THE DOT - if this turns orange or red be alert

Sunday, September 26, 2010

General market update

After Apple and Amazon reached the targets of 290-300 and 160 thereby overshooting weekly Bollingers - we can now expect within the window dressing week a wild ride. The Full Moon on the Equinox and in conjunction to Jupiter - Uranus produced the best Sep in 70 years and the best month in the last decade. In the last decade we had 2 quarters like this with a bit of follow through but finally a correction in the 10 % range.
I had written in earlier posts that I was expecting such a move but underestimated the speed - still I think we will have starting next week a sharp correction but before we might even reach the 205--60 level NDX and test the 1900 level thereafter within 2-3 weeks. That should be followed by another stampede as the shorts will squeezed again and the NDX target of 2100 (triangle pattern target) should be reached early Nov..
I checked the monthly charts where old counts still wait at 10 who will likely be completed to the 13 counts. NDX needs to go a little higher to trigger the 11 already this month. The scenario looks very likely taking into account the record short interest at the NYSE and the still neutral sentiments - we are nowhere close to a real exhaustion level except for short term overbought factor.
The cyber bomb dropped on Iran was probably a better idea than a surgical nuke strike which still can happen to wrap it up - but in any case an attack on Iran will not be unanswered I am afraid plus Russia and China must be now on the highest alert themselves. If America or ─▒srael were able to do that imagine what a game changer that is and a variety of actions will follow soon in order to present the equilibrium of strength on both sides or simply to retaliate.

excerpt 1

Lack Of Capitulation By Shorts, As NYSE Short Interest Remains Near Record, Explains Parabolic September "Flush" Ramp

A week ago, when we pointed out that the NYSE short interest had surged to nearly its highest levels in over a year at 14.4 billion shares, we speculated that as the market surge appeared to be moderating, that the 600+ million in new incremental shorts had covered. This, of course, happened before the most recent parabolic ramp in stocks (which was spun by CNBC as "validated" by Tepper's "buy stocks no matter what" comments). Friday's NYSE SI update now explains the seemingly ceaseless surge in stocks despite constantly deteriorating economic news. The reason: the gross short interest between August 31 and September 15 was completely unchanged! It appears that just as retail investors refuse to allocate capital to stocks regardless of how artificially high the market goes, so shorts completely ignored the ramp in the market from ~ 1050 On August 30 to around 1125 on September 15: short remained dead even at 14.4 billion. So what happens? State Street/BoNY gets the daily short report, passes it on the the repo desks, and tells them to pull the borrow in the most shorted stocks, as apparently the message to the shorts just isn't getting through. And what better way to force a short ramp than to keep shorts massively squeezed. But because the stubborn shorts don't buy the ramp in stocks, they keep putting on new replacement shorts, which has led the market to keep recycling the weakest hands, endless retail outflows be damned. Which means that the squeeze could easily continue for so long as the State Streets of the world believe that the shorts will finally capitulate, and make the rally self-sustaining. So far it is not working.

excerpt 2

Al-Jazeera Confirms Iran Nuclear And Industrial Sites Crippled By Stuxnet, Time To Go Long Symantec?

After last week's Stuxnet disclosures, it was only a matter of time before the viral sabotage was flushed into the open, with Iran confirming that it had been in fact attacked. As expected, Al-Jazeera has just confirmed that not only has Bushehr been infected, but so have numerous other industrial sites all over Iran. Yet despite the pervasive attack, "no damage or disruption of nuclear facilities has yet been reported, however." What is surprising is that Iran has made such a major media splash on the topic: one would assume that demonstrating such broad cyberdefensive weakness would not be in the country's favor...

excerpt 3

Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame

Recently the debate over when QE2 will occur has taken a back seat over the question of what the implications of the Fed's latest intervention in monetary policy will be, as it is now certain that Bernanke will attempt a fresh round of monetary stimulus to prevent the recent deceleration in the economy from transforming into outright deflation. Whether or not the Fed will decide to engage in QE2 on its November 3 meeting, or as others have suggested December 14, and maybe even as far out as January 25, the actual event is now a certainty. And while many have discussed this topic in big picture terms, most notably David Tepper, who on Friday stated that no matter what, stocks will benefit from QE2, few if any have actually considered what the impact of QE2 will be on the Fed's balance sheet, and how the change in composition in Fed assets will impact all marketable asset classes. We have conducted a rough analysis on how QE2 will reshape the Fed's balance sheet. We were stunned to realize that over the next 6 months the Fed may be the net buyer of nearly $3 trillion in Treasurys, an action which will likely set off a chain of events which could result in rates dropping all the way to zero, stocks surging, and gold (and other precious metals) going from current price levels to well in the 5 digit range.

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