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  • Why Is The Shanghai Composite Rising? [View article]
    This is Shanghai Index as of Dec 3, 2014:

    >> SI Monthly Chart:

    SI, like many EM markets bottomed in June 2013 after they suffered bear market corrections in May/June 2013 caused by the Taper Tantrum (carry trade unwinding). India and China are the most prominent rallies since then.

    Looking for correlations I found the US$ rally for the last 6 months highly correlated and crude oil's collapse the opposite for the same period. Not necessarily causation but there are very good reasons why China and India, which are very dependent on exports and crude oil should be the ones that benefit the most with their currencies depreciating and fuel cost going down much faster than almost everything else since they do not import fuel from the US. China, in particular which has very good trade agreements with Russia.
    Dec 19, 2014. 11:50 AM | Likes Like |Link to Comment
  • Daily State Of The Markets: Everything Is Fixed Now, Right? [View article]
    Nope. This bull market is not 5.75 years old

    These were the bear markets in May to October 2011:

    1.) SnP500 = -21.53% loss;

    2.) Compq = -20.34% loss; and

    3.) Russell2000 = -30.76% loss.

    Dow Jones was the lone survivor with -19.20% loss.

    Thus, this bull market is 3 years and 2 months old.


    These were the most recent multi-years bull markets for SnP500:

    - Aug 1982 to Aug 1987 = 5 years w/ 251% gain;

    - October 1990 to July 1998 = 7 years 9 months w/ 305% gain;

    - October 2002 to October 2007 = 5 years w/ 105% gain.

    From Oct 4, 2011 to today total gain 92%. Good but not great.
    Dec 19, 2014. 11:12 AM | 1 Like Like |Link to Comment
  • The Divergence Between Oil And Equities [View article]
    For those who can count 1 to 5 (i-ii-iii-iv-v):

    >> SnP500 30min Chart:

    Don't try shorting this rally prematurely. The iii-rd is not extended and hence a potential irrational exuberance intraday rally can happen if Spx breaks hard above the Double Top Resistance and the v-th goes into extended mode.
    Dec 18, 2014. 05:53 PM | Likes Like |Link to Comment
  • The Divergence Between Oil And Equities [View article]
    Oil drop today was predictable since it was able to eke out only two days or bounce with a corrective a-b-c pattern on the 15min chart EW'ers could not possibly miss.


    For the SnP500 this was what expert traders have been monitoring (and warning about in late November):

    << Uvol vs. Dvol Before:

    After spiking up after a prolonged rally; Uvol/Dvol remained anemic with anemic price run ups. That was the great warning of reluctance by traders to support the rally.

    But when tape spiked down, that was the opportunity to start anticipating at least a recovery rally to happen:

    >> Tape Reading Now:

    Yesterday ,,, MAD happened again. Not only that, it was way stronger than the usual 7x to 9x deemed desirable for a sustainable bounce/rally.

    Thus, for the experts, it is no wonder SnP500 would rally today even if the whole world comes to an end [just a :)- exaggeration].
    Dec 18, 2014. 05:23 PM | Likes Like |Link to Comment
  • Central Banks Are Now Uncorking The Delirium Phase [View article]
    Why worry too much about central banks having lots of QEs and market bubbles forming again?

    When was the last time the markets went super-bubbly?

    - It was in the late 90's and Greenspan proved impotent despite his great efforts to cool down the economy and stop the excessive irrational exuberance of markets with a series of 50 bps rate hikes.

    Today, the Fed has ZIRP and $4+ Trillions potent weapons against Irrational Exuberance.

    Thus, better temper our expectations the markets will just keep roaring ahead without the Fed doing something to curtail signs of irrational exuberance similar to what happened in the late 1990's.

    Just look how effective was the latest statement by Yellen that the tech sectors seemed to be bubbling. Nasdaq and Russell2000 went down hard in March to May, 2014 with 10.90% correction for the latter. Mere words, not even rate hikes. How much more effective the Fed can be in preventing another irrational exuberance with $4+ Trillions of potent arsenal?
    Dec 18, 2014. 04:55 PM | 1 Like Like |Link to Comment
  • As Ruble Dies, Russia Sells Crown Jewels To Stem The Chaos [View article]
    Another Armageddon scenario for the perma-bears.

    Another Buy the Dip opportunity for the perma-bulls.

    Each to his/r own.
    Dec 17, 2014. 04:10 PM | Likes Like |Link to Comment
  • Russia Gets Crushed Again [View article]
    From the US$ point of view, Russia will be paying a lot on American made products.

    With practically all major currencies in the world kowtowing to US$ strength, a little price canvassing should prove many comparable high-end manufactured products can be bought either from Japan or Germany if not from China at much lower prices.

    Shanghai Index, in particular, is rallying extremely strongly in past 5 months - almost in lock-step with the US$ rally - despite persistent reports of slowing economy. That shows traders/investors maybe using the Shanghai Index to US$ high correlations in recent months. Perhaps in expectations of resurgent exports in the months/years ahead.

    Russia is being downgraded very hard because of the sanctions and plunging oil prices - not necessarily because of depreciating currency against the US$ if Putin can control the downward trend of the ruble or if he can make ruble depreciate much less faster than renminbi as they trade more products directly among themselves (without using US$ as the currency of exchange).
    Dec 16, 2014. 08:11 PM | 1 Like Like |Link to Comment
  • Central Bank Cult Of Personality Colliding With Deteriorating Market Internals [View article]
    What I know was that the Fed was a lameduck during Nixon's, Johnson's and Carter's reign as the deadly Vietnam War pummeled American morale to all-time lows:

    << Post Severe Recession Recovery Rally:

    << Irrational Exuberance Rally:

    >> Post Great Recession Recovery Rally:

    The Global Oil Crisis of 1973/74 added insult to injuries and the US economy never was able to recover in the late 70's to early 80's with high/hyper global inflation and deteriorating employment in the US. But then SnP500 was able to eke out a decent rally toward the 1980 high before another recession took a -28% bite.

    - It was only during Reagan's terms that the Fed became effective in helping the economy recover;

    - Full recovery was declared in 1994 that triggered the Irrational Exuberance Rally as the economy transitioned into growth phase;

    - Greenspan proved persona non-Grata when he tried to cool down the economy and drive the irrational markets down with a series of 50 bps rate hikes.

    Thus, there were/are times when the Fed become an obsession that markets try to follow specially during hard times and uncertain periods.

    There was a time when the Fed became glaringly unwanted by investors when all the problems in the world seemed already been solved and the markets would be going nowhere but up, Up, and UP (they were declaring that the US was able to invent the Holy Grail against recessions and Dow Jones was going to 100,000 back in the late 1990's). Who needs the Fed when everything is going right?

    Typical human characteristics.
    Dec 16, 2014. 04:38 PM | Likes Like |Link to Comment
  • Today's Market: Dividends, Buybacks And Russia Powering Market Higher [View article]
    Russia or rather GDow which is much more correlated with SnP500 should help US stock markets to at least make a major bounce off this recent vertical sell-off:

    >> RSX:

    Two weeks more to go before the month is over and RSX is still in free fall. A wide range bar will almost always result in lower low come January if not the next few months. Best hope is for RSX to recover back toward $22.68, in 3 months or less, to mitigate the massive momentum generated to the downside. Otherwise a retrace back toward $17.21 is the better entry for short-term traders who would like to trade the downtrend toward lower lows in 1H2015. That lower low should become the Divergence Buy Signal or buying opportunity unless RSX collapsed hard below $10.34.

    >> GDow:

    >> SnP500:

    GDow was and still is the harbinger of turmoils abroad that I have been monitoring since August (and also enabled me to buy the October 15 bottom) as it is highly correlated to SnP500 but goes down much faster on bad news abroad while SnP500 goes down faster on bad domestic news such as the possibility of Government Shutdown mid- to late last week.

    Next trading opportunity is the Santa Claus Rally which should start at the second half of December in most cases.

    Thus, if GDow provides some major pullback up toward at least the minor support (now as minor resistance); Spx should be able to rally considerably perhaps to new highs as long as there are no local bad news derailing the domestic markets. The 100ma was it's most effective support but a re-test of the 200ma may prove a better buy entry for those who prefer playing the moving average pingpong game.

    A recovery above the 50ma is considered bullish by TA traders. For those who specialize in EWA, intraday i-ii-iii-iv-v is now 90% high probability as Spx was able to touch down below 1982 yesterday for the iii-rd wave down. Nominal i-ii-iii-iv-v run down nominal target is 1964 with 1936 extended range. A sudden rally that retraces above 2025 will have 80% probability to negate the 90% probability the iv-th up and v-th down are going to happen. That will depend more on the FOMC meeting bullish/bearish tone tomorrow as today the tape reading registered well above +3.00 threshold early in the morning (meaning higher probability SnP500 will try to rally toward higher prices in today's session before closing time).
    Dec 16, 2014. 03:00 PM | Likes Like |Link to Comment
  • Deflation Now? If So, Cash Is No Longer Trash: Discussion And Implications [View article]
    Better to have CASH, real cash in hand just in case the SnP500 makes a 10-20% correction in the near future to buy stocks on the big dip - than try to play the short-term treasuries as higher probability 10-year yield is going to rally again:

    >> TNX Medium-Term:

    >> TNX Long-Term:

    Medium-term basis, once a i-ii-iii-iv-v impulsive rally has been achieved off significant bottom; highest probability is that it will be sustained after a pullback/correction.

    Long-term TNX is definitely ranged bound within an expanding triangle to date. The next upside remains to be seen whether it can rally to new highs or not depending on if it can break the major resistance significantly and/or convincingly.
    Dec 16, 2014. 12:21 PM | Likes Like |Link to Comment
  • Macro Outlook: Update On Markets [View article]
    Expectation surprises and disappointments abound this year with the US now heading the pack in unexpected growth rate to the upside and global economy getting downgraded in past months.

    >> Global Growth Prospects Last Year:

    US was expected to suffer anemic growth for this decade last year. Today, a GDP growth rate of 3 to 3.5% are starting to surface.

    Global GDP was expected to remain hot with 4.1%. And so if great events such as the Dotcom Bust, 9/11, Iraq + Afghanistan Wars, Housing Collapse, Credit Crunch, and/or Financial Crisis of the Century does not happen again in the near future; global markets should be able to rally despite anemic US and Europe growth rates.

    Unfortunately, Europe, China, and Japan remained in relative downtrend and many Emerging Markets suffered as a result of the QE3 Tapering when investors withdrew significant capital off many developing countries' expansion programs.

    Global GDP growth rate has been downgraded to 3.8% or 3.7% most recently.


    Which one should we follow now?

    - US stock markets if the growth rate remains strong or better than the 3 to 3.5% expectations despite SnP500 rallying 200% off March 2009 significant bottom or 85% from the most recent -21.53% Bear Market Bottom of October 4, 2011 caused by the EU Debt Crisis.

    Some analysts kept calling this bull run as a Bubble Rally. But when compared to bull market rallies of the past; it pales in comparison to the 1982/87 251% bull run off the -28% correction of 1982. Definitely far from the 256% Irrational Exuberance Rally of 1994/2000 which started from a mere 9.77% major pullback in December 1994. If we use those 251% and 256% vertical rallies as guidepost, the recent 85% vertical rally off Oct 2011 bear market bottom still left much to be desired assuming another crisis comparable to EU Debt Crisis does not happen sooner rather than later;

    - China if the recent 60% rally of Shanghai Index off June 2013 bottom proved the start of their stock market recovery rally toward the 2007 all-time-high of 6,429 which is still 108% from today or 232% for those who bottom fished in June 2013;

    - Japan with Nikkei225 suffering 20 years of grand super-cycle correction with October 2008 possibly the start of another grand super-cycle rally lasting 40+ years. Best vertical rally so far was the 80% from June 2012 to May 2013 or Post Fukushima Disaster Rally that rattled Nikkei225 for more than a year. Japanese are very patient and persistent people. If history is a guide, they achieve the longest secular rally and longest secular correction compared to Europe and US;

    - Europe perhaps despite major slowdowns this year but compared to widespread recessions and great depressions in 2012, the most recent trauma pales in comparison. IEV (ishares for Europe) rallied 62% from June 2012 to June 2014. That rally was retraced by half toward the October 2014 low as economic growth rates started slowing down again (but not necessarily collapsing);

    Emerging Markets remained the great disappointment perhaps because they were expected to grow substantially than most but proved wanting to date. Except for India, most of the primary candidates to spearhead a strong rally failed to do so from the disaster called 'Taper Tantrum' of May/June 2013 that saw many of them suffering more than 25% corrections at that time. Perhaps they need another drop of rain to turn desert into an oasis.
    Dec 15, 2014. 09:07 PM | 1 Like Like |Link to Comment
  • Lofty U.S. Stock Markets At Dangerous Topping Valuations [View article]
    Markets DO NOT collapse significantly because of over-valuations or because of major profit taking episodes.

    Unless of course you keep predicting the likes of 1929 to 1932 when the young Dow Jones collapsed by 90% and of course during 2000 to 2002 when the young Nasdaq collapsed by 80%. They were/are vertical indexes that rallied too far too fast.

    - The young Dow Jones rallied too far too fast from 1921 to 1929 (called Roaring 20's) with 488% gain before collapsing. They said the rout toward the 1932 bottom was caused by the legendary trader Jesse Livermore when he shorted Dow Jones heavily thereby causing investors to panic sell despite the efforts of J. P. Morgan himself to rally investors in 1931. JPM forced J.L. to cover his shorts in 1932 with the threat of he (JPM) and company would close shop if the latter didn't cover. But then the damage was already done and the US economy went into Great Depression in 1933 to 1938. Ironically, Dow Jones rallied vertically during the entire time of the Great Depression before World War II stopped it on it's track with 66.67% correction toward the 1942 bottom.

    - The young Nasdaq, on the other hand, rallied 9,230% from October 1974 bottom to March 2000 secular top before major profit taking caused by the Dotcom Bust happened. Together with 9/11 and Iraq + Afghanistan Wars, Compq total loss amounted to 80%. Unfortunate but that's how things work these days. No more Livermore to control the markets but unpredictable events taking their tolls. Not valuations per se which went haywire for Nasdaq from the 80's to the 90's. Just ask financial experts if they ever considered P/E ratios for Nasdaq in their valuations of the markets. They don't because they would be proven wrong time and time again.

    The more matured Dow Jones of today is the one least prone to significant cyclical downdrafts since after WWII while the relatively young SnP500 simply is not a vertical index but a broad-based type thus very hard to suffer the same fate of young specialized indexes.


    So what actually caused severe intermediate, cyclical, and secular corrections for the broad-based SnP500?

    << Post Severe Recession Recovery Rally:

    << Irrational Exuberance Rally:

    >> Post Great Recession Recovery Rally:

    Study the charts and labels. Identify the different types of rallies and corrections. Then categorize them into degrees of severity.

    Question: Does anybody in this world ever succeeded in predicting the causes of bear market corrections before they happened?

    Answer: Nobody for centuries on end.

    Not the award winner Shiller who advised Greenspan of over-heating markets in 1996 resulting in the phrase 'Irrational Exuberance'. SnP500 rallied another 156% from 1996 to 2000. The primary target irrationally exuberant Nasdaq rallied more than 400% in 4 years. Shorting Nasdaq at that time was the biggest mistake among many traders including some expert and master traders who have never seen such type of extremely over-extended rally.

    Not even Robert Prechter (of Elliott Wave International) who was able to identify the August 1987 top but most likely did not expect a 38% correction in mere 3 months. Today, Prechter preaches Econometrics and his prowess in finding topping patterns goes together with those who specialize in economics with failed prediction after failed prediction for years on ends.


    So try to temper your valuation metrics.

    Perhaps try to evaluate the rate of P/E expansions during the two most recent bubble rallies that caused major profit taking episodes of 38% in 1987 and 30% in 2000/01.

    - In 1982/87 Bubble Rally, P/E jumped from 7.83 to 21.42 or 173% expansion before it was deemed over-valued.

    - The Irrational Exuberance rally of 1994/2000 started at high 14.87 P/E with 29.90 the highest run rate for a less expansive 101% if we disregard the divergent 28.31 of March 2000 and used the higher value of July 1998 instead.

    Where are we now in terms of P/E expansions? Does it justify 'Major Profit Taking'?

    For long-term investors, it is far better to just follow Warren Buffett's sage advice of 'Buy Low then HOLD'. He has the track record to show it actually works rather than those pundits who kept predicting Armageddon Scenarios for centuries on end.
    Dec 15, 2014. 06:52 PM | Likes Like |Link to Comment
  • The Black Bear Is Unleashed [View article]
    By far this recent drop is practically the most benign in the history of crude oil since the 1980's:

    >> Crude Oil Major Whipsaws:

    If history is a guide, this most recent drop should not worry OPEC too much based on their past experiences.

    Crude oil went into a super-cycle rally from 2001 to 2008 which can mean the 'peak oil' theory may actually start to take it's toll - negated by the fracking boom in the US.

    But then, fracking will extract oil far faster than traditional drilling methods and those wells are going to dry out far faster on the first 2 years alone until they can't find more wells suitable for fracking. It is said that 90% got extracted on the first year alone. That's not good at all for the long-term basis. Thus, another potential super-cycle rally for oil is not too far fetch after the super-cycle big red a-b-c correction has completed - which in many cases comparable to the amount of time consumed during the super-cycle rally (the 1-2-3-4-5 rally as indicated which consumed 7 years).

    Note that corrections usually occur in two's labeled as a-b-c (or A-B-C) with the b-wave pullback up or down. Excellent for whipsawing the majority of market participants.
    Dec 14, 2014. 10:02 PM | 1 Like Like |Link to Comment
  • Duck And Cover-- The Lull Is Breaking, The Storm Is Nigh [View article]
    Warren Buffett must be licking his chops for another possible financial crisis somewhere in the world that can result in 10-20% market correction.

    He's got lots of cash coming in from investors with nowhere to buy as the markets are now fairly valued. He deployed some of that cash last October when SnP500 plunged 9.81% caused by Europe and Ebola Fear (mongering?).

    Unfortunately for those who kept wishing the markets to correct by 10-20% in order for them to hop into the gravy train (since May 2013); their waiting period may last at least a few more years if another Bubble Rally or Irrational Exuberance Rally actually happens again this time around (from the October 4, 2011 bear market bottom).


    If history is our guide better stop trying to predict unpredictable financial crises and/or black swans including incidents such as 9/11 or Pearl Harbor. No economist or financial expert was able to correctly predict any of them in centuries:

    << Post Severe Recession Recovery Rally:

    << Irrational Exuberance Rally:

    >> Post Great Recession Recovery Rally:

    Study the charts and labels. Identify rallies and corrections. And classify them according to degrees of severity.

    It is very clear that post World War II; only major events such as the Vietnam War + Global Oil Crisis were able to subdue SnP500 into 9 years of secular correction. Same happened with Iraq/Afghanistan Wars + Financial Crisis of the Century resulting in another 9 years of secular correction - after 26 years of peace and prosperity.

    Since 1974 secular bottom; post WWII issues including those related to the Global Arms Race played second fiddle to many different financial crises that resulted in 10% to 28% market corrections. The further away the crises, the less impact to the SnP500 including the 1987 Asian Contagion that barely registered on the monthly chart.

    Vertical rallies happened twice with many similarities albeit for different reasons. That of 1982/87 Bubble Rally right after SnP500 suffered a 28% bear market correction and the well-known and much hyped Irrational Exuberance Rally kicking off from the 11% correction of 1994. In both cases, major profit taking was the primary motive for the 38% and 30% corrections. Fairly predictable for those who specialize in Elliott Wave Analysis but almost impossible to anticipate with some degree of precision using fundamental analysis. Shiller was among the earliest to see over-valuations by 1996. Unfortunately for those who followed his call, SnP500 rallied another 156% before profit taking finally took it's toll. Nasdaq rallied more than 400% when the internet craze captured the imagination not only of the US but practically the whole world.


    One thing that is predictable since it was incorporated in 1957: SnP500 just kept rallying an average 2/3-rd of the time vs. 1/3-rd spent on pullbacks and corrections from short-term to medium-term to long-term. For long-term investors 26 years secular rally vs. 9 years secular correction can be considered the 2/3 portion and the most important part.

    Obviously, medium-term bear market corrections lasting a few months to several months seldom happen and should be considered excellent buy the dip opportunities for those who wanted to follow Warren Buffett's sage advise of 'Buy Low then Hold'. But then be cautious on buying after more or less 20 years secular rally. Buffett was known to kept raising cash in 1998/2000. A lone wolf shying away from hearty meals at that time. He became an enigma when he adamantly refused buying anything during the 2002/07 'sucker' rally. Was it based on 1965/74 experience or he saw something ominous right around the corner, or both?

    * Note that the Fed proved toothless in 1996 to 2000 with only FFR their primary tool against irrationally exuberant markets and an over-heating economy. Today, the Fed has ZIRP plus $4+ Trillions potent arsenals if and when irrational exuberance happens again in the near to far future.
    Dec 11, 2014. 02:50 PM | 2 Likes Like |Link to Comment
  • How Did We Get Here? [View article]
    When trying to quantify and qualify debt accumulation for the US as a whole; there should be corresponding assets to account for those liabilities. Much like how accountants do their job with balance sheets.

    - US accumulated massive wealth in past decades it was $60-80 Trillions in 1997 (if memory serves);

    - Last figure was $118T in 2007. It should be much higher by now;

    - During the TARP deliberation; Bernanke and Geithner proposed $700B as a rescue package. 5% of troubled assets was their ballpark figure. Unfortunately, Congress cracked that to $350B with the other half = maybe. It did not bode well with investors and the markets tanked with 1,000 points the very next day and for several days thereafter. Bid Mistake by congress. Half measures generally do not work for lack of momentum or all-out 'parabolic' action.

    From those, we can make estimates of how much QEs the Fed should be willing to expand to protect American wealth and save the economy from becoming Japan Part II if not Great Depression Part II.


    Flip side:

    One important observation that kept resurfacing in my mind is that the Fed proved toothless during the Irrational Exuberance of the late 1990's despite several 50 bps rate hikes. It was only when Greenspan finally brought the sledgehammer home with +100 bps did the markets finally take notice in early 2000 (forgot the exact date).

    - Today, the Fed has ZIRP and $4+ Trillions of arsenal against another potential irrational exuberance if and when it happens again.

    Thus, investors should expect the markets will not or cannot undergo another irrational exuberance and defy the Fed when they (the Fed) start hammering rate hikes and/or start draining the pond. Mini-irrational exuberance, perhaps, can be tolerated.
    Dec 10, 2014. 10:47 PM | Likes Like |Link to Comment