Quick Market Update
We have reached the short term support at 1230, the first stop, our wedge formation suggested. This should hold at a first test, but expect 1230 to be broken sooner than later, and SPX to fall to 1200 short term. The trend from the lows set in several weeks ago, will be taken out, as today’s action is telling us market is heading lower short term.
Meanwhile Silver and Gold….
The Hungry Wolf Rallies
BGC’s Purves has made some nice calls this year in Copper, Gold, Equties and his Wolf Market approach. Some good points below in this must read report, that shorts don’t want to read….
We believe the SPX is poised to move higher and the market will reach 1,360 by year end. On August 10th, we made a rather contrarian call that while we acknowledged the considerable macro risks, the market could be bought and had a near term tactical target of 1,250. Among other things, our argument was predicated on absolute and relative valuation and that our “Wolf Market Floor” for the year of 1,120 for the year had been reached. Subsequent to this report, the market spent several weeks basing (in a rather noisy way), though with an occasional brief dip below this “floor” level. Yesterday, our 1,250 near term objective was achieved; we now see the table set for the market to sprint higher, like a hungry wolf, to 1,360 by year end. The 1,360 level is a key Fibonacci level derived from the 2007 highs and March 2009 lows, and also close to the YTD high of 1,370 (cash) reached on May 2.
The Top of the Iceberg – it’s very beautiful up here
Latest Monthly letter by IceCap;
In the wee hours of April 15, 1912, the RMS Titanic cruised through the Atlantic ocean on a collision course with history. Naturally everyone knows the story of how the big, old mean iceberg knocked the socks off the mighty ship. The lack of a well thought out strategy was the primary reason for this tragedy – not the iceberg itself.
It’s certainly not lost on us that IceCap’s corporate logo is an iceberg. Besides being a cool logo we do feel the iceberg is a perfect mirror of global investment markets. On the surface, attractive opportunities will always exist and appear achievable for everyone. However the real risks within the market are normally underneath the surface and should they tilt the market in one direction or another, financial markets, just like the iceberg can be turned upside down.
Markets Sell Off after EU Meeting Confusion
Meeting on/off confusing jittery investors. Markets have been showing signs of fatigue, as we posted yesterday. Below quick update. We are still in the positive Trend Channel, but the rising wedge just got punctuated. With all the short covering we have witnessed during the past weeks, this sell off could be the start of a bigger correction. Don’t forget to check out the 08/11 comparison.
And this is what happens when shorts all covered on the way up….
Ray Dalio on Imbalances of the World
“Making money is a zero-sum game, so to be successful you have to be willing to stand apart from the crowd,” (Dalio)
Must see video with Mr Dalio. For the truly interested, also check Dalio’s Principles.
What is High Yield telling us?
Guest Post by Macro Story.
Over the past three trading days HYG (high yield bond fund) has gained 5% and a whopping 16% since October 4 (comparable to SPX). The easiest explanation is that of risk on. But perhaps it is something different.
HYG correlates very well with SPX but a comparison chart of HYG and SPX does not offer much value in terms of pending market corrections. If you compare HYG versus a baseline risk free bond such as TNX (10 year yield) though you will notice a very interesting pattern.
When the two reach a significant divergence SPX puts in a top and reverses. Notice the chart below of all SPX tops since May 2, 2011 and how HYG and TNX have diverged.
Increased HFT regulation on the way in Europe
Regulators starting to acknowledge HFT.
The European Commission has published its proposals, consisting of a directive and a regulation, to revise MiFID.
Amongst other things, the Commission’s proposals introduce a new type of trading venue, the organised trading facility (OFT), into MiFID’s regulatory framework. They also introduce new rules for algorithmic and high frequency trading activities, including the requirement for all algorithmic traders to become properly regulated, provide appropriate liquidity and rules to prevent them from moving in and out of markets. In addition, the proposals introduce a new trade transparency regime for non-equities markets (bonds, structured finance products and derivatives).
News That Matters
Ft.com
William Dudley, president of the New York Federal Reserve Bank, said the Fed could potentially do more to drive down mortgage rates to support the sector, says Reuters. Mr Dudley said another round of quantitative easing, http://ftalphaville.ft.com/thecut/2011/10/25/710786/another-fed-official-suggests-housing-support/
David Cameron’s attempts to assert his authority over his party backfired on Monday, writes the FT, when more than 80 Conservative backbenchers defied their leader over membership of the European Union http://ftalphaville.ft.com/thecut/2011/10/25/710771/conservative-backbenchers-defy-cameron/
Swiss banks are likely to settle a US probe of offshore tax evasion by paying billions of dollars and handing over names of 5,000 to 10,000 Americans who have secret accounts, Bloomberg reports, citing two people familiar with the matter. http://ftalphaville.ft.com/thecut/2011/10/25/710746/swiss-banks-may-reveal-names-in-us-probe/t
Penny Wise and Euro Foolish
Great Market summary, by one of few “free” thinkers, Mr Hussman of Hussman Funds.
Among the effects of the recent and now renewed credit strains in the global economy is that investors have lost touch with relative magnitudes. For example, a billion dollars effectively represents about $3.20 for every adult and child in the U.S., while a trillion dollars represents about $3,200 dollars per person. From our standpoint, among the most important research coordination that government provides comes from the National Institutes of Health (NIH), which funds basic medical research in cancer, diabetes, multiple sclerosis, Alzheimer’s, autism, and other conditions, and where the total annual budget is about $31 billion annually (roughly $100 per American). Add in just over $7 billion in research through the National Science Foundation, and about $120 per citizen a year is spent by the government on essential medical and non-military scientific research through these agencies. These figures pale in comparison to the amounts that are increasingly demanded in order to make bondholders whole on their voluntary, bad investments. The Federal Reserve provided an amount equal to the entire NIH budget simply to backstop the rescue of Bear Stearns, which allowed Bear Stearns bondholders to receive 100 cents on the dollar, plus interest. In return, the Fed got questionable assets that it pouched into a shell company called “Maiden Lane,” which were later reported to have “underperformed.”
Don’t fight the Fed
The most important chart of them all. Presented without comments, but the hang over will be nasty.
Chart; Greshams-Law
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