I highly doubt we are going to see rates raised tomorrow.  The congress is struggling with so much right now, Bernanke can’t risk popping the asset bubble he’s created just yet.  He won’t do it until he absolutely has to, and when he does, I’d be willing to bet he does it all at once.  We’re not going to see a slow and steady increase of interest rates that bleeds this market out.  That being said let’s take a look at a few assets at the tipping point going into 2:15 tomorrow.

The broader market rolled over this afternoon and pierced the 5 day moving average, but recovered to close strong.  Still we saw our 4th doji day in a row, signaling severe indecision in the market.  Odds are that we continue trading within the ascending range, but the FOMC announcement tomorrow afternoon could knock us out of that pattern.  Keep your equity positions small here and join the winning team when a high volume break of the range occurs.

The downward momentum in gold $GLD has been waning over the past two weeks.  The 5 day moving average is my bogey, if $GLD can hop over that line we should see a strong intermediate base in gold and a move back towards the highs.  A break of the triangle to the downside and a move through the 50 day moving average should signal an end to the run in gold, for now.  In the weekly time frame,  I still wouldn’t be surprised to see a retest of the breakout level at 1027 where I believe we could see a massive pile into the gold trade.  I’m long $GLD from 95.45 on a system trade and will stop out below 108.70 which is last Friday’s low.

A similar situation in crude $USO as gold.  We saw two tests of the declining 5 day moving average today which were both rejected.  If we move up above that level tomorrow I’ll look to get long for a swing trade up to the declining 20 day moving average.

The US Dollar $USDX has obviously broken its downtrend.  I believe we are headed up to test the June and August lows, also coincident with the declining 200 day moving average.  The dollar is smelling a raise in interest rates and it’s hard to argue with the action, but I still don’t feel Bernanke has the balls to do it.  Stochastics are overbought here.  Interesting that the equities have not been hit with the dollar moving up, we could be seeing the beginning of a break in that correlation.

The market is handling all of the bank equity issuance in stride, but the liquidity punch bowl may be running a bit dry.  Bank of America $BAC is now trading  about 1.50 below where the retail idiots piled into it on the day of the secondary announcement.  Action here will be very important to the outcome of this market, if buyers of that secondary start to feel major pain, we could see quick and dirty selling in the financials.  As well, Citibank $C has been mauled the past few days as they issue equity to cover the TARP.  I have been on record for quite some time saying that Citibank should be treated like the plague, stay as far away from it as possible and don’t associate with anything having to do with it.  Wells Fargo $WFC is having issues as well as it raises cash to pay back TARP through an equity offering.  The banks are still the key to this market, if they can’t get their act together the financial sector will hold this market back.  Meredith Whitney is out with very negative comments on the banks, I believe she has the pulse of the sector, she’s the axe, ignore her at your own peril.  For it was her that caused the short covering rally in July when she put out intermediate term buy ratings on a whole slew of broker dealers and banks.

I’m off to hockey, yes another 11:30 game.  I gave it Wade Redden hard at the Ranger game last night, but alas, he still allowed Kovalchuck to walk around him in the first period, leading to a penalty and the first Atlanta goal.  This guy is probably the biggest waste of 6.5 million dollars in the history of the game.

Have fun tomorrow, it should be a hell of a show either way.

Both shows had financial journalists as guests tonight, hocking their newest literature.  John Stewart entertained Andrew Ross Sorkin selling his book Too Big to Fail, Steven Colbert with Matt Taibbi talking about his much ballyhooed piece in Rolling Stone on Goldman Sachs.  The tv is entertaining no doubt, but leaves me frustrated.  The shtick that Stewart and Colbert have going is all about bashing classic idiocy and hypocrisy perpetrated by people in power.  But the financial crisis was really the first major go around for these guys in terms of the economic world.  As the crisis developed last year, I can picture both huddling with their writers at some point and saying, “guys, i need all the classic knocks on banks, economists, analysts, the fed, treasury, and anything else i can make fun of, thanks.”

This economic clusterfuck taught us all many lessons for sure, but no one learned more about how to bash everything and anything economic than these two guys.  It’s been entertaining to watch as they felt their way through.  But now it’s starting to become annoying, it’s turned from interesting to watch them learn how badly this financial system is fucked, to sad how they talk about the current system like it used to be all butterflies and fairies.

Not only them, but Sorkin and Taibbi hock their stuff acting like the greed and corruption on Wall Street only became prevalent in the run up to the financial collapse.  Taibbi isn’t as bad as Sorkin, his piece on Goldman Sachs outlined how they have helped to create and profited from many past asset bubbles.  But both still speak like Wall Street used to be a place where our financial system worked for the little guy, the joe schmo.

Look people, Wall Street has never, ever, ever, been in the business of helping the little guy.  The same shenanigans that go on today, happened yesterday, 10 years ago, 100 years ago, and will continue to take place tomorrow.  The only difference are the tools they use to screw you.  Wall Street only cares about America as a whole to the extent that it helps make them money.  I’m convinced that some major players in the short financials game last spring only covered because they were afraid if they didn’t there wouldn’t be much of a market left for them to play in down the road, kind of like what J.P. Morgan said to Jesse Livermore in Reminiscences of a Stock Operator.

I love Stewart and Colbert to death, but if they want to be relevant in the conversation regarding how to fix our financial system, they’ve got to grow up and recognize what motivates and will always motivate Wall Street.  In fact, when they realize that the heart of Wall Street is never going to change, they’ll probably have some really great material to work with.

As for the market, we continue to churn above major support levels.  I still believe we are set to test the all important 50 day moving average.  At the close today, the market was trapped below the 5 and 20 day moving averages which are both moving in the negative direction now.  A failure to recapture this level tomorrow and I believe we could see a break of the trading range into the end of the week.

The fact that we haven’t pulled back more the past few days with the bloodletting in gold and crude is amazing and testament to the fact that there are strong stocks and sectors in this market.  If you are still trading into the end of the year in this chop, you should be focusing on areas of relative strength instead of the averages, there are stocks to be found which are moving out there.  Playing the ranges though seems to be the better trade right now than taking entries on breakouts.

Crude is coming into a major level of support right above the 200 day exponential moving average.  The contango in $CL_F is starting to get ugly though making $USO a sub optimal way to get long energy.  Remember, when $USO has to roll into crude contracts that trade above the spot price, it negatively effects the price of the ETF.  Watch those stochastics for a bounce, they are very oversold.

Gold is getting closer to stopping me out, all be it with large gains.  This is a system trade for me, so I won’t spend time over analyzing it.  I’ll stop out on a violation of that lower yellow 20 day donchian channel.  Interesting though, that level does correspond very closely to the location of the 50 day moving average, coincidence, I think not.  If you don’t have a position in gold and want one, now is the time.  Take your shot with a tight stop.  If you are looking for longer term gold related positions, look more towards gold miners $EGO and $RGLD.

It won’t take rocket science to figure out what’s going to get us there.  Crude is about to blast off again, gasoline is a step ahead breaking the bull flag as it put in a strong close.  As I’ve been saying for a while, the next leg up will come from crude and gold, get some exposure to oil service $OIH and the strongest gold miners in the $GDX.  Don’t futz around with the laggards, this rally has been about buying the big momentum names.

I’ll be traveling to the trader expo in Las Vegas tomorrow, if you’re going to be there by all means shoot me an e-mail so that we can connect.

]]> http://www.leighdrogen.com/the-nothing-day/feed/ 0 http://www.leighdrogen.com/why-are-they-lying-about-the-dollar/ http://www.leighdrogen.com/why-are-they-lying-about-the-dollar/#comments Tue, 17 Nov 2009 05:16:26 +0000 Leigh Drogen http://leighdrogen.com/?p=1044 Buy the dips, and sell the rips.  When this, the most hated equity rally in history is over we will look back, sigh, and just repeat, buy the dips and sell the rips.  I commented in an interview during the last dip that you had to continue putting your balls on the line during sell offs to make money in this rally.  The next day the market rolled over, breaking the channel, stopping me out of many long positions, and trapping a ton of short sellers.  The general principal though was correct.  We are now in sell the rip territory, if you have full long equity exposure I would be paring it back the next day or two.  If we break through the upper bounds of the channel, I wouldn’t hesitate to say 1200 by year end, easily.

Bernanke gave an Econ 101 lecture this afternoon.  Now, I know we all hate the fact that the fed, treasury, white house, along with any and all arms of government continue to lie about wanting a strong dollar.  Frankly, I don’t really care that Bernanke decided to save us all by giving massive amounts of free money to the banks so that they could buy up assets and attempt to repair their balance sheets after he all but told them to just buy shit because he was going to crush the dollar.  What other option did they have, none.  My two questions are, why must they lie about defacing the dollar to save this country, and how the hell are they going to stop its slide without completely crushing the carry trade?  Believe me, I understand the negative aspects to a weakened US Dollar, I just don’t understand why they can’t come out and say, hey guys it was our only option, and for now it’s working.  The markets no longer give a crap what Bernanke or any of his minions say, which is a terrible thing.  If we can’t trust our leaders, political, economic, military, or otherwise to give us straight talk, what do we have?  Here’s my guess, if they came out today and admitted to sinking the dollar intentionally, I think it would actually rally.  My bet is they are scared of a complete collapse.  As for the $USDX chart you see below, trade the channel, we are towards the bottom end.

It’s time to be very cautions of being long gold on a short term time frame.  We are very extended from the major moving averages and moving parabolic.  I’m still long, and won’t exit until a new 20 day low is made, which means I could still yet give back a good portion of gains, but I’m in this trade for the long haul, and I still expect to see 1300 within the next 6 months.  Don’t even think of shorting gold here, just don’t.

Crude is setting up very bullish as the bull flag shown here is almost complete.  A break through the upper trend line should get you long.  We’ve seen overbought readings correct over time as opposed to price, very bullish action.

The contango is out of natural gas which once again makes $UNG a viable vehicle to play from the long side.  The momentum on this, the second test of 9$ has been far weaker than the first.  Are we staring at a double bottom?  I don’t hear the same crap coming from the natural gas perma bulls that they were shouting the last time around, which makes me bullish.  Traders have given up on this thing and the stochastics have been oversold now for a few weeks.  I think we get a nice bounce, and we may even be seeing the bottom.

Performance of the Surfview Capital Momentum strategy has been solid during its first week.  I will be looking to increase the 7% cash position over the next two days if we start to see the market roll back over.  I’m stalking names in the energy sector as massive outperformance will be found there if crude breaks the bull flag.  I’ll look to pare back my tech exposure in that case.

]]> http://www.leighdrogen.com/why-are-they-lying-about-the-dollar/feed/ 18 http://www.leighdrogen.com/buy-when-theres-blood-in-the-street/ http://www.leighdrogen.com/buy-when-theres-blood-in-the-street/#comments Wed, 28 Oct 2009 23:27:05 +0000 Leigh Drogen http://leighdrogen.com/?p=894 Check out the flow of charts on Chart.ly tonight.  Chart,ly is an excellent tool, if you know how to use it.  Taking a tip on a chart from someone without doing your homework first is just as bad as taking the word of that guy in your office who’s broker says to buy XYZ because it’s the hottest new company.  Chart.ly is an idea generator, as well as a tool which can be used to confirm or refute how you see the technicals of a certain issue.  On top of that, I use Chart.ly to survey the psychological landscape of market.  When the market moves up you often see the time frame of the charts decrease and momentum players post small cap stocks.  When the market moves down as it has over the past few days we begin to see longer time frames, technicians searching for support, everyone trying to be a macro thinker.  I’m not saying there is anything wrong with this, in fact I believe it’s healthy, but there is something to be learned from this behavior as I’ve seen it happen at the end of every market dip during this rally.  Does that mean the market will bounce, no.  What it means is that traders are both a bit scared and a bit lost.

Let’s take a look at some important indicators and issues to try and make sense of where we are and where we are possibly headed.

We failed to hold the 50 day moving average as the market melted down into the close, this is significant as it was the first time the 50 day was broken since the July shakeout.  To the right you will see the very obvious negative divergence on the MACD chart.  If we continue down from here and cross the 0 line this rally will have a lot moving against it.  Everyone came out this afternoon yapping about the momentum indicators being greatly oversold.  True, as you can see down at the bottom right they are, if fact the most oversold since the March bottom.  But look again at that March bottom and how long the stochastics were in an oversold state, 2 weeks!  This was day 2 of oversold territory.  It would not be pudent to continue putting on new short swing positions at this point in time, but we are still at an absence of seeing anything on this chart which says this move is over, other than the fact that we are vastly oversold short term.

As I’ve said many times before, this rally has been about one thing above all others, the desire of investors to increase risk.  Well, that’t obviously changed over the past week as all risky assets from forex, to commodities, to bonds, and equities have been sold.  Below you will see in the larger white box the higher risk higher reward junk bonds getting hammered while the safer corporates and treasuries rally as investors move to shed risk.  But something interesting happened into the close today that may give the bulls some hope.  Treasuries and safer corporates rolled over as junk bonds rallied.  I wouldn’t put too much weight behind this little blip, but none of the less, it’s  something to watch going into the open tomorrow.

As expected, small caps and emerging markets have led to the downside, pulling back twice as much as the large cap $SPY.  Risk aversion in its simplest form.

We know that the US Dollar rules all, it is in fact what began this sell off.  The bounce from oversold conditions was rather obvious in the coming, we knew that unless there was a real capitulation move lower which sent equities surging, the dollar was going to see a relief rally at some point.  The speed and force with which the $USDX has surged though has been impressive, and has resulted in an overbought reading on the stochastic oscillator tonight.  Here’s my take, until we break the downtrend and get the 50 day moving average to flatten out and turn up, the trend is still down and should be treated so.  One thing to watch, as on the $SPY chart, the MACD reading here is giving an positive divergence, but until it crosses through the 0 line, it’s not a buy.

I continue to believe that if and when the dollar rolls back over, gold will lead us the next leg up in the market.  As I predicted when I entered this long $GLD trade at 95.41, we were bound to get a retest of the neckline after breaking out to new all time highs.  Well, here’s the test.  If we break support watch out, it could signal a bottom in the dollar and a huge fake out in gold over the past few weeks.  Nothing saying this run in gold is over though as the momentum is still there, higher highs and higher lows on all indicators including a very oversold reading on the stochastics tonights.

Like gold, crude continues to act healthy pulling back off overbought levels.  I will exit my position entered at 37.84 if $USO breaks the 10 day low which is represented here by the lower purple channel.

I talked after the Alcoa $AA earnings about the large inverse head and shoulders there having been broken to the upside and the possibility of a melt up.  The earnings number reaction both here and in Intel $INTC have been very telling.  We’ve seen large gaps up, followed by the issues giving up their gains and moving lower over the next few trading days.  This is not healthy action as it shows investors are not willing to believe in the momentum, rather they are taking profits on the good news.

If this rally has ended, I will look back on the Alcoa earnings action as being a huge red herring.  If that had been a breakaway gap I believe we would have melted up.

By the way, First Solar $FLSR, the last holdout of the solar sector gave up the ghost after the close plummeting 15% on earnings investors obviously didn’t like.

Bottom line tonight, there are a lot of great risk reward trades on the long side, I’ll be going through my watch lists tonight in an attempt to identify them.  I believe that taking a shot to the long side on some strong issues is worth getting stopped out if we completely melt down.

The issues which have lagged in the last run up are not capitulating, they are holding major support levels here.  What we still have is selling in the stuff which had run up during the last push.  Materials are getting slaughtered here as they were the leaders to the upside a few weeks ago.

What does this tell me?  It says that the market isn’t quite ready to completely roll over.  We are coming down to the 50 day moving average (exponential) on the $SPY which sits at 104.86.  I expect to see a bounce here.  We are oversold and trading well below the 5 day moving average.  Any long positions you take should only be short term as the short term trend is still down.

I would look to tech for a bounce coming out of this sell off.

As well, gold is holding up above 130 despite silver getting slaughtered.  The 127 level is very important.

I still like crude, but will exit my $USO position below 38.60 (the 10 day low).

$STEC finally gave it up today, plunging more than 10% at one point this afternoon and closing down $2.20.  I’ve seen a lot of people nail this short, and good for them.  STEC has 22 written all over it.

My other equity short position $LDK got smacked around after hours as they reorganized their management.  It’s now trading down 5% after hours.

My long book lit it up today with $PCX, $AU, and $AMZN leading the way.  Gold and crude also surged pushing my profit in $GLD and $USO further into the black.

I sold $GNA in favor of $CLF today.  When looking for exposure in a certain sector or industry, always go with the strongest issue, don’t screw around with playing stocks to “catch up”.  Buy strength and sell weakness, it’s that simple, CLF is acting stronger than GNA.

So by 5:30 PM my day had turned out pretty excellent.  $INTC reported ahead of the street (which still doesn’t say much) and futures are flying.  You might say, shouldn’t you book some profits on a day like this?  To that I reply, No.  I’m not running an investment portfolio here, I trade.  Yes, I do limit the amount of total risk taken across the portfolio, i’m not too long or short at any one time, and keep exposure to certain sectors within limits.  But when it comes to taking profits I live and die by the teachings of Jesse Livermore.  The boy plunger remarked that it is always prudent to add to positions that show you a profit and cut those which aren’t.  So on this day when my book felt a little frothy, I added to my crude position by buying another lot of $USO.  I’m now very long crude, and feeling like an asshole hoping that all of you fuckers have to pay an extra 2$ at the gas pump next month.

$USO broke through the upper 20 day donchian channel today giving me a buy signal.  I trade two systems, the 20 day and the 55 day.  Given the triangle pattern we are seeing in crude I’ve gone with the 20 day because it gives me a better risk reward entry.  Notice as well the bullish MACD signal coming from a tight coil pattern.  Watch for volume to come in on a break of the triangle consolidation pattern to confirm the move.  The 200 day moving average is now flat and the primary trend in crude is now pointing up.  Triangular consolidation patterns usually resolve themselves in the direction of the primary trend, a very useful bit of info if you were trading the energy complex last fall as it went to hell.

The November CL_F contract is what I am watching for my signals. 76 is the yearly high and the location of the 55 day donchian channel.

The weekly crude oil index chart is up against the 100 week moving average and has put in a large ascending triangle.  The $75 area is also confluent with the 38.2% retracement from the 08′ highs.  A move through this area should get crude going to 85 in a hurry.

I’m looking at two specific assets as a guide in crude right now, Russian equities $RSX and the Canadian Dollar $USDCAD.

Russia broke out in a big way early on in September and has been on a tear ever since.  The volume here is the most amazing thing as there is true accumulation going on.  Russia represents the “risk” trade in all its glory more than anything else as it shows both the largest reward for growth and largest risk to the energy complex.  I feel that investors piling into Russia are betting on the energy complex as a whole, the two are so highly correlated.  I am always looking for certain assets that run ahead and light the way for others, Russia is clearly telling us something here.

The Canadian Loonie is owning the US Dollar right now.  The Dollar is being owned by just about everything besides the Pound, which is in turn driving up the price of all other assets.  The falling dollar will buoy crude prices to some extent, but I am looking at the $USDCAD for a larger breakout in crude as the Canadian Dollar is so linked with crude prices.

Energy equities are leading crude to the upside here as the equity market as a whole is flying.  The oil services ETF $OIH is leading the way as it broke out for its triangle consolidation pattern.  It went on to retest the breakout level at the 50 day moving average and ripped from there.  The weekly chart tells the tale as $OIH broke above its 100 week moving average which is now flat.  Notice that oil service equities have lagged behind crude in the rebound as they have yet to make it to the top of the congestion area which sits around 160.  I am expecting major out performance here if crude rips.

The integrated and independent energy producers lag even further behind crude as the just recently broke out from a large base put in over the past year.  We are seeing the same test of the 100 week flat moving average.  I would not have my energy sector money here as this industry has lagged the rest of the energy sector.

Everything looks set for the energy complex to follow through to the upside.  If you play in this space, get long the strongest oil service names and more levered exploration names like $PBR .  Be aware that a failed breakout and a rebound in the US Dollar could crush crude very quickly.  Trade what you see, not what you think, and always manage risk.

Oil Service Favorites: $NOV, $CAM, $FTI, $DRQ, $HLX, $EXH, $RIG, $ATW

Independent and Exploration Favorites: $PBR, $CEO, $OXY, $APC, $NBL, $XCO