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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
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  • Stocks Continue Higher As Only Seven Of 91 European Banks Fail Stress Tests … Could A Market Turn Be At Hand? 0 comments
    Jul 24, 2010 7:39 PM | about stocks: FXE, VT, ACWI, UUP, DBV, HYD, AGG, EMB, TLT, TMV, FEZ, EUFN, TZA, SJH, SIJ, EPV, SMN, BIS, BOM, XLI, XLB, VXX, CRED, HYG, EEM, BIK, RZV, DBB, IYF, XLF, IWM, IYR, SMH, TAN, IBB, EWP, AUSE, FXI, EWZ, ECH, EWA, EWJ, THD, EWM, EZA, BRF, EWS, RSX, GXG, ANH, TGP, WMZ, PCP, MMM, PX, DE, CMI, WAG, SNDK, BIDU, SFLY, FCZ, WDF

    I … Seven Of 91 European Banks Fail Stress Tests …. Tests Limited To The Government Bonds The Banks Trade

    Jann Bettinga and Charles Penty of Bloomberg report Seven EU Banks Fail Stress Tests With $4.5 Billion Shortfall. Seven of 91 European Union banks subject to stress tests failed with a combined capital shortfall of 3.5 billion euros ($4.5 billion), stirring concern the evaluations weren’t strict enough. Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks have insufficient reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis, lenders and regulators said today.The banks are in “close contact” with national authorities over the results and the need for more capital, said the Committee of European Banking Supervisors, which coordinated the tests. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal.“It would have aided credibility if there had been a higher number of fails and a higher amount of capital raised,” said Jon Peace, a London-based analyst at Nomura International Plc. “People will be surprised that it is as small as that.”The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests ignored the majority of banks’ holdings of sovereign debt, analysts said.

    Kerri Shannon, Associate Editor of Money Magazine writes in article Ignoring Sovereign Default Damages Credibility of EU’s Bank Stress Tests:  “The European Union bank stress tests failed to account for a sovereign default, meaning results show a healthier banking sector than actually exists.  The test results were released Friday with seven banks failing, but analysts say many more institutions could have failed if the tests simulated a sovereign default. Testing regulators from the Committee of European Banking Supervisors (CEBS) decided against testing securities held in lenders’ banking books, where sovereign debt is held and only written down in the case of default” … Bloomberg quotes Gary Jenkins, an analyst at Evolution Securities Ltd:  ”The long-awaited stress tests do not seem to have been that stressful after all,“… “The most controversial area surrounds the treatment of the banks’ sovereign debt holdings.”

    The chart of the EUR/JPY and EUFN shows today’s 1.1% rise in the European Financials; click on chart to enlarge.

    II … Base Metals Were The Commodities Mover Of The Week

    DBB 0.1% Base metals have rallied for five days, rising 6.6%; I do not believe the carry traders will continue to support base metals. Copper, JJC, rose 9.0% this week; I do not see any market demand for follow action next week. Corey Rosenbloom writes: ”Either copper and stocks will fail to overcome resistance here and thus swing lower (continuing their downtrends), or the will likely break upwards together, sending both copper and stocks into an upward impulse above their resistance levels. Either way – we should know the outcome soon – early next week that is.” …  TraderMark writes a thoughtful article in Seeking Alpha entitled A Change in Mood for Copper, China? …. Charts reveal that copper is a volatile commodity, any pops from its current 42.76 will see strong resistance at 44.59. I simply do not see world demand sustaining copper or base metal prices.  

    USO -0.1%; West Texas Intermediate crude, $WTIC, rose 3.7% this week.

    III … Stocks Rise

    RZV 2.8% The rise in the small cap value shares suggests a breakout rally is beginning. But today’s rise is likely a Friday burst at the end of a financial, IYF, rally as the chart of the financials indicates a rally rise to resistance in a debt deflation bear market downdraft.  RZV should be sold short at this time. My investment maxim is in a bull market buy on dips and in a bear market sell into rallies. Given that since April 26, we have been in a debt deflation bear market, and that we have likely reached the end of a carry trade rally that has boosted European and banking shares, as well as base metals, one has an excellent opportunity to go short and RZV is an excellent shorter at this time.    

    XLB 2.2% The rise basic materials is due to carry trade investment flowing into base metals, DBB. I have to question if carry traders have the will to continue their investment in base metals, which to me look risky, given debt deflation commenced April 26, 2010 and falling demand for these commenced April 10, 2010, as China announced credit tightening. The chart of basic materials shows it has risen quite strongly to substantial resistance. I do not think it will rally further at this time.  XLB rose 7.3% this week on DBBs rise of 6.6%   

    XLI 2.0% Chart shows the industrials has risen to strong resistance. PCP Precision Cast Parts, 12% rise …  MMM 3M Co, 6% rise … PX Praxair, 6% rise  … DE Deere, 8% rise  …  CMI Cummins 11% rise … all exemplify the Industrials, XLI’s 7% rise this week.  Three month chart of XLI compared to PCP, MMM, PX, DE, and CMI. Five day chart of XLI compared to PCP, MMM, PX, SE and CMI.  I believe XLI’s 7% gains this week were largely carry trade driven, and I believe that economic conditions do not support continued gains.  

    XRT 2.1% Speculators could carry retailers on past its current resistance and given that risk, I believe traders can obtain better rewards from short selling other things at the current time. 

    IWM  2.4% The Russell 2000 has risen to strong resistance. A further rise in the US small cap shares is unlikely, as I believe we are at the end of a financial, IYF, rally as the chart of the financials indicates a rise to resistance in a debt deflation bear market downdraft. Lacking financial support, the small cap shares are now likely going to experience ongoing debt deflation. The Russell 2000′s, $RUT, 6.6% rise to 650.65, and IWM’s rise to 64.98 is a contrary indicator suggesting that one go short the market at this time.

    KBE 0.7% The bank shares rose weakly to resistance; this is another reason why I believe the Russell 2000 shares are going to fall and why institutional investors should be short with TZA. 

    IYR 1.2% Real estate has risen to resistance; real estate shares have defied debt deflation because they experience a FASB 157 entitlement to be marked-to-fantasy rather than to marked-to-market. Bob Willis of Bloomberg reports on July 22, 2010:  “Sales of U.S. previously owned homes fell in June for a second month, adding to evidence the market will slump as the effects of a federal tax credit fade … The number of transactions will be ‘very low’ in coming months, reflecting the end of the government incentive.” This does not bode well for enduring economic well-being in America.

    SMH 0.4% Semiconductors have defied short selling and have risen above resistance, and risen above the middle of a broadening top pattern that goes back to January 2010. Short sellers have found it easier to sell off the Russell 2000 and the European shares rather than these high PE shares.

    TAN 1.1% The solar shares have been a stock market rally leader. Given the fact that these were just recently the worst performing shares on the market, it would be wise for institutional investors to short sell these now that they have risen to resistance. I expect the solar shares to fall rapidly, rewarding those who are short. 

    IBB 0.9% The age of profitable investing in scientific research and development is over; a remarkable age of scientific endeavor has unfortunately ended. These shares like Japan, EWJ, are now, that the rally is likely over, going to be experience on going deflation.

    FEZ 1.3% While the chart of the European shares suggests a possible outbreak, I believe that investors will sell the recent rally now that the European Financial, EUFN, Stress Tests results are in. 

    EWP  1.6% The Spanish shares have risen to resistance. These constitute the most risky and toxic investment available and should be sold short immediately. The next most risky shares are the solar shares and then the Russell 2000, IWM. What is so tragic about debt deflation is that it is going to strike hardest on the small US companies heavily dependent upon a smooth flow of low-cost financing to meet payroll, pay accounts payable and buy inventory. Middle class Americans, rather than those living in emerging nations, are going to be hit hardest and first as debt deflation recommences. This will leave Americans rather stunned I am sure.    

    DNH 1.3% Chart shows the Asian shares have rise to resistance.

    FXI 0.8% Chart shows China shares are in breakout. But I do not believe it can be sustained given that base metals, DBB, will likely not be sustained by the currency traders, and given there is much news of falling real estate values in China, and that there is growing news that regional banks will not be supported by the Central Bank. Bloomberg reports on July 23, 2010:  “Chinese banks may struggle to recoup about 23% of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.  About half of all loans need to be serviced by secondary sources including guarantors because the ventures can’t generate sufficient revenue.”

    EWZ 0.6% Brazil has been in breakout for two days but is approaching strong resistance. Matthew Bristow of Bloomberg reports on July 22, 2010:  “Brazil’s unemployment rate fell to the lowest level for the month of June since at least 2002.  Unemployment fell to 7.0% in June.” … and … Andre Soliani and Cecilia Tornaghi of Bloomberg report on July 23, 2010:  “Brazil’s government is considering tax breaks to stimulate long-term lending for infrastructure investment, helping to reduce the lending burden on the state development bank, Finance Minister Guido Mantega said.  Mantega … said that among the measures being considered is to cut income taxes for investment in debentures and to develop a secondary market for them.”

    EWA 1.7% Australia has been rallying. But this ETFs gains have come from financials and basic material stocks. I expect a sell off here now. 

    ECH 0.8% The rise of Chile up and through resistance, documents that for this last week we have been in a carry trade driven base metals, DBB, rally as Chile is a major producer of copper. 

    EWJ 1.5% Japan has risen to resistance. Should the Yen, FXY, fall, this would help Japanese shares continue to rise; but I believe a fall in the Yen, FXY, will be to limited to 112.00 from its current 113.36 value. 

    EWU 1.3% The UK shares have risen above resistance on a rising British Pound Sterling, FXB.

    THD 1.2% Thailand has risen to its April 26, 2010 value on rising Asian and Chinese shares.

    EWM Malaysia has risen to its April 26, 2010 value; this represents a good short selling opportunity as when it falls, it falls quickly in value. Malaysia is the “yoyo of investments”.

    EZA 1.1% South Africa, has low volatility; its relative stability is based upon its relatively stable South African Rand, SZR.  EZA broke out from resistance on this week’s base metal, currency trade driven rally. The South African Rand rose near its April 26, 2010 high.  

    BRF 0.8% The Brazilian small caps have rallied on a rising Brazilian Real, BZF.

    BIK  0.7% The Brics rose modestly today. Neither the Brics nor the Emerging markets, EEM, have not had any sovereign debt troubles. In fact emerging market bonds, EMB, have been very much in credit demand. Chart of EMB shows no risk aversion to these investments, at least as of yet.  I emphasize, as of yet, as the chart shows three white soldiers suggesting a market reversal is at hand.

    EWS 0.5% Singapore has been one of the investor’s darlings as it has been the opposite of Europe, FEZ, troubled with sovereign debt and banking issues. And Singapore is the opposite of the credit sensitive Russell 2000, IWM, troubled by declining financial, XLF, shares.   

    RSX  1.4% The rally in the Russian shares cannot be sustained, as its currency, the Ruble, XRU, is continually in decline. RSX should be added to institutional short sellers accounts. The rise in the Russian shares documents a base metals rally this last week.

    GXG 0.9% Weekly chart of the Columbia shares shows three white soldiers marching up to a close of 37.66. The chart says sell me.

    ANH Anworth Mortgage Asset Corporation’s gains cannot be sustained as its competitor NLY has fallen lower and as the US Ten Year Note, IEF, is peaking out. Once US Government debt fails to auction, or is perceived to be monetized, then this provider of and servicer of mortgage debt will fall heavily. Be aware that this is a REIT and short sellers pay the dividend if they hold the stock when dividends come due. Anworth Mortgage Asset Corporation is right at the top of my suggestion list for short selling.

    TGP The daily chart of 7% dividend payer Teekay LNG Partners suggests that the end of its rising is near. And, the weekly chart of TGP will go in the investment textbooks as a unique example of three white soldiers at the top of an ascending wedge.

    WMZ The daily chart of dividend payer Williams Pipeline Partners suggests that the end of its rising is near. And, the weekly chart of WMZ shows an ascending wedge. 

    WAG, Walgreens is near the top of my list for short selling as it has risen to the middle of a broadening top pattern going back to the week of June 30, 2008 when it rose from 30.46. Weekly chart of Walgreens, WAG, shows three marching white soldiers, that is it displays a reversal signal. Daily chart of Walgreens, WAG, shows that it has achieved its goal and will not be rising any further.  

    SNDK SanDisk shows the rounded arc topping out pattern; and it has great fall potential to a much, much, much lower value.

    BIDU Baidu has risen to an all time high.

    SFLY Shutterfly’s PE of 95 makes it a good short selling candidate.

    FCZ In as much as we are at the cusp of entering into the end of the age of credit, as seen in the debt charts presented below, Ford Motor Credit Company represents a good short selling opportunity.

    WDFC The rise in WD-40 makes it a good basic material short selling opportunity.

    AZO The marching three white soldiers in the ascending wedge of the weekly chart of Autozone suggests it should be sold short. 

    Chart of diversified utilities ED, WEC, NU, NI and WR suggests these are approaching the end of their rise. The chart of ED shows a pop with lollipop hanging man candlestick. The chart of WEC shows an ascending wedge pattern. The chart of NU and NI and WR all show a double top.

    The chart of health care REITS  HCP, OHI, VTR, and NHP suggests these are approaching the end of their rise. HCP has risen to its September 2008 high immediately before it crashed. The weekly chart of OHI and NHP both show an ascending wedge with lollipop hanging man candlestick. The weekly chart of VTR shows a topping out pattern.

    The chart of natural gas pipelines SXL, HEP and ETE suggests these are approaching the end of their rise. The weekly chart of SXL shows an ascending wedge of nine consecutive weeks of gains. ETE has risen above its April 26, 2010 high and  HEP has risen to its April 26 high. These dividend paying stocks have risen on a dividend rally and based upon the perception that they are like bonds, CFT

    I recommend that institutional investors sell Banco de Chile BCH, and three four banks, BMA, CIB, BCA and SAN now that the results of the stress tests are in, and the stress test rally likely over; chart of BCH, BMA, CIB, BCA, SAN

    Here is a handy Finviz Screener of fifty stock ETFs

    IV … Charts of US Government Debt And Other Debt Suggests That We Have Reached “Peak Credit” … and are about to enter “the end of credit”.

    TLT -1.1% The chart of the 30 year US Government Bonds encourages me to go short the US Government bonds with their 300 percent inverse, TMV. When US Treasuries fail to auction, which will be soon, this will take off like a rocket greatly rewarding those who have invested in it.

    The yield curve, $TYX:$TNX, has been INCREASING, since April 26, 2010 when the currency traders sold the world currencies, DBV, off against the Yen, FXY. It was at this time global debt deflation commenced as the Federal Reserve QE ended several weeks earlier and the European Sovereign Debt Crisis was coming to a head.  

    IEF -0.3% The US Ten Year note traded down as stocks rose.

    AGG -0.2% The apex in the chart of Aggregate Credit communicates peak credit; and that the age of the end of credit will commence soon. 

    EMB +0.2% Emerging Market Bonds

    HYG +0.55 Junk Bonds

    HYD +0.1% Chart of HYD Daily shows an awesome rise since April 26, 2010 as investors transferred out of stocks into debt; frankly I have never seen such a topping out chart. Chart of HYD weekly shows strong gains as investors have sought a safe haven from debt deflation. Yet debt deflation is exactly what is coming very soon to municipalities and states, literally wiping out the value of HYD.

    Andy Fixmer and Christopher Palmeri of Bloomberg report on July 23, 2010:  “U.S. cities and states may need more than $1 trillion of federal assistance in the next three years to stave off financial failure, former Los Angeles Mayor Richard Riordan said.  Local governments are in a ‘race to the bottom’ and U.S. taxpayers will inevitably be called on to bail them out, Riordan said … The federal government should make pension, health-care and school reform a condition of receiving the aid, he said. ‘It’s not just L.A., it’s not just California, it’s all over the country, you’re going to see all these entities become totally insolvent,’ Riordan said. ‘I think the federal government has to come in and have a list of what the states have to do to be saved.’”

    I see no chance, repeat no chance whatsoever, that the US Federal Government will come to the aid of municipalities or states. The money simply is not there, nor will it be there. Entitlement programs, with the exception of food stamps will be cut off. The only monies flowing will be for strategic purposes. Austere sacrifices will be required for committment to President Obama’s International Order, that is the policy of global order of security and defense. GlobalResearch.ca reports the Xinhau news of July 17, 2010 that Canada is onboard for this endeavor as it plans to buy Buy 65 F-35 Lightning II Joint Strike Fighters.    

    BAB -0.2% Build America Bonds

    CFT -0.2% The corporate bonds have been driven up for about ten days due to the rise in currencies, DBV, and the rise in the US Ten year note, IEF. Higher interest rates across the board soon, will drive down this outstanding financial investment and raise the cost of doing business at a time when corporate debt globally is coming due. This means many, many businesses will close and unemployment soar. Government finance ministers and state leaders will have no choice but to jointly announce austerity measures and bypass their national legislatures. 

    V.  US Government To Establish Itself As Seignior To Personal Credit Transactions

    David Welch of Bloomberg reports on July 22, 2010 that General Motors Is Back On The Road To Failure:  “General Motors Co., the automaker 61% owned by the U.S., is buying subprime lender AmeriCredit Corp. for $3.5 billion to help it reach more customers with leases and loans to borrowers with faulty credit records.”

    ““This helps GM finance less-than-perfect-credit buyers and God knows there’s plenty of them today with economic conditions as they are,” said Joe Phillippi, principal of AutoTrends, a consulting firm in Short Hills, New Jersey. “A lot of people in the vast heartland of this country don’t have particularly great credit histories and that region has been the core of GM’s strength.”

    “GM had considered buying back its former lending arm, GMAC LLC, starting a bank or working with outside lenders to offer customers more financing options, three people with knowledge of the discussions said this month. Buying GMAC, now called Ally Financial Inc., or starting an in-house banking unit proved too difficult at that point, they said.”

    “The automaker gets about 4 percent of its sales from subprime borrowers, compared with about 7 percent for the industry as a whole, Chief Financial Officer Chris Liddell said when revealing the acquisition in a briefing today at GM headquarters in Detroit.

    “Similarly, the company sells 7 percent of its cars through leasing programs, compared with 21 percent for the industry, he said. Liddell said GM can increase sales by boosting penetration into both financing options.”

    “When you look at the population, about 40 percent falls into non-prime,” Liddell said. “We think it will help. Four percent of our sales are to non-prime customers. If you just hit a modest increase from 4 to 5 percent, it’s a significant number.”

    Kate Berry/Sara Lepro/American Banker in StructuredFinance writes: “Four years after selling a majority stake in what was then called General Motors Acceptance Corp or GMAC (now Ally Financial), the automaker is creating a new captive finance unit … Having a captive finance arm again is seen as vital to boosting sales of GM cars as traditional bank lenders tighten underwriting standards and some scale back or quit auto finance altogether.”

    “The deal also raises questions about the long-term prospects of GM’s relationship with Ally. The bulk of GM’s auto financing is still in prime lending, and executives from the carmaker stressed repeatedly on a conference call Thursday that the relationship with Ally was incredibly important to the manufacturer.”

    “They are a very strong partner, particularly in the wholesale and prime area,” said Chris Liddell, GM’s chief financial officer. “We don’t see that changing whatsoever. It’s important that they’re successful from our point of view. It’s important that they are strong. It’s important that they continue to be in partnership with us, in particular in those areas.”

    “GM still holds a 16.6% stake in the Detroit finance company, according to a regulatory filing. The government holds a 56% stake in Ally, after investing $17.9 billion in bailout funds, and a 61% stake in GM, after the automaker received $50 billion in federal aid during the financial crisis. Because of the government’s investments in both companies, analysts said in the short-term GM probably has no intention of jeopardizing its relationship with Ally” … ”But there is speculation that AmeriCredit could easily ramp up its operations in prime lending at some point.”

    This integration of government and private enterprise is a new height in state corporatism. The US Government is step-by-step moving to become first, last and only provider of credit, whereby if sales are to be made, they will come from public private partnerships. 

    The General Motors Co buyout of subprime lender AmeriCredit Corp, creates moral hazard as the purpose is to extend lending to buyers who are known credit risks, and confirms a new age where the US Government becomes seignior to personal credit transactions.

    This melting of finance, investment, and government together is the result of the long practiced 0.25% interest loans made to Japanese automobile manufacturers for extension of auto loans, and investment bankers for carry trade loans, by the Japanese Government and the Bank of Japan.

    VI …. The Dodd Frank Financial Regulation Introduces Discretionary Governance

    Former Dallas Fed president Bob McTeer writes: “The new financial reform legislation is massive: about 2300 pages, 14 titles, 1400 sections. Yet, much of it is not in final form, but is yet to be determined. It calls for 47 studies, 74 reports, 7 new government bodies or departments. We won’t know all the rules and the ultimate impact for years”.  The terrifying aspect of the Dodd-Frank Financial Regulation is that it introduces Discretionary Governance, where regulators yield broad discretionary power.    

    VII … Currencies Traded Up … The US Dollar Traded Down

    DBV World currencies rose above support today to close at 22.98; while UUP, the US Dollar Bull ETF, closed lower on the edge of a massive head and shoulders pattern at 23.99. Soon, how soon I do not know, it is going to fall lower as global competitive currency devaluations took the US Dollar, $USD, below on June 18, 2010. All currencies, with the exception of possibly the Yen, FXY, are now falling lower, albeit at differing rates into the pit of financial abandon, taking stocks, ACWI, and soon debt, AGG, with them.     

    FXF Swiss Franc fell 1.0% to close at support consolidating its massive gains.

    SZR South African Rand fell 0.1% to consolidate its rally.

    BNZ New Zealand Dollar rose 0.1% to steady its rally.

    FXS Swedish Krona rose 0.2% to steady its gains.

    FXE The Euro rose 0.2% to 128.72; its chart pattern shows a broadening top pattern, that is a megaphone pattern below its recent high . I believe that the Euro, FXE, will fall lower at this time, as the European Shares, FEZ, fall lower on falling European Financial shares, EUFN, now that the bank stress test rally ends.

    BZF The Brazilian Real rose 0.3% to take it above its April 26, 2010 high.   

    FXA The Australian Dollar rose 0.4% to resistance.

    FXB The British Pound Sterling jumped 1.0% to near its April 26, 2010 high.

    Edith Balazs and Balazs Penz of Bloomberg report on July 20, 2010:  “Hungary’s short-term borrowing costs rose to a 19-week high at its first debt sale since international creditors suspended talks, weakening the forint and stoking concern that interest rates may increase.”

    Here is a handy Finviz Screener of these and other currencies.

    With the onset of the European sovereign debt crisis, gold has morphed from a base metal commodity to a currency. It has risen to be the world’s sovereign currency; yet it has volatile properties and could easily fall from its current $1,190 value to $1,140. I am invested in gold coins to preserve my wealth; I do not engage in stock or currency trading; I am not an investment professional; I am a blogger who believes that debt deflation has created an ongoing investment for gold, $GOLD.  A strong advantage of owning gold is the protection it affords from black swan events and ill-liquid financial markets.   Jose D. Roncal and Jose N. Abbo relate that the unexpected and rare events that result from exposure to blind risks are called “black swan” events. A black swan event gets its name from the long and firmly held belief that swans came in only one color – white – and any other color variation was genetically impossible – until black swans were discovered in Australia.

    Despite this weeks rally in gold stocks, GDX, from 47.79 up to 49.21, they disconnected from the price of gold, GLD, on June 29, 2010 and can no longer serve as well as gold to preserve wealth. The chart of the gold shares, GDX, shows that the gold stocks really took a tumble, as they fell down and touched their 200 day moving average; this is something that gold did not do.  

    The chart of gold, GLD, compared to the HUI precious metals, growth stocks, RZG, and value stocks, RZV, shows how gold has risen above all stocks over the last two years to be the vehicle to grow and preserve wealth.

    VIII … This May Be Good Timing For Going Short The Stock Market

    The chart of the Financials XLF compared to the Industrials XLI,  Basic Materials XLB, Emerging Markets EEM and the BRICs, BIK … XLF, XLI, XLB, EEM and BIK … shows that the Financials, XLF, did not participate in this week’s rally which took XLI,  XLB, EEM and BIK each up 7%.  Lacking support from the financials, it is likely that debt deflation will recommence taking the US small caps, IWM, lower.

    It is also likely that the bank stress test rally will not follow through to carry the European stocks, FEZ, higher next week.

    The charts of debt above strongly suggest that credit is over-bought with CFT and HYG being examples. 

    This suggest the odd and unusual case of both equity and debt turning lower. 

    Morningstar reports that The Profunds UKPSX, 200% short Japan, and the Direxion DXRSX, 200% Small Caps  have been a consistently good performing bear mutual fund; click on chart to enlarge.

    Timing seems appropriate sometime this coming week; that is the week of July 26, 2010 through July 30, 2010, for going short the markets. My investment maxim is in a bull market buy on dips and in a bear market sell into rallies. Given that since April 26, we have been in a debt deflation bear market, and that we have likely reached the end of a carry trade rally that has boosted European and banking shares, as well as base metals, one now has an excellent opportunity to go short.

    It has been roughly ninety days since the currency traders sold the world’s currencies against the Yen, FXY, A look at the charts of UKPSX and DXRSX suggests a cycle turn up is at hand; note the 90 day convergence at 24%; this is no coincidence. Japanese shares are the epitome of generalized deflation and the Russell 2000 shares are at the very heart of the strike zone for financial system debt deflation.

    Soon the economy and social conditions in United States will be far worse than Japan, Greece or Pakistan.  That is why I personally am invested in gold coins, and I present this information for institutional short sellers only. I am not an investment professional. I do not trade stocks or bonds. I observe that debt deflation has created an investment demand for gold, and share that observation with others. 

    This week’s fall in volatility, VXX, to 23.65 suggests that the rally is over, and being below 24.00 is a good time to commence short selling.

    Recommended ETFs for institutional short sellers are the Direxion 300% inverse of the Russell 2000 and the others are the Proshares 200% inverse of various sectors and countries.  

    TZA and SJH Short the Russell 2000 will produce the most rapid gain as debt deflation strikes again through falling financial, IYF, shares. DXRSX is also another good option.

    SIJ Short the industrials, XLI, produces the next to the best gains from debt deflation, as the industrial core is depleted from both debt deflation and falling base metal prices. This is simply a short-term investment opportunity.

    EWV Short Japan, EWJ, has produced slow steady gains; but UKPSX sees to be a better investment

    SMN Short basic materials, XLB, will pick up quickly as basic materials have been over bought on rising base metal, DBB, prices. It is simply a short-term trade opportunity. 

    EPV Short the European shares, FEZ, may be timely, as the Euro, FXE, may have reached the end of its rally at 128.72, and countries such as Spain, EWP, have recovered, and as the results of the European Financials, EUFN, stress tests are in. 

    BIS Short the Nasdaq Biotechnology share, IBB, has produced slow steady gains. 

    BOM Short the base metals, DBB, is timely as these have been over bought. This is simply a short-term trade opportunity.

    Here is a handy Finviz Screener of these and other ProShares inverse ETFs 
     



    Disclosure: I am invested in gold coins
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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.