iBankCoin
Read Scott here on iBankCoin and also at http://www.createcapital.com/
Joined Jan 19, 2010
717 Blog Posts

Don’t stop thinkin about tomorrow….

Don’t stop, it’ll soon be here…

I should post a video of the Fleetwood Mack classic, but I’m not as cool as the President’s supporters who hijacked this song to help them get elected. Do you think they’ll use it again?

The commentary of “too much liquidity” is reaching a fevered pitch. The hard asset frenzy is reaching a fevered pitch. The Fed’s Jawboning is reaching a fevered pitch. The incredulity of the market’s inability to correct is reaching a fevered pitch.

All of this capital creation (no pun intended) is keeping the dollar low. Interestingly, there has been no DXY breakdown. Yet the breathtaking rise in PM’s is blamed on the dollars weakness. But PM’s rise is a red herring, it is meaningless in the overall economic theme. It is now simply running based on momentum-based asset allocation. The industrial world uses some gold and silver, but not nearly as much as you’d think. They are a surrogate store of value that the FED and Central Banks no longer care about. Sure they’ve tried to keep the prices down over the years because they have feared the perception of inflation. Now we have massive, demand destroying inflation in all the things people use and the FED no longer cares. Why? Because they’ve created the inflation. They want inflation. They need inflation and they hide behind their statistics that everyone knows is a fantasy-based fabrication. They simply Jawbone that inflation is not there, it is “transitory” or can be controlled. Balderdash.

Many market observers ask the next logical question of why. Why would they follow policies that destroy demand and keep pumping the monetary aggregates. Because, as I’ve said before, as long as the prices of financial assets is inflated, perhaps, maybe, confidence will come back and real spending can spontaneously commence, and not just the made-up, green-shoots kind.

The reality is that they have no choice but to continue spewing those falsehoods because their entire policy depends on it. In this totally messed up economic world, they have no choice but to try and buy confidence with everything they have. Plus major banks are in much worse shape than you can imagine. Sure, they are being stuffed with billions. But if that stops, can they keep the balls in the air?  Not a chance.

Why do market participants believe? Because they are reinforced by market action. Just follow the trend is the mantra. But when the situation gets as lopsided as it is now,  investors need to think past the daily trend. They must think about the security and safety of their principal.  

The stock market is living in the low volume fantasy world of computer generated buying and selling. The individual investor is out of the picture other than his/her retirement account. And the contribution to those accounts are what is fueling the momentum trade right now, just like at this time last year. You must get your money into the brokerage account before April 15. And money managers must get your money to work as soon as it comes in. That is what is pushing the insanity, especially in metals, at this time.

But nobody wants to talk about risk to earnings and the demand destruction coming from the constant push higher in everything financial/commodity-related except real estate. What will happen, of course, is that when someone important and meaningful eventually tells you the truth, the market will finally react and everyone who bought any inflated asset will quickly be underwater. Do you think you can sell before the stampede? Have you noticed how thin the market is? The longer the fantasy lingers the worse the outcome. Sure, you can buy a stock that goes up 20% in a week because it happens frequently nowadays. If you do, please sell it because the warped and twisted capitalist system and markets will confiscate your money and you may be surprised when it happens. Then again, you may not be.

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Make or Break time for Oil

Here is a look at oil since before the 2008 spike. This run in oil was the template for the current commodity bubble. And if you don’t think it’s a bubble, then you’d be mistaken. But you’ll only know that in hindsight, rocket…

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A Long Term Look at the SPX

Back in mid-February I noticed an interesting and definitive signal in Copper, a la Japanese Candlesticks (JC). That indicator showed a crystal clear reversal pattern, first a Doji Star and then a Shooting Star. These terms may seem esoteric to you but I have found that reversal patterns in JC, especially in long-term charts, are high percentage winners. Since that post, during a period of major gains for many commodities, copper has fallen about 10%.

Now, believe it or not, last months drop and recovery has created an Evening Doji in the SPX monthly chart. Coming after a major intermediate-term up thrust, it is the first non-traditional techinical sign of a market that may be finished with its fun and festivities.

Granted, the only technical analysis that has worked has been to follow the uptrend and to buy every dip. Any indicator that is widely heralded or easy to see has been rendered impotent. Whether it is through POMO or any of the other liquidity producing manipulations is not important. What is important is where we are and the pattern that is developing.

With the end of tax season in sight, the vast majority of the retirement account inflows will slow significantly. And with only about a hundred billion left in QEII, June is right around the corner.

Chances are we don’t fall off the cliff when everyone expects it. Perhaps, like copper, it will take more than one month and more than one candlestick topping pattern to seal the market’s fate. Considering the market came screaming back from Middle Eastern revolutions, Japan’s disaster and a nuclear meltdown, complacency is running at all time highs while volume is running at multi-year lows.

This and many other in-depth charts are published at CreateCapital/CreateCoin.

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Just follow the trend. Whoops. Too Late!

Let me first say that I am not short anything. I am holding about 25% long since last summer and I recently recommended a few new names. So I am not betting that the market will fall. I am simply here to remind you of the truth through the Purple Haze. That being said, let me just say that the market is–IMHO–clearly in “Mistake Mode” or you can call it a liar if you wish.

This quarter has been pretty wild both within the market and outside of it. News flow has been extreme. Markets actually began to experience distribution shortly before Japan but a historic flow of liquidity after Japan saved the day, again. But since last Wednesday, the market has been on a short-covering, mark-em-up mission. This move is based on nothing fundamental nor is it based on some recovery fantasy. It is, once again, liquidity driven. And not just liquidity but more importantly, our perception of a thoroughly liquidity-flooded market.

We are now at quarter end. The equity market is at three year highs. The most expensive stocks continue to get more expensive. There are still overlooked and undervalued stocks but the major indices and the advance decline line are screaming higher. Some are calling it the greatest bull market in history even if volume is running at 50% of last year.

This is happening while the fundamentals and outside events are rather poor. Earnings and GDP estimates are coming down, some sharply lower. The mantra of “follow the market” wins over everything. But this is what most investors, both large and small, were telling themselves at each and every time the markets peaked. And each modern peak was based primarily on overwhelming liquidity provided by Greenspan’s FED in order to keep growth at any cost.

Bernanke has taken this philosophy and practice and brought it to its most twisted extreme. The funnelling of an average of $5 billion in to markets each and every working day, day after day, for almost two years. That equals about $2 trillion. All that money, plus much of the money on the sidelines has been “forced” into risk assets like stocks and commodities.

If you are an individual investor and you’ve missed this rally, you are probably sick to your stomach. And now–when the 401k, IRA and retirement money comes pouring in at the end of the first quarter and maybe the beginning of the second, let me remind you about this time last year.

Last year this time, QEI was ending and everyone thought the markets would fall. But they rallied hard for two more weeks, until tax day. Then came the indictment of Goldman Sachs, financial reform and the war on Wall Street. Green shoots died and the SPX fell two hundred points. But at this exact time last year– just like now– markets, sentiment, expectations and disbelief was running at 110%. I expect the outcome this year to be very similar. The reasons or excuses may be different, but I want very much to bet that the outlook will be similar. And we may be seeing them as we speak.

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As the worm turns–and the quarter ends.

The machines are very busy today. Every ten minutes or so there is a sizable buy program that runs out of Chi-town. The TICK is beginning to look like the Stochastic Oscillator! This is the same buy program profile seen during the entire low volume snap back from the reality-based selling in response to world and domestic events. You know what they are.

Those programs were run in earnest once it became apparent that consumer confidence was shaken by oil prices. Duh.

Today, FED-Head Bullard presented in Prauge and talked meaningfully about ending QEII early. Imagine that, a well thought-out presentation highlighting some truthy truths. But the market will have none of it. After all, it is the month and quarter end. Money managers/machines must mark-em-up and protect performance, especially since QE is still underway.

The day began a bit differently, with the dollar up and commodities of all stripes lower. But now everything is up for the quarter end celebration. The dollar, silver, gold, oil, even copper, which has been sucking, all up on the day. Volume is again silly-lite. But the long-term trendlines are intact and that is all that matters to the technical traders who glom onto the trending POMO-fed machines.

As I said yesterday, the “smart money” continues to bet that QE will go on for a long time. How else will consumers know how well they’re doing? How else will the government fund its wartime needs? Enjoy!

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All that’s left…

The press will report that the markets were quiet today. Volatility was relatively low and aside from a deal or two, nothing of import happened. But that would not be true. The natural progression of a distorted market continues apace as we reach its market-logical conclusion.

Today’s big winners are oil service, which will enjoy months of earnings expectation upgrades, and the momentum/short squeeze stocks, few of which have news but are ramping sizably.

It is the end of the quarter and what has been working best, namely big cap industrials, speculative mid-cap technology and momentum favorites are mostly all being marked up. “Overvalued stocks” like LULU, OPEN, TZOO, NFLX, YOKU are ramping like there is no tomorrow. What you are witnessing is the final bit of stopping the losses made by those who bet that reality would finally be apparent in the stock market–and put their money where their mouths are. Those unAmerican doubters had about a minute to take a profit before losing again in the face of unlimited free capital and the sentiment that surrounds it.

There’s been lots of speculation about the end of QEII and the beginning of QEIII or more. Many say that it cannot go on and that markets will suffer once complete. But if QE ends, that means not only will banks be “on their own”, but also the government will be too. How can they finance their spending without massive FED buying of each and every Treasury issuance? The smart money says that QE cannot and will not stop anytime soon–whatever it may be called and however they get it done.

Should you buy these short-squeeze heroes? Sure. But make sure you don’t hold them too long. Or overnight for that matter. As the new quarter begins, they should give back between one-third to one-half their recent gains quickly. So be prepared.

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