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 January
3, 2010 Commentary (monthly edition)-
Well, this is
it, another new year. And no meltdown. There has been a lot of predicting of a
big sell into the year end, a big correction 'overdue', and so on. Somehow I
suspected they'd ramp it to year end to increase those fat bonuses even a bit
more. I really thought this last week would be an illiquid explosion up. I'm
rather surprised they couldn't do much with it, or chose not to, even selling a
bit into Thursday's year-end close. That has me wondering if the much touted
sell on the new year's open isn't going to happen. Probably back to business as
usual, with endless manipulation ramping as we head to S&P 1400. I mean,
what's changed? Why should this start going down? The monetizing is still in
full swing; the game goes on.
I mentioned last month that I thought 2010 is
going to be quite a year, one that goes down in the record books. Although that
may be because we set new all-time highs in the market, that's not why I think
this year will be remembered. I think there are just too many weak cards at the
bottom of this house of cards, and too many winds blowing to hold off a
disaster much longer. Hey, maybe it isn't in 2010, maybe it holds out until
2011, or 2012 (2012, where have I heard that year before?). But I think, and
this is just my opinion, this system can only 'get lucky' for so long,
and it's on borrowed time already.
This is all just one man's opinion,
but I think they did pretty much all the worst possible things they could have
at every step, and there is going to be hell to pay for that at some point. At
least those Wall St. 'Fat Cats' are doing okay, with those record
bonuses and all. It's kind of funny how all the 'Joe Average' people I know are
struggling tremendously, trying hard not to go out of business, living day to
day, and yet in this tough economy 'Wall St.' is making record profits, and
paying record bonuses. Even more than during the dot.com bubble in 2000. Hmmm,
what's wrong with this picture? Well, I'm not going to ramble on here, you all
know what's going on. Just make sure you contact your representatives as often
as you can and make your voice heard. It's probably futile, but if that's all
we can do, we should at least do that.
Before we start today let me mention that I
didn't have any complaints in regards to the new charts or using .png format.
Hence, I switched all the charts today to .png. I will try in the next
commentary or two to include a tick, volume, or range bar chart, as soon as I
find occasion to make use of one. Those charts will come from a different
platform, in keeping with my desire to mix it up a bit. It sure has been fun so
far to look at some new issues, and today will be no different. For today I am
going to show a mish-mash of different issues, and some different concepts.
Instead of focusing as much on the techniques I will be looking more at
concepts today, and what I think is a critical intermarket dynamic position
that we are in today. I think it should be quite interesting.
Before we
start here, please check out 'Jim's Chart of the Month', so that you know the
position of the broader market as we delve into the intermarket dynamics with
some of the key issues. I'll start with a weekly chart of copper.
Source:
QCharts.com
I watch copper very closely at all times. I hate that
old maxim that 'copper is the metal with a Ph.D. in economics', but the idea
isn't too far off, I feel. I think there are some big-time distortions in the
pricing because China is likely not only hoarding it, but many 'smaller' people
over there are buying into it as an investment. There is likely other
manipulation, too, like in the previous oil bubble. They kept arguing crude was
at almost $150 for legitimate fundamental reasons. Yeah, right. Crude was
almost $150 because it was engineered to that level to make endless billions
from you and I by people who are allowed to play such games. Sure, that's
another opinion, but do you really think it was for any other reason? Given
this lesson, I am suspicious the previous run up in copper, and now, are
nothing but more of the same.
Now, given that possibility, look at this
critical set on copper. Yes, everyone sees this line, it's obvious, but that
doesn't mean it may not still be critical. If copper doesn't turn down here, to
me that's monster. The implications are huge, and far reaching. It
implies, to me, deflation is off the table. Now, I recently heard we can't have
inflation without wage inflation, which we don't have, and seem far from
having, but I totally disagree with that concept. We normally won't have
inflation without wage inflation under usual circumstances. But these are far
from usual circumstances. I suspect we may have the hyperinflation scenario for
the same reason anyone has hyperinflation. It's because of a monetary crisis.
And that is not presaged by wage inflation.
So, why is
copper rocking, and now starting to break out over this critical line? Could it
be a headfake? Sure, especially given how many people are watching this line.
But it could also be a genuine breakout. And that implies economic
strength. Pure and simple, a powerful economy. Demand. And
that I don't buy, no way, no how. So, is it a game, like crude was (and might
soon be again)? I just don't buy the China is booming thing. Sorry, it's a
paper game, in my opinion. So, everything says copper should roll over in here
hard and head down, in keeping with the deflationary predictions. And I suspect
it plans to do just the opposite and fool everyone. But this key area is to be
respected until proven otherwise. I think this is one of the most critical
areas, and charts, for everything, for years. And it hits right at the year
end. But there's more.
Let's look at something in crude. I'll start with the
monthly continuous contract.
Source:
QCharts.com
Way back when crude went parabolic, I had a trendline
left on my chart from some previous action, before the ramp (which I had made
posts about saying it was coming), and I still wanted to watch that line to see
if it would come back to it in say 2003 or 2004. Instead it broke to the
upside. I tend to leave such lines on my chart, although it looked pretty clear
we'd never see that line, ever again.
The other day I was working with a student
and we were discussing various 'context' aspects of the early
2009 low in many things, not just stocks. I was discussing how a multitude of
factors at that time indicated the liquidity ramp may have started, and we
looked at some different setups. He followed along nicely, but wondered what
could possibly indicate to me, from a technical perspective, the low in oil
might happen at the spot that it did. Sure, there was a big alignment coming
together, and that alone may be enough if signs of a turn are present, but was
there anything specific on the chart that had me watching oil at that specific
level? And I showed him the same chart that we just looked at, with that same
line.
I'll drop down to a weekly chart, without changing that line at
all, and move forward to the current price action. Let's see what
happened.
Source:
QCharts.com
Now, take a look at that. Crude went right back
to that line, and started a big ramp up in conjunction with the stock market,
and many other issues. This is more than a 100% ramp off those lows, right off
a line it hadn't seen in about seven years. Do you think everyone saw that line
there? Sure they did. But it still played right out. Sometimes obvious is bad,
but sometimes it fools the most people by doing the most obvious thing, in an
era where people don't expect something obvious to happen. For this reason I
make sure I see as much as I can, both obvious and hidden, and assess it all
together.
I'll add another very obvious thing onto the chart that everyone is
watching.
Source:
QCharts.com
I added the modified Schiff median line set onto the
chart, based off that crazy run up. Look where crude sits right now. Notice the
initial reaction off the median line for this set, and how it has pushed up to
the line again. This is not bearish action, it's bullish as all get out,
to me. It's acting like it wants to just explode over that line. And it
hit this area as copper hit its area. And all this at year end. Very curious.
Do not underestimate the importance of this line, and the importance of this
line giving way.
Let's move to those all-important 10-year rates, on a daily
chart.
Source:
QCharts.com
As we all know, rates are on the move. This is a good
thing, right? It generally implies economic strength, right? Based on these
charts, if that's all I could look at, I'd say the economy is booming.
Literally booming. Yet I think the economy is ready to head into a
'double dip', having not really bounced, except in a fake manner, on paper, due
to excessive stimulation, and reports not designed to tell the entire truth.
But the charts sure don't agree with that outlook. Only one viewpoint is
correct.
So, I see this nice-looking ABCD set up in rates, right at a
key line I had. I showed the 1.000 price projection for the ABCD, and the 1.272
BC external retracement. There were a lot of other Fibs hitting right in here,
but I left those off for clarity. The readers can do some work here if they
want to follow up on this. Notice the nice initial reaction, and then the .786
'retest' of that key line. Rates then really took off. They fell just about
five basis points short of the 1.618 price projection off that 'wave 1' looking
first push, a typical 'Wave 3' area. Now they sit near that median line. All in
all a nice setup for a potential trade. But what about the 'context'? The
bigger picture, and what we have been looking at so far?
I'll jump up
to the weekly chart, delete some things for clarity, and add some new things
on.
Source:
QCharts.com
You can see the ABCD setup here pretty clearly, and what
it has done so far off that. Kind of curious how it has stopped right at that
upper division line and 'crazy' trendline area, at the .886 from the A point of
the pattern. Now, there are two things I want to take note of here. The first
is that this is at a critical area in here, too, just as the previous issues
hit into critical areas. Granted, this is not quite so significant of an area,
technically, as the other issues, but is is just as critical in a sense,
because a break above here has little in front of it until that upper line, and
that's in the 4.50% interest rate area. And if that gives way, the sky is the
limit.
None of this is good for the economy. And why would rates be
rising? We have deflation, right? Zero for short-term rates, for the
foreseeable future. Why would the long end be rising? Well, that speaks of a
great economy. A competition to borrow on the long end. Businesses expanding.
Yeah, right. See, we have this great disconnect between what seems to be
reality, and what these markets are saying is going on. That may be because of
manipulation, it may be because everything is a lot rosier than a discerning
investigator would think (yeah, right), or it could be for other reasons. One
may be that they are foreseeing inflation in the not too distant future. All I
know is where the areas of interest are, and where setups may come together.
But I can't help but wonder what is going on.
Now, in the above area I have
several green lines. I am using those to mark various timing factors that are
too hard to show with clarity on this chart. The two angled lines are
intersection areas with other set lines (which I didn't show). The two vertical
lines are two timing factors from previous swings. In between those lines also
hits two other set lines. Also notice the three clear Fib areas, of which I
just showed the minimal number of lines. The upper Fib area hits the blue upper
parallel right near the first time factor, and the middle area hits that upper
parallel near the second time factor. Notice the .382 in there, too. This is a
'key' .382, off a major swing.
The point of all this, for me, is that this
is in a critical area in here right now, and if that is breached, another area
is just overhead, with some timing factors I can watch. Notice the middle
factor is right at that early summer seasonal time period I have discussed many
times in the past with regard to rates. Even the earlier factor is at another
established time for rates, and the last one is at a critical time for the
market. Maybe none of these time factors will play out in any way, and they
surely are secondary for me to price action, but I will be keeping them in mind
if this does move up in here. Again, one more key issue at a critical spot, at
the same time as the others.
I'll finish with a curious observation, and some
thoughts, on our current financial world. I'll show this with a chart of C, on
a 3-minute timeframe.
Source:
QCharts.com
Keep in mind, what I am about to say is just my opinion,
based on stats that I have heard (which may not be accurate). Here we have a
chart of C from Thursday, the last trading day of the year. Wow, now that's a
nice looking chart. Lot's of liquidity, right? Nice, smooth moves with clear
swings, great for trading, right? Yeah, right. But it's the holiday, and volume
is light, right? This isn't typical for C lately, is it? And even if it is, it
a low-priced stock, and surely is now thinly traded, right? Well, on this day
it traded almost 200 million shares! 200 million. I remember not too long ago
when that was record breaking for an individual stock. And this one trades that
many shares, and does it with a chart like this. But that's not all. Let's look
at another day.
Let's see how C looked back on December 17th, 2009.
Source:
QCharts.com
Hmmm, that doesn't look a whole lot better. But at least
some little swings are visible. But with a chart like this I'm sure there isn't
a lot of volume, and not a lot of trading, right? I mean, who would be trading
this, given it is so flat and looks barely liquid. Well, this was in the
timeframe of their big 'offering', and on this day it traded well over two
billion shares, if my information is correct! Two billion shares, for one
stock, on one day! Remember when two billion shares was a good day for the
entire NYSE? For the thousands of companies, in total. Here C traded that
amount by itself! I heard it was 42% of the entire volume for the NYSE on that
day. I have also heard that 70% of all the volume of those thousands of stocks
on the NYSE is made up of just C, FNM, and FRE.
Now, how odd does that seem to you?
To me it sounds bizarre. I mean, aren't FNM and FRE in conservatorship? I guess
I don't understand that process very well, as I can't for the life of me figure
out why the stocks are allowed to trade, no less be volume leaders day after
day. And C, why would it trade hundreds of millions of shares per day, commonly
5, 6, 8 hundred million, and a lot of 1.3 billion share days in there. Who is
trading that much, with charts like the above? Are mutual funds really loading
up on these? If so, I want out of all mutual funds in the 'retirement account'.
Are daytraders trying to scalp across that tiny spread all day long? I rather
doubt it. So, why is 70% of all volume on the NYSE these three stocks?
I have my own
opinion. I think there is a ton of trading for rebates. They just trade and
trade and trade, all day long, to collect the tiny rebates, which add up over
that many trades. I have no idea why any exchanges would pay rebates when the
trades are coming from the same stocks, done over and over and over. I can see
paying for order flow, but when the system is being gamed, the benefit for that
payment seems gone. If this is what is going on, why? Heck, I don't know if
this is happening, I only know what I read. But I can say it is bizarre to put
it mildly, how these things can trade like they do and trade that many
shares.
And the point of all this? This market has changed a lot since not
too long ago. Look at what is happening. The participants have changed, and in
many issues the game has changed. When things start to unfold in the upcoming
few years, I think they will change a lot more, in many ways we can't even
fathom right now. And as laws come into place, that will likely bring about
additional changes. And to do this as a career, I think one has to keep an eye
on how things change. Survival requires the ability to adapt.
Well, that's
it for today, folks, I hope this was a useful and informative read. Get ready
for a wild ride this year, I think it is going to be incredible. A real year
for the history books. I hope it's all in a good way, but I rather suspect it
is not going to be. Unless the dollar actually collapses (something I think is
an actual possibility) and they issue a new currency, there may be a lot of
potential trading opportunities regardless of what does what. It's all about
the setups, and so far, the market still seems to be providing potential
opportunities. And as long as it still trades reasonably well, and with
liquidity, I don't really care what it does. I only care what it does as a
citizen. In that way, I do have a lot of concern about the upcoming years. I'm
not the superstitious type, but I definitely have my fingers crossed...
The next
commentary will be next month's edition, posted by Sunday evening, February 7,
2010.
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