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Playing the Ponzi
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Why “Playing the Ponzi”? I view the entire monetary and financial system as something of a Ponzi scheme. Starting with currency that is created as debt, and running straight through a global economic model that is based on infinite growth in a finite world. This won’t end well. I’d go a step... More
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  • SPY Back To Top Of Range: Time For Caution

    The U.S. markets have rallied with the S&P topping 2000 as I suggested may happen a few weeks ago. The S&P has continued trading within the rising wedge that we've been following her for quite a while. The end of the pattern is near... by early 2015 at the latest, it would seem. I would be surprised to see such a long-standing, well-defined pattern fizzle into nothing. But we shall see.

    One note is that I am waiting until at least the middle of next week to add to short positions. There has been a trend of equity inflows on the first of the month (next Tuesday will be the first trading day of September) and we may see a pop that day. Many major market turns have come near seasonal dates in March and September, so it may be worth waiting until later in the month.

    Here is how I see the S&P pattern (actually S&P futures, which has a slightly cleaner pattern than SPY):

    (click to enlarge)

    We are back to the top of the range.

    The last couple of pivot points have been foreshadowed by action in VIX (XIV, the inverse of VIX, is actually what I have traded with) and small caps (IWM/RWM). Once again those two have recently started underperforming the S&P. First small caps (NYSEARCA:IWM):

    (click to enlarge)

    XIV (inverse of VIX) has also under-performed lately:

    (click to enlarge)

    Some of the securities that i have been bullish on appear to be hitting resistance.

    Brazil (NYSEARCA:EWZ), which I think still looks to be in a healthy bullish channel longer term, may be due for a pullback or some consolidation after the run-up of recent weeks. Given the pullback that I expect to see in U.S. markets, I am taking profits in EWZ at this time with the thought that I will buy back if it works its way back to the bottom of the channel.

    (click to enlarge)

    30 year Treasuries (NYSEARCA:TLT) have rallied in the last week and are hitting significant resistance. Like EWZ, it appears to be in longer term bullish channel, so the rally may not be finished, but it seems more likely to pause here.

    (click to enlarge)

    I may have saved the best, or at least most telling, for last. VEU, which is the Vanguard international equity ETF, has a multi-year ascending triangle in place. That is a bullish pattern, and we are at the top of it... read to break out?

    (click to enlarge)

    In the shorter term, however, there is a 2-3 year bearish rising wedge in place, and it may be starting a downtrend.

    (click to enlarge)

    It will be very interesting to see how this resolves.

    Hold loosely to your beliefs, and good luck trading!

    Disclosure: The author is long TLT.

    Additional disclosure: I own RWM calls.

    Aug 29 12:22 PM | Link | Comment!
  • Rally caps back on?

    A world hankering for war? No problem. Despite rising geopolitical tension, it looks like the U.S. markets may be done with negativity for now. Though the longer term patterns remain bearish, and I still believe the end is in sight, it looks to me like another push higher (maybe to S&P 2000?) is likely in the cards. Let's look at some charts.

    First, the S&P (NYSEARCA:SPY), which never got down to its support line, but did post a nice reversal pattern last week.

    (click to enlarge)

    Here's a closer look at last week's SPY reversal:

    (click to enlarge)

    The most interesting chart to me is the inverse-VIX ETF that I had been short, (NASDAQ:XIV). I closed my short on Friday and opened a long position today. We'll see how that goes...

    (click to enlarge)

    Small caps (NYSEARCA:IWM) seem to have found support and may be moving into a sideways channel. I still expect to see it break down to new lows, but I am open to being wrong.

    (click to enlarge)

    Nasdaq (NASDAQ:QQQ) is one of the most interesting charts because it barely budged off its highs! Wow. I wonder if it'll push to that upper line?

    (click to enlarge)

    With bulls still running amok and geopolitical risks rampant, it seems like a good time to stay nimble regardless of bull/bear bent.

    Disclosure: The author is long RWM, XIV.

    Aug 11 12:24 PM | Link | Comment!
  • Updating The Selloff

    The last trading day of July sure was interesting, as U.S. indexes plunged lower. I thought I'd do a quick whip-a-round of various chartological implication.

    The primary point is that U.S. indexes appear to be pulling off their highs, which has two meaningful points: 1) there is room for additional weakness before support, and 2) No major support is broken or threatened in the S&P or Nasdaq.

    First, the S&P (NYSEARCA:SPY):

    (click to enlarge)

    And Nasdaq (NASDAQ:QQQ):

    (click to enlarge)

    Weakness is more noteworthy in the Dow Jones (NYSEARCA:DIA), which is threatening to break a long-term support trendline:

    (click to enlarge)

    Small caps (NYSEARCA:IWM) have already broken support and failed on the bounce-back to resistance. The big question is whether it will push below its lows from a few months ago:

    (click to enlarge)

    Also very noteworthy is the weakness evidence in Junk bonds (NYSEARCA:JNK), which have now broken the rising support trendline from 2010 lows.

    (click to enlarge)

    All told, this adds up to significant reason for additional caution in my opinion. It does not, however, indicate "the sky is falling." This may be a garden variety pullback. However, small caps and junk bonds have a history of successfully forewarning of danger when risk appetite stars drying up. Europe bears very close watching as weakness in the some of the charts I recently identified like Switzerland (NYSEARCA:EWL) and Spain (NYSEARCA:EWP) continues to accelerate to the downside.

    Disclosure: The author is long RWM.

    Aug 01 11:54 AM | Link | Comment!
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