Party Could Be Over - At a Minimum All Cash the Prudent Move

I exited all long positions in late February.  I am now about 70% cash and about 30% long SDS at 21.85.  Could I miss maybe one more POMO fueled move above 1344 on the S&P?  Sure, it could happen but I'll bank the profits from the fake Bernanke rally and now look to position from the short side.

- appears the 5th wave up from the 3/09 intermediate bottom is complete, could spurt higher but more likely complete
- significant distribution in late February and again in mid-March versus pathetically low volume on the upside all the way back to 3/09 but especially since 8/10.  S&P weekly closes below 1299 confirm shift in weekly trends.   
- investor sentiment readings off the charts in early March 2011.  Bullish readings even higher than seen in late 2007 and April of 2010 for money managers and individuals.  Investors running around doing cartwheeels and backflips waving their stock market pom poms living in la la land.
- VIX getting down in the 15 to 16 area in Feb and March of 2011 suggesting "it can only go up" attitude

Their are two reasons why primarily that the market bounced in March of 2009 to the top in March of 2011. 
1.  Federal government and Fed intervention and manipulation on a scale so massive never seen before.  QE1 and QE2 and POMO forcing short term yields lower and then Bernanke sends "free money" to his buddies and "wink wink you guys know what to do with it".  Bernanke forcing risk but where was the volume on the way up?
2.  Feds changing the accounting rules for financial companies.  Using the old methods that seemed to work fine many of the big financial institutions are insolvent.  Voila, Benny and Timmy changed them and now the banks only report the good stuff and can be hush hush about all of the toxic debt.

No free lunch and eventually these gimmicks will not work forever.

Bigger Picture:  Market in a bearish descending wedge and I see 600 or below eventually for the S&P.  Secular Bear Market started in 2000 and cycle should last about 17 years.

From 1982 to 1999 the Dow measured in Gold was in an almost perfect 1/1 correlation with the Dow measured in Dollars.  That move was completely legit.  Since 2000 huge divergence in the Dow measured in Gold and Dow measured in Dollars.  These will move towards each other eventually. 

Fundamentals (all above means more to me than fundamentals):

Financial System - this was never "fixed" properly or did I miss something? 

Europe - credit default swaps for the PIGS soaring to all time highs and yields on short term debt skyrocketing.  Can the EU kick the can down the road some more?  Sure they can but it won't end nicely.
Housing - Housing going down much more from here boys.
Japan - even with out the horrific events Japan has serious challenges.  How did 20 years of QE work out for them?
U.S. States and Municipalities - they can't print money like Uncle Benny.  Tell me how this ends well?
Employment - real unemployment about 20% and not improving even with QE2.
Screwflation - Commodities, raw materials, and components way up in price with QE2 leading to crimped profit margins and slower growth.

There is a lot more I could write a book.

QE3 to save the day for all of the cheerleaders???  Maybe, but how many more times will the sheep be led to slaughter?  Even the rigged CPI and PPI are starting to show that commodities are becoming a problem.  I'm not sure Bernanke can even spin a reason why QE3 is the right move without stating even more explicitly that he is trying to keep this bloated pig known as the stock market floating on thin air. 

As I stated maybe I am a bit early and that is why I am not "all in" on the short side.

Sounds like you pulled that from Zero Hedge..

Maybe you should prove that statement when you toss up an accusation like that.  These are all my own thoughts and just some talking points I have a lot more analysis in my head.

 

The thing I "lean on" the most is IBD but I certainly don't ignore EW and other sources of TA.

 

My thoughts on the fundamentals are all purely my own.  I read tons of information all the time and balance it against what I feel.

I do NOT consider at all the views of 95% of money and asset managers.  No shocker they are bullish almost all the time.

 

We'll see if I end up right.  Where do you stand?

If you were a regular here, you would know where I stand.

I dont see 600 on the SPX, but I agree with plenty of what you said.

What you are not addressing is where will the selling pressure come from and will the FED and UST just let these events happen with no intervention?

I hold absolutely ZERO confidence in Elliot Wave counting or other technical indicators..they have excuses when they dont work and the past does not predict the future.

Remember the boogie-man "death cross" we had a while back? What a bunch of horse shit that ended up being..the market cannot be controlled by past events, the volume and price are being controlled by low volume and by a few hands.

Today for example, why are the markets up when the news across the board is bad? Japan, Portugal, horrid housing sales numbers, bad news all over yet the market is up..why do you think that is?

I don't believe I implied the market would plunge straight to 600.  I can see 1040 in a few months and 600 or that vicinity (or lower) by late in 2012.

Today?  Short covering, weak bounce from modestly oversold conditions, and commodities red hot.  Volume was barely above yesterdays volume but way below the recent big down days.  I find it very important the close was below 1299/1300 and they tried to sucker you in with a move above 1300 (right near 50 DMA) but NO big volume came in to support it.

The "news" and "headlines" have NOTHING to do with the intermediate term and long term direction.  It's already discounted before it even happens.   Short term, yes headlines make some noise.

Note how of the three bounce days last week up the one with the highest volume finished way off the highs for the day (big boys were selling into that). 

Commodities popping more today (Gold at an all time high) but ask Bernanke and he will tell you there is NO inflation ANYWHERE in the system.  yeah, ok.  Didn't he vehemently state that sub-prime mortgages did not pose any threat or risk?

I do use some EW and timing is always tricky.  I do not use the Death Cross or Golden Cross.  Funny though how much they jumped up and down cheerleading when they got the Golden Cross and people poo poo the Death Cross.

The market was ready to roll over big time in August of 2010.  Bernanke gave his speech in Jackson Hole, Wyoming in late August announcing QE2.  I can tell you the guys at the Fed study the charts and the timing on that was not a coincidence.

YES, I do believe Timmy and Benny will jump in with more gimmicks.  I am not convinced they walk on water as they believe and I am not convinced these tricks will forever bail out the equity markets.  Bernanke thinks he has a magic wand but if he does QE3 commodities will go parabolic and inflation will destroy any growth across the entire globe. 

Commodities popping more today (Gold at an all time high) but ask Bernanke and he will tell you there is NO inflation ANYWHERE in the system.  yeah, ok.  Didn't he vehemently state that sub-prime mortgages did not pose any threat or risk?

that "NO Inflation" has been complete BULLSHIT for YEARS. direct result of Greensapn and "B S" Bernanke's artificial low interest rate policy.

and btw, ALL the "Hot Money" is now in commodities esp Crude Oil even though the world is swimming in the stuff. can you say "bubble" boys and girls?

I disagree.  Obama will do anything  to stay in power, and that will include keeping the stock market at a high level. 

This market is a ticking time bomb  

Not a tremendous week for my position but not a serious concern either.  A close below 1209 on the SPX woulda been great and close below 1308 nice but they melted it up on paltry volume.

Weekly volume on the NYSE for the week was the lowest since the week between Christmas and New Year's.  Weekly volume on the Nas second lowest since that same week.  Nasdaq woulda been down almost a percent today without AAPL and ORCL.

Boy it only took all of 7 trading sessions for the Vix to plunge back below 18 and investors already behaving as if there is no risk to equities right now. 

Timmy got a break this week issuances were very modest but the indirect bid was very low again.  Much more debt to toss on the market this week I'll be keeping a close eye on that indirect bid from foreign central banks.  Also, the ADP private sector jobs report all secondary to the charts and numbers though.  We'll see. 

meant to say close below 1299.  Also, noticed a little spike in yields friday afternoon.  Something to consider with the larger debt sales this week.

not that I endorse any of this but, wouldn't a nearly all cash position be just as bad.

disagree.  Obama will do anything  to stay in power, and that will include keeping the stock market at a high level.

are you serious? the Wall Street Weasels HATE his GUTS because h'e trying to REIN them IN. they would dump IF they thought that would kill his re-election. say, about late September-early October 2012?  

either that OR run crude oil to $200. THAT would DEFINATELY de-rail any "recovery"

Obama lies every time he opens his mouth.

When he says he is going to reign in Wall St, what he means is he is giving Wall St a blank check.

When he says he is going to end the wars in the middle east, he means he is going to start a few more.

etc

Wall St would rather have 4 more years of Obama than take a chance on a new president, IMO.

Cash = liquidity

I plan on deploying almost all of it but right now I feel we are in an in between mode.  This is my core, long term portfolio I am describing as I am seeing (I could be very wrong just stating what I see) a significant shift upcoming in equities.  My trading bankroll is different and constantly changing.

I would not touch real estate in America with the proverbial ten foot pole.  I made up my own indicator.  When I see Shanghai, Beijing, San Francisco, New York City, and Boston feel some serious pain then I will start to look for a so called "bottom" in real estate.  Still frothy in some places in my view and things tend to move past the long term mean (prices versus rents a property could draw and incomes, etc.) in both ways both on the upside and the downside.  I'll wait and be very boring and drab doing so. 

Maybe you should prove that statement when you toss up an accusation like that. 

Whats up Big A.

Good thread and lots of good points made in here.

Interesting story in today's WSJ suggesting lots of money flowing from bond funds & money markets to equities.  Talk about coming late to the party.  
Last week's market gains were highly unusual, especially considering all the bad news coming in from around the world (Libya, Japan, Portugal), but the money flow could help explain this.     The VIX seems to tell us there's a level of complacency going on in the market right now, too,  considering all this bad news around us.   Not good.    Seems overbullish . 
In any normal week, The Market last week would have been pounded. 

K - what's up Buddy?  Haven't connected with you in a bit

They wrap up the quarter this week so could be low volume and a lack of selling pressure as they want to put lipstick on the pig and close the quarter as high as possible. 

Who knows - we'll see.  Treasury sales are going to be interesting this week.

Timmy has gotten off easy with light treasury sales and tax receipts coming in to the UST in April . . . but yields are creeping higher

Gold and Silver are signaling that the market is demanding a legit form of currency something that holds some sort of value.  Gold at an all time high and Silver at an all time high (if you exclude the cornering of the market in early 80's for all intents and purposes an all time high).  Benny can't print gold out of thin air so this is not a "fluke" this is a serious signal

Six weeks ago oil at $100/barrel was considered a "potential barrier" to economic growth according to the financial cheerleaders but oil at $113/barrel is just ice cream with cherries on top now huh.  sometimes it is too funny.  if we get QE3 oil goes to 175+. 

An insane amount of leverage in commodities the number of outstanding contracts on futures in commods is higher than in 2008 when they popped

investor sentiment surveys show bears "throwing in the towel" so i guess that means it is clear sailing, right?

Portugal defaulted in essence but don't worry about that CNBC will tell you everything is peachy.  T minus 120 days according to me for Spain to come crawling to the ECB. 

SMH and XLF trying to poke above the 50 DMA but so far nothing confirmed.  Low volume "rallies" again this week so we'll see. 

And of course Mr. - oops I forgot . . . Dr. Ben Bernanke will tell you there is NO INFLATION anywhere in the system.

Go to stockcharts.com and pull up the charts on Oil, Gold, Silver, Corn, Wheat, and Cotton and look at what they have done since late August of 2010.

The chart for Copper however looks tired to me and it typically reflects economic demand  

Margin debt in the NYSE now at an all time high.  As a percentage of assets Mutual Funds held the lowest level of cash ever recorded at the end of February.  Looks like investors are "all in" to me.

Corporate profits as a percentage of GDP are basically tied with an all time high.

So, one of two things can happen:

1).  it is "different this time" and corporate profit margins move beyond where they have ever gone (just like when they told you real estate would NEVER go down in value)

or

2) a reversion to the mean.

I'll opt for option 2. 

This market could still be inflated and pumped and hyped higher but it won't last forever boys. 

A little update here.  Still same position in core, long term portfolio - 70% cash and 30% long SDS.

As stated in my start to this thread maybe I was a bit early but now starting to see confirmation of my position in the price/volume action.  All of the fundamentals above I feel the same except that now they are FAR WORSE than even a couple months ago.  Weekly close for the S&P 500 below 1312 and 1299 confirms change in weekly trends.  Also starting to see a modest amount of danger in the credit world with high yield debt.  Not a major bomb warning but slipping.  Should go down to 200 DMA at 1250ish and maybe bounce from there.  If there is a bounce up (on low volume) to a declining 50 DMA I will consider doubling my position in SDS.

It seems like most investors are looking at the issues in Europe as "no big deal" as described to them by CNBCheerleaders and that Bernanke will "save the day" with a surprise QE3 announcement.  Not me, I think it as a mathematical certainty that there will be at a minimum massive restructurings of sovereign debt and most likely numerous defaults.  everything is connected and it will impact the U.S. markets.

As for QE3 I say not for a few months at least for two reasons:

1.  QE2 was a complete failure other than providing a temporary and artificial boost to risk assets (i.e. commods and stocks).   QE2 actually made the economy worse and did nothing in support of the Fed's official dual mandate (maximum employment and price stability).  QE2 juiced the commodities and distorted incentives thus hurting and not helping.

2.  This little thing called the election coming up in 2012.  If Benny went right into QE3 and commodities went back into "risk on" mode you could see gas at $6.50/gallon and even higher prices at the grocery store.  Tough to win an election that way especially with no new job creation.

Even so, who is to say QE3 will make stocks and commodities go straight up???  If they went straight to QE3 would that not show they are completely clueless and in full blown panic mode?

A few other things:
- as usual more volume on the down days than the up days
- XLF, SMH, AAPL, GOOG, GS, JPM, and some others not acting well at all some for quite a bit now
- Shanghai composite looks to be possibly rolling over in a big way
- prices of copper and lumber and other commodities discounting further economic weakness

There are many, many, many other issues. 

Check out the XLF.  I look at that and it says to me that for the last five or six months it is telling me that the future does not look very good for the financial institutions in the United States.

POMO - The monthly shipments of heroin and cocaine to the primary dealers will drop from about $100 Billion to about $20 Billion in July.  We are having this weakness even with almost the full $100 Billion of "free money" planned for injection in June by the Fed. 

The dollar down/daily POMO/risk on/buy commods and stocks trade may be shifting no sense for me to try and be a hero and fight it. 

https://stockcharts.com/h-sc/ui

for some reason on this weekly chart the XLF snapped back very sharply in the spring of 2009 (hmm just when they changed the accounting rules) but it doesn't seem to want to break out to a new high.  looks like it has been rolling over since early in 2011.  food for thought.  i ain't smarter than the market so i'll just accept the signals it is sending me. 

link doesn't work.  go to stockcharts.com and pull up the weekly chart for XLF.  daily shows the deterioration as well obviously but weekly shows the whole charade since the 2008 meltdown. 

if Greece, Ireland, Portugal, or any of the others are "no big deal" then why was Lehman or Bear Stearns a big deal?  estimates from $200 Trillion to $500 Trillion of notional derivatives outstanding "floating around in the sky".