The Fix Is In!

The Fix Is In!
By Phil of Phil’s Stock World 

What a friggin’ joke!  

In Monday’s Member Chat I put up the chart below and said that we are likely to flatline for 3 days as we were repeating the patten, in reverse, by which we fell during the quake. We weren’t sure whether that would lead to another drop, like it did on the 15th but, lacking another earthquake, we could climb back our wall of worry (because “it just doesn’t matter” does it?) back to test our Major Breakout levels.  

DIA March 21 2011

This isn’t sour grapes – it’s what we expected to happen because we know the market is a manipulated joke so we play it that way. We picked up long plays (hedged, of course) Monday on CCJ, CSCO and GLW. Tuesday we added SDS hedges and that gave us cover to go with long ideas on AA, AGNC, AAPL, CHK, GE, JRCC, KO, MCD, UNG, WMT – some of which were offsetting short puts against the SDS hedge to make it free if the market heads up.

Wednesday we had that TERRIBLE New Home Sales number (worst since the 1950s, when the population was 1/2 of what it is now) so we calmed down and just went with long ideas on KO (again) and SHAW while now taking a couple of shorts on GMCR and NFLX and a bullish spread on the VIX, which is technically bearish.  So you can see how we begin to balance back to neutral as we begin to move higher.  

Yesterday the market ignored the TERRIBLE Durable Goods Report and we began taking last week’s bullish trades off the table as we had plenty of fresh horses to ride from this week’s picks.  We were all short yesterday with ZSL (an aggressive short on silver as they touched $38) QQQ puts for next Friday and another short on GMCR as they rallied back at the day’s end.  The only long I liked yesterday was the one I always like when it’s down – XLF.   That was all our non day-trades, not $25KP adjustments for the week and you can see how we play as we take LESS long trades as the market goes higher – not more as we are not momentum traders.  We prefer to buy when it’s low and sell when it’s high – perhaps a radical concept but it does seem to work pretty well.  

 

As you can see from the 6-month Dow chart, we’re in a major trading range between the Breakout 2 and Major Breakout Levels that we’ve been tracking since last year. That 100% level on the Dow, 12,938 is miles away (6.3%), enough so that we have stopped shorting the Dow other than our Mattress Play and have focused on the Nasdaq, who are over their 100% line at 2,530 and the S&P, who are very close to theirs at 1,332.  Notice the Dow’s MACD lines LOOK like they are signaling a huge move with a very positive technical cross. I say “LOOK” because what’s happened since the tip that looked technically ugly has been fake, Fake, FAKE and nothing suckers in the retail bag-holders like an “obvious” bullish chart pattern along with the non-stop cheerleading in the MSM, who have actually started saying “it just doesn’t matter” to explain how we can rally on such poor fundamentals.  

The Dow was our only index to hold our Breakout 2 Levels during the quake excitement and just barely too (we don’t count one-day spikes).  We wanted to test those lines so we could get more bullish and, as I noted yesterday – we did get a lot more bullish in the past two weeks but the ease in which we fell 5% during the crisis should be a concern to any trader, as the volume wasn’t even particularly heavy in our 3-day dip.   A very good trading rule to remember is: “What is easily won can just as easily be lost.”  

Certainly Lloyd and Co. want to end the Quarter (next Thurs) at least at the 12,200 line as that will be a 5% move up from the 11,600 start to the year and GS has already predicted 1,500 on the S&P, which is up 20% for the year so they NEED 5% for the quarter to prove their omniscience.  While Uncle Lloyd may believe that hitting his price targets on the nose proves he’s talking to God – I believe that hitting targets like that on low-volume rallies that make no sense proves that he’s a manipulative crook who is (allegedly) illegally working with other investment houses (the Gang of 12) and their pet Central Banks to rig the system to funnel as much wealth as possible out of the hands of the bottom 99% and transfer it to the top 1%.  

So thanks, I guess, for making such a despicably evil system that we get to play along with the big boys. Yesterday JRW played the Russell like a fiddle and even Matt (our resident bear) made money on a bullish Russell play this week – BECAUSE IT’S SO FRIGGIN’ OBVIOUS! Perhaps I should just shut up and enjoy the ride but I’m a macro guy and it just seems to me that this will all end very, VERY badly…

I am not alone in that outlook, three of our favourite financial authors voiced their concern about the Fed today – all on the main page but the teasers are:  

Crony Capitalism Strikes Again – by David Stockman

Someone has to stop the Fed before it crushes what remains of America’s main street economy. Last Friday morning alone it launched two more financial sector pumping operations which will harm the real economy, even as these actions juice Wall Street’s speculative humours.

Adjusted Monetary Base Rises by $500Bn – by Tyler Durden:

As of today the Treasury had a total of $12.24 trillion in debt, just $70 billion below the ceiling, and $14.172 of debt subject to the limit. Which is not good because as per today’s refunding announcement there is $99 billion in 2, 5 and & 7 year debt coming down the line next week. Which means that while the formal debt ceiling will not be breached, the total amount of debt including the fluff not counted, will surpass $12.4 trillion by next Friday.

Fed’s Objective Spells Doom for the Bond Market – by Jim Grant

Inflation usually proceeds by stealth — in the 1950s and 1960s, “creeping inflation” was the phrase. There is, however, nothing stealthy about Chairman Bernanke. He could not be more forthright. Inflation is his policy, and money printing, a.k.a. quantitative easing, is his method. Gold is one refuge from this design, though there is safe harbor in cheap stocks and undervalued real estate, too. As for bonds, they are promises to pay dollars, the definition of which the bondholder entrusts to the man who intends to cheapen them. 

JNUKE

That chart from Tyler’s article is reason enough by itself to get back to our BBB strategy (bullets, beans and bullion) and head for the fallout shelter – even without the fact that there is ACTUAL FALLOUT spreading across the globe from the STILL NOT FIXED nuclear reactor in Japan.  I mean SERIOUSLY – the VIX is at 18 while there is still even the tiniest possibility that sometime over the weekend we could have a full-blown nuclear accident???  You know, there is “just doesn’t matter” and then there is being completely oblivious to potential danger… 

We took our money and ran on EWJ on Tuesday and we have not looked back.  We bet it wasn’t that bad but that doesn’t mean we fool ourselves into thinking it’s GOOD – Good is not the same as “not that bad” – Good is a whole different thing that does not apply to Japan, Europe, the Middle East or America, for that matter where we have been getting TERRIBLE economic news and oh, by the way, we’re broke.  

” align=”left” size=”xlarge” nocrop=”true” clear=”true”]Here’s what Lisbon looks like.  Do these people look happy? With 20% of the population unemployed and youth unemployment in the 30s, Portugal rejected SOCIALIST Prime Minister Jose Socrates’ plan for spending cuts and tax increases, forcing the PM to hand in his resignation and leaving the Portugal without clear leadership until a new Government can be formed.  

Without the budget cuts, Portugal is almost certain to need an international bailout. It will run out of money this year without fresh cash, and markets are charging punitive rates for borrowing. Two firms downgraded Portugal’s credit rating Thursday.  Its dire situation thrust a possible Portuguese rescue onto the agenda of European Union leaders who gathered in Brussels Thursday for a previously scheduled meeting, where they were agreeing on a new bailout fund. Portugal would be the third country in the euro zone to require a bailout, after Greece and Ireland.

Ironically, decades of underfunded education are to blame for Portugal’s crisis – the same thing that is supposed to be the “cure” for ours!  Before his failure this week, Prime Minister Sócrates had pushed some budget cuts through parliament under pressure from other euro-zone countries. But in an interview before Wednesday’s political crisis, Mr. Sócrates made clear that investment in education was a priority, despite the costs. Appeasing financial markets was important, he said, but the country shouldn’t “lose the strategy and vision.”

There is substantial evidence from elsewhere that education confers broad economic benefits. Ireland was one of the EU’s poorest countries a generation ago. But it threw EU subsidy money into technical education and remade itself as a destination for high-tech labour, made doubly attractive by low corporate taxes. Ireland is now, even after a brutal banking crisis, among the richest nations in Europe.  “They had an educated-enough work force that they could move into a technology industry, and they rose out of nowhere,” says Eric Hanushek, a Stanford University professor.  

Note on the chart of US Education and Training Outlays that I (about to be 48 next week) was one lucky bastard as I graduated high school in 1981 – just as the funding was being yanked out of the system by Reagan-Bush1.  I do remember going back to the school for a 5-year something and thinking things had really gone to hell in 5 years and I guess it wasn’t my imagination with 60% of the funding removed in that short amount of time.  Now we reap what those paltry savings have sown as our workforce is ill-prepared to shift gears with the changing global markets and, rather than pushing for more education and more retraining to catch us up this decade – our “leaders” think less and less is the cure for what ails us.  That is just insane.  

Have a nice weekend,

– Phil

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