Thursday, August 28, 2008

Junk fireworks over?

I think suckers just got saturated with enough shares of FNM FRE MBI ABK and LEH while leadership names like AAPL and GOOG have been cratering. I have never got this bearish in the past so, I am just considering to leave early this week. We shall see next week.

Wednesday, August 27, 2008

Normalized Dow Jones Industrials kissed the line of death today

Previous comments on this

Introducing "P index"

This is a custom index , composed of those indices that lead this bear market.

Indices used are:
HGX:Home Builders
DJR:Real Estate

I called it "P" index , P stands for "Plungers" as all of these indices tend to plunge easly whenever market turns down.

Formula is, P=(SOX*0.2786990329+BKX*1.581777918+0.6885155605*XBD+

shorting some tech and realestate issues

i will not be able to post these trades as i will be busy today until the close... these stocks are mostly real estate, tech and homebuilder

added ESU8 short @ 1283

added ER2U8 short @ 735

added long SKF @ 126

added long SRS @ 90.1

added short ESU8 @ 1284

long SRS @ 90.1

long SKF @ 125.9

added AMZN short @ 82.6

added AAPL short @ 175.6

added EMDU8 short 814.5

added ER2U8 short @ 736

added ESU8 short @ 1284.5

shorted AAPL @ 175.3

shorted ESU8 @ 1282

shorted EMDU8 @ 812.5

shorted AMZN @ 82.35

shorted ER2U8 @ 734

Get out of the market quick !

ES 1280-1285 range should be the apex for the next 2 months, a huge intermediate term sell off is coming after this short term rally. This is a very high probability event, the move will start this afternoon otherwise tomorrow with a gap sizable down that will not get filled for a few months.

Tuesday, August 26, 2008

A short term rally in cards...

Looking at the benchmark charts, all I see light volume pull back on sudden surging bearishness. Furthermore, boys sold tons of puts today while retail investors bot tons of them. Financials and real estate have been showing relative strength during this pull back unlike the previous true sell offs. I can feel a scorch approaching.

closed SPY 131 calls @ 1.11 & 1.12 and 1.13

Monday, August 25, 2008

My version of Sol's H&S capture

I had posted this on xSetups on Saturday but since the original idea was publicly posted here, I thought we should show the modified version as well.

A while ago, Sol posted a OEX weekly chart indicating a massive H&S formation. I think he got it right but his reference point for the right shoulder of the formation, in my opinion, should be as follows. Due to the collapse of BearStean, the formation, I think was distorted. Real reference for the right shoulder has been tested last week.

added SPY 131 calls from 1.03 1.04 closed QMV8 @ 115

average 1.18

closed SRS and SKF longs

at 91.5 and 128.1

covered all short positions

AAPL @ 175
AMZN @ 83.9
GOOG @ 489
TOL @ 22.65

long SPY 131 calls from 1.39 and 1.40

i am also short QMV8 from 115.125 average

Sunday, August 24, 2008

At the Fed, a Debate Over Countering Inflation Grows Louder

August 25, 2008
At the Fed, a Debate Over Countering Inflation Grows Louder

JACKSON HOLE, Wyo. — With the decline in oil prices, inflationary pressures are easing for the moment. The Federal Reserve’s policy makers all acknowledge as much. But that has not halted their debate over whether to raise interest rates now to avoid higher inflation in the future.

The issue moved to a broader forum over the weekend: the Fed’s annual gathering in this mountain resort. The event drew central bankers and economists from abroad, the latter sometimes quite critical of what America’s central bank has done.

“The Fed overreacted to the slowdown in economic activity,” Willem H. Buiter, a professor of European political economy at the London School of Economics and Political Science, declared in his presentation, offering harsh criticism of his hosts. The Fed, he added, “cut the official policy rate too fast and too far and risked its reputation for being serious about inflation.”

Ben S. Bernanke, the chairman of the Federal Reserve, rejects that thinking, as do a majority of the Fed’s policy makers. They argue — and several of them repeated their arguments in interviews here that were mostly off the record — that they had no choice but to cut the key lending rate that the Fed controls to 2 percent from 5.25 percent in just eight months. Otherwise, they said, the housing and credit crises would have resulted in much more damage to the economy.

Now, they argue, the so-called federal funds rate must be kept at 2 percent — for no one knows how long — so that banks and other lenders can borrow at low rates and lend at higher ones, using their fattened earnings from this process to rebuild the capital they need. The banks’ capital eroded as numerous loans made during the bubble years went bad and were written off, reducing their ability and willingness to lend to the public.

“Lenders have been hit by a shock so severe that they are contracting and withdrawing from private sector lending,” Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, said in an interview.

The view expressed by Professor Buiter, however — that a central bank’s overriding concern should be fighting inflation, while a sinking economy is left to be refloated by other means — is welcome thinking for the five or so Fed policy makers, all of them presidents of regional Fed banks, who say that the Fed must begin to raise rates right away.

Mr. Bernanke, in a speech here, said that inflation is likely to moderate as commodity prices come down and the dollar stabilizes. But the Fed bank presidents who want a rate increase now say that he is missing the point. Unless the Fed takes action, they say, people will lose faith in it as a guardian against a rising inflation rate.

When prices do begin to rise, according to their argument, instead of counting on the Fed to stop the process, the American public will ask for and somehow get higher wages to afford the rising prices. Employers will respond by pushing up prices even more — unless the Fed snuffs out this inflationary spiral, or any chance of it, by raising rates, starting now.

“These hawks at the Fed are arguing in effect that we have to throw people out of work more quickly than we already are to ensure against inflation,” said Jan Hatzius, chief domestic economist at Goldman Sachs.

So far, only one of the policy makers is pushing for higher rates. Richard W. Fisher, president of the Federal Reserve Bank of Dallas, has voted for a rate increase at recent Fed policy-making meetings, casting the lone dissenting vote among the Fed’s 11 voting governors and regional bank presidents. The other dissenters have voted with the majority to keep the key federal funds rate at 2 percent, actions that have muted their criticism of this approach.

Now, however, Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, is likely to join Mr. Fisher. Twice in the past, Mr. Plosser had cast a dissenting vote along with Mr. Fisher, the last time at the April 30 meeting, when the policy makers completed their rate cuts, bringing the federal funds rate to 2 percent. Ever since, he has voted with the majority and in doing so, he has maintained a silence that he says he intends to end soon.

“If we don’t reverse our accommodative stance sooner rather than later,” Mr. Plosser said in an interview here, “we will face rising inflation, which may be costly to deal with, and we will face a risk to the Fed’s credibility to contain inflation.”

In the Fed culture, two dissenting votes at one of its closed-door meetings (the next is Sept. 16) are considered a challenge to the chairman’s authority, raising eyebrows on Wall Street. Three dissents in the past were enough to sink a chairman.

Mr. Plosser argues, however, that Mr. Bernanke, breaking with the practices of past chairmen, encourages differing views, and Mr. Plosser’s dissenting vote, rather than challenging Mr. Bernanke’s authority, would help to communicate the differences that exist among the policy makers.

“Dissent serves a function of illuminating for the public the nature of the policy debates,” Mr. Plosser said.

A big issue in that debate is whether a 2 percent federal funds rate is “accommodative,” as Mr. Plosser put it. Those in his camp argue that it is low enough to encourage people to borrow and spend. Companies would respond to this surge in spending by raising prices, and hence the inflation rate would rise.

The Bernanke camp, in sharp contrast, asserts that 2 percent is anything but accommodative. The nation’s banks and other lenders are indeed borrowing at that rate, to rebuild their capital, but they are lending to consumers at much higher rates — 5 to 6 percent, or more. The large spread signals that the lenders would prefer not to lend at all rather than to risk new loans that, like so many of the old ones, will not be repaid.

The dissenters at the Fed “don’t seem to place much emphasis on the importance of keeping rates low to offset the wide spreads,” said Lawrence H. Meyer, vice chairman of Macroeconomic Advisers and a former Fed governor.

Still, they have the support of Professor Buiter and some other economists — European and American — who argued over the weekend that central banks should concern themselves only with inflation, and not the additional task of maintaining economic growth, as the Fed is required by law to do.

Indeed, while the Fed has cut the federal funds rate drastically over the last year, the European Central Bank has added a quarter of a percentage point to its equivalent of the federal funds rate, suggesting to many that Jean-Claude Trichet, president of the European bank, must be critical of Mr. Bernanke’s failure to embrace an anti-inflation approach.

Mr. Trichet was here over the weekend, and at one of the sessions, he publicly supported the Bernanke approach. Europe, he said, has not yet been hit with “the volume of shocks” to its economy that the United States has suffered, and if he were in Mr. Bernanke’s shoes, he would do as the Fed chairman has done.

“I do not agree that the Fed is too accommodative,” he said.

Saturday, August 23, 2008

Lean and mean years ahead

I can only find time in weekends, while I am still warmed up, a few more long term charts. The first chart is the upside-down version of SPX/USD ratio for visual simplicity.

Friday, August 22, 2008

Inflation adjusted markets

Inflation, like in corporate earnings, is considered fundamental cloud over underlying trends. We want to remove this noise to analyze longer term trends of several sectors and markets.

I will start with CRX index that is composed of commodity related stocks. Ratio of CRX/CRB gives us inflation adjusted chart of these commodity stocks, some use GOLD as a divider to chart inflation adjusted sectors but I prefer entire commodity group as a divider.
Before reaching any conclusion, it is important to remember that commodity related stocks are usually late in any market cycle, up or down. Sectoral sequence in any market cycle is "Stocks lead Commodities lead Bonds". As you know , most of the commodity related stocks started selling off a month ago while SPX was already down 20% or so.
The following chart indicates that inflation adjusted commodity stocks just got into the bear market, approximately with a 7-8 months delay compared to SPX.

We can also check individual commodity charts the same way. The following chart indicates that crude oil has likely put a cycle top.

Lets see what S&P500 looks like when its inflation adjusted. The trend structures on the chart indicates that path of the least resistance is down until the horizontal support highlighted by green line achived.

To me, these charts prove that fundamental economic cycle is in work and the current situation can be defined as stagflation not deflation YET. Those who followed xTrends in 2007 will remember that I was one of the very few among analysts calling for this situation. But the current conditions can continue as far as underlying fundamentals allow.

Here is my next prediction. As the economies all around the world slow down further, inflation will loose steam and deflation takes over which in turn causes slower, more depressed economies world wide until entire excess inventory is wiped out. Sadly, this means we may see global depression before we start growing under normally deflated circumstances so that expansion can be healthy unlike what we had seen between 2003 and 2007.

closed XLF 20 puts at .83

sleazy day

Market exhibits altered behavior

Crude oil manipulator got caught on the day Bernanke speaks about inflation.

I think the following news were intentionally released to delay the inevitable. If the market interprets Bernanke's comments as deflation, it can get real ugly here.
Instead, lets find a black sheep, sin goat to blame. Read the following. No market can be manipulated by a single institution for more than a few days. The following bullshit will too fade away as the market discounts reality.

Market exhibited altered behavior today if you noticed.

Crude oil crashed, most of the commodities are down on Bernanke's comments. One would expect equities rally but nothing happened except morning's sucker rally.


Did stock market sniff out deflation or interpret the moron's comments as deflation ? If this is the reason the market changed characteristic, you must be really careful right here, it may slide towards new yearly lows in a few days. I think the sucker rally Atilla was referring is over. This could be an important pivotal point.


Report: One trader held 11 pct of Nymex contracts

A Few Speculators Dominate Vast Market for Oil Trading

By David Cho
Washington Post Staff Writer
Thursday, August 21, 2008; A01

Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.

But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.

The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.

The CFTC, which learned about the nature of Vitol's activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the CFTC checks the status of other big traders.

Some lawmakers have blamed these firms for the volatility of oil prices, including the tremendous run-up that peaked earlier in the summer.

"It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency's laughable assertion that excessive speculation has not contributed to rising energy prices," said Rep. John D. Dingell (D-Mich.). He added that it was "difficult to comprehend how the CFTC would allow a trader" to acquire such a large oil inventory "and not scrutinize this position any sooner."

The CFTC, which refrains from naming specific traders in its reports, did not publicly identify Vitol.

The agency's report showed only the size of the holdings of an unnamed trader. Vitol's identity as that trader was confirmed by two industry sources with direct knowledge of the matter.

CFTC documents show Vitol was one of the most active traders of oil on NYMEX as prices reached record levels. By June 6, for instance, Vitol had acquired a huge holding in oil contracts, betting prices would rise. The contracts were equal to 57.7 million barrels of oil -- about three times the amount the United States consumes daily. That day, the price of oil spiked $11 to settle at $138.54. Oil prices eventually peaked at $147.27 a barrel on July 11 before falling back to settle at $114.98 yesterday.

The documents do not say how much Vitol put down to acquire this position, but under NYMEX rules, the down payment could have been as little as $1 billion, with the company borrowing the rest.

The biggest players on the commodity exchanges often operate as "swap dealers" who primarily invest on behalf of hedge funds, wealthy individuals and pension funds, allowing these investors to enjoy returns without having to buy an actual contract for oil or other goods. Some dealers also manage commodity trading for commercial firms.

To build up the vast holdings this practice entails, some swap dealers have maneuvered behind the scenes, exploiting their political influence and gaps in oversight to gain exemptions from regulatory limits and permission to set up new, unregulated markets. Many big traders are active not only on NYMEX but also on private and overseas markets beyond the CFTC's purview. These openings have given the firms nearly unfettered access to the trading of vital goods, including oil, cotton and corn.

Using swap dealers as middlemen, investment funds have poured into the commodity markets, raising their holdings to $260 billion this year from $13 billion in 2003. During that same period, the price of crude oil rose unabated every year.

CFTC data show that at the end of July, just four swap dealers held one-third of all NYMEX oil contracts that bet prices would increase. Dealers make trades that forecast prices will either rise or fall. Energy analysts say these data are evidence of the concentration of power in the markets.

CFTC leaders have argued that speculators are not influencing commodities' prices. If any new information arises during the agency's examination of swap dealer activity, officials said they would report it to Congress.

"To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices," CFTC spokesman R. David Gary said, reading a statement that had been crafted by agency officials. "Regardless of their classification . . . the CFTC's market surveillance group scrutinizes daily the positions of all large traders, both commercial and non-commercial, to guard against market manipulation."

Victoria Dix, a spokeswoman for Vitol, declined to answer questions. The firm, through Dix, released a statement that stated only that it had not been contacted by the CFTC about the reclassification of its business and that its trading status remained unchanged. CFTC officials said they do not typically contact firms that are reclassified.

On its Web site, the firm says it has $100 billion a year in revenue and describes its thriving global energy-trading business.

For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings.

The first major change to this regulatory framework occurred in 1991, when Goldman Sachs, through a subsidiary called J. Aron, argued that it should be granted the same exemption given to commercial traders because its business of buying commodities on behalf of investors was similar to the middlemen who broker commodity transactions for commercial firms.

The CFTC granted this request. More exemptions soon followed, including one to the Houston-based energy trader Enron.

"When the CFTC granted the 1991 hedging exemption to J. Aron (a division of Goldman Sachs), it signaled a major shift that has since allowed investors to accumulate enormous positions for purely speculative purposes," said Rep. Bart Stupak (D-Mich.) Now, he added, "legitimate businesses that hedge and take physical delivery of oil are being trampled by the speculators who are in the market purely to make profit."

A second turning point came when Congress passed the Commodity Futures Modernization Act of 2000. The law formally allowed investors to trade energy commodities on private electronic platforms outside the purview of regulators. Critics have called this piece of legislation the "Enron loophole," saying Enron played a role in crafting it.

In the months after the act was passed, private electronic trading platforms sprang up across the country, challenging the dominance of NYMEX.

"Investment banks had been frustrated with the established exchange because they really were never able to get control of it," said Michael Greenberger, a law professor at the University of Maryland and a former staff member at the CFTC.

The most successful of the private platforms was InterContinental Exchange, or ICE, founded by Goldman Sachs, Morgan Stanley and a few other big brokerages in 2000. ICE soon opened a trading platform in London, allowing its founders to trade vast quantities of U.S. oil overseas without being subject to regulation.

The exemptions for swap dealers and the development of overseas markets allowed big brokerages to open the door for more hedge funds, pensions and big investors to move into commodities.

In the coming years, commodity investments by funds could grow to $1 trillion, veteran hedge fund manager Michael Masters said in testimony before the Senate earlier this year. In an interview, he said this trend could raise commodity prices for everyone in the coming years and "have catastrophic economic effects on millions of already stressed U.S. consumers."

Meanwhile, commodities have been good business for big Wall Street brokerages. Its commodity trades helped keep Goldman Sachs profitable during the credit crisis, said Richard Bove, a banking analyst at Ladenburg Thalmann.

"Business is lousy right now," Bowie said of Goldman Sachs. "Commodities and currencies are clearly the strongest business they have right now."

In the coming months, swap dealers expect to have yet another venue for oil speculation. The CFTC has stated it would not stand in the way of trading in U.S. oil contracts overseas in Dubai. Goldman Sachs and Vitol are among the major investors in this new exchange.

bot XLF 20 puts @ .85 .86 nd .87

closed ESU8 short at 1284.25

closed IWM-70 puts at .92 and XLF-20 puts at .97

short AMZN @ 84.7

short GOOG @ 494.8

long SKF @ 125.5

long SRS @ 91.17

shorted AAPL @ 177.3

short TOL @ 23

bot XLF 20 puts btw .81 - .83

added IWM 70 puts from .68 - .70

added ESU8 short @1292

added ESU8 short 1289.75

bought IWM 70 puts @ .82 and 83

Closed OIH puts, short ESU8@ 1287

stop 1292

Thursday, August 21, 2008

I smell blood .... electrica sallsaaaa

A few days ago, Atilla posted his observation on GS, the stock of the biggest investment bank in US... Something wrong with Goldman Sachs ? GS dropped additional $15 since his post, before recovering some today.

Now you may remember that the same investment bank made a bullish call on Morgan Stanley which may end up just like Lehman Bros according to Atilla. He was crazy about shorting MS at 45, which btw made me short in 45-46 range as you know.

Lehman Bros, which may also disappear according to Atilla was upgraded today. Ladenburg Thalmann analyst raised his rating on Lehman to "buy," saying he believes the nation's fourth-biggest investment bank has become a hostile takeover candidate. Hmmmm I remember the same attempt had failed miserably a few months ago. LEH had plunged to 12 subsequently.

Do you see what I see now? There is an interesting pattern developing here. There is an extreme contradiction between what the market does and investment banks say, between the action on tape and what analysts say. Expectations vs reality. Why this is happening? Why this is happening right before these titanics' earning announcements in September? Is this a coincidence?

Just like what I said....

Saturday , August 09, 2008

Monday, August 11, 2008

Thursday, August 14, 2008

Thursday, August 14, 2008

Sunday, August 17, 2008

Theres no goodbye, this breakin' heart ....

Why they all get bulled up in the middle of nowhere?

Retail investors are obviously expecting a rally tomorrow. It is unlikely given the following picture.

Holding some OIH puts

I think the market is about to take off but I don't see any entry point. Meanwhile I did OK on crude oil on the long side today, I think it is about to put a short term top, so is OIH. I have some 175 puts. I will not trade for the rest of the day, have a good day.

closed xlf put @ .78-.79

xlf stands disturbingly strong to stay short, while Nasdaq show relative weakness. This is exactly the opposite of what we have seen in this bear market all along

bot XLF 19 puts btw .72 - .75

sold ESU8 @ 1270.25

will buy later

NQs testing the support

I expect a low around NQ=1895 soon after the open. We should test 1940 this week.

Wednesday, August 20, 2008

Added more ESU8 from 1270.5, 1270.75 & 1271

average 1272.38

Government may intervene this week

I would be extremely cautious on the short side this week. There is a high possibility that a Government intervention on Fannie and Freddie can happen this week.

ES testing 1287 tomorrow

I found the market as I left in the morning.... Lots of choppiness but the late day rally is meaningful and it appears SPX broke above a trend line before the close. So gap up is normal. Bought a few ESU8 at the close from 1273.5

closed all positions

NQU8 @ 1934.25
xlf 21 calls @ .76
xlf 22 calls @ .45

gift of a bunch of risky trades today is about $80K.(including crude oil trades from tonight which i did not post)

I will not trade for the rest of the day

have a good day

bot XLF 21 and 22 calls

21 calls @ .58, 0.61
22 calls @ .31

long NQU8 @ 1915

NQs at the support

We either take off from the get go or first pull back to test the secondary support around 1920. The later is unlikely given the high EPC reading.

Tuesday, August 19, 2008

Get ready for a sucker rally

I think we are about to put a short term bottom if we already didn't. I would be careful with short position as Joe Blow is now loaded with puts while McOsc is coming off the overbot condition , testing zero line, usually produces a snap back rally.

closed ES @ 1266 and XLF puts @ .76

no need to force the issue... it may gap up tomorrow, today seemed like a compression

shorted ESU8 @1268, bought XLF puts

long ESU8 @ 1267

stop 1266.5

closed ESU8 @ 1267

there is no follow thru plus two consecutive 5 min doji

short ES at 1268

stop 1268.5

long ES at 1268

stop 1267.5

Sunday, August 17, 2008

Impending plunge closer than ever

You can start counting down boys. This market will be much lower before those brokers announce earnings in September.

U.S. likely to recapitalize Fannie, Freddie: report
Sun Aug 17, 2008 2:47pm EDT

NEW YORK (Reuters) - The U.S. Treasury is growing increasingly likely to recapitalize Fannie Mae and Freddie Mac in the months ahead on the taxpayer's dime, Barron's reported in its August 18 edition.

The weekly financial newspaper said that such a move could wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses.

An insider in the Bush administration told Barron's that Fannie and Freddie "are being jawboned" by the Treasury Department and their new regulator, the Federal Housing Finance Agency (FHFA), to raise more equity.

But government officials don't expect the agencies to succeed, Barron's reported.

If the government-sponsored enterprises fail to raise fresh capital, the administration is likely to mount its own recapitalization, with Treasury infusing taxpayer money into the agencies, according to the Barron's source.

The paper reported the infusion would take the form of a preferred stock with such seniority, dividend preference and convertibility rights that Fannie's and Freddie's existing common shares "effectively would be wiped out, and their preferred shares left bereft of dividends."

The report called an equity injection by the government a quasi-nationalization -- without having to put the agencies' liabilities on the U.S. balance sheet, and thus doubling the U.S. debt.

After accounting for deferred tax assets and generous asset marks, Fannie and Freddie each may have a negative $50 billion in asset value, and little prospect of digging themselves out of the hole, Barron's reported.

(Reporting by Ed Tobin, editing by Richard Chang)

Friday, August 15, 2008

Something awfully wrong with Goldman S.

As most of you know, I have been extremely bearish on Morgan S. and Merill for both fundamental and technical reasons. Before all, I was mad bearish on LEH when it was trading around high 40s.... months ago.

But Goldman S. was a tuff play on the bear side all along because it was fundamentally more sound compared to the others. However something unusual has been happening with Goldman S. recently. I have no idea what could be the reason other than leverage problem. The way the stock has been acting lately has implications that the problem could be something other than what everybody already knows. Goldman S has been distributed into the strength for the last couple of weeks. It is my observation that something unholy has been brewing with this sucker and it may not look pretty when this market turns. This is purely based on the action on the tape and usually a predecessor of what is ahead.

Meanwhile, COT data for the week is out and I am seeing commercials adding SP shorts and crude oil longs. However small suckers are also short SP, this may provide a floor for the market over the short term. One big heads up is gold. Commercials covered a lot of GC this week but they are still net short. I think we are getting close to an intermediate term bottom in commodities, and top on USD and S&P.

I think we will sell off early next week to stabilize later in the week. Look for a top around noon on Monday. Then rally to new swing highs.

It is never easy to catch a bear market top. Just the time you think it is breaking down, they push it to rinse those bright spots :) then let it go...

closed ESU8 at 1299

shorts are not working today except that morning sell off which I missed by a point

shorted ESU8 @ 1298

shorting ESU8 if it hits 1303.5

shorted TOL at 23.5

Trendless market

I am back to short term / day trading of emini futures until a clear trend is set. However, I would like to keep my current positions in AAPL, AMZN and FFIV as long as their intermediate term picture dont change. Based on those setups , upside is very limited for these stocks.

By the way, I added a simple poll in the sidebar (right side of the page). Except those that I continuously communicate in chats and emails, I dont know your take on the market. There are approximately 1500 visitors each day, it would be great to know what majority of xTrend readers think about visiting that low on SPX. PLEASE VOTE ------------>>

Thursday, August 14, 2008

On the ledge...

Economists React: Rise in Core ‘Disturbing’ or Not ‘Significant’?

Economists and others weigh in on the higher than expected jump in consumer prices.

# The first part of the equation is simple: oil up, CPI up. At the same time, these headline numbers are unlikely to have the same impact they might have had a month ago, as the higher oil prices are essentially old news… July CPI was elevated, but we do not believe this to be a significant economic problem. We’re likely to see a retreat versus these July highs in August amid continued consumer weakness and falling energy prices. The Fed can largely discount this July result as part of a shorter-term phenomenon. –Guy LeBas, Janney Montgomery Scott

# While energy-related CPI readings were suppressed by seasonal adjustment in the Spring, the reverse is occurring now. National retail gasoline prices are on track to fall about 6% in unadjusted terms in August, but should fall about 3% after seasonal adjustment in next month’s reading. Separately, food prices were also up a robust 0.9%, and 6.0% over the past year. The recent decline in food commodity prices appears large enough to soften the pace of food price inflation later in 2008… Despite rising an above-consensus 0.3%, very little looks remarkable in the core CPI reading, particularly given the huge cost push from energy. Gasoline and other motor fuels alone have contributed a huge 2.1 percentage points to the rise in overall inflation in the U.S. over the past year. While the CPI core is unlikely to subside significantly if energy costs slip, the prospect of lower headline inflation and a notably smaller drag on consumer incomes still seems likely in the months ahead. –Steven Wieting, Citigroup

# Much of the increase in food was due to a strong reading for “food away from home” — meals at restaurants, vending machines, etc. — which respond to changes in food commodity prices only with a long lag. This could imply that food inflation will remain elevated longer than we previously expected… The increase in core goods inflation was broad-based, and may point to an increase in pass-through from elevated commodity prices. –Zach Pandl, Lehman Brothers

# This was a disturbing report as the increases in consumer prices are not limited to energy. The recent slide in gasoline costs will likely cause the headline number to look an awful lot better when the August number is released, but excluding energy, not a whole lot should change. And it is not as if the price of gasoline is suddenly cheap. Hardly. Therefore the Fed members are not going to do a dance just because energy comes down. If we keep seeing everything else up, the inflation hawks will indeed have reason to raise their concerns. But that does not mean the FOMC will be raising rates anytime soon. The large increases in consumer expenses means that household income is actually declining when adjusted for inflation. Confidence does not improve when the standard of living is declining. And with unemployment claims still quite high, we cannot expect much out of the consumer. –Naroff Economic Advisors

# If the economy remains as weak as we feel it will in coming months, pressure will continue to be taken off of core inflation rates, and we do not believe that the FOMC will feel compelled to tighten monetary policy in order to battle inflation. Headline rates, meanwhile, will respond favorably to the recent sharp drop in energy prices (so long, of course, that they are not reversed). –Joshua Shapiro, MFR Inc.

# The temptation of many market participants will be to dismiss this number as the peak in headline inflation. However, the pricing pressure in the core continues to advance well beyond market expectations and look to continue for the foreseeable future. The market and to a certain extent the Fed, is gambling that the recent moderation in the cost of oil will continue. We think that it may prove transitory and the risks to inflation continue to be to the upside. –Joseph Brusuelas, Merk Investments

# The rise in core prices [which exclude food and energy] is the most troubling piece of the report as we expect some relief in August from declining energy prices. Core price increases were fairly broad based. In fact, owners’ equivalent rent, one of the largest subcategories was only up 0.1 percent. A higher increase here could have easily pushed core prices even higher. –Adam York, Wachovia Economics Group

Closed most of the short positions today

I closed most of the positions today for two reasons:

The market refused to break down despite favorable conditions.

Some of the trades I was confident about turned on me fast, I had to raise cash and reduce the risk.

As seen on the chart, ES still within the wedge which should resolve to the downside eventually.

I am still holding AAPL , AMZN and FFIV shorts.

I am one of those who can't stand disturbance too long ... or like those who gives too much weight to tape reading. Todays tape disturbed me a lot. Maybe this could be your sell signal :)

Most of my positions were still profitable when I exited except that ES trade I entered in the morning. There was a very high probability that there would be an afternoon selling or pullback based on the trend lines I follow on S&P100 so I shorted more ESU8 into the resistance as I closed other positions. I covered the entire position at 1290 because it was the top of tower reversal seen on hourly charts.

My gut feeling says there may be a final attempt to breakout 1310 on SPX otherwise the market will probably not move tomorrow either as it is the option expiration day.

I think we put another swing top on Monday around 12:00-1:00

covered MS at 40

covered MER at 25.9

closed YMU8 at 11580

shorted YMU8 at 11610

covered ESU8 at 1290

Added ESU8 short at 1298

Covered TOL at 22.4

covered MMM at 73.2

covered SMH at 30.40

Added ESU8 short at 1295.5

Covered RIMM at 130

covered GE at 29.55

sold GDX at 36.95

covered WYNN at 105

shorted MER at 25.8

shorted ESU8 at 1280

Covered ESU8 at 1278

like I said, we are gaping down

SPX is about to crater wide open

Under the surface, it is so weak and sick that I cant find a proper adjective to define it.

Normalized S&P500

Normalized Dow Jones Industrial below has a more definite neckline compared to S&P500

Wednesday, August 13, 2008

My wild guess for tomorrow

ES opens below 1278, right under the wedge, and sells off until the close.

You can see that ES initially tagged the top of the wedge two days ago, that is an indication that the resolution will be to the downside.

What may cause the gap down ? Maybe crude oil maybe CPI I dont know. However crude oil and other commodities look like bucking the uptrend as USD begins pulling back from 76 area that Atilla mentioned a few days ago.

shorted ESU8 at 1286

smaller size to hold overnight, I think it will gap down

closed ESU8 short at 1282

this didnt work as expected

NYSE tick hits -1200 at 3:32 EDT

down trend should continue at least a few hours extending into the tomorrow

shorted ESU8 at 1285

this is a day trade

Internals are getting worsenning

Internals are making new lows on both Nasdaq and NYSE, so will the price.

reshorted MS at 40

added AAPL short at 177.5

shorted AMZN at 85.35

long GDX at 37

closed USO at 92.05

before the crude numbers

covered MS at 40.7

Monday, August 11, 2008

Reminder about MER

I was just checking brokers, I have to tell you again, this one can be unrecognizable in a few weeks, remeber most of the brokers announce earnings in September, I think XBD makes a lower low before the earnings. Just be careful with them.

Probably gap down.

Here is my guess for tomorrow. SPX cash opens below 1301 and doesn't fill the gap.

If we are going to put a classic divergent top then there should be a attempt to test the highs after options expiration. SPX may put a marginal new high on divergent internals. That should be the the ideal shorting point. However , tops in bear market are not processes, they are more like events like the ones we made this year. So we may not see these highs again.

Normalized SPX continues its waterfall. This will be reflected to real price action once the rise in USD stops.

And the above waterfall pattern will probably enter into the climax as the following wedge resolves.

Overbought MCOs in a bear market marks the tops

Unlike the ones in bull markets, overbot MCOs mark swing tops in bear markets

Selling should accelerate into the close

To close DIA and GE under the channel lines or we gap down and run.

GE should close below 29.8, DIA 117.02