Illusion In The Wonderland.

1^st , let me apologies for my absence for the last few days. I was hoping that I will get some respite after 8^thAugust but now it seems my pressure situation will continue till mid-Sept. But that’s life, so no point cribbing.

Coming back to market, I would like to start with some interesting COT data. We would do well to remember that COT report does not result in immediate action. It just shows what smart money is doing well in advance behind the scene while the retail is distracted. The 1^st  chart is the S&P Emini contracts. 

The smart money has gone short from last week while retail is long.

The 2^nd chart is more dramatic and it is a chart of Nasdaq.

The short interest in Nasdaq by the smart money is huge and is a real concern. It seems that at any point of time, retail will be left holding the bag full of crap.

The whole of last week the markets have struggled to move higher and have made multiple tops. It may still make one more break out on Monday or Tuesday, which is also the top as per my cycle analysis. Again, this is not an exact science, but it has proven to be fairly accurate in the past with few days variation. Looking for top is of course a fool’s errand and front running is a bad idea. The reason is not to time the market exactly, but to reduce risk by reducing any long exposure. I am short but in a very limited way and would not increase the short position unless I get the confirmation of the breakdown.

I do not buy the bull logic because I think fundamentally, the world is in a recession and Europe is just taking a rest with everyone in vacation. Nothing has been solved for the stock market to go up. I think the only way it can go up any further is through central bank liquidity, be it Mario or Bernanke. One chart from Mr. Dominic Cimino of PPC tells an interesting story.

The green line is the ratio of XRT to XLP. XRT is the retail sector ETF where as XLP is the consumer staples ETF. When the ratio is rising, it means retail sector is doing well. Retail sector does well when consumers are spending money. And we all know that 70% of American economy runs on consumer spending. When the ratio is going down, it means consumer staples are doing better and retail is going south. Which also means the economy is not really doing well. So when the green line is moving up, SPX should move up and when the green line is moving down, SPX should move down. Simple but powerful concept and it had indicated both the downmove of 2008 and upmove of 2009. Now we see a divergence with green line moving down while SPX moving up. This definitely calls for caution and I do not think there is much to be bullish about unless of course, and again, Ben shows us the colour of the money.

There are many technical divergences which is calling for a top but all these divergences take time to work out. In a way, that’s how the smart money plays with the muppets. While they are busy selling at the top, they create an illusion of new prosperity. And with the markets being manipulated like never before, volume at extreme low level, their job is not that difficult. I think higher the market goes from here, harder it will fall.

Also let us not forget that if the markets continue at this level, there will be no free money coming from Ben. That is not exactly helpful to the Banksters. So be prepared for some action in the coming weeks. In all possibilities, volatility will spike from next week and a crescendo will be reached by end of the Month. It has taken longer than I anticipated but by not front running we have avoided all the whipsaw and mental agony. As I always say, in this present environment, return of capital is more important than return on capital. So be safe out there.

Hope you are having fun in this beautiful weekend. Stay sharp and filter the noise. Thanks for reading http://bbfinance.blogspot.com/ . Please forward / re-tweet / post it on your wall and join me in twitter. (Twitter @ BBFinanceblog) 

All Quite In The Western Front.

Nothing much to say really. Today was a nothing happened kind of day. In the morning when the futures were down about 5 points, I sent out tweets that it is not the real deal. We may still have to wait for few more days to see some action.

I have initiated some short position yesterday and they are almost unmoved or in small red. So that's not all that bad. I cannot expect to hit the nail on head in every attempt but at-least it did not go up huge. There will be couple of false moves before the real one. Have to have patience.

Bulls and bears have their own story to tell and both sides have merits in their argument. But I am following cycles, which says that possible trouble ahead. All the price levels that were to be achieved, have been reached for now. And a cycle top is close by. So let us see which way the wind blows.

The market has been a meat grinder for the last few months and it has been very difficult to make money or invest. The best course of action was no action at all. Hope you guys have kept your fire power dry.  So whichever way the opportunity comes, you will be ready to move.

For now though, I think the opportunity is to the downside.

Thanks for sharing my thoughts. 

Almost There?

For a change let me share a chart with you.

This funny little chart is actually McClellan Oscillator in Kelter Channel. You will note that when the McOs crosses the upper band, it means a correction is due, when it is below the lower band, it means a bounce is coming. Not 100% right all the time, but close. Again, you have to see it in conjunction with many other things and nothing is 100% right all the time.

Given that bit of information, may be we still have little bit more to go. I am not saying it will, but be mentally prepared. Anyway, it is close to the upper channel. So anything can happen and my XLF cycle topped today.

Going past 1400 serves two purpose. Kills all the weak hands and secondly, convinces everyone else that this rally is for real. Last March, I was reading in the Blogosphere that the rally is not suspect, we who doubt it are. Rather we are crazy to doubt the rally. I am reading exactly the same thing again. Not long after that, the markets topped in April. Will history repeat soon? We will find out.

Yesterday I wrote that I am afraid that they might push it past 1400 mark. Because it is so easy and kind of watermark for many investors, who invest , trade based on TA. That if SPX crosses 1400, we will go long kind of folks. And that's how it happened today. SPX closed just above 1400.

But we cannot afford to get married to one side of the market. If the market decides to go up and up, we are not going to fight it. But since GS recommended to its clients to but EURO, I am hopeful that EURO will now tank soon and will take the risk assets along with it. It may take few days to work out.We have to be sceptical yet opportunistic.

I shorted with few puts and have invested less than 5% of my trading capital. My risk tolerance is 20% of the trade. 20% of 5% is 1%. In other word I am risking 1% of my capital for now and if things do not work out that way I think, I will get out. If things move in my direction, I will add more in stages. So let us see how things play out.

I am unable to devote more time to the market with my other assignments and in any case, I should not worry about every tick. It does not matter what happens in short term so long I get the big picture right. I do not think we are in for a new Bull run but who knows.

Thanks for reading my ramblings and sharing with your friends. Be safe out there whichever way you are going.

Do We Turn Here?

Following chart is from Stock Trader's Almanac:

According to them, Dow Jones is just below the monthly pivot point and the late day sell off created a shooting start which is a sign of bearish reversal.

Now, I am no expert in candle stick pattern, but the fact that SPX came within the touching distance of 1400 and reversed is an indication of failing momentum. I think tomorrow morning it may again try to breach 1400 but most likely it will close in red. Today both the VIX and SPX closed in green and that calls for caution.
Sentiment has definitely turned bullish. Now folks are talking of the indexes running on auto pilot based on higher job number and retail sales and they do not require the Fed or ECB. I think the Indexes are running on fume and now that bears have been killed and bulls have been trapped, it is time to pull the lever.

Precious metals are not showing much enthusiasm and that worries me. Crude spiked with the rumour of Assad getting killed. But Copper was down and AUD is kind of toppy. The risk on trade may still surprise with one last hurrah and take SPX above 1410 but the odds favour the trip down.

I plan to start laying the short trades from tomorrow. But I want to caution readers that The Powers That Be around the world, from USA to China, do not want the the market to drop. In America Obama does not want the market to fall because it will impact his bragging rights. Europe cannot afford any major correction because they do not have much to save their financial markets and China wants to continue the illusion till infinity. So it will be very difficult for bears because there is always the threat of intervention by the Central Banks. If and when the correction comes, it better be fast and furious. If we do not see a correction of 100+ points in SPX in 5 days, the battle is lost. More importantly, SPX will have to break down the support at 1335 convincingly before we can get serious.

Either way, we are set for some fun time. Take your pick but always use proper risk control measures. I do not know what is your risk tolerance level so it will be wrong to suggest names. I may use leveraged ETF but I will not hold them for long. Instruments like TVIX is highly risky because if the market does not fall rapidly, these kind of instruments lose value quickly. But if we are lucky, they may return the jackpot. There is no one size fits all formula.

Thanks for sharing my thoughts on the market. Please share it with your friends. And trade safe.

Are We There Yet?

I remember writing somewhat similar headline around the same time last year. More things change more they remain the same. So here we are again, oscillating between breaking higher on hope and promise or breaking down on Euro worries and Global slowdown. The Central Bankers have not yet showed up with the promised money to propel the market to far away galaxy. But that has not exactly stopped the the bulls. We are almost near the high of the year. Will we break it and reach new highs?

There are many reasons for the market to march higher. Almost 50% of the S&P 500 companies have exceeded the earnings forecast. But the bar was set low to start with. With growth in real earning being negative, I do not see what will propel the economy higher. Where the growth will come from if people do not have money to spend in the 1st place?

But we are not here to discuss economics. There are many intelligent folks out there who do a better job of explaining the economics. I simply to try to figure out where the market will go next. Try to read the minds of  TPTB as to what they have in store for the sheeples. It is like reading the tea leave and pray that it works out  as I see it.

So far I have been lucky and I hope that the luck runs a bit further. The formula is to reduce risk and not fall for the temptation that our masters are dangling before us. Last week I expected the action, rather the lack of action from the Fed and ECB. I also saw the immediate market reaction and what is coming next. It is like playing a game of chess and trying to read the mind of your opponent. Only here we cannot see the opponent but he is very much there, in many shape and form, waiting to rob you of your money.

In " Waiting for Mario" I said I will be more comfortable to short if we reach 1400 level. We are almost there. I think even now it is OK to start shorting with a very tight stop, but I want to wait few more days to see if they can push it past 1400. Logically they should make every last effort to cross that landmark. That will convince many that a new bull market is here and jump in. Now that they have killed the bears, their next target is to bring in more bulls to the slaughter house. So I would prefer  to wait a little while more but I think the game is up.

I was looking for the correction by 1st week of August but it got pushed down the time line by factors like FOMC and ECB. Now there is nothing much between earth and hope for at least till  Jackson Hole when Ben will bring in QE3.

So play it safe. Do not chase the bus. And above all, remember, even if we miss this opportunity, there will be many more to come. Markets always go up and come down. But once our capital is gone, it will be very difficult to get it back. I do not have much of fancy charts to show you but I can share what I have learned by mistakes and all the hard punches the market has given me over years. Even if it benefits one person, I will consider that as mission accomplished.

Thank you for sharing my thoughts. Please share it with your friends and if this blog has benefited you in any way, please invite others to join the readership. Right now, that is my only motivation. Have a wonderful weekend folks.

Not Even A Water Bomb.

This is going to be my shorted post ever, so far.

Leave aside bazooka! “Believe me Mario” did not even present a water bomb. And the market dived as I expected. I am sure many were tempted to short it and possibly many did. But the monkeys did cover 12 points back to the close. But the selling is not over yet and we may see some more selling tomorrow to bring in more bears. But I expect the market to rip back to 1380 level +/- few points before the real selling starts. So I will be waiting for next week to unfold.

I am unable to see the market action during the day and I am reviewing everything afterwards. So far things seem to be in line with expectations. We only have to have patience. Just because we can trade does not mean we will have to trade.

That’s it for today. I hope to have something more over the weekend.

Thanks for sharing my take on the market. GLTA.

Waiting For Mario.

Another very quick post in-between work.

Well, we got one bother out of the way for another 40 days or so. Next we have to wait for "Believe me Mario" to see whether he delivers on his promised bazooka. My guess, he does not have much of a room to manoeuvre till Sept. when German Supreme court approves ESM. So another disappointment in store for BTFD crowed.

Again, I am not going to front run and short tomorrow morning. In fact I would not be shorting even when the market takes its 1st dive down. That would be the classical mistake to do. From the market thinking point of view, everyone and their grandma will short the market tomorrow when Mario fails to deliver. Because that would be the easiest thing and no-brainer trade. How can anyone not have a wining trade on the short side when the central bankers have failed to deliver on promised free money? Because the market is controlled by monkeys. You may have seen or heard about what happened today morning when the Algo went wrong and NYSE had to cancel trades. There were also some reports of TBTF banks conspiring to rig the derivative market apart from Libor rate.

I expect folks to get heavily in short position tomorrow and day after and I also expect these monkeys to kill those shorts and bears by jacking the market up. SPX 1400 may not be far off just because nobody is expecting it to come, after the disappointment of Bernanke and Mario. So be prepared for the unexpected surprise.

If SPX does reach 1390-1400 level, I would feel more confident to short. If that means waiting for a while more, so be it. After 25 years of trading, I am no more anxious to chase every up or down move and have learned to wait for the opportunity which has less risk. I am not right with all my entry but at least I am working with the primary goal: Do not lose capital!

Thanks for sharing my thoughts. Be safe out there.