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Five Things for Thursday, May 28

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Fed to "bolster" balance sheet?; a look at Apple, Silver and much more.

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Note: Five Things will not be published on Friday, May 29. Five Things will resume on Monday, June 1.

1) Fed to "Bolster" Balance Sheet?

Fed May Buy More Assets to Bolster Balance Sheet
"May 28 (Bloomberg) -- The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said."

There's a wholesale change in mood on Wall Street these days, a delirium frenzy not unlike the gnashing of teeth and swirling pools of slobber caused by dangling raw goat meat above a pack of feral dogs. Naturally, when you're cutting loose more than 100,000 financial jobs a month, which is what happened in April, you have to expect some slippage in domestication.

But you and me, we're not like the others. For one thing, we have reason on our side. And as long as we make an effort to drink our whiskey from a glass and consciously choose the fork over its uncivilized bastardization, the spork, we have license to judge these awful events for what they really are; desperation. By the hammer of Thor! Make it so.

Desperate times call for desperate slogans: ""One for the honey." "Two for the snake oil!""

I borrowed that phrase from a band called These United States because some of the members are Kentuckians, like myself, and they seem to intuitively understand the descent from normalcy into feverish sloganeering. They are excellent, listen to them here. But I digress.

"Fed May Buy More Assets to Bolster Balance Sheet. "

That's quite a slogan. But "bolster"? Problematic. I don't think that word means what you think it means. An expansion of the Fed's balance sheet is not a "bolstering" of it, which would mean something along the lines of "shoring up" or "improving." It means exactly the opposite, in fact. So the Fed's buying more assets won't "bolster" its balance sheet so much as make it larger and, by definition, riskier, perilous.

See, the Fed's balance-sheet expansion had been driven by emergency liquidity needs of banks, bond dealers, money markets and failing financial institutions. Now, according to Bloomberg, the focus is on "spurring an economic rebound."

But repeat after me: Real lending and economic activity will only improve when real savers see real value at the right level of risk. That will only occur in the short-run with vastly lower prices, or in the long-run with stagnant prices and the benefit of time, no matter what the Fed does.


2) Quote of the Week

"So my point is that we have all these things happening now that five years ago everyone would have told you were unfathomable. The government owning General Motors (GM)? The banks? The Fed printing money and buying their own debt? So now what we are supposed to believe, I guess, is that these are all just temporary measures which have your best interests at heart. If anyone had the best interest of the people in mind, the people would have all the wealth instead of the other way around."
- Craig Harris, writer of EarthBlog News


3) Evaluating Apple


Kevin,

Just looking at the chart of Apple. Did it not just complete a DeMark sell set-up this week with the new high today?

Thanks,
Minyan Todd


Taking a look at Apple (AAPL) from a DeMark indicator perspective, I do not see the weekly sell setup you mention, but there are some interesting relationships to note when evaluating it from monthly down to daily charts.

Monthly:
On a monthly basis, Apple is on a deferred TD Sequential Sell Signal. What does that mean? Because the high of countdown bar 13 (we are on deferred countdown bar 13 this month) must be higher than the close of countdown bar 8 (198.08 from December 2007), the potential sell signal will not record until that level is exceeded. That could be months from now.

Weekly:
The weekly chart will likely record a bullish price flip this week. If the close this week is above 130, and the open next week is above this week's close with at least one tick next week above the open, then we will have a qualified breakout of a weekly TD Line. Regardless, there are no signs of exhaustion on the weekly chart here using TD Sequential and Combo indicators.

Now, suppose one likes the idea of Apple "needing" to achieve a high above 198.08 based on the monthly time frame? As well, the weekly chart is showing no signs of exhaustion, so how do we determine a potential entry point? Let's move on to the daily chart.

Daily:
The daily chart is currently showing Apple on bar 12 of a potential 13 Sell Signal in both TD Sequential and TD Combo.

One strategy, requiring patience, might be to wait for that sell signal to record, followed by confirmation with a bearish price flip, then using TD Relative Retracement Down to derive some entry points. Because the monthly and weekly time frames are telling us the trend is positive, there is enhanced probability that downside moves are contained.

For example, let's pretend for a moment that we have a locked in sell signal and bearish price flip. Using the recent high we can project TD Relative Retracement Down for potential entry points. In this scenario, (which will change depending on how the potential sell signals record) we would have a potential retracement to 113.29, a .382 retracement from the recent high. As well, the TDST Down, at 108.69, should provide additional support.

These are just a few ways to approach Apple focused exclusively on the common. There are many other potential strategies involving options. The take way is that the DeMark indicators give us an objective way to determine the longer-term trend on both a monthly and weekly basis, and then to further evaluate the shorter-term trend on a daily basis while allowing us to establish a disciplined game plan to initiating a position.


4) Silver Needing a Breather?

Above I mentioned the deferred TD Sequential Sell Signal for Apple on the monthly chart. Take a look at another example of a deferred TD Sequential Sell Signal on the monthly chart of silver.

First here is the monthly chart of Apple. The red + sign appears over what would be a potential 13 bar where the high has not exceeded the close of bar 8.

CLICK TO ENLARGE


Now take a look at the monthly chart of silver.

CLICK TO ENLARGE


Silver wanted to record the TD Sequential Sell Signal in February, but because the close of bar 8 (December 2007) was not exceeded, it was necessary to remain patient. Now the close of bar 8 has been exceeded by bar 13's high, so the monthly TD Sequential Sell Signal can record, and we can wait for a bearish monthly price flip to confirm this sell signal.

No, this does not change my view of silver as a longer-term outperformer over gold, but I have been waiting for a long time for an important selloff in silver to begin building a position, ideally below $10/ounce. Because this is a monthly chart, it may take a year for this scenario to play out, which will demand considerable patience.


5) Other News & Weirdness


Credit Insurers Raise Premiums as Much as 20% in Germany as Defaults Mount - Bloomberg
Payment defaults and delays in Germany more than doubled in the six months ended March 31 compared with a year earlier. Bottom line: Debt repudiation is increasing, and spreading.

Mortgage Delinquencies, Foreclosures Rise to Records in U.S. Amid Job Cuts - Bloomberg
"The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today."

Plan to Buy Banks' Bad Loans Founders - WSJ
Part of the PPIP (Public-Private Investment Partnership) has stalled as banks have gained a "measure of stability"... in their own minds. Again, repeat after me: Just when we thought it was over, it was really only beginning.

Bank Fees "Spread Like Germs" Despite Consumers' Credit Woes
- USA Today
"This is Business 101," says Adam Levitin, a law professor at Georgetown University. "If you take losses in one area, you try to offset them in other areas of operations." Hahahaha! That's ridiculous. There is nothing about banking over the past decade that has the right to be called Business 101. Hahahahaha.

Four States Adopt "No-Smiles" Policy for Driver's Licenses
- USA Today
Arkansas, Indiana, Nevada and Virginia adopting "no-smile" policies. Others to follow.


Elvis's Nasal Douche, Pill Bottles for Sale in First 'Dr. Nick' Auction - Bloomberg
Look, whenever I see the words "Elvis's nasal douche" in a headline, I can pretty much guarantee you it's going to wind up in "Five Things."
No positions in stocks mentioned.

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