BLIND SPOTS

It is quite amazing I have been doing it rough the last few days, not to mention the last few months but when I am in a negative cycle it is amazing how it manifests in my chess games.

I seem to develop the most amazing blind spots, I move pieces into obvious lines of danger and just loose important pieces without even seeing the threat.

It stems from a defence mechanism where my natural instincts are to avoid any contradictory evidence from my initial assessment, I suppose it is my subconscious avoiding embarrassing me.

In chess and the markets there is no place to avoid embarrassments one needs to constantly reassess ones initial assessment.

 

 

FIGHTING THE TAPE

David Rosenberg says it best:

 

“Of course, it is always difficult to predict the future, but so many investors are caught in the moment and are being told “not to fight the tape” and simply play the momentum game. They do not see that the current rebound in the economy is a statistical mirage orchestrated by record amounts of monetary and fiscal stimulus that are simply unsustainable and actually risk precipitating a very unstable financial and economic backdrop in coming years.

From our lens, the rally of the last 12 months smacks of the 1930 snapback, and if memory serves us correctly, the S&P 500 went on to hit new lows in subsequent years and the next secular bull market did not start until 1954. I am sure that all the bullish pundits and ‘tape watchers’ were ridiculing the cautious folks back then — just go and have a look at the Diary of Benjamin Roth and you will see how much giddiness there was over the bear market rally and that the worst was over back then. Meanwhile, the lows were still more than a year away to everyone’s surprise — except those who kept their eyes on the forest, not the trees.

Deleveraging cycles take years to play out, even with massive doses of government intervention. It is clear from the volumes of emails I receive daily that there is frustration among those who think they have somehow missed something important by not being overweight cyclical stocks over the past year. The tone of the responses to my daily musings is eerily similar to the complaints I saw frequently back in 2006 and 2007 — and the advice not to “fight the tape” or to “fight the Fed”. These are just glib after-the-fact excuses for going long the market when nobody really has a good idea on why we should be bullish in the first place.

We hate to break it to the bulls but even with the pleasant rally in risk assets over the past year, there really is nothing to be bullish about when it comes to how the economy is performing now or in the future as all the monetary and fiscal largesse is unwound.”

AS OF MONDAY's CLOSE

The DJIA has closed up 19 out of the past 24 days since late February, while the NASDAQ 100 has closed up 20 out of the past 24 days and 27 out of 36 days since the February 4 closing low. According to David Rosenberg, the market has gone 24 sessions without a decline of 1% or more, and 89% of the stocks in the S&P 500 are now trading above their 50-day moving averages. Yet NYSE volume levels since at least October remain "punk." There are no sellers, at least not yet, nor is there a strong impetus to buy, both illustrated by the contracting levels of the 10-day NYSE a/d and up/down volume oscillators.

Capitulation: Biggest Weekly Spike In S&P Large Contracts On The CFTC

SOURCE : http://www.zerohedge.com/article/capitulation-biggest-spike-sp-large-contracts-cftc-history-19-billion-index-shorts-covered

Capitulation: Biggest Weekly Spike In S&P Large Contracts On The CFTC In History - $19 Billion In Index Shorts Covered

 

Submitted by Tyler Durden on 03/28/2010 21:34 -0500

• Commodity Futures Trading Commission

 

This is what capitulation looks like:

The chart above is an indication of the net speculative contracts on the CFTC as disclosed by the weekly COT report. In particular, this tracks the S&P Large contracts (x 250). Last week saw the single biggest weekly short cover in the history of this data set, indicating one of several things: 1) some large fund(s) capitulated and covered a major short position, 2) the ongoing forced short buy-ins by the State Streets of the world have finally yielded results, 3) someone is positioning for a massive move higher in the market by going net short to neutral. The net weekly change in contracts of 66,043 is a record, and involves a staggering amount of capital: the money involved is 1,150x250x66,000 or roughly $19 billion. A weekly move of this magnitude was only ever seen once before, on March 24, 2009, when the government had to cement the bottom of the market following the 666 low. As the Large uses Open Outcry, it explains why we were getting numerous emails from pit traders indicating that Goldman was buying up billions worth of S&P Large.

A comparison of the SPY and the weekly change in the S&P Large contracts can be seen on the next chart.

We let readers make up their own minds as to whether last week's record short covering surge is a cause to the recent melt up in the market, or an effect to an imminent spike in the S&P.

The Crash

I am currently reading a book called The Great Crash 1929 written by
John Kenneth Galbraith.

The lesson I am taking from this easy to read flowing recount of an
epic period in economic history is how we as a society pay very little
value in economic history.

While history is almost never the exact same it sure can be similar
with important nuggets of information.

What is most interesting is how quickly the public and media have
distanced the world economies from depression. I must say if that was
the only pain needed to correct decades of bad living then I am in the
wrong camp.

I sit here overlooking the Sydney harbour and ask myself can it be
that I have gotten it so wrong. Is my economic compass from an ancient
world where balance is restored with busts equal to the booms no
longer relevant.

Has all this quantitative easing or simply credit expansion changed
the game. Are financial engineering tools replacing the business cycle.

All throughout history these claims have come and then they have gone
as the natural order of society has in the end dominated with it's ebb
and flow of gradual progression. Within this cycle are great periods
of human innovation as well as periods of human degradation on all
levels.

So as I sit and ponder I realize that my process of analysis is
probably well on track and the balance will be restored the only
question remains WHEN.

Sent from my iPhone

QUOTE FROM DAVID ROSENBERG

For the first time in this year-long bear market rally, the S&P 500 has not endured a daily decline of at least 1% over a one-month time frame. January was no more than a hiccup and has seemed to have emboldened the view that any decline is a blip and a buying opportunity. The mantra is that after breaking technical threshold over technical threshold in what can only be described as a classic 1930-style bounce off a depressed low, we will now see a 50% retracement of the October 2007-to-March 2009 plunge, which would put 1,250 as the next key resistance point for the S&P 500. Interestingly enough, that would take the market back to where it was when Lehman collapsed. Of course, back then:

                        The dividend yield was 2.4%, not 2.0%

                        The unemployment rate was 6.2%, not 9.7%

                        Industry operating rates were 73%, not 69%

                        Housing starts were 822k annual rate, not 575k

                        New home sales were running at a 436k annual rate, not 308k

                        The Case-Shiller home price index was 162, not 146

                        The level of retails sales was $366 billion, not $356 billion

                        Auto sales were running at a 12.5 million annual rate, not 10.3 million

                        The level of employment was 136.3 million, not 129.5 million

                        Real personal income excluding government transfers was $9.5 trillion, not $9 trillion

                        The level of manufacturing shipments was $429 million, not $384 million

                        Consumer confidence levels were at 61, not 46

                        Credit card delinquency rates were 4.6%, not 5.8%

                        Bank-wide residential loan default rates were 5.3%, not 10.1%

                        Commercial bank credit was $7.3 trillion, not $6.6 trillion

                        The fiscal deficit was $500bln, not $1.5 trillion.

 

It makes absolutely perfect sense for the market to head back to those 2008 levels if and only if the broad array of macro indicators can manage to head back to the levels prevailing at that time as well. The jury, shall we say, is still out on that one; with deference to the impressive surge the market has managed to turn in and the wall of worries it has either been able to climb or merely dismiss out of hand.