The following isn't technically a technical indicator discussion, but looking at the pattern of the current five month bull market from Bespoke Investment Group, we get the sense that both bulls and bears fear factor of being wrong and missing out on the big move is getting stronger.
We couldn't help but notice the length of the candles getting longer and more regular. Notice especially the first test of 1100 and the ensuing test of the 50 day SMA.
The run-ups are for the most part slow and steady (until the most recent one) and the pullbacks fast and furious. But notice the pullbacks almost always have strong up days trying to fight them.
Conclusion 1: the old adage that it's easier for the market to fall than rise is clearly seen. This is because pulling money out is easier than taking the risk of committing money and having it decline. Cash never declines in value (please, don't even think of starting a tangential diatribe about the dollar. We're talking about a two variable, and only two variable, equation: dollar priced SPX vs dollars, period.)
Conclusion 2: The 50-day and 1100 support and resistance points have become "sticky", both of them. In the last three areas where the price has approached either point the market did not want to move away from that point in either direction. There is very strong sentiment in both directions.
Monday will be interesting. We're expecting some volatile sideways movement as the moving average rises to the 1100 mark. Besides the technical aspects of that, the price range of indecision during the last three tests is awfully close to the range of price between support and resistance.
The ideal scenario would be sideways motion from now to end of year with SMA(50) rising up to 1100 without a strong breakout. That would give us some very nice income on our bi-directional short put strategy and top off our year with close to 20% gain so we can go flat around the new year and catch our breath, waiting out the market's indecisiveness and getting some sense of economic effects on corporate America during January earnings season.
While we're not one of those who subscribe to belief in the end of the financial world as we know it, the 10-year chart on SPX suggests this push off the bottom has come faster, straighter, and longer than the 2003 recovery. It is also clear the sell off was equally more straight. So one would expect a fast straight reversion to some equilibrium point. Because of that, our sentiment for the next few months is sideways/down for a few months as opposed to our current sideways/up sentiment. However, during 2006 we were bearish on the premise that the market can't just go straight up for a year without any correction, and was clearly proven wrong. We'll never say never again. [roll theme song]
My name's Bond ... Jade Bond.
Saturday, November 21, 2009
Tuesday, November 17, 2009
Profit Taking Rules the Day
It appears the last two days saw big moves upward in all of the following:
10 and 30 year U.S. Treasurys
GLD
DBB
FXE
SPY
DIA
QQQQ
Stocks, bonds, commodities, everything on a roll at the same time. This can't be a sentiment shift (since Treasurys typically move the inverse of equities.) Our guess is derivative profit taking is pushing up underlying securities.
10 and 30 year U.S. Treasurys
GLD
DBB
FXE
SPY
DIA
QQQQ
Stocks, bonds, commodities, everything on a roll at the same time. This can't be a sentiment shift (since Treasurys typically move the inverse of equities.) Our guess is derivative profit taking is pushing up underlying securities.
Friday, November 13, 2009
Where did all this money come from?
Has anyone else been watching this and have a specific explanation other than "the banks aren't lending". Seriously, where did 400 billion dollars come from in the last two months?
Non-borrowed reserves in the last two months have jumped from around 400 billion to around 800 billion.
Who's pumping money into the banking system?
Oh, and did you notice the shaded recession period is in the past. Somehow we missed that announcement, but we did observe something similar on November 10th.
Non-borrowed reserves in the last two months have jumped from around 400 billion to around 800 billion.
Who's pumping money into the banking system?
Oh, and did you notice the shaded recession period is in the past. Somehow we missed that announcement, but we did observe something similar on November 10th.
Tuesday, November 10, 2009
Contagion: Been There, Done That
If you haven't seen Commanding Heights, we highly recommend it. It goes best with a strong thinking cap so you can read between the lines and find the subtle nuances of cause and effect in global finance.
I part three in particular, they covered the Asian Financial Crisis that started from a small little economy, that through currency controls created the exact same financial situation we had last year (don't miss the entire city built from the ground up on debt financing to which no one ever moved in to populate!), and as the piper came calling and financiers decided they were no longer going to sing that tune, it spread to all the healthy nations in the region as electronic funds transfers sucked all the money out of the region, one nation after another.
The funny thing is, that time the money needed a place to park, so it fled to another emerging nation -- Russia. They didn't go into details on the underlying reasons for Russia's default on debt, but ultimately it lead to Long Term Capital's implosion.
And then Brazil was hard on its heals with another collapse in this game of financial dominoes, but was averted by a quick influx of bail out money as the signs of stress were about to crack.
In every case: bail out after bail out after bail out.
The difference in 2008 was apparently "they" (those with all the money under control) learned how not to make the same mistake. When credit stopped in 2008, the money this time went straight to U.S. Dollars. No messing around this time with some new emerging entity that offered hope and promise of the perfect utopia. Instead, get out, park the money in the one nation and one security most likely to not have a political revolution over the hub-bub, and wait it out.
So in spite of all the uproar over Federal Reserve emergency lending and government bail out of banks in 2008, it really was not unprecedented. It was exactly what was done the last time. The only difference being this time it was an internal massive bailout instead of foreign nation massive bailouts. We contend the labels on the entities in question are irrelevant. It's the same thing every time (remember the third-world financial bail outs in the 80s?) Apparently it's a necessary evil every decade.
There is nothing new under the sun. Watch it, learn to read the signs, and get ready for a repeat since the fundamental foundations, the global monetary systems, haven't changed one bit. The hard part is learning how to discount and ignore the incessant monthly claims that "it's going to happen again!! Sell now and protect yourself!!!"
Meanwhile, like last time, it appears the contagion has stopped spreading. See our other post today, The Financial Crisis of 2008 is Officially Over.
We left out one interesting link on those references though. Just as Brazil's contagion was contained by preemptive quick response, The Fed has preempted the Commercial Real Estate issues that are falling on the heals of this most recent global financial crisis. Like Brazil's non-issue of the 90s, we predict the present CRE "crisis" will also become a little known financial issue of 2010.
In a nutshell, banks can restructure the loans and won't be "criticized" for what otherwise would have been bad lending practices. It's now OK to carry bad debt on the books.
Just like Japan? Well, not exactly. Turns out we can learn another important fact from Commanding Heights. In the 90s, when Japan's banks were stuck with all those bad loans, one bold man stood up and suggested if they want to get out of the crisis they need to loosen up the over-bearing burdensome regulatory structure that was constraining the banks. He was quickly fired from his cabinet post, they refused to "fix" the systemic problem, and the lost decade ensued.
If Benny and Timmy had nationalized the banks in the U.S. to "solve" our crisis and put massive layers of regulation on them (as if you can implement "Soviet Union Economics" and create vital capital formation) then we would have been destined for a lost decade in the U.S. as well. Instead, we have a much better chance of getting back to normal, which is setting ourselves up for another crisis in the teens of the 21st century just like the previous three decades.
I part three in particular, they covered the Asian Financial Crisis that started from a small little economy, that through currency controls created the exact same financial situation we had last year (don't miss the entire city built from the ground up on debt financing to which no one ever moved in to populate!), and as the piper came calling and financiers decided they were no longer going to sing that tune, it spread to all the healthy nations in the region as electronic funds transfers sucked all the money out of the region, one nation after another.
The funny thing is, that time the money needed a place to park, so it fled to another emerging nation -- Russia. They didn't go into details on the underlying reasons for Russia's default on debt, but ultimately it lead to Long Term Capital's implosion.
And then Brazil was hard on its heals with another collapse in this game of financial dominoes, but was averted by a quick influx of bail out money as the signs of stress were about to crack.
In every case: bail out after bail out after bail out.
The difference in 2008 was apparently "they" (those with all the money under control) learned how not to make the same mistake. When credit stopped in 2008, the money this time went straight to U.S. Dollars. No messing around this time with some new emerging entity that offered hope and promise of the perfect utopia. Instead, get out, park the money in the one nation and one security most likely to not have a political revolution over the hub-bub, and wait it out.
So in spite of all the uproar over Federal Reserve emergency lending and government bail out of banks in 2008, it really was not unprecedented. It was exactly what was done the last time. The only difference being this time it was an internal massive bailout instead of foreign nation massive bailouts. We contend the labels on the entities in question are irrelevant. It's the same thing every time (remember the third-world financial bail outs in the 80s?) Apparently it's a necessary evil every decade.
There is nothing new under the sun. Watch it, learn to read the signs, and get ready for a repeat since the fundamental foundations, the global monetary systems, haven't changed one bit. The hard part is learning how to discount and ignore the incessant monthly claims that "it's going to happen again!! Sell now and protect yourself!!!"
Meanwhile, like last time, it appears the contagion has stopped spreading. See our other post today, The Financial Crisis of 2008 is Officially Over.
We left out one interesting link on those references though. Just as Brazil's contagion was contained by preemptive quick response, The Fed has preempted the Commercial Real Estate issues that are falling on the heals of this most recent global financial crisis. Like Brazil's non-issue of the 90s, we predict the present CRE "crisis" will also become a little known financial issue of 2010.
In a nutshell, banks can restructure the loans and won't be "criticized" for what otherwise would have been bad lending practices. It's now OK to carry bad debt on the books.
Just like Japan? Well, not exactly. Turns out we can learn another important fact from Commanding Heights. In the 90s, when Japan's banks were stuck with all those bad loans, one bold man stood up and suggested if they want to get out of the crisis they need to loosen up the over-bearing burdensome regulatory structure that was constraining the banks. He was quickly fired from his cabinet post, they refused to "fix" the systemic problem, and the lost decade ensued.
If Benny and Timmy had nationalized the banks in the U.S. to "solve" our crisis and put massive layers of regulation on them (as if you can implement "Soviet Union Economics" and create vital capital formation) then we would have been destined for a lost decade in the U.S. as well. Instead, we have a much better chance of getting back to normal, which is setting ourselves up for another crisis in the teens of the 21st century just like the previous three decades.
The Financial Crisis of 2008 is Officially Over
On Friday of last week:
Then today:
Update 11/18/2009
The Federal Reserve Board announced Friday that a temporary exemption to the limitations in section 23A of the Federal Reserve Act, instituted as part of the response to the financial crisis, will expire as scheduled on October 30, 2009
(source: 2009 Banking and Consumer Regulatory Policy)
Then today:
9 of the 10 Bank Holding Companies (BHCs) that were determined in the Supervisory Capital Assessment Program (SCAP) earlier this year to need to raise capital or improve the quality of their capital to withstand a worse-than-expected economic scenario now have increased their capital sufficiently to meet or exceed their required capital buffers. The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program, and is in discussions with the U.S. Treasury on the structure of its investment
(source: 2009 Banking and Consumer Regulatory Policy)
Update 11/18/2009
In light of the continued improvement in financial market conditions, the Federal Reserve Board on Tuesday announced that it approved a reduction in the maximum maturity of primary credit loans...
Prior to August 2007, the maximum available term of primary credit was generally overnight. The Federal Reserve lengthened the maximum maturity first to 30 days on August 17, 2007 and then to 90 days on March 16, 2008...
(source: Federal Reserve Press Release)
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