reuters) - Traders flocked on Friday to put options in an exchange-traded fund tracking the performance of the financial sector on renewed fears that credit problems could create further fallout in the battered sector.

The increased number of bearish bets in the Financial Select Sector SPDR fund XLF.A may also be the result of U.S. regulators' crackdown on short selling, affecting the shares of 19 major financial firms.

Roughly one million options traded in the XLF, with puts outnumbering calls by a factor of 1.71, topping its normal level of 840,000 lots, according to Trade Alert.

The XLF, which holds the financial-related components from the Standard & Poor's index, was the option crowd's top favorite, data from option analytics firm Trade Alert showed.

"The put trading we are seeing in the XLF is protection against a further sell-off in the financial sector, as well as a slight increase in speculative trading on continued weakness in the overall market," said Al Greenberg, head options trader at broker-dealer BNY ConvergEX Group.

Fundamentally, concerns about the impact of the housing slump on the economy and the health of U.S. banks are still hanging over the sector.

"People are worried about credit quality and the potential for additional failures in the banks," said Scott Fullman, director of derivative investment strategy at broker-dealer WJB Capital Group.


But the increase in put volume in the XLF also coincides with the U.S. Securities and Exchange Commission's emergency rule to curb abusive short selling that took effect on Monday.

"We might be seeing increased put volumes because of continued fear in the sector, but also because of the short selling restrictions that are now in place in the equities market," said Joseph Cusick, senior market analyst at online brokerage OptionsXpress Holdings Inc.

"If there is someone who has a basket of these financial services securities, they could be using the puts in the XLF as a hedge."

Investors often turn to puts, conveying the right to sell the security's shares at a given price and time, to protect against adverse losses in the underlying stock.

The SEC rule requires an investor to borrow shares before executing a short sale and to deliver the securities by settlement date.

Short selling is a legitimate trading strategy where an investor arranges to borrow securities they believe are overvalued and sells them in hopes of making a profit when the price drops.

The SEC is targeting "naked" short selling, which occurs when an investor fails to borrow the stock ahead of time. It can be illegal if done intentionally.

Most of the put action in the XLF on Friday was focused in the August contract involving put spreads in the $17 and $19 strikes, while investors also bought December $22 calls, according to Susquehanna Financial Group in a research note.

Option traders this week also showed an inclination to use put spreads in several bank stocks.

The trend began on Wednesday in Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz) and continued on Thursday with action in Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), which are both on the SEC list. Citigroup put options were also active on Friday.

"The take away here is that option traders appear readily positioned for a further unwind in the financials not withstanding some intermittent catches of breath to the upside," said Interactive Brokers Group analyst Rebecca Engmann Darst in a note to clients.

Wednesday, July 23, 2008

Expect a massive top on HGX soon

I believe housing sector will put another important top on this news. It should be within days if not already in. HGX is the worse bear market sector that has been leading the indices for months and it needs a good news to make another top. Remember how it rallies on horrible housing numbers?

House passes housing bill; Bush lifts veto threat
Wednesday July 23, 5:30 pm ET
By Kevin Drawbaugh and Tabassum Zakaria

WASHINGTON (Reuters) - The House of Representatives passed a massive housing rescue bill on Wednesday while the White House dropped a threat to veto it, paving the way for measures aimed at shoring up the worst U.S. housing market since the Great Depression.

Removal of the presidential veto threat spurred investors to snap up shares and bonds of mortgage finance companies Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News), which would receive an emergency government lifeline under the bill.

The measure, approved on a 272-152 vote, now moves to the U.S. Senate, where a vote may take place later this week or early next week.

The bill had been in the works for months, but took on greater urgency since concerns about Fannie and Freddie's finances mounted in mid-June

Ten days ago, the U.S. Treasury pledged an unspecified credit line for the companies and said it would buy their stock, if needed, to bolster investor confidence. Those emergency measures required congressional approval.

The two companies, which own or guarantee almost half of the $12 trillion in U.S. mortgage debt outstanding, have recorded heavy losses in the past year amid rising defaults.

If they were unable to keep financing mortgages, analysts say the already weak housing market could grind to a halt, tipping the U.S. economy into a deep recession.


A White House spokeswoman earlier said President George W. Bush would sign the bill because it is needed urgently to address the housing and credit crisis, despite concerns about a provision that would provide grants to communities to buy and repair foreclosed homes.

"We do not believe we have time for a prolonged veto fight," spokeswoman Dana Perino said.

Lawmakers have moved with unusual speed since the Treasury proposed the financial backstop for the two companies.

Senate Majority Leader Harry Reid said he wanted to send the measure to the president on Wednesday, but cautioned Republican lawmakers could stall it, making it unclear whether Senate approval would come this week.

Treasury Secretary Henry Paulson said he recommended that Bush drop his objections because reforms for Fannie Mae and Freddie Mac, the country's two biggest mortgage finance companies, were too important.

"What we're doing with the (companies) is orders of magnitude more important than any of the other parts of this housing legislation," Paulson told reporters.

On the New York Stock Exchange, shares of Fannie Mae climbed nearly 12 percent to close at $15.00, while Freddie Mac tacked on more than 11 percent to $10.80. Both listings have more than doubled since their July 11 lows, though they are still down sharply compared with a year ago.

In a further sign market concerns about the companies are relaxing, risk premiums on debt issued by the two companies narrowed. Priya Misra, an interest rate strategist at investment bank Lehman Brothers, said the legislation "makes it easier for them to raise capital."

Fannie Mae on Wednesday sold $3 billion in short-term debt at higher interest rates than a week earlier. The rates, however, rose less than a benchmark investors use to judge value, showing decent demand for the deal.


Congressional budget analysts put a $25 billion potential price tag on the provision to bolster Fannie and Freddie, but pointed to a wide range of possible costs.

Both Paulson and the companies have said the credit line was just a backstop and they had no intention of using it.

In addition to that backstop, the bill would set up a new regulator for the companies and raise the size of mortgage loans that they and the Federal Housing Administration can guarantee. It would permit the FHA to refinance up to $300 billion in mortgages facing foreclosure.

The new regulator for Fannie Mae and Freddie Mac, the result of years of debate over reining in the powerful government-sponsored enterprises, would have broadened authority to set capital requirements. The Federal Reserve would have a "consultative role" in setting those requirements and ensuring the soundness of the mortgage enterprises.

The bill also contains an increase in the Treasury's borrowing authority. This hike was sketched out in a fiscal 2009 budget blueprint that cleared Congress earlier this year.

The current debt limit is set at $9.815 trillion. Under the bill, it would be increased to $10.615 trillion to accommodate the federal government's continued deficit spending.

Currently, the public debt is around $9.5 trillion.

(Additional reporting by David Lawder, Richard Cowan and Kevin Drawbaugh, writing by Emily Kaiser and Mark Felsenthal; Editing by Neil Stempleman, Gary Crosse)

Time to scale out of Banks?

I think there will be a reaction sell off to this test

Tuesday, July 22, 2008

Some sort of top for the market, bottom for the crude oil is in

I think we put a swing top today at the close. Some of the financials I follow might have printed important tops today imo. Most of them brokers. Some of you will remember that I called the collapse of LEH when it was trading in high 40s. I think the next one is Morgan Stanley. It closed at 38.6 today... Not bad for a stock that will trade in low 20s in a few weeks. I think LEH could be a take over candidate once it trades around 7-8 bucks. Also looks like AAPL is now broken. All it takes a market sell off for it to trade around 70 bucks which is my intermediate term target.

I expect a gap down tomorrow morning which should not be filled on NDX

Also I dare to call 127 level a short term bottom for crude oil.

Sunday, July 20, 2008

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Saturday, July 19, 2008


Atilla Demiray has been charting and trading since 1998. After graduating as an Electrical Engineer in 1996, he earned his Master of Science degree in Engineering then, pursued PhD. While studying at  Polytechnic Institute of New York University, he worked as a software engineer at Thermo Electron Corp. In 2003, he quit to open his own research firm Demiray&Co Capital Sciences LLC. He worked as the CEO of Turkuaz Global LLC from 2008 to 2013.

This blog is all about using the power of technical analysis in combination with xtrends technique he developed to identify and trade futures, currencies and equities.  One of Atilla's central tenets is trends are created by directional money flow that doesnt turn on a dime and trends can nest smaller size trends with various duration and directions.

xTrends is a methodology to identify the pivot points of these trends. Entering and exiting around these pivots with consideration of trend duration and volatility provide the optimum risk/reward because these pivots let you open the position near the beginning of a new move (in an existing trend) and allows you to set a tight stop loss while possible reward could be large.

While he mostly employs this technique which is mainly price-based approach, he also analyses the market from other aspects like internals, momentum, seasonality, statistics and sentiment to exploit the underlying market conditions.