Attention – The King is Leaving

Like all good things, this one is my last post as the King of Peanut Gallery. Tomorrow I may rejoin the masses at Peanut Gallery and play death matches with villains punching one-star rating on my posts.

I must confess though. I loved being the King. In fact if you have any sense of courtesy left, I would like to be addressed as the King forever.

Regular readers know my calls on market movements have been fairly on the money in the last few days, with me pressing largely on the long side.  As always, I log my calls and trades close to real time in Twitter.  Today, as a special treat, I am going to deflect from my usual style of talking only about short term. I want to leave you with thoughts on four different time fractals.

But first, you all know about US creating the QE2 shit. You all know about Europe being in shit. And you all know about Japanese not being able to do shit. I believe these factors may contribute in different ways depending on the time horizon.

Short Term (2 days – 1 week)

Momentum is God. Right now no matter what your left brain says, you got to respect the momentum. At the same time we are possibly seeing the end post at horizon. The markets should remain in upward momentum for few more days. I am placing my bets around October 7 or 8^th with the NFP report acting as a probable catalyst for reversal momentum. For now, talking heads will use QE2 as their excuse to continue to go higher. In fact they will use QE2 as their excuse to eat the crappiest hot dogs, cheat on their partners, pick boogers in public and dabble in witchcraft.

Another reason why we may see continued momentum is because of Mommy’s basement trader. He is still bearish and not fully on with the program. In the past, the big boys had two sources of gullible idiots to loot from – Popcorn Investor and the Basement Trader. The Popcorn Investor seems to have disappeared from the market.  If that is indeed true, the poor basement trader is the lone insect caught in the web left to be pillaged. And until the bitch remains bearish, we will continue the uptrend. Another more quantitative example is the CBOE equity put/call ratio. It is by no stretch in panic territory.  It is at an elevated level though. Around the peak in April we saw the P/C dropping to less than 0.4. We are currently at 0.55. Yes the markets have sometimes bottomed around these levels too. However, what I am trying to point out is the fact that if the markets want, they still have more fuel to run simply based on the fear present in the market. Similarly, there are a few more indicators that are flirting with extended levels but can comfortably remain there for few more days.

Finally, my more esoteric indicators – the solar and lunar cycles are shining green too for few more days.

Intermediate Term (2 weeks – 2 months)

Momentum will be screwed by God. Let me explain. Everyone knows the ugly side of the macros. As far as I am concerned, here is the rub. A full knowledge of the ugly side of macros doesn’t move the markets. A news event, a macro report or a governing decision that confirms the ugly side of the macros is what moves the markets! In the intermediate term, I am confident we will get that catalyst. And when we get it, the markets will be ready to tank. I would guess that it could either coincide with the October 8^th date or may come shortly thereafter. Possible catalysts could be NFP, more credit contagion coming from Europe, QE appearing to lack fire power, delay in QE, one of the states or Sovereigns going ape shit default, currency wars creating major resistance, etc.

Long Term (2 months – 12 months)

Momentum is moot.  Keeping that aside, long term can drastically change based on new events.  My wild guess is that we shall see a resurgence of bulls.  This is assuming the bigger dropping shoes are discovered in the intermediate term. The reasoning is straightforward to me. It won’t be 2008 anymore as far as discovery of hitherto unknown credit problems or non-quantifiable risks are concerned. In other words, we will not see the same intensity of Nasty, even if the markets continue to drag a bit initially. That alone could contribute to a big but docile wall of worry with a “climb and fuck me” sticker on its back.

Long-Long Term (9 months – 2 years)

I believe that it is in our nature to worry and talk about the worst, because of a simple fact – we all are first grade melodramatic bitches. You hear about all the shit that is going to happen to the world. I pose before you a question – do you hear anyone chatting as much about a new disruptive technology taking shape and breaking barriers in the next two years? Do you hear about how a surprise big impact bio tech drug or the end of a dictatorship can move the markets? Exactly! So who carries the element of surprise? Not saying that I am bullish or bearish over long long term, but it is thought provoking, isn’t it?

I am not married to any of the above thoughts. I will adapt if future veers from my crystal ball. At the end of the day, ideas don’t make money. Discipline and action do.  That being said, it is still worth pondering.  Because ideas inspire action and the discipline.

StocksRider

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