monday bounce? maybe...charts can tell a story, and i see signs of capitulation on a few (eg, MU), but they can't take the place of having watched the drop in real time, so i'm at a disadvantage...

opening gap down in HK/Shanghai is a good bet, but will both indexes in fact close in the green (or 'red'=up, in Shanghai's case)...my understanding is that individual investors in China collectively exert more influence on prices than they do in the US (guessing they are more hands-on than the (institutional) fund approach here?) ...[***regular posts from a trader in China or/HK would be fantastic***->you don't need to be the 'Shanghai Fly,' just 'one of us...' english? all traders speak the same language->no different than finding ourselves standing next to each other at HKIA or Pudong Jichang watching tickers on the monitor]...

opening gap down in US very unlikely->in which case i would be buying...

opening gap up in US->the higher the gap, the more likely it will be sold (unless, of course, secondary to an external stimulus)...

life can be fair sometimes->disadvantage of having only a second-hand take on (yesterday's) sentiment (which really is no take at all) is balanced this weekend by the neutrality of being 90% in cash...

On interest rates: Current treasury yields (copied from Bill above) seems to indicate that the yield curve is no longer fully inverted, only partially so.

3 Month 3.09
6 Month 3.09
2 Year 2.72
3 Year 2.66
5 Year 3.18
10 Year 3.87
30 Year 4.38

The curve can be seen graphically at Bloomberg:

http://www.bloomberg.com/markets/rates/index.html

Aside from the period 6 month to 3 years, the yields increase with longer maturities.

Does this curve tells us anything? Inverted yield curves precede recessions, so just after a recession starts, how does a typical yield curve look like?

The second question. If the Fed will drop rates significantly this year, what will it do to mortgage rates? For those with mortgages coming up for renewal soon, are they better off switching to a variable mortgage?

TIA

Bill,
I updated last week's chart with the latest Unemployment Rate(UR) numbers. The change in the UR has gone through the threshold where rapid economic deterioration takes palce.
I posted a version of the chart that clearly shows this.

"I now believe “the next wave down for equity prices will be the big one”.

LOL! If I wasn't fearful before, I am now!!!!

2nd,
My take for what it's worth....
The previous two spikes down were more immediate and fearful, yesterday had some waves to it but it was more steady and measured, which is not good. The only thing that gives me any pause is stopping on 12,800-12,887 (I see they found 87 pts somewhere)right on the dime. Almost all of my watchlist (except PM's/miners and ag) were at or near the Nov lows.

craig- yesterday's volume for QQQQ (about 213m) far short of the august 16 volume of 362m, along with your description of the selling being "steady and measured"->fits well with bill's comment re 'no fear yet'...

we have to get down to 10,000 somehow, and if the selling had the character of being persistent and calculated->there's probably tacit agreement it's going down, so let's agree to take it down in orderly fashion (to the extent possible)...in which case equally calculated bounces allowing for graceful exits are entirely predictable (will be plenty of THs around, of course, to explain how lower prices are actually good for all of us averaging in to buy-and-hold portfolios ;)

the part of our portfolio which is in retirement account(s) has not been getting much play->mainly in MMFs (and Fidelity's Select MMF has actually been returning >5%), so looking for early opportunities to go long...OAKBX ranks high for a fund in the Cap Pres/Current Income category...also looking into FJPNX (Fidelity Japan) and FJSCX (Fidelity Japan Small(er) Cap)...

SDY (high [dividend]-yield) ETF was looking like a good play until i read bill's cautionary link this morning (1/3 of holdings are in financial services)...

Given how low bond rates have dropped, the Fed has a lot of leeway to cut rates much further. I think this will prop up the market in the short-term. Plus it is an election year and there's likely to be a lot of stimulus applied. IMO, there's a decent chance that the 12,800 line-in-the-sand will hold for a little while longer.

<i>In addition, the massive lending by central banks to HB&B to get them through the year-end liquidity crisis will have to be repaid. If there is no repayment or the cb’s roll-over these loans, I believe we will see oil zoom to 120 and gold to 1,000.</i>

Bill, where can we look to see whether or not those CB short term loans have been repaid or rolled over?

The fear has surely set in for me. I've hedged my longs (5 year time horizon) with some ultrashorts and gold backed investment vehicles.

In addition to the fear of a several year bear market I have several other are more fundamental concerns. Since 2004 when I first took an interest in the problem of Peak Oil, I've begun to seriously doubt that economic growth will continue as the general trend through the coming decades. Our economic models and the financial system as we know it presupposes growth. Growth is wired into the modern mind in such a way that all decision making is done to benefit from this growth. It's scary to think what havoc would ensue if this basic tenet were wrong.

This article about EROEI (Energy Returned On Energy Invested) is a nice summary of how growth is limited by energy: http://tinyurl.com/2jtr2k In my opinion, all investors would be wise to keep in mind how closely economic growth is tied to energy growth.

SiO2,

Re: The predictive power of the yield curve, there's a lot of heavy reading out there, Most of which I'm too lazy to do:
http://tinyurl.com/2eyzdj

And as for whether mortgage rates fall in the US based on Fed cuts, it's probable that US mortgage rates have more to do with Beijing than Washington DC. The long and short rates don't necessary follow in tandem. This was Greenspan's famous "conundrum." when he increased the rates (all short-term) after his slasher-fest, many expected the long-term rates to follow suit. However due to a "global savings glut," as he put it, the long rates stayed very low. As the asian central banks saved, they continued to buy the longer end treasuries, keeping the rates from rising.

Hi Bill,

in Tokio there was a short session with a 4% loss in the Nikkei 225 with a close at 14.691 and the low of the day at 14.542.

I started reading this blog in May 2006 and started posting comments in August 2007. It has been helpful in making me take a more serious approach to my investments. The comments in the blog keep me focused and provide a wealth of information of how to buy and protect profits. There is still a long road to travel in order to reach the skill that some people have in being successful in their stock selections and investment returns. The one important thing I have learned is to protect your capital because a loss in one year has to be made up just to get back to where you started. So my targets, since I don't day trade (yet), is for a return of 12% a year. In time I will look at using stock options to increase this target.

The figures are in and the returns for 2007 have been moderately successful compared to the previous year for my Margin and Retirement accounts.

2007............11.93%..............09.27%
2006............28.49%..............14.84%..<-- sometimes holding 50% cash

From January 2007 to September 2007 I held about 50% cash and then went to 90% cash for the remainder of the year. In light of this cash holding, the returns are acceptable for me. A friend of mine recently told me he was down 30% for the year. Now I don't feel so worried that I could have done better. This week I have been looking at the charts of financial and small cap stocks and that exercise has made me realize that these were good returns for a year that was so volatile. My preference is still to trade the large cap stocks in Canada and only take a flyer in the small caps with a small position. In late December I bought Noront Resources [NOT.v] at $4.12 and have seen some recovery in US Gold [UXG.to] from the initial buy at $4.01.

Thanks jock for your tip about the stock scans on STOCKCHARTS(com). This is a great tool for highlighting Canadian stocks on the TSX and Venture exchanges that I want to buy.

And a thank you to those who recommended books to read. From my break from looking for stocks to buy, I have been busy reading books from Alexander Elder and Van K Tharp. I am hoping that when the time comes to get back into this market I will be better prepared.

For my thoughts on this blog you can go back to my post of August 11, 2007. My opinion has not changed since that post. Let's hope we can figure out the markets in 2008 and be successful in our endeavours. [027]

Thanks FA. You seem to be saying that there is no relationship between Fed rates and mortgage rates.
Any opinions to the contrary?

My impression is that mortgage rates have indeed gone up in the US recently. In Canada, mortgage rates have been raised, in spite of the drop in Bank of Canada rates.

Still, the question is what happens if the Fed drastically drops rates (to 3% or lower?) as seems to be the case.

In Canada, there is the issue of the high CAD and the apparent unwilling of the Bank of Canada to let it fluctuate higher. However (Financial Post today):

"J.P. Morgan also halved its forecast for Canadian growth this quarter to 0.5 per cent from one per cent following a report that an index of Canadian business and government spending fell more than expected in December. The fall in the Ivey Purchasing Managers Index to 45.9 from 58.7 in November suggests spending has not only slowed, as was expected, but has actually fallen.

At the same time, the Ivey price index rebounded to 60.1 from 52.1.

Ted Carmichael, a Toronto-based economist at J.P. Morgan noted that historically, a persistent move in the price index above 60 has tended to be followed by an increase in interest rates by the Bank of Canada, suggesting the central bank will face the challenge of dealing with a combination of a weaker economy and higher inflation."

So, historically, rates in Canada have tended to move higher in these scenarios - but the CAD has not been as high as it is now.

Have been reading your commentaries for a while, and just registered to let you know how much I appreciate you sharing your insights. Agree completely that we haven't seen real fear in these markets - yet.

Si02 Not sure mortgage rates will necessarily go down as the short term rate is cut by the Fed. The markets will determine the rates. If rates overall decrease, there will be less foreign investment in treasuries and the dollar will really crater (and gold will rocket). While walking the tight rope, the Fed doesn’t want the dollar to depreciate that much (drastically) if they can help it.

I’d settle for a fixed rate at renewal time. If rates went down significantly for mortgages later, I’d take the hit and refinance again. If the rates rise later in the year and next year due to inflation and other market factors, I’d be ahead and save my home. Of course some of the individuals in a sub prime squeeze may not have that option and will take the variable delaying the inevitable.

Couple of more ag headlines today:

From the South China Morning Post

Flour ban could see stocks running out within a month
Importer warns mainland action may be disastrous

Cheung Chi-fai and Kristine Kwok
Jan 05, 2008
One of the largest flour suppliers in Hong Kong is rejecting orders from new customers, and estimates its stock could last no more than one month in light of a mainland ban on flour exports meant to stabilise domestic supply....

From ninemsn, Australia

Pakistan and Bangladesh floating tenders to import wheat . . . . India scrapping customs duty on wheat imports . . . .as supply squeeze due to consumption grips the South Asia area . . .

I think that U.S. mortgage rates will increase over the next year to reflect "higher risk of defaults". Banks will reap the benefit of a bugger spread. Oh I'm sorry, I meant to say bigger though both words fit the current scenario.

Bill, where can we look to see whether or not those CB short term loans have been repaid or rolled over?

Posted by: number2son

Here is a guy I follow who seems to have a good handle on FED/ECB actions

http://www.hussmanfunds.com/wmc/wmc071224.htm

Thanks, wabrew.

I agree no fear, the oddest thing to me is the $bpindu long term chart. It seems that since the mar 2003 low this chart has not been allowed to drop below 50 and that is not the norm pre mar 2003.
It's almost as if everytime a dow stock started to give a p&f sell signal hb&b got to work.

On the same note regarding fear and turning points, I am not sure if I mentioned it here but I had thought that the hs top in hui a few weeks ago would not meet it's price objective and would create the fear and purge of good shares needed to start a sustainable rally.That has happened so far anyways. Now we see the dow showing a potential hs top and I am suspecting that a fall through that neckline to the uptrend from mar 2003 would create fear while making a third touch of that uptrend from mar 2003(making it a valid trendline?). Could that be a buy op? I don't know but it just seems to rhyme with what happened to hui recently. Maybe of note are the highs since mar 2003 that combined with this lower trendline is forming a bearish rising wedge for the future? Something to keep an eye on perhaps.

My son, Conor, explains why the CDS mess is still a huge trading mess, from some technical considerations.

Meanwhile, I've got a few 'unique' charts and Dow Theory update self-evident up.

http://ronsen.blogspot.com/

Any idea when the book comes out, Bill?

From the 3rd world: Radio Nepal reported the government was in “arrears” to the tune of 70 billion rupees.

Explanation?

“The arrears have been rising due to absence of healthy, regular and liable financial administration and lack of financial discipline in the public corporations.”

Sound familiar?

daily rsi-7s for the naz top 10- my take would be they favor a bounce as well...

http://tinyurl.com/3yvzkg

2nd,

Thanks for kind words and encourage earlier.I'm holding the gold puts for now and wait and see if the sell off materialise,but am vigilant.

This might be of interest:

Flight to gold as investors lose faith in money
Last Updated: 1:30am GMT 06/01/2008
The last time gold touched $850 an ounce, the world was visibly spiralling out of control.
Soviet tanks had just rolled into Afghanistan. The Mullahs had seized US hostages in Iran. Pax Americana was on the ropes, and so was capitalism. Inflation had reached 14 per cent in the United States.
The final spike in bullion occurred when the Hunt brothers tried to corner the silver market, forcing up gold in tandem through arbitrage links. It collapsed within days.
If you strip out the Hunt anomaly, it is fair to say that gold established a "safe-haven" level of $600 - or $1,500 in today's money - that roughly lasted through the final phase of the Carter malaise, the oil shock, and the collapse of confidence in the monetary order.
By this benchmark, last week's jump to $869 looks tame. Yet gold is undoubtedly flashing warning signs. The price has jumped 42 per cent since the US credit markets suffered their heart attack in August. It has tripled since Gordon Brown sold over half Britain's reserves, deeming it a barbarous relic. That conceit has cost taxpayers £3.4bn, after adjusting for returns from dollar, euro, and yen bonds.
The mounting risk that Pakistan's nuclear weapons could fall into the hands of al-Qa'eda is playing a role. So are fears that Western leaders have no credible answer to the banking crisis as it drags on for month after month…………

http://tinyurl.com/2bw2rp

moneygenie- no gold expert, so not even going to try a rebtuttal to what is, after all, a well-written case for further gains in gold...would simply say that odds favor at least enough of a pullback to allow a profitable close to your puts...every time the pendulum swings too far in one direction, we are invariably drawn to the argument(s) that support continued movement in that direction...(was it just a few weeks ago that AJC called for S&P500 1600 by year end? and regardless of how confident you were in your bearish outlook, if you were holding ultrashorts you had to contend with that)...sometimes it's easier to revert to more fundamental concepts (reversion to the mean, normal volatility, yin/yang, or just common sense)->you bought those puts fading a panic bid for miners, and i just don't think panic buys (in general) pay off->ergo, i believe your puts will pay off...JMHO...

(off topic)- what a great season it's been for films->michael clayton, gone baby gone, eastern surprises, no country for old men, kite runner, atonement...haven't seen a string of good ones like this since 1996-7 (lone star, boogie nights, ice storm)...

Here is an interesting quote from one of the links published in a comment above. From this link:
http://www.hussmanfunds.com/wmc/wmc071224.htm

#######################
As an additional remark, as I noted in mid-October, “we're likely to observe a growing amount of what will wrongly be viewed as 'cash on the sidelines' and 'money creation' in the banking system. The problem is that the commercial paper market has dried up. If savers are not buying those securities as the proceeds come due, and a good portion of the borrowing is still somehow being rolled over, then it must be the case that the savers who used to own commercial paper are now saving in another form, and the borrowers who used to issue commercial paper are now borrowing in a different form. Most probably, banks will be the chosen intermediary, because savers view bank deposits as insured and somewhat safer than unsecured commercial debt.” This is a very predictable outcome, so be careful not to interpret, say, increases in M3 as being the result of “Fed liquidity.”

In short, the Fed is doing nothing more than predictably rolling over its repos, but with great flourish as if something more is going on. The fact is that current economic risks are not the result of a shortage in liquidity or confidence, but reflect a fundamental solvency problem among homeowners who borrowed more than they could afford, on the expectation that rising home prices would provide that affordability through “cash out” refinancing.

It may make people feel good that the Fed looks like it's doing something, but these actions are being misrepresented to investors as being far more than they actually are. Misinformation simply creates false hope, and directs attention away from real problems. This is a disservice to investors.

Over the years, the misperceptions of investors have tended to be a source of periodic frustration for us (the 1999-2000 tech bubble being a good example), but avoiding those misperceptions has also generally been a great source of long-term returns. I don't have any reason to believe that this instance will be much different.
#####################

It appears that when the 'credit crunch' from august happened the Fed had been shrinking the money supply. And that since march-07 only 20 billion dollars were added to the 12.7 trillion dollar money supply. This would be interesting when I believe the average traders perception is that the Fed has been adding a lot more money to the money supply than just $20 Billion.

Has anyone else read the article yet?

Side note: 2nd_ave, I have to agree about the movie thing. It has been a great year for good movies. I just saw kite runner and atonement this past week and was just amazed at the quality. It seems that the themes of the recent good movies have been that we live in a really horrible time and place, but that good and honest actions are their own reward. At least something like that.

This section comes from the same article but is about the ECB rather than the US Fed:

#####################################
Despite the apparently enormous amount of last week's 348.6 billion euro “main refinancing,” the fact is that it was a rollover of existing repos, not a “new injection” of funds.

What's more interesting is what didn't get reported. If you examine the ECB's own data, you'll find that as of Friday, December 14, the ECB had a total of 488.5 billion euro in outstanding “liquidity,” 268.5 billion euro of which was set to expire on Wednesday, December 19. If you look carefully at the source data, you'll find the following transactions last week, in chronological order (even if you hate numbers, stick with me and just read each one before moving on, even if the picture isn't clear at first – this is fascinating):

12/17/2007 FIXED_TERM DEPOSIT / LIQUIDITY_ABSORBING:
36.6 billion EUR, maturing 12/19/2007

12/19/2007 REVERSE_TRANSACTION / LIQUIDITY_PROVIDING:
348.6 billion EUR, maturing 01/04/2008

12/19/2007 FIXED_TERM_DEPOSIT / LIQUIDITY_ABSORBING:
133.6 billion EUR, maturing 12/20/2007

12/20/2007 REVERSE_TRANSACTION / LIQUIDITY_PROVIDING:
48.5 billion EUR, maturing 03/27/2008

12/20/2007* REVERSE_TRANSACTION / LIQUIDITY_PROVIDING:
10.0 billion EUR, maturing 01/17/2008

12/20/2007 FIXED_TERM_DEPOSIT / LIQUIDITY_ABSORBING:
150.0 billion EUR, maturing 12/21/2007

12/21/2007 FIXED_TERM_DEPOSIT / LIQUIDITY_ABSORBING:
141.6 billion EUR, maturing 12/27/2007

[Geek's Note: you can ignore transactions that were both initiated and matured last week. What you have left is: 488.5 less 268.5 expired, plus 348.6, plus 48.5, plus 10.0, less 141.6 = 485.5 billion euro]

At the beginning of the week, the ECB had 488.5 billion euro in net liquidity outstanding. By the end of the week, the ECB had 485.5 billion euro outstanding.

So here's the blunt truth: the ECB drained 3 billion euro of liquidity last week!

The story reported and repeated ad nauseum on the financial channels was that the ECB “injected” the equivalent of US$500 billion of “liquidity” into the international financial system last week. The slightly more refined version was that Wednesday's 348.6 billion EUR refinancing was dramatically higher than the 268.5 billion EUR refinancing that was expected.

The real story is that on Wednesday December 19, the same day the ECB did that 268.5 billion refinancing (isn't it interesting that at prevailing exchange rates, it translated into a “headline number” of almost exactly US$500 billion?), the ECB also did a massive 133.6 billion EUR “liquidity absorbing” operation, which it then rolled over the next day and then into next week.

We can fully expect that on December 27, the ECB will enter yet another “liquidity absorbing” transaction to extend this “mopping up” of Wednesday's misleading repo. It will be no surprise if that enormous mopping-up operation expires on January 4, 2008, which is when the much-vaunted 348.6 billion EUR repo expires (and will no doubt be replaced with great fanfare by another rollover).
########################

Is it really true that while the financial media is reporting huge liquidity injections, the money 'injected' is actually just an extension and 'roll over' of the money already temporarily injected?

I think it would be nice if some knowledgeable person would clear up the apparent conflicting stories about Fed injections. My only sense of it is that the repos are one thing, and then they are repaid fairly soon, but the issue is one of money growth as measured by reconstructed M3 figures. Maybe Hussman wouldn't use that. I'm still in 1st grade on this issue, and there seems to be a lot of confusion about the how the Fed operates in the financial markets and what the intended effects are. For example, I think they have made it easier for banks to go to the discount window and avoid some kind of stigma associated with it. Well, how much money is created that way by through the fractional reserve system? I think there may be many ways the Fed is pumping in money but those need to be better delineated in an understandable way. The fact that the Fed has created a huge mess in the financial system they themselves oversee does make me want to know more about what they are doing. They may be making things worse, and we can't really be sure about it.

I am not very knowledgeable as to the numbers but I do understand the following simple facts:
Some people decided to give loans to people that could not afford it. These people "hoped" that they would sell into a rising real estate market and profit. The people that authorised these loans knew it was a "ponzi" scheme that would eventually collapse. These same people then bundled these bad loans with a bunch of good ones and passed them on to the international market, hoping the losses would be absorbed, or hidden, much like a hot potato. The ones in the know got rid of them or shorted them. Many governments stepped in and accepted these hot potatoes as their problem to the tune of hundreds of billions in order to keep the legitimate loan market(ABCP) from collapsing. Eventually someone has to pay. Whether by printing more money or higher interest rates and inflation, the little guys will be stuck with the bill. The major problem is a loss of confidence in the ABCP market. This will not resolve until there is an accounting exactly how many of these bad loans are still on the books, and the people responsible for this criminal act are held accountable. The last thing required to regain the confidence will be convincing the market this will not happen again by effective oversight. Unfortunately I do not see any evidence the US Federal government is interested in truly getting to the bottom of this and holding people accountable. The silence is deafening. Even here in Canada we conduct expensive inquiries when a few million get misappropriated but with billions and trillions at stake we have silence. Except for the sound of the central bank's fingers on keyboards much like the little Dutch boy trying to stop the dam from bursting with one finger. Eventually all those fingers will come crawling into our collective pockets.

Just had a look at 234 precious metals stocks on the globe and mail site, what balantly stands out is that of all the charts it's only the big dogs that had significant moves..check abx,mng,aem,g,k,paa,slw.
These are all the largest cap and highest prices stocks. Seems to me the big boys are positioning for a signicant move or take a defensive posture?
Comments

. . . . “sometimes it's easier to revert to more fundamental concepts (reversion to the mean, normal volatility, yin/yang, or just common sense)” . . . . .

Posted by: 2nd_ave at January 5, 2008 11:04 PM

Good point! Like to add sometimes it may be more important to revert to more fundamental concepts . . . I know it’s worked for me . . . think stepping back and looking at things from “reversion to the mean, normal volatility, yin/yang, or just common sense” is part of that market “dance” Bill refers to.

I may be wrong but in lieu of buying puts, took the risk and sold some calls Friday expiring in 14 days on AEM. Back in December before the big move, sold some Jan AEM puts which I covered for a nice profit (probably too early; they may expire worthless but a profit is a profit). So I had that part of the dance correct; now to see if this part will work or if I trip on my feet. If the music changes, I’ll cover and bail.

Not recommending this for others . . . . . just agreeing with 2nd on his comment. . . . and wishing good luck to moneygenie with the puts.

No Fear?? What are you all looking at? I see extreme fear. Look at Gold. Look at Oil. Look at Stocks.
I would argue the absolute safest place for money over the next few years are large US corps with world exposure. I would rather own a share of KO and than the equivalent in US dollars collecting interest. The US corp has real value,the dollar has none. Inflation is the only way of the current crisis,so buy gold and strong US corps.
The easiest event for everyone involved and the one everyone wants is a quick drop. So I dont think it will happen.

Let's ALL beat up on Bernanke !

Cramer ridiculed him the other night. Ronsen takes a swipe in his blog today.

Wasn't it Greenspan "ayn-randing" on the slick bankers and brokers that created this mess?

How's a mere academic, arriving to clean up the mess, going to contend with the rough&tumble? Not very well! - But let's not forget who created the mess ...

Wondering if anyone here works for HBB and may have an idea about whether there is likely to be a flood of margin calls on Monday? Or will that perhaps signify the approaching end of bear rather than the beginning?

Found this link to Wachovia's 2008 equity outlook for those who are interested:

http://www.wachoviasec.com/wachoviasec/WSICommentary/outoftheblocks.pdf

Many have been following the H+S pattern of the major US indexes. Looking at the Emerging Markets Index (EEM) I see a falling Wedge pattern that on the daily has been developing since the late Oct peak. For traders looking to trade this this pattern continues to the downside about 64% of the time.

Watch the third attempt at support a break below could be a good short opp unless one wants to play to odds and take an anticipatory position in advance.

I have not yet calculated a price target and am looking for others to take a stab at it. Though I think the August low of 120 is reasonable looking at a 2 year chart. That's about 17% from here. EEV could be the play.

I am interested in EEM and the like to build a long term position which is what lead me to review the chart today. Besides I thought 2nd Ave might like it too.

yes gecko's been reading up on TA :) Comments are welcome.

Geckojb:
I have seen reference to a TA book BC recommends as a Primer: do you know the title or author?
TIA

Geckojb....
Thanks anyway....just thought to check the site menu and voila!...John Murphy. Off to Amazon.....

First let me make a correction the EEM pattern is not a fallig Wedge, it's a descending triangle - rookie mistake heh.

Another play on EEM would be to enter your put/short position on a break below resistance and set a stop loss at the price you enter. If it's a head fake and the pattern busts shortly after dipping below the resistance line it could mean a powerful short term rally to the upside. You get in and the pattern either completes or it busts and your out.

Maybe professor go34 will see this posts and chime in.

^^Dangit I meant a break below support not resistance^^ enter you put/short on a break below support the stop/loss would be netered at the price you entered or the new resistance...whew..apologies.

I need a beer now and go watch the afternnon football game.

Re EEM, I'd say it will retest the Aug 13th low of 111.41. When that happens you can look at the volume action and make a determination to jump in or wait a little longer. Personally, I'm looking for around 15% or more downside in US markets and ~30% in emerging (China).

Re EEM,
I see it currently around midpoint in a four year up channel, which has a lower boundary currently about 124. If it were to break that lower trendline then I would expect it to eventually go significantly lower. I say "if" because the On Balance Volume still looks fairly healthy.
In fact, if the DJIA continues in a bear market, but EEM bounces off the lower trendline and then resumes its uptrend, that might be a tell that the rest of the world can operate without depending on the US to drive everything.

It's amazing how much order there was in a seemingly chaotic 2 weeks.

http://img299.imageshack.us/my.php?image=58161703uu1.gif

Asia/Pac down over 1% in overnight trading. Looking forward to an interesting week.

US Futures is up however...europe...is the tell..

Yes, Europe is the TELL..WE watch and wait.

Interest rates have been hijacked by politics
By Liam Halligan
Last Updated: 12:51am GMT 07/01/2008

The Bank of England faces another tough decision on Thursday. Having cut interest rates to 5.5 per cent in December, the Monetary Policy Committee is this month expected to keep borrowing costs on hold.
In last week's Reuters survey, 51 of 63 "leading economists" said the MPC should wait until February, or even longer, before lowering rates again.
Economists can be fickle, though, coming under all kinds of pressure to fit their predictions to their paymasters' views. The weekend before the December rate cut, like now, various economists' polls showed that few wanted lower rates, given the dangers of rising inflation.
But then, in the final few days before last month's MPC meeting, almost all those refusniks buckled - as City and industry bosses piled in, predicting economic meltdown unless borrowing costs were slashed.

Within 72 hours, most "independent experts" had shifted their position from one where the Bank shouldn't risk cutting rates, to one where it would be "irresponsible" - an emotive, threatening word - for the MPC not to act…………

http://tinyurl.com/37ftve

Note: there really is a PLUNGE PROTECTION TEAM!!

Bush can buy time as property bubble bursts
By Ambrose Evans-Pritchard
Last Updated: 12:50am GMT 07/01/2008

Bears beware. The New Deal of 2008 is in the works. The US Treasury is about to shower households with rebate cheques to head off a full-blown slump, and save the Bush presidency. On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash.
It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils.
The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
Judging by a well-briefed report in the Washington Post, a mood of deep alarm has taken hold in the upper echelons of the administration. "What everyone's looking at is what is the fastest way to get money out there," said a Bush aide.
Emergency measures are now clearly on the agenda, apparently consisting of a mix of tax cuts for businesses and bungs for consumers. Fiscal action all too appropriate, regrettably.
We face a version of Keynes's "extreme liquidity preference" in the 1930s - banks are hoarding money, and the main credit arteries of the financial system remain blocked after five months.
"In terms of any stimulus package, we're considering all options," said Mr Bush. This should be interesting to watch. The president is not one for half measures. He has already shown in Iraq and on biofuels that he will pursue policies a l'outrance once he gets the bit between his teeth.
The only question is what the president can manage to push through a Democrat Congress.
The Plunge Protection Team - long kept secret - was last mobilised to calm the markets after 9/11. It then went into hibernation during the long boom.
Mr Paulson reactivated it last year, asking the staff to examine "systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis", he said.
It seems he failed to spot the immediate threat from mortgage securities and the implosion of the commercial paper market. But never mind.
The White House certainly has grounds for alarm. The global picture is darkening by the day. The Baltic Dry Index has been falling hard for seven weeks, signalling a downturn in bulk shipments. Singapore's economy contracted 3.2pc in the final quarter of last year, led by a slump in electronics and semiconductors.
The Tokyo bourse kicked off with the worst New Year slide in more than half a century as the Seven Samurai exporters buckled. The Topix is down 24pc from its peak. If Japan and Singapore are stalling, it is a fair bet that China's efforts to tighten credit are starting to bite. Asia is not going to rescue us. On the contrary.
Keep an eye on Japan, still the world's top creditor by far, with $3 trillion in net foreign assets. The Bank of Japan has been the biggest single source of liquidity for the global asset boom over the last five years. An army of investors - Japanese insurers and pension funds, housewives and hedge funds borrowing at near zero rates in Tokyo - have sprayed money across the Antipodes, South Africa, Brazil, Turkey, Iceland, Latvia, the US commercial paper market and the City of London.
The Japanese are now bringing the money home, as they always do when the cycle turns. The yen has risen 13pc against the dollar and 12pc against sterling since the summer. We are witnessing the long-feared unwind of the "carry trade", valued by BNP Paribas in all its forms at $1.4 trillion.
The US data is now relentlessly grim. Unemployment jumped from 4.7pc to 5pc - or 7.7m - in December, the biggest one-month rise since the dotcom bust and clear evidence that the housing crunch has spread to the real economy.
"At this point the debate is not about a soft land or hard landing; it is about how hard the hard landing will be," said Nouriel Roubini, professor of economics at New York University.
"Financial losses and defaults are spreading from sub-prime to near-prime and prime mortgages, to commercial real estate loans, to auto loans, credit cards and student loans, and sharply rising default rates on corporate bonds. A severe systemic financial crisis cannot be ruled out. This will be a much worse recession than the mild ones in 1990-91 and 2001," he said.
Sovereign wealth funds stand ready to rescue banks, as they have already rescued Citigroup and UBS. But as Moody's pointed out this week, the estimated $2,500bn in lost wealth from the US house price crash is more than the entire net worth of all the sovereign wealth funds in the world.
Add fresh losses as the property bubbles pop in Britain, Ireland, Australia, Spain, Greece, The Netherlands, Scandinavia and Eastern Europe, as they surely must unless central banks opt for inflation (which would annihilate bonds instead, with equal damage), and you can discount $1,500bn in further attrition.
Not even a Bush New Deal can hold back the post-bubble tide that is drawing in across the globe. What it can do is buy time. Fortunately for America - and the world - the US budget deficit is a healthy 1.2pc of GDP ($163bn). Washington has the wherewithal to fund a fiscal blitz.
Britain has no such luxury. Our deficit is 3pc of GDP at the top of the cycle. Gordon Brown has shut the Keynesian door.

http://tinyurl.com/2agbq2

Asia is down, but would argue that much of it was priced into EEV and FXP last Friday->they seem to be forward-looking instruments...almost to the point of 'predicting' the indexes will recover from the current lows...

"The US budget deficit is $163bn????

That's if you don't count war costs and the Bush girls' allowances!

It's also delusional.

2nd_ave

I was beginning to think I was the only one watching Asia.

I'm a bit confused though by your:

"Asia is down, but would argue that much of it was priced into EEV and FXP last Friday->they seem to be forward-looking instruments...almost to the point of 'predicting' the indexes will recover from the current lows..."

How so.... Prediction?/ does'nt FXP move up when asia goes down??

another xlnt weekly market summary by prieur du plessis:

http://tinyurl.com/2s4335

Excerpt of Marc Faber quotes:

"[Faber] sets out three key observations:

1) I have never experienced a bull market in equities without the participation of financial stocks. In addition, when financial stocks across the board collapse it is a very negative sign for the overall health of the stock market.

2) The fact that a stock has declined from the peak by 50% or even 90% does not make it necessarily inexpensive. In 1985, I recommended the purchase of a basket of Texas banks, which at the time had declined by 95% from the peak, as a contrarian play. Subsequently, they all went bankrupt.

3) As I have explained before, the financial sector has become disproportionally large over the last 15 years or so. Therefore, I would also expect the reversion to the mean of the financial sector to take several years and not to be completed in just six months! In short, I would avoid purchasing financial stocks for now and would also defer new commitments to equities."

"Emerging stock markets are definitely to be avoided, he adds, ‘following their significant out-performance over the last few years’."

mg-

EEMTRADER pointed out a couple of weeks ago that FXP appears to be (best) inversely correlated to the Hang Seng. But what happened last Friday? The HSI closed up 632 points (2.4%), leading one to expect FXP to open down 4.8%. Instead, it opened down 0.8%, then rose from there to close up 3%...undoubtedly due to a revised (and forward-looking) outlook given the sharp drops in DJIA/SPY.

If in fact the FXP looks ahead, then I (given the pessimism last Friday) expected a higher close than 82.51...so looking ahead to Monday, the fact that FXP closed lower than I expected Friday->leads me to think the HSI may close higher than its (current) Monday low of 26,698...

2nd ave..FXP is correlated to the EWH, and even the QQQQ.. that trades during US Hours...not the hang seng that trades when we are asleep...trade as you see fit..it doesnt discount overnight..it doesnt peer into the future..asia follows the US...they are down..because we were down huge..try some swing trades and backtest....or try your correlation at spdrindex.com. dont quote me please.....

2nd ave...europe trades the FTSE XINGHUA Index as well...but hey..its your money ...

EEMTRADER-

"2nd ave , Craig: FXI correlates with the Hang Seng index , thats why it gapped down this morning. might want to tweak the trading strategy a little...FXP needs more liquidity, market makers having a field day making money off day traders spread is huge between bid and ask.."

Posted by: EEMTRADER [TypeKey Profile Page] at December 8, 2007 1:50 AM

Would that be the same as saying FXP inversely correlates with the Hang Seng?

It correlates better with the Hang Seng then it does with the Shanghai index which i beleive you ( 2nd Ave) were comparing it to...and thus my response to the post.

If the US market has an upward bias..no matter what hong knog does...FXI opens up like the QQQQ..and then after that...who knows. Thats why I dont hold FxI /FXP overnight,...and i know and test my correlations.

Just want others to know what to check.....but you can be right and trade as you wish 2nd ave...

for all others that believe in mechanical trading systems..check out the etf correlation tracker at www.spdrindex.com.

I retired when I was 40 so nothing to prove..just pointing out some other observations for other traders to ponder...there is the other side of the trade..and traders dont think alike..or bilingual.

thanks for the clarification...

craig- FXP/FXI-have you noticed the pricing seems a little out of step in tracking the performance of the Shanghai index? reading the prospectus does little to shed light on exactly what instruments they are invested in...

Posted by: 2nd_ave at December 7, 2007 11:54 AM

Know what you are trading.....

Quentusrex,
Your question/point is one Mish has been making for quite some time now:

M3 has been climbing, but strip out the credit components and you are pretty much left with M-Prime, which is cash. This number has barely budged.

So his point is that all the reports of 'money printing' going on by the Fed are bunk, and it's all a credit balloon.

The main point is that an M3 comprised of mostly credit will behave quite differently than money that is 'cash' The 'velocity of credit' will quickly collapse to zero. We are seeing it now, when banks refuse to loan or even lower rates, as the Fed cuts.

The result of too much credit is a deflationary Mies-ian credit collapse, while too much M' results in hyperinflation.

That sort of boils down his 'controversial' point that we are in/on the verge of a credit collapse caused deflation, rather than a 'helicopter of cash' driven hyperinflation.

I tend to lean towards Mish on this one.

The funny or interesting thing is, either scenario can be seen as positived for gold.

That is, the monetary role of gold will cause it to climb in deflation, while the commodity aspect will cause it to soar in an inflation.

Interesting times.

Bill is Lyondell still trading? Will you remove it from the Cara list?
Thanks for your site
Gray

A new agricultural ETF (COW) trading on the TSX on Dec 19, 2007. There is also an ultra bull fund and ultra bear fund upcoming.

http://tinyurl.com/2wfzez

* * *

Next week, ETF creators Claymore Investments Inc. will be starting a new fund named MFC Select Global Agriculture Index (COW/TSX) and its top holdings will include Monsanto, Potash and Syngenta AG. It will trade in Toronto. Also, BetaPro just filed a prospectus last week for a Horizons BetaPro Agriculture Bull Plus Fund and a subsequent mirror-opposite Bear Plus Fund of the same sector. The launch date on the Toronto exchange has yet to be announced.

Critical of the Fed? Crippling debt, uncontrolled (not Fed policy) spending, feckless money-printing?

And some Cara 777 data

http://ronsen.blogspot.com/2008/01/cara-7-7-7-and-fed-blunders.html

Marc Faber was on Bloomberg this AM and his call is like Bill's....see's dollar strength in the months ahead, gold and miners peak this week then pullback with dollar strength.

Would be holding USD for months ahead and then buy gold and commodities.

Says we're oversold right now....

That's my take so far for what it's worth.

Last years losers, AJ Cohen and Tobias Levkovich say we gain 14% on the S&P this year. I predict they are this years losers too.

Martin Pring is offering his January newsletter for free. Bill's readers might find the 38 page report interesting. Martin Pring is a well respected non-hyperventilating market commentator. Like Bill, I think that Pring can be credibly called a trusted voice. http://www.pring.com/

AAPL: Sold premkt at 182.

We may be oversold but a profit is a profit and I'm taking it here.

way too many buying into a collapse and recession. If I have to hear the recession argument one more time,I am gonna puke. Starting to sound like bird flu and other disasters that never happen. On the other hand a recession would be the absolute best thing for this economy.
When everyone was having orgasms on Housing, I shorted. Now the same morons who loved housing are sold on recession and collapse of stocks. Time to start buying. At the same time I want no cash in any money markets at any brokers. If its not in stocks,which have real value,it has to be in US treasuries or FDIC backed CDs.

Get your bucket or kneel before the throne, we're heading for a recession BECAUSE there was an extreme housing bubble.

FDIC? Have you had a look at the bond insurers?
You're joking, right?

That would be fake paper backed by the full faith and credit of whom? The American people who have NO CAPITAL???? We have DEBT, not credit. Sooner or later fiat paper backed by more fiat paper and debt loses it's appeal.

S&P returns vs. VIX (volatility index)

Eddie Elfenbein's blog has (5th story down) an intriguing chart suggesting that S&P returns are highest when the VIX is in the 20's. Above and below, returns tail off sharply.

http://www.crossingwallstreet.com/

Can this tell us when we really most want market exposure? I'd LOVE to hear comments on this from folks with a better math mind than mine! -