Hitting The Wall

I don’t want to pop any champagne bottles prematurely but it’s increasingly starting look like the bulls have run into a wall here. This was the second time an attempt to breach that 78.6% fib mark I drew yesterday. Doesn’t mean not yet another attempt will be made on Monday but it’s looking decent right now and Soylent Green has been revived – for now.

Charts below for holders of the secret decoder ring:

What we now need to see is a relentless drop below 1180 and that in a hurry. If we hang around here then I am afraid we will remain stuck in this annoying sideways action for quite a bit longer. Strike your enemy while he’s down – if the bears permit the bulls to take a breather the weekend will take care of (i.e. reverse) any retracement, as usual.

From a wave count perspective we are at an inflection point – if this is only a 2nd Minuette wave down then Soylent Blue is running out of space and time – we would need to see a reversal pretty much now. Until we either bust higher above today’s highs or below Wednesday’s 1181.62 low we are a bit in limbo land here. Let’s hope for a quick resolution as I have had enough of this spasmodic action.

A little shout out to everyone: I keep seeing extremely bearish comments and the first submitted to this thread claimed that the bulls are completely fucked now. Well, I’m not saying that we won’t see a decent reversal, BUT let’s please keep things in context please:

The COMPQ is down a whopping 1.39% this week – after having ramped it up the bears’ asses for 13 months. Let’s cool the emotions and trade the tape – I know you all are yearning for those 2008 drops but we are a long long way from that. Stay frosty and don’t let wishful thinking influence your trading decisions. Finally, do NOT chase any downside – especially on a Friday.

UPDATE 1:50pm EDT: About half an hour ago I issues a quick warning to my subs on the Zero Lite chart. This is what I was thinking:

At this stage of the trend it is expected for dip shit buyers to swarm in fairly quickly. Just think about it – it’s been nothing but 13 months of up up up trend – people are conditioned to see quick drops as long opportunities. Now, as soon as I saw the Zero Lite pull straight up from about -1.5 to -0.7 I expected the zero mark to be touched. Maybe the warning was a bit risky but I prefer to err on the cautious side.

Now I was lucky making that call and we reversed about 40% of that drop. To all the subs I recommend this now – keep looking at the Lite signal and wait for a slice through the mark to a least -0.5. Above that I only expect gyrations and a ramp up from here. If we do drop below -0.5 there’s a good chance we’ll see a sell off into the close. The bulls know they have to put a floor underneath this now lets this will get out of hand quickly.

UPDATE 2:20pm EDT: I don’t know who is stepping in to buy the dip here – I don’t see anything on the side of the institutions. Really strange tape today – crack open a cold one and call it a week, folks – this is getting a bit too sideways too late on a Friday for me.

More long term I have two juicy bonus charts for my subs. Again, secret decoder ring required – if you are not a member please go here to sign up. About the cost of five Starbucks lattes, you caffeine addicts!! And the barrista here whips up great charts instead of the empty foamy dish water you get on the financial MSM 😉

The equities/copper divergence is alive and well thus far. So, if you are holding long term puts – do nothing. I think there is a decent chance we will see a January repeat in equities unless we see a reversal on the copper side of this chart. Make sure you have enough theta though – very much possible we may see new highs before the final drop. These patterns don’t mean there won’t be a quick snap back to shake out the hobby bears. But thus far – odds are starting to look decent for an actual reversal.

This is actually some very good news for the bears. As of this writing we are not getting a close below the first candle inside the 2.0 BB. That is actually extremely good news for the bears as it would cancel out the third and final step leading to an equities buy signal. Heck – the same happened to us bears a little while back – tit for tat.

Now, I’m not becoming an überbear here right away – don’t get me wrong – but I’m cautiously optimistic here. At least Soylent Green has a chance. But we MUST NOT close below yesterday’s close on the VIX – hope that is understood.



Here We Go Again

I had a late start today as I had a lousy night. First thing I usually do when I wake up is to grab my iPhone to look at Mr. Zero. I can’t say that I was happy to see the spike up this morning but I frankly wasn’t surprised either.

The signals we’ve seen on the Zero Lite for the past two days were almost textbook and strongly pointed towards a snap back. Remember when I told you to take profits on your short term puts on Tuesday? Well, I hope you did 😉

Alright, we are now finding ourselves at an inflection point for the bears. I had warned about letting this opportunity slide and it seems we are but a few handles from Bear Armageddon.

More below for magic ring owners:

We are yet again at the 78.6% fib line counting from the first drop down. Since Tuesday’s dip is near that I’d call that line good enough for government work. A breach above technically does not disqualify the green scenario – only new highs would do that.

The Zero Lite is flat as a flounder right now – usually a precursor to a big move. Which way it’ll swing I don’t know yet. Let me dig around for more clues and I’ll chime in shortly.

2:25pm EDT: While we are waiting for this market to make up its mind I’m parsing for symbols.

Here’s a first one – CREE – part of the Nasdaq – semiconductor stuff. I see it near the end of a retracement. Chances are that support line will hold up. Easy to go long around 73 set a stop around 70. Careful with options – if you use them go more long term as ATR on this thing ranges between 2% – 4%. It makes a good delta hedge though I think.

I’d set an alert for 44 on DRI – yes, it broke that trend line but I have an inkling it’ll bounce at that 2.0 BB, maybe half a handle before. Stop slightly below, maybe 43. This thing is slow – so no options on this one. If you are crazy (and have margin) you can sell puts – I personally do not and would not recommend doing that unless you’re a pro.

I wish this HCBK was a bit further along as my momo indicators point towards a snap back. But I’ll have to be purist on this one – best to wait for a trendline touch. 13 sounds like a good place to take out a small long position.

INCY (drug pushers) looks like a nice long here. We are slightly below a more longer term support line but it’s worth the risk with a stop around 12.5. But earnings are coming up – be out before 5/5.

I hate to tell you this but JPM looks like a good long here. IF it breaches then try again at 40. However, wait for a retest – I personally hate to chase.

And now for something completely different – because I’m in a Metallica mood today:

That’s one sick video.



P.S.: Damn it – Bearmageddon would have been so much funnier.

The End Of The Line

LEAP is an economic think-tank out of Europe. About a year ago they predicted that the Chinese would scale back their exposure to long term U.S. treasuries and shift into the short end of the yield curve. They were proven correct. A few months later LEAP also predicted that the second stage of this secular bear market cycle would not be triggered here in the U.S. but on their own turf, specifically naming Greece, Portugal, Spain, and Ireland. That was way before the MSM ever became aware of the PIGS – we are talking fall of 2009.

I am not a subscriber but am considering it as their monthly bulletins continue to cut through the noise and offer surprisingly accurate predictions six to twelve months into advance. What I appreciate the most is that the reports are generated outside the U.S. which offers me an alternate perspective on where Bernanke’s bubblenomics might be leading us.

Now LEAP is back with a new report – the teaser part of which you will find copied below. If you are interested in signing up for their annual service go here – please bear in mind that Evil Speculator is not affiliated with LEAP in any way. We don’t get a cent if you decide to sign up – I want to be clear on that. However, I feel it is important to give you an opportunity to get to know their work as their analysis may affect your long term investment and plans for the future. Enjoy…

Just as LEAP/E2020 anticipated many months ago, and in contrast to the reports coming out of the media and the « experts » during these past few weeks, Greece really has the Eurozone behind it to give support and credibility (especially concerning good management in the future, the only guarantee of an escape from a damnable cycle of growing public deficits (1)). There will not be, then, any Greek default of payment even if the commotion over the Greek situation really is an indication of a growing awareness that money to finance the huge Western public debt is becoming increasingly difficult to find: a situation now « untenable » as a recent report of the Bank of International Settlements underlined.

The fuss made over Greece by the English and US media in particular tried to hide from the majority of the economic, financial and political players the fact that the Greek problem wasn’t a sign of an upcoming Eurozone crisis (2) but, in fact, an early warning of the next big shock of the global systemic crisis, that is to say a collision between, on the one hand, the virtual British and US economies founded on untenable levels of public and private debt and, on the other hand, the double wall of borrowing, maturing from 2011 onwards, combined with a global shortage of available funds for refinancing at low rates.As we have explained since February 2006, at the time of our anticipation of its imminent arrival, one mustn’t forget that the current crisis has its origin in the collapse of the world order created after 1945, of which the United States was the support, assisted by the United Kingdom. Also, in order to understand the real effect of events caused by the crisis (the Greek case, for example), it is useful to relate their significance to the structural weaknesses which characterise the heart of the world in full meltdown: so, for our team, the « Greek finger » doesn’t cite the Eurozone as much as the explosive dangers of the exponential financing needs of the United Kingdom and the United States (3).

2010 projected sovereign debt issuance (Total: 4.5 trillion USD) - Sources: IMF / Hayman Advisors / Comcast, 03/2010

2010 projected sovereign debt issuance (Total: 4.5 trillion USD) – Sources: IMF / Hayman Advisors / Comcast, 03/2010

Subscribers should be aware that during a period when financing requirements exceed available funds, as is the case today, the sheer amount as regards sovereign debt issuance is more important than the ratios (amounts in relative value). This is shown by a very simple example: if you have 100 Euros and you have two friends, one « poor », A, who needs 30 Euros and the other « rich », B, 200 Euros. Even if B can pledge his expensive watch, worth 1,000 Euros, to you, whilst A only has a 20 Euro watch, you can’t help B since you haven’t sufficient funds available to fulfill his financing requirements; however, in discussing a pledge and interest, you can decide to help A. Putting it in this perspective thus invalidates all the arguments based on the debt ratio: in fact, according to their logic, you would obviously help B, because his debt ratio is clearly more favourable (20%) than A’s (150%). But in the world of the crisis, where money is not available in unlimited quantities (4), the theory hits the wall of reality: wanting to do something is one thing, being able to do it is another.

So then, LEAP/E2020 asks two simple questions:

. who will be able/want to help the United Kingdom after the 6th May when its political chaos will inevitably expose the advanced meltdown of all its budget, economic and financial parameters?
The financial situation is so serious that the technocrats running the country have devised a plan, submitted to the parties contesting the next General Election, in order to avoid risking a power vacuum which could lead to a collapse in Sterling (which is already very weak) and British treasuries (Gilts) (the Bank of England having bought 70% of those issued over the last few months): Gordon Brown would remain Prime Minister even if he loses the election, unless the Conservatives were able to garner sufficient votes for outright victory (5). In effect, with an economic and political crisis as a backdrop, the polls lead one to think that the country is turning to a « Hung Parliament », without a clear majority. The last time that happened, in 1974, was a kind of political preliminary to IMF intervention eighteen months later (6).

For the rest the Government puts a positive spin on the statistics to try and create the conditions for a victory (or a managed defeat). However the reality is depressing. British real estate is trapped in a depression which will prevent prices reaching their 2007 levels for many generations (in other words, never) according to Lombard Street Research (7). The three parties are preparing to face up to a catastrophic post-electoral situation (8). According to LEAP/E2020 the United Kingdom could well suffer a « Greek (9) » event with British leaders announcing that the country’s situation is substantially worse than that disclosed before the election. The numerous meetings, at the end of 2009, between the Chancellor of the Exchequer, Alistair Darling, and Goldman Sachs is a very reliable indicator of sovereign debt manipulation. As we wrote in the last GEAB issue, all one needs to do is follow Goldman Sachs to know where the next risk of sovereign debt payment default lies.

US Federal Government financing requirements (2010-2014) (10) (in trillions USD) – Dark: the federal deficit / Light: maturing debt (future short term borrowing not included) - Sources: Moodys / S&Ps / Treasury Dpt / New York Times, 03/15/2010

US Federal Government financing requirements (2010-2014) (10) (in trillions USD) – Dark: the federal deficit / Light: maturing debt (future short term borrowing not included) – Sources: Moodys / S&Ps / Treasury Dpt / New York Times, 03/15/2010

. who will be able/want to back the United States once the British fuse (11) has started burning, causing panic in the sovereign debt market in which the United States is, by far, the largest issuer?
Especially since the size of sovereign debt needed corresponds with the start of the expiry, beginning this year, of a mountain of US private debt (commercial real estate and LBO due for refinancing, amounting to 4.2 trillion USD of private debt expiring in the United States between now and 2014 (averaging one trillion USD a year (12)). Purely by chance, it is the same amount as new global sovereign debt issuance for 2010 alone, of which almost half is by the US Federal Government. Adding to that the financing needs of the other economic players (households, businesses, local authorities), the United States must find nearly 5 trillion USD in 2010 to avoid « running dry ».

Our team anticipates two replies just as stark:

. as regards the United Kingdom, the IMF and the EU, perhaps (13); and we’ll be watching, from this summer, the « Bank of England battle (14) » to try and avoid a simultaneous collapse in Sterling and UK public finances. In all cases Sterling will not come out undamaged and the crisis in public finances will engender an austerity plan of unprecedented size.

. as regards the United States, no one; because the size of its financing requirements exceeds the capacity of other players (including the IMF (15)) and, in winter 2010/2011, this event will lead to the explosion in the US Treasury Bond bubble founded on a huge increase in interest rates to finance sovereign debt and private debt refinancing needs, causing a new wave of financial institution bankruptcies. But it isn’t only countries that can default on payment. A Central Bank can also go bankrupt when its balance sheet consists of « ghost assets (16) » and the Fed will have to face up to a real risk of bankruptcy, as analysed in this GEAB issue.
Winter 2010 will, equally, be the stage for another destabilised event in the United States: the first major elections since the beginning of the crisis (17) when millions of Americans will probably express their feelings that they have had a « belly-full » of a continuing crisis (18), which doesn’t affect Washington and Wall Street (19), and which creates US public debt which is now counter-productive: a borrowed Dollar now causes a loss of 40 cents (see chart below).

Diminishing marginal productivity of debt in the US economy (in USD) (GDP/Debt ratio 1966-2010) - Sources: EconomicEdge, 03/2010

Diminishing marginal productivity of debt in the US economy (in USD) (GDP/Debt ratio 1966-2010) – Sources: EconomicEdge, 03/2010

One may not be in agreement with the answers given by our team to the two questions asked above. However, we are convinced that these questions cannot be ignored: no analysis, no theory on world developments over the next three quarters is credible if it doesn’t provide clear replies to these two questions: « who will be able/want to? ». From our side, we think the same as Zhu Min, the Deputy Governor of the Chinese Central Bank, that « the world hasn’t enough money to buy any more US Treasury bonds (20) ».

In this issue our team has, therefore, decided to make a progress report on the major risks weighing on the United Kingdom and the United States, and anticipate developments over the next few months in the growing context of a “velvet war” between Western powers (financial, monetary and trade war). We will also disclose a series of recommendations for facing the double shock of British and US financing needs.

Access to full report here (subscriber based).

Mole here again: That last chart is especially scary. As Karl ‘No Slave To Fashion’ Denninger suggested a few months back: We are reaching the point where additional debt issued may reach a point of zero or below zero productivity – based on the chart above that moment has come and gone. That, my dear ladies and leeches, is the moment when the jig is finally up. Because no printing of the Federal Reserve will then be able to postpone the inevitable, which is a deep decade long worldwide depression.

Final comment: None of the above should be considered when it comes to daily trading decisions, at least short and medium term. I am sorry for sounding like a broken record on this, but I don’t want you guys to start shorting the market in a big way tomorrow. As we all have learned by now – these things will take its merry time to unfold and I merely want to offer you a glimpse into the future. Anyone visiting Evil Speculator will be well prepared to trade this market down, once we start seeing meaningful (and painful) support zones being taken out.



    Zero Indicator

    Darth Mole Alerts

  1. poll

    • How many discretionary trades to you place per month?

      view results

      Loading ... Loading ...

  2. NinjaTrader

    search warrant

  3. recent misdeeds

    1. Happy Thanksgiving
    2. Great Call Flawed Execution
    3. Time For A Little Hedge
    4. Soylent Green And Orange
    5. Misses Mean Reversion 2015 Runner Ups
    6. The Mad Momo Ratio
    7. Europe Will Never Be The Same Again
    8. E-Mini Session Wrap Up Video
    9. Support Zones
    10. Short Term Inflection Point