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POMO Update
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POMO Update

by The MoleApril 25, 2011

I hope you guys can forgive me for taking Eastern off – as a matter of fact I was actually working on ZeroFX a little and will soon have some very exciting news to report. Today however it’s time for our popular POMO update series in which we plot the amounts of free cash being thrown and banksters worldwide.

Of course the result of all this all this money creation and lending at zero interest has been a shift into the short end of the treasury curve and a slow but consistent destruction of the U.S. Dollar:

A few months ago I responded to EWI’s incessant Dollar sentiment references with a warning. I basically stated that as long as the Fed kept printing and lending at zero at an increasing rate a bearish extremes in Dollar sentiment would not matter. Well, this is one where I would have preferred to be proven wrong – but unfortunately wound up being right (again).

Reminder to myself: I’ve got to stop drawing lines on this damn chart as every time I put up a new one it’s being breached a short while later. Quite frankly I have no clue as to when the DXY will find even a temporary floor – it’s looking grim and the chart I’m about to show you is not encouraging.

BTW, Volar posted a nice Dollar sentiment chart over the weekend, which also clearly shows that bearish sentiment can prevail for months until there is a counter reaction. And that was during pre-POMO days – the game has changed quite a bit since then.

Alright, let’s take a look at our POMO chart – and I also plotted an updated ISEE chart to see whether or not we are anywhere near bullish exhaustion. Finally an update on a few of my sentiment measures to round things up.

In case you’re new here I have marked up the chart a little bit. As you can see the big crash of 2008 happened during a time when the Fed was draining the swamp – i.e. it was pulling liquidity away from its primary dealers. Once it had ‘convinced’ Congress to grant it bail out cash and authority (I’m being polite here as I don’t want black helicopters over the evil lair) it slowly started to inject liquidity and shortly after we embarked on a two year bull feast which was only interrupted when liquidity once again reverted to zero (i.e. the flat line at zero). The Fed would not stand for that and just when everyone started buying puts in the face of a major inverted H&S pattern it suddenly ramped up liquidity again and the rest is history. We peaked at about $120 Billion and since then the Fed has switched things into maintenance mode, never dropping below $70 Billion. We can only assume this is going to continue until the cash (i.e. QE2) runs out.

UPDATE: Volar just sent me his versions – here they are:

First one is pretty similar to mine – and same conclusions.

Second one shows POMO purchases in relation to purchases/sales of US Treasureis & MBS. FYI – 8/13 was the peak of the right shoulder on that inverted H&S last year. That blue line suddenly snaps higher right before the bottom on 8/30/2010. Coincidence? I think not.

Same chart, but this time he’s using the accepted cumulative on the POMO side.

Thanks Volar! Great stuff 🙂

Whether or not the Fed will find a way to extend this game beyond QE2 is something I cannot answer. I may want to add however that every time someone (i.e. a bear) has claimed that Banana Ben has reached the end of the line and equities couldn’t possibly push any higher the Fed pulled another rabbit out of its hat and proved them all wrong. Suffice to say that expecting equities to drop more than a few handles appears to border on heresy these days.

Always expect the Spanish Inquisition!

Seriously however – in terms of sentiment these are the conditions I used to go short in back in the days. But I have learned my lesson and then there’s also this:

Again, back in the days an ISEE reading outside the 20-day BB was almost guaranteed to drop the SPX by at least 100 handles. Not these days – the last push outside was via record readings pushing above 340 and it took over two months until equities responded – with a 30 handle drop.

Right now we are in pretty solid neutral territory, which is amazing given that the VIX is hovering around the 15 mark and the SPX is pushing yet again toward 1340.

Which is even more confusing given what I’m seeing on the gold:silver ratio chart. What you are looking at is an exponential drop and bullish sentiment in gold as well as silver is reaching the point where I’m wondering who the hell is selling gold/silver contracts. Always remember – for every buyer there needs to be a seller – and the latter have been taking it up the rectum for a long long long time.

More short term I don’t expect much upside resistance until we push 4.50 on my NYA50:NYDNV ratio chart (i.e. NYSE stocks above their 50-day MA vs. NYSE down volume). If you are a Zero sub I would also recommend to look at the daily chart to gauge that upper trend line which has been good for a short term reversal thus far.

Bottom Line:

I really don’t want to be long here – but I also do not want to be short. So my focus right now is on trading FX, which also explains my recent efforts in developing and now refining ZeroFX. Which btw is showing some very interesting signals that seem to be absolutely spot on in predicting short term reversals. Again more on that in the very near future – this is going to be fun 🙂

Cheers,

Mole


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • http://thebhbgroup.com TheBHBgroup

    Great Post Mole. I am thinking that there is lots of complacency in the markets and that if we do not get away from this 1330-40 area soon then we will be looking at a nice drop finally. The commods are running scared Dr. Copper has been very quiet at this price level for a while now. I also believe that it will take an outside event to make it happen so being neutral is probably the best bet and keep your powder dry for some daytrading/scalping positions.

    On Another note is the zerofx working today because it seems like mine is not pricing properly with the futures quotes I have on the screen.

    Cheers

  • https://evilspeculator.com molecool

    Thanks – regarding ZeroFX – yes, it's working fine right now. Remember, that's the currency pair, not the futures.

  • volar
  • http://thebhbgroup.com TheBHBgroup

    thats right I forgot about that! Thanks….look at the candle on SI today…Trading range time for daytraders over the next few weeks.

  • https://evilspeculator.com molecool

    Added those to the post – thanks mate!

  • volar

    thank u – u got me started on the whole thing! least I can do

  • https://evilspeculator.com molecool

    As you can see I offered my own interpretations. If you have anything to add please send it my way.

  • volar

    No not at all. Just more of the same- printing $$$$. I was never sure to use accepted or subscribed- so just used both- lots of $$$ tho.

  • bisq

    Thx for those.

  • https://evilspeculator.com molecool

    I only use accepted – comes out to the same in the end – more money printing.

  • volar

    agree. I just use it to see how much money is being thrown at the market- 350B in <20days is alot of falking money

  • convictscott

    Mole the answer to your question on who is selling the gold contracts. Its the hedging operations of the actual gold producers, who short gold, hoping that they lose money on the short, because they make even more if gold price keeps going up. COT shows the story

  • volar

    i wonder what OI will be reported tonight at for SI? Huge volume- should be telling IMO- but looks like we will have a high prob. of an inside day tom. given today's candle eh?

    http://content.screencast.com/

  • volar

    anytime

  • bisq

    As a bull on PMs i have to concede that volume in SLV points to a climatic top in process (we can still make marginally higher prices on momentum) for at least the intermediate term. Maybe JPM just got their clock cleaned and caved..
    Im much happier buying my slug of gold each month – less volatile , Central Banks are buyers , and when the World goes to rat sh*t high net worth individuals who are largely under-exposed to gold will rush to it like a rat up a drainpipe.

  • convictscott

    Guys, wrt Silver….. Today was an OUTSIDE DAY. What I interpret an outside day as is “shorts got screwed AND longs got screwed”

    What does this mean? We have weak hands shaken out of both camps. This AFFECTS THE STRUCTURE of the markets, because we have new participants with new expectations. Think about it, a long holding for the last 3 months has a totally different mindset than a long getting set yesterday. The new participants are EASILY SHAKEN OUT.

    The highest probability outcome after a big spinning top outside day is for an INSIDE DAY, prepresenting indecision.

    All that volume for no change in price is almost the definition of DISTRIBUTION. So caution is warranted. IMO I would not get long until we see a pullback.

  • convictscott

    Bisq…. any ideas why the last time the world went to rat shit (the GFC) gold fell through the fall instead of doing what it was “supposed to”

  • convictscott

    I checked last Thursday and total OI on si k1 si j1 si n1 si u1 si h2 was up from the start of the month, indicating new suckers being brought to the casino.

    When the total suckers starts to go down indicating in the game of musical chairs the music is stopping, then I'll become interested in the short side.

    After a retest, of course 🙂

  • bisq

    Yes : the dollar was the goto safe haven in 08 and if you check your asset prices relatively , gold outperformed EVERYTHING except the dollar , and by some margin…. the next GFC wont be so kind to the dollar or see quite so much margin selling in gold.

  • bisq

    Yes the overwhelming volume and lack of net change on the day is telling. I wonder if some large investment banks running paper shorts threw the towel in today….

  • https://evilspeculator.com molecool

    REALLY would not want to go long silver here in my wildest dreams.

  • https://evilspeculator.com molecool

    Sounds like the good ole' days then. The problem is that if they lose that bet some of the folks may want to take delivery and there may not be enough to go around.

  • Clint

    So…where's the damn S&P headed from here ? 1360 ? 1380? 1400 ? Or back to 1300 ?

  • convictscott

    Agree

  • skynard

    Would you short it? Caught most of the reversal exited at gap support. Thinking of shorting upon a retest of 48.

  • DarthTrader

    May Silver dropped down and touched the 9 ema on the Daily chart bounced back up, earlier today the 120 min chart did the same touched it bounced then broke below the 9 ema, as it did on the 10 min chart. Same deal touched bounced came back tested and broke below. Fractal nature of Markets . . . So now we have the daily in the same process. So far Daily candle has touched the 9 period Exponential moving average and bounced ( bout 30 min ago) if it follows the 10 and 120 min charts then next we go back down test and break below . . . then we get serious

    Of course that would leave a high volume candle at the daily high serving as a magnet in the future to be retested which I believe most here accept as a given. Silver and the rest of the commodities have more work to do topside but that could easily be next year or later

  • volar

    inside day in euro!