ICouldBeWrong

Notes on a Schizophrenic Market Week

jimmy46: Nice comment, make sense. I will do some research to verify your claims.
Ames: Please keep posting, I'm following your comments.

Personally the last 6 weeks have been very good to me. Going short the S&P500 at 1400 and then covering at 1210-1220. (See my previous comments). The equity markets recent action seems quite logical to me and not schizophrenic at all.

I did lose a little on my commodities trades, and broke even on my currency trades, but big gains in my equity shorts have resulted in another 0 being added to my day trading account.

Maybe, maybe, crude will rally back up to $136ish, I'm not sure. But over the coming months I expect commodities, the S&P500 and global equity markets in general to sell off in tandem. Which is actually what I was expecting several months ago, seems I was a little early on commodities.

Long Yen. Short Equities.

Volatility and Sentiment: Today Doesn't Matter

Looks like crude has suffered a failed breakout, short term trend in crude is now downwards. Unsure whether 50-60dma will provide support. But I have doubts it, suspect 150 is going to be tough to crack, could go down to 79-105 now. Decided to close my short term commodities position as well. Even got out of a little of my precious Yen, but will buy more Yen later, and short S&P again, probably next week.

Small loss in commodities (due solely to crude). Breaking even on Yen. Big profits shorting S&P500. Time for a short break.

Volatility and Sentiment: Today Doesn't Matter

I was buying heavily today ... covering my shorts. I expect a bounce back up to 1230-1300 (when I will start shorting again), before the S&P500 falls to well under 1200. (Then another bigger bounce back to the same levels 1230-1300).

I also find the vixandmore website interesting and only found it by accident myself a few days ago. Another thing I found interesting (alarming really) is that the methodology used to compute the VIX itself has changed, so it's no longer the VIX its something different now. The old (REAL!!!) vix has now been renamed to VXO on stockcharts.com.

Good article about that here:
zealllc.com/2008/vxosp...

Sometimes a Bear Is Just a Bear

CLH: I expect we will see a new S&P500 low (below 1250) soon, probably within 2 weeks. We've just seen a new 52 week low in the Dow Jones Industrial Avergage (admittedly the transports are holding up better). I don't know if you follow the VIX, but the way I read it, it's not showing much fear currently. More like complacency.

What if oil has broken out of the trading range between 130-140 a barrel and is heading higher? What if it hits $150 a barrel this week, then I think we will see fear.

Sometimes a Bear Is Just a Bear

secmaven: Sorry my 'surely it can't continue being this easy to make money?' was misleading. I had a good week last week. Personally even with the similarity to the 2000-2003 bear, I still don't find it easy to consistently make money in the markets month after month, it's hard work and somewhat hit and miss in my experience. Maybe I should have taken a profit at the market close on Friday.

Having said that if the market rallies to 1290-1310 on Monday morning New York time I will consider that a reasonably good opportunity to short more. If such a rally occurs on Monday, and we continue to repeat the 2000-2003 bear then we should hit 1150 before we hit 1400, (in fact we shouldn't see 1400 again for several years).

But that's assuming we continue to rhyme with the 2000-2003 bear. A better risk/reward opportunity is to wait until the S&P500 rallies to say within 5% of the 200dma (with a stop set say 12% above the 200dma). The 200dma should provide strong resistance, but this setup could take several months to occur (about 3 months if we rhyme with the last bear, and at about where we are now ~1300) and hence will require more patience.

Another note, I would like to hedge every short position with a long position. (e.g. to hedge against hyper-inflation) so I might go long some more commodities.

VIX Is Complacent, Despite New 2008 Dow Low

I also read the VIX as indicating complacency.

I guess most equity market participants (S&P500 at least) are expecting the market to find a floor near the 52 week lows. If that doesn't happen, and the S&P500 breaks down to new lows (as I expect), then risk aversion could spike, quickly sending world equity markets much lower, fast.

I would be very cautious about using oscillators currently. In a trending market oscillators will give exactly the wrong signal as a breakdown/breakout occurs. This is not a good time to depend on short term reversion to the mean!

Sometimes a Bear Is Just a Bear

Nice article, I agree we are in a textbook bear market.

It's amazing how similar the recent market action (last 6 months) has been to the market action in 2001. Almost a carbon copy tracking it week to week. We seem to be at a similar position now to late Feb 2001.

Don't get me wrong, the causes are different this time (credit and energy crisis more similar to the 70's than the dot com bubble). But it's amazing to me how the last 6 months of this crash has essentially been a carbon copy of dotcom crash Jun2000-Feb2001.

I guess at some point they must diverge, surely it can't continue being this easy to make money?

Anyway still short the S&P500, long the Yen (finally seems to have found support at the 200dma), with a small dash of selected commodities added to the mix. Will be interesting to see if oil has made a genuine break out above $140 a barrel.

Hmm, Oil hasn't quite broken out yet when measured in Yen. So close though. So close.

Calling a Bottom Here

I felt bad after saying goodbye to middle class America in my previous comment. As if the inflationary monetary policies of the fed, and peak oil were not bad enough, the probably soon to resume unwinding of the Yen carry trade and continued contraction of the globaly credit bubble is probably going to cause a deep depression.

So i did some searching for break through energy technologies. Something that could allow central banks, to continue their counterfeiting ways and expand the money supply exponentially without the price of commodities rising even faster than that.

Here's the best I could find *EMC2 corporation*, founded by the late Dr Robert Bussard, PhD from Princeton, former Assistant Director of the Controlled Thermonuclear Reaction Division of what was then known as the Atomic Energy Commission. Co-wrote "the" textbook on Nuclear Rocket Propulsion. He was working on cold fusion for the Navy and was under publishing embargo for 11 years. Due to the Iraq war the entire Navy energy research program has been terminated, including Dr Bussards project. The good side of this is that he was able to take his work public last year shortly before he died of cancer.

He definitely appears to have achieved cold fusion, but his small scale "Polywell Inertial-Electrodynami... Fusion" devices, need to be scaled up before they become net energy produces.

This could be a revolutionary breakthrough that frees the world from dependence on fossil fuels. The physics look good. Congratulations EMC2 corporation.

Anyway, if you can suspend your disbelief maybe check it out:
Rencent news article cosmiclog.msnbc.msn.co...
Interesting history of construction pdf iecfusiontech.blogspot...
How to build you own home made cold fusion reactor
www.youtube.com/watch?...

10 years and $250 million to go before a commercial product can be produced. 40 year half life to replace fossil fuel energy infrastructure.

So I still see a severe depression coming, but there's real hope our way of life can be preserved.

Calling a Bottom Here

I will continue to short the SPX rallies. Like others I suspect the housing collapse has just begun and that the major banks, bond
insurers and mortgage brokers are insolvent.

A continued break down in the transports will be very bearish from a dow theory perspective.

I'm a bit worried about peak oil (I mean it's a when, not an if). I agree the market is totally fixated on oil right now. The current front month contract closes late next week so it will be interesting to see what the closing price is, we could get some major volatility as we approach that. Maybe a day trade opportunity (long) if crude breaks out to new highs?

At least sugar and orange juice are still cheap so no danger of a global famine quite yet.

Crude oil in a bubble? Maybe in the short term, but the real bubble is in the bond market.

But my main focus continues to be on the Yen, which is rapidly, and from my perspective surprisingly dropping in value vs the US$. I'm not sure why this is, more articles on the Yen please.

Perhaps the Yen carry trade is rapidly winding up as an enormous effort is made to save the global equity markets. If it unwinds as quickly I would not be surprised to see the DJIA below 10,000 this time next year. Commodities could also correct violently, but unlike the equity markets should recover quickly I expect.

So waiting for the long term downtrend in cotton, sugar and oj to finish so I can take long term positions in those markets. (Also watching base metals with interest, zinc and nickel are getting cheap). Continuing to short global equity markets (except the Nikkei, not sure about that one, maybe domestic Japanese equities are due for a rally), and shorting selected banks, bond insurers and financial institutions. Good bye middle class America, I will miss you.

Still out of precious metals, and oil. But willing to day trade oil, and waiting for the Yen to turn bullish to take a long term long position.

Money Flows Into the Market: What They're Telling Us

My concern is that we are going to see a classic sell in May and go away scenario.

Here's how I think it might play out. Crude and natural gas make one last surge upwards, crude tops at around US$130 sometime in early May. Then we see selling across the board in commodities, and also in commodity stocks. This pulls down the major US averages which have been trading sideways, and they join the shanghai composite and nikkei, trending down. S&P can't close above 1400 for more than a few days.

At the same time the Yen begins to gain strengthen. The Yen has been weakening recently and has almost pulled back to support (~50dma) levels. Once it reaches support it will resume the bull wave up that began back in mid 2007 when equities were topping. A pattern emerges of days where the Yen (and maybe Renminbi) strengthen and commodities and equities sell off. The Dow Jones transports having formed a clear heads and shoulders top break 200dma support and enter free fall. The Yen bull market becomes the dominate theme as all eyes turn again to the Yen and the unwinding of the carry trade.

I'm still trying to work out bonds.

Ultimately crude (WTIC) reaches a nadir between USD80-90 and a bottom in equities/commodities forms.

OTOH if the S&P closes above 1400 for a couple of days within the next few weeks I'm on wrong and I'll cover my shorts.