End of 2009

Great Balls of Fire! That was the headline in the NY Post with regard to the latest failed airline bombing. Gotta love them. Another rag had "pants on fire."

Great balls of fire was also 2009 and now I am happy to see it over. Many of us have had challenges this year, from health to jobs to just being on the wrong side of the stock market. But there is always something about which to be grateful. For me, it is having employment, a family, a house and readers - not necessarily in that order.

It is time for me to pack it in this year so this is the last blog post until Jan 4, when the stock market fireworks can be expected. After all, we are in a low volatility, low volume coil where everyone is expecting an explosion. We just cannot agree on which way.

For me, I end the year nearly flat. Bonuses will have been paid and as a reader commented in the previous blog post, the Fed is out of bullets.

Make your New Year celebration a safe one and we'll see you next week.

End of Year Prognosticators

Retail, Airlines and Energy are the sectors in the news thanks to the holiday, terrorism and geopolitical events, respectively. Do any of them matter this week as we have our second short and thin week in a row? How about healthcare now the light at the end of the tunnel is visible? My column this afternoon will be on healthcare so I won't spoil it here.

This is the time of year when the pundits look back and then look ahead. Every one is wrong. From predictions that Israel will attack Iran to Stimulus 13 (I cannot recall what number we are already on) it seems that everyone has an opinion on everything. Does the market's opinion no longer count?

I do not have a major revelation for you here today, partly because nobody knows the future and partly because I am trying to have a working vacation (does that really exist?). I've done the work part for today so I am rather eager to get away from my computer.

In general terms, however, I do "see" the stock market getting clobbered. What I do not see is when, since the evidence on the charts just shows a slow chug higher. It is the intangibles, from sentiment to smugness that all is well with the world because the economy is on the way back, that scares me.

Hope from the headlines

I don't know why these two headlines are comforting to me but they are.

• 'Balloon boy' parents going to jail

• Madoff in prison's hospital

Could it be that the idiots and bad guys the are getting their just rewards? The system is going to work?

In times when the government is running amuck and greedy pigs in a few parts of the economy can bring that economy to its knees, not to mention articles about how the "empire" of the USA is nearing the end of its life similar to ancient Rome, perhaps seeing the system work is a good thing.

The demise of capitalism? Never. Sharing or shifting of power, sure. Let the profits flow to where the people make the most productive use of their talents and capital. But I sure would love it if we could re-unleash the principles and values that the founding fathers gave us.

Thoughts on the range

I cannot quantify it but there are as many reasons - technically - to buy stocks now as there are to sell them. From good reactions to economic news (GDP revised down) and nagging problems around the world with debt to crappy volume and lack of momentum. Cycle A says we are at a low. Cycle B says we are at a high. COT reports are scary bearish. Sentiment perhaps is neutral. Flight to safety in T-bills, T-bonds and big cap stocks is over.

Pick your poison because relying on any one of them will kill you. If I were not in the advice game I'd have closed my PC - save for waiting to buy my gold back - last week. I could use the rest, that is for sure.

In that spirit, and even though Quick Takes Pro will be published a few more times this year, I am off to Boca later this week. I don't mind the two feet of snow on the ground here but getting away from the daily grind is a welcome event. Even if my staff and I will be watching the markets from afar - just in case.

This blog will be sporadic for the next week and a half but please do not abandon me.

To all, a happy holiday no matter which one you celebrate.

Quotes from cyberspace

From Barron's Online comments section:

Imagine that you are a central banker and can buy gold for free (by printing your currency). You know that when things go badly for your currency you will have gold to back it. What would you do? The future seems bright for gold.

From the Shanghai Daily (dot com):

It is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.
----(case for a rising dollar? Not if they don't want to buy more US debt)

From Robert Minkowsy (trader):

NDX at new high. BIDU tracking lower beneath its 50 DMA. Worrisome divergence.
----(BIDU was a Nasdaq leader so its fall from grace is a tell)

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Emerging markets bonk

I don't know of you noticed but both the Brazil and China ETFs bonked yesterday. Both broke trendlines and 50-day moving averages and I have the feeling that these BRICs in the wall are rolling over.This chart is at of 11am Friday and shows little rebound after a 2.7% drop the day before. A strong dollar hurts commodities and does not help commodities exporting countries.

Gold follow-up

The trendline is from October 2008 and will be rising to 1050 soon. The horizontal line, drawn extra fat, is the breakout level from a major, major pattern at roughly 1000. As I wrote in the column, I see another leg down in the correction but cannot see it reaching 1000.

Time magazine does it again?

Mr Bernanke is on the cover today- kiss of death for the Chairman's time at the helm? Or for his policies? (as in the policies will no longer work or it is time to withdrawn them)

10 Lessons From a Dismal Decade

Sorry for the delay in posting here but the family has had a rough week medical-wise.

Here is the real post from Monday. Please read the MarketWatch article (link in previous post) so you know why I am ranting and why Wall Street is more like the Vegas Strip than the pillar of wealth creation for the nation.

Before even getting into the selected myths, the title needs its own rant. Feel free to skip the next two paragraphs since they are a bit self serving.

A dismal decade? Excuse me but not if you were a bear starting September 1, 2000, the day the S&P 500 made a clear as day bearish reversal and never looked back. I wrote that one up for BridgeNews that very day. Yes, poor defunct BridgeNews. Another testament to managerial chowderheadedness.

Or if you got into real estate at the same time for a five-year ride. Or energy in late 2006 for a one-year ride. Or gold at any time during the decade. Or if you turned into a stock market bear, admittedly two months early, as I did in late 2007. Or if you saw the March 2009 reversal, even if you bailed too soon like I did.

OK, enough. Let's talk about the article, which I found to be a great disservice to investors.

Diversification failed myth - "Diversification did not fail," Mr. XXX said. "Our memories and our expectations failed. True diversification comes from stocks versus bonds, not stocks versus stocks, but a lot of people forgot that."

Sorry, pal, even bonds got creamed in 2008. Everything went down - period.

Asset Allocation works myth - see above. Managers piled into the fastest falling sectors and assets when they rebalanced and exacerbated their losses. Yes, over time it is a good thing. But not over THAT particular time.

Market Timing doesn't work myth - You know what I think about that. They say that if you miss the 10 best days you seriously lag the market. Of course, they do not say what happens if you miss the 10 worst days - you clobber all others. Please. Market timing made me a bear in 2000 and a bear in 2007.

Or this nugget - "Hold more cash if you think stocks are overvalued." And the difference between that and "timing" is what? It's degree, only. Enough said.

Recognize trends and cycles, they said. Excuse me, this is techical analysis aka the evil "market timing." Which way do you want it, fellas?

Here's the deal - Market timing for trading is indeed a tough business. But using timing to recognize the trend - bull or bear market - the the key. Asset allocation is also a good thing but let the market tell you when it is time to rebalance. What if you simply waited to reallocate to "cheap" energy stocks until the market for that sector stabilized relative to the rest of the market? You would have added more energy in October 2008, not say April 2008, and bought at that sectors bottom (did not make a lower low in March 2009).

But a dismal decade? Why yes it was - if you followed your Mutual Fund and Financial Advisor shepards down the rocky "buy and hope" path. The era of active investors is here - not day traders, not timers, but active investors who make only a few critical decisions per year.

Preview of this afternoon's post

I am writing the column now but have a look at this on Marketwatch:

10 lessons for investors from a dismal decade

You know where I will be going with this one.

Poem of the Black Swan

Here are the first two stanzas of the poem. Somehow, a vision of the stock market comes to mind with its investing sheep and controlling bosses. The line about "questioning" is rather scary.

The Black Swan
by James Merrill

Black on flat water past the jonquil lawns
Riding, the black swan draws
A private chaos warbling in its wake,
Assuming, like a fourth dimension, splendor
That calls the child with white ideas of swans
Nearer to that green lake
Where every paradox means wonder.

Though the black swan’s arched neck is like
A question-mark on the lake,
The swan outlaws all possible questioning:
A thing in itself, like love, like submarine
Disaster, or the first sound when we wake;
And the swan-song it sings
Is the huge silence of the swan.

Dominos

Upon looking this word up in the dictionary, it appears to be Dan Quayle's revenge. Dominoes - with an "e" - appears to be the common plural spelling.

Anyway, the dominoes around the globe are small sovereign stock and bond markets where credit ratings are either being downgraded or are on watch with negative implications. Of course, the mother of all markets - the US of A - has been on personal watch lists although there is no real official warning coming out. But over the past few days we've had downgrades in Greece, Portugal and Spain. Ireland was on the brink earlier this year and supposedly pulled themselves back (although not out). Check out the chart on the home page of the Irish stock market. Not pretty.

Today's column was about the ripple of Dubai still propagating around the globe. We have not really felt more than a hiccup in major markets but where there are waves there may be huge waves following. Just ask Hawaii.

Who's next? China finally admitting to overdoing it? How about another biggie? The UK is also up there with the USA on possible debt downgrade rumors.

I may not have been able to find the top of the rally but I am confident that when it ends it will be frightening.

Trader tax debate video zzz zzz zzz

If you can stay awake through it, here is a CNBC debate on the trader tax:

http://www.cnbc.com/id/15840232?video=1350262470&play=1

Airtime: Fri. Dec. 4 2009 | 2:44 PM ET

Discussing who will really be penalized when the tax gains traction, with Tim Ryan, Securities Industry and Financial Markets Association president/CEO and David Arkush, Public Citizen director.

I am on the side on no trader tax but Mr Ryan did not win this debate. Too bad. And too bad nobody seemed to have their facts straight.

Headlines!

No not the Jay Leno kind but the ones that get slapped on my stories without my approval. Most of the time, the editors come up with headlines and synopses that are both more interesting than the ones I concoct but also serve to entice readers to click on the story. After all, in this business it is all about eyeballs.

But today, my proposed headling was "The Momentum Crowd Abandons Gold" meaning the "speculators" had turned tail like a bunch of lemmings. What I got was an upfront statement of my next upside target after the correction. I remember a headline in 2008 that read "You Heard it Here, the Banks have Bottomed." The horror!

Let's talk about the story. For starters, gold closed lower and so did the dollar. Yes, gold was off its worst levels but down is down, especially after a dumping like Friday's.

My point? Momo drove it up despite the dollar not moving for many weeks and now reverse momo will drive it down even if the dollar does not really bounce (I think it will).

When to get back in is the question.

The Big Unwind

Take your pick - gold, dollar, T-bonds - they all were ready for some sort of reality check. The problem with this is that the stock market ended higher Friday, shrugging off the biggest dollar jump in months. Wagging the dog, indeed!

Actually, the stock market jumped on the fantastically rosy employment data, where fully 0.2% of the population found new jobs!!! The Dow rallied 150 or so points and then collapsed back to zee-roe. Yes, a final rally into the close flipped the bears another finger. The strong finish, however, was not enough to negate the total intraday failure that preceded it.

I sold half my gold Nov 25, the day before the Dubai Dump, and had a good thanksgiving watching gold dump intraday, too. Then it came back to ruin my dessert. So, today I feel vindicated. My Marketwatch article ran Tuesday with the topic of - the dollar is due to bounce.

Needless to say, I am not breaking my arm patting myself on the back. The stock market apparently stopped following the dollar, short-term yields (the 2-year I wrote about in Barron's Online Wednesday) backed up so things are still too fuzzy to become complacent.

Now looking to get back into gold. Yes, this soon but not at current prices. Still needs to squeeze the shorts a bit more. And the dollar has plenty of shorts to squeeze too.

Wagging the Dog

Who is the dog and who is the tail? Of course, that changes all the time but right now I think the bond market is emerging as the dog, taking over from the dollar. Yesterday's column (sorry, I was distracted yesterday and could not blog) was about how the two-year Treasury note yield has plummeted over the past few weeks. It is now rather close to zero, where Treasury bills have been for the past year.

Check this chart to see why this is more significant than meets the brain. When it meets the eye, you will surely see (don't call me Shirley).

This suggests a flight to safety again. TED spread easing a bit higher. Gold unrelenting. Stocks volume still low.

As the title of the column should have been - Something's Gotta Give.

As Jimmy Cliff would sing - The harder they come the harder they fall.

Alt energy

Hmmm. Alternative energy ETFs are looking like they want to break out from big triangle patterns. And then there's Maude, er, BioFuel Energy Corp.


This is a weekly chart but do you see anything interesting? How about peer ethanol stock Pacific Ethanol up 50% today on top of yesterday's similar gain?

I don;t know about you but when alternatives to anything start to shine it makes me wonder what shortages are developing with the primary. That would be "earl" in local drawl.

Shot across the bow

No doubt, you've all read countless news and opinion stories about how Dubai does or does not matter to your portfolio. In today's column, I talk a bit about how it does matter but not quite now. Basically, I suggest that one more scare like this will put the market over the edge and send the bulls running for the exit doors - which are very small.

There are a few other articles on my beloved Barron's Online about this, too. One of them discusses the value of hedging. This is what we are doing in our fund (see info to the right -->) and I am doing personally. Don't worry, my personal moves were made after the fund moves.

A colleague, Scott Fullman, suggested "stock replacement therapy." That means selling a good portion of your stocks, booking your profits and then buying in the money options to stay long. Other people's money, as it were.

Personally, I own volatility.

Whatever method you choose, just keep in mind that we've been on this road before. However, it does seem to be different than it was in June/July. At least nobody was blowing up back then.

Dubai humor

It's started already. Just a little humor to start the week from the MarketWatch community boards:

From "Jofish"

"It's not all bad. I have a friend who sells DVDs in the Middle East. He says Flintstones titles are selling OK. The people in Dubai don't like the Flintstones but people in Abu Dhabi Do”

Dubai thoughts

We all know by now that the world did not end Friday when the USA reopened for trading. It seemed that Dubai was one of those "everyone knows it" news items and since there is still such a call for a correction it seemed to easy to call it to begin at that time.

Sure enough, the low was set near the cash market open. Gold was off 60 bucks and came back to a mere 13 buck loss. Volatility readings closed near the low end of the day's range. And no trendlines were broken.

I am not going to speculate on what will happen Monday and even so that has to be reserved for paying subscribers. But if we go by the sentiment angle, things are not so bad.

Monday, I will have an article in the monthly trading strategies section on www.marketwatch.com on the dollar. This is likely more of a factor than Dubai, at least on the US markets. Sucker banks who financed Dubai may be another story.

Trader Tax again

I have been reading the posts of others concerning the latest attempt from our leaders to tax financial markets transactions. Of course, everyone in this business is against it with the usual reasons that it will drive the business overseas and end up reducing revenues for the tax man.

On one forum, Ralph Vince said "The high frequency boys - the very ones who are the equivalent to 21st century market makers - provide more liquidity than the world has
ever seen. This benefits everyone."

This is something I said weeks ago although not quite so eloquently. Why do we need liquidity in the secondary market? So the primary market - where corporations raise capital - will be readily available at reasonable prices.

"But lets make Wall Street pay for fixing the economy they broke" say the leaders. Let's see, trading broke the economy? How about unregulated derivatives and foolish innovations such as CDOs, sub-prime and financial wizardry? And why did that arise? From the government's initial meddling to juice the housing market with low rates so all Americans can buy the American dream.

The cure is usually worse than the disease when the government steps in.

OK, rant over. Happy Thanksgiving to all!

Windows 7

When I knew I needed to replace my old Dell pc I had two choices - stick with the evil empire (microsoft) or try a Mac. My older kids have Macs and they love them so why not me? Yes, I knew some of my apps would not run but there were a few programs available to run windows on a mac and allow windows and mac apps to communicate, if crudely.

My macbook was hot. Things just worked and when I loaded Parallels, I could run windows in a window (yes, you have to buy windows all over again). But the data transfer between windows and mac did not handle charts. Since I do charts for a living it was a problem. And mac hardware is stupidly expensive. I never really let mac take over my setup.

But my old Dell was pushing eight years old and even though I run it clean (registry fixer, spyware killer, antivirus, cookie controls, etc..) it was feeling its age. Eight years may be 56 to a dog but to a pc it is probably more like 160.

Then there was Vista. You all know about Vista and most would agree with my NFW (no way) sentiment. I even got a low end pc for my youngest kid and "downgraded" it to windows XP from Vista. No wonder Microsoft stock was languishing. I was not alone and even Dell acknowledged the problem by allowing selected pcs to come with XP.

But again, old Delly was on its last legs. I bought an external hard drive just in case. And its a damn good thing I did because my hard drive crashed about a month ago. It was backed up minus about two weeks of documents but most were recoverable online and all of my applications were online, too.

Enter the new Windows 7 machine. Very sweet. Very powerful. A little confusing since it looks a lot like Vista but I'll consider that a learning curve to tackle.

Apps loaded themselves. The system went out to the web without me asking to find drivers. Things just worked. Sure they looked very mac-like but at this point that is not my problem.

So I am cruising along restoring everything and lo and behold the evil empire asserts itself. You may not run Outlook Express they said. You must run Windows Live and be part of our Matrix. We own you and your information.

Just the reason I wanted to move to mac. So I fire up Thunderbird, which is not as good as Outlook Express, in my view, and get back to work. But the backup files I made of my address book and all my emails are in Outlook format. All of these email programs want to import direct from the other app and not from a file you save somewhere. Please tell me if I am wrong.

So, it looks like I'll have to find an XP machine, fire it up and somehow get it ready for Thunderbird. I am sure there is a way.

But let's bring this back to the markets. Is it any wonder why Microsoft is soaring? All of this pent up demand to be released. Windows 7 is pretty good, though.

Crowded Gold Trade

Just a quickie after hearing about this for the umpteenth (look it up) time on financial news. The fact that almost everyone is talking about how crowded the gold trade is makes me think it is not crowded at all. If you thought it were crowded and ready to correct would you still own it? Nope. There is your "cash on the sidelines."

Happy Anniversary Glass Steagall Repeal

I found this in a LinkedIn group posting by Derrick Bemis, Data Analyst at Bondtrac.

"10 years ago we repealed Glass Steagall Act of 1933. It was said that we learned from our mistakes. We were told we had figured it out and that the banks would adhere to, and do, what is in the best interest of the people. This best interest of the people would then make them money.

10 years ago one Senator fought against the repeal of Glass Steagall and tried to get his voice heard. Bloomberg News tore him down. That gentleman was Senator Byron Dorgan. Byron Dorgan stated on November 12, 1999 that, "those not of the past are doomed to repeat it"..."10 years from now, I believe we will look back and regret our decision today". Congratulations Mr. Dorgan, you were correct."

I poked around the web for all of two seconds to find scores of legit corroboration.

"Senator Byron Dorgan, Democrat of North Dakota, was one of eight senators who stood up to oppose the repeal of the Glass-Steagall act in 1999. That repeal, which was signed into law by President Clinton exactly 10 years ago today, broke down the barriers between commercial banking and investment banking, and led to the growth of behemoth financial firms that were able to take enormous risks with impunity, because they were "too big to fail."

So, Happy Anniversary to all those who thought banks and brokers could regulate themselves. I am not an enemy of the "uptick rule" but this granting of power to institutions that were backed by the giverment (that was a typo but in looking at it, it makes a ton of sense) we sealed our fate.

It's Time to Screw the Public Again

Yes, once again a private equity firm is ready to sell shares to the public. This time, it is the Apollo Group and I am not the only one to notice. Here is a chart to put things into perspective.

Everyone thinks that this marks the end of the rally because these guys are the smartest of tghe smart money. It is interesting, if not a viable timing tool.

This is why the market will eventually crash

OK, the headline is a bit sensational but the article cited below proves to me that investing as we know it is over. Remember, I blogged that stock trading jumped the shark a few months ago when football coach Jimmy Johnson was pushing a trading system. http://quicktakespro.blogspot.com/2009/08/stocks-have-jumped-shark.html. Now I know the world has ended because of this article about the launch of 100x leveraged ETFs on the Nasdaq. http://www.etfexpress.com/2009/11/17/kelly-capital-launches-100x-leveraged-etfs

Of course, it was not a real article but a bit of satire. http://www.istockanalyst.com/article/viewarticle/articleid/3646069. Author Jason Kelly points out that the trend towards leverage is still with us and I say it means we have not learned our lesson.

Kelly goes on to report about the mail he got over the piece, as follows:

"A full 65% of people expressed an interest in owning products that would "go bankrupt within the course of most trading days." A stunning 5% thought they already owned them. Only 30% of respondents got the humor."

PT Barnum was right. There really is a sucker born every minute. Lord help capitalism.

Wet Blanket

Some charts just speak for themselves and this one is the wet blanket on today's rally.

Yes, volume for the NYSE was stinky again - old news. This chart of the banking ETF shows money still fleeing, a broken trendline and former support now acting as resistance.

Note from AAII

I am still on the road but here are a few observations from the American Association of Individual Investors conference.

1- Lunch keynote Mike Santoli (Barrons) said the Fed's mission now is to dampen volatility, not keep rates low or anything else. High volatility makes long-term investment by companies (not talking about stock market investors) difficult.

2- Santoli - Madoff victims did not do their homework. This is NOT to blame the victims but those who were not hurt by him kicked the tires and found funky stuff.

3- The place was packed - thousands of investors

4- My presentation on charting drew the biggest crowd I have ever had. Kudos to the way they formatted the schedule to allow that to happen.

5- Demand for charting from people who have not yet exposed to it seems as if it would be quite high. Simple stuff but high.

6- Exhibit hall had plenty of charting software packages on display. A lot more than I would have thought,

Speaking in Orlando

Vacation is really a misnomer. This is more like a re-location but I'll be in Orlando starting this evening. Friday, I am speaking at the AAII conference and doing the requisite Barron's related schmoozing.

Otherwise, the family is coming with me to the House of Mouse for some time away. I'm still doing the newsletter but I've done it poolside at midnight many times before. Anything for the kindeleh.

Marketwise, liquidity is the rule. G-20 is promising it so the stock market has wings. Broken wings, but wings nonetheless. I just worry about what happens when the economy hints that it can handle a rate increase.

As they say in the bond biz, all of this product (stocks) has not been put away (sold to the final retail buyer). That leaves it is very big, fast acting hands and facing a crowded exit door.

Greenback is Whack

NEW YORK (MarketWatch) -- The dollar weakened Monday, pushing an index of the greenback to the lowest in 15 months, after a weekend meeting of Group of 20 policy makers offered no support for the U.S. unit.

Why would other countries support a strong (insert your own currency here) policy? Nobody wants their own currency to soar. Of course, unless you have your eye on buying chunks of your neighbor instead of selling them things.

Let me offer a different spin on why the dollar plunged to open the week - healthcare reform passed the House. Spend, spend, spend.

The Senate has vowed to kill it so let's see if the dollar reverses course at that time.

In the meantime, gold....... If you have not already seen it, take a look at our Chart of the Day at QuickTakesPro.com.

Classic pattern?

This is a chart we've been watching in Quick Takes Pro. If you have any faith left in technical analysis than a channel breakdown with falling-volume retracement should mean something.

chart printed at 1pm NYT Friday.

Solar Winds are Blowing

There was an interesting discussion this week in a technical analysis chat room. First, read this quote from a post by Philip J. McDonnell.

"There is a large hole in the Sun's Corona which is emitting solar wind in our general direction. It should reach Earth on Friday Nov. 6. The chance of geomagnetic storm activity is now at 30% in high latitudes and 15% at mid latitudes."

This is not fiction but real science. What may be construed as fiction, although it is not, is the connection it has to the stock market. McDonnell then posted an abstract to the Atlanta Fed's study on this topic. I have excerpted it here.

Playing the Field: Geomagnetic Storms and the Stock Market
Anna Krivelyova, Boston College
Cesare Robotti, Federal Reserve Bank of Atlanta

A large body of psychological research has shown that geomagnetic storms have a profound effect on people's moods, and, in turn, people's moods have been found to be related to human behavior, judgments and decisions about risk. An important finding of this literature is that people often attribute their feelings and emotions to the wrong source, leading to incorrect judgments. Specifically, people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions.

This paper provides evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.

Interesting. The conclusion is that you might want to take a little off the table today.

Ben'd Over Greenback

The dollar has actually had a trendline breakout in recent days and after pausing for a bit it had its rally cap on Tuesday. It did not last. And today when Ben and Co. said they were going to hold rates for the next 137 years (or until Chase refunds my fees) the dollar just simply tanked.

What is more fun is that gold is soaring while silver, though up, is far from new highs. Ditto platinum and copper.

Me thinks the market does not like the Fed's attitude.

When the chips are down buy a railroad

This chart really does not need much in the way of captions.

The key semiconductor index has very clearly broken down and is underperforming in a down market. That means it is falling more than the S&P 500 and that is not what happens in a bull market. So what does the Oracle do?

Why he plays monopoly and buys himself a railroad! You can make your own comments on why today and not a few months ago when he first started to talk up the economy. I smell Goldman Sachs.

The media made a big deal out of Buffet going "all in" on the economy with this move at this time at this price. Again, why wait until now when he was "all in" months ago? Is it really a bet on the economy? Maybe it was a patriotic move so that a key cog in the infrastructure does not fall into foreign hands thanks to the dollar.

Or was it financial engineering as he buys now and pays later with depreciated currency or assets? That's not a bet on the economy is it?

Who am I to question the wisdom of this move. He is the man, not me. What I question is the nonsense that he is betting on the economy. He is betting on Warren Buffet (I would too) and nothing more.

Crash!

No, not the stock market but my computer. Old Bucket O'Bolts finally keeled over and I had to run backups today. Most of my stuff was already backed up to an external drive so inconvenience, not catastrophe. By the way, it was a Dell I bought in 2001 or 2002, complete with Word 2000. Can't say the same about Mac hardware from Macs down to iPods. Too bad Dells have to come with Evil Empire software. At least I won't have to get Vista.

As for the market, another day, another rejection. Last week, we had a little bit of panic and the next day it zoomed higher. Ditto for Friday and today. While I make my case for a negative market in my column today one thing I can say in favor of the bulls is that the market did not crash today. Given what happened last week, the extent of the rally on lousy fundie outlook and crap-o volume it was rather comforting from a citizen's point of view to see China rebounding higher overnight and premarket futures a bit higher than flatline.

So, the rally is over. That does not mean the next stop is major lows but for now it is time to enjoy the profits you made. My regret is getting whippy dipped (that's atechnical term) out of my long in the GDX gold miners ETF. We bought the open Thursday and had to stop out Friday.

Time for defense

This is a chart of the offense/defense index I have used in Barron's Online several times over the years. Credit for Boris Simonder for creating the idea that I have copied using these ETFs.


Anyway, this week in Quick Takes Pro I suggested that the upside breakout might be a fake. Fortunately, my gut feeling turned out to be right. The chart suggests shifting to defensive strategies, especially selling rallies vs. buying dips.

The Total Spin Zone

No, not Bill O'Reilly.

Like Keith Olberman talking up Obama or Sean Hannity talking up Bush, mutual fund managers are applying maximum spin to get the public to part with their cash. I love it when one quotes the technicals, specifically how breadth is still strong. Yes, the advance-decline line is still OK and new 52-week highs beat lows but when we look at individual sectors we see the real story. Group after group has broken down. That is all we need to see.

I was accused of being a perma-bear during the latter half of the rally (basically missing July, which admittedly was huge) but in August I did get with the program. Why? Sector after sector was breaking out from technical patterns. Even though the total gains were muted I knew enough to stop fighting the tape.

Now, we see the opposite. Sectors are dropping like flies.

Check out this headline from MarketWatch mid-day Friday:

Early-cycle bird gets worm -As investors hunt for higher returns amid a “new normal” of reduced expectations, analysts point to early-cycle stocks as among those that stand to gain as Asian demand for goods picks up.

Nice fundamentals. Too bad the tape is saying just the opposite.

Thursday's rally has been obliterated. It may yet turn around today and close well but the impetus for Thursday's performance is gone. Something new will have to take its place to fire up the herd. What will it be? I'll take suggestions.

Quote from the past

Ronald Reagan once said, "The nine most terrifying words in the English language are: ‘I'm from the government and I'm here to help.'

Bounce!

I will admit that I did not expect quite this much of a bounce in today's session (Dow is up 152 as I write) but I did expect the market would indeed react to oversold conditions. Here is one of the charts from Wednesday's column updated for early afternoon today (and switched from the regular to the unweighted S&P 500 because it looks a lot prettier).

Finally time?

This is it
Make no mistake where you are
This is it
Your back's to the corner
This is it
Don't be a fool anymore
This is it
The waiting is over
No room to run
No way to hide
No time for wondering why
It's here

- Kenny Loggins

I did not know Mr. Loggins was looking for a correction in the stock market. I hinted at this lyrics set in this morning's newsletter and while I cannot run through the individual signs here I can say that there are plenty.

Check your breadth readings. For you Sherman and Marion fans, check the McClellan Oscillator, too.

Homie, Mo and Seven More Failures

Today's column covered pending breakdowns in the homebuilders and declining trends in the mortgage finance sector. I wanted to give Fannie and Freddie a quick mention as being part of the mo fi sector's decline but my editor said not to bother with stocks that are worthless.

Anyway, the column fit in nicely with last week's efforts when I panned the banking sector. Quick Takes Pro subscribers may have gotten bored with me telling them I did not like bank stocks but I suppose that any of them that found some to short are probably OK with it.

Dick Bove? Nah. He is a bank analyst that you should indeed heed but he was not the cause of today's bank-led reversal. The charts looks iffy last month and negative this month. The news over the past few days of seven more bank failures that took the year's total over the 100 market is just gravy for the bears.

I don't want to get caught in another bear trap as the market dips to its trendline but the stars (technicals) are lined up for something negative to happen here. We may have indeed seen the top.

MTA EF auctions off its members

The Market Technicians Association Educational Foundation (MTAEF) auctioned off lunch with a host of famous and not-so famous technical analysts on eBay. Here is a screen capture from Bloomberg:

You'll have to click it to read it but basically the top fetcher was Robert Prechter. Someone paid $7000 (seven grand) for the privilege of taking him to lunch and they still have to pay for the lunch!

Who says technical analysis is not part of the market's mainstream?

The reason for the auction was to raise money for the foundation to help in its effort to establish "for credit" technical analysis courses at the university level. You would be surprised to learn just how many universities already offer them.

Here is the link to the fundraiser, which will take place at Baruch College in NYC (where the MTA library now resides). http://www.mtaeducationalfoundation.org/libraryopeningnov1755.html

Speakers will include:

• Robert Barbera, Ph.D.; Executive Vice President & Chief Economist at ITG, Investment Technology Group
  
• John Mendelson; Senior Vice President, Market Analysis at Potomac Research Group
  
• Jason Trennert; Managing Partner & Chief Investment Strategist at Strategas Research Partners
• Louise Yamada, CMT; Managing Director of LYA
• Edward Yardeni, Ph.D.; President of Yardeni Research, Inc

Fun, Fun, Fun till Daddy makes the charts work!

This chart has more than just Wednesday's bearish reversal to show. It has four reversals of prior technical signals within the span of two weeks. Is it any wonder nobody is getting it right?

This is not how it worked just a few years ago. When breakouts happened, they happened. And when they failed on rare occasion they did not turn around the next day and rocket higher.

Here is Morgan Stanley. While it did not rocket higher immediately after failing it does show a pretty good looking breakout followed immediately by a key reversal day.

To bring it up to date, look at yesterday's bar when it released its earnings. Yep, that is an inverted hammer on candle charts and rather bearish with volume like that.

Yes, chart watchers have to adapt but the rules of TA are quite different than the were.

We constantly read that technical analysis is a self-fulfilling prophecy. By that logic, so is evolution, pal. Here is the tautology (look that one up in your Bill O'Reilly dictionary). The fittest survive. Why do they survive? Because they are fit.

Stated like that I have to laugh. TA attempts to gauge the behavior of the masses. When everyone is looking at the same charts they behave the same way and TA forecasts it!

Seriously, too many people are now looking at TA and it does indeed effect it. No, it does not make it come true. Quite the opposite, it F's it up big time. The Santa Claus rally happens before Thanksgiving. How about that head-and-shoulders pattern EVERYONE saw in June?

Let's lapse into physics, something we all do when we talk about trends (inertia) and momentum. The Heisenberg Uncertainty Principle states that the position and momentum of an object cannot be known together with certainty. The simple act of observing an object alters it (measuring devices or even photons hitting it) although it really is a moot point when we get above the atomic level.

Today, there are zillions of observers on the market. They talk. They act. They effect the market. (bet you did not know I co-majored in physics in college)

Self fulfilling? Try self-defeating. We as analysts must develop new tools or risk becoming as useless as (insert favorite market goat).

Chase is screwing me again!

Will it never end? How many times will Chase - due to their mistakes - charge me more fees? Why have I dragged my feet leaving? Perhaps because it is a hassle to transfer all automatic deposts and automatic debits to another bank. I know I still have one more manager to visit as a last ditch attempt to reverse the first set of fees.

Here is the latest. Last week, I deposited a decent sized check at my local branch. Surprisingly, the fund were available, according to my online account, the next day. Hmmmm, positive surprise.

So, I wrote some checks to pay some bills and transferred a large chunk to pay off a credit card balance - a Chase credit card, I might add.

Two days later, I get a notice that the check was being returned. Why? Incorrect endorsement. What?

I signed that check the exact way I sign every check I deposit but if it was not correct then why did the teller not say so? Clearly, she thought it was OK.

And now, you guessed it, they charged me an insufficient funds fee (on top of the returned check fee). They failed to notice that all the money remained with Chase. I paid a Chase credit card with it (I never mailed the checks since the problem started).

Once again, they charged me fees for services they performed (unnecessarily) that were all internal to the bank. They laid out no money to anyone else.

Now, where is my KY? I want to minimize the pain the next time the do this - and I am confident they will.

By the way, on the home equity loan front, Chase offered to lock me in at 7 point something percent. Ditech offered 5 point something.

What bear market?

This chart ran in Quick Takes Pro this morning before the open. The point was that Apple was at all-time highs - not just highs for the rally from March.

Bear market of 2008? What bear market? But with this stock now at resistance and weekly RSI reaching overbought levels, well, you know.

That's just one stock. What gets me is that any stock could do this. Remember, just seven months ago the financial world was on the brink of collapse (that's what they told us). To see not only business as usual but record results so soon means that either Steve Jobs and company are the Goldman Sachs of the tech sector or that the entire financial fiasco was a load of crap.

Sorry for the strong word but it could have been stronger. I still cringe when I think back to former Treasury secretary Hank (my chain) Paulson crying that we have to bail out the banks or we'll cease as a nation. Good companies like Apple are too strong to go down when the bad companies implode. That's what the free market is supposed to show.

The trend is up but.....

Here is a chart of the Latin America 40 ETF. Clearly, the trend is up but MACD is finally showing something interesting for the bears.

The last time MACD got up this high was in June just before the market corrected. Since the trend is still up it would be a good idea to wait for MACD to actually put in a downside crossover between its two component lines before growling.

In other words, the trend is still up! But now with some actual evidence to say it is too high for this point in time.

Don't forget, we put up a chart of the day on the home page http://www.quicktakespro.com

Sumitomo predicts US Dollar index to 50

Quote from trader Isam Laroui - In my humble opinion, as a prediction this ranks up there with Dow 30,000. Coming after a prolonged USDJPY decline it could also be a decent contrarian signal.

Quote from analyst Ian MacAvity - That forecast is, to be polite, slightly off the top of any lunacy scale I'm familiar with... but it does give me a fun slide to work with in a talk next week!

Here is Ian's chart.
Quote from Ricky Riccardo - It's redic-u-lus!

TA: Plain and Simple 3rd Edition coming soon

Warning - Shameless commercial plug.

The third edition of Technical Analysis: Plain and Simple is scheduled for release in January. It is available for free preview online at http://my.safaribooksonline.com/9780137057061.

From this page, click on the link to the table of contents. My favorite chapter is "Case Study - Bizarro World" that covers what went wrong with analysis in 2008-2009.

If you are looking for a basic book on technical analysis, this is it. And it is almost as sarcastic as this blog.

Oil Gushes Higher

OK, I wrote the kind of corny headline financial editors love.

One look at this chart, however, gives you the story. Oil is looking very hot right now.

Now look at the weekly chart. Either the economy is going full bore or the speculators are back. Take your pick.

Or maybe it is a knock on the greenback? Doesn't' matter to me as both the newsletter and the fund went long days ago.

Dow 10K

Today's column was about the magic round numbers of Dow 10K and S&P 1100. I called them bunk but let the reader with a rather bullish impression. I am still looking for a major sell off as the series of cyclical bulls and bears continues. Could be tomorrow now that 10K is here. Could be 10,300 as I suggested was possible in the article. Somehow, I think it will be in between just to make everyone look bad.

See blog post under this one.

Why the market will tank

"Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture," the Wall Street Journal reported. "Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal."

Is it any wonder that Main Street hates Wall Street? Nothing seems to have changed and the next crisis is coming. When is anyone's guess but the lunatics are still running the asylum.

Irresponsible CNBC

This morning, I caught the tail end of a segment on CNBC that perked up my ears. They were trying to debunk the feeling that the US dollar was going to heck in a hand basket. For proof, they and put up a chart that began at the end of the third quarter of last year and ended Sep 30 of this year. Exactly one year, quarter to quarter. The idea was to show that the dollar is not at new lows and by definition that means it has to have a positive rate of change from the actual lows to now.

Supposedly, the trend is not as bad as we think. Really? Can anyone there debate me that since March, the trend in the US dollar is down. Since January 2002, the trend in the US dollar is down. And while I will concede that there is no actual declining trend as defined by TA books, the US dollar is HALF of what it was in the 1980s.

Here is the current chart with Dave Landry's big blue line (that a 6-year old could draw on the chart with crayon). The trend is down - period.

Oh, the the dollar index is actually lower 9/30/09 than it was 9/30/08.

I am not saying it will crash or even stay at low levels. But do not try to spin this in your bubblevision way. The greenback is reeling. Calling a Q3 to Q3 comparison positive was not only incorrect but it was irresponsible.

Trader Tax - here we go again

Once again they are talking about taxing stock transactions. They really don't have a clue, do they?
http://online.wsj.com/article/SB125512957855977163.html

From Tom Tankka:
The "real" cost will be less trading, thinner markets, more volatility, and volume moving overseas to trade will be much higher.

Money is fluid. It won't stay here for prestige, that is for sure. Liquidity was the problem last year in the form of a credit crunch. This will kick off an equity crunch.

Forgive the political post but this directly affects my industry - customers, dealers, information providers, analysts and yes, small investors. A tax is a tax is a tax.

Gold survey results

The survey I offered on gold last week got half the responses than the stocks survey. However, it was split again on where everyone thinks it is going. The majority are looking for 1150 sometime before the end of the year but second place is split evenly between up a lot higher and down a lot. So much for consensus and skinny tails.

Bottom line - I am not swayed from my view that the gold bull market has entered its next leg up.

Voodoo technicals

I have railed against the classification of technical analysis as voodoo and prediction since I believe, when properly applied, all it does is give you probabilities so you can make one decision - buy, sell or hold. Yes, if you buy you are "predicting" the market will go up but you do not really know how high and for how long.

I have seen a lot of "experts" these days talking about how the market did this BECAUSE it hit some moving average or some indicator reached some level. This is crap and only adds to the perception that TA is a bunch of hooey.

The market does not reverse because it hits an average. The market reverses if sellers become more active than buyers and that TENDS to happen around the average or resistance level. It TENDS to happen when the market slows down in its speed of advance and sellers finally poke their heads out of their caves.

Please run from any web videos you see where they say "the dollar did this" and "that led to that" and "then it finally calmed down so stocks stopped moving." Its CRAP!!!! And it is useless in telling you what to do about it.

NOBODY knows where the markets are going and NOBODY knows why things are happening AS THEY ARE HAPPENING. Everyone is a genius after the fact. My job is to weigh the evidence and make a decision. And then to know as soon as possible if it was the wrong decision.

OK, rant over. No, I will not divulge the name of the web-based advisory that sparked my rage.

Feeling Heavy

A number of sectors have moved under their 50-day averages and then bounced to test them. Despite the peppy performance Thursday and all sorts of good stuff (Sept sales data, Alcoa earnings, Dell and eBay upgrades) the market feels heavy to me. The high was 1070 Thursday and 1080 two weeks ago. Close enough to 1100 with a dip in the middle to ef up the bears first?

Can't say anymore here in deference to paid subscribers.

Gold et al

Today's column was on the short- and long-term breakouts in gold. Let's do a quickie poll on where everyone thinks it is going. If we listen to the inflationistas, gold is going to 2 grand thanks to all the money Uncle Sam is printing. If we listen to the deflation crowd, gold commericals are way short and gold small specs are way long to set up a tumble. And that does not include the damage to the economy that will take a long time to fix.

The time frame says year end but it is not a forecast for 12/31, just a "by year end this will happen at some point."

Chart of the Day

Just an FYI.

The Quick Takes Pro home page has been changed to offer a chart of the day. Check it out.

Don't worry, we won't try to sell you anything (unless you ask).

Greek stocks crumble (what??)

A headline from the financial media:

Greek stocks crumble
Socialist win in weekend parliamentary elections leaves investors seeking market clues.

Crumble? Really. Look at this chart:

I don't know if you can see it without clicking on the chart to blow it up but that line in red says the index lost, hold on to your hats, 0.48%. Yes, zero point four eight percent.

Can a brotha get a break?

Great Quote

From a discussion on a professional technical analysis board:

It only takes one trade, probably the next one, to destroy you in this business - Larry Williams.

If you think you have the markets figured out, post this to mirror so you will see it every morning when you get ready for work.

Heffalumps and Woozles

Heffalumps and Woozles
are very confuzle
- Winnie the Pooh

Why Winnie the Pooh? The song starts with:

They're black they're brown they're up their down
They're in they're out they're all about
They're far they're near they're gone they're here
They're quick and slick and insincere
Beware Beware Be a very wary bear

You can substitute "wary bull" if you like. The point is that from a technical point of view, the evidence looks like these lyrics. Its a breakout then its a breakdown. Volume does not matter then it does. Trendlines do not matter. And no news affects the markets like we think it should.

For you youngsters without kids and no recollection of Winnie and friends, how about a tune from portfolio manager Katie Perry?

'Cause you're hot and you're cold
You're yes and you're no
You're in and you're out
You're up and you're down

You're wrong when it's right
You're black and it's white
We fight, we break up
We hug, we make up

(sung) I bought a stock and I liked it. Hope my co-manager don't mind it.

You can't have it both ways

Over the past few months, many technical holy grails, such as breakouts on high volume should be bought, have not worked. Then two weeks ago, all of the sudden an reversal bar on high volume means the end of the bull market.

Either it works or it doesn't. And yes, we all pray in the Church of What's Working Now but the gospel there does not change on a daily basis. Volume matters, then it doesn't and now it does.

Riddle me this, why did "they" make such a stink over the Sep 30 decline when traded high volume but closed in the middle of its range? All of the sudden traditional distribution days work again? If the stock market has broken down then how come volume was not really heavy today when the Dow sheds 200 points?

Yes, it was heavy volume on a big decline but if distribution days work again then volume should have been higher. After all, the rising trend from July was broken rather decisively.

I've already said that retail stock trading has jumped the shark. There was a piece on Minyanville about how lawmakers can usual inside information legally. With Goldman Sachs pulling Washington's strings, too, I have a feeling that investments as a whole are strapping on the water skis.

* For those confused by the reference, the TV show Happy Days was said to have peaked when they had Fonzie jump over a roped off shark while water skiing.

Mortgage rates fall again

Check out this headline on a financial website today:
U.S. benchmark 30-year mortgage rate falls below 5%

Funny, just yesterday (I swear it was just the other day - Reo Speedwagon) Ditech had an ad on TV saying "As you might have noticed, interest rates are going up."

Do you mean to tell me that I cannot trust Madison Avenue either? I guess any entity known for its address is just full of baloney.

Madison Ave
Wall Street
Pennsylvania Ave

Will Main Street be next? How about all those restaurants named for their street addresses? Pass the Tums.

In all seriousness, this makes it very easy for me to transfer my mortgage from Chase, where you will recall I got screwed and nobody there has a vested interest in caring that I am pulling all my business, to somewhere else at a better rate.

Greenback Bounce?

In today's column, I presented a case for a short-term bounce in the dollar. Will it happen? Maybe, maybe not but the evidence does at least give it a chance.

Sterling has broken down (see the chart of the day at the www.quicktakespro.com home page). The loonie has flattened out and and has room to go to short-term support. The Mexican Peso has been flat vs. the dollar since April.

These are warning signs of two minor and one mid level currency vs. the dollar index. The other mid-level is the yen and it remains in a strong rising trend. The 800 pound gorilla (or 57 stone gorilla for you pre-1985 Brits) remains the euro as it is about 57% of the dollar index. And it, too, remains in a rally.

I'll have more in my monthly Marketwatch column due out Thursday but I can say now that there are some momentum issues in yen and euro.

And just in case you think the entire weakness thing in since the greenback peaked in March is thanks to the yen, think again. The Aussie dollar is the thunder from down under. Watch for momentum issues here, too.

Filipino Ferry Boat

From a chat room, posted by Clayton Seitz:

At as Mike Epstein would suggest, this market is starting to feel like a Filipino ferry with an awful lot of folks on one side of the boat."

OK, it is a little insensitive to actual human casualties that occasionally occur in the less developed parts of the world but Mike was a trader, not a diplomat.

So what works?

I needed to sit down yesterday and probably needed a good single malt scotch. Good thing it was still 10 am and even I have standards.

I am going to withhold the names but rest assured I am not claiming any credit here.

• Gold rallies again to the grand mark and holds. Since I have never heard of a quadruple (or quintuple) top, this reeks of bullishness.
• A colleague points out a giant inverse head-and-shoulders pattern. Again this is bullish but requires a breakout before we take action.
• A gold stocks trader friend tells me all the signs are positive, from price action to Barrick Gold removing its hedges to the economy with the stimulus inevitably leading to inflation.

OK, back up the armored car. Let's buy!

Not so fast, Goldmember.

• Gold COT shows small speculators at a huge net long while commercials at a huge net short.
• Short-term gold cycle just peaked.
• Gold does not go up over the past few weeks in a meaningful way given all the bad news, stimulus money and talk of leaving the dollar in the circular file as a world currency.

OK, cancel that buy order.

Then an insider in the gold business tosses in his two ounces.

• Most of the real activity is done away from the exchanges and that means COT does not pick it up. The physical market is what counts.

OK, tape up that buy order and send it in.

The COT guy and the insider guy are like the irresistible force and the immovable object, they are that good. The rest of us are in a different league and caught in the epic battle between the two.

But wait, there is more! (quoted from "Off Kilter", a bagpipe led rock band in Disney World Canada pavilion)

A bearish one-day reversal on higher volume - like the one we had this week in the stock market - should be sold, right? That's what we are taught, at least those of us that took the time to get some actual chart reading training.

Nope. A few guys did some studies showing that on average the market was actually up over the next few days.

Wait a minute, a key outside-day reversal to the downside with heavy volume means the market will go up? Where is that single malt?

I really am having a hard time philosophically with all of this. What works? Is it nuts and bolts chart reading of trends? Patterns, breakouts, momentum, COT, you name it - are apparently all fluff these days. Breakdowns are fakeouts most of the time. Volume falls for six months as stocks rally 60%.

OK, I am done whining. Here is something possibly useful for those who read this entire post - the stock market is still in a rising trend. Breadth is still good. Rising trendlines are still intact. And for you fundamental types, the recent reversal pause and breakout in natural gas must be saying something positive. I don't care if it was a March 2009 stocks did not implode relief rally or a demand driven rise thanks to future economic activity, either.

The Future of Capitalism

I was rummaging through my document archives and found some notes I took on Lester Thurow's "The Future of Capitalism" waaaaay back in 1998. Given the unfortunate whispers of the decline of the United States as a global economic power I thought this might be of interest. Remember, these are just a few sketchy notes. And I have no idea what "Plates" are.

Perhaps there are some useful nuggets in there. I like the one about religious fundamentalism (remember, this is from 1998).

---------------------------------------
Surging inequality
China focus will change to India focus
Communism had good education
No competitor to capitalism now so it will not implode

Economic Surface of the Earth

End of Communism (Plate 1)
Offers lots of cheap labor

Migration (plate 4) pushes unskilled workers into 1st world

New technologies (plate 2) generates skill shift
Need to offset this (by massive skill investment) is resisted by the elderly (plate 3)

Global economy (plate 4) forces wages down

Without dominant power (plate 5) there is no economic locomotive.

Progress occurs when technology meets ideology

Inflation is extinct

Japan will crack
Europe is biased towards social programs so jobs will flee
Global bubbles burst together
Uncertainty breeds religious fundamentalism (its familiar in uncertain times)

Capital is human and no longer ownable

Need to spur long-term thinking and R&D - Government's only role

More on Why I am leaving Chase

Perhaps the CEOs of JPMorgan Chase and Bank of America read this blog and were very nervous. Naaaahhhh. But it is a nice coincidence that the news of a revised fee structure came out this week. Debit card fees were the exact reason I had enough of Chase.

Read the NY Times article:
http://tinyurl.com/nabljb

I am still leaving - unless they apply some of these rules retroactively to my accounts. Penny wise and pound foolish.

Podcast

I was interviewed today for the Market Technicians Association (MTA) podcast series. It is a general interview from getting into the TA business, how my day goes and what I think about the stock market. Subscribers and blog readers know what I think.

But if you are new to the business, looking for a technical analysis job or fresh out of school the first half might be interesting to you.

http://media.mta.org/podcasts/2009-SEP22-michaelkahn.mp3

Poll results

Now that I put the blog back to its regular color it may be hard to see the poll numbers on the right side of this page. Here they are in a nutshell:

Where will the S&P 500 top out in the next three months? Out of 123 responses it was a dead heat among 1200 or more, 1150, 1100 and "its there now." There is absolutely no consensus or even leaning among responders to the poll.

As for the next question - After the above, how deep will the next fall be? We had 104 responses and it was 38% for "respectable correction like July." That's on the order of 10% using round numbers.

28% went for "scary correction" and that is take to be on the order of 20% from wherever it tops.

What was interesting was the rather significant percentage of people looking for new bear market lows. Not enough to say anything contrarian but there are people out there that think this is the mother of all sucker's rallies.

What does it all mean for the buy, sell or hold decision. Of course, this is a tiny sample size but it does give us an idea for the mood out there. And it is not of much help in determining the buy, sell or hold decision.

It was a good try. Let's see how the mood changes when the expected 10% correction does finally hit. I bet it will sour in a hurry.

Why I am pulling all my business from Chase

JPMorganChaseWamuBankOneBearStearns pulled some crap on me this week and although this megacorp is one of the few financial companies still raking it in they make a good example of how a huge corporation fails to serve its customers.

Through mergers, I know have three personal accounts, three personal credit cards, one business account, one business credit card and one home equity loan with Chase. That's a lot of "relationships," as they love to say. Yes, it is still small change in the greater scheme of things but I generate enough deposits and interest payments to make it worth their while to have me as a customer.

I won't bore you with what they did - or should I say did not do - that is making me take all of my accounts and loans elsewhere. The point I want to make is that as I went up the chain of command from teller to officer to manager to central customer support to supervisor there was absolutely no flexibility on how they were going to fix the problem.

Before ending the call with the supervisor I asked, "so when I take my accounts elsewhere is there going to be someone there who cares?"

Think about this - nobody seems to have a vested interest in my business. Even the Dunkin Donuts shop down the block bent over backwards to fix an order error that actually cost him money. And we are talking about a customer who spends just a few dollars a week there. I pay Chase many hundreds in mortgage interest each month let alone what the deposits might generate for them.

I can take my business elsewhere but nobody will see a demerit on their record for it. Not the branch. Not the company. Not the loan officer.

I liked the branch I used - and it was Washington Mutual - as they knew me and provided excellent and friendly service. Their tellers were creative in solving any problem I had and I felt good banking there. Enter Chase and the place is now a cookie cutter, by the book robot.

Too big to fail? Oh, they will, at least as a retail bank. But then again, maybe that was their plan. Scoop up WAMU for nothing and use their assets to make sweetheart deals elsewhere.

Silly American taxpayer, we don't give a @#$%^

The Sprit of the analysis

A few weeks ago, I wrote about some changes in the stocks that were getting way too much share of the market's daily volume. One of them was Citigroup (aren't they like Village-group by now?) and I said it had an island gap reversal.

One reader commented that I was wrong about the pattern since it did not conform exactly to the rules. My reply was that it met the spirit of the analysis if not the letter of the law. It also had a small RSI divergence so it was good enough for me.

As we can see in this chart two weeks later, it worked quite nicely.

The moral of the story is once again to use a fat crayon and not a fine point pen to draw technical patterns.

Apologies for the Blog Color

I changed the background color for the blog so everyone can see the poll results better. Apparently, blogger does not give as much color control as we need and for some reason puts the poll results in white color. Why on Earth?

If anyone knows how to change that away from white, please let me know.

Results so far - absolutely no concensus on where the market is going over the next three months but if it tops a slightly bigger than June-July correction is expected.

So far, these polls are more bull than bear although obviously too small a sample at this time.

Take the Polls

There are two polls to the right. The first asks how high the market is going before correcting within the next three months. The second asks how bad the correction will be, again assuming it happens within the next three months.

If you think the rally will last into next year without an important pullback, choose 1200 or more and just a few percent dip.

Rant on Market Analysis

This is an excerpt from Monday's Quick Takes Pro newsletter.

We’ve been thinking a lot about market analysis over the past few weeks. Why has what we’ve had great success using stopped working?

Yes, we know markets evolve and we need to adapt but this is not what we mean. We know that not every chart pattern works as intended but over time, and using appropriate risk anagement, the odds of making money are pretty good. Or at least they were.

Now, we see things like a shooting star candle, complete with a confirming next day decline, lead to a new high immediately after that. Again, it happens but not day in and day out like it has this year. What about falling volume over the course of the rally and how rallies need fuel – volume – to continue?

We’ve seen technical analysis “events” that were extremely flawed just keep going as if they were textbook. The golden crosses come to mind here, as the simple average crosses should not have meant anything but then the exponential Nasdaq cross soon developed. The Nasdaq signal has a mediocre track record but then the S&P cross happened.

Then Dow Theory supposedly signals a buy but the sentiment was all wrong. It was like water torture as a parade of bad signals marched by, each flipping us the bird. Had they been bunched closer together then maybe their sum total would have been enough to provide a more classic signal by a confluence of indicators.

But no, they were spread out far and wide. What bothers us now is the lack of credibility that technical analysis – and all analysis, by the way – has developed in August and September. Sell in May? No way! Sell at resistance? No chance! (OK it was a very weak rhyme). Sell on a divergence? Forget it, we cannot even begin to rhyme that one. (Suddenly Alice Cooper lyrics come to mind.)

So what is going to happen when the signals for a true change in trend pop up? Will we notice them? Will anyone listen if we report them?

In order to cope with this we are going to have to look at different types of data generated by the market and the actions of those within. It is still the basic definition of technical analysis but we are going to have to forego chart patterns and momentum and all the other traditional trappings. This market is not trading as a fully free and fully functional market should. Not with all that liquidity being pumped in via free money at the Fed window. Not with governments stepping in to prevent capitalism from working by culling the herd of ineffective users of capital – like AIG, General Motors and the like.

So what then? Insider actions can be one way to cope. Market sentiment can be another
and we don’t mean the VIX. Indicators based on options, volume and tick are all suspect in a world where price changes are razor thin, firms front run the “book” and we have no idea if a trade was a hedge or an actual expression of bullish or bearish opinion. Did I buy a put option because I was bearish or to lay off risk of the long ETF I bought because I am bullish?

Time to end this rant but before we do we want to get across the message that we are indeed adapting to the new world order. Perhaps leapfrogging might be a better term as we are not adapting the indicators but rather we are adapting the entire concept of technical market analysis. Sorry Edwards and Magee, your time has past.

In this blog, I wrote that I thought stock trading has jumped the shark. When football coach Jimmy Johnson is touting a stock trading software package and using incorrect terminology to boot I have to believe that this industry is pulling out all the stops as it dies.

All of that money being pumped into the economy has created an overall stock market bubble once again. It is not going into the economy as jobs continue to disappear. Yeah, yeah at a slower rate but disappear they do. So where is the money going? Into stocks.

And what happens after bubbles burst? Well, you know. The problem is that bubbles can last a lot longer than we can fight them.

The worst case scenario

I remember giving a speech to a technical analysis group in 2001 and a speaker before me was talking about a giant head-and-shoulders pattern where the 2000 peak was the head. I did not see the shoulders but I imagine the 1998 peak and the post 9/11 rally peak were supposed to be them.

Anyway, the projected a downside target for the S&P 500 to something like 200 - near the end of the 1987 crash. As we know, it reached the 700s.

But now, we have the same grizzlies looking at the giant double top and projecting a drop down to the same levels. Why not? Same peaks and same giant movement as before.

I do not use linear charts for downside projection. I use log scaling and that brings me to my worst case projection. Based on basic pattern measurements, I get about 400 as a low - and that is if the depression-meisters get their unfortunate way.

I have said all along - for the past year - literally - that we would undercut the November low (hello March) and then come back one more time to scare people without setting a new low. Under this scenario, we get a nice base and the giant decade long trading range can continue with the next mega bull market - that will not set a significantly higher high.

Yes, I wildly underestimated the current rally. Let's get over that already.

We remember

On this most solemn of anniversaries, I would not be part of the New York community and an American if I did not acknowledge it here.

I was already working at home full time by Sep 11, 2001 so I was not in danger personally. However, the year before I was working in the World Financial Center and my morning commute took me through the twin towers perhaps 10 minutes before the first plane hit. From my 27^th floor window, I would have been watching debris falling before they gave the order to evacuate.

Needless to say, 9/11 affects me. And like so many Americans I remember exactly where I was, what I was doing, to whom I was speaking and what the weather outside was doing.

I also remember that the work world stopped and we were glued to the television screen. What may be surprising to many is that my preferred TV source was CNBC. I found them to be extremely professional, knowledgable and connected to downtown New York.

I also remember trying to keep order in my life by doing "normal" things. That day, I happened to need to bring my car stereo in for repair. The TV was on at the shop and the faces of the people working there spoke louder than words. They were in shock and doing normal activities, like fixing a radio, was the best option to keep them from breaking down.

Here is what I wrote in my Sep 26, 2001 Barron's Online column - the first one we did after the attacks:

"Much has been written about how the tragic events of September 11 will tip the economy over the brink and into recession. That shouldn't be too surprising. For the first time in recent memory, people were just plain scared -- about their safety, about the U.S. going to war, about the stock market's record-setting drop last week."

The word "scared" gives us the main point. Today, eight years later we are no longer scared and that should speak towards our collective spirit. That we continue to have anniversary ceremonies means we will never forget and we will always remain unified, not matter what partisan garbage happens in DC and everywhere else.

I Can Make it Say Whatever I Want

Don't you love data analysis? How about statistics? or (shudder) charting? And let's not forget the barrier to entry in the market analysis business (that would be none).

You read it here, folks, I can make a chart say whatever I want it to say if I torture the data long enough. Here is a chart I saw posted by a chart watching analyst.

According to his analysis, the market is finally hitting a real resistance level. Real? Are you kidding? What makes this resistance? Where is the justification from a psychological point of view to make people want to sell stocks and raise supply of shares in the market?

"Regular" resistance, or horizontal resistance, arises from the market's memory. It was a price in the past that brought out the sellers, either because they thought it was expensive or it was a place they could get out at break-even after a lousy purchase decision.

To be fair, trendlines do persist and come back into play after the market leaves them. People can get it in their heads that prices change at a certain rate so they might view certain levels as attractive or unattractive over time.

But some random line drawn on a chart is not necessarily a trendline. Look at the next chart.

Here, I left the top line in place as both the other guy and I agree that it is a valid bear market trendline. But instead of cherry picking the bottom line I dropped a parallel down and lo and behold it hits the market four times! Three were bottoms and one was a top (in June).

Using this analysis, the market had a major breakout in July through "regular" resistance and the lower trend channel line. The target theoretically is the upper line.

All of this is great in markets gone by but after last year these sorts of simple chart scribblings don't have the same efficacy. Too many people are watching and the market is still too unstable with the three-month T-bill still down there near zero (0.135% as of the close today).

You know what is really scary? This analyst may turn out to be right but not for the reason he cited. That would be enough for unsuspecting investors to subscribe to his services and get turned into market chum next time around.

Gold Shines and Implodes

Gold was one hot commodity over the past few days thanks to a perfect storm of fundamentals, technicals and the dollar. But don't let the edited title of today's column fool you, I am looking for higher prices.

So why title this post "shines and implodes?" Because the yellow metal hit resistance and retreated - in a big way.

Check out this chart from Futuresource.com.


That is one intraday failure, boy howdy! Given that it took place at resistance and with a huge fanfare of hitting the 1000 mark - which is nothing but a number on the chart, BTW - I have to think that we will get a better chance to enter long.

For disclosure purposes, I have owned gold since 570 and again somewhere in the high 800s (I think). Anyway, that it fails to hold above 1000 again will make the armchair technical analysts say "I told you so! Deflation is coming."

However, 1000 is just a round number and not a place where true technical resistance exists. A pullback now, maybe 50 bucks, would shake out the weak hands and set the stage for a true upside breakout.