Wednesday, May 5, 2010

RACE TO THE BOTTOM update II

update I Is it 1998 all over again? Picked up PAL below $4 today and will add more if PAL drops more.

That's the question we're asking in tonight's report in light of developments in the euro-zone and, to a lesser extent, within the investment banking sector. Thursday's headline in the Wall Street Journal proclaimed, "Debt crisis hits Spain." The implication is that the recent downgrade of the sovereign debt ratings for Greece and Portugal have now spread even further into Europe and could continue to spread into a general euro-zone wide debt crisis. When I saw Thursday's WSJ headline concerning Spain, I was struck with the thought that I had seen this scenario played out sometime in the past. After a little pondering, it finally occurred to me that the variables we're seeing set up right now are, in some ways, similar to the situation we saw in the spring of 1998. Let's start with the cyclical backdrop. The similarity between '98 and today can be seen in the yearly Kress cycle configuration. In 1998 the 6-year cycle had bottomed two years prior in 1996. Also, 1998 was the year the 4-year bottom was scheduled for late September/early October, which definitely came into play in the late summer of that year. In 2010 we are two years removed from the 6-year cycle bottom (in 2008) and this year is also when the 4-year cycle is scheduled to bottom in late September/early October. The second parallel is seen in the fact that the so-called "Asian contagion" was raging in the spring of 1998. This was how the press described the Asian currency crisis that was garnering lots of headline attention back then. U.S. financial markets mostly shrugged off the Asian contagion in the spring of '98, though there were definite concerns among investors. The S&P 500 had been in an uptrend that year and was coming off the lows of the October '97 mini-crash. A brief sell-off in January '98 accompanied the news of Bill Clinton's impeachment proceedings over the Monica Lewinsky scandal, but the market quickly regained its composure and zoomed ahead to new highs into April '98. The SPX stalled out in April as fears over the Asian contagion became more palpable and the S&P continued its lateral trading range into the middle of June before breaking out to a new high in a magnificent final flourish.Before long commodities were in a freefall along with the stock market and for a while it seemed the entire global economy was coming apart at the seams. The S&P lost just over 20% in the period between mid-June and early September, which technically qualified as one of the shortest "bear markets" on record. All of the disastrous developments in the spring and summer of 1998 took place within the context of a powerful equities bull market in the U.S. The 4-year cycle bottomed in October 1998 and from there it was off the races as the stock market zoomed ahead in the final three months of '98 and retraced all its losses from the prior months. The S&P ended up closing at its all-time high at the end of the year and in no time it all the various crises that dominated the news headlines in the previous months were all but forgotten.

http://www.clifdroke.com/articles/may10/050410/050410.html

update II Rick's Picks is certainly in line with my expectations...
That threat was “actualized,” as they say, by this week’s steep selloff, but it remains to be seen how much more damage will be done. So far, it is minimal, and we therefore still expect the futures to hit a very bullish 21.53 by mid-June. That is our target for the July contract, and it was mentioned in last week’s commentary along with a secondary target at 20.21. At what point would our outlook turn intermediate-to-long-term bearish? That would take a print below 13.89 (!), since, according to the rules of our proprietary Hidden Pivot trading system, that’s what is required to turn the weekly chart bearish. With respect to the daily chart, the July futures need only dip below 16.590 by Friday to hint of serious trouble. That’s hardly unlikely, but even if it were to occur we would give the long-term bullish trend the benefit of the doubt until such time as the weekly chart confirms the negative.



Six Weeks of Purgatory



In the meantime, we’ll view the futures as being in purgatory, tasked with consolidating for the expected push within six weeks or less to 21.53. Our position in silver at the moment consists of 800 shares of Silver Wheaton stock with a cost basis of 11.75. We have been doing covered writes against the stock to further reduce its cost basis and, in line with this strategy, are short eight May 18 calls for 0.64. I

30 comments:

  1. added miners swc slw auy .....traded out of dto...bot sgy.

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  2. It's not how you run the race, it's how you finish.

    I'm thanking the almighty ponzi for smacking down the miners so I may buy some. Unfortunately stuck in that CNAM trade still too.

    I'm exercising restraint here and not buying any short ETFs. I hope my lesson in patience pans out this time around.

    On the oil spill - some of my buddies in the energy biz are saying they're worried about the oil which never makes it to the surface...they fear the oil will stay underwater and people won't realize the damage it's doing to the environment because it won't be visible on the surface, but that it may actually be far worse. Guess time will tell on that one!

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  3. BTW Our former incognito poster commented today on the reinflation trade being "still on" . I agree ....public (as evidenced by the Greece situation) is NOT going to accept austerity. So until inflation crushes them ...expect the presses to ROAR....for reasons that will remain private ....I guess that those that communicate with joe will do so privately....hehehe

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  4. So thus is what a pin dropping sounds like.

    Third day in a row I can't get to the net because a VPN system is not available in the morning. What a nice little opportunity it would have been this morning to pick some miners up.

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  5. give um a chance homer ...still time...don;t get in a hurry...joe hit pal at 3.80 at opening..

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  6. Gotcha

    ALU was real trippy today, not that I could see it at the open. S has been pretty solid but ALU has been all over the map. Nice day today though as a trade.

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  7. Hi Kli
    Is ALU still a buy under 3 dollars? I did well on Sol but it has been brought down the last few days, would you consider re entering that trade? Thanks for all the great info and making me a few dollars.

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  8. Good evening kli. I must have missed something along the way, joe isn't going to post here anymore? I'm sure you'll fill us in, but he will be missed big time if so...same as ohsnap, exercising restraint, maintaining cash, not going short.

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  9. The similarities with 1998 will end with the runup in early summer. Much more coordinate global "cooperation" on the reflation this time plus if you a October 98 type drop happens you probably won't be able to recover to new year end highs with the level of disgust in holding most paper assets for more than a trade.

    An extra Swiss Bank account in Swiss Francs is looking more and attractive for US dollar holders as the dollar starts to peak.

    Joe decided to not directly get involve in this forum for now after last weekend.

    We bounced off the 60 dma on the S&P which maybe enough along with a few days of basing if not than the 100 dma will then need to be tested to have the necessary oversold conditions for a steady and slow rally into summer. In short term, Most overseas stocks are getting slammed harder than the US due to the flight to safety from foreign debt and a stronger US dollar.

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  10. red and I are in contact still...Joe is OCD and needs a vacation.....He is involved still as always....He will still recieve his customary pay......nuttin

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  11. So.. think CNAM has bottomed now? Hehe, never took a position on that one but when I see a stock nosediving like this it tempts me to take a bite. Or do you think like Analyze said we are headed for 1040 short-term? If so I'd guess CNAM has a couple more red days to go..

    Honestly I think Americans would be much slower to riot than Europeans.. Especially if our govt can effectively blame the Europeans. Besides, the most prepared to to protest (conservatives) have already been marginalized by their "allies" in the media. Half the country will just think "oh those crazy fox news republicans" until a piece of the sky falls on their head.

    Keep the TV, McDonalds, and "clean" drinking water flowing and I think they could get away with a fair amount of deflation without worrying about breaking the oligarchy.

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  12. with CNAM i think you can wait until it confirms a turn.....but Joe is focused on PAL. I tend to agree just didn't buy enough this am....hope they retest ...but.......and any american riots will be met with brutal force ....overt and covert

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  13. KLI: based on the Elliott Wave's will the market continue to go down?

    How can we play it?

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  14. Morla - when you see US folks rioting, and I think you eventually will, be scared. As far a Europeans go, do not discount the number of anarchists and socialists they have. This is what they wait for...they friggin' stoned the RBS building in London when the meltdown first took place a year and a half ago. Amateurs and college kids, etc.

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  15. Eurozone doesn't like killing the citizenry.....we on the otherhand won't hesitate. Elliot Wave is being "used" here by the game to slaughter shorts so be careful....

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  16. Use this beatdown to take a "position in the miners" especially swc and pal..If you are lucky and see another "leg" down....add to the miners...I like slw ssri...also anv ego are mthfkrs too...Trade ALU and S here.....but PAL is the play

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  17. Oh I agree that if America does start rioting it will get real ugly.. Though with LRADs and microwave cannons they can probably brutally suppress that with a minimum of actual killing. The constitution will be the biggest casualty.

    My main position is that it will take MUCH more to get America to go over that edge. After all the political system survived the great depression, WW2, vietnam, etc. The EU still has that "new union smell", they're nowhere near the "blindly trust central command" phase that many of us are in. Took us a while to get here, the federalists had to really slow play these cards.

    There are plenty of good reasons to riot already, if we were so inclined. We are not. Myself included, like everyone I wouldn't dream of rioting unless the mob was already doing so. In this way revolution is a force of nature, not politics.

    Get enough angry people in one place and even a football defeat is enough for anarchy, but comfy in their own living rooms you can park tanks on our cars and probably get little more than bad language out of us.

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  18. KLI, I'm going to short GS tomorrow morning.(again)

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  19. And yeah SSRI is bleeding beautifully.. I want this to correct more but if it goes sideways I think I'll jump on the SSRI boat anyway. The way these miners are boats sometimes gap away from the docks, no chasing possible.

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  20. Jay .....there are easier ways to make money. Morla. agree completely...the elixir of apathy permeates american households through a mixture of clever and very effective propaganda and obfuscation. As a sage advisor once told me....fill their bellies and give them mindless entertainment and you have them pacified. Besides the electronic monitoring is "beyond your imagination."

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  21. If the electronic monitoring is that good I'd call it overkill. Our propaganda is second to none, and no one's sticking around to have their ears damaged when the LRADs come out trust me.. Would they use microwaves on citizens? As long as no one can prove it causes any serious long-term damage (which takes a "long term" to do) I don't see why they wouldn't.

    They don't need this market. Financial reform kinda needs it but there comes a point where even a bear market can be spun in favor of a toothless bill (GS being right there with Europe (literally) as obvious scapegoats).

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  22. Sorry for all the posts, but I think all the propping is for Machiavellian reasons mostly, inflict all the damage at the same time (so it can be less digested) and all.

    Is there a way to get post editing here? That'd make me significantly less rambly.

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  23. Morla - I understand completely and you are not wrong. But also do not underestimate that "they" brought the 401Ks back from the brink. Three cheers for the powers that be. Hip hip...

    The 401K jokes were it was a 201K...ha ha ha. What happens if they end up 101Ks and 51ks? That's when folks will start to get ugly. Realizing all the experts kept saying we did it!! Recovery on!! Thank us!!! And they weren't experts at all!!

    I say it all the time, so does William Black. Read the resumes/wikis of Rubin, Summers, Giethner, Bernanke, Paulson. They are failures, yet held out to be the guiding light of our economics system. Just because they worked for GS (one way or the other) doesn't mean they know everything. Anyway, I ramble...winding down now.

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  24. To call someone a failure you need to know their true intentions. In the kingdom of the blind the one-eyed man is king. And the other eye is busy looking at the real numbers that only it can see (though we can easily guess).

    Anytime I say anything I find it wise to caution that being right will not make you money. Once you figure out some truth or other it cannot be taken away from you, that would be way too easy. What does make you money? Uh.. I dunno, for 2010 I'm not the one to ask. Holding onto 2009 gains and being ready for whatever is my priority.

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  25. Failure was too broad a term, they failed at many of the tasks they were assigned to perform in the realm of finance/leadership. I don't think there was any true intention when O's current financial adviser blew up Harvard. He just made an arrogant bet and was wrong.

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  26. wonder how alu will do after initial earnings plunge.

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  27. Ouch - should have picked up some S to offset this crap.

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  28. Thank you for this article! I had a relative in the Great Depression and he share that the only way he survived was through gold and silver trading. He said a lot of people would do that, if they could find it. I guess living in California helped a little.

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