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Andy Zaky
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Andy Zaky is a Hedge Fund Manager at Bullish Cross Asset Management, and editor of the Bullish Cross financial newsletter. His main area of knowledge is in global macro economics, fundamental analysis and technical analysis. Andy has about 14 years of investment experience, a strong background... More
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  • Markets Breaking Down from their Rising Wedges 25 comments
    Aug 6, 2010 12:44 PM | about stocks: AAPL, BBRY, GOOG, AMZN, CSCO, IBM, MSFT, INTC, QQQ, DIA, TLT, SPY, VZ, V, BAC, GS, XLF, JPM
    First Published - Friday, August 6, 2010. The indices are breaking down from their rising wedges today as investors fear that a weak jobs market portends a double dip recession.  The yield on the 10-year bond ($TNX) fell a dramatic 3% breaking down from its triple bottoms to form fresh 4-month lows.  At these levels, the bond market is all but indicating that we're headed for a protracted deflationary environment.  The TLT rose three-quarters of one percent as the VXX, an ETF following the $VIX, rose 3%.  

    Due to the nature of today's pull-back today, I think the July 1 to August rally is quickly coming to and end, and that we're in fact headed for another down leg in the markets perhaps to test the July 1 lows.  Rising wedges are generally bearish patterns, and when a stock or index breaks down from a rising wedge, the down leg that follows is generally steeper than the previous down leg.  So I think its very possible that we will test the July lows over the next 4 weeks.  The following are links to rising wedges on every major index: 

    Dow Jones Industrial Average
    stockcharts.com/h-sc/ui?s=$INDU&p=60...

    The NASDAQ
    stockcharts.com/h-sc/ui?s=$COMPQ&p=6...

    The S&P 500 Index
    stockcharts.com/h-sc/ui?s=$SPX&p=60&...

    The NASDAQ-100 (QQQQ)
    stockcharts.com/h-sc/ui?s=QQQQ&p=60&...

    Disclosure: At the time of this writing, the author holds September $45.00 puts on the QQQQ. The information contained in this column is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with their own professional financial advisors before acting on any thoughts expressed in this publication.
    Stocks: AAPL, BBRY, GOOG, AMZN, CSCO, IBM, MSFT, INTC, QQQ, DIA, TLT, SPY, VZ, V, BAC, GS, XLF, JPM
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Comments (25)
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  • Bron
    , contributor
    Comments (137) | Send Message
     
    I'm with you on this. Bought the VXX yesterday, also long TZA (sold some today), FAZ, SDS, etc. Bought UUP today as well. A bit of a flier on that, but we'll see.

     

    I had no faith in this rally at all and have been shorting it all the way. The market has really dragged it out, but this could be it. Will also be interesting to see how strong or weak the players are as this unfolds.
    6 Aug 2010, 01:57 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Technically and macro fundamental wise you are likely correct. But, the only players who matter are the Fed, Treasury, and their minions at the prop trading desks and HFT'ers. With virtually unlimited funds da boyz with PPT support can keep this charade going on as long as they want to. Just like they did again today in the last hour with yet another stick save, and like they have done on similar occasions many dozens of times over the past 16 months.
    6 Aug 2010, 06:33 PM Reply Like
  • Brett Owens
    , contributor
    Comments (184) | Send Message
     
    Great analysis Andy, I'll agree with Bron, am with you on this as well.

     

    Combine the rising wedges with the newfound bullishness, and it sure looks like we're ripe for some sort of decline. Will be interesting to see if it is violent enough to take out the July 1 lows.
    6 Aug 2010, 06:47 PM Reply Like
  • cphill
    , contributor
    Comments (41) | Send Message
     
    This last leg up has been harder to kill than a cat with 9 lives. I'm still holding shorts waiting for the next leg down.
    6 Aug 2010, 08:14 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Well, that makes at least four of us. ;)

     

    I think it has to happen soon, but that's what I thought 4 weeks ago.
    6 Aug 2010, 10:37 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Bron,
    Have thought the same thing since late 2009. And all past market metrics, macro fundamentals, weak volumes, etc. would basically support that. However with ZIRP and unlimited market support from the Fed, Treasury, and central banks it is entirely possible that they can keep this market levitated for virtually as long as they choose to do so. Just no way to tell when rational metrics will return to this market. It may well take some type of "catastrophic type event" to overwhelm this type of central bank intervention. Might be PIIGS defaults, large oil price spike, US 911 type reoccurence, etc. But it will have to be something pretty big, because the central bankers are determined (and have virtually unlimited resource control) to prevent a major market sell-off. That may change, but who has any idea when that may be other than Bernake and friends.

     

    You have to appreciate that you are playing a highly rigged game that a tiny handful of "insiders" are controlling and they can and have made the outcomes play out the way they want them to. And to give them credit, they have done a masterful job of orchestrating the outcomes for many many months now. And unfortunately they just might be able to keep it up for a lot longer yet.
    6 Aug 2010, 11:09 PM Reply Like
  • dhansen54
    , contributor
    Comments (87) | Send Message
     
    In a way you are right, I think, it is all rigged.
    And yet the market has been going up and down all year. What is to prevent that from taking place again? June 21st it started down and kept on going till early July; then we had a rally. Something like that is bound to happen again, rigged game or not; I think of it as just part of the way the rigged game is being worked.
    7 Aug 2010, 02:10 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    dhansen54
    Absolutely right for 2010 so far (but not 2009). But TPTB are preventing a major sell off from occuring, so far. If your good enough to play the 10-15% swings either way, you can probably make a bunch of money. Provided you can figure out when they are going to happen and how long they will go on and what the tops/bottoms are. The problem is what happens when and if a Feb/Mar/09 sell-off somehow breaks out again and you are stuck with a 50-60% loss that might take years to recover from. Is it really worth the risk? If the hedge funds can't really do it and are de-risking because they are having a hard time calling the swings, then what chance does the average investor have gambling against the prop desks and HFT'ers who obviously are controlling the moves and know exactly where the swings are going.

     

    But if your good enough to play these swings against the prop desks, then more power to you (just remember they have an almost perfect trading record over the past 4 Q's). More and more investors are declining to play this rigged game and instead are opting to move out of the equity markets altogether or in the alternative to move into bonds at least in the ST to intermediate term. Tis an ultra high risk game so many ordinary investors and even lots of the big institutuonal players are just not willing to play anymore at this point.

     

    Just as an example, the market has had a minor decline for the past couple of days. So what's your position? Are you going to go short now and predict a 10-15% sell-off from here and try and capture the decline? Or what are you going to do? Easy to see what happens after 2-3 weeks, but it's too late then as most of the move has happened by then. To trade this market and make any money, you have to catch the shift almost right away and then get out pretty close to the end of the move. So what's your prediction now and how are you going to trade the next 2-4 weeks? We will see if you are right .... but not an easy call for anyone except the prop desks and the HFT'ers.
    7 Aug 2010, 11:37 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    U.I.

     

    I think there's a lot to what you say. I have been trying to play those swings, but it ain't easy. However, I am not convinced anyone has complete control of the market. I think they may be able to juice it short term and paint the tape, as they used to say, but I'm not sure they can sustain it.

     

    Don't know though. You could be right. I do see, at times, what appear to me to be obvious "tricks" like pushing the indexes over a hotly watched mov avg or price point to sucker people in, that almost seems "normal" now.

     

    Maybe they can keep it artificially pumped up, but I think that's a dangerous game even for them. And I'm not sure "them" are even smart enough to have such a coherent plan and the ability to execute it. I am not as impressed by "them" as some are.

     

    But, then, I'm a little fish just trying not to get eaten up, so what do I know?

     

    Good luck to you and thanks for the interesting comments.
    8 Aug 2010, 12:27 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Bron,
    OK, fair enough and fair comments. Interesting discussion.

     

    A very very tough market for the small investor. Tons of risk and very difficult to try and generate returns. Personally, our main trades since about last Oct/09 has been to sell puts at well out-of-the money on equities we would be willing to own at the much lower strike prices. Has worked well for us and generated decent returns while keeping risk down. Probably will keep doing that as long as markets stay levitated and don't correct much. Also may start looking at some preferred equities and possibly some floating rate bond funds if not much changes in the equity markets by year end.

     

    Our view is that this is just a mighty dangerous market and very very tough to play in. Just not willing to look at taking potential losses of 20-50% for the relatively small long upside or relatively small dividend incomes. On the other hand it is tough to try and short the markets as well because TPTB seem determined to prevent any major sell-offs. A real delimna.

     

    8 Aug 2010, 01:47 AM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    U.I.

     

    Thanks, good post. Your put strategy seems like a good one. It is a tough market, for sure. Appreciate you sharing your insights and strategy ideas. I have the biggest cash position I've ever had right now. But still trying to work my aggressive trading acct. as hard as I can. Somewhat mixed results recently, but very good results up til June. So I'm hanging in there.

     

    I think your final paragraph sums it up very well.
    8 Aug 2010, 09:32 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    The Robots saved the day, today, for the bulls, but I don't think they can keep doing it forever.
    6 Aug 2010, 10:53 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    So you guys voting thumbs down on this comment -- how do you feel now? The phrase "taken for a ride" comes to mind.

     

    Cheers!
    12 Aug 2010, 11:36 PM Reply Like
  • friendlyspdy
    , contributor
    Comments (18) | Send Message
     
    Here's an interesting article that may explain these swings with a bullish bias.
    seekingalpha.com/insta...

     

    Though I hardly buy into conspiracy theories, I can't find any reason for the recent market rally and the lack of an earnings fade. If the majority of PPT's got burned by the recent "correction", perhaps their pushing for 1200 to dump their positions? By the way, that makes 5 of us shorts, and oh it hurts so good.
    9 Aug 2010, 12:32 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Ha-ha, yes, at least 5. ;)

     

    Re: "and oh it hurts so good." :D

     

    But feeling a little better today, no?

     

    I feel like I'm on that roller coaster and we're just clicking and clacking our way to the top and now we're slowing down and then...
    10 Aug 2010, 10:57 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Boom! And away we go!
    11 Aug 2010, 07:46 PM Reply Like
  • MikeMalty
    , contributor
    Comments (31) | Send Message
     
    Bron, Untrusting Inv, great conversation. I'm just sad to see that there were more thumbs down than thumbs up on your comments. When are more traders going to realize that the game is rigged to take the most amount of money from the most amount of people? True, the Wall St. boys and politicians can't control 100% of the market but get real, America is financially in trouble yet all of a sudden the collective masses thought it was a great time to buy and drive up the Dow by 1k points in the month of July. BS! I believe we see Dow 9k before 12k. It's time to burn all those folks that went long this last rally. Look at how much the market pealed off in 1 week since comments started in this thread. I'm long FAZ, TZA and VXX. Great job goes to the writer, Andy as he hit the nail on the head regarding the breakdown of the wedges!
    13 Aug 2010, 04:39 PM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Yea, I don't get all the thumbs down votes - especially with no comments supporting them. But, whatever!

     

    My personal view is that the big boys have all the advantages and use them -- but I don't think they're any smarter than anyone else. They are skimming and scalping to a fare the well ... basically they have a license to steal (from the rest of us), so it's hard for them to lose money.

     

    That said, it's still very possible for "us" to make money, even though the Lords will tax us peasants on every transaction and the Robots will show no mercy. So I don't worry about it too much. But I do think it's a high price to pay and hurts our country over all (i.e pensions, 401k's, etc.).
    13 Aug 2010, 11:57 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Mike and Bron,
    Not to get too excited about thumbs down on SA. There is a small bunch of permabulls on SA that somehow think that by targetting various posters on SA with thumbs down, they will somehow influence the markets and magically cause the markets to rise or macro variables to become less negative. But you will have the last laugh if you avoid losing money and position yourselves to take advantage of more favorable market conditions.

     

    After all, in the end all that matters is performance and whether you make or lose money and what your returns are over time. Best of luck with your investments going forward.
    14 Aug 2010, 12:37 AM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Well said - thanks and best regards!
    18 Aug 2010, 09:57 PM Reply Like
  • Andy Zaky
    , contributor
    Comments (538) | Send Message
     
    Author’s reply » What in the heck? Where did all of these comments come from? I need to start focusing more on the way I'm positioned in this market than on fundamental analysis. So how did you all do this week? I made one hell of a trade. I've traded in and out of September puts on the QQQQs and have completely avoided every rally in this market while leveraging every down move. I'm currently all in cash to avoid mutual fund monday. if we rally on monday as I suspect, I'll probably hop right back into those puts. How is everyone else doing?
    14 Aug 2010, 06:05 AM Reply Like
  • Bron
    , contributor
    Comments (137) | Send Message
     
    Did fairly well, but it's been messy! ;)

     

    TZA and FAZ did the best for me. SDS not so much (I made some bad buys early on and they cost me).

     

    Not bad, overall, though.
    18 Aug 2010, 10:03 PM Reply Like
  • Andy Zaky
    , contributor
    Comments (538) | Send Message
     
    Author’s reply » Here's a link to one of the best technical analysts that I've seen around the net. I've been trading a lot on his model and 9 out of my last 10 trades have been very green. I've brought in well over a quarter million since May using a lot of his technicals. This guy is really worth following:

     

    cobrasmarketview.blogs...
    14 Aug 2010, 06:08 AM Reply Like
  • cphill
    , contributor
    Comments (41) | Send Message
     
    "Cobra" does very detailed and interesting work. Thanks for sharing.
    15 Aug 2010, 11:49 AM Reply Like
  • MikeMalty
    , contributor
    Comments (31) | Send Message
     
    We might end the day green on Mon, but I'd be surprised if we gaped up in the morning because big money usually sells the VXX late Friday's anticipating moving much higher on Monday and they didn't this last Friday. In fact, the VXX closed near session highs leading me to think that we could open flat or even red on Monday with a spike in volatility.
    14 Aug 2010, 09:22 AM Reply Like
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