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Just a small fish swimming in shark-infested waters. I have a BS in Chemical Engineering and a deep interest in science and investment management. My investment strategy was designed based on fundamental, technical and intermarket trends. Asset allocation follows this plan, which mostly focus on... More
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  • Institutional Investors: We Eat Tapering Fear For Breakfast

    Guess what? As some investors fear the Fed tapering talk and are dumping "risky" equities, others are buying them like nothing is happening. One man's trash is another man's treasure right?

    "It's actions, not words, that matter."

    Nicholas Sparks

    June data from State Street Corporation suggests that the risk appetite of institutional investors has been increasing, both in North America and globally. In fact, the 106.8 reading in the Investor Confidence Index is the highest score since March 2010. The index had a robust increase for North America going from 102.6 to 114.0 in one month, signaling that institutions saw the dip in the market as an opportunity to flip the allocation switch to risk-on mode again, instead panicking.

    (click to enlarge)

    As I mentioned in my last article (Mixed Signals: To Buy or not to Buy?), the trend in inflation readings is pointing hard to the downside. Not a good time for the Fed to slow the pace of purchases. If this trend were to continue at the same pace, we will find ourselves at 0% inflation in about 2 months as measured by the CPI.

    Take the performance of the Barclays TIP bonds fund (NYSEARCA:TIP) versus the performance of the Barclays 7-10 yr treasuries fund (NYSEARCA:IEF) as an inflation expectations example. The TIP:IEF ratio is currently lower than the October's low of 2011. Mix the slide in TIP bonds with the ever falling commodities, strong demand for US dollars and weak industrial production and the Fed has the perfect reason to comply with its mandate and fight for the 2% inflation target.

    The problem for equities now is the ill-timed, quasi risk-off language by Bernanke in the last FOMC meeting, something that Federal Reserve Bank of St. Louis President James Bullard doesn't agree with either.

    For now, the market seems to be taking advantage of the dips. The S&P 500 (NYSEARCA:SPY) bounced off the Fibonacci 38 retracement on June 24. I was a cautious buyer then, and will be a buyer again if the market falls to the Fib 62 retracement level as long as conditions remain similar, specially the Fed open market operations, inflation, US bonds behavior and relative calmness in European bond markets. Until later, trade safe.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Any content in this article should not be considered as a recommendation or investment advice given that financial objectives and individual needs of the end user have not been evaluated. Suggestions or tips are for information purposes only and there is no guarantee on stock returns or market performance. All readers must use their prudence and consult their financial advisors before acting on any of the securities or suggestions mentioned or engaging into any other high risk investment. I do not hold any responsibility and can not be held liable for any losses incurred (if any) by acting on the information provided.

    Jun 28 4:01 PM | Link | Comment!
  • Short-term Update: It's Official (Once Again), 7% Is The Key Panic Number

    As bond yields approached and played around the 7% mark on Italy and Spain respectively, once again politicians began to yield. At the end, it was basically Angela vs the world. The rules on how the ECB will keep injecting liquidity into the banking system of troubled countries have been loosen up a bit. The market has received with open arms the ECB meeting output and it's cheering for now. It has been proved once again that the bond market is the boss. Everybody starts to yield near 7 MPa of pressure (just above 1,000 psi). As a matter of curiosity, that's around half the yield strength of human skin.

    "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."

    - James Carville, political advisor to president Clinton

    Almost all market conditions and technicals were ready and set to run hard to the sub-1280 levels right before the meeting. Many of them are still present. But, even though this was not a bazooka shot, I think it is a game changer. Is it the end for the bears on the short term? It's difficult to say, but my hypothesis about going back to 1,266 or 1,250 seems farther to reach today than yesterday. It's possible that we will not be able to buy again at those levels for a while. We will see about that.

    The important thing here is not to loose focus on the long term horizon. The printing virus will slowly proliferate around the world. As I pointed in my previous articles, I've been buying undervalued stocks on panic dips, and I sustain that strategy is better than trying to trade on short-term speculation, specially when the stress is so high, as shown by the bond market. No matter the conditions, you don't fight the central banks. It's no time to be a perma-bear, even if the economic data doesn't look right.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SPY, TLT
    Jun 29 5:59 PM | Link | Comment!
  • Short-term Update: What's Going To Come Out Of The ECB Meeting? Not Enough, Says The Hanging Man

    According to technicals, the output of this European meeting will be...


    nothing spectacular for the bulls.

    An image with a thousand lines speaks a million bears...

    (click to enlarge)

    Quick bearish observations:

    1. The market is playing a short-term symmetric triangle, which may mean downward continuation.
    2. The FED speculation rally (which began fiercely with a candlestick pattern that has a close enough resemblance of a morning doji star) did not surpass the 62% Fibonacci resistance.
    3. The 38% Fibonacci support could not hold the disappointment slide.
    4. It is highly probable that the market is just starting the third impulsive fractal inside a third ugly downward wave.
    5. The last candlestick is a "hanging man". What a way to scare the bull army eh?

    Ross: [cutting the rope on the tree] Why did they hang him so high?
    Cogburn: I do not know. Possibly in the belief it'd make him more dead

    - True Grit (movie)

    In short, technicals are confirming what we already know:

    If the meeting output is not good enough, we are going down (which goes in accordance with the hypothesis I discussed in previous articles). If that turns out to be the case, the bond market will let us know in the coming days/weeks how much stress is needed for the politicians to yield and for the central banks to stop saving their bullets for later.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SPY, TLT
    Jun 29 1:48 AM | Link | Comment!
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