Daily Archives: September 21, 2010

Quite the Day!

By -

Hi Everyone,

Well, I'm glad that's over with. I never look forward to FOMC days. I traded nimbly today, and I ended the day nicely in the green, in spite of the post-FOMC gyrations.

I've got some things to do this afternoon, but I'll do a post later this afternoon. Just wanted to put up a quick comment cleaner.

Yours, Etc.

– Tim Knight (Mrs.)

CLDA (by Leisa)

By -

Quick post on an interesting chart, CLDA

What I like about it…

  • Price has cleared a significant Volume by Price
  • Volume is constructive over the last 10 days…but more volume needs to come in to push it forward
  • It is solvent (but not profitable) and has already had a recent public offering.
  • Revenues are growing

What I don't like about it…

  • It's a biotech and subject to the vagaries of all biotechs.
  • It is not profitable, so there is a cash burn.

Charts like this in industries like this have to be allocated risk capital. 

CLDA_092110

Important Analog Update

By -

As regular readers know, my 1937-1942 analog is very important to me, and it is something I have been following carefully for nearly two years now. There have been times when I've wondered if the analog had decoupled from the present, but each time, I find that it is holding fast.

The last time I took a hard look at this analog was back on August 8th, which called for the market to resume its fall shortly. In fact, the fall resumed almost at once, and equities stayed weak pretty much the rest of August. I guess Mark Everett's very nasty email was ill-informed.

But here's where I went wrong……..and it was a big wrong. I thought we were going to get one large down-move (labeled below as from "d" to "e"), but that move had already taken place between June 21 and July 1. We were already in the upswing, and my belief is that we are now at point "h" on the graph below.

0921-pastlongterm
This "recount" is pretty severe, because my expectation was that "e" was going to fall to 925, when in fact it didn't even make it to 1,000. I was positioned aggressively for this supposed fall, but we in fact went from "g" to "h".

Here's a closer look at the late 1930s; again, my view is we are at, or very close to, point h:

0921-pastcloseup

And here is the current market; compare this with the one immediately above to see the analog.

0921-currentcloseup
So let me net it out for you:

+ The bad news for the bears, I believe, is that no "mini-crash" seems to be forthcoming this year.

+ The good news for the bears (and it's small comfort, considering the hit I've taken this month) is that a small drop – less than 100 S&P points, I'd say – is imminent.

+ The good news for the bulls is that, following this aforementioned dip, it looks like we'll rally strongly, approaching the April highs.

Referring back to the first chart, I think that after this big rally, we are going to be in for the World's Most Boring Market Ever for a number of months, after which time some kind of Shock Event (which I've labeled S.E.) takes place. That would be sometime in 2011, although I have no idea when.

Some might think I'm making too much of this analog (I'm sure our buddy Mark Everett would), but the longer this analog continues to nail turning points, the more faith I have in it. My "miscount" (Good God, I sound like an EW'er – ugh) is regrettable, but the fuzziness of the past couple of months made it very hard to be sure where to align the points. I'm pretty confident in my current analysis, and I think the bears are going to enjoy some mild relief in the coming weeks, followed by a hearty rally – – – inspired, probably, by some emergency assistance in late October from Shalom.

BEArmageddon (by Springheel Jack)

By -

(Note from Tim: I will be putting up an important update to my 1937-1942 analog later this morning; SJ's post below paints a pretty bullish picture; my analog provides a more bearish view, although a rather muted one.}

There have been a lot of indications in recent days that the summer range on SPX was likely to break up, so it wasn't a surprise that it has, but the timing is very bad, as it has happened without the expected retracement and buying opportunity from the 1130 SPX area, and now that SPX has broken up, there is a very significant chance that SPX will break up further to a level where a retest of 1130 SPX would be the retracement target.

The IHS target on SPX is 1250 of course, and as we're taking the bull road, we are also likely to see a new low on USD, going beyond the wedge target on EURUSD in the 1.46 to 1.50 area. I'll do a broad review tomorrow of the main bull patterns, and it isn't a pretty picture from the bear side.

Here's the IHS on SPX with the two main overhead resistance levels at the Jan and May highs marked:

100921 SPX Daily IHS

I've been looking at quite a few indices around the world this morning. The UK's FTSE index sprang to the eye, as there we saw a break of the neckline of an upsloping IHS a few days ago, and the neckline was retested yesterday:

100921 FTSE Daily IHS

Short term on SPX the rising wedge from the low has run out of road, in that the upper and lower trendlines have now crossed. The upper trendline was touched again yesterday, and has still not been broken, though the ES version saw a significant pinocchio through it. Given that the trendline is rising at over three points a day, and therefore at 60 to 70 points per month, I would not normally expect to see it break, and SPX already looks overbought on most timeframes. We shall see if it holds today:

100921 SPX 60min Trendlines

I was looking at my indicators and my SPX:Vix wedge still has some upside ground to cover before we see another touch of the upper wedge trendline. I am hoping that this will identify the next significant swing top, though if so, I'm thinking that looks to be in the 1170 area:

100921 SPX_Vix Daily Wedges

The big wild card today is the Fed meeting of course, and the bears' big hope for a retracement here is that Bernanke will announce that the Fed is taking no immediate action, and that the disappointment that there will be no big QE2 will pull the market down for the rest of the week. I think that could well happen, as the argument for supporting equities has been greatly weakened by equities already breaking upwards without any formal announcement of support.

I say support of equities rather than treasuries as that is the effect, and probably also the intention, of quantitative easing. The effect is to boost equities while putting a floor under treasuries to cushion the fall that would be expected while equities rise. It is no accident that equities peaked and bonds took off in April just after the end of the last major quantitative easing push in March.

Looking again at the 30 year treasuries yield chart, the positive correlation between equities and yields, and therefore the negative correlation between equities and bonds, could not be much more obvious. If equities are to rise to new highs now, which looks very likely, then the bond rally is over, and I see overnight that 30 year treasuries are retesting the lows of recent days. Best case in the event that there is to be a significant new QE push is that bonds fall gently. If there is no QE2 at all, they look likely to fall a lot:

100921 T30Yr Daily vs SPX