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The Simple Accountant
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Harry Fotopoulos, "the Simple Accountant" is a twenty+ year veteran of corporate accounting and finance, much of it in manufacturing, but also including a stint with a tech startup. Harry manages two separate portfolios, one focused on current income, the other on total return. A... More
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  • Interesting Trading Action

    Quick midweek update:

    Wednesday's trading action was quite interesting. We saw what looked like a short term reversal in U.S. stocks. as the day began down heavily and ended on a positive note. This is a departure from the trading pattern over the recent correction. It's all the more interesting as the dollar index broke over 82 and, in the short term, is in uncharted territory - we haven't seen 82 in nearly two years.

    Gold also put in what could be seen as a reversal while the dollar surged, but crude oil fell again and looks set to break below $90.

    Treasury yields are still bumping along near the bottom, and corporate bonds seem to have stabilized.

    All of the major U.S. equity indexes, except the NYSE composite, have successfully defended their 200 day moving averages at this point. Of particular note, the small cap Russell 2000, which did break the 200 day briefly last week, has held the line this week.

    It looks like the bounce I was anticipating may be getting under way, but a healthy skepticism is still warranted. My suspicion is that the correction hasn't played out just yet. We could get to 1,340 - 1,350 on the SPX and then see another decline back toward the 200 day.

    Good luck, everyone, and be careful out there.

    May 24 8:53 AM | Link | Comment!
  • My Take On Last Week, And A Look Ahead

    First, and apology to readers for missing the weekly full analysis over the weekend. Time, travel and workload finally caught up with me, and some down time with family was a much needed respite. This doesn't mean I wasn't looking at the market action. I did most of my usual weekly research, so here's my quick take:

    The "sell in May" meme, which I suspect most of us fully expected, combined with Euro jitters ahead of the weekend's elections, sparked a thorough risk-off move that showed particularly on Friday. One clue: in recent weeks gold had been more highly correlated with equities and other commodities (the risk on trade). Last week it was more correlated with U.S. Treasuries (the fear trade).

    A recurring theme of my articles has been the U.S. dollar, the euro, and their correlations with risk assets. Over the weekend we saw European voters reject austerity regimes set up to deal with the debt problems. This would seem to be euro bearish and dollar bullish, on the expectation that we stand to see more easing from the ECB if growth, rather than austerity, becomes the primary policy stance.

    So here we are, four years out from the financial crisis, and still seeing weeks where the trading action looks to have been inspired by fear and loathing. The selling of equities was global (except, notably, China and a few smaller Asian markets). How to interpret this? First, I will admit to having been unable to get a good feel for market direction over the last several weeks of trading. When that happens, as it does periodically, I move to the sidelines until the picture clears. That's where we are presently, on the sidelines, watching.

    Going forward, I still have not turned bearish on equities, but am not enthusiastic about holding broad indexes either. My position all along has been that investors should be picky about what they hold. We have been weighted toward tech, energy, health care and consumer staples. We're out of energy but still holding our tech and consumer staples, as well as some health care and financial names, because they are holding up rather well. There are quite a few stocks and sectors that are breaking down. It's easy enough to avoid them.

    What to look for:

    1. SPX to test 1,360 and then 1,340. A failure at 1,340 would open up the 200 day and the October high, both below 1,300.

    2. CRB commodities index to hold the 292-295 range. A break below 290 would be quite bearish for commodities.

    3. Long bond yield to hold above 3%. A return to a 2 handle would not look good.

    4. Constructive action in the bank stocks, particularly the money centers. B of A (BAC) and Citi (C) broke the 50 day a couple of weeks ago, JP Morgan (JPM) broke it Friday, and Wells Fargo (WFC) just held it. The banks had been big players in the rally off the October bottom.

    That's all for now, good luck and be extra careful out there. We will return to the regular weekly article, with full analysis and charts, next weekend. Thank you for reading and for your support.

    Disclosure: I am long BAC.

    May 07 8:42 AM | Link | Comment!
  • Chairman Says Nothing, Gold Collapses...and More Important Stuff
    OK, so the title of this morning's post is a little tongue in cheek, but the point is that Chairman Bernanke said nothing in his Congressional testimony yesterday that was news. Gold investors immediately hit the panic button, we are told by the pundits, because of what he didn't say - no clear signal of another round of QE. We'll see what today brings, but I don't expect to have to deploy my sock tethers.

    Nevermind that the Chairman doesn't need to signal anything. His colleagues across the pond took care of it with a 529 billion euro 2nd round of LTRO, which also supports the macro case for gold. Liquidity is liquidity, whether it comes from the Fed, ECB, BOJ, etc. As we are in one of our rare periods of having an open position in gold, I am forced to pay attention, otherwise this would have been a passing note. My current outlook: gold has not violated the uptrend or the 200 day MA, which is positive, but has taken out the last four weeks+ of trading on huge volume. Our long position is now slightly underwater so I am keeping a close watch on it. Expect a bounce today and then we'll see what happens. If there is no bounce, I go from vigilant to worried and quite possibly out of the position.

    Elsewhere, and in my view the far more important bit of news, we note this morning's ruling by the International Swaps and Derivatives Association that last week's Greek bond deal does not constitute a "credit event." Of course, reasonable observers are asking how a 70% PV haircut can not constitute default, but it was entirely predictable; triggering the default swaps is something nobody wanted to see - save speculative buyers of said swaps. This may also put a bit of downward pressure on gold. Small price to pay, I suppose, for the benefit of the world being saved from ruin by its heroic central bankers.

    Disclosure: I am long IAU.

    Tags: Gold
    Mar 01 9:00 AM | Link | 2 Comments
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