by Rick Ackerman on July 31, 2009 8:33 pm GMT
An essay by Egon von Greyerz of Matterhorn Asset Management perfectly captures the insanity of these times, most particularly the belief that printing press money will spare us from economic disaster. Click here for the complete essay, from which I have extracted the following:
“The US is haemorrhaging financially and economically. It has lent or committed almost $13 trillion in the last 18 months to prop up the financial system. The estimated government deficit in the current year is almost $2 trillion or 50% of the budget. All the money committed so far has only achieved two things: Firstly it has created some short term hope which together with totally illusionary sightings of green shoots have generated a small stock market correction (which we forecast in our January Newsletter) and some belief that the crisis is ending. Secondly, all the funds printed so far to save the system have gone to Wall Street but has done nothing whatsoever for the real economy. Every single sector of the real economy is deteriorating whether it is production, unemployment, corporate profits, real estate, credit defaults, construction, federal deficits, local government and state deficits etc.
“And what is the government doing about it. They are doing the only thing they know which is to print more money. This is total lunacy! How can any intelligent person believe that printed pieces of paper can solve an economic catastrophe? If that were the case we could all go home and write out pieces of paper or use Monopoly money to spend in the shops or repay our debts.”
by Rick Ackerman on July 31, 2009 12:13 am GMT
Let me reiterate a 173.10 target that will be worth shorting if and when Goldman gets there. Alternatively, I’d sound a bear alert on a print today or Monday at 155.51.
by Rick Ackerman on July 31, 2009 12:06 am GMT
Wednesday’s surge to 79.66 merely tied a previous peak, so we should view this rally cautiously. However, a print today exceeding 79.78 would put bulls in the driver seat, at least for the near term.
by Rick Ackerman on July 31, 2009 12:01 am GMT
by Rick Ackerman on July 31, 2009 12:01 am GMT
Our very own Duke, self-styled trader and family man, nailed the high in the chat room yesterday and thinks it could have been THE top, so we’ll need to pay extra-special attention to the pullback that has ensued. The intraday peak was at 994.00, a bit shy of the 999.50 Hidden Pivot I had suggested using as a minimum upside objective. I wouldn’t quibble about a few points, although a print at 1002.00 would have presented a real problem for bears, since it would have created (and might still create) a fresh, bullish impulse leg on the weekly chart (see inset). The selloff so far has been ineffectual, since it would need to hit 962.25 to damage the hourly chart. My gut feeling is that the weakness into the close will abate — that it was simply a consequence of too many traders expecting yet another short-squeeze in the final hour. In any event, we’ll set an alert at 962.25 today, come what may.
by Rick Ackerman on July 31, 2009 12:01 am GMT
During an impromptu webinar yesterday, we calculated that our $13 strangle will have recouped about half its value if the stock reaches a 475 target that looks like a decent bet. Even so, bid/asked spreads were too wide on way-out-of-the-money September calls for me to recommend buying them, at least right now. _______ UPDATE (September 11): We’ll book a $1300 loss on the strangle, which will go down as the worst trade in the 12-year history of Rick’s Picks/Black Box Forecasts. We went into the trade with relatively little experience trading options on a $450 stock, seduced by the seemingly low implied volatility of GOOG puts and calls. In retrospect, it would appear these “cheap” options were priced very knowledgeably, so that they more than discounted the risk of an explosive surge above $500 (or below 270, the strike price of our puts). Despite this, we have no trepidation about trying again, since Google has demonstrated no special ability to fool us a second time. We’ll be looking to recoup every dime of our loss in the next round, so stay tuned!
by Rick Ackerman on July 31, 2009 12:01 am GMT
Expect more sloppy action in the days ahead, perhaps with a mild downward bias. My do-little forecast is based not on dueling impulse legs, but on bullish and bearish targets that are not getting achieved. Although Wednesday’s selloff ”should have” come down to at least 920.40, the actual low was 927.60. And while yesterday’s bounce “should have” exceeded 940.50, it went no further than 939.40. Night owls looking to scalp a few points can try bottom-fishing at 932.90, stop 932.40. Bulls should take encouragement from any rally exceeding 940.50. ______ UPDATE (2:45 p.m.): Today’s sharp upthrust is encouraging, especially since it came off a low that failed by 80 cents to reach our 932.90 correction target. However, for bulls to move into position to trample sellers, they’ll need to push the futures above two prior peaks on the daily chart that have yet to be challenged. They lie, respectively, at 962.70 (July 27) and 969.90 (June 10). An unpaused rally surpassing those two peaks would greatly shorten the odds of a sustained move into autumn.
by Rick Ackerman on July 30, 2009 12:29 pm GMT
Our favorite cycles expert, Peter Eliades, is getting the second-highest overbought readings in 40 years from his New 10 TRIN indicator. However, the conclusion to be drawn from this is not so obvious as you might expect. Here’s Peter: ”It would seem simple to say that such a reading must be marking a market top if it is the second most overbought reading of the past 40 years. But as we have pointed out so often, extreme overbought readings on virtually any momentum-type indicator can turn out to be bullish rather than bearish. In fact, if we trace back all the readings on the S&P 500 New 10 TRIN lower than .40 over the past 37 years, almost all of them occurred soon after important bottoms were formed and almost all of them marked low risk territory for the market. They occurred in October 1982, January 1987, January 1988, May 1990 (this was one of the few readings that was registered near a market top), October 2003, November 2004, and the current readings in July 2009.”
by Rick Ackerman on July 30, 2009 12:20 pm GMT
With yesterday’s takedown in gold, the bullion bankers showed that they eat big trading funds for breakfast. Click here for a link to Dan Norcini’s think-piece posted at Jim Sinclair’s site.
NYSE Embraces a Ruinous Idea
by Rick Ackerman on July 31, 2009 12:01 am GMT · 10 comments
Sadly, another venerable American institution has lost its way: the New York Stock Exchange. We read the other day that the Exchange is building a fast-trade hub in northern New Jersey that supposedly will help secure its future in an increasingly electronic world. But raising capital for companies that could conceivably help Build a Better Tomorrow is nowhere on their agenda. In fact, “fast trading” will be about as helpful in achieving that goal as placing five hundred slot machines in the NYSE’s lobby. Instead » Read the full article