Tuesday Outlook: Commodities, Emerging Markets

<< Return to page 1 - Capitulation? Not Yet













































I expect there will be plenty of continuing countertrend rallies to confuse everyone. That’s the nature of this beast.

We have not yet seen capitulation in my opinion. That will happen when all the captive money in wrap fee products with wire houses and investment advisors gets busted. Before that happens brokers and advisors will fight furiously to prevent it since their fee income and lifestyle will be hurt. You can rest assured many product peddlers will be marched in front of TV cameras reminding investors about investing for the long-term and blah, blah, blah. But, having been in the advisory position for many years, I can imagine phones are ringing off the hook with clients wondering whether they should follow Cramer’s advice and sell. If and when that should occur, things will get ugly fast.

The markets are entertaining and good advice is precious. I’m reminded of this important message:

Batman to Robin: “Always use both hands on the bat rope old chum!”

Oh, and for further amusement, here is the YouTube video of that classic Monty Python battle below.




Have a pleasant day.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SDS, SIJ, SMN, QID, SDP, XLY, SCC, IYR, SRS, IEF, GLD, DGP, DBC and DEE.

Comments

[royial:]

Hi,

First of all - thanks for your great article and graphs.
I have a question regarding the section "Who was buying? That squeeze may have been the opening act of your tax dollars at work. Nothing would surprise me and generating short squeezes has been the government’s primary objective. Reverse Repos from the Fed have been running around $25 billion per day as the Fed “drains” reserves from the system.".
What do you mean by this? that someone involved in the market and buy stocks at the last hour to prevent another black monday day?

Thanks.

2008 Oct 07 03:39 AM

[Nikola:]

Royial, yes, that is exactly what Dave means, and he is not the only one who holds that opinion.

But, seems like to me, Dave has capitulated. He thinks the world has ended. Even an upturn is not gonna be a real upturn.

Hm.... and he is not the only one.

2008 Oct 07 04:49 AM

[ericinNE:]

royial: Not to be facetious, but, Duuhh! ;-)
Wonder if I'll pick the right reentry point for EEV, EFU, SDS, QID, SRS, SKF. Sold today in anticipation of typical big dip - follow up rally. Looking forward to recouping some losses between now and election day.

2008 Oct 07 04:57 AM

[Mr.G:]

there wont be capitulation for all those waiting for one - the fed and the treasury can literally inject 100 billion into seven banks if it like right now or 1 billion to 700 banks and can get more money if they want - this isnt the 1930's where they have to find more gold to back their dollars it is fiat currency and can literally be printed out of thin air (there is an unlimited supply ) - all the CB's around the world will be forced to do the same so- the dollar wont crash - In the last 2 weeks alone (before the new 900 billion auction and the bailout) has been printing at 200% increase - the assets or credit derivatives will be so diluted by the amount of dollars flowing they will just an a small expense rather than an insurmountable problem that you see today - this crises will be drowned in a dollar or whatever currency your central bank happen to print -with maybe the exception being iceland

2008 Oct 07 06:40 AM

[Gerry Sullivan:]

If you want to think about what could make the nightmare worse, watch the relationship between the ETFs and their net asset value. For instance if you start to see the SPY trade consistantly below its NAV (SXV), you will know disaster is coming.

I sold all my SPY, MDY and QQQQ yesterday and replaced them with an equal dollar amount to approximate the same S&P industry weightings.

Sounds crazy? My brokers are telling me that customers are afraid of
FDIC insured bank deposit sweeps and are buying Treasury Bills at a much lower yield.

2008 Oct 07 08:05 AM

[proseadvocate:]

Some of you are not wearing your thinking caps. Truly the Fed is flooding the market with paper. That is why the dollar will tank not the opposite. The only reason it is seeing temporary strength is the mass exodus of commercial paper and repatriation by scared homies that still believe that the US is the wealthiest nation and that stocks always go up. The markets are experiencing their balancing act between fear and greed. The problem is that the WTO aka Trilateral Commission won't let it work against the big boys. It's do as we say, not as we do. FAX and FXA look to be great buys here. I might just buy more.

2008 Oct 07 11:48 AM

[kmca1989:]

question: what tool do you use to create trend lines and mark your charts?

2008 Oct 07 06:24 PM

[wmh:]

David, Thanks for sharing your work. Any chance you can track SLV and share some insights.

TIA -wmh

2008 Oct 07 08:29 PM

[pelicanpete:]

I am voting for Hoover!

2008 Oct 07 08:33 PM

[Yankee Runn...:]

Two comments today.

One is just about all of my short ETFs are gone. I put very high limits on them, most above any previous rocket high, and almost all have been taken out. Its like watching a rocket punch up and hand you some money.. So I am now waiting for the next dead cat bounce or sucker rally or whatever it will be to load up on Ultra short ETFs.

Two, are we going to see deflation or inflation. After reading some history from 1929 to 1933, after the banks seized up, prices of just about everything went down... Not hard to imagine if no one is buying. Seems like that mentality is starting to take hold now. I am not sure what gold will do if there is deflation now. Back in the 1930's currencies were rolling off the gold standard and then Uncle Bucky seized all the gold in the USA so we cannot look to that as a lesson. I certainly agree with the billions soon to be trillions pumping out the Fed window, there has to be a dilution of the buck and many argue for inflation. Right now, my instinct tells me that deflation is just around the corner.. and capitalism does not work well in deflation, nothing to feed the greed. This could be back to Hobbs natural state where life is "short, nasty and brutish". How long can you make a living shorting the market?

2008 Oct 07 11:49 PM