Buzz on The Street: Bear Claws Grip Tighter
Some of this week's most insightful and timely vibes.
Note: Some links may require Buzz subscriptions.
Monday, January 25, 2010
The first correction after a long run-up is often a bear trap if sentiment does a 180 turn and technical deterioration is not met with bullish bets. In this case, three days of selling have finally brought ISE equity readings to very pessimistic levels. I'm also finally noting some bearish bets at the 200 strike ahead of Apple (AAPL) earnings. EUR/USD is also finding its footing. Another red flag is the amount of QQQQ February puts at 44, 45 and 46, normally a supportive scenario going into next month. Downside risk is NDX 1773.
Tuesday, January 26, 2010
Uno Mas Por Favor!
Toss this into the "oh-by-the-way" file but S&P 1080ish is a level that has now been tested eleven times since the autumn. While technical levels (both ways) get weaker with each subsequent test (think about that for a moment--it makes sense), this "zone" was and is an intuitive spot for Hoofy to make a stand.
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Whether he does (again)--or alternatively, if Boo is simply working off the oversold condition as a function of time--remains to be seen but either way, it warrants half an eyeball as we together find our way.
Position in S&P
What bulls need at the close
We got our short covering bounce (see my post yesterday on the bear trap), now we find out how real this is. Bulls need an NDX close above 1812.21, DOW 10,270 and SPX 1096. The most critical is NDX, the others will tag along, kicking and screaming. NQ traders (e-mini futures) want to see 1808.75 hold. Note that last night's low for NQ was right at 61.8% 2008 (1783.25, continuous contract).
Wednesday, January 27, 2010
Advisors Sentiment Survey
Our firm's Advisors Sentiment Survey (published earlier this morning) for this week revealed a sharp jump in Advisors looking for a correction. We have been surveying the sentiment of investment advisors consistently since 1963.
The count today of 36.7% for advisors expecting a "correction" is the highest level since the count of 38.1% on the 21st of November 1986. It's a contrarian indicator, so that reading suggests that there will be NO deep correction. Most likely there will be a very sharp reassertion of the uptrend anytime soon, leaving all those expecting a correction on the sidelines. The market did exactly that in 1986, as highlighted on the historical chart for the index. The week of that high 'correction' reading in 1986 saw a sharp weekly reversal of 4.5% on the S&P 500. The index then continued higher, rallying by more than 40% over the following 11 months.
Today's drop by the S&P is a strong buying opportunity ahead of a reassertion by equities. A reversal is imminent.
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Time to sell Bonds again?
The 10 year bond looks like it could be rolling over here to me. Notice two tails back down here at the 50 and 200 day moving averages, as yields have backed up into support below 3.6%.
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I think this may be your chance to add to the TBT (ultrashort 20+ treasury ETF) and the longer term chart on the 10 year looks even more bearish. Yes, that projects down to a 100 price on the 10 yr bond so you can see why I think we could see 5% yields this year!
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Position in TBT
Thursday, January 28, 2010
We are right at a key inflection point. NDX 1773, which is 61.8% 2008, one of our downside targets for this correction. Nasdaq internals are not as weak as earlier in the week, even though we are making new lows. This could be a noteworthy divergence, although selling will accelerate if we lose that key level.
Functional Depression or Perfect Storm?
As a follow-up to Peter's buzz, the wave trend in social mood we are experiencing is several degrees larger than the 1907 or 1930s or 1970s trend, so the coming impact stands to be several times more severe.
Also, as was noted here, the operative term in the Great Depression for bankers was "banksters"; obviously a play on the word "gangsters."
Like Peter, I too think we are entering a "perfect storm" where social mood and the vilification of speculation (in almost all forms) lays the foundation for policy measures that exacerbate risk aversion and economic weakness.
Friday, January 29, 2010
Eye on GOFO
Note that the Gold Forward Offered Rate (GOFO) rate is collapsing again this morning, indicating that the physical market is growing increasingly tight and close to backwardation. In fact, the 1M GOFO rate is down 4 bps to 0.13%, or just 13 bps from indicating the physical gold market is in backwardation, which was last seen when 1M GOFO fell below "0" on November 21, 2008. And by no coincidence, that plunge in the GOFO rate also marked gold's low at the time.
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By no coincidence, Reuters is reporting that premiums for gold bars hit a 13-month high today.
Is it any wonder that the shorts are having such a difficult time in beating gold down through its December low? This is the 6th day in a row that the shorts have tried to take out that level, yet gold's positive divergence with the dollar index remains intact, as gold remains above its December low despite the dollar index rallying above its December high (not to mention the fact that the dollar index's rally above that December peak is on breadth of ONE currency, the euro).
If and when the gold shorts in the futures finally give up, they will need to cover. And the GOFO rate is telling us that the physical gold market won't let them cover anywhere near our current levels.
Position in gold, equities
Here is a link to the GDP component contributions .
The 5.7% increase was higher than expected, but 3.4% of that was an increase in inventories. Personal consumption was only up 1.44%, so the consumer continues to be weak spenders, not surprising considering the unemployment rate. State and local government spending was slightly negative despite the fact much of the stimulus bill went to them. As the stimulus winds down, we will see more pressure on local governments as tax revenue continues to be a problem.
We're not out of the woods yet, this GDP number is misleading.
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