from the January 4 edition of Notes
From the Rabbit Hole
November we have been following potential bottoming patterns in US
and global stock markets with Inverted Head & Shoulders in the
Dow and S&P 500 and a clear series of higher highs and higher
lows in the Hong Kong market. Bullish
divergence has been present throughout the bottoming process in our
often watched ‘panel’ indicators like MACD and RSI.
You name a major global market… Europe, Japan, they are all
following some version of the bottoming scenario.
bullish indicators came in the form of many bearish emails I
received from different people, including some who do markets for a
living. This generally
reflected the sentiment that drove the following chart – the TBT
ultra-short 20+ year treasury bonds – to a fearful extreme.
question is, how long can ‘hope’ be held down?
No matter how bad things are – and they are very bad –
there is bound to be a technical reset of human emotion.
I have been bullish for several weeks now in anticipation of
this reset hinted at by the pervasive bearish sentiment and bullish
divergence on most stock, market and asset charts.
But it is just that, technical.
Sad to say that the hopes and dreams of millions can fall
into the category of ‘technical’ or ‘sentiment’ indicator,
but that is what is happening in my view.
TBT, which I
recently bought in one account to hedge t-bill and short term
treasury funds and in another simply as a stand-alone trade, has
been due for a recovery of some kind as asset markets rise, fear
begins to subside and a pale representation of the global casino of
yore rises from the ashes of Armageddon ’08.
In other words, if we are correct in the view that markets
are due for relief from historic downside events, long term interest
rates should rise as the fearful herd begins to feel as though it is
missing the boat and/or missing THE bottom.
When signs of this greed seep into the major media, it will
be time to prepare for the next leg down in human hope and, quite
The rough game
plan at this point allows for some stories to take root about the new
New Deal, perhaps even a new Camelot as the evil ‘Bushies’ are
blamed for everything. It
allows for fantasies about how roads, bridges (what the heck, why
not planes, trains and automobiles too?) and network infrastructure
can put America back to work as it digs itself out of its economic
problems. I am long
this fantasy as you know http://biiwii.blogspot.com/2008/12/kings-is-dead-long-live-king.html
via Microsoft and Cisco along with increased positions in the
positively correlated commodities, which will be looked at in more
depth later in today’s report.
In general, the target for the fantasy will be in the areas
of the various 200 day moving averages, which will obviously be
declining as time goes on.
The Dow and
S&P are often shown in NFTRH,
so for a change and considering large, debt-free tech is my
non-commodity vehicle of choice for the would-be rally, here is a
look at the Nasdaq 100 current daily status.
tentatively broken above short term resistance but we are tempered
by the fact that this is done on still low holiday volume.
MACD is becoming constructive and importantly, after rising
above the EMA 20 that contained any upside during the panic, the
index has now closed above the more significant SMA 50 in a show of
strength. The noted
target is measured off of the bottoming pattern and risk will be
defined as increasing upon a break and close back below the SMA 50.
The game plan
will, as always, be molded, shaped and defined as events unfold.
But right now it looks like hope is set to outperform and
this can be tracked via our gold ratios http://biiwii.blogspot.com/2009/01/another-indicator-turning-gold-oil.html
as gold comes under pressure in relation to other assets (including
notably, silver) after its moon shot vs. same.
The gold miners
have now doubled off the bottom, which I believe is a reflection of
the market’s realization that their fundamentals were greatly
enhanced by the downside terror of Q4 2008.
But they could be set to take a temporary back seat during
Relief ’09 as the herd’s endorphins are released into the
markets. Later in the
report I will illustrate how I am rebalancing in alignment with this
expectation. With the personal speculative portfolio now having
virtually doubled off of the October bottom, it has been a good lead
up to ‘January effect’ season and I expect more gains over the
coming months. But any
rally must be accompanied by risk management and ongoing attention
to the herd’s sentiment because this is only a bear market
rebound. Anyone reading more into it at this point is jumping too far
ahead. With any luck,
hope will spring eternal… or until spring at least.
© 2004-2009 Biiwii.com
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