Good News Everyone!

I am happy to report that I made it back to Los Angeles in one handsome and obnoxious piece. The last four days in San Jose served as a painful reminder as to why I hated living in the Bay Area so much back in the 1990s: The weather plain simply sucks. Case in point – it was raining every single damn day. Meanwhile four hundred miles down South you couldn’t find a single cloud in the sky and hot looking chicks with enlarged breasts were strolling up and down Melrose Ave barely clad in mini skirts and see-thru tops. So next time you hear me bitch about our roads being littered with potholes just tell me to put a sock in it. Quite frankly I have no idea how T.K. puts up with all this gloom and doom – his annual budget for anti-depressants must be through the roof.

Alright, before we get to some charts:

Yes, good news everyone – indeed! Turns out I won’t have to go to Korea until sometime January. Not sure if the weather down there will be any better then (doubtful) but at least I get to spend a beautiful (and hopefully healthy) December in sunny California. Which means I will continue to post here until Christmas – like it or not. Be aware however that I will take a break from blogging between Christmas Day and January 3rd – I worked like a dog all year and this market megalomaniac (and entrepreneur) needs a break.

Alright, let’s look at some juicy charts – bring a napkin:

I often save my best chart for last but as I’m seeing a renewed wave of doom and gloom out in the bearish blogosphere I would like to set the tone for this post. Since many of you are equipped with marble size rodent brains let me put this clearly:

The Fed is throwing the kitchen sink at keeping equities afloat.

If you want a bit more context and care about useless lamenting and moaning about how it’s all unfair and that the market will become unglued any second now point your browser to this informative ZH article. However, over here on ES we keep it short and simple and constructive. Why worry about all the dirt, the manipulations, the obfuscations, the deflationists vs. the inflationist, the drama, the good, the bad, and the ugly? Especially when nothing is ever being done to change the status quo? How many heads roled after the 2008 disaster? Exactly – zero – and don’t even get me started on Madoff and his ilk.

Don’t get me wrong – I’m as passionate about seeing some fat bankster’s head roll as the next guy. But as two thirds of this nation is passing on out Prozac and Zoloft the odds of any drastic action against the financial ruling class is exactly equal to zero – mark my words. Now, I’m not saying ignorance is bliss – but I am saying that you have to pick your battles. And when the time comes to short this market in a big way I’ll be first in line to back up the truck. But as long as we see the rolling 20-day outstanding climing exponentially please forgive me for being skeptical about any significant downside.

On the other side of the extreme scale we then have an ISEE Equities reading hitting 343 on Monday. Suffice to say that whoever remains on the retail trading side – they are chasing this tape with a vengeance. This usually does not end with smiles and April 15th serves as a stark reminder of just that fact.

If you average out the data via a 10-day SMA you still see a record reading of 261, which is insanely bullish. Now, I would usually jump in here with both feet but consider that the ISEE usually flags early and we could easily see equities climb quite a bit higher or at least burn some of your theta before things take a turn to the crimson side.

The daily Zero has been telling a similar story. We are seeing a very distinct divergence here, one that will punish any pigs tempted to chase whatever may remain of Bernanke’s middle finger to the bears. Of additional interest has been that expanding diagonal channel on the smoothed (center) panel. Last week we thought that a breach had been made but the signal snapped back instantly – all the way to the lower channel line. This plus the vehemence of the snap back tells me that the days of free lunches for the bulls are probably numbered for the near term. And I’m saying that with complete detachment – the longs had a great run and if you traded the tape up since late summer you banked a pretty penny. But a dip is probably on the horizon – so you may be testing your luck here.

Continuing to laugh into the face of any contrarian sentiment charts of course is copper. And it’s another reason why I remain hesitant about entertaining an instant drop to the downside. Let’s face it – Christmas tape is usually one fat bullish love fest – and after what the bears had to endure for the past two years I don’t think this year will be the exception. Ben and his POMO loving friends will make sure of that.

Bottom Line:

Guys – I could show you dozens of my momentum charts and they all tell the same story – we probably see a little shake out sometime in January. If you insist on getting positioned now I suggest you buy at least four/five months of theta so that the boys don’t take you to the cleaners beforehand.

And if you are wondering why I’m still not discussing a P3 scenario here – well, let me explain. The setup is definitely there – in theory. But I have not seen any indications that the bears are capable of tearing equities apart. You can blame it on POMO or lack of mojo – frankly I don’t give a rat’s rectum. What I do know is that I haven’t seen a bull sweating for two years now and they are drunk with confidence. I’m hearing stories that grocery packers are now chatting about QE2/3/4 and why the stock market can’t possibly go down. It’s the 21st century variant of the stock slinging shoe shine boy of the late 1920s.

And the average contrarian will tell anyone willing to listen that this is exactly where you should take the other side of the trade. Yeah – traditionally I’d agree – but things are a bit different now.

The reason I don’t think we’ll see a repeat of 2008 anymore is the chart above – the SPX measured in Gold. And based on that the SPX never ever recovered. Yes we may see a quick drop to the downside in 2011 – but not at the scope of what I proposed late last year and which never materialized. After what I have seen Ben and friends get away with for over two years now I truly believe that they will throw anything they have at stemming a potential crash.

And that brings me back to the very first chart – the POMO cash influx as of late. What do you think that is? The tape has been going up just fine and we are in Santa Rally territory – why is there practically one POMO auction per trading day now? The boys over running the FOMC are no idiots – they know the inherent risk in equities right now. If schmucks like you and I can figure things out then – believe me – they do as well. IMNSHO the cash flowing into the PMs right now is nothing short of ‘damage control’. They know that volatility is a raving bitch and that once the music stops things could get ugly in a New York minute. So a good strategy is to prepare for that grim eventuality by pumping enough ‘floor painting cash’ into the system. Heck – that’s what I would do if I was flying Ben’s helicopter.

So, don’t get your hopes up, my dear stainless steel rats – 2011 is going to be as much of a bitch as 2010. Don’t expect easier tape – don’t expect justice – don’t expect anything but ‘business as usual’. If you can embrace that sad state of affairs then you should be doing just fine. After all – trading is not about being right – it’s about being on the right side of the trade.

Cheers,

Mole