THE DOT - if this turns orange or red be alert

Friday, October 31, 2008

Market wrap-up - basic signs that wave A comes to an end

It is basically a sign of a low, that retail investors pull out maximum amounts from mutual funds always at the worst time to do so. This is not an ultimate low though but in a bigger wave count together with the Hedge Fund liquidations, it's a capitulation to some degree.

Excerpt from Bloomberg:

Stock-Fund Investors Pull Record $70.7 Billion, TrimTabs Says

By Sree Vidya Bhaktavatsalam

Oct. 31 (Bloomberg) -- Investors withdrew a record $70.7 billion from U.S. stock mutual funds in October, according to data compiled by TrimTabs Investment Research, raising questions about how long they will stay out of the market.

Redemptions by individual investors and institutions jumped 26 percent from the previous high of $56 billion in September, Conrad Gann, chief operating officer of the Sausalito, California-based firm, said today in an interview.

Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, said in a note to clients today that it can take a long time after losses for individual investors to feel comfortable buying stocks. After the 1987 stock market crash, retail stock- trading levels took four years to recover, he said.

``When the financial markets rattle `Mom and Dad Average American,' these investors pick up their cash and place it in their mattresses -- and won't come back into the capital markets until the pain of their previous losses is long forgotten,'' Hintz wrote.

Investors had stepped up their flight from stock and bond funds in mid-September after Lehman Brothers Holdings Inc. declared bankruptcy and world governments were forced to intervene to stabilize their economies. Through yesterday, the Standard & Poor's 500 Index slumped 18 percent in October, its worst month since 1987, and the MSCI World Index dropped 20 percent, the most in its 38-year history.

Volume picked up towards the end of today, while prices were marked up especially in the former loser segments like housing financials and semis to name a few. SPX managed a second day of gains while NDX even counts now 4 days back to back. It is still mandatory also from a technical as astrological that the first days of next week are to the downside, although Wednesday with a result may bring a little relief as the decision is out and the ECB will likely cut rates on Nov. 6th but that is a given fact as Trichet made a very clear indication which is a sure sign they will. Let's see how the first 2 days of the week go to decide by the magnitude and price action how things will work out for the coming week.

This weekend I do some sector analysis and try to figure the winners for the upcoming bigger rally once we have the real bottoms in.

Have a good weekend

NDX/market technical update

On the left hand, the NDX hourly chart and, as we reach the target zone of 1350/60 the hourly charts counts to 12, so the top of the current upleg has been reached. We will see a pull back next week of at least half the distance (100 points) it made up but 1200 is also likely. The way we drop towards the election will show what count we need to choose finally. As this is the first week out of 5, we close within the weekly Bollinger. Let's see if the SPX can also break the pattern of not being able to make 2 consecutive gains, which it never did in October so far, but with financials very strong on window dressing day it might work out. So we have some game changing price action but nevertheless wave A up comes to an end and wave B down is due next week. We see after the close what the market is up to.

HANG SENG technical outlook - market update

The Chinese stocks have built their lows in the manner I wished US stocks would have done. A substantial weekly reversal outside the weekly Bollinger plus we got a weekly 13. The market lost almost 70% and H-shares were below 10 times earnings in the only economic powerhouse left. They look like the winner right now as commodities got cheap and the demand for cheap goods rising in tougher economies.

The 21000 points down with a 25% retracement is at 16500 and the 38% at 19000- therefore buying weakness in the Chinese story is a good way to add some good momentum, if you want to put up a basket for the relief rally due into Feb 2009.

The NDX and SPX trend in low volume markets to the targets of 1350/60 NDX and 980/90 SPX and the window dressing operation is coming to an end and we should see some weakness going into next week.

XOI Index - market outlook

The XOI Index weekly chart shows a weekly (setup) 9 count, which usually marks a turning point or at least consolidation area. The XOI lost over half of its value accordingly to the crude or gas decline and has found good support around 750 for 4 weeks. The 900 points drop should lead to a 38% counter-wave to 1100 before a retest of the lows or even new lows can be made. The wave count looks like an ABC correction with wave A having bottomed out and wave B on its way to unfold. The problem is only the price pattern does not look like a low at all and we might dip down once again to make a minor new low before wave B up can unfold since the last 4 weeks looks like a triangle pattern consolidation. So we might have to drop to 700 before we have the low in - a look on major components like Exxon and Chevron say that we need to test the lows still, as does the daily chart. We follow this closely as Obama as President will go after oil companies - at least the market might price it accordingly, hence after Tuesday they might drop with a DEM president.

Markets trading up as expected with the worst month in decades - fund managers need some window dressing with record fund withdrawals of $44 bil. and no one wants to miss out on the big rally?? Volume is quite low though and, as said, next week markets will rather drop again. The NDX should reach the 1350 today and retreat from there - we have to follow closely.

GDP of yesterday is too high - Obama's possible choices to replace Paulson are not good

Yesterdays GDP of -0.3 was blown up by 3 factors:

1. Permanently understated inflation blows up the GDP per se
2. The numbers included basically JULY/AUGUST, as September turmoil will be added in the next adjustment the number is going to worsen
3. We had unusual high government spending that quarter (weapons for Iraq), which is not the quality of economic action one wants to see

US Economy Is 'Deeply Worrisome': Fed's Yellen

Reuters | 30 Oct 2008 | 04:22 PM ET

Recent trends in the U.S. economy are "deeply worrisome" at a time damage from the credit crunch has outpaced the Federal Reserve's huge interest rate cuts, a top Fed policy-maker said Thursday.

Janet Yellen, San Francisco Federal Reserve President

Janet Yellen, president of the San Francisco Fed, was the first Fed official to speak after Thursday's news that the U.S. economy contracted in the third quarter, and she suggested the worst was yet to come.

"For the fourth quarter, it appears likely that the economy is contracting significantly," Yellen told a University of California housing symposium in Berkeley, California.

"The mortgage meltdown is far from over (and) the economy and financial markets are still reeling from it." Most private-sector borrowing rates are higher now than at the start of the financial crisis in August 2007, despite "some of the most momentous steps in decades" from the Fed, she noted.

Paulson or the Treasury as MARC FABER said absolutely rightfully work for Goldman but when I read the possible candidates of Sen Obama - I have to say the 'change' motto is not for real

Excerpt from WSJ

Sen. Obama's possible picks include former Clinton Treasury Secretary Lawrence Summers, Federal Reserve Bank of New York President Timothy Geithner and former Fed Chairman Paul Volcker. Sen. McCain has mentioned both former eBay Inc. Chief Executive Officer Meg Whitman and Cisco Systems Inc. CEO John Chambers as possibilities. Other possibilities include World Bank President Robert Zoellick, Merrill Lynch & Co. CEO John Thain and John Taylor, a Stanford University economist and McCain economic adviser.

90 % of these guys are as much lobbyists for Wall Street as Paulson - they would not bring any change at all. I hope the WSJ writer is wrong but when I see who his advisors are, I am afraid it is close. Not that McCain would do any better - these days polticans are owned by the establishment, but Obama's maxime is "change" and he might not deliver what he promised. I hope sincerely I am wrong on that call.

Thursday, October 30, 2008

NDX outlook - market wrap-up

The hourly chart of the NDX basically confirms that we should test the 1350 area tomorrow as the hourly count is at 9 and needs 4 higher hourly closes. The fact that the NDX produced 3 higher closes is a positive indication for more upside. The SOX was a strong component today.

The volume was relatively low today and the VIX dropped to 63 with 60 a target we should see tomorrow - before next week we might rise again before the election. The Japan rate cut will make the music for tomorrow but likely we see already at the end some profit taking, hence the upside should be limited.

SBUX technical outlook - market update

Starbucks seems to have found a bottom in - the daily chart gives a chance of a retest of the lows as the weekly count besides the 13 is still in a (green) setup 6, hence within 3 weeks we should have a low around 9/10 with a target of 16 but a 20 is possible as well.

The market moves within yesterday's range so far, but in case of the NDX it will brake a pattern, since we will have made 3 consecutive gains. Volume is lower than yesterday and the window dressing is active tomorrow and should keep markets up. The BOJ might cut the rates anyway tomorrow, which should help keep markets up - although its basically priced in.

Rydex Nova/Ursa - and the 'Kaisers new cloths'

The Rydex Index above is at
arelative high level (.78), which usually would qualify for lower prices in stocks going forward as you can see by the grey line in comparison to the red one. But the timing is not spot on, so within the current small upside correction we still should see a ABC wave with A the current one. This should switch next week in wave B down. We have an alternative count of directly making the decisive lows in the next 2-3 weeks as well. It's hard to tell because some conflicting short-term indicators make it a bit confusing but it does not make a big difference after all. The bottom line remains that we do not have the low in so far.

The following article shows how pathetic the world has become - the rules get changed as the game goes but always with an advantage to the top managers in those banks. Now they are allowed to show losses as profits as the accounting rules, which made record profits for Wall Street, do not work in their favor any more. The biggest outrageous fact is that the FED gives $125 bil. in new capital to investment banks and they plan to pay out $108 bil. in bonuses - that's an absolute 'no go' event. The puppets from the Treasury and FED do not look after the interest of taxpayers or stockowners but for the guys who wrecked the economic model by trillions and, on top of that, even get a bonus out of it. This is a scandal of unbelievable format and should be stopped this very moment. Paulson is not good for taxpayers at all since his motivation to take the job was to use a loophole in order not to pay his taxes for his stocks worth approx. $200 mil. - even as a CEO of Goldman he never made over $200 mio. in 2 years.


Deutsche Bank Posts Profit, Says Doesn't Need Capital (Update2)

By Aaron Kirchfeld and Jann Bettinga

Oct. 30 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, reported a surprise third-quarter profit and said it doesn't need to raise capital, prompting the biggest gain in 16 years in Frankfurt trading.

The bank rose 18 percent after posting net income of 435 million euros ($573 million). Analysts had predicted a loss. New accounting rules easing requirements for marking down investments allowed Deutsche Bank to lower writedowns for the quarter by 845 million euros to 1.2 billion euros.

Chief Executive Officer Josef Ackermann, who indicated the company may trim its dividend to conserve cash, said financial markets remain ``challenging.'' The profit masked 1.4 billion euros of trading losses and deteriorating earnings in consumer banking and asset management. The bankruptcy of Lehman Brothers Holdings Inc. in September froze up credit markets and forced rivals including UBS AG of Zurich to accept government funds.

Gold technical outlook

The Gold weekly chart shows that we have still to go lower as we are in wave 3 down, which has a target of 650. The current minor upleg has a target of 780/800 and for another 2-3 weeks we likely will stay in 680 -780 range as a consolidation before the downtrend resumes. That is very much linked to the EURUSD development, which is in wave 4 up for now and that should last 2-3 weeks as well before we go to lower ground. The commodity complex also needs a new low but Gold will be decoupled at some point when we enter a more substantial upside correction in stocks after hitting new lows. Due to the false impression that markets are doing well and some 'safe haven' buying, especially from retail buyers might be unwound.

NDX technical outlook

The NDX daily chart has the potential to reach even the gap area once again, since a 38% retracement also matches that level. Right now, we will very likely see a set back from 1350/60 though and that will determine in what kind of count we are. If today closes with a gain, it would mark the first 3 day gain and add positive momentum overall to this upside correction. It will be interesting to see how the SPX does at the same time. We should see a pullback towards 1200 as this correction will unfold in an ABC correction as wave B before C might take the NDX to 1450 probably, we can define that better as we see the magnitude of wave A which is still running. The SOX has made a valid low and the Semis are a supporting sector for now.

USDTRY technical analysis

The USDTRY made an impressive wave 3 up to 1.74 and is now in wave 4 down to 1.45, which is a 50% retracement. Part of that move is the expected turn in EURUSD, which makes a wave 4 up to adding to the overall temp Dollar weakness. The end of wave 4 should come within a week.

A new basic impulse may come from the elections in USA next week as Dems rather bring stronger Dollar times and Reps a weakening bias. In wave 5 up, we likely will see the USD trading up to the big handle 2.00 (Goldman claims the fair value at 2.04).

I rather say the real inflation in Turkey is in the upper 20's and in a weakening economic environment, that's the least the currency should devalue if their is no intrinsic strength. That is a yearly component, which needs to be aggregated on a 3 year average as Turkey enjoyed an artificial strength of its currency due to huge capital inflows which will partly reverse (it has already) - this is just an intuitive approach, but, on the other hand, all other approaches economists use with their pathetic models do not work anyway. It's more a matter of common sense but the technical picture does support that approach.

Wednesday, October 29, 2008

BKX technical update

The BKX is still in a clear downleg, wave 5 down and needs 3-4 weeks to complete it. THE MOMENTUM HAS NOT CHANGED - and we should resume the downside next week. If Obama becomes President, easy times for banks might be over trading momentum. I think easy money for banks is over by all means and the $108 bil. bonus pool in perspective to a $125 bil. bailout injection of capital looks very crooky and pressure should build up. Still, this will create a buying opportunity once the weekly 13 materializes but we have 20% to lose before that can happen. Have an eye on those stocks going forward.

SPX outlook - market wrap up

The SPX lost all of the profits literally in minutes, as you can see in the 2 minute chart. We had for 2 days a very positive astrological influence combined - the new moon with a sextile of Jupiter and Mars - both are vanishing now.

You can see that someone made a big volume sale since some guys might sit on a nice profit. The fact that the gains could not be carried over the day are a weak indication - in OCT we had no consecutive 2 days of profit for the SPX - since we are nearing month end and window dressing period we will likely remain in a positive bias but the upside is limited for now as the sector adding negative spin was the BKX (Bank Index), which still needs to finish the wave 5 down. Therefore, we need to drop below 50 again.

Next week is by many weeks poised for a downside test. As I wrote last week, this week might be tricky since a spike was due this week but we need to see by tomorrow if the brief rally is already over and we make the real low now (next week) or we take an extended consolidation pattern before making the final part of this downleg. In any case we start to get market divergences as Tech might start to outperform again.

SPX technical update

The SPX had a short covering obviously as today's market is locked in a narrow range. Basically, the FED's rate cut is priced in and 50 BP should not bring markets higher but the prospect of more cuts might be carried out as a reason to bring the SPX to 1000/10. Although the 990 is a hurdle as well, if we go up from here. In any case, we have to come down again - the question is really how high and long does this upside correction go and last? The last 2 had a 3 day span - the difference now is that the EURUSD seems to have finished a downleg and hence turned commodities around as well, which gives more support. The Rydex around .74 is not on oversold levels, rather on a sell level. we have to wait and see how the market deals with the rate cut (and it's magnitude). Volume is moderate so far and the VIX 13 really marked a high in volatility as expected.

Tuesday, October 28, 2008

SPX technical outlook - market wrap up

We had a positive crash with good volume at the end. Aggressive short covering on a Tuesday after testing the lows on a Monday. A 'little ' reversal I expected for this week - that was a bigger magnitude but within the range. So far, we only traded back to the triangles break. Since the ISEE put/call remained low, we can get some follow through to even 1000 SPX, which matches 38% of the last leg down. We can easily extend to 1000 without changing the tide. Some sectors show a low might be in place for now but other things miss still. Except for the NDX (which was the minimum requirement), we had not tested a new low. Basically, we are still in a sideways zigzag correction or consolidation pattern.

The New Moon effect worked so far and the last hour was very explosive short covering and we can see an inside day tomorrow until the FED comes out with their rate cut or we get higher and fall back after the cut. Even if we consider this an impulsive wave for a rally and would count it wave 1 (which I do not do ), it needs to come back most of the magnitude anyway. We will get a very good idea by tomorrow's price action - so far just a bit more than expected brief rally.

Another stock for the radar screen - X (US STEEL)

X has, as ANF, a weekly and daily 13 same week, which is assuming we have a bottom soon (besides the fact they indicate one). This is a good choice for the long side choices one wants to make. As the CRB is making a severe bottom as well theses days some choices in material stocks make sense and technically this is a good one.

Volume is light again so no real buyers market. One sentiment number got even more extreme Inv. Intel. bulls at 22.2 and bears rose to 54.4 but Rydex does not cry low at all
around .70 levels.. Markets hold the gains so far and I do expect them to remain positive - could be a buy the rumor and sell the fact event due to tomorrows rate cut.

The VIX factor

This is yesterdays VIX daily chart marking a daily 13 (with a setup 3 as of today) - that means we have set a significant step to form a bottom but it can still be extended by timing counting to the setup 9 which covers all next week. The 90 level has with a probability of 90% marked the high at the same time.

This is one of the crucial steps for the end of this downleg - ideally as a 2nd step, as mentioned earlier, would be a price test of the 770-800 area for the SPX. The 3rd step is a weekly 13 count for the SPX - we are at a 9 count but the least is to complete the daily count. The 4th step, but not necessary part of that price test, is a capitulation mode high volume and a reversal price pattern. There is still a lot of hope out there, especially in the professional community of bank employees, wishing for a strong hand to make everything nice again (the good old times) - that is a signal that the real low is still far away also from a time perspective.

Market outlook SPX

Today's markets will open higher after the reversals in Asia and the prospects of rate cuts by the FED and ECB. We have a typical pattern at this stage, which might bring a short-term small upmove at least. The VIX 13 as of yesterday puts me on alert but a lot of other factors do not yet fit for a big turn. The major experience is being so close to a major low (the one of 2002) needs to be tested basically - but, as I wrote earlier, the days around a New Moon have a basic impulse to create a low and, since this market is undoubtedly oversold, reactions to the upside especially on 5 and 6 (setup) counts are a regular thing to happen but the countdown count at 9 for the SPX and 11 NDX requires one major index to reach a 13 basically. We will follow today's developments closely but this 2 day upside is a natural part of the current situation so far.

Monday, October 27, 2008

Now we get the extreme calls for Oil again - though to the downside

As we had the 200 and 250 calls close to the high in Oil, w e can expect typically extreme calls for lows close to the lows. Today we got that even $20 is possible call. Last week, the almighty Goldman oil analyst who had insisted for so long that we might get prices of $150 turned bearish and now sees even down to $50 prices coming. My experience says we are due for the rally up to $80 as soon as CRB makes a weekly 13. We should be up for an upside correction in commodities very soon- as a possible trigger point for a brief stock rally. More easing from central banks on top of ample liquidity will be a little more inflationary anyway.

Beutel: Crude Could Hit $20 A Barrel

Sectors:Industrial Goods and Services | Utilities | Oil and Gas
By | 27 Oct 2008 | 08:13 AM ET
Text Size

A fast and furious as the crude oil market sell off has been, it's far from over, says one expert.

"The pendulum does swing much faster than we give it credit for," says Peter Beutel of Cameron Hanover.

Beutel says $37 a barrel is likely, even $20 a barrel isn't out of the question.

"If we look at every bear market over last 30, we always cut the high by four," says Beutel, which is how he gets the $37 number.

Crude neared $60 Monday, having traded near $150 in July. Beutel warns that though consumers and investors may welcome cheap oil again, we need to not repeat our mistakes of the past, when low prices yielded a lack of investment in new technology and alternative fuels.

"We're going to get too low," he warns. "We're going to kill a lot of alternatives."

Market wrap-up

In a very thin market, we had a lot of the temporary rises even briefly but finally dropped to the lows in SPX with the BKX turning south finally. We are getting closer though to the low, as the VIX turned into a small gain and counted the 13 daily, which is an alert for a low shortly. The SOX turned into a reversal with a daily 13 and signals a low is due as well. Other pieces still have not reached the areas where one could call a low is around but we are talking of a temp low anyway at this stage. The rate cuts due by the FED and ECB will likely help to trigger a little rally though, starting after the elections probably. We need to follow closely the various parameters to see if the signs for a low is in place. I still think we need to go lower from here and test the 800 SPX area to have a good starting point for a severe low.

Market update - ANF positive alert

A statement so crisp and clear from Trichet is barely heard - hence the rate cut is sure, since the FED takes the lead this week. That increases the temp low scenario substantially for Wednesday as the NDX has a daily 11 count and we are below weekly Bollinger levels. The opening was with a gap, creating the chance for a reversal pattern. Still this might not be enough to create the final low level for now.

Special situation for ANF (Abercrombie): as the stock trades at really cheap valuation and has made a weekly and daily 13 - that's a stock to be put on the radar screen if you want to add a long position.

Excerpt Bloomberg

Trichet Says ECB May Reduce Rates Again Next Week (Update2)

By Ben Sills and Gabi Thesing
Enlarge Image/Details

Oct. 27 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said he may cut interest rates next week, less than a month after slashing the key rate by half a point, as the financial crisis intensifies.

``I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,'' on Nov. 6, Trichet said in a speech in Madrid today. ``It is not a certainty, it is a possibility.'' He declined to comment on how big a November rate reduction might be.

Another one stating the 'ANGST':

The pre-market readings may be adding to volatility during a month poised to be the worst in the 38-year history of MSCI Inc.’s index for developed countries, investors said. While fundamental concerns about the health of the global economy and solvency of banks are weighing on investors, the false cues are adding to uncertainty, said Arthur Cashin, director of floor operations for UBS Financial Services at the New York Stock Exchange.

“It’s a state of permanent anxiety, because you don’t know where things are going to go,” said Cashin, a member of the NYSE for 44 years. “People are scrambling to try to stay up with it, so far unsuccessfully.”

Partly good news at new home sales - but keep in mind that it is at 6% jobless rate, which is going to get worse

The median price of a new home decreased 9.1 percent from a year earlier to $218,400, the lowest since September 2004.

Sales were down 33 percent from September 2007, the Commerce report showed.

On a positive note, builders cut inventories at a record pace. The number of homes for sale fell to a seasonally adjusted 394,000, the fewest since June 2004. The 7.3 percent decline from August was the biggest since record keeping began in 1963.

Supply Falls

The supply of homes at the current sales rate fell to 10.4 months' worth from 11.4 months. A five to six months' supply is often cited as signaling a stable market.

Technical outlook for today - basically the same situation

I am still on a business trip and facing some tech problems, therefore I might not be able to deliver charts along with the text.

The capitulation mode seems to have switched to the Asian and European area as more selling pressure in those regions occur. That does not change the picture for the US markets - we are heading lower and need to test the 2002 lows to get a real bottom (that's true for SPX and DOW). The NDX has a target in the 1100 probably 1050 area. The first thing the SPX should test though is the 849 and NDX 1150 for starters. The VIX remains at 12 - we need more selling pressure to reach those higher VIX levels for the ultimate 13 print, which will put us on alert for a market low.

EURUSD has a daily 12 Combo signaling a short-term bottom is close as we approach our target at 1.22. That is also an indication that a temp low at least will be in place soon. As we can expect at least a 50BP cut on Wednesday by the FED - markets then start to price in a 75BP cut, but I doubt the FED will do that. Actually the ECB and UK need to cut more aggressively to turn around the markets but that is on regular schedule on a later date.

Sunday, October 26, 2008

Some astrological insights for the markets - a valuation example

In the upcoming week, we have a New Moon on the 28th in Scorpio - usually that is a time of temp market lows (New Moon mark beginnings) but in Scorpio it might rather mark new debt, since that week huge sums of Treasuries will be issued (much more than usual). On the other hand, we have a FED meeting the next day and we might see a little rally for a few days still - before the week after we drop to new lows. That depends very much on how deep we drop, if at all in the first days of the week. We still need our second capitulation move but that might rather happen in the week of the election.


As mentioned earlier, we are fast approaching the Saturn-Uranus opposition of November 4. But the day before, November 3, is also important, for that is when Venus will “translate” the Saturn-Uranus opposition in a T-square (squaring both). Every “translation” of the Sun or Venus to the Saturn-Uranus opposition of this year has coincided with a serious sell-off in stocks throughout the world. This one is no different. Venus rules assets, and has special significance to currencies and Soybeans. Both are falling hard since their all-time highs of just a few months ago.

We also note that our next time band of heavily populated geocosmic signatures starts on Halloween, October 31, and lasts through November 13. There are nine important signatures unfolding then, of which five are Level One (strongest) types. We can anticipate the week starting November 3 may be one of the most important reversal weeks of the year. We already know that politically it will mark an important change as well. An era will have ended and a new one will begin. The new era will be dramatically different than we have experienced for the past 8 years in terms of economics and military activity, regardless of who wins.


Just how ugly? Have a look at the average P/E ratio of the entire S&P 500 index over these three periods of market mayhem:


Average S&P 500 P/E Ratio

8.27 times

7.78 times

9.01 times

Compare that to the average P/E ratio today of around 20 times and a seven-year average of more than 24 times, and it's pretty apparent that stocks could fall much, much further than they already have, just by returning to the lows they historically hover around during downturns.

Assuming earnings stay flat, revisiting those historically low levels could easily mean a nearly 50% decline from here. For the Dow Jones Industrial Average, that'd correlate to roughly Dow 5,000 -- give or take. Of course, I'm not predicting, warning, or forecasting -- I'm just taking a long look at history.

Friday, October 24, 2008

Friday market close update - movement, moderation and moon cycles

It was a strange day in many ways. We had a limit down opening and a very moderate and smooth intraday trading (unexpectedly - no sell off) over the day with moderate volume. We closed the week in a weak mode though again deeply below Bollinger in weekly terms. That will produce a bounce at some point next week, likely with a rate cut Wednesday but since we have no real capitulation so far that will be just a temp bounce as far as I can tell now. It depends very much how Monday to Wednesday trades. It was funny for me, since I follow astrology, that today was the first time that I heard on TV floor traders speaking about an obscure 7th or 9th moon cycle, which have marked major lows in markets in 1929 as it did in 1987. True is that we get a new moon on Monday in Scorpio, which was obviously the case in the both October crashes, but I checked 1929 that was the 1st Nov. and did not end the decline - no idea what they mean. We are due for a bit more wild wild west until we have a rock solid bottom I am afraid to say - but we are getting closer, still 10% away though (likely).

On Saturday I am travelling so no updates - I will do some updates on Sunday. Have a great weekend.

VIX outlook

The VIX index almost reached 90 with marking the 12 count finally today. The scare factor is high but the market is acting moderate. Although a loss of 5% on a day is still a big deal and we are now used to these insane daily moves of 5 and more on a daily basis. To get rid of these insane market moves the market needs some structural
leadership by the authorities. So far, mostly patchwork has been delivered and a regular flow of money in the industry has not been accomplished. Banks are awash with liquidity but hesitate to lend it or rather to send it somewhere because it might get caught in the act. We need to mark the 13, which is an indication that a temp low is very close but, as mentioned before, some other factors need to add to have a complete picture and reliable picture at least for the time being.

SOX technical outlook

The SOX (Semiconductor Index) has reached our target area at 200 with a combo 12 count. Monday, we very likely get the 13 count and with the XBD a second sector with a 13 daily count, hence a small low is in place but, as the broader indices still count a daily 9, we have still some downside left - at least 3 lower days. However, since we have Wednesday a likely FED cut day - that even might work out depending on what happens up until then. Volume of today is far from anything which I could call washout. Asia and Europe had such a day though but the mother of all exchanges needs to do so as well. That's the NYSE - let's see how things play out next week.

XBD technical outlook - market update

The XBD (Broker INDEX) makes a 13 by approaching the old low at 76 today, which implies some sort of low is due now or the next days for the brokers. Although we have still 5 points (6%) to drop to retest the low 2 weeks ago. The point is that some members of that group, like GS and MS, have way to go since they are in week 9 respectively 10. I stick to my targets of 80 for GS and below 10 for MS but that can materialize at a later point anyway. In any case, that is a little alert for me, since we can expect some interest rate action soon by central banks and, as I stated earlier, next week might be tricky since we are far below weekly Bollingers and a snap back rally of some sort will show up very likely with a rate cut. Unless we see the capitulation now, which might bring a strong rally, but is not around right now. The SPX is getting close to a double bottom though, which also can bring short covering - still we need to test the 2002 lows for the real low. So its getting a bit tricky and a small rally is due next week at some point anyway and we get capitulation thereafter. Let's see. I'll keep you posted.

BKX technical update - crucial segment has still a bit to go

The BKX (Bank Index) is now in week 11 heading for the 45/6 level again, which is still 10% away. So far today's decline happens controlled and with moderate volume - no capitulation mode at all, which might change later on and the famous last hour will make a difference anyway. Banks and Brokers are the ones under heavy pressure today, as expected. The NDX remains relatively calm after the limit down opening it has gathered ground and still defends the 1200 area so far. Today the VIX definitely marks the 12 count and signals a low is close but the extend the next days will see is wide open - I rather expect around 10% on average but ideally we see that with huge volume to get a real capitulation. So far we are far away from such a volume.

Some economic realities

The chart on the left hand side is the common freight rate which has dropped by 90% within a few months to the levels of the 2001 recession already. So much to the fact what economic activity is doing. The UK showed a contraction of 0.5% for the last quarter which in the USA is still denied officially. Most importantly is the fact that the earnings still expect double digit growth for the next quarters - that is definitely not going to happen.

On the other hand we have assuming 10% lower markets from here some cheap stocks on a temp basis which are worth to be bought as the dust settles and the governments can accomplish that regular money flows are warranted. A business needs to be able to do short-term financing to buy their goods. Hence we to see with the rate cuts measures which put simple but crucial business money processing into a controllable system which is dependable. Otherwise the counterparty risk we had in the financial world would spread to the corporate world and that would be lethal. Goods and money need to flow and not be disrupted and people need their brains to concentrate on their core business not to stand in front of TV screens to see if their savings are save.

Technical update

Sorry- having problems getting into the blog today. Well, the scenario unfolds as expected and the markets should see a washout of around 10% in the next days, which will produce buying opportunities. It's a very tricky market as we have some hidden manipulation attempts - like the last hour buying the last 2 days very likely by the Treasury (PPT reports to the Treasury and was founded by Reagan in 1987). I might have problems updating this blog due to accessibility but the basic scenario has been laid out so just read the recent blogs.

The third financial nuke explodes-(East European) Sovereigns about to default

First of all, keep in mind that these CDS shooting through the roof is a $60 trillion market and the fact that someone (banks) are on the wrong side of that trades have amounted to trillions of losses right now. Put that into context with what the $660 billion of losses in mortgage related products did to the system. Do not make the mistake to think that the winner on the other side of the trade equals the equation. The critical mass is that a loss so big that the counterpart can not pay the winner will turn the winner into a looser too and trigger a sequential default since he, the winner had resold at some point his position and can not pay the next winner etc.. Freaking scary but, as Warren Buffett truly said, these are weapons of mass destruction - no one has that kind of money to cover such an effect.

European Banks and Companies invested big money into the Eastern European countries, economies. That's why the Euro keeps dropping like a hot potato - the losses for 'Old Europe' will be unprecedented and much bigger than the effect for the USA. The distress in these countries is a reaction to the capital freeze through the LEHMAN failure as a trigger, which ripples through the system now and infects every weak spot. CDS (credit default swaps) for those sovereign countries are at levels these countries would default on usually. The IMF is supposed to pump again hundreds of billions into these countries. On the other hand, European banks that made big business with these countries will suffer severe losses, so severe they might collapse - front seat take Banks in Austria.


Russian default risk tops Iceland as crisis deepens

Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund.

Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe.

Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight, recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800, signalling total revulsion by investors.

Rating agency Standard & Poor's issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state.

This crisis now is a gathering of all former crises which has the elements of 1992, LTCM, 1974 and 1929 all together - this is about to grow into the mother of all crises. since this happens as the deleveraging is going on and forced selling of funds increases - it can and likely will trigger a stampede of unseen dimensions . Roubini could be right that even the market might be closed as they did in 1987. Now we get the test of the 2002 lows but in a more volatile manner. Central banks need to act with rate cuts, substantial cuts, if that is enough I do not know, since the weekend ANGST of defaults will put markets in panic. The fact that PPT forced shorts to cover the last 2 days will be expensive - as it always is to interrupt the natural flow..

Thursday, October 23, 2008

VIX - market wrap-up

The VIX closed slightly lower and erased the 12 count - as did the SPX close back above 900 and erased the 9 count. The same procedure as yesterday - someone (PPT) bought fiercefully the market up and protected follow through selling to occur. Actually forced shorts to cover as the traders are all nervous. Crude oil rising helped to get the DOW with Exxon and Chevron in demand. I assume they try to keep markets up until the FED cuts next week Wednesday, but it would be much more efficient to let it drop so it can recover on its own. MSFT came with 48 cents although MER had claimed they would surprise to the upside. The outlook was even a bit lower for the next quarter but MSFT trades 40 cents higher as I write after hours. The overall picture remains intact, we still need the dip in the markets to have a valid low for now. Miller Tabak's strategist came with a call for the DOW next year this time of 5000 - I agree with 4000 by Q1 2010.

SPX technical update - breaking to the wave 5 lows

Markets dropped below the supports- the SPX counts a daily 9, hence 3-4 lower closes required target 770-800.
The VIX counts a daily 12 as well, putting a high alert with one more high to go.

I assume with SPX is going below 839 selling pressure will increase
on TV they say lighter volume - I see much higher volume traded

More later, PPT defense working well so far :) but the market back up - 45 min to go

Greenspan is a fine artist - too late for Hollywood

He is a really smart guy. I have to admit that so far he came up with the best defense strategy I have heard in these hearings so far. Nevertheless, he screwed the world - as I stated in an earlier blog - before he was hired to the FED, he was a lobbyist for financial institutions with the task to deliberate the bank regulations. That's why it's so surprising he became a chairman of the FED. For me, it's a conundrum how exactly the wrong people get hired into US administrations crucial position. Certainly Secretary Paulson is not fit to service the country well, as one of the central CEO's off Wall Street who created this crisis. Nor the Secretary of Energy Mr. Samuel Bondman. He also worked for Wall Street and surprisingly the energy reserves were aggressively filled in the big crude oil boom of the last year - he participated buying up to 130 - now would be a good time to buy - isn't that strange that he supported directly that bubble?

Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.
Alan Greenspan
Lauren Victoria Burke / AP
Alan Greenspan

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.

Banks and other financial institutions need public support, such as the recently approved $700 billion bailout package, to avoid a serious reduction in credit, he said.

While Greenspan was once hailed as one of the most accomplished central bankers in U.S. history, the low interest rates during his final Fed years have been blamed for fueling the housing bubble and eventual crash that touched off the current financial crisis.

CRB Index technical outlook - market update

The weekly CRB chart shows that after a severe drop in commodity prices a low is due soon. The timing is pretty much in sync with the overall markets bottom schedule in about 2 weeks. That should happen around 250 as the daily tells at least 5 weaker closes and the weekly requires at least 1 weaker weekly close. Hence, on the upswing, material stocks should be part of the basket you want to own on a trading perspective. That is basically also linked very much to the dollar's rise, which should end the current rally soon temporarily as well - but still a bit to go in all instances.

Today we have a big reporting day on earnings with 50 out of 500 SPX companies reporting earnings. Another negative going forward for Q4 is that the pension plans of the SPX companies are underfunded by at least $220 bil. as of now (they have a high stock component of 61%). So far the markets are defending the support levels still but as the day goes the markets may drop. We have to follow closely but the charts look very clearly headed lower.

Goldman cutting workforce by 10% is a bad omen


GLG's Roman, NYU's Roubini Predict Hedge Fund Failures, Panic

By Tom Cahill and Alexis Xydias

Oct. 23 (Bloomberg) -- Hedge funds closures will eliminate about 30 percent of the industry, and policy makers may need to shut markets for a week or more to stem panic, according to presentations at an investor conference today in London.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Emmanuel Roman, co-chief executive officer at GLG Partners Inc., told the Hedge 2008 conference in London today. U.S. regulators will ``find a way to force regulation,'' said Roman, 45, who runs New York-based GLG with Noam Gottesman, 47. The firm was founded 13 years ago as a unit of Lehman Brothers Holdings Inc. and now manages about $24 billion in assets.

Nouriel Roubini, the New York University Professor who spoke at the same conference, said hundreds of hedge funds will fail as the crisis forces investors to dump assets. ``We've reached a situation of sheer panic,'' said Roubini, who predicted the financial crisis in 2006. ``Don't be surprised if policy makers need to close down markets for a week or two in coming days.''

Goldman has a proven track record of being the 'smartest' one within its peers. I do agree they are by far the best informed bank out there, with the strongest infrastructure of information gathering. Goldman has been so far one of the most agressive banks by cutting staff so far although (or because) they are the most sucessful one. The fact that they even speed up the process is a bad omen for the times to come and it's interesting to see where they cut. It's said the cuts come in prime brokerage, that's the division serving Hedge Funds. Although they have lost big competition in that field with Bear Stearns and Lehman, they want to shrink the department. Today GLG and Prof. Roubini have said hundreds of Hedge Funds will fail near by.

The move of GS does confirm that prospect. Hedge Funds have disappointed since they were sold as a hedge against bad markets within portfolios which seems not to work as promised - although also regulatory reasons like the ban of short sales might have generated part of those issues.


Goldman Sachs
plans to cut 10 percent of its total staff, or almost 3,300 jobs, a source familiar with the matter said on Thursday.

Goldman Sachs

Goldman Sachs has suffered less than most of its peers from the global financial crisis and remains the leading adviser to mergers and initial public offerings worldwide.

But its transition from an investment bank to a traditional bank holding company means the Federal Reserve will use its new regulatory authority to limit the bank's risk taking and encourage longer-maturity funding.

In June, Goldman laid off hundreds of support staff and junior bankers due to slowing markets following a round of cuts in leveraged lending and mortgage securities jobs in April.

EURYEN- the cross rate is a harbinger of deleveraging process

The EURYEN (Euro vs Japanese Yen)
is a quasi index where we stand at the deleveraging process, that refers to the trades which were set up against borrowed money. Banks and Hedge Funds did that with unprecedented sums of money. Big redemptions from Hedge Funds force an indiscriminating liquidation of trades and forced buying of YEN to close positions. As the chart shows, that happens in panic. We are now at a support around 124/5 but might have to extend short-term to 1.20 near-term. Thereafter, we will see a sharp correction up to 1.35/40 area in November, as we are so steep below monthly Bollingers that also here a snap back rally is due. That will be also the time stocks will have a sharp relief rally very likely. The problem is that the losses of Hedge Funds are even rising and by the end of December, the redemption wave might increase even more. We will discuss that as we see more evidence going forward.

NDX technical outlook - testing the 1200 support

It does look as thought another attack on the 1200 support of the NDX is on its way. Basically, a third attack usually might do the trick and break through. The pattern is also negative, since after the first test the high was higher thereafter, now we come from a lower high which are weak indicators. After closing below 1200, we can expect at least 100 points lower but even 200 are possible. Next Tuesday the FED will cut by 50 BP, which might spur a brief rally but I think we will have broken lower until then. Financials are a weak component again and will remain so for another 1-2 weeks. The Euro though is close to a temp low around 1.25 and might spur a little rally in commodities next week including Oil - so next week might get a bit tricky. More as the day progresses.

New technologies changing the landscape soon - Jupiter enters Aquarius in November 2008

One piece of good news in all this mess is that Jupiter enters Aquarius in January 2009 for 1 year, that means we will have a quantum leap in technology. New technology will bring major new accomplishments or old ones will improve substantially. As the Dems support Genetic and Stemcell research, which the Bush administration has boycotted for obscure reasons, we can also expect break troughs in the med. area.

1. already a product

MENLO PARK, Calif. — Andreas von Bechtolsheim, a brilliant billionaire who has created some of the best-selling computer systems in the industry, is resigning as chief architect of Sun Microsystems to focus on a start-up that is challenging another industry giant, Cisco Systems.

Skip to next paragraph

Jayshree Ullal was recruited to be Arista’s chief executive.

Mr. Bechtolsheim’s new company, Arista Networks, has built an ultra-fast network switch that costs one-tenth the price of similar products from Cisco. The hardware, which has already been purchased in small quantities by government labs, universities and Internet start-ups, is aimed squarely at data-oriented organizations like Google that need to wring as much speed as possible from their computing centers.

While a number of companies sell competing gear, the pedigree of Arista’s management and its modular, easy-to-update software have given the four-year-old firm instant credibility in Silicon Valley.

2. big breakthrough products on the verge

It's called "buckypaper" and looks a lot like ordinary carbon paper, but don't be fooled by the cute name or flimsy appearance. It could revolutionise the way everything from airplanes to TVs are made.

Buckypaper is ten times lighter but potentially 500 times stronger than steel when sheets of it are stacked and pressed together to form a composite. Unlike conventional composite materials, though, it conducts electricity like copper or silicon and disperses heat like steel or brass.

"All those things are what a lot of people in nanotechnology have been working toward as sort of Holy Grails," said Wade Adams, a scientist at Rice University.

That idea - that there is great future promise for buckypaper and other derivatives of the ultra-tiny cylinders known as carbon nanotubes - has been floated for years now. However, researchers at Florida State University say they have made important progress that may soon turn hype into reality.

Buckypaper is made from tube-shaped carbon molecules 50,000 times thinner than a human hair. Due to its unique properties, it is envisioned as a wondrous new material for light, energy-efficient aircraft and automobiles, more powerful computers, improved TV screens and many other products.

So far, buckypaper can be made at only a fraction of its potential strength, in small quantities and at a high price. The Florida State researchers are developing manufacturing techniques that soon may make it competitive with the best composite materials now available.

"If this thing goes into production, this very well could be a very, very game-changing or revolutionary technology to the aerospace business," said Les Kramer, chief technologist for Lockheed Martin Missiles and Fire Control, which is helping fund the Florida State research.

The scientific discovery that led to buckypaper virtually came from outer space.


"Our plan is perhaps in the next 12 months we'll begin maybe to have some commercial products," Wang said. "Nanotubes obviously are no longer just lab wonders. They have real world potential. It's real."

One truth about housing - no 'expert' knows

This housing situation is already unprecedented. Still, keep in mind that this happens with very moderate jobless numbers of 6.1% - Goldman says 8% is due next year, the new Guru Bill Gates claims 9% and I, as a humble student of astrology, (we are heading for a similar pattern like we had in 1930) say we are lucky if we stay below 10%. In any case, the housing situation is going to get worse - I am not happy to make such predictions at all, but as the facts turn out they confirm the prognosis.


The second similarity that strikes me is the positively bewildered expressions on the faces of the chief economists of both associations. These poor guys are tasked with telling everyone when it's all going to get better, and the fact of the matter is they just don't know. Don't get me wrong, these are supersmart guys, number crunchers with decades in the business, but as NAHBs David Seiders said, the risk in housing right now is just so high that it makes forecasting extremely difficult.

The chief economist at Fannie Mae, Doug Duncan, spoke to the builders conference today and reminded folks here that forecasts are based on trends in history i.e., how did similar circumstances result in the past? But, as he astutely points out, there is no historical data, no past trend, no previous parameters by which to judge today's scenario. Never before were there so many borrowers who put down no equity, so many who declined to state income, so many with negative amortization loans.

In other words, and again with my utmost respect for the economists, before any one of you out there try to gauge, bet on or hedge the housing market, understand that not one thing any expert or cab driver predicts about housing today is a safe assumption as to what housing is truly going to look like a year from today.

Greenspan is a core element of this catastrophy

Ironic is that Greenspan, in defense for his deregulations of derivatives, said they helped to spread the risk - as it turns out that's right on the spot - like a disease they contaminated the global financial system. Furthermore, he allowed banks to leverage so aggressively (stupidly) their balance sheets, which is the other component of this deadly cocktail. This is by any means much more harmful than any terrorist could have done to the USA or actually the whole western world.

That's why these Senate and Congressional hearings should stop making these cozy hearings. They call it "grilling" but let's see how they treat prospective terrorists in Guantanamo and how they deal with people who evidently have destroyed the value of regular people working hard for centuries and getting their life achievements wiped out
. There is an obvious mismatch of effort, evidence and damage.

This basic dysfunction of democracies will drive people to stand up against their corrupt governments soon. After 9/11 governments were eager to strip down human rights close to zero in order to catch terrorists but, at the same time, they deregulated bank rules and eased the oversight so they could ride the whole world into a depression
. The annoying part is it was foreseeable. Besides Roubini and some other insightful guys, even a friend of mine and I forecasted this development 2 years ago. I had some help from astrology and common sense but I think it was foreseeable and this all could have been trimmed down at least by even Mr. Bernanke who has a Ph.D. in the Great Depression yet he did nothing until it was too late and that was even too little and too hesitant.


Critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans.

It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.

Alan Greenspan
J. Scott Applewhite / AP
Alan Greenspan on his last day as chairman of the Board of Governors of the Federal Reserve System.

Greenspan, true to his Republican free-market principles, successfully opposed attempts to impose tighter controls on complex financial contracts known as derivatives, which are largely unregulated and which some see as a contributing factor in the current problems.

Greenspan recently described the current episode as the type of wrenching financial crisis that comes along only once in a century.

He has defended the use of derivatives, so-named because their value is derived from the value of an underlying asset.

He said they were useful in helping to spread risks.

EURTRY - another devaluation ahead?

The EURTRY monthly chart shows that the 5-6 year consolidation after a devastating devaluation comes to an end. Turkey used to be a country with inflation of 60-100% until the IMF taught the current government the accomplishments of the Greenspan doctrine 'just make people believe inflation is low by cooking statistics' - since that time inflation even officially dropped to single digits. Everybody living in that country knows it is rather in the upper 20's but the artificial strong currency helped indeed to reduce inflation since the overvalued Lira had a deflationary effect but still inflation was far higher than statistics show. Turkey was a favorite target for the carry-trade since you could make 20% a year plus at some points even currency gains on top for a while and the central bank took care that trade was running well until lately. The denial was deep in Turkey that the global financial crises might have an effect, which was a dangerous gamble by the current government as the PM even declared everything was contained - where did I hear those famous last words again (Bernanke, Paulson) but Turkey's PM does not have a MBA from Harvard so it might be more consistent one might think. As it turns out, for the sake of Harvard, it's not just a Harvard MBA problem - I am sure fine people made their scholarship there as well - it's just a coincidence that Bush, Bernanke and Paulson were trained at this highly regarded school.

The technical outlook for the TRY is alarming. It broke out of a 2 year triangle pattern and has a target of 2.60. The rule of higher highs and higher lows has even been completed within this 6 year consolidation within the channel 1.50-2.00. We are now in the process of establishing a quantum leap and switch to a higher level, which might be a new band of 200- 2.50. But I rather think we will be facing more a 2.50-3.00 band once the dust settles down. For now 2.50/60 is the target within 6-7 months but that is still the the world goes recession scenario of the regular kind adjustment.

Turkey had a huge boom in construction and sales came to a standstill a year ago - banks were eagerly pumping credits into the economy and borrowed US$, which comes very expensive right now as did the corporate world as well. I do not think this carry-trades have been unwound so far. The current government thought their power was casted in stone which is obviously deteriorating on a daily basis. The prospects internally are getting worse and the global economy will do its part.
The central bank is in the dilemma in order to defend the currency they might be forced to raise rates sharply, although the economy rather needs rate cuts - let's see how that turns out but in the end. Turkey might return to the old cycle of raising rates again

Could all the hairdryer's in this world stop the titanic??

Yes they probably could (although I do not say that from a physical proven point of view) but they would produce a hurricane in strength and magnitude, which even might be more disastrous. A simple rule of physics says energy never gets lost - it only changes it's level. Any force used causes counterforce with the same strength another rule which in both cases also have a universal effect. The picture we should imagine since we all know this effect a big ball and you have to keep it with both hands under water - did you ever try that in the sea? - you can keep that under water for a while although it's not that easy, since it tends to slip out and at some point it jumps out of the water, even high.

Well why do I tell that? Because that's what Bernanke (standing for all the others as well) tries to do. In the banking system we are facing a multi trillion death-spiral of losses unwinding. One loss category will trigger another and that's an easy thing in a global world with up to 800 trillion of derivatives linked to each other somehow, in any case by the counterparty-risk. We saw what the grave mistake to let LEH fail caused. The 3-5 tril armour various governments gave the financial system is already breaking apart slowly and its only a matter of time until more, much more will be needed. The still flat yield curves in Europe are even speeding the process since the banks have no resource of income, which if leveraged could pay for some losses.

This unprecedented situation can only heal itself by letting go - the mistakes made can not be unwind. Central banks can print trillions of new money to pay for the losses but that dilutes only the real money and is real socialism. The regular people have to pay for the stupid greed of banks buy loosing buying power of their money or hyperinflation.

Excerpt from Bloomberg

Further cuts below 1 percent could turn Fed Chairman Ben S. Bernanke's focus away from the main rate and toward more use of alternative tools. Those might include increasing its holdings of mortgage bonds to lower costs for homebuyers and purchasing securities directly from the Treasury in order to pump more cash into the economy, Fed watchers said.

``If there is need for more stimulus, the Fed will buy up government debt'' to keep borrowing costs low, said Adam Posen, deputy director at the Peterson Institute for International Economics and a co-author with Bernanke. That's tantamount to ``turning government debt, as it is issued, into money.''

Bernanke, 54, has already thrown the central bank's balance sheet into action in unprecedented ways. Working with the New York Fed, the Board of Governors has rolled out 11 new programs aimed at absorbing risk or making dollars available when banks don't want to loan.

Assets Doubled

The result: The central bank's assets, which include a loan to insurer American International Group Inc. and a pool of investments once held by Bear Stearns Cos., more than doubled to $1.772 trillion last week from a year-earlier total of $873 billion that comprised mostly Treasuries. The latest weekly figures are scheduled for release at 4:30 p.m. in Washington.

There's more to come. The Fed announced this week a backstop for money-market mutual funds to which it will commit another $540 billion. A commercial-paper program approved Oct. 7 could buy up to $1.8 trillion of securities.

``The net effect of these facilities has been a truly staggering pace of growth in the Fed's balance sheet,'' said Jan Hatzius, chief U.S. economist for Goldman Sachs Group Inc.

When the Bank of Japan fought deflation and a banking collapse earlier this decade, its balance sheet ballooned to more than 30 percent of gross domestic product as it pumped money into the economy, Hatzius said. He predicted ``further rapid growth'' in the Fed's, which is now equal to 12 percent of U.S. GDP.

`Helicopter Ben'

The Fed has flooded the economy with so much cash that excess reserve balances at banks, or cash surpluses beyond what banks are required to hold against deposits, soared to $136 billion for the two-week period ending Oct. 8 compared with an average of $1.4 billion in the same month last year.

Wednesday, October 22, 2008

VIX technical outlook - market wrap-up

The early high at 81 was a misprint for the VIX - but I have seen that a few times. Those kind of misprints are like hidden signals - they show up at some point. Today we closed at almost 70, which is 20 points up from yesterday's lows but the prio drop was a manipulation down and we had a very low volume market but huge open interest in VIX options for OCT, so someone made good money the last days.

Anyway, our scenario unfolds and we will see the 80 once again before we will get a bigger relief rally in stocks. The first crucial level will be the 13 daily count, which is one indication but, more importantly, will be the price action. The NDX tested the 1200 level a third time and usually that does not hold. The SPX was briefly below the triangle pattern but (PPT or whoever bought it up the last minutes) prevented a confirmed breakout. Volume picked up quite a bit today but not close to the record levels of the last 2 weeks. AMZN is heading for the 40 target after hours after disappointing earnings trading at 44 and AMGN surprising to the upside trading 3 $ higher after hours. Important as a basic momentum to the downside is the expected weakness in financials -that should continue the next days.

In the finance hearing, they quoted a Moody's employee saying that "they sold their souls to the devil" - that is close to how it turns out these days - only that regular people have to go through hell because some CEOs (mostly bankers) wanted to cruise in bigger yachts.

MSFT technical outlook - another signal for long-term trouble

Another Icon with a look alike situation - MSFT needs to go lower for at least 1 if not 2 weeks. MSFT made in 2000 a 20.15 low- looks as if we have to get down their again. But again, an interesting observation is that we have the 200 month MA at 21.50 and those are levels we have not tested in over a decade, which is not good if we close below them on a monthly basis. For now, it will be a support short-term (SPX is below).

The tide is turning medium to long-term. That is an observation I make while surfing through all these charts. We will have a substantial rally soon but do not make the mistake and believe for one moment that you can just sail through this. The fundamentals are too drastic. We have to go through a severe economic contraction and we are urged to learn this time that we cannot repeat the mistakes of greed over and over again. For your own sake, use that rally to change your 401's to a non-equity portfolio. Take a chart of the NIKKEI of 20 years and pin it somewhere you can see it everyday to remind you what's ahead for the investors the same is true. I am afraid to say Buffett is wrong with his assumption that this is an investment opportunity.

Investor Intelligence and other sentiment situations

Bulls are down to 22.2 and Bears are up to 54.4, which is close to an extreme. The Rydex Nova/Ursa though at .75 is rather a sell level contradicting the first. Too many people shouting "buy" here is also a strong indication we do not have the low yet. Even the ISEE (those are the net option positions from the long (option) side only) are a bit too reluctant last few days with far above 100 closings.

New areas of distress a
re adding pressure with emerging markets being dragged down by Argentina. Looking at the next 3 quarters earnings expectations, one can get a heart attack - far too optimistic still. Hence, we have not priced in ugly scenarios yet to get a buying level which is 10-15 % lower from current levels.

BA (Boing) technical outlook - market update

The Boing weekly chart looks as bad as all the others - it's getting boring to hear that all the time, even annoying, but that's how things look. We are in another triangle pattern after dropping of the earlier one with a gap. BA needs to drop below 40 and worst case another $10 to the downside. At least 3 weaker weekly closes below 40 are required.

Market remains weak but still a moderate volume. Financials all across the board are the drag and the oil sector. The $70 did not hold up as support but is primarily linked to the development of the Dollar and the Euro dropped easily below 1.30 and has still 2 days to drop at least. Hence, my ultimate target at 1.22 could even be reached in this leg next support at 1.26, as long as the Dollar rises commodities fall and, with it, the market.

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I am a professional independent trader