SeeTheLight

Wednesday Outlook: Commodities, Global Markets

I know I'll be selling the pop as we're quickly getting short term overbought again. As you rightfully pointed out, Dave, we seem to be in a rising wedge, but I feel this wedge will continue until the easy money comes off the table, until then sell the peaks, buy the dips. Fundamentally it makes no sense, but fundamentals went out the window a long time ago. It certainly pays to trade this market with discipline.

I continue to believe that this rally will persist until at least the New Year, not because it has any substance, but what else do the banks have to do with all the free money being thrown at them from the Geitner/Bernanke tag team. It's not like anyone is borrowing right now, the consumer is unemployed, underwater and plain flat broke and Big Business? Why would they borrow a cent when they can just do a public offering instead. Like the Dire Straits said, "get the money for nothing and get the chicks for free".

So the banks will continue to push all that free money to their trading desks and bid the market up. If you were given a blank check and some loaded dice, wouldn't you gamble too? Too bad all this nonsense is doing nothing to help the underlying economy and it will all have us all in deeper dire straits sooner or later. As the Chinese curse goes, "May you live in interesting times". They are certainly interesting.

Good Luck all

Friday Outlook: Commodities, Global Markets

The Aussie Central Bank raised rates, but that wasn't seen as an end to easy money but a sign of recovery. Everything gets spun these days.

It's pretty clear that this an easy money rally with trading desks leading the charge. Unfortunately for even the most astute retail investors, the first major signals that the easy money is coming off the table likely won't be as visible as an interest rate increase, likely it will be something more subtle like the Fed cutting back on some its under the cover lending programs. And of course it will be lost in the endless spin jobs being spewed out by the MSM.

This is why this rally is so dangerous. It's too profitable to be sitting on the sidelines but at some point someone is going to inform all the trading desks that one of these "buying opportunity" dips is really a feint and then back half of the "W" will begin. Trade carefully and make sure you have a reserve of cash or have some downside protection.

Good Luck all.

Friday Outlook: Commodities, Global Markets

The absence of stick saves and dip buying is very noticeable. The jobs report was worst than expected. I'm thinking we could see another solid triple digit down day on the DOW again. Back to back triple digit down days are something that hasn't happened since this rally began.

Personally while I am already mostly in cash, I think its time to close up most of the long positions and get real cautious. If next week continues to bleed red it would probably be safe to say that recent high was the bear rally top and we may see a sizable correction which of course means it will be time to start looking for good short positions.

Good Luck all.

Wednesday Outlook: Commodities, Global Markets

It is very easy to want to take profits in a market like this, as an underlying awe in the disconnect with fundamentals lingers in the back of everyone's mind.

Personally, I took profits in late August fearing a September crash that has yet to materialize and have been largely on the sidelines since then (except gold / silver and a small position in UUP as a hedge).

The hypothesis that September would result in increased trading failed to materialize (so far) and leaves me with the question - What now?

Sadly, against my true feelings, I feel one must be positioned neutrally in this market, so I will gingerly start picking up my long positions again, and will probably drop my UUP hedge.

Fundamentally, I remain convinced that this is just a bear market rally and sooner or later we will return to the mean, but in the near near term I see little catalyst to prevent the HFTs and trading desks flush with near free government cash from continuing to bid the market up. Clearly this has nothing to do with fundamentals which remain awful but banks are not lending but rather are "investing". A rising tide (of liquidity) lifts all boats and one must respect that (even if one knows the tide will eventually go out again).

Further to this effect, the fact that the Fed did not even mention the dollar (save for some passing remark from SF Fed Jen Yellen) tips their hand. It leads me to believe that they will do everything in their power to prevent deflation and will meekly accept stagflation instead. I do not have any confidence that they will succeed long term, but short term to bet against them while they are still trying is pure folly, so I will return to a more neutral stance and pick up some longs that I feel have a relatively good risk/reward.

Good Luck all.

Wednesday Outlook: Commodities, Global Markets

Seems like Turbo Timmy and Helicopter Ben are ok with the US Dollar being the sacrificial lamb. I just wonder how long all the US creditors will keep buying treasuries with a minuscule yield and a declining dollar. Hard to keep the stimulus pumping if no one wants your debt, which leaves only monetizing as an option and the systemic risk that represents. But hey, retail sales were up 0.2% so everything is good.

I am starting to reconsider my UUP position, but in the light of the fact that my Gold/Silver is offsetting it I will hold for now. I look at Dave's charts and see 76 on the USD as a line in the sand. That breaks and we are off to the inflation/devaluation races.

Good Luck all.

Thursday Outlook: Commodities, Global Markets

Shanghai is up almost 5% on better than expected lending news; US market futures are green. Looks like Tuesday may have been another dip to buy. Let's see if the bulls are able to grab the reins and drive the markets higher.

Personally I am still fearful (while others are greedy) and even if the market surpasses its most recent top I have no faith in it and continue to sit safely on the sidelines mostly in cash, a few longs, some Gold and Silver and some UUP, waiting to see if reality ever decides to set in.

I can say its difficult to remain disciplined with the casino mentality of the market today. I briefly flirted (in my mind) with jumping into the dash for trash. Thankfully I did not and saved myself some money, a lesson that didn't cost me anything and restored my discipline to be patient. Sooner or later the S&P P/Es will return to the mean (and somehow I doubt that will occur by the "E" actually increasing to reduce the high multiple). Until then I wait.

Good Luck all.

Wednesday Outlook: Commodities, Global Markets

Although there is a high inverse correlation between Gold and the USD (for the obvious reason that Gold is most commonly quoted in the dollar), if we see a significant pullback here you could see both rise in a "flight to safety" as the goldbugs go to their preferred bunker and the institutional investors search for safety by buying treasuries.

Personally I believe a pullback is inevitable, already China is turning down the stimulus spigot (in the form of credit tightening) and its only a matter of time before the US is forced to dial back its own largesse. Anyone that believes that the stimulus has been successful in jump starting the economy is likely blinding themselves to the fact that nothing really has been repaired, and once the punch bowl is removed the economic engine will likely sputter and died.

But the question is when. You mentioned that we are seeing a reversal in behavior as good news is being sold off. We are seeing another battle between the momentum bulls and the fundamentalist bears. The bulls could win another battle here, but the war will inevitably favor the bears in my opinion, since all this stimulus has accomplish is a redistribution of wealth, not any ongoing growth.

Personally I am being very careful in any equity longs I have remaining, with moderate positions in UUP and in CEF (Gold / Silver), which represent good risk/reward to me. The rest remains in cash in the expectation of a return to deflation or low inflation for the next 12-18 months. I'm also considering moving a bit into TLT but its risk / reward is less compelling to me than the other two.

Good Luck all

Thursday Outlook: Commodities, Global Markets

Hi Dave,

Yesterday I asked you a question if you are aware of any short ETFs that do not have the decay that results of tracking daily performance. I am getting pretty bearish on the market and I am looking at what I can purchase to profit from a long drawn out down trend. My first consideration was SH (1x inverse S&P 500), but of course you can quickly see by looking at a 1 year comparison chart that even though the S&P 500 is down about 10% YoY, SH is down 20% YoY. Its worse with the leveraged instruments.

I am considering buying UUP (Bullish US Dollar ETF) since I expect the dollar to rally if the bear returns. But I was wondering if there was anything else you would recommend as an investment for a long slow down trend (similar to a 1930 - 1932 scenario).

I will caveat my above statements that I do not necessarily believe that these things will come to pass, but I see bad portents and I want to be able to position myself appropriately in my accounts when the time comes. Until then I am slowly cashing in my longs as the rally continues, which I feel is prudent from a risk reward standpoint.

Good Luck all

Wednesday Outlook: Commodities, Global Markets

Hey Dave,

A question for you. Any ETF that seeks to track the daily performance of an index suffers from decay if you hold the ETF long term. These effects are exacerbated when the ETF results are leveraged. This is generally understood by experienced traders, but poorly understood by retail investors, which is the reason for much of the angst towards these instruments.

Of course, for 1x Long performance you can always purchase a spider like SPY to avoid this decay. But if you were wanting a short version, do there exist any ETFs which do not have this decay?

If so, that might be preferable to shorting which requires margin and has the risk of unlimited loss, whereas an ETF limits the risk to your investment.

Thanks!

Thursday Outlook: Commodities, Global Markets

I've started to take profits on my longs that have skyrocketed, and I continue to hold on to any laggard longs with the belief that people will realize, hey, they've been left behind and that is unacceptable, everything must be overvalued, good, bad or ugly.

It amazes me that despite the ho hum news we continue to rally well above 200 MAs. I guess I could be leaving the icing on the table but I've already had my cake.

The big concern I have is that no one is talking about Back to School nor Christmas yet. Back to School is going to be especially hard compares since the consumer really didn't get hit by the recession until 4Q. If that impossible situation can be spun positively, well, then we will truly be living on Fantasy Island.

You add in the fact that oil is back over 70, commodity prices are skyrocketing - that is taking more money out of the consumers pocketbooks. The market can remain irrational longer than one can remain solvent but euphoric panic buying, short capitulation and even GS's HFT can not buoy this rally indefinitely. The NYSE McClellan Index and NYSE Summation Index charts are especially telling.

Good Luck all

Tuesday Outlook: Commodities, Global Markets

Seven more bank failures last week, GS automated trading program stolen ... allegedly, Biden says Obama administration misread the economy, the list goes on and on. And yet some how we are holding technically to the neckline on the HS pattern on the S&P 500 and mirrored on many other charts you posted.

Smart money is apparently getting defensive (and as always manipulative) and the retail investors are apparently rushing in still to catch the rally that they missed thinking that they can get in on the recent dip. Does anyone see any strength here? I don't. The downside risk seems palpable and the upside potential muted to me. Looks very reminiscent of a bull trap here. Of course the powers that be always seem to push for one more last gasp so I am placing my bets all over this market roulette table.

I suspect everyone is waiting for earnings to signal the direction and I wonder if "better than expected" will no longer be good enough. My intuition favors the affirmative as the rally was based on an expectation that the recovery would be V-shaped and not L-shaped.

Good Luck all.