Thursday, September 18, 2008

Are American Capitalism and the American Republic DEAD!?

Overnight, we saw the fifth U.S. government intervention with 24 hours. Even the injection of $180 billion yesterday couldn't prevent the collapse of the house of cards, so they decided to catch and rebuild the cards with a $500 billion bail-out of the entire banking industry and all its toxic bad debt, short-selling ban for 800 companies, money market account guarantees, etc. The American capitalist republic is dead or dieing!

Less than 20 years after the defeat of Soviet socialism, American socialism has arisen. A fitting and timely conclusion to my blog entries.

Welcome to Amerika, comrades! The Devil himself must be laughing!

No More Blogging

I have decided to cease blogging. Why? I created this blog as a journal of my trading. However, I've realized that it is taking time away from my trading. I'm becoming too much author and not enough trader. I've allowed myself to be distracted. No more! This is my last blog entry. I'm taking a vacation for the next two weeks, and won't be writing anything more on my blog when I return.

The New Reality -- Russia Is Back

Stratfor has provided a fascinating analysis of the new world now that Russia is back as a world power. Here is an excerpt:

Putin has tapped many former KGB and current FSB members to fill positions within Russian big business, the Duma and other political posts. Putin’s initial reasoning was that those within the intelligence community thought of Russia the same way he did — as a great state domestically and internationally. Putin also knew that those within the intelligence community would not flinch at his sometimes brutal means of consolidating Russia politically, economically, socially and in other ways. It could be reasonably argued that Russia has become an “intelligence state” under Putin.

Since assuming power, Putin has also worked to strengthen the Russian military and the GRU, Russia’s military intelligence agency. The GRU was undoubtedly very involved in the operation in Georgia, as was the SVR. There are some who suggest that Russian agents of influence may have played a part in convincing Georgian President Mikhail Saakashvili to attack South Ossetia and spring a trap the Russians had set.

Here is the entire article:

The Second Cold War and Corporate Security

Read in particular the section on the implications for business.

Along the same lines, John Mauldin, in his weekly newsletter this week, also has a fascinating article. For example, did you know that that largest KGB office in the world is in Mexico, just as it was during the Cold War? Guess who it is spying on! And did you know that the only country on the planet that recently recognized the breakaway regions of Georgia as part of Russia was one of the United States' neighbors? (Hint: It wasn't Cuba or Venezuela.)

The Russian Resurgence and the New-Old Front

What's Happening Tonight to the Yen?

The Yen has fallen off a cliff tonight. I have no idea why, but look at this chart. It even shows up on the daily chart as a hug maribozu candle.

Has the Federal Credit Card Reached It's Credit Limit?

Here is an interesting article today in the Financial Times that seems to suggest that the Fed is reaching its limits.

The Fed's Out of Money

Oil UP $11 in Two Days

Fill your gas tanks, because cheaper crude oil may have reached an end. Yesterday's inventory report showed a surprising decline in available crude oil.

That Wasn't Enough? $55 Billion More

The Fed has just issued a statement that they have just injected an additional $55 billion into the global financial system. They are "flooding the world with money", according to Steve Liesman, Senior Economics Reporter at CBNC.

Crude oil is up nearly $10 in the past two days. Inventory reports by the US government yesterday morning showed significant draw-downs.

Ultimately, the creation of vast amounts of new money, while the economy is contracting, is inflationary. Funds that are seeking to preserve their capital are once again buying commodities, and especially gold. The money must go somewhere, and the money is likely to go to hard assets. That mean higher inflation in the 6-9 month time frame.

Inflation must go higher. It's guaranteed!

Central Banks Inject $247 Billion More Into Global Financial System

In the past twelve hours, global central banks have injected another $247 billion through swap lines overnight. Eventually, all this new money going into the global monetary system will likely stoke inflation. These are days of unbelievable events and desperate times.

Wednesday, September 17, 2008

Dow Drubbed 449 Points!

What a day! After erasing half the stock market losses just one hour before the market close, stock plunged a second time, setting new lows for both the day and the year!

Mayhem in the Markets!

Gold has now risen today by more than $90/oz, the biggest one-day leap in history. This is pure fear leading investors to buy gold as the ultimate safe hedge of value.

$230 Billion

That's the amount of interest the American people will pay this year on the national debt. That is a staggering amount.

Buuuuy Cooooooorn!

The pic says it all!

Dow Sets New Low for 2008, S&P Halts Decline at Yesterday's Support

The stock market indexes have been in near-freefall today, with the Dow reaching just under 400 points of decline, and setting a new low price for 2008. However, the indexes appear to be attempting to build a base, with the S&P 500 working to attempt a small rally off the same level as yesterday's low. What an exciting day, to say the least. It still doesn't look like panic, and I'm not sure if this would qualify as the capitulation that many traders believe marks the bottom, but the strong volume and volatility is fun to trade!

Grain Crops Behind In Development

Despite the bearish charts, more data from the USDA suggests possible downward revisions to crop forecasts in the future. This report today:

According to USDA meteorologist Brad Rippey the latest crop condition report released Monday shows crops running significantly behind the normal development pace in the Midwest and across the Plains. Southwestern Nebraska farmer Kurt Bernhardt agrees with USDA's assessment.

"That is way behind the five-year average of 44%," says Rippey. "In five states we see less than 10% of the corn mature at this point in mid-September."
Corn, wheat, and soybeans appear to be subject to the turmoil in the financial markets today, with erratic trading being the standard for today. Once some order comes back to the market, perhaps a pattern will develop. I'm watching the grains, but haven't seen good reason to trade today.

Gold Explodes $50

Gold must be recovering its safe haven status today, because while stock index futures are taking a beating, gold has exploded $50/ounce today. I think of gold as the ultimate barometer of fear, and if that's the case, fear has gripped the financial markets. The gold bear is over, and the gold bugs are having a picnic!

Fixed Income Funds Drop Like Stones in the Sea

I mentioned this last night on my other blog. For more information, readers can read about my first mention of this phenomenon there. Fixed income funds, among the most rock solid and largest in the world, are collapsing this week on the heels of the latest government bail-outs. These four charts are four different funds, but are representative of the entire sector.

I don't know if this is related, but last night, for the first time, some money market funds were forced to drop their redemption values below the $1 price per share threshold. I wonder if that same phenomenon is being manifested in these other funds.

Stock Traders Lose Enthusiasm for AIG Bail-Out

Overnight, it appears that stock index futures traders have lost their enthusiasm for the AIG bail-out, losing their nerve and selling of the stock index futures. As I have mentioned regarding past bail-outs, the excitement is usually only temporary. Eventually, within days or even a few hours (as in this case), investors begin to realize that the crisis continues and that this was not a genuine, lasting solution. Then, the sentiment quickly returns to where it had been previously. We should be prepared today for another volatile day trading stock market futures.

Also, yesterday, the Dow futures hit a new low for 2008. I had noticed it but failed to mention it until now because the Dow rallied off the new low so forcefully.

Tuesday, September 16, 2008

$216 Billion

That's the figure that global central banks injected into the world financial system in bail-outs yesterday. And that's just the figure for the last 24 hours!

Russia's Stock Market: Look Out Beloooooow!

Don't stand under Russia's stock market, or you'll get crushed on the way down, like a piano falling out of a high-rise window (see the daily chart above)! With the collapse of crude oil prices and the rush for the exits by global investors, Russia's stock market has plunged more than 53% in four months. Furthermore, Putin's animosity toward private property and private capital has created an environment in which investors are uncomfortable making capital investments. Tyranny and prosperity don't mix very well!

Russia's stock market, after plunging 17% in a single day, was shut down when it fell too far, too fast. A similar plunge in the Dow would amount to a plunge of nearly 1,900 points. I have never seen a drop in the Dow of more than 570 points in the time I've traded futures. That was in January over the Martin Luther King Holiday, and the Dow recovered and closed higher the next day. But the equivalent of 1,900 points? Now that's a big plunge!

Here is an article at the Financial Times with more details:
Russia Halts Trading After 17% Share Price Fall

More Big-Money Bailouts!

The Federal Reserve has just confirmed that the government has provided a "bridge loan with warrants" of between $85-$90 billion for ailing insurance mega-giant AIG! Details will be coming overnight. It is not being called a conservatorship, but looks very similar to the bailout of Fannie and Freddie last week.

The stock index futures were somewhat lower (Dow down about 40 points) this evening, but have rallied since, and the Dow is now more than 140 points higher. Wall Street always loves these bail-outs! After all, they are the beneficiaries!

Should Have Shorted Soybeans Today

This was a great trade that I missed today. I should have shorted soybeans, which broke through long-term support at $11.65 (established in January and tested again in May) on the Nov '08 contract, and reached their limit down price. I didn't check last night, but the weekly USDA crop report must have shown good fall growing conditions for beans. Also likely is the influence of the bearish crude oil outlook.

Despite the bearish trend in grains for the moment, I found this insightful by Vic Lespinasse, who suggests somewhat bullish fundamentals due to the cool, wet spring this year and resulting delayed crop development ever since. Since the corn and soybean plants are well behind normal in their crop development, just one significant freeze in the grain-growing regions of the United States could change the bearish forecast if crops experience any significant damage in the next few weeks before they can be harvested. Here is Vic's commentary:
The weekly crop ratings yesterday afternoon showed corn and beans both unchanged from the previous week in the good to excellent catagories, 61% and 57%, respectively. Development remains well behind normal with only 19% of the corn crop mature vs 44% average and just 21% of the beans dropping leaves, a sign of maturity, vs 41% average. Winter wheat planting is off to a slow start with 11% done against 16% average.
Vic is a long-time grains trader who is one of the most experienced in the business. He offers trading services for investors who wish to trade the grain markets, but who may not have the time or experience to do it themselves. Vic's website and complete commentary is here:
Grain Analyst
I really like the recent redesign of his website, too!

Where Is the Momentum? Where Is the Trend?

Note in this chart that momentum seems to favor the short side. This shows crude oil on the 3 minute and tick charts since 10:30 am EST. This also demonstrates why I only trade one direction. Right now, until the trend changes direction (crude is currently in a downtrend on the daily chart-- not shown), I will only trade crude oil on the short side.

This chart is a good example why. Since crude oil prices have been falling strongly for several weeks, it makes sense that the greatest profit opportunity is in selling black gold, not buying it. Note in this chart that the red candles pointing downward are much more forceful than the red/green mixed candles that moved prices higher. Prices on this chart move downward very rapidly and with several successive red candles without any green ones in between. However, when prices move higher, they do it with mostly green or doji candles, but with several red candles intermixed. Prices only move higher laboriously, like spoiled children that are forced to do something, but who only go kicking and screaming. Why swim upstream when the flow is downward? There is good reason for this, as we would be wise to learn this lesson:
Don't fight the trend!

Follow-Up Trade Also Picture Perfect

This follow-up long trade on the S&P 500 demonstrates most of the same methods and principles as the first one. In this trade, the prior test of the bottom of the previous trade can be seen. The green arrows indicate the points where fractals and EMA crosses show entry and add-on points. This trade ended just moments before this screen capture because another divergence of the Klinger volume indicator suggested that momentum was waning. Prices dipped quite rapidly following this trade. This trade allowed me to complete my trading goals for the day. Done deal!

Trading Dynamically Vs. Statically

This tick chart shows a short trade on the S&P 500 today. It is a perfect manifestation of my trading style. It shows a set of "parallels" as taught in Phillipe Cahen's book. It also shows entry and add-on points by using fractals (the red down-pointing arrows) as prices cross back below the Exponential Moving Average. It also shows how the Klinger volume indicator is used as a leading indicator, showing a divergence and bottom to the trade. I have noticed that with highly liquid trading instruments at the end of a strong move in the market, even after a top or bottom is formed, there is typically another test of that bottom that allows me to exit gracefully and very close to that bottom as it is tested. This was a good example of that as well, although the screen capture doesn't adequately show the test of the bottom that occurred following my copying the chart.

Not all trades are this perfect. The vast majority aren't. So why even show such perfect trades? Because we can still learn sound principles from them, if we approach them from that perspective. We are striving to learn trading principles, not just trading methodologies. We want to learn to feel and respond to the market's movements, not just learn a cookie-cutter technique. We want to trade dynamically, not statically.

This is why it is so critical for traders to learn to trade dynamically rather by the static text-book examples we see in books and trading courses. This is also the reason why most trading courses are only marginally useful. They only provide students with examples like this one -- that are perfect. The authors and teachers will scour the charts until they find just one chart that fits what they are teaching. Despite that fact that they have had to search far and wide to find that one picture-perfect example, they will lead the reader or student to believe that all they need to know is their one, simple trading technique or methodology.

Since most trades aren't perfect and don't fit the precise static picture of the trades in the books or training, most traders fail because they aren't trying to fit their square trading methods in the round hole of the financial markets. They are trying to take that one picture of the perfect trade and find the one very rare example of that trade in the markets.

Monday, September 15, 2008

Riding Roller Coaster Markets

The volatility on days like this provide excellent trading opportunities. I look at those charts like a roller coaster that must be ridden both up and down. What an exciting ride it is!

Grains Sell Off, Recover Also

The grains complex also has seen a sell-off and recovery. The fate of the Dollar appears to be a significant causational factor in this today, since the same pattern is also being demonstrated for the greenback.

Pushback and Recovery

What an amazing trading day. It seems almost miraculous that given the perfect storm of events in the financial world over the weekend, the stock market could battle back from a 344-point deficit for the Dow, but indeed it has. The charts don't lie!

Fear and Panic

The only thing that appears strong overnight are US Treasury futures, with money flowing without limit into US government debt like water through a damn. Investors only buy treasuries with this fervor for one reason -- pure fear!

Sunday, September 14, 2008

September -- Living Up to Its Reputation!

CFTC Monitoring Markets

And now, the CFTC is monitoring the financial markets also, for the possibility of an intervention into the markets.

I have liquidated all futures. This is just too scary to remain in the markets for the time being. I'm sitting tight until a clearer picture develops!

Terrible Turmoil!

The Dow is now down by more than 300 points tonight, including loss of fair market value. We can not estimate the impact tomorrow of the weekend events in the financial markets.

Lehman Bros is filing bankruptcy tomorrow. This is a sad end to a company that has been in existence since the Civil War, survived two World Wars and the Great Depression.

The Federal Reserve has forced Merrill Lynch, the largest brokerage, to sell itself to Bank of America, one of the world's largest bank. WAMU and AIG are still in very troubled waters and may also face imminent collapse.

An emergency fund has been created by the Feds to finance losses due to the Lehman Bros. losses. The 10 largest banks in the United States has set up this new emergency fund to try to shore up the banking system, but no one understands right now what this is for. It simply creates a spirit of panic!

Things in the financial markets just went from very bad... to much, much worse! What a weekend!

I was chatting with a friend over the weekend, and we were both expressing considerable concern for the state of the U.S. economy. I asked him his thoughts, somewhat tongue-in-cheek, if we might be facing a national bankruptcy. He said something that I thought was insightful. He said that nations don't declare bankruptcy. Instead, they hyperinflate! I had never thought about this before, but I thought it was an interesting perspective on the state of affairs.

I think I just became a gold bug! Grains iare flat tonight. Crude oil is down. The Dollar is crumbling. But gold is substantially stronger.

Dollar, Dow Double Drubbing

Both the US Dollar and the Dow opened this evening substantially lower. The Dow dropped 300 points at the open of evening trading. Interestingly, crude oil is also trading lower, below $100/barrel for the first time in months. Gold jumped more than $16/ounce. What an omen for a volatile week!