…the ranges yesterday were incredibly narrow. TB omitted Tuesday when saying nothing of technical significance occurred to point out that most indices – the S&P 500 was notably absent – had positive KEY REVERSALS (higher high, lower low, and close ABOVE the prior days high). The end justified that as it was what TB fully expected: no follow thru to the key reversals. Take a gander below at the closing summary and you can see how meaningless a normally very strong technical indicator has become. Rather, the track record in the countertrend rally is that a key reversal has become a ‘sell’ signal or ‘buy’ if it is a negative one and you have the stomach for it. How narrow was it? The entire session’s range on the Dow 30 was 76 points, The S&P 500 just 9 (more on that later), and the Nasdaq…even with all the positioning ahead of Intel’s earnings…was just 18 points on the Composite and SIX on the 100!
Before we talk further about the SPX and Goldman (just the facts today folks), take a look at the headlines in the overnight summary and see if you can make heads or tails of them because TB can’t…the reason being that just like the leaders in the stock indexes there is just as much chance that a positive can be a negative the next day or vice versa. How does one trade off that? The answer is that one doesn’t…and didn’t as volume yesterday was just 978 million shares, over 500 million below average with BAC, C, and CIT making up 54% of that total…that isn’t a market…it’s a charade!
Some point to the S&P 500 bouncing back above 900 as a positive…only a psychological one and those will get you into trouble every time! It closed up 4.78 yesterday at 905.63, just below the session high, BUT…there’s always a but…the resistance…and it is major is the 40 day at 914 and the 50 day at 912 and with options expiration Friday, TB does not expect that to get taken out…especially if the dollar remains weak. Let’s look at what happened on the drive to the highs in June. As pointed out previously all rallies have begun on the first or second day of the each month since the March lows. The high on June 1 was 947.77…27 points above the monthend high (contrast this to our miserable 5 point gain yesterday). Eight sessions later after going sideways it peaked at 956.23….just 9 points above the June 1 high AND it closed down that day at 939. then began a selloff that obliterated the June rally but finally on June 25 it bounced again only to slowly creep higher for 5 sessions ending with a high of 931.92 (a lower high from the rally high and thus establishing a downtrend) on …July 1…the first failure at the beginning of the month, culminating in a drop to 859.92 on July 8 (a second lower low) before rallying on the Meredith Whitney/Goldman rally of Monday and eked out another slightly higher high but meaningless yesterday.. This as the 40 and 50 day moving averages are converging just 8 points above with two levels of trapped long positions above that (the two highs cited above). Not that prior to the first rally it had been supporting just above the 40 day, then fell below the 200 day; on the second it supported and was barely above the 40 day with the 50 day just below. Again the fall took it to the 200 day which by this time was nearly 50 points lower…in fact the 200 day looks almost like a trend line. TB has pointed out before that in rallies the 40 day becomes support then resistance on selloffs and when the 200 day becomes support you are either at an inflection point or about to break down. Now keeping in mind that the S&P 500 is STILL UP 33% from the March 6 low the economy doesn’t look one iota better…in fact the only thing that looks better is the earnings reports that are coming out and the only reason for that is that they are based on lowered-bar analyst projections…designed to create a positive. You decide.
Now back to Goldman and Meredith Whitney’s ‘buy’ recommendation…the first she has made since starting her firm late last year (by the way and TB thinks this is funny…she is married to a professional wrestler…is that how she learned the theatrics?) and it was Goldie. Included in that report was a statement that this should be a good quarter for BANKS…BUT later most will suffer from further writedowns. This triggered that huge rally in bank stocks?…with nary a buy recommendation among the group…just one sentence and that was merely a short term positive. But as with Goldman, if you are short you cannot wait and see…they were forced to cover…triggering a faux rally (in TB’s mind) and that was why Goldie failed to take out its June 5 high of 151.17…and this is the third attempt thus making it vulnerable to a selloff…despite earnings! So watch for a break of $142-143, the 40 and 50 day moving averages!
So how did Goldie make that money? TRADING. A Bloomberg story this morning shows that they took on the most risk in their history in the second quarter…equity alone by 58%. Value at Risk (VaR) or the amount that the firm could lose (hypothetically) in a single day rose to $245 million…again this is equity trading alone. Remember they are now a BANK…and they just paid back their TARP funds! They may be ‘the smartest guys in the room’ but they are not seers…and according to their CFO, David Viniar, their “business model never changed.” Remember we are coming off the largest financial meltdown in history. Lastly, how much of the 59% increase in trading revenue was due to the algorithmic trading discussed here. Are they wrong or is TB? You decide.
TB did some research on the composition of the CRB yesterday while trying to figure out why Corn didn’t show up in the composition on Bloomberg (after contacting them it miraculously reappeared so think we know where the problem was). First, the Goldman Sachs Commodity Index (there’s that name again) is 68% Energy! Here is the breakdown so you can see why it is Crude that is the driver: Crude 37.8%; Brent Crude 13.3%l and the next largest are RBOB Gasoline at 4.8% and Natural Gas 4%…what is left for anything else? Not much…that is how skewed it is to crude prices! In July 2005, the CRB changed their weightings reducing Agriculture and Metals to 61% from 82.3% while doubling Energy to 39% from 17.6%…TB was not aware of this but TB believes the CRB makes much more sense in looking at overall costs…although the runup in crude skewed it way too much…perhaps 50/50 is the right mix. You decide.
————————————————————————————————————————–
Sotomayor hearings are boring…conservatives vs. liberals…the truth? You don’t want the truth just something to curry favor with constituents. How much are we wasting of time and money on this? A three ring circus that was meant to be objective.
TB checked out the story on Michelle Obama and the kids joining him in London and then staying on at a big cost to the government. I am sick of the negativity being spread by the right but www.snopes.com says it is all true. Costs were big and at a time when U.S. citizens are hurting but rank has its privileges…one guesses. The Administration counters that all expenses were repaid as required by law…that means paying the cost of commercial air transport etc…not the cost of a 707, crew, and security. Wake up, Obama!
Well, we are now at the ides of July and what have we learned…nothing. There are cries for another stimulus package but aside from just writing checks without verification (which would lead to another scandal) it is a huge task to distribute hundreds of BILLIONS of dollars. The should have had a ‘tax holiday’ to get the money spent…but it would have merely been used to pay down debt except for the needy, right?
TB is trying hard to not get so disgusted with our government that he throws in the towel but they are sure making that a herculean task.
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © July 15, 2009.
