Congratulations Daneric

Posted on January 24, 2010

There has been a lot of Elliott Wave bashing this year in spite of Prechter’s late February 2009 call for a rally from SPX 700 to the 1000-1100 area, and his call for maximum levered shorting about a week ago (he called for a 100% short position at about SPX 1020 in August), as well putting a sell on the long bond just before it collapsed under QE last spring, and recommending longs on USD late this summer and fall.

A lot of bears are fans or subscribers, and a lot of them lost money in 2009. Naturally, when they made money in the crash it was on their own brilliance, and what is a newsletter for if not to excuse your losses? But really, if you went 100% long SPX at 700, went 100% short in August and 200% short last week, you’d be up about 36% in under 12 months (after at least doubling your money from going “short with maximum leverage” in July 2007 and covering last February 24.

I do occasionally have nits to pick with EWI, but the bashing they get these days is just nonsensical. Who else, besides Prechter and Mish (and I harbor a suspicion that Mish learned about the credit cycle in part from reading Prechter) called for deflation while the bubble was raging?

At any rate, EWI is not the only game in town. Daneric has actually been more accurate in his medium/short-term calls than Hochberg over the last several months, and he posts every day for free. He suspected even as late as November that the top was not in, and that stocks would drift over 1100 on a sinking VIX before possibly topping out in January. Bravo! He counted the ending diagonal this month, said it looked finished a week ago, and on the evidence of this week’s decline is now finally calling Primary wave 2 over.

The tables are turning, and panic is on the way back.

Posted on January 22, 2010

I was extremely, almost uncomfortably short for the last couple of weeks, and with the Dow down 175 a few minutes ago, I covered my stock futures shorts and bought a few contracts to hedge up my long-term puts. It’s looking very good for the shorts — dollar up across the board, bond spreads wider, and stocks and commodities down together. Classic deflation trade.

Here’s the Dow. You can see that RSI says we’re already into oversold territory on the daily bar, which indicates the power of this move. There could be a bounce here, but I think stocks are where gold was after it fell hard from $1228 last month: they can rally, but the high is in. Now the bulls will be the ones fighting the tape.

Source: Prophet.net

Of course, the rally taught us bears to go easy and hedge up after little sell-offs like this, but that is going to be a frustrating stragegy if we’ve turned. As with the euro since the dollar index put in its low, surprises will be to the downside. I suspect not even this initial move down is over yet, maybe just the most violent part.

Take a look at the VIX. It has just blasted off – jumping over 50% in a week, most of it in just two days! This is giving us a very, very strong signal that panic is coming back, and in fact, was never very far off:

A decade without job gains

Posted on January 8, 2010

From Chart of the Day:

What was that about credit being the lifeblood of the economy? Well, the 2000s saw the greatest bubble ever, and all it got us was richer bankers. Robert Prechter often says that the depression started with the bursting of the dot-com bubble and deflation of social mood from the euphoria of the late ’90s. This chart, like the Dow:Gold ratio (down to 9 today from a peak of 44), give you and idea of what he’s talking about. After all, there was no net growth last decade — it was all a sham.

Kevin Depew interviews Robert Prechter

Posted on January 1, 2010

This is from a month ago, but it is a wide-ranging discussion from a long-term point of view. Depew is a very sharp guy who saw deflation coming himself, so this is one of the best Prechter interviews I’ve seen.

“Yes, a depression is a period that’s difficult for many many people, but it’s not the apocalypse, it’s not the end of the world. It’s just a tough period that’s gonna last, you know, five to seven years and then we’ll come out the other side.”

For a speculator, “there’s no better time than a bear market — they’re fast, they’re violent, they’re great.”

Spontaneous Jubilee in the air?

Posted on September 9, 2009

Why shouldn’t someone walk away from overbearing consumer, student or mortgage debt, so long as it is non-recourse? I can’t think of any reason to keep servicing debt if you have no hope of repaying the principal. What good is a high FICO score if you don’t want to run up another credit card balance or buy a home? Yes, landlords run credit checks, but it is getting harder and harder to fill vacancies, and this is what deposits are for anyway.

The “just walk away” attitude is gaining traction. It could snowball into next year as yet more mortgages reset and U-3 unemployment enters the double digits. What can the legal system do if tens of millions of people decide to stop paying their unsecured loans? This lady is right — there is safety in numbers and government inefficiency. You get a fresh start in five years anyway, which should be right around the time real estate has a chance of recovering.

This is exactly what needs to happen. The unpayable debt will by definition be defaulted on, so the sooner the better. The banks that issued it need to go under. Stories like this are refreshing, because we need to clear the air.

Tour des charts

Posted on August 11, 2009

All the world’s a short…

Charts below are 5-year views.

NASDAQ biotech index:

Inter@ctive WK Internet Index:

Value Line Arithmetic (where’s the value?):

Philadelphia Gold and SIlver Index (XAU), back at ’06-’08 commodities bubble levels:

Mexico Bolsa:

Venezuela:

Argentina’s Merval Index:

Pakistan’s Karachi 100 (look at the flat line where the govt suspended trading last fall — worked wonders, didn’t it? This market is up a lot less than most others — maybe people don’t trust it as much anymore, since they can’t be sure they’ll be able to sell when they want):

Bet you didn’t know Mongolia had a stock market. Looks like a one hit wonder:

Singapore Straits Times:

Indonesia’s Jakarta Composite:

Taiwan Taiex:

All images above from Bloomberg’s stock index pages

Interesting juncture in sentiment

Posted on July 31, 2009

We reached a point this week where almost all bears turned short-term bullish at the very least, if they didn’t swear off shorting altogether. Hordes of hobby bears were crushed over the last three weeks, and even hard core bears from before 2008 seemed to adjust their wave 2 targets upward as high as SPX 1200.

I took that as a sign of short-term weakness at the very least, so in addition to my regular purchase of December 2011 puts, I added a few March QQQQ puts and October 09 calls on the 10 year note. This AM I also took another stab at picking a top in copper at 2.60, with a 2.62 stop.

The reaction to GDP so far has been encouraging, with futures traders not buying the BS that the economy only shank at a 1% pace, since the surge in government spending gave it a phony boost. Since there is no P in government, why is government in GDP? GDP can go as high as the Feds want. All they have to do is spend and have the central bank monetize whatever bonds the market won’t absorb. This chicanery, plus inventory replacement, could bring a slightly positive number in Q3, ironically just as TTM S&P 500 earnings go negative for the first time since they started keeping records in 1936.

I see no reason to change my guess that the end of wave 2 is nigh. I have been thinking since spring that 1050 or September, whichever came first, would be the signal that the top was in. It could be in already, but don’t expect things to drop off a cliff right away. A wave of this magnitude rolls over slowly, with plenty of smaller breaks and rallies before the trend has solidly reversed.

Keep an eye on the credit markets. When fear comes back in earnest, corporate bond spreads will break their relentless slide downward, and short to intermediate term Treasuries, if not the 10-year and 30-year, will signal a renewed flight to safety.

That old-time feeling…

Posted on July 23, 2009

Robert Prechter said back in February that some aspects of this bounce would resemble the euphoria of the all-time top in equities. Well, when I looked at the market today and saw that Amazon has rocketed up to its 2000 and 2007 peaks (albeit on pathetic and waning volume this go-around) and sports a 60+ PE, I got a tingle of that giddy feeling I had when I was buying puts hand over fist on stocks like this two years ago. Back then the whole market looked like this, but there are some great set-ups being formed this summer.

We are now solidly overbought as well as ridiculously overvalued. We may be witnessing the last gasp of the great post-1995 equity bubble.

Source: Yahoo! Finance

A word of caution: when the NASDAQ runs like this, it can keep on going for weeks, so don’t get run over going short-term short. This kind of momentum should drive the VIX under 20 before long. That would signal near-total complacency in the face of economic fundamentals whose only parallel, and there can no longer be any dispute here, lies with the Great Depression: link to pdf from Sprott Asset Management.

Ron Paul sums up the crisis in 3 minutes

Posted on July 22, 2009

(thanks again to zerohedge for finding this video)

I remember when I first discovered a speech by Ron Paul back in boom-time 2005, and was shocked that a Congressman was so eloquently warning of the dangers of fractional reserve lending, the Federal Reserve system, and welfare/warfare deficit spending. It was the first time that I could fully respect a standing politician.

Dr. Paul is still the nation’s strongest voice for an honest monetary and banking system, and he delivered a zinger in front of Bernanke and Frank yesterday. If, like me, you haven’t heard him speak in a while, have a listen and you’ll remember why his campaign was so exciting for so many of us.

Money quote: “I would suggest that the problems we have faced so far are nothing compared to what it will be like when the world not only rejects our debt, but our dollar as well. That’s when we’ll witness political turmoil that will be to no one’s benefit.”

Now wouldn’t it be great to have Peter Schiff to cause the same trouble in the Senate?

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