Risks, Opportunities Rise with Bear’s Re-Emergence

Twenty-nine months into the Mother of All Bear Rallies, it was unlikely that mere mortals would predict the precise start of the stock market’s collapse, inevitable and long overdue though it may have seemed.  However, no one should be surprised by the selloff’s ferocity, nor by the prospect that the first wave down may have run its course in mere days. Traders who have been waiting for the Big One for years undoubtedly are re-discovering how hard it can be to reap a windfall even when you are right about the trend. We think shares still have a long, long way to fall, although we harbor no illusions that the Mother of All Bear Markets will be easy pickings. That much should have been obvious yesterday, for not even bears with brass cahones could have withstood a spectacular short-squeeze rally that saw the Dow trampoline from lows around mid-morning to a final-bell peak 600 points higher. Five hundred of those points came in the final hour alone. The proximal cause of this wilding spree was a Fed announcement that short-term rates would be held near zero through mid-2013.  Although no one, not even Paul Krugman, could believe at this point that more easy credit will have a positive effect on the economy, traders bought the news anyway. As we have explained here many times before, they did so not because the news was bullish, but because they expected others traders to react as though it were.

Bears would have found it no easier to catch a ride south a week ago, when the onslaught of selling began.  Three days earlier, on Friday, a strong rally trapped bulls and wrung out bears. But the hook was set Sunday night when news of a debt-limit deal sent index futures into a second short-covering spasm equivalent to 200 Dow points. Could any bear have stayed short? We’d guess not.  Would any bull have had the good sense to take profits Sunday night? Possibly, although most probably would have held out for a jackpot on Monday.  Needless to say, the jackpot never came. Instead, stocks began to plummet in the middle of New York’s night, screwing bulls and bears alike out of an opportunity to make easy money on a decline that had burned out its brakes.

A Simple Trick

Fortunately, whatever happens from this point forward, we needn’t get shoved around. Using Hidden Pivot Analysis, predicting the markets will require little more from us than reading bullish and bearish impulse legs on charts of various time frames. (Click here if you’re skeptical that it could be so easy. ) Moreover, the techniques we used to trade the market during the Mother of All Bear Rallies will continue to apply.  Did we mention that nailing the market’s highs and lows was never easier than during the dot-com boom? The more violent the stock market’s price action, it seemed, the more predictable things tended to be. Even so, it will take nimble reflexes and iron guts to trade the swings and swoons. We’re looking forward to it — to helping subscribers stay a step ahead of the mob. That said, we remain seriously concerned about what the stock market’s collapse may portend for the economy. We see very hard times ahead, and with them, quite possibly, radical political change. Interesting times, for sure.

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  • Mava August 10, 2011, 4:40 pm

    rs,

    I suppose they would, them being the dishonest sobs that they are (thinking back to H.Bros. betrayal). However this time, it will bite them a lot (:happy face).

    You kno they have set up the funds to deflect the gold demand into paper, and filled those funds with tungsten bars. So that is where they want the gold demand to go.

    If the change the margins, wouldn’t that prompt more physical accumulation, rather than the flow into their tungsten ETFs?

  • rs August 10, 2011, 4:18 pm

    Only a simple question to everybody: At what price do you think that Comex will change the margin for gold contract like they did for silver, it is the only problem for fiat money now for the lies to continue.

  • BDTR August 10, 2011, 12:59 pm

    Y’all might want to short greater London while your at it, …then Athens, Rome, Barcelona, etc,… then Boston, LA, Tokyo, …Beijing, many more etc’s.

    Then, where do y’all go back to? Set a spell in your cell?

    In the Halliburton ‘Village’, ‘We want information’.

    Stay tuned, for ‘The (debt) Prisoner’.

  • Terry S August 10, 2011, 6:58 am

    Yo Mario, Drop in on Jim Rogers for a visit sometime.
    “Ol’ Mario bought a mansion. Lawdy it was swank
    Next door neighbor was president of the bank, Lotsa folks objected, but the banker found no fault, ‘Cause ol’ Mario’s millions was a-layin’ in the vault. Cash, that is! Capital gains, Depletion money! Then one day peak oil was in the news. Where we gonna find that bubblin’ crude? Oil that is, black gold, texas tea. Well the first thing you know Mario called his millionaires,
    They all said Mario, we’re getting kinda scared. Said Haliburton are the folks you ought to see. So they loaded up the troops and bombed the Middle East…

    “Well now its time to say good-bye to Jim and all his kin.
    And they would like to thank you folks fer kindly droppin in. You’re all invited back again to this locality. To have a heapin helpin of their hospitality. Hillbilly that is. Set a spell. Take your shoes off. Y’all come back now, y’hear?”

    • Mario cavolo August 10, 2011, 8:28 am

      Fabulous Terry!…wonderful childhood memories of the Buddy Ebsen clan and I’m happy to be reminded that Jim and I are on the same page particularly with respect to views on China…Cheers

  • Mava August 10, 2011, 4:50 am

    The only way to get the majority to agree to pay their own way through democracy is after the majority is no longer with us.

    This is why nothing will get better until it gets so bad that either there is no democracy or the scenario above have matured.

  • charles August 10, 2011, 3:49 am

    “We see very hard times ahead, and with them, quite possibly, radical political change. Interesting times, for sure.”

    An understatement if I’ve ever heard one, Rick! But, we who follow your advise will be far ahead of the crowd. Unfortunately, as someone pointed out recently, we are but a minute gathering here.
    I’m constantly amazed by all the folks I know not having a clue what is going on today. “Everything will turn out fine.” It’s only a down cycle.” “not to get too hyper about.” The Fed knows what their doing.”
    Gerald Celente has had this pegged for years now. It’s going to be quite a ride! Incredible, but exciting!

    Love the wolf analogy, J.J.

    • John Jay August 10, 2011, 4:07 am

      The wolf analogy was Tiberius speaking to us from 20 centuries ago. I love the Roman empire, they were such practical people, they even stayed cold blooded about war and used diplomacy and intrigue instead of expensive battles as much as possible. Plus they had such a great sense of humor. My favorite example was when some Emperor was having people crucified and one of the criminals complained that he was a Roman citizen and exempt from that method of death.
      The Emperor’s orders to the executioners: “Whitewash his cross, and hang him higher than the others.”

  • mario cavolo August 10, 2011, 3:44 am

    Many of us have said the US situation in a few key ways is another Japan with persistent lousy economics and low interest rates. There is no reason to think the next ten years will reveal any kind of exciting growth for the U.S. economy. Meanwhile, as I also suggest below, the USD will be just fine, relatively speaking. In a world awash with debt, nothing is or should be rated AAA and yet that’s the new normal negating its label anyway.

    Meanwhile, I woke up this morning pondering once again the impact of “shorting” the stock markets. When have we ever seen such a sharp decline in such a short period of time in unison over the past two weeks? The financial markets trading system at the fingertips of the world’s most powerful bankers who clearly have their own interests in mind, with billions of shares trading via HFT computers, is clearly its own worst nightmare.

    This two week stock market decline has nothing to do with reality; nothing to do with value, nothing to do with economic crisis, nothing to do with trillions in debt, nothing to do with earnings, nothing to do with growth or the lack of it, nothing to do with, for example, the actual price of crude oil based on good old fashioned supply and demand.

    This unprecedentedly rapid time frame decline is speculative short position trading; it happens because everybody and their mother, including the very banks and politicians who are supposed to be responsible for the economic stability of the financial markets, the country and the world, is in short positions to earn profits. These movements are driven to excess by nothing more than speculative trading for profits. In the case of the big players, the very banks who are responsible for global economic stability might I add, it is done with the help of their HFT computer algos to do so. Period. The financial markets trading system itself is destroying itself and everything around it, all for the end game of making the big players themselves filthy rich. For example, someone tell me right now that Goldman Sachs trading desks were not in short positions earning profits during this decline. Think of the thousands of smart money hedge funds, institutional trades, bank trading desks, wealthy financial industry executives and individuals who are without question in some kind of short position during this decline, making it nothing more or less than a self-fulfilling prophecy.

    A look at the events leading to the 2008 crisis clearly outlines the playbook of the by now well known players to rake in profits for themselves (et al: sub prime CDO’s, CDS’s, AIG, S&P rating junk AAA, etc.) at the expense of American society and even the global economy. They gave themselves the freedom to both create and play the playbook, threatening the entire banking system and societal stability as a whole in the process. No one would argue this.

    Today, this past two weeks, let’s ask what has changed in that regard? Not a damn thing. When the very system that is supposed to be making sure we don’t go to hell is profiting from our going to hell, that is….words anyone? I’m at a loss for the layers of insanity to describe what the Wall Street financial and trading system has become.

    Debt: Get Over It

    Next, the world is awash in debt. Get over it. Across Japan, across Europe, across the United States, there is massive debt. In fact, while China does have huge personal and national reserves, China’s banks also have massive debt. Why does that mean that the USD is doomed? I keep hearing this; that the USD is going to collapse and be worthless. Nonsense. Is the Japanese Yen doomed? They have been awash in outrageous debt and zero interest rates for well over a decade. Ah yes, but they had savings you say. So what? The United States is the most powerful country in the world with triple the GDP of anyone else. Who else has THAT? Outside of Wall Street, do we forget what greatness America has? Its assets, its resources What, it all adds up to chump change? Of course not people.

    The primary sovereign economies across the globe are overloaded with debt and with that being the case, nobody’s credit is AAA anymore. The concept and credibility of the credit rating is skewed in meaning in today’s world. That’s the truth.

    That’s what this charade has become. And yet I am no hypocrite. Yes, I am short crude oil to make a profit.

    • Benjamin August 10, 2011, 8:18 am

      “Meanwhile, as I also suggest below, the USD will be just fine, relatively speaking.”

      Any fiat currency is fundamentally worthless, being the tool of the best theives. But why wouldn’t it be just relatively fine? No one is refusing it. It’s much like what was said in the article’s beginning: Only because everyone else expects everyone else to.

      That, I imagine, leaves no small number of fiat detractors feeling uneasy. And well they should, because that means there is no automatic, self-destruct point. It will take a conscientious, mass effort in order to put the “dollar” (and all such currencies) where it belongs. But hey, so long as the employed are just thankful to be paying the bills and the unemployed just thankful to be getting some kind of welfare in these tough times… Not to mention (ahem) people looking to profit from this configuration… there’s just no reason that currencies will be going to the trash.

      But just look at those sheep… I’ve seen more to sheer from white people afros than from those shivering baldies! But they’re just as happy as, well, (what passes for) wooly sheep. The only question is, just how happy can a sheered, cold sheep be?

    • kevin August 10, 2011, 4:54 pm

      if you focus on the main problem we have today (deficit) where no politicians are willing to cut it there will be crisis. print more money=less valued USD and that cannot be sustained much longer. it will only trigger hyperinflation.

    • mario cavolo August 10, 2011, 4:59 pm

      Hi Kevin, I question whether the known issues will trigger a rising higher ongoing inflation over years as opposed to a hyperinflation event, which to the best of my understanding is a more specific shorter time frame event typically brought on by govt policy decision rather than a free market trend and which is much more severe, hence the word “hyper” ?? Cheers….Mario

  • John Jay August 10, 2011, 2:55 am

    Amazing.
    Bernanke comes right out and says , ZIRP today, ZIRP tomorrow, ZIRP two years from now. The economy is that dead. I never thought they could levitate the bond futures with such ease while the Swiss Franc heads into orbit, probably more from Euro refugees than anything else. If Italy and Spain follow the Greek path, Bernanke may continue to pull it off. That’s OK with me, I am not anxious to see the Dollar collapse, what comes after that will probably be worse than what we have now. As the emperor Tiberius said 2,000 years ago, “We are holding a wolf by the ears!” Holding on to him is fraught with peril, turning him loose, even worse.