Seeking Alpha

Joel Elconin's  Instablog

Joel Elconin
Send Message
I'm a proprietary trader focusing primarily on the Standard and Poor's 500 Index futures and its top 10 components. I have over 20 years of proprietary trading experience specializing in momentum contrarian and technical and fundamental trading.
My company:
Benzinga's PreMarket Prep Show
My blog:
View Joel Elconin's Instablogs on:
  • Lewis Is Right!!! The Market Is Rigged, To The Upside

    Recently, Michael Lewis shocked the world with his announcement on 60 Minutes that the market is "rigged". His premise being that High Frequency Trading has created an unlevel playing field for investors has some merit.

    However, only Predatory High Frequency Trading tactics have a negative impact on the market. Several of their tactics provide liquidity for the market and actually create trading opportunities for savvy traders.

    But I do have to agree the market is "rigged" and it is rigged to the upside for one basic reason.

    From a macro-economic standpoint the Federal Reserve Bank and its Quantitative Easing policy has successfully applied band-aids to an economy that needs major surgery.

    The notion of QE is an outrageous policy in the first place. It is an unconventional monetary policy used by central banks to stimulate an economy when standard monetary policy has become ineffective.

    As a result of the central bank buying specified amounts of financial assets from commercial banks and other private institutions, the monetary base is increased by lowering the yield on those financial assets. In other words, QE stimulates the economy by purchasing assets of longer maturity rather than short-term government bonds and lowers longer-term interest rates further out on the yield curve.

    Simply put the Fed is printing money and pumping it into the economy and keeping interest rates artificially low. And with all money being flushed into the economy, it has to find a place to go. With bonds and treasury yields not keeping up with inflation, this money has nowhere to go, except for the stock market.

    All of this taking place while the public is under-invested after being forced out during the 2008-2009 financial crisis and unsure when to get back in. Therefore, all the "free" money being pumped into the economy is competing with the money managers as well as the public for assets that provide passive income.

    Essentially, the Fed has forced the hand of many investors and left them no choice but to invest in the stock market. Active investors may choose to start a new business as opposed to taking unwanted risk in the market, but passive investors are left with very little alternatives other than investing in a potentially inflated stock market.

    By continuing with QE2 and QE3, the Fed has only exacerbated this phenomena. And with the economy only growing at a modest rate despite these efforts, the Fed has backed themselves into a corner. QE forever.

    That's right, any time the unemployment rate or economic indicators signal any weakness, the Fed can reverse the tapering process and turn on the spigot, pumping more and more money into the economy to maintain anemic growth.

    All of this is fine and dandy if inflation remains low. And with the Fed already depressing the rate of the Core Producer Price Index by excluding food and commodity prices, the true rate of inflation may not be known. Since consumers spend a large portion of their income on energy and food, excluding these elements may a create a distorted view of inflation.

    For now QE has helped ensure that inflation does not fall below projected targets. However, there is a significant risk that this policy may be more effective than intended in acting against deflation, which may lead to higher inflation in the longer term, due to the increased money supply. If that comes to fruition, the Fed will have no choice but to raise rates and the whole market will come crashing down.

    As long as the Fed can mask the true rate of inflation and continue with QE forever, the market will remain "rigged" to the upside. Enjoy the ride and do not hesitate to take some profits along the way. With the amount of money being printed and pumped into this economy it is unreasonable to believe that inflation can remain low FOREVER.

    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. I have no business relationship with any company whose stock is mentioned in this article.

    May 23 4:05 PM | Link | Comment!
  • S&P 500 Index And Big 10 Weekly Outlook-Week Of September 3rd, 2012

    Another week of consolidation and just over a 20 point trading range for the September S&P 500 Index futures. For those of you selling out of the money options thinking this pattern will continue forever, be careful. There is no way this muted volatility can sustain itself.

    Once again, the index tested the 1390 handle and rebounded. After making a low on Thursday (1395.25 which matched the August 24th low) and Friday's low (1397), major support could not be better defined. Forget about all the other lows in the lower 1390's, if 1395.25 is breached it is time to pick an exit point and sit tight.

    As well as major support is defined, so is major resistance. How about a triple top at Tuesday's (1412), Wednesday's (1412.50) and Friday's (1412.25) highs. Not very often do you witness such key formations on both sides of the market . Therefore, be prepared to capitalize if the support or resistance is taken out.

    (click to enlarge)

    Apple (NASDAQ:AAPL) got a boost on Monday from a favorable court ruling against Samsung. As a result, it made a new all time high that day at 680.87 but retreated later in the week to close at 665.24. Obviously, the big money used the gap open opportunity to unload some of their position as opposed to adding to it. The long-term ramifications of the verdict and how much it will add to AAPL's bottom line is impossible to predict. Most likely, the verdict will be appealed and there is no guarantee the decision will be upheld. From a technical perspective, there is not much support under the August 24th low (655.55). On the upside, traders will only be confronted with minor resistance points until the all time high of 680.87.

    (click to enlarge)

    Just as important as the 1395 level is to the September S&P futures, so is the 87 level in Exxon-Mobil (NYSE:XOM). With five of the previous eight lows between 86.93-87.14 (which was Friday's low) XOM has provided traders and investors with an excellent reference point. Long-term investors looking to protect profits should use this level as a possible exit point if XOM retreats. For those in the bullish camp, XOM has provided a lower risk entry point to attempt a long. On the upside, institutional selling has been persistent in the entire 88 handle for the last month and will continue to be present all the way up to the 52 week high of 88.91.

    (click to enlarge)

    International Business Machines' (NYSE:IBM) performance relative to the overall market during this recent rally has been disappointing. Not only has it come nowhere near its all time high of 210.69, it has struggled to even maintain staying above 200 for any extended period of time. After making a double top from August 24th (198.11) and Monday (198.29), IBM has deteriorated and closed at 194.85. Beneath the double bottom from Thursday (193.18) and Friday's (193.46) low, IBM enters a vacuum area with no visible support until well under 190. Keep in mind, during the recent market sell-off back in July, IBM breached its June low by several points, while several other issues in the Big 10 did not.

    (click to enlarge)

    Another laggard in the recent rally and more of a laggard from the 2009 lows is Microsoft (NASDAQ:MSFT) However, the technical formation of MSFT is much different than that of IBM's. While IBM is attempting to break down, MSFT is trying to break out. On Friday, MSFT made its fifth attempt this month to clear 30.96 and the institutional sellers at 31. Perhaps the sixth time will be the charm and MSFT can migrate towards its 52 week high at 32.95. On the downside, major support has moved up slightly from the mid-August lows at 30, up to Thursday's low (30.22).

    (click to enlarge)

    After making a 52 week high of 21.19 on August 7th, General Electric (NYSE:GE) has been in a trickle down sell mode. Nothing spectacular, but just a modest decline in price over the course of the last few weeks. Now with a triple top at Monday's (20.95), Tuesday's (20.92) and Wednesday's (20.95) highs, it almost feels like GE will never trade above 21 again. On the downside, GE is hovering above the August 24th (20.55) low and put in a double bottom on Thursday (20.62) and Friday (20.61). If GE breaches the double bottom it may migrate towards the 20 level.

    (click to enlarge)

    Chevron Corporation (NYSE:CVX) has been confined to just over a three point trading range since August 3rd (110.70-113.87). CVX visited the lower end of the trading range on Thursday (low of 110.92) and rebounded on Friday to close at 112.16. As the chart indicates, there has been institutional selling pressure present in the entire 113 handle and was reinforced on Friday as CVX topped out at 112.95. As long as CVX maintains 110.70, there will be continued attempts to make a new all time high above 113.87. If not, CVX has no major support until the August 2nd(108.47) low.

    (click to enlarge)

    Similar to the other major components in the index, AT&T (NYSE:T) is range bound, trading in a 62 cent range (36.43-37.05) since August 20th. Sellers have constantly reloaded in the 37 area, while buyers are doing the same at 36.45. Considering its monster run from 34.24 to 38.28, T has held up quite nicely. Until T can get above and hold 37, or break down below 36.43, traders should be prepared for more of the two-sided activity in the upcoming week.

    (click to enlarge)

    The consolidation theme continues with Johnson&Johnson (NYSE:JNJ). For the last ten trading sessions JNJ has primarily traded between 67 and 68. Briefly trading under 67 on Thursday (66.85 low) then rebounded towards the upper end of the range on Friday (67.90 high). It appears institutional sellers that missed exiting at 68 during the recent rally seem determined not to be denied again. Expect those sellers, coupled with the High Frequency Trading crowd shorting in the mid 67.90's, to be active again this week. On the downside, minor support can be found at 66.85 and at the triple bottom from June 26th-June 28th from 66.36-66.44. However, if JNJ breaches the June 25th low (66.14), it could possibly go into a freefall mode.

    (click to enlarge)

    What can you determine from Wells Fargo's (NYSE:WFC) 47 cent trading range from last week and 70 cent range since August 22nd? Not much. Until WFC can clear the multiple highs from 34.20 (Friday's high) to 34.28 (Wednesday's high), there is limited amounts of money to made on the long side. On the other hand, if WFC can breach its cluster of lows around 33.80 and 33.50, there is very little support until the August 2nd low of 32.84. With five of its previous six closes between 34.02-34.10, traders should continue to use 34 as a key swing level.

    (click to enlarge)

    The tightest range of the week award goes to Pfizer (NYSE:PFE) with a 36 cent range(23.75-24.11). As institutional sellers have been stacking their sell orders from 24-24.11, PFE has managed to trade above 24 in five of its last six sessions, but closed above it on only one occasion. After fending off negative responses from the FDA regarding their new Alzheimer's drug, PFE still cannot muster a significant rally back up to the 52 week high of 24.49. On the flip side, PFE has bottomed between 23.59-23.82 during the last twelve trading sessions. Investors anticipating a big move in PFE, will not get one until it can post a string of closes above 24.11 or below 23.59.

    (click to enlarge)

    This weekly outlook is like a broken record (for those of you who still remember what a record is), consolidation, consolidation, and consolidation. Unfortunately, the bulls and the bears are at loggerheads and neither side can gain an edge. For the time being, the bulls have successfully defended 1395.25 and the corresponding support levels in the Big 10 components. The bears and large institutional sellers have not backed down with their gigantic sell orders and have prevented much talk about a melt-up in the market. With the August unemployment data looming on Friday during this shortened trading week, Tuesday through Thursday may be just as boring as the last few weeks. My suggestion would be to ignore the immediate reaction to Friday's data (the market has been dead wrong the last few times, selling off on poor data, then rallying back to even higher levels before the next report). Instead focus on a break out above 1412.50 or a break down below 1395.25 to determine the market direction over the next few weeks.

    Sep 04 10:48 AM | Link | Comment!
  • Another Secretariat And 1973 Market In The Making?

    For investor's sake, let's hope not. In 1973, when Secetariat accomplished his unprecedented feat of winning a Triple Crown, the market was down 14.7%. With the market up roughly 7% (and shrinking) year to date, that would be quite a reversal of fortune. But for fans of the horse racing industry (including myself) it would be a welcome victory which would help to renew interest in the fading sport.

    With I'll Have Another's impressive come from behind victory in the Kentucky Derby, he has emerged as a viable candidate to the Triple Crown as the sport has seen in years. After Seattle Slew (1977) and Affirmed (1978) there has been quite a drought. Since that time, 11 horses have won the first two legs of the jewel only to be thwarted in the final grueling Belmont Stakes of 1 1/2 miles (Derby-1 1/8 miles and Preakness-1 1/6 miles). Most recently, Big Brown (2008) wilted in the stretch in 97 degree heat after a rocky start, and finished dead last.

    In my opinion the lack of a recent Triple Crown win since 1978 and many failed attempts can be attributed to one factor, inbreeding. In fact, most of today's modern thoroughbreds can trace their pedigrees to a handful of English stallions and larger crop of mares mainly imported from England during the 17th and 18th century. As a result of performing with maximum effort in each and every race, health problems are a major concern for thoroughbred owners. Therefore, the likelihood of winning the treacherous Belmont Stakes is strongly influenced by the toll taken on the winner in the first two races.

    With that being said, I'll Have Another steered his way off a gigantic field in the Kentucky Derby and meandered his way clear at the top of the stretch with little trouble. He was able to run down Bodemeister, who had set a torrid pace earlier in the race.

    So if it is not going to be a two-horse race again (Dullahan-3rd in the Derby is not entered) who can end the Triple Crown hype before it really gains momentum? Let's handicap some of the others from the Derby as well as a recent race winner at Pimlico Race Course (who in the past has pulled some upsets).

    Creative Cause, who finished 5th in the Derby deserves some consideration. However, I'll Have Another has defeated this horse soundly in his last two starts and will not allow Creative Cause or Bodemeister to get too far ahead in this abbreviated race.

    Bodemeister, who may go off as the favorite (I certainly hope so), would have won the Derby if he had not set such a blistering pace out of the gate. Expect his jockey to do the same in Preakness to fend off any late charges by I'll Have Another. However, stamina is going to be a huge factor for Bodemeister and Creative Cause to overcome, since this will be their third race since March 10th (while their rival has one less start under his saddle in the same time period).

    Pretension, who had been first or second in each of his first five starts, could be the spoiler. As a result of racing off the pace in his last two races, he finished up the track in both starts. However, on May 5th at Pimilico Race Course, he returned to the winners circle. Pretension positioned himself just behind the leader and made his move at the top of the stretch to secure the victory. His familiarity with the track and front running style would be a very attractive combination with I'll Have Another, paying the mother load if he ends up on top.

    In closing, my money will be on I'll Have Another (more so if he is not the favorite) along with some perfectas with the aforementioned candidates. After he rewarded me so handsomely with his Derby victory, I do not want to "look a gift horse in the mouth". Perhaps long-term investors should view the incredible rally since the 2009 lows the same way, whether or not a Triple Crown win comes to fruition.

    May 17 11:23 AM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.