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Equity Market Update
By Nic Lenoir of ICAP
Well, dumb money is clearly at work today. With Greece basically on the brink of default, Spain, Portugal, Italy are begging to follow suit before people start realizing that disbanding the Eurozone might be inevitable. At the same time GDP would be still solidly negative if it were not for inventory rebuilding and government spending, and our entire financial industry (representing 20% of the earnings of the S&P and access to credit it generated has been the engine of growth for the past 30 years) is being exposed in the media as a fraud and threatened to be dismantled or at least turned into a shadow of its current self. No wonder then that last week the Nasdaq made highs in 21-day RSI that were not seen since December 1999. A 2.3% retracement is clearly the buying opportunity of a lifetime, especially since we are only up 82% since last March. Maybe I missed the part where growth prospects are booming when schools on the West coast only have money to be open 4 days a week.
That being said, we are basically right on the point of no return towards new highs at 1,205 in S&P futures. As can be seen on the Dax 30-min chart we rejected the neckline of what would have been a H&S on the highs. The Nasdaq on the 3-hour interval chart shows that we are starting a 5th and final leg up. If we do indeed break-out again in S&P, the key resistance where everybody should just go short outright is at 1,236 in the future. It is the 61.8% retracement of the entire move since the highs in 2007. We see on the Dax weekly chart that the level is very similar and close by as well at 6,478. We also note that the RSI on the weekly S&P chart is approaching a key resistance. So from here if we do close strong today then we should expect new highs and a move towards 1,236, otherwise focus on 1,182 which is the support that needs to be broken to trigger a proper retracement.
10Y treasury futures have been selling off on this bullish reversal on the day in equities, and the key support here is 116-18, which if broken would trigger a double top on local highs and send us down to at least 116-02.
Good luck trading,
Nic
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Nic you mainly missed the part where the Dow lost 50% of its value during 2007-2009 due to forced selling. Now it's trading where it should be given the fundamentals.
Corporate balance sheets are awash in cash so where is this crises after all?
The only dumb people at wor today (and tommorow and the day after) are the shorts. When will the shorts get their lesson?
SP500 at 666 was a one in a lifetime buy opportunity.
Dumb money is short.
i know!!! you're so right!!! the chance now to buy profitless companies in an economy on the brink of insolvency, and perhaps outright civil unrest during the summer months....
takes my breath away.
the dumb money is still playing this on either side.
Don't...feed...the trolls or algae....
Dumb money is betting the stock market will rise based on federal deficit spending. We'll see how much cash they have if mark-to-market really gets implemented..
Strike three. This will not happen in the next ten years.
DOH!
One other thing - who cares if corporate balance sheets are awash in cash. People buy on perceived growth, not how much cash you're hoarding. Otherwise, Yahoo, Microsoft, and Cisco would have triple-digit stock prices right now. The main driver of growth is the federal government and all those-spend happy consumers who are now buying crap instead of paying off their mortgage.
Well....maybe twice. I'm always good for two times.
Dumb money is washing through and it has an effect on all wallets.
As Jesse says one picture is worth a thousand words.
What does it profit you once the Inflation Genie has been let out. Shades of Vocker nightmare situation is now unavoidable. Interest rates at double digits is not out off the question. Its hard to move in concrete boots.
http://jessescrossroadscafe.blogspot.com/2010/04/unadjusted-producer-price-index.html
"Now it's trading where it should be given the fundamentals."
What the fuck? LOL!!!!!!!!!
You are a fool, go back into your hole moron.
I'll say this: since the market has become unidirectional, the angst about what side of the trade to take has been erased. No fear, no facts, no problem!
sooooo, should i buy or should i buy?
Don't just buy, buy out of the money short-dated calls on anything retail, first thing, every morning. You can't lose!
Use the house you are not making mortgage payments as collateral PLUS max out the credit on credit cards you still have access to to buy WAY out of the money calls which expires in May. I am sure Wanger will agree on that.
Get short on the SPX and get burned. Everybody's going to get short at the 61.8% retracement and end up short-covering this thing all the way to 1400...
+1
it doesn t get any easier than that for the dumbs! short at 61.8% fibo and get burned you idiots!
-1 The dumb money we are talking about here is the average worker (who still mnight have a job and is not drawing down their retirement savings to survive) who contributes to herd-mentality mutual funds. The MF managers have to make numbers so they invest every Monday any new money that came in the previous week. Take a look at the MF cash positions - lowest in a long time. The Joe Sixpack MF retirement fund investor has absolutely no clue about fib retracement or any other technical indicator.
who is "everyone"? I think you underestimate the sheer evil intent of the banks and the market overlords, at the 61.8% retrace, they will have all the retail mutual funds fully loaded on the boat, all set to capsize. they don't give a crap about the daytraders, they will have what little is left of the rest of America's savings in their clutches, and away we will go into the ground.
wait and see. i used to work with these guys. you don't think they are managing these funds in good faith do you? they are used as dumping grounds.
UWM...how do you mean that they are used as dumping grounds? Is it nothing more than it's all about the AUM fees?
dude, where do you think all the stock goes when the "research" dept declares a buying op in something??????? guess who gets to step right up and buy while the line is short.....
i'm not confronting you, just trying to better understand your "dumping ground" perspective.
each of these prop desks ends up holding some real dogs from time to time. what they generally do, so they don't end up eating it, is to "reach out" to the research dept, forget the chinese wall crap, and alert them to the wonderful opportunity.
then, the research department "discovers' the stock, writes up analysis highlighting all the wonderfulness and then....ships it over to marketing or whatever the general point is of distribution to the entire firm, including the group that handles/manages retail mutual funds (they all have them, even if it is some third tier subsidiary)
managers there are thunderstruck! how could they have missed this!!! and they immediately call a meeting (nothing happens at these funds that isn't group think generally) where they read aloud the mothership's "find", and declare this opportunity too sweet to pass up for the retail investors they are "partners with" in helping these little people "achieve their objectives, achieve their dreams".
stock has a two day pop, and then, at the end of the next quarter, the portfolio manager tells all the investors it was a real "disappointment" tho the "fundamentals are strong...nonetheless in order to remain perfectly positioned for the environment we see ahead (sound familiar? check your investors letter this is a favorite phrase)...in order to be perfectly positioned for the environment we see ahead, we trimmed the position.
that's what i mean. that's the script we followed time and time again.
And that was probably one of the more ethical firms.
Yep, been going on forever.
You are totally correct. I worked for two different firms and they are all the same. One of them was the largest out there and turned out to be the worst on risk when they were "claiming" they were the most conservative out there because of their Swiss origin.
lolUBS.
I have been employed in compliance/discovery for a number of years (though more often on fixed income), I think JSP would shit his pants if he knew how unethical and greedy anyone who gets to play with other people's money is.
I have spent a lot of time reviewing trader IM's and Phone calls. First of all, these mindless douches KNOW they are being recorded and spout off some dumb dumb (illegal) shit.
And after they are done raping and robbing thier "clients" the big debate is what steak house to go to.
"when schools on the West coast only have money to be open 4 days a week."
Pimply-faced teenagers' time is far better spent at the Apple Store buying iPads, so this is a blessing in disguise. Plus, it's not like the education system in the US is so good that a 20% cutback is going to make a difference.
America needs shoppers. Engineering and other disciplines are for foreigners.
+1
After all, what better training that hanging out at the mall one extra day every week !
it's not like the actual engineers that do come from america are actually used. most are used in the defense industry dreaming up systems designed to fight a defunct ussr.
Exactly. The strength of the economy is based on our ability to consume, not invent and build things - that's for chumps. How much school do you need to know how to buy an iPad? Just a credit-card from a complicit bank, and your on your way.
Tell me you're kidding about the fundamentals right???
Robots are not dumb, they just do what they are programmed to do. When they start exclaiming "Danger Will Robinson!", then we'll know. Of course, Dr. Smith will retort "Nonsense, you bubble-headed booby!"
i thin robots don t make a move anymore without permisson from Tim and Ben. after all the algos were saved by....guess what....taxpayer money..so are you that dumb to thin they will ever be allowed to crash the maret?!?! get real
I don't think that anyone outside of the circle truly knows how this will end. But end, it will.
Yea duh! Of course there will be NO correction... That is the sign of a healthy market!
I expect a healthy correction, but gotta be realistic at the same time. Volatility continues to calm down. The way VXX is structured, it looks like it's on a 1-way plunge into the abyss/$0.
1yr:
SPY +43%
VXX -81%
Almost a 2:1 inverse relationship.
Short VXX seems like a nice way to be 'long' -- at least as a hedge. And because it doesn't behave like VIX, you don't get hurt as bad when the market DOES go down.
That said, I think it's very foolish to ignore the relationships that exist between asset classes. The expectation of up every day...forever...oh PLEASE.
For example, 5yr IWM:SPY is the widest it's been since Oct 2008 when the market crashed.
A good example of what's wrong with the current valuations is Ford (F). *Negative* book value due to their crushing debt. Revenue down. Yet their stock is soaring. I understand that their situation has improved greatly, but that still doesn't mean they're not overvalued. On a long enough timeline...their debt will catch up to them.
Completely insane. Either the market is truly being manipulated by the squids or the investment community is dumber than I thought and believe in a continuous bailout machine which we call the government.
The investment community is dumber than you thought, and slave to our innate inability to remember history going back more than about 12 months.
Both
When I read comments like those from Zexe who doesn't understand know where the crisis is, I know we are in big trouble. Only question is how far off we make it before our little come to Jesus moment.
Zexe, fyi, America and many others are bankrupt borrowing huge $'s short duration to pay the interest (not principal) on the spiraling debt - if things go well and the economy kicks over, the servicing of the debt will suck the tax revenue dry as the simple return of T interest rates to normal and the US normalizes to a longer duration of debt (more than the present 4yrs.). No GDP growth rate can keep up or get ahead of that surge. This all assumes US job growth, rising incomes, rising asset prices ahead of inflationary increases attempting the last bubble (based on what story I'm not sure, maybe it's a world economy around the i-(fill in the apple product). That's the bull case.
The bear case is the economy never really ticks over and debt spending goes on like Japan until who knows what happens (but no chance American's will buy T's at 1% like Japanese)...so no happy ending there.
The oddball case is America tanks (economically) but S&P large cap and international exposures continue to fly on forever free money, ineternational growth, and dollar devaluation (making a ton on bringing $'s home) all while American income continues to normalize w/ global competitors.
+1. So many US macro components are in the diminishing returns track.
there will still be a printng press.
america still has the military might.
before America goes under the whole world will go down.
so i d rather choose to go long and everythVn will be fine else this whole thing will end with a world war and then your money will be worthless anyway.
When the rug gets pulled out from under you don't come crying to us.
You hit it on the head at least partially, see you are retarded because you're going in with everything thinking it's going to get you somewhere when the end it's all worthless because we choose to go "all in" today instead of dealing with reality.
Military might isn't much use without a defense budget to run it.
Rallying amidst this euro crisis and global tension is ridiculous but it's clear that manipulation or really dumb money is going long.
All of this is noise until implosion- maybe late '10 but it's on its way. Bond vigilantes will jump from bankrupt nation to bankrupt nation until they all go crying to the IMF. The austerity this brings will kill growth across the eurozone and have knock on effects for China's manipulated GDP and bad bet stimulus. This then leads back to USA as nobody even has money for their bs debt anymore.
People would be foolish to think that stock fundamentals even matter right now. Yes, 666 is a bargain on stocks but we still have the retest to come. Then, there's a bargain. By then the destruction to the ponzi printers will mean that 666 - 1200 is actually real but will take years.
You don't choose when to mark-to-market in the long run. Enron and Lehman tried that.
zexe, sounds greek.
Dman yes i really wish i had bought more stock
actually I do but what is going on now is just Insane * a trillion. Surely investors or evn goldman computers realize
that domino defaults by whole countries cannot be good
for stocks?
Today I got a very good presentation from a pretty succesfull hedge fund H&G Capital, about european inflation set to rise 5 to 7% in the next 2 to 3 months. I'd like to upload the powerpoint for this one over here, is there a email adress or ftp?
Sounds interesting.
You can put the file on mediafire and drop a link to it here.
http://www.mediafire.com/
Nic,
Thanks for your comments - I always look forward to them as they are well-thought-out and
coming from somebody who understands the market (or at least tries). I think the bottom
line is that the market is well-extended. Not that it couldn't extend even further like it
did in '97 and '07. But are things really so booming that anybody with half a brain would
chase these prices in fear of missing the current El Dorado? I somehow doubt it. The
reaction to very recent earnings reports is indicative that the prices have been squeezed
higher by short-covering and top-of the market fool buying. This is not to understate the
role of the PPT in proving a floor under any bear raid. I wish I knew the real powers of
the PPT as we shorts are currently trading in the dark, and against a very powerful
opponent. Oh well, better to settle for a few crumbs than to have your head ripped off -
at least until we get a half-decent trend change. I'll say one thing: if the market
develops a larger allergy towards bonds or even towards credit risk (as it currently is doing with sovereigns), current valuations
cannot stand. Also, the current drivers of growth are, too, suffering a correction (China, Brazil, EM, while Japan can't get off its ass inspite of decent macro numbers).
This old comercial is the best way to describe the actual moment...
http://www.youtube.com/watch?v=dsfjsyTzEnk&feature=PlayList&p=AA5F35AD28866570&playnext_from=PL&playnext=1&index=1
The easy explanation for the booming stock market is that it does not need a booming economy when larger and larger sections of wealth gets transferred to public companies.
As long as there is a surplus to give the stock market can grow - sure it is not sustainable in the long run but who cares about the long run now.
This failed zero sum game of concentrating on either profits or wages is obviously a dead end.
Until or unless some mechanism can be used to put surplus capital into utilities to improve the capital base the market participants only option will be to increase efficiency through staff cuts or wage reduction which will drive us to oblivion.
It will be a intersting drive down the 1980s memory lane, however we will soon find that the society has no more future surplus to give.
To be honest I have had enough of capitalists who do not believe in capital growth but who is listening - it looks like it is over to me.
Let me play devil's advocate. I post this as someone who has been bearish since about last summer. I think the 666 levels were an oversold condition, but I've believed all along that fundamental fair value on the S&P is somewhere in the 850 based on 2010 earnings (I know stocks aren't trading off fundamentals, but humor me).
And I've been wrong about the direction of the market. Every step of the way, pretty much. The more it climbed, the more certain I became that it was about to revisit the 700s. So I've asked myself and I am asking fellow bears: describe the perfect environment to buy stocks in. Are earnings improving and the unemployment rate is declining and inflation is low and consumer confidence is high and most of the economic indicators have clearly troughed and are rosy and sunny and getting better? We all know that by the time all these things happen, it's too late. We've missed the recovery in stocks. I've reexamined my outlook and analysis, and while I remain bearish, I've at least tried to identify companies that can hit their numbers. And those companies are out there. I still think aggregate estimates are too high, but there are pockets of value.
I'm not saying this to draw snarky comments about how the world is going to implode again or we're headed for hyperinflation (I'm in the deflation camp, FWIW). I'm bringing this up because I believe this market has helped me forge a slightly different way of viewing the landscape. Maybe it's not novel to you, but it kind of is to me. Personally I think it's foolish for me to continue to dismiss an idea without reexamining my analysis that led me to dismiss it in the first place when I've been wrong about it for almost a year.
Good question, but are you calling someone a bear because they are a realist? I get termed a "bear" because I am realistic that the macro landscape is going down not up. We have an aging population, who has been burned twice in 7 years in the market and are headed to "retirement" so that can't be good because they control the vast majority of the money and most of those people I speak with are "well off" and they aren't spending!!!!
I think you can invest in an enviroment where you can see that things are being addressed, but what we are pursuing now end's badly, there is no other way to put it. Also, I read somewhere that thing's in China are much worse than what our Media tells, so the moral is that I think the rest of the world, excluding Europe, may be in a little better shape than us but all in all have been extremely dependant on the American consumer and that is gone.
I think the really stupid thing in all of this is to think that we had an adjustment period of 6 months and all is well everywhere in the world. If it is that China is rising then understand the demographics of why they don't consume and can't replace consumption that Americans were doing. Let me help, they have more boys than girls so families save in order to "entice" a girl to marry their son. So that isn't changing in 6 months, or better yet lets look at Brazil a country that produces oil, largest oil user in the world???? USA.......we know consumption is sliding here. Besides Brazilians love plastic surgery and would rather buy fake tits than invest in business, I don't blame them because I love fake tits, real tits, tits in general, but the point is that if we as Americans think we truly understand other cultures and that is consumption from those cultures is going to pull us forward we better look again.
At any rate just my two cents for what's it worth, understand the culture and you can understand a lot of why this whole thing isn't going to work the way the bulls claim. Besides the only thing that I have heard a bull point to on their V-shaped recovery is the stock market. Give me a break tell me something else that is truly in a V-shaped recovery, seriously tell me 3 things and I'm willing to listen open minded. Stocks don't count either.
" I am asking fellow bears: describe the perfect environment to buy stocks in. " Hmm.. Let's see - 1) Actual revenue and profit growth due to innovation and not accounting gimmicks, job cuts, or federal intervention. (See AAPL but how many more iPhones and Isomethings will people keep buying?) 2) Unemployment numbers below 5%. 3) Federal government stops bailing out the Financial, Real Estate, and Automotive industry so their assets really do get sold at what they're worth (which is basically close to zero). Why catch the falling knife? It's amazing how the real estate industry will recover quickly if the government would allow house prices to fall to the point where people who actually do have $$ can buy these properties (instead of these currently inflated prices). 4) Period of long downturn where the economic excess has been whittled away (see mid 90s). 5) Tyler stops posting on zerohedge and Sylvain Raines calls Jim Cramer a reliable stock picker.
Perhaps I'll buy when the companies engaged in widespread fraud have key executives in jail, and the value of the SPY reflects that 20% of the S&P is no longer making $3+ billion a quarter.
A bonus would be an audit of the FED.
Bringing some manufacturing back to the US, instead of not paying the true cost of goods (poor human rights and environmental pollution) would help to.
time for a hit....
If you're going to let dishonesty, widespread fraud and manipulation get in your way, you'll never buy stocks again.
Dow will be at least 12,500 by end of year. The ponzi masters cannot let the market go down, same as 2003 - 2007. It is the only thing they can point at and say how well the economy is doing even if we have 20% unemployment.
Thanks to Bernanke The Saint Patron of Moral Hazard
Fib 61.8%
And
Elliot wave Voodo magic are not going to work this time...
Relatively high volume and still close up above 1200 sp. Does not compute. How about the giant volume spike around 1 pm. Early morning shakedown, afternoon grind up.
Fellas, I don't know the average age of you guys but I am guessing most of you have never lived through a real recession. I lived and worked in Thatchers UK and Ireland before that.
A real recession is when you are leaving high school and the teachers tell you your generation will never be able to afford a house and it's likely most of you will have to emigrate to find work. I am not trying to imply there is no problem here or what we are looking at is like anything anyone has seen before. It's unique. My point though is the FTSE just kept on grinding higher thoroughout massive unemployment and horrible GDP etc. The spin and double speak at the time was high unemployment was good for the FTSE.
People credit Gordon Brown with selling off the UK's gold and bargain basement prices but what they don't remember is Thatcher selling off everything else from railroads to buses and hitting the working class and middle class up for every penny she could squeeze from them.
A lot of people made a lot of money playing in the markets then. The same thing is happening now. It makes no sense. If you try to keep denying it or try to keep applying charts to something which is never going to follow the rules you will end up in a small room scribbling your charts on a wall. Go with the flow until it stops flowing.
Oh yeah, and the accounting rules and company law had to be changed after all the con men had fleeced the shareholders.