I don't pretend to understand this in its entirety, I need to read it again and do some research, but it's something I feel you should know about and it's something that I need to watch for closely.
Here's the full story.
7 years ago
Thursday, April 28, 2011
BRCM Follow Up
Yesterday I mentioned our short in BRCM and what it would take to see a bounce there as opposed to follow through selling. At the very bottom of the post, you can see what the conditions would have been. Now take a look at this chart and you'll see why we are seeing more downside today. It's not so much a trade idea as it is just a heads up on what to look for, especially on high volume days.
What we'd look for for a dead cat bounce yesterday would have been (as you can see in the linked post from yesterday above) very high volume which we saw, but it would also need to show a strong close, at least in the upper half of the trading range. As you can see, BRCM closed just off it's lows for the day. For anyone trying to trade around the position, the close would have told you the probability was going to be more follow through selling today.
SLV Update
Yesterday the FOMC statement cut our SLV pullback a little short, today it's seeing some downdraft.
If you like the trade, then any pullback could be used to accumulate shares. Or you can simply wait for the confirmed close through resistance. It's a trade off between a little more profit, but an unknown wait ad some uncertainty and a little less profit, but a greater degree of certainty. Each trader has their own risk tolerance. I'm available as always if you want to email me about this or anything else.
AMZN FOLLOW UP
AMZN was an earnings trade from April 26. They were down over 6% in AH and I know we had some members book in AH, the next day AMZN is up big, strangely big. Make sure you check out the original post.
Yesterday I had CNBC on to listen to Bernanke's Q&A and the FOMC results. I left it on in the background as I never listen to CNBC, not even once a month, but I'm well aware of the Cramer Effect. In fact, in early July 2008 I was calling for a top in the multi-year Bush-era run in oil. That same week Cramer came out and told viewers to buy the next bad DOE inventories report, he called it a "Contrarian Play", which I remember as laughable when you have millions of viewers all doing the same thing, how that's contrarian, I have no idea. Well they bought, and I got the oil top right to within a week. Of course I could never prove it, but Cramer is Wall St. Alumni from Goldman. Who's to say he's not helping his buddies exit their longs in oil by creating mass demand for them to sell into? Besides that, we all know if Cramer rec'ds something on his show, the next day that something is up. So yesterday at 3 p.m., Cramer was talking about AMZN and how their miss was no big deal just because they were spending money and that they were going for world domination, etc. At the white arrow, that's when he made his comments, the Cramer effect followed.
Here's 3C 5 min, with the arrow at the time he made his statement about AMZN, looks a lot like that was used to sell into demand.
Here's the post earnings move up in AMZN, by now a 15 minute chart should easily be able to confirm that move. I don't know if he talked about AMZN the night before or not, I'm guessing he did.
Here's the line in the sand to watch. If smart money wants out, they need demand to sell massive positions into, that may have happened yesterday. If AMZN crosses below this breakout level then we get the all too familiar "false breakout" and AMZN likely falls, so keep an eye on this area between $188.50 and $191, if it fails, there should be a lot of longs caught at a loss and supply will increase quickly and we know what happens when we have more supply then demand.
NASDAQ 100 Breadth
Market Update
SPY negative divergence.
Silver
I'm using SLV as an example, but physical if you can get your hands on it is just as good.
As previously mentioned, the area of the red line appears to be where Blythe Masters (JP Morgan ) and HSBC lost the battle to suppress silver to protect their inherited short positions from Lehman. The parabolic move up is reminiscent of short covering.
Yesterday in covering SLV, I mentioned a target based on the historical gold/silver ratio, it's nearly double. Silver is hitting blues skies now (no resistance) and no reason it shouldn't appreciate to the historical average. The pullback we saw was cut short yesterday and SLV and GLD ran, SLV to a much greater extent. This reflects the market's view that Bernanke will continue to debase the dollar and that inflation is probably more then transitory. Keeping rates between ZIRP and .25% for the foreseeable future will cause inflation to bloom. I personally believe the transitory language is an outright deception and it seems the market for the foreseeable future would agree. Bernanke's policies have not had the effect they were intended to so the mission of QE was redefined. In effect, Bernanke has boxed himself in, or created what I've been calling the Bernanke Chinese Finger Trap.
The wild card now is whether China intends on making good on its threats. It's a hard question to answer, there are few currencies liquid enough to replace their dollar denominated holdings. Does China really want to use the Euro rather then the dollar? On the other side of the coin, Congress and Bernanke haven't showed the Chinese anything that says we care about your holdings, I think Bernanke understands he's taking a gamble that the Chinese have few alternatives in the debt/currency realm and may be calling their bluff. I'm guessing the Chinese will respond with a strong signal, but won't go so far as they've threatened, however try to create the impression that they will. We'll see in upcoming auctions and what China says over the next few days. Silver and Gold are certainly part of a solution for them.
The wild card now is whether China intends on making good on its threats. It's a hard question to answer, there are few currencies liquid enough to replace their dollar denominated holdings. Does China really want to use the Euro rather then the dollar? On the other side of the coin, Congress and Bernanke haven't showed the Chinese anything that says we care about your holdings, I think Bernanke understands he's taking a gamble that the Chinese have few alternatives in the debt/currency realm and may be calling their bluff. I'm guessing the Chinese will respond with a strong signal, but won't go so far as they've threatened, however try to create the impression that they will. We'll see in upcoming auctions and what China says over the next few days. Silver and Gold are certainly part of a solution for them.
Market Update
The first chart is what yesterday's 1 min chart looked like near the close, I didn't have time to post them, but did mention them.
The second chart for each average is the 5 min chart which has been pretty consistent and pretty telling. So far what I've seen in the market yesterday looked like light commitment buying, at first I though even retail. I watched the market during every sentence from Bernanke, you saw my posts on different industries such as housing as he talked about them in real time, but at the point it became fairly clear that QE3 wasn't in the cards, the market seemed to really gain momentum which would defy normal explanation. Perhaps the 5 min charts offer an alternative explanation of what was happening behind the scenes.
As of yesterday's close, the DIA had the sharpest 1 min drop, a leading negative divergence.
As of today, the 5 min 3C chart, I think it needs no explanation.
The Q's 1 min chart
QQQ 5 min chart
SPY 1 min chart yesterday also saw a leading negative divergence at the end of day
And the SPY 5 min chart needs no explanation.
The second chart for each average is the 5 min chart which has been pretty consistent and pretty telling. So far what I've seen in the market yesterday looked like light commitment buying, at first I though even retail. I watched the market during every sentence from Bernanke, you saw my posts on different industries such as housing as he talked about them in real time, but at the point it became fairly clear that QE3 wasn't in the cards, the market seemed to really gain momentum which would defy normal explanation. Perhaps the 5 min charts offer an alternative explanation of what was happening behind the scenes.
Q1 GDP
We've already had multiple episodes of lowering expectations for Q1 GDP, and it STILL MISSES!
What's really disturbing and most likely why Ben would rather deal with inflation is the drop from Q4, from 3.1 to 1.8 is more then a 40% drop off. However, I'd argue that QE had no real meaningful impact on the economy. Nearly 2 trillion dollars later, who's to say we wouldn't have seen a modest, very modest down tick in unemployment? What you cannot argue with is the effect on inflation. I take Bernanke's comments about QE3 risks outweighing the potential benefits to mean pretty much exactly that, it doesn't grow jobs, the banks aren't lending and inflation is rising which is causing long term damage to margins.
This morning Initial Claims also came in with a nice kick in the pants at 429k vs expec. 395k.
What's really disturbing and most likely why Ben would rather deal with inflation is the drop from Q4, from 3.1 to 1.8 is more then a 40% drop off. However, I'd argue that QE had no real meaningful impact on the economy. Nearly 2 trillion dollars later, who's to say we wouldn't have seen a modest, very modest down tick in unemployment? What you cannot argue with is the effect on inflation. I take Bernanke's comments about QE3 risks outweighing the potential benefits to mean pretty much exactly that, it doesn't grow jobs, the banks aren't lending and inflation is rising which is causing long term damage to margins.
This morning Initial Claims also came in with a nice kick in the pants at 429k vs expec. 395k.
Wednesday, April 27, 2011
Full of Holes
Bernanke's Q&A just doesn't hold water.
Inflation is transitory, yet it needs to be monitored
This commodity index doesn't look like inflation is just transitory. Nearly every Manufacturing report, including the two from this week say inflation is a problem and leading to consumer price increases and squeezing margins.
He also said that they Fed has tried to key the market in to what it's intensions are. For all those permabulls looking for QE3, 4, 5 and 6, he said that the risks are starting to outweigh the benefits, that can roughly be translated into "Inflation outweighs the benefits of more dollar debasing". Head line inflation is like head line earnings, it doesn't mean anything. Look at gas and food prices, the Fed likes to ignore those in core CPI, but every American is pinched everyday by rising costs in both and manufacturers made clear this week that they intend to push inflation along to consumers.
This talk about inflation being transitory is a huge farce. If you understand how important t is for the Fed or someone to buy our debt, then not engaging in QE3, must have some very major risks.
I think an interest rate hike right now would scare a lot of the market and would hurt consumers, but not hiking is going to hurt consumers through price inflation. I'm already changing my driving habits and routes because the cost of gas is one of the biggest costs in my budget and I don't travel a whole lot.
SO while a few things struck me as disingenuous, transitory inflation struck me as a bold face lie.
As for the market's reaction, like I mentioned yesterday, beware the knee jerk. A lot of perma bulls will be disappointed with the statements about QE3.
As another site mentioned, watch China as well. They may be loading up a canon with trillions of dollars of US dollar denominated debt, preparing to give Bernake a broadside salute.
This whole QE thing has been an absolute mess and it's clear who's benefitted from it and who's paid the price (Wall Street and responsible savers respectively).
This may very well have been the Jackson Hole antithesis speech. Just don't rush to judgements quite yet.
Inflation is transitory, yet it needs to be monitored
He also said that they Fed has tried to key the market in to what it's intensions are. For all those permabulls looking for QE3, 4, 5 and 6, he said that the risks are starting to outweigh the benefits, that can roughly be translated into "Inflation outweighs the benefits of more dollar debasing". Head line inflation is like head line earnings, it doesn't mean anything. Look at gas and food prices, the Fed likes to ignore those in core CPI, but every American is pinched everyday by rising costs in both and manufacturers made clear this week that they intend to push inflation along to consumers.
This talk about inflation being transitory is a huge farce. If you understand how important t is for the Fed or someone to buy our debt, then not engaging in QE3, must have some very major risks.
I think an interest rate hike right now would scare a lot of the market and would hurt consumers, but not hiking is going to hurt consumers through price inflation. I'm already changing my driving habits and routes because the cost of gas is one of the biggest costs in my budget and I don't travel a whole lot.
SO while a few things struck me as disingenuous, transitory inflation struck me as a bold face lie.
As for the market's reaction, like I mentioned yesterday, beware the knee jerk. A lot of perma bulls will be disappointed with the statements about QE3.
As another site mentioned, watch China as well. They may be loading up a canon with trillions of dollars of US dollar denominated debt, preparing to give Bernake a broadside salute.
This whole QE thing has been an absolute mess and it's clear who's benefitted from it and who's paid the price (Wall Street and responsible savers respectively).
This may very well have been the Jackson Hole antithesis speech. Just don't rush to judgements quite yet.
