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How Crazy Can It Get?
Submitted by Nic Lenoir of ICAP
The last bubble was first highlighted by the best macro traders around 2006, and it took until November 2007 to burst (high in equities) so the answer is that the market can get crazy for quite some time.
We had issued caution for bears recently because econometrics models indicate industrial production and ISM will peak around November/December and possibly at 60 (based on leading indicators such as new orders), despite our bearish conviction. We had also identified a wedge in S&P futures which could act as an ending diagonal, and would suggest we could grind higher until late october.
However the pace of the rally has picked up over the last few days we have challenged today the resistance of that possible ending diagonal (see daily chart). While ending diagonals are uncommon (see AUDUSD last year) and in this case it's a little bit of a stretch since we are in a corrective rally and ending diagonals happen usually at the conclusion of long rallies, we have other elements to add today. The 30-min chart shows we have been in a channel since 990 and we have made an excess past the resistance, which usually is a good signal we might at least test support if not that the move is exhausted. The weekly chart shows that we touched today my voodoo 88 week moving average, which could be a HUGE resistance. Also on the pit session chart we see have come back to fill the gap left open back in October, and we have a similar case with the Nikkei. The resistance on the daily wedge can also be observed on the chart of the Dax. With many indicators completely overbought, could this be the smell of a sweet reversal? Certainly selling here would make complete sense in many respects, and if the gap is fully filled around 1,102.5 then use weakness to close out the position, otherwise play 975, and then 875 on a break. Use caution and save bullets however, one is always better off adding after the downtrend is confirmed than shelling all out against the uptrend.
Keep in mind, in May 2008 there were MANY people we will not name who thought we were headed right back to the highs, so sentiment is not really prophecy and far from it in fact. This time it's different though... bears and reality are fighting the US government and its arsenal of liquidity. That's why we can have the market diverge so much while making new highs with indicators screaming "overbought". On top of it, while some time has been bought pulling the SFP bill program in order to debate the possible raise of the debt ceiling, should the Fed and the Treasury succed and have it raised we can't exclude more quantitative easing and hence more money being poured into the markets. I guess an hyperbolic collapse of the USD would then be the most likely outcome to bring back markets to reality. In the end, bonds mature, investors have to either be repaid or then default occurs, and there are a lot of maturities and mortgage resets rolling down the pipe. So given that the ISM is about to top, QE money is running out (we are below $15Bn remaining out of $300Bn or just about), and many stimulus programs are running as well, headwinds could start being felt again. Barring more US government intervention it is likely that recent exhuberance will come to an end sooner rather than later. However as always one must remain cautious because these days capital markets are a mere reflection of government action... as long as government remains unchallenged.
Good luck trading,
Nic
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QE money is not running out - the $300 fund for Treasuries is running out. But the $1+ trillion plus buying GSE debt is not. Earlier people have suggested that sellers of GSE debt into the QE fund are rotating into Treasuries. So in effect, the QE money is still going into Treasuries - but with a momentary stop along the way in GSE debt.
i HAVE A SIMPLE THEORY AS AN EXPLANATION TO ALL THAT IS HAPPENING.TYLER CAN VOTE IT.
BEN BERNANKE - READ THE WORD COUPLE OF TIMES. THERE ARE TWO Bs. "BUBBLE". THERE ARE MULTIPL Bs. 'birds of same feather flock together". "BEN AND BARRACK BELIEVE IN BUBBLES". BEN RECOGNISES BUBBLES UNLIKE HIS PREDEC. ALAN WHO ACCEPTED THAT HE WAS NOT SMART ENOUGH TO RECOGNISE BUBBLE MANIA. MANIA IS THE KEY WORD. BANKERS LOVE BUBBLES. SO BUBBLE IS HERE TO STAY. LONG LIVE THE BUBBLE. IT GIVES A BUBBLY FEELING.
And now IG CDX basis pt <100 again.
http://debtsofanation.blogspot.com/2009/09/debts-of-spenders-investment-...
The effect of QE is readily apparent in the attached graph. But how much higher can it trade when it's already entering par -if not premium -territory?
BINGO:
However as always one must remain cautious because these days capital markets are a mere reflection of government action... as long as government remains unchallenged.
qe is the gift which keeps on giving....it will never end...
the fed is talking a tough talk as part of its con game...but qe can never end especially with the government owning more and more of all those worthless assets. it will have its own mark to myth problems and what better way to manage it then be the buyer of first and last resort?
Tyler, it's not necessarily exuberance; that would imply sincerity. The people who understand 8th grade math (ie the exponential function) and are using every tool at their disposal (MSM, gov't, et al) to whip the market ever higher
are merely plotting their exit strategies.
One possible indicator of a top is when puts become too irresistible to let pass. It may be at that time when they decide they've made as much money as they can from this cycle and move to riding the downslope.
waiting for this article a long time.
no one realizes that this market is controlled by the government. not in the "conspiracy" sense, but in the sense that once the government stops spending, down we go again.
that is the reason i am at my "minimal" exposure to equities, taking whatever profit i make off the table at every 10% jump in the major indexes.
the SP500 could be back at 1600 by the end of the year. or back at 600. depends on what the feds decide to do.
everyone knows we are in a bubble and even the MSM have started to admit it. but remember, bubbles can always get bigger, bigger than anyone realizes.
this party might end tomorrow, 3 months from now or 5 years from now...or 20 years from now...no one knows
just make sure you are not the last one out the room having to switch off the lights when the party ends.
I know you are just reporting a strategy. And it is probably a winning one to now. I sincerely wish you luck on your timing things; stopping just short of the abyss is a risky business.
That said... something about your comment made me realize we are too far down the rabbit hole to get out. The engine is going to blow itself to flinders at this rate.
Good god, what have we done...
cougar
Good god, what have we done
I say that myself quite often....how sad
It's usually Good God what have I done for me...and somehow I transition into Once in a Lifetime and the Talking Heads.
As long as the run away train encounters no obstacles, the only thing the passengers might notice is how fast the train is going, but even there, they have to stop what they are doing and look out the window, or at least stop and feel the motion and ask themselves if they should be troubled by it. If the box cars keep rolling who is to say the train is not perfectly fine.
Whoooo Whoooo! ChugaChugaChugaChuga. Whoooooooooooo!
aaah, your words force another Grateful Deadism from this old guy...
Casey Jones
The Grateful Dead
"....driving that train, high on cocaine, Casey Jones you better, watch your speed.
Trouble ahead, trouble behind..."
Hi deadhead,
Your song matches my post nicely, but if Steal Your Face is the Album, Ship of Fools may be the better choice for those of us on this blog. Not sure.
+10 on Ship of Fools
I always like World Partys version better, plus its lyrics are far more apt:
You are correct but the Fed is at a crossroads. Either 1) they print more money (QE) and keep the stock market soaring ever higher triggering a near term currency crisis or 2) it can let the dollar recover and let the market function (i.e. correct/crash). Either way it's a disaster because there is no free lunch. The dollar won't just fall slowly - when BRIC decides to dump it's over - FOREVER!!! See the excellent piece by Sprott Asset Management posted earlier.
I can't imagine running a business where you make a sale for X dollars today and when you finally get paid in 60 days its worth 9/10 X or worse. It's crazy what these people are doing. I am short the market big time today but will get the hell out and short treasuries/buy gold/platnium etc. if this shit continues.
You are absolutely right...some people aren't aware of this, but that's what makes it so tough to call the market a buy or sell. I would recommend reading a history of the Weimar Republic in Germany in the early 1920's...the worse the currency got hit, the higher the market went, & vice versa.
So the only question you need to know to decide to buy or sell stocks is whether the gov't will continue to gut the dollar or not.
And the key reason the Germans did it in the 1920's: They were more afraid of the political ramifications of high unemployment than high inflation. Sound familiar?
Why do you think Goldman has so many people in goverment...they know what policy is going to be and they trade ahead of everyone else....look at Tylers "Quant" post yesterday. According to the Vampire Squid (more room to run)
Dollars to donuts says there is a new program on deck 100%...thereby slashing another artery in the US dollar only accelerating its eventual cardiac arrest like collapse...
Goldman & Co. ALWAYS bet on KNOWN OUTCOMES.
Really?! I wouldn't call them the "best" now, would I? Investors - sure; traders - not so much.
In the old day's, it was your buddy Boesky who also bet on a sure thing!!!
check out drudge - pelosi waorried about political violence - Q up the bat wielding union jack
i can only hope that she is its first victim.
re: Pelosi's fear of violence--
as someone on Instapundit put it
"It should be noted that Harvey Milk and San Francisco Mayor George Moscone were not killed by a constituent angry about unfair laws they passed.
They were assassinated by a fellow Democrat politician- city councilman Dan White, who resigned complaining about his low government salary and angry that Moscone wouldn’t reappoint him to his hack job."
Nancy, there's your real danger, a fellow hack politico.
lmao...is that what that stupid bitch was
referring to? harvey milk? maybe those weren't
tears of fear then - she was just trying to
keep from busting a gut as she uttered that
drivel before the camera.....
I would add that Nancy Pelosi is Obama's biggest problem,lol!
Save yourself, get out now.
Buzz -
I tried to say this two days ago and was slammed.
To those that still believe in the "Buy and Hold" mantra. Get Low, and Get Cash now.
You don't understand this current market.
I say this by way of troll. I couldn't care less if the longs lose their shirts.
I say this "buy" way of self preservation.
If the longs loose their shirts, who will we sell too??
The Morlocks must have the Eloi to survive.
I dream of an eCONoME that isn't a zero sum game based upon grifting, leeching, and bilking.
Dream on!!!
The reality still is.
"Buzzsaw99"
"You've proved my point"
Thank You!"
2011 is when things will get difficult.
Until then, expect the game to continue!
I'll take the under; Q2'10. On on housing implosion 2.0, complications with the Chinese, violence on the Korean penninsula, and US homeland unrest.
Betting pool at the end of the universe. Buy a square. Good, clean fun.
cougar
I'm on your square cougar. April 2010.
You left out Iran. Israel has to strike soon. Oil will spike on the news, and then the game gets *extremely* interesting.
I want to hear from Ben Dover on this one. A real patriot.
They run these markets up for you, don't you get it?
They loves you and cares soo muches abouts you. Go on in, the water is fine. Uncle Sam has your back. Just ask Ben Dover.
if ben then why not phil?
By all means Phil!!!
I assume they are one and the same. I could be wrong...
There is something really screwy with Wells Fargo put activity within the last week or so. Today is even weirder. There are 80, 690 put options for Oct $26. Either people have a ton of cash to throw around, or the 800lb gorilla in the room just got noticed?
Well, you got that right "Nic"; which is why I don't trade the stock "market" anymore (using the term market pretty loosely here, since prices are more or less fixed by the Government now). I'll prefer death to buying stocks.
Stocks and Bonds mean something different these days, eh? Will they sell Shackles too?
Those are complimentary with the RFID's.
Love your avatar MsCreant. Would love it even more if I knew there really was a gal behind this avatar.
Nice to meet you Gordon.I am not very lady-like, but I am in fact, a lady! 44 year old professor at a state university. I do research on Deviance. I'm very much at home lurking on Zero Hedge. I agree with you on a lot, but it looks like deflation to me (for a while), except if there is a currency crisis (which it looks like one just this second).
Actually, I wish I had confidence in a thesis. I don't. Flying by the seat of my fcuking bloomers. Got gold, cash, and silver. Have some money trapped in an annuity, but at least it gets 4 - 6%. My colleagues all took 40% or worse haircuts which I did not because I got out of the market in 2005-6. I called it too early but I called it.
I teach about this stuff in my classes. It works in Deviance, Theory, and even Social Psychology. Students are starved to know more. They know they are going to have a tough time with jobs. They want to know why.
Lovely to know more about you. Thank you for sharing--and great to know that your students are starved to know more.
The pleasure is all mine, my lady. Gold and silver will not let you down - that much I promise. As for deflation, if you change your scale of measurement to Gold instead of fiat money (whose value can be manipulated at the whim of a government), you'll see that we have already been in deflation (in terms of real money i.e. Gold) since the tech crash. I am more of a Gold-deflationist than a (paper) dollar-deflationist ala Prechter. I suggest you read articles by Prof. Antal Fekete (just google it), if you haven't already, to get more of a handle on this Gold business and why this crisis - at it's core - is but a Gold crisis. Best of luck.
Gordon,
Glad to see Fekete mentioned. He's right on the money with his very good synopsis of Palyi's Marginal Productivity of Debt, QTM/QE's nemisis and black hole. QE is falling and soon never to be seen again. This is a once in a millenia event - truly.
"I do research on Deviance. I'm very much at home lurking on Zero Hedge"
Ding, Ding, Ding!!
Winner of best line of the day!
[QE linked to debt ceiling bill] This is probably true. I imagine (without having seen a survey) that most playaz think the debt ceiling bill will pass Congress. It will pass because without it QE and gov stimulus end.
If QE ends now or any time in the next 18 months we are BONED.
But the bill might not pass. Pelosi is making noise about political repurcusions for all this. Ya think? Might the Pols just embrace the whirlwind -- fail the ceiling bill -- and let it all implode? They might feel more comfortable regarding their political prospects during a downward economic spiral that during the next election cycle. After all, if things get bad enough they can declare martial law, suspend the Constitution, and protect their seats (pun intended) that way.
Everyone has an end-game in mind that maximizes their survival rate. You do, so do I. We're each going to play it out to our individual advantage. And so will those bast*rds in Washington, and Wall St. 'Cept they hold more cards than the rest of us.
We stand at the edge of the event horizon. No information passes either direction across it. What is will not go forward, what is to come cannot be known. How soon we fall into it is anyone's guess, but it I don't see how we can possibly escape it now.
cougar
pelosi is flapping her stupid ass gums for air
time...
the debt ceiling will be increased - it always
always always is....
our government has not run a surplus in decades -
it is thus impossible not to increase the debt
ceiling....
as surely as day follows night and night follows
day there will be an increase in the debt
ceiling...
"the debt ceiling will be increased - it always
always always is...."
Absolutely correct. There will be some speeches, lots of insertions into the Congressional Record. At the end of the day, it will be increased.
Fuck NP, that waxy fuckuin ugly scumbitch
(sorry- now I feel a bit better)
From another prognosticator h/t http://market-ticker.denninger.net/ Idiot Parade (Philly Fed Index)This is what happens when you listen to the fools on CNBC proclaiming "green shoots!"
See the problems in here?
Prices paid up. By 50%. That's not good - what does that do to margins? Only two choices there, right? Pass it through or eat it.
New Orders: Down. That's not so good either, right?
Employment: Down. With what will consumers buy your products that now have input costs rising? Their disappearing paychecks or their good looks?
Inventories: Where?
6 month business conditions outlook: Flagging.
Given the above how tough is this one to figure out?
So this "improvement" is all prices paid skyrocketing?
This is good?
I tried to warn people but was called all sorts of names.......
But I thought there was "deflation"...
lol...don't disturb them from their pixie dust...
Yeah - IT IS...
(Can't post chart's here - so look at the M1 chart here. http://seekingalpha.com/article/161184-deflation-looms)
Deflation is. The data hounds wish you to see something else.
the correlation between m1 and price inflation
is weak....
what is happening with m3 which has the highest
correlation with inflation? and whose m3 are you
reporting?
From the point of view non-trader having small 401k account..is it time to shift to Fixed income from equity funds and S&P funds, or wait till october?
Aonon, my 401K was switch to fixed income once S&P broke 1,000. Spot on good advice though...IMHO.
-Michael
The higher we go the more hysterical the calls for a correction.
This comes not from those long but from those flat or short.
Tells me all I need to know.
The $1 trillion left in agency QE tells me this could last all through next year.
If TD wrote this, I would say it reeked of capitulation. If the program is "as long as the govt decides to pump money, this market will rise," as if there are no other variables that matter, then this is easy: buy equities.
Stay loose and remain wary and wise - there are far too many nails popping and rivets straining under pressure right now for this to last. The system noises, creaks and wheezes are almost unbearably loud. Cognitive dissonance will shake this thing apart. April 2010 is the outside date for what is coming.
these guys will print until the redistribution is complete
they will not stop because they believe that there are no better options than the dollar and will keep it that way
through foreign policy
also, what they call "QE" is academic. It's all monetization, all the programs.
again, here's how it goes:
1) Banks (and anyone now it seems) hands over garbage as collateral. if they don't have anything the Fed thinks is creditworthy, the fed lowers it's standards
2) Fed prints and hands back cash
3) Recipient takes cash and buys treasuries
(BTW if you have cash in a bank, it's being used to buy treasuries also most likely, it increase "assets")
4) repeat back to 1 until credit starts to expand
this is a ponzi scheme; they know it; the stakes are too high to let it collapse; there are no other options;
THEY WILL PRINT UNTIL THE COWS COME HOME.
my guess is we're in phase 1, phase 2 will be another $3T
happy days!!!
-FLETCH
david tice
prudent bear fund
http://www.youtube.com/watch?v=fU5HzISPve4
US 1O YEAR BOND daily chart still giving bullish divergence.
Are copper and bonds giving us a warning ?
http://www.zerohedge.com/forum/market-outlook
as long as government remains unchallenged
They ARE being challenged, or hasn't anyone heard?
Here Yeah, Here Yeah....
http://www.nuwireinvestor.com/blogs/investorcentric/2009/09/commercial-b...
Go here and find some truth.
got a little financial problem in japan tonight....one of their large consumer lenders isn't trading re: an imbalance. article on b'berg. they got a little cashflow problem, need some relief. GS with a team already on Textron's finest to Tokyo, should be able to float bonds and have conviction buy list recommendation before bell rings in a.m.
little asian contagion might be the dose of medicine needed to remind the good old usa that what happened one year ago hasn't been fixed....only made worse.
edit for link http://www.bloomberg.com/apps/news?pid=20601087&sid=avoYn9WHZSkI
My sense is that until the FED stops trashing the dollar, we won't see much down action for a while. The FED is at the point where the dollar is near or at crisis. At the crisis point, will the USG save the USD or let it freefall and push the country into another FIAT issue like the Amero or some crap like that.
If the USG wants to save the dollar from oblivion, then they will have to stop the freefall. The market makes moves ONLY if the USD is going down. So if the USD basically flattens or moves up, then the FED has crashed the market, oil,commodities,gold,silver,wheat etc. Everything now is pinned to the destruction of the USD-and the upside is minimal in the above mentioned compared to a currency crisis disaster(which is brewing.)
Look for a dollar save attempt soon-if it works maybe the market recovers. Probably hopeless now...
1121 on the SPX... then we head south, at least for a while.
USD monthly indicator still giving bullish warnings.
http://www.zerohedge.com/forum/market-outlook
friend
Looking for a mostly sideways market until mid November then of to the races into the end of year.
it's a chanloidelth explanation