Bubble Ben

We are at the mercy of Bubble Ben and his endless flowing liquidity gun.  You'd think deflation was everywhere with the way he's printing money.  Inflation without food and energy and with hedonistic price adjustments is probably close to zero.  But then again, when oil was at $140/barrel, the inflation number was also quite moderate.  As long as government entitlements, TIPs, and quantitative easing are determined by the CPI, the CPI will always vastly understate inflation. 

I expect us to trade weaker off the open, with late day strength.  It should set up a decent down day for Wednesday. 

Topping Process

Tops last longer than bottoms in the stock market.  Just when it feels like the market will never go down, that is when it becomes vulnerable to a pullback.  Right now, we have released all the positive catalysts that the markets wanted: Republican victory in the House, QE2 beating expectations of $500B with $600B, and an above consensus employment number.  Plus Obama agreeing to negotiate on tax cut extensions.  The market needs time to digest this good news and the process isn't done in 3 days.  But what is important is that the market has more two way trading, not up days and flat days with no down days.  When there is more two way trading, you are building a top which often leads to a sizeable pullback. 

I believe we will get more choppy this week and have more two way trading.  

Final Blastoff

Gold.  It is the most logical choice among speculators to target as the best risk asset.  It is the next bubble.  The greatest benefit of gold is that it cannot be denied by fundamentals.

If oil prices get too high, OPEC will be tempted to bring out more supply thus dampening the price.  There is also demand destruction there.  Same goes for other commodities.  But gold trades on pure speculative fervor.  It has very little intrinsic or industrial value, a small portion is used for jewelry, which is based on perception.  There are many other elements rarer than gold which aren't used for jewelry.  The fact that gold has been used and sought after as money doesn't mean anything in this fiat world where money is not backed by gold.

The story sounds good.  Banana Ben is hell bent on continuing to print money to finance the Treasury budget deficit and to goose the economy.  Since printing money is a very inefficient way of lowering the unemployment rate, the Fed will have plenty of fodder to print more money as the unemployment rate stays high despite lots of QE2.  So they will print more, because if 600 billion is not enough, maybe 6 trillion will be.  If 6 trillion isn't enough, maybe its 60 trillion.  As long as the banks and the financial markets want it, they will get it.  We know Bernanke is the sugar daddy and he will deliver.  All this money printing of course encourages the search for other currencies, and of course, gold, which will be considered the best currency as other nations competitively devalue. 

The chart is beautiful.  It is a perfect example of a chart that is about to go parabolic.  A very long uptrend built over several years with momentum rising every year.  It reminds me of the Nasdaq in late 1999.  Crude oil in early 2008.

From looking at past bubbles, from the liftoff point where the market was basing usually was a move of 50%-60% to the top.  The Nasdaq took off on a relentless uptrend from 3000, going from 3000 to 5000 in 3 months.  Gold has been basing between 1100 and 1250 for the past year before starting its liftoff on the QE2 announcement taking it up to 1397.  Based on past analogs, we can expect a 50% move up at the minimum from that base, so a range of 1650 to 1875, on the conservative side.  If we get a 60% move, it would be a range of 1760 to 2000. 

The best way to take advantage of this is to buy gold, silver, platinum, or palladium.

 Nasdaq bubble

Crude Oil bubble

Gold bubble

Ceiling at 1224

The overbought thrust to 1224 this morning looks to be the ceiling for now and I expect weakness on Monday with a likely gap down.  Still need to see how the last 2 hours trade, but if we finish around these prices, I expect a gap down and then a run lower to eventually fill the gap at 1196.  European debt spreads are widening for Ireland and Portugal, it is ignored for now but that is probably why the euro can't find a bid on a day like today.  Something to look for next week.  Also the European markets have been lagging badly so there is obviously meat behind the story. 

Force Fed Rally

The Fed has put the fund managers into a corner and baited them into getting long risk assets at overvalued levels.  It is now a game of musical chairs and traders are going all in on the risk trade. The put call ratios are at very very low levels, something you see perhaps once every six months, last time I recall seeing such lopsided levels was in the middle of April when we were around 1210.  That was pretty much the top of the move.  Staying short here and will keep this one for a while.

Almost at the Apex

There should be one last push, probably in premarket on Monday as the pre-weekend sellers put a lid on further upside today and the Monday buyers push up prices for the Monday open.  I am staying short, but don't think we'll have much downside today.  I'm looking for the selling to start Monday at the opening bell. 

Nonfarm payrolls almost seem like an afterthought, economic data is now viewed through a double good lens, if its bad data, Fed will buy more assets, if its good data, the economy is recovering and earnings will be higher.  A doubled head coin with Bernanke calling "heads" on every flip.  What a market.  Rigged beyond belief and a complete Ponzi scheme.  Karl Marx has taught Ben well.   Comrade Bernanke will always look out for us! 

Hyperinflation Talk

You know the commodities trade is getting long in the tooth when you hear traders talk about hyperinflation and the dollar going lower.  The euro has topped out after running up to almost 1.43.  We have gold looking like it formed a double top pattern around 1384.  The ES has formed a double top pattern from April around 1215.    The majority believes the Fed will achieve its inflation levels and stocks will go higher.  The sentiment is euphoric.  Yes, not just bullish anymore. 

If you don't get short here, I don't know when you will.  Once in a blue moon? 

Adding to the Fire

I have added to my short position, but with room to add more.  We are in the vicinity of the April highs and that should provide a good risk reward backstop for the short position.  We have a lot of euphoria this morning.  A lot.  I wouldn't be surprised if we are making the highs for this up move today or tomorrow.

Short Ahead of FOMC

I have put on a short position expecting immediate weakness off the announcement.  I have heard about there being too many looking for a pullback, or a sell the news reaction.  That is being contrarian just for contrarian's sake, and isn't supported by actual psychological drivers of market price action.  I still want to point out how the market has been conditioned to be bullish when the Fed pumps money, and that Pavlovian response is the linchpin for why we've rallied so much after 2 months. 

Once the anticipation is over, what is the next catalyst?  And at ES 1187, we are not going higher just because there aren't enough bulls.  The market fundamentals is not conducive to having a lot of bulls, because the stock market has a secular problem, not a cyclical one. 

Due for a Selloff

We are long overdue for a selloff, and today can provide a convenient excuse for it.  I am not going into any of the technicals or the price action, but just into trader psychology.  The past two months have completed transformed the positioning in the Street from bearish to bullish.  This is especially the case for commodities and non-dollar currencies.  While I do see traders positioned for a selloff in stocks, they are not many positioned for a selloff in commodities or a dollar rally. 

Aside from a totally ridiculous sum like $1.5 T or $2 T promised asset purchases, I don't see much surprising this market to the upside.  If we get below consensus or near consensus program, disappointment will ensue.  At least until Friday's job report.  So there is a window of 36 hours where we are very likely to selloff.  That is the window I want to be short for.  I plan on shorting right before the FOMC announcement. 

D-1

One more day till liftoff.  Get your space suits ready.  There is so much anticipation for tomorrow's report and bulls are the majority now.  It is going to take something spectacular from the FOMC to get this market to buy the news.  Can it be buy the rumor and buy the news?  That would surprise me, most fund managers have gotten short dollars, long commodities, and to a lesser degree, long equities.  I believe commodities will have the biggest selloff on the news. 

Another Gap Up

Who are the idiots that sell at the close and buy back at the open 10 handles higher?  We have been getting a lot of these gap ups out of the blue after the previous session had intraday weakness.  The pre-sellers have done their work and now it will be light trading ahead of the midterm elections and the Fed.  There is a very good chance that the Fed will meet market expectations and that should cause a selloff for at least 1 day.  So I will likely look to add short exposure before the meeting looking for immediate weakness after the announcement.  But I don't think that weakness will last long, probably not even past this week. 

Could we rise on the news announcement?  It is possible, but I would only have believed that if we had traded stronger the past 2 weeks.  We've only gone sideways, so I believe it goes lower on the good news.

Pre-Selling Good News

What is widely perceived as good news, QE2, and the midterm elections, a guaranteed Republican takeover of the House, we have selling.  Yes, it is pre-selling the good news, making it that much harder to game the actual news announcement.  They don't make it easy anymore.  The fools who like to buy good news and sell bad news are fewer and fewer.

I don't see a sustained sell catalyst because I am not in the camp that believes the economy of the developed world goes back into a recession.  We are already in one, and its probably gonna be much of the same over the next several months.   And if they can't rehash the same old Euro crisis story, than the bears have very little ammo to make this market go much lower other than overextension of the upside and overexuberance.  I see no such signs at the moment.

Stuck on 1180

For almost everyday for the past 2 weeks, we have been closing between 1178 and 1182 at the cash close 4:00 PM.  This is despite intraday trading as low as 1168 and as high as 1192.  This is a lot of back and forth action going on ahead of a perceived "good news" event.  Usually if you are a bull, you'd like to see strength ahead of perceived good news, not choppy trading.  Anyway, I think we're headed lower off this back and forth trading but it probably will be a spike low that doesn't last very long.  That is how I am playing it.  So I'd like to get short, unfortunately, I think I missed my chance this morning waiting for higher prices in the afternoon.

Eager Beaver Buyers Remorse

Well, it is the first day of the month and a Monday, what did you expect?   A gap down and rush lower?   Of course we got the typical gap up and thrust higher in the first hour.  But that's all this market has got.  This market looks dead tired, it doesn't have energy on the upside, all the up moves seem forced and they don't last.  The euro has also lost steam and that probably was a sign that hedgies were selling into the rally this morning.  It is probably a good time to position oneself short for the potential downside later this week after FOMC.  It seems destined to happen looking at the price action and complacency.