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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • A Look At Technical Support For The SPY Given The Current Market Unrest

    There are currently violent riot/protests in Egypt over what is seen as a corrupt government. The Egyptians want long sought after reforms. The likely deserve them. However, the underlying reasons for the riots/protests seem to be the high unemployment and the rapidly rising food prices. In countries less affluent than the US and Europe, a higher proportion of the average person’s income goes to paying for food. When those prices rise dramatically, people literally starve. When the US talks of unemployed workers, most of those workers have at least a high school education. They can read and understand what is going on in a general sense. Perhaps as few as 51% are literate in Egypt. When you cannot read about world events, you are completely taken in by whatever rabble rousing bunch you happen to listen to. This situation is serious.

    The world food situation is serious this year after major crop problems in Russia (and former USSR states), Pakistan (major flooding), China, India, Australia (major flooding and locusts), and Brazil (flooding) in the last year. Egypt has had its problems in this area too -- mostly with drought. I am sure many Egyptians literally do not understand what hit them. These problems have been exacerbated by Dr. Bernanke’s QE2 program, which is leading to still further commodity inflation. This isn’t likely to endear the US to starving countries. We may see anti-US and anti-EU terrorism rise demonstrably in the wake of this. Misery loves company, and the starving need someone to hate. Right now it is Mubarak in Egypt, but this rioting seems to be spreading. It started recently in Tunisia. When it gets to Iran, Iraq, Afghanistan, etc. imagine the anti-US sentiment that can be raised. Dr. Ben may have turned out to be the terrorists’ biggest ally.

    Let’s not forget that Australia is in the midst of a cataclysmic flood, which will demonstrably hurt its GDP this year. The EU has a huge credit crisis. Many US states are really in the same boat. China has serious inflation problems and an inverted corporate bonds yield curve, which often presages a coming recession. The credit ratings of Japan and Taiwan were recently downgraded. It goes without saying that Egypt’s credit rating was downgraded on the uncertainty factor induced by this rioting. Those poor, substantially illiterate people are hurting themselves even further.

    The above gives a brief glimpse at the sentiment picture that may be falling into place. Let’s look at the short term technical picture now. The US populace has recently been pledged more stimulus via the tax break bill ($800B) and the QE2 program ($600B). That’s $1.4T in new stimulus. A normal expectation would be that the US economy would continue to rebound at least in the short term. The 1 year chart of the SPY below gives a glimpse of the possible short term performance.

     



    The SPY has already broken below its 20-day SMA. It looks to be headed toward its 50-day SMA. It could bounce up slightly on “Mutual Fund Monday”, but it does seem unlikely to completely ignore all of the above negative worldwide data. This likely means that the SPY should retrace to at or near its 50-day SMA in the short term. This is the $125-$126 area of the SPY. The yellow line in the chart above is the 50-day SMA. We could see a bounce here. We did get an effective bounce off the 50-day SMA in Nov. 2010.

    Longer term it is unclear how big a retracement the SPY will see. Last April 2010 was the last time so many US stocks (81% before Friday’s pullback) were above their 200-day SMA. At that time we saw an approx. 14% retracement. It is possible we could see such a retracement again. The recent stimulus might argue that it should be less severe. The 5 year chart of the SPY (see below) may provide a little more clarity on the situation.


     

     

    This chart shows the SPY is at a major resistance point from a peak in 2008. Support on the downside from here seems to be roughly in the $118 to $123 area. Barring a major global meltdown, one would expect these levels to hold in the near term. Further geopolitical trauma could change that outlook. The US is indeed a safe haven at the moment. Let us hope that it remains so.

     

    Tags: SPY, DBA, USO
    Jan 31 6:59 AM | Link | Comment!
  • The Newly Proposed POMO Schedule For The Fed

    Many people have said they would like the POMO schedule for the Fed. This is a copy of the recently released schedule. The market tends to go up on POMO days.

     

    Operation Date1

    Settlement Date

    Operation Type2

    Maturity
    Range

    Expected Purchase Size

     

     

     

     

     

     

     

     

     

    November 12, 2010

    November 15, 2010

    Outright Treasury Coupon Purchase

    11/15/2014 – 4/30/2016

    $6 - $8 billion

     

     

     

     

     

     

     

     

     

    November 15, 2010

    November 16, 2010

    Outright Treasury Coupon Purchase

    5/31/2016 – 11/15/2017

    $7 - $9 billion

     

     

     

     

     

     

     

     

     

    November 16, 2010

    November 17, 2010

    Outright Treasury Coupon Purchase

    5/31/2012 – 5/15/2013

    $4 - $6 billion

     

     

     

     

     

     

     

     

     

    November 17, 2010

    November 18, 2010

    Outright Treasury Coupon Purchase

    2/15/2018 – 11/15/2020

    $7 - $9 billion

     

     

     

     

     

     

     

     

     

    November 18, 2010

    November 19, 2010

    Outright Treasury Coupon Purchase

    5/31/2013 – 11/15/2014

    $6 - $8 billion

     

     

     

     

     

     

     

     

     

    November 19, 2010

    November 22, 2010

    Outright Treasury Coupon Purchase

    8/15/2028 – 11/15/2040

    $1.5 - $2.5 billion

     

     

     

     

     

     

     

     

     

    November 22, 2010

    November 23, 2010

    Outright Treasury Coupon Purchase

    2/15/2018 – 11/15/2020

    $7 - $9 billion

     

     

     

     

     

     

     

     

     

    November 23, 2010

    November 24, 2010

    Outright TIPS Purchase

    7/15/2012 – 2/15/2040

    $1 - $2 billion

     

     

     

     

     

     

     

     

     

    November 29, 2010

    November 30, 2010

    Outright Treasury Coupon Purchase

    2/15/2021 – 11/15/2027

    $1.5- $2.5 billion

     

     

     

     

     

     

     

     

     

    November 29, 20103

    November 30, 2010

    Outright Treasury Coupon Purchase

    5/31/2013 – 11/15/2014

    $6 - $8 billion

     

     

     

     

     

     

     

     

     

    November 30, 2010

    December 1, 2010

    Outright Treasury Coupon Purchase

    12/31/2014 – 5/31/2016

    $6 - $8 billion

     

     

     

     

     

     

     

     

     

    December 1, 2010

    December 2, 2010

    Outright Treasury Coupon Purchase

    6/30/2016 – 11/30/2017

    $7 - $9 billion

     

     

     

     

     

     

     

     

     

    December 2, 2010

    December 3, 2010

    Outright Treasury Coupon Purchase

    2/15/2018 – 11/15/2020

    $7 - $9 billion

     

     

     

     

     

     

     

     

     

    December 3, 2010

    December 6, 2010

    Outright Treasury Coupon Purchase

    6/15/2013 – 11/30/2014

    $6 - $8 billion

     

     

     

     

     

     

     

     

     

    December 6, 2010

    December 7, 2010

    Outright Treasury Coupon Purchase

    8/15/2028 – 11/15/2040

    $1.5 - $2.5 billion

     

     

     

     

     

     

     

     

     

    December 7, 2010

    December 8, 2010

    Outright Treasury Coupon Purchase

    12/31/2014 – 5/31/2016

    $6 - $8 billion

     

     
    Good Luck trading.



    Disclosure: No position declaration required for this.
    Nov 10 4:32 PM | Link | Comment!
  • Risk On Or Risk Off?

    Many pundits are now saying it’s Risk On again. I take exception to this. First the economic data from the US, the EU, and China has indicated decelerating growth. The Fed has substantiated this. This means growth will be less than expected. It means downward revisions are coming. This would tend to make one think Risk Off.

    More than this the major currencies that can be used for carry trades are not positive for a carry trade that would benefit US stocks. Currently the USD is weakening against both the Yen and the Euro. This means that if you borrow either of these to invest in something else, you could still lose money. If the Yen and Euro are both strengthening, you would likely have to pay back more when pay the money back. In other words the risk trade would be too risky.

    If the USD is going down, you might not want to invest in US equities because they would effectively be going downward in foreign currency terms. Since the Fed has indicated that it wants more inflation, it will likely act to weaken the USD. This should scare foreign investors away as long as they think the USD direction is downward. Plus in the near term, the US equities markets are highly over bought. They are due for a retracement. This too should scare investors (even US investors) away until a reasonable retracement has occurred.

    Naturally this situation is in perpetual flux. Still it would seem for the near term that it is “Risk Off” rather than “Risk On”. The singing by some that high flying tech stocks are "trading like it's 1999" (the dot com bubble) is a further indicator that there is significant reason to worry. The failure of major DJIA tech stocks to move up significantly with the high flying techs is further evidence that the "tech rally" is more of an HFT mediated short squeeze of highly shorted, over priced, over bought high flying tech stocks than a real tech rally. The major tech stocks (ex. INTC, CSCO, HPQ, MSFT) are normally not shorted appreciably. They have huge market capitalizations. Therefore they are much harder for HFT traders to manipulate upward. They are a good indicator if you are trying to determine the veracity of a purported "tech rally". This one appears to be "fake". Highly shorted, over bought, over priced techs such as BIDU, CRM, OPEN, NFLX all seem likely to fall from their HFT short squeeze induced highs. Financial sector stocks do not seem likely to take up the slack with the re-emergence of the EU credit crisis (Ireland this time), and the big worries about the real estate market. Risk Off.
     



    Disclosure: I am short CRM and NFLX.
    Tags: INTC, MSFT, CSCO, HPQ, BIDU, CRM, OPEN, NFLX
    Sep 22 2:02 PM | Link | Comment!
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