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Archive for October, 2009

Reversal Rally Needs More Steam

The aggressive bounce definitely came to our surprise with all major indices up around 2% on relatively lighter volume. We bounced off the 50 SMA and the uptrend on the daily time frame (see chart below) so this fact alone might be a motivation to get some traders and investors bullish. I have to reassess my bias, but not that fast.

We are still below the 107.50 resistance. Tomorrow’s session has to prove if bulls really want to go higher with a follow-through. Two possible scenarios: (1) we have another strong up day, breaking this resistance along the way, or (2) we reverse around there and head lower to break this trend for much lower prices at last.

SPY

October 29, 2009 | View Comments | View Post

The Next Leg Down and Why We Drop to 676

Yes, that’s right. 676 minimum on the S&P 500. More about that later.

After plotting the 20 SMA on the monthly S&P 500 chart, you will soon notice that there is nothing to be bullish about. I posted a similar chart earlier this month when it would seemingly smash through the moving average like a hot knife through butter, but this recent reversal allows us to classify it as a false breakout. Long term the index has always reacted well on this indicator, and it is doubtful that it will not do so this time. October’s candle is most likely going to form a doji for the first time since June. It is already a much sharper drop on top of that.

SPX

I’m a fund manager and have warned clients (and you) about a larger drop. Actions follow my words: In the recent weeks I have liquidated basically all equity positions, some of them proved to be huge winners. I can proudly claim to have invested in Apple and rode the entire trend up until we reached the all time highs. It surely felt like 2007 all over again. I guess I have to thank Mr. Bernanke. But enough is enough.

We are short this market and subscribers of my Dynamic System are already profiting from it. You can learn more about this trading system and join here. 676 is going to be the big target for us. Time and time again, I witnessed how the theory of gaps being filled eventually, is being proven right. Even if it takes a whole year. So I went back in history and looked for unfilled gaps since the March rally. Sure enough, there were plenty, the lowest one being March 10. The previous closing price of the index was 676.53. Unfilled.

October 28, 2009 | View Comments | View Post

The Divergence in Oil Futures and ETFs

What has particularly struck me recently was the lack of recovery in $USO compared to crude oil futures. Taking the peak in 2008 as starting point, the futures have dropped 46% while $USO is down 65%. This underperformance is definitely something to be suspicious about.

MarketWatch offers an interesting explanation, whereby they assert that this divergence is due to the fund’s structure. The so called “contango” (explained in article) leads to a deterioration in price. It is further suggested that PowerShares DB Oil Fund $DBO is a better alternative because they “employ different strategies to alleviate the impact of contango and are doing much better”. Comparing the two charts will visualize by how much the ETF is lacking behind.

USO-WTIC

October 25, 2009 | View Comments | View Post

Elliot Wave Theory says Dollar will halve next year

Sumitomo Mitsui’s strategist Daisuke Uno apparently correctly predicted that the dollar would fall below 100 yen post-Lehman. Now he has predicted that the greenback will almost halve to 50 Yen next year from near 90 today.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

The greenback is heading for the trough of a super-cycle that started in August 1971, Uno said, referring to the Elliot Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.

The dollar is now at wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno.

Source: Bloomberg

October 16, 2009 | View Comments | View Post

Bulls have another say in Ford Motor

We are back to the September 23rd resistance in the S&P 500. Today’s move certainly wasn’t convincing so we will have to see what happens in the next few days. Sentiment remains bullish. Despite the lack of conviction in the broader market, Ford is showing a great entry opportunity.

F

October 12, 2009 | View Comments | View Post
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