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March 26, 2008
Cara's Commentary & Community Chat, Wed., Mar. 26, 2008, 7:43am ET
Get set to include the terms PDCF, SOMA and TSLF in your vocabulary because without them the financial system as we know it is finished, bankrupt due to the fact that primary dealer banks and commercial banks no longer trust one another.
Yesterday I made the point that whether or not there is sufficient cash in the system for banks to maintain the usual level of inter-bank trading would be the key to the direction of the equity market. A fundamental change to inter-bank dealing happened a week ago to try to avoid another Bear Stearns fiasco.
The Federal Reserve has announced that the Federal Reserve Bank of New York has been granted the authority to establish a Primary Dealer Credit Facility (PDCF). This facility is intended to improve the ability of primary dealers to provide financing to participants in securitization markets and promote the orderly functioning of financial markets more generally. The PDCF will provide overnight funding to primary dealers in exchange for a specified range of collateral, including all collateral eligible for tri-party repurchase agreements arranged by the Federal Reserve Bank of New York, as well as all investment-grade corporate securities, municipal securities, mortgage-backed securities and asset-backed securities for which a price is available.The PDCF will remain in operation for a minimum period of six months and may be extended as conditions warrant to foster the functioning of financial markets.
I will leave it to the imagination how solid are these “mortgage-backed securities and asset-backed securities” and quality of the price discovery process.
To see how this PDCF actually works, you need to refer to the Federal Reserve Bank of New York’s System Open Market Account (“SOMA”) Term Securities Lending Facility (“TSLF”).
What is the TSLF? The TSLF is a 28-day facility that will offer Treasury general collateral (“GC”) to the Federal Reserve Bank of New York’s (“FRBNY”) primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.What are the differences between the SOMA Securities Lending program and the TSLF?
The SOMA Securities Lending program offers specific Treasury securities held by SOMA for loan against Treasury GC on an overnight basis. Dealers bid competitively in a multiple-price auction held every day at noon. The TSLF will offer Treasury GC held by SOMA for a 28-day term. Dealers will bid competitively in a single-price auction held once per week and borrowers will pledge program-eligible collateral.
What are the differences between the TSLF and other Federal Reserve operations, like the TAF and term repo operations?
The Term Auction Facility (“TAF”) offers term funding to depository institutions via a bi-weekly competitive auction. In contrast, the TSLF will offer Treasury GC to the FRBNY’s primary dealers in exchange for other program-eligible collateral. The FRBNY term repo operations are designed to temporarily add reserves to the banking system via term repos with the primary dealers. These agreements are cash-for-bond agreements and have an impact on the aggregate level of reserves available in the banking system. The bond-for-bond lending of the TSLF, however, will have no impact on reserve levels.
Do these operations have a reserve impact?
No, the securities loans will not affect overnight bank reserves since the loans are collateralized with other securities.
What collateral is eligible for pledging?
Eligible collateral will be determined by the Federal Reserve and presently includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (“Schedule 1”) and AAA/Aaa-rated private-label residential mortgage-based securities (MBS) and commercial MBS, as well as agency collateralized mortgage obligations (CMO) that are not on review for downgrade (“Schedule 2”). Schedule 2 also includes everything in Schedule 1.
This is a gutsy move by Bernanke’s Fed. Now the People’s money will backstop the credibility or lack thereof of the 21 or so primary dealers who are responsible for the blow up of the credit market (“Liar Loan” syndications, derivative swap agreements, and the like, commonly referred to as the Debt Bubble).
The worst case scenario is that the Fed is now bankrupt and will have to be merged with the Treasury Department aka political money. That’s not such a scary thought, however, since I have been advocating this for years. That is to say; responsibility for the issuance of fiat money ought to be exclusively in the hands of the People’s government, and not under the control of private banks and corporations like JP Morgan, Lehman Bros, General Electric and Pepsi.
I swear; how many of the People really understand this?
Of course, what that debate is leading to is obvious: Wall Street vs Washington. But whether an American is Republican or Democrat politically speaking, everybody (I hope) is starting to agree with my opinions expressed in an article I did in the Wall Street Journal of June 2, 2006.
Why not re-read that WSJ article and ask yourself if I didn’t see today’s huge financial accident ready to happen.
Btw, how bad is the crisis? Well, an analyst at Goldman Sach’s (Andrew Tilton) says the covers are just being lifted. He says that financial institutions have written off just $120 billion of approximately $460 billion in credit losses associated with the bursting of the credit bubble.
As I think this is a singularly important piece of analytical work among a morass of manufactured spin (ie, the analysis vs synthesis discussion I often refer to), here is the whole report:
US Daily: Leveraged Losses—Still Out There (Tilton)
(CLEARED FOR EXTERNAL USE)
March 24, 2008In our work on “Leveraged Losses,” we have estimated that US leveraged financial institutions—banks, broker-dealers, hedge funds, and government-sponsored enterprises—would suffer approximately $460 billion in credit losses, after loan loss provisions. Residential mortgage losses will represent about half the damage, with another 15%-20% coming from commercial mortgages. Credit card loans, auto loans, commercial and industrial lending, and nonfinancial corporate bonds make up the remainder.
The losses to leveraged US financial institutions make up only a part of total credit losses, which we expect to be $1.2 trillion. However, these “leveraged losses” are most important, because they result in a substantial tightening in credit conditions as these institutions pull back on lending to preserve their reduced capital and to maintain statutory capital adequacy ratios. (For a fuller discussion of this process and the methodology behind our estimates, see “More Thoughts on Leveraged Losses” by Jan Hatzius, US Economics Analyst 08/10, March 7, 2008, pp. 4-6.)
Thus far, our banks team has tallied approximately $120 billion in announced writeoffs from US leveraged institutions since the credit crisis began. This includes just under $90 billion of losses on mortgage and other securities, and about $30 billion of loan impairments. Including foreign institutions, but remaining focused on the leveraged sector, total write-offs to date rise to about $175 billion.
The implication of the above analysis: although we have made considerable progress in the residential mortgage area, US leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble. There is light at the end of the tunnel, but it is still rather dim.
Of course, announced write-offs should not be expected to match up precisely with actual credit losses. Among the factors that can cause a discrepancy:
1. Foreign versus domestic losses. Our analysis focuses on US leveraged financial institutions because this is the most relevant set of firms to the domestic credit environment in the United States. In practice, sorting out losses between domestic and foreign institutions is quite messy, as almost all major firms span national boundaries to some extent.Despite these caveats, we believe the exercise of benchmarking announced write-offs versus our expectations of ultimate credit losses offers a useful perspective on the journey still ahead. Most of the write-offs to date relate to residential mortgages, so here we may be halfway through the process, perhaps even a bit further. Elsewhere, though, we suspect significant write-offs remain in store, even after the full set of first-quarter results for financial firms becomes available.
2. Non-reporting by private firms. Large public financial institutions follow strict regulatory and accounting requirements that force them to promptly disclose losses. However, the leveraged sector includes a modest share of private institutions such as hedge funds, which will be unlikely to recognize credit losses publicly. Other things equal, their presence would mean that write-offs would fall short of the total amount of credit losses.
3. Losses on derivatives contracts. Some of the write-offs include losses on credit derivatives, which necessarily imply a counterparty who booked a corresponding gain. However, these gains are unlikely to be announced and tallied in a similar fashion, so write-offs could in theory exceed the actual underlying credit losses.
Re-capitalizations from domestic or foreign investors have been an important offset to the capital losses from write-offs and impairments. So far, US leveraged institutions have raised about $100 billion of new capital via recapitalizations or reduced dividend payouts, a sum equal to more than three-quarters of the write-offs to date. Whether US or foreign investors will be willing to continue this pace of investment is highly uncertain, given the disappointing return of many of these investments to date.
Andrew Tilton
I hope this blog is not too long. I think it’s an important one or I would not have done it.
Posted by Posted by Bill Cara on March 26, 2008 07:43:45 AM | Category: Community Chat
Discourse
Discount window borrowing.
Check out the great historical chart at BigPicture:
http://bigpicture.typepad.com/comments/
Dave
Posted by: DaveB ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 26, 2008 8:18 AM [link]
Terrible durable goods orders:
Predictably, CNBC has its shills on bright and early downplaying the recessionary implications of these numbers.
Posted by: number2son at
March 26, 2008 8:37 AM [link]
1 dollar = 1 Yen
The Yen has a long way to go reach parity, but then again, the dollar has a long way to go down.
Posted by: FranSix at
March 26, 2008 8:45 AM [link]
Good morning.
One Cara 100 Ratings Change to report:
ECA - Upgraded to Market Perform @ Bernstein
-------------------------------------------------
Have a great day.
Posted by: Bull Hunter at
March 26, 2008 8:46 AM [link]
Bill,
Nobody told Paul Revere to keep his ride short.
When you are warning the people of bankruptcy by land or sea we don't worry if you ride a bit further to make sure we understand.
We owe you our Thanks for the extra effort.
Posted by: Craig at
March 26, 2008 8:53 AM [link]
Regarding the Fed action, here is a "must see" interview with Jim Grant on Bloomberg:
In summary, Grant is NOT sanguine about the Fed getting into the business of taking on risk of this magnitude.
Posted by: number2son at
March 26, 2008 8:54 AM [link]
From the TD Waterhouse site this morning.
"FYI: Reduced Loan Values for Select U.S. Securities
SUMMARY:
This information is relevant to margin accounts only.
On an ongoing basis, our credit and loan policies are reviewed to ensure they reflect current market conditions while protecting our clients. As part of this regular review process, and considering recent market volatility, maximum margin lending values have been reduced for select securities in the U.S. financial sector, effective immediately.
If you are holding any of these listed securities in a TD Waterhouse margin account, your loan value and available margin will be reduced until further notice."
Posted by: Canadiansailor at
March 26, 2008 8:59 AM [link]
$460b? that sounds more like it...someone's finally starting to take the stack of paper on the +/- bin and throwing it where it belongs...probably also looking more closely at auto loans (where did all those new SUVs on the freeway come from?)...'covers being lifted' is an apt expression here-> the longer it sits the worse it gets and the harder it is to clean up...
Posted by: 2nd_ave at
March 26, 2008 9:12 AM [link]
SEED - Origin Agritech Sinks In Pre-Market On Q1 Financial Results
http://www.rttnews.com/apps/deskalert/article.asp?date=03/26/2008&item=604
Posted by: OldGoat at
March 26, 2008 9:16 AM [link]
The meaning of the Fed's loans to the Primary Dealers
http://theroxylandr.wordpress.com/2008/03/22/feds-to-open-the-pandora-box/
Too much negative sentiment will provide fuel for a multi-month market rally
http://www.tradersnarrative.com/sentiment-overview-week-of-march-21st-2008-1598.html
http://headlinecharts.blog.com/2904316/
In addition, many TA bloggers have noted the positive divergences
Posted by: Vorlon at
March 26, 2008 9:16 AM [link]
"Too much negative sentiment will provide fuel for a multi-month market rally"
What about all the shills on CNBC telling us its time to buy, and that the economy is still strong and that there will be no recession? As long as Pollyanna is alive and well, the market will remain choppy at best.
Posted by: number2son at
March 26, 2008 9:29 AM [link]
n2s- agree...there's been too much talk about too much negative sentiment...
Posted by: 2nd_ave at
March 26, 2008 9:31 AM [link]
number2son and 2nd_ave,
The media is just one part of the market.
The sentiment surveys cover the far wider scope of actual market participants. I think we ignore these at our own investment peril...
Posted by: Vorlon at
March 26, 2008 9:40 AM [link]
Is anyone wondering how the Fed bailout of JP Morgan would hurt taxpayers? This article explains:
Specifically, here's how:
"[JPMorgan] will liquidate [Bear Stearns junk assets] over 10 years, with JPMorgan absorbing the first $1 billion in losses, with the Fed bearing any that remain. Any such losses would hurt the Fed's balance sheet, and ultimately the taxpayer, because they would reduce the stipend the Fed pays to the Treasury from earnings on its portfolio. The dividend was $29 billion in 2006."
And even though politicians are paying lip service to no formal taxpayer-sponsored bailout, I expect that will be the next shoe to drop. The Fed, after all, can only do so much to socialize the losses of these private financial institutions.
Posted by: number2son at
March 26, 2008 9:46 AM [link]
"I think we ignore these at our own investment peril..."
Point well taken. We need to consider all perspectives.
By the same token, however, you buy into the nonsense espoused by the likes of Brian Westbury and Jeremy Seigal, and a raft of others paraded every day on financial tv, at your own peril.
Posted by: number2son at
March 26, 2008 9:49 AM [link]
Vorlon- point taken...i do not necessarily disagree with the prospect of rallies, either into EOQ next monday, or into the spring/summer...just pointing out that the trading sphere has been filled with talk of bottoming backed by sentiment data...(and of course, need to disclose my own trading horizon at this time is 1-2 days, with frequent mind-changing predicated on daily reads of sentiment)
Posted by: 2nd_ave at
March 26, 2008 9:52 AM [link]
2nd_ave, I believe if I'm not mistaken those ultra-short bonds you were referring to yesterday are of an ultra-short duration rather than being ultra-shorts betting the bond market will go down. Si?
Posted by: Denny at
March 26, 2008 9:59 AM [link]
"By the same token, however, you buy into the nonsense espoused by the likes of Brian Westbury and Jeremy Seigal, and a raft of others paraded every day on financial tv, at your own peril."
Agreed. Luckily I am unable to watch such trash TV as I dun live in America :p
Posted by: Vorlon at
March 26, 2008 10:01 AM [link]
denny- right on, my man ;) the perils of an ultra-short attention span...thanks for pointing that out....
Posted by: 2nd_ave at
March 26, 2008 10:05 AM [link]
on a risk-adjusted basis, it may as well have been an ultra-short bond fund, no? (in terms of volatility, and based on the risk as presented by schwab)...
Posted by: 2nd_ave at
March 26, 2008 10:07 AM [link]
DUG/SMN- topping off positions here...let's see how it plays out...
Posted by: 2nd_ave at
March 26, 2008 10:09 AM [link]
The Schwab fund was sold to those poor bastards as a MM fund equivilent, which it clearly isn't.
These funds are ultrashort bonds: IE: they go up in rising rate environments.
Have the rates been rising? No! so of course they lost money. They will go up when the fed starts pulling liquidity and raising rates, not cutting and flooding as they are now.
It isn't the funds that are the problem, it's the brokers that put these people into them as a MM equivilent.
This does not however, factor in any derivative exposure...in LEH as I recall with RRPIX.
Posted by: Craig at
March 26, 2008 10:14 AM [link]
"Too much negative sentiment will provide fuel for a multi-month market rally"
Hope may be eternal but if one looks at most global equity markets in 2008, it is quite clear that they have fared much worse than the S&P500 and the DOW. The wise know that the main reason for this is because the U.S. markets have an entity called the PPT that props the markets at key junctions. Other global markets are rigged as well but not shall we say as "comprehensively" as U.S. markets.
Gabeesh - Fireworks
MikeNYC,
Further to your post yesterday, this morning I was looking into the Bloomberg terminal to find data about the open interest in gold options, but could not find it.
Could you, or another Member, please help me with the bloomber terminal entry to access that information?
Thanks in advance.
Cheers!
Posted by: maromatics at
March 26, 2008 10:20 AM [link]
2nd_ave, I don't know what those ultra-short duration funds were investing in because I haven't taken the time to look it up. That may be worthwhile research if there is any relation between what they held and what even shorter term, i.e., money market accounts are holding. I just don't know about that though.
Posted by: Denny at
March 26, 2008 10:20 AM [link]
"The Schwab fund was sold to those poor bastards as a MM fund equivilent, which it clearly isn't.
These funds are ultrashort bonds: IE: they go up in rising rate environments."
Craig, if that's true, I had it wrong then. I thought they were short-duration funds. As Emily Litella would say, "never mind!"
Posted by: Denny at
March 26, 2008 10:23 AM [link]
craig- read denny's post(s)...speed reading last night (and every night) + terminology with multiple definitions = ill-defined post last night...schwab was not short bonds, but invested in bonds of ultrashort duration->would have to read the prospectus to find out what those bonds were...sorry for the confusion...
Posted by: 2nd_ave at
March 26, 2008 10:26 AM [link]
Craig, re the Schwab funds,
"YieldPlus seeks to keep the average duration of its portfolio at one year or less."
Posted by: Denny at
March 26, 2008 10:50 AM [link]
I just didn't want you to be worried....at least for the wrong reasons! Being worried is normal in this environment.
The guy in the story gto screwed by his broker who apparently didin't understand what he was putting his client in.
If I'm not mistaken the RRPIX is based on derivatives through LEH, which could certainly be a concern, but I was simply cautioning against drawing similarities or level of risk parallels between the Schwab fund and RRPIX, etc. based on the story.
Non of us is getting into RRPIX as a MM equivalent! Otherwise I'm already pissed at myself for being so stupid!
A case of: "Any trader that has himself as a broker has a fool for a client?"
Posted by: Craig at
March 26, 2008 10:50 AM [link]
Sold WIND for now, will re-enter at around 7 if it ever gets there again. Thanks for the idea.
Posted by: occam_razor at
March 26, 2008 10:52 AM [link]
NDX just tested yest lod and bounced a bit - I'm thinking the next test might break through. If so then this could become a trend down day.
Dave
Posted by: DaveB at
March 26, 2008 10:53 AM [link]
Yes, but RRPIX is short long (10 year) bonds, not short duration. So I don't see the parallel between the two other than they are all based on/use derivatives. That would be the risk IMO.
Posted by: Craig at
March 26, 2008 10:55 AM [link]
WIND- was soros' idea/credit goes to him...
Posted by: 2nd_ave at
March 26, 2008 10:56 AM [link]
I mentioned this weeks ago - the underlying fundamentals of the markets lead one to be bearish on stocks. But, the Fed will (and this has proved to be correct) do whatever it can to curb a bear market via added liquidity (election year). That is inflationary and that inflation could go into stocks, squeezing shorts and providing an unexpected rally. If that happens, we would see a bunch of comments on how stocks really didn't rally due to the falling dollar which may occur simultaneously.
With that in mind, I bought numerous Cara 100 stocks on buy signals and trendline breaks with stops in place. IMO, those actions were too aggressive to comment on here, btw.
Once again, you must understand both sides of the argument and then watch the tape.
Posted by: g034 at
March 26, 2008 10:57 AM [link]
Craig, it was just a confusion in terminology. MY concern however is whether or not the implosion of the short duration bond funds bodes badly for money market funds.
Posted by: Denny at
March 26, 2008 11:02 AM [link]
Big Beta (AMZN, GOOG, RIMM, BIDU) are all up significantly today. Looks like this is a correction to upleg so far.
Posted by: moab at
March 26, 2008 11:04 AM [link]
The mess that the FED made... but good for lawyers...
NEW YORK, March 26 (Reuters) - Two Michigan pension funds are seeking emergency court action to stop the planned takeover of Bear Stearns Cos Inc by JPMorgan Chase & Co from moving forward, according to court papers.
The funds have asked the Delaware Chancery Court for a temporary restraining order blocking the sale of 95 million newly issued Bear Stearns shares to JPMorgan. The stock sale, set to close around April 8, is expected to give JPMorgan a big boost in its efforts to win shareholder approval of the proposed buyout of the ailing investment bank.
BullHunter, I was just at Scottrade, they said it would cost $27 a trade to buy or sell AG.UN. They asked me how I knew about all these none blue chip stocks, I just said I spend a lot of time studying this stuff.
Posted by: ShredHulk at
March 26, 2008 11:12 AM [link]
ShredHulk,
It's amazing that they can't get it for you on the OTC as AGUNF. Something doesn't seem right here.
Posted by: Bull Hunter at
March 26, 2008 11:15 AM [link]
HGD.TO (HZBSF)- fido charges $58/trade...
Posted by: 2nd_ave at
March 26, 2008 11:18 AM [link]
Shred -
If you are into this kind of stuff - get an account with IB. Much better commission structure for small / medium account plus an access to most international markets and forex.
Posted by: occam_razor at
March 26, 2008 11:20 AM [link]
BullHunter, they can but they said AG.UN is the main ticker, and that it has more volume, liquidity, and is better to own. Maybe they are wrong and AGUNF is better. ????
Posted by: ShredHulk at
March 26, 2008 11:22 AM [link]
Merrill and Lehman are looking really sick. Their charts today are just one big run lower.
Posted by: moab at
March 26, 2008 11:22 AM [link]
eventhorizon,
Thanks again for the Keltner Channels, very glad I didn't need to leave stockcharts. So the first number is ema, second is standard deviation, but what does the third number represent?
Posted by: SteveC at
March 26, 2008 11:23 AM [link]
has anyone received a copy of bill's book?
Posted by: 2nd_ave at
March 26, 2008 11:25 AM [link]
you can trade agunf at optionsexpress for $14.95
Posted by: woolybear1 at
March 26, 2008 11:28 AM [link]
That is still pricey - IB commission for Canadian stocks is CAD 0.01 per share with a minimum cap of CAD 1 and maximum cap of 0.5% of the trade. You have to pay for Canadian market data subscription though but it is a wash if you place few trades a month.
Posted by: occam_razor at
March 26, 2008 11:36 AM [link]
IB Canadian trading
You do not have to pay for Canadian data, it is optional, you can trade without subscribing.
Posted by: SteveC at
March 26, 2008 11:38 AM [link]
Yes but it is a small price for convenience of having a real time quote when placing an order.
Posted by: occam_razor at
March 26, 2008 11:40 AM [link]
ToG - $TYX (30 yr yield), may have hit lows recently. What is your risk in shorting the long bond into strength?
IEF may be forming a head and shoulders on daily chart. Today trading over 91, last June it traded at 79 and change.
Keep an eye on this.
Posted by: g034 at
March 26, 2008 11:41 AM [link]
Reuters U.S. Company News
11:33 a.m. 03/26/2008
WASHINGTON, March 26 (Reuters) - Leaders of the U.S. Senate Finance Committee on Wednesday asked the Federal Reserve, Treasury Department, JPMorgan (JPM) and Bear Stearns (BSC) for more details about JPMorgan's plan to buy Bear Stearns.
Democrat Max Baucus, chairman of the committee, and Charles Grassley, the top Republican on the panel, asked the parties to provide a memo describing the Bear Stearns assets that will be secured by the Federal Reserve. (Reporting by Rachelle Younglai; Editing by Brian Moss)
Posted by: 2nd_ave at
March 26, 2008 11:42 AM [link]
Do the Mich pension funds actually think a better deal for a bankrupt BSC exists? I think Bove came up with the actual buyout offer of around $65 per share when you include the writeoffs of the bad loans.
Posted by: geckojb at
March 26, 2008 11:46 AM [link]
ShredHulk,
I usually get slow execution time on my OTC purchases. Trading on the TSX would probably be faster but more expensive.
Posted by: Bull Hunter at
March 26, 2008 11:51 AM [link]
Actually trading on TSX via IB is both faster and cheaper.
Posted by: occam_razor at
March 26, 2008 11:55 AM [link]
I have noticed on IB that for accounts below $25,000, you can daytrade TSX listed stocks as many times as you want without getting the dreaded "pattern day trader warnings".
If you trade in a sub-$25,000 account, I would consider it a benefit to hold canadian shares (over U.S. shares) of a specific company simply for liquidity purposes.
Posted by: BillySundance at
March 26, 2008 12:02 PM [link]
And I will also echo that IB is as far as I know the cheapest and fastest way to trade on TSX.
Posted by: BillySundance at
March 26, 2008 12:03 PM [link]
TLT: Gartman view for what it’s worth: TLT chart suggests that bond prices are in rarified air. Re-liquidification efforts by FED highly inflationary. Buying debt dangerous, selling probably wise (paraphrased by T3d).
Bill, fantastic Cara commentary today, thank you.
OT: on the light check out this when you have time. If only auction rate securities (ARS) could unfreeze so quickly.
http://www.maniacworld.com/frozen-in-grand-central-station.html
Posted by: Telestar3d at
March 26, 2008 12:07 PM [link]
sorry i cant link charts from work but
for the canadians:
check out:
XSB.TO
XBB.TO
2 massive Bond Fund ETF's.
i posted a few days ago that they were looking toppy and today both have gapped down considerably, the largest gap down ive seen for the past few years on the charts.
is this a warning shot over the bow of canadian debt instruments?
Comments from the peanut gallery....
re IB, I concur, the fees are reasonable, you can trade stocks on the tsx even if you do not subscribe to that exchange but, it IS much easier seeing that data. I still seem to get "the dreaded "pattern day trader warnings" as I am under 25K. In fact, that aspect alone has taught me the truth of being "out of bullets". Maybe more like waiting to reload. Good thing, it does not curtail selling a position.
Thank you Bill for todays Recap and Commentary
Oh, and thanks to 2nd for correcting my faulty link to The Hunger Site yesterday. I encourage all of us to consider using http://www.thehungersite.com as your default first page that comes up when you open your browser. I will admit that the 12 clicks of the mouse that I go through to donate daily are REALLY not that much work or delay though sometimes I disagree with myself.
Thank you FattyA for that entertaining site for donating rice. Lotsa fun and I know some of those words!
Peace from North Puget Sound where the sun just came out over the water! Awesome
This is my first post on this wonderful community. I have a question to the community, and particularly to Bill and g034. Now that the long waited correction in gold has finally taken place, I'm wondering what is a good strategy to start accumulating gold. Bill thinks that gold may fall to about 800 and g032 commented a possible bottom at 850. Someone also mentioned 880 as a potential low. One way I can think of to go about this is to buy one third at each of those price points. My question is what to do if the price of gold never reaches any of those levels during the correction.
g034, your comments on balancing the weak fundamental with aggressive FED action in an election year are very enlightening. I need to learn to think like that.
Posted by: Justin at
March 26, 2008 12:28 PM [link]
Dr. Cosa,
Tis a major gap indeed. Had a look at thos etf, and no options available on them. Having a heck of a time finding a way to short bonds from my RBC Direct Investing account.
Can't seem to trade TLT options, RRPIX/RRJUX have large minimums, various bond etfs don't have option chains, etc.
Anybody have any ideas for me? The only one I could find was mutual fund (that I've posted before, haven't taken any position):
HBP Canadian Bond Bear Plus-A (JOV155) Canada
Posted by: proudPapa at
March 26, 2008 12:28 PM [link]
alright, I can't resist any longer...what are the dreaded "pattern day trader warnings?"
Posted by: Denny at
March 26, 2008 12:29 PM [link]
Also, seems like most alternatives for shorting are all for government bonds. Any ideas for shorting basket of corp bonds? Seems yields on those are bound to rise more/faster than govt bonds...
Posted by: proudPapa at
March 26, 2008 12:31 PM [link]
Pattern Daytrader http://en.wikipedia.org/wiki/Pattern_day_trader
Posted by: OldGoat at
March 26, 2008 12:35 PM [link]
"pattern day trader warnings?" Is when I want to make too many (-according to the SEC-) round trip trades that look like day trades where I may hurt myself so the gumnthas made that available only to people willing to spend $25,000.
Not happy with it, I was esplaining to my better half that since I was so far up 7% that I might increase this acct another 10K. Last week was a series of bad days though actually no trading due to my work schedule and viola (sp?) I am down 5%. Not bad but hardly a strong argument to one of those normal people who do not avidly follow the market...not me, MBH
and the HUGE downside to a pattern day trading designation can result in....." the account's day trading buying power will be frozen for 90 days or until day trading minimum equity margin call is met again." from Wiki
BullHunter Citigroup and JpMorgan getting crushed today!!! Go SKF!!! Also, Cara community, new 80 gig PS3 Bundle with metal gear solid 4 do out this spring at $500 pricetag. It is backwords compatible. I was checking a GME store out today.
Posted by: ShredHulk at
March 26, 2008 12:53 PM [link]
Re the NDX, we've got short-term resistance at 1819 and support at 1800 (as pointed out above).
Remember that Oracle reports after the close today, so that will likely move the index sharply up or down.
Posted by: number2son at
March 26, 2008 12:54 PM [link]
Photogray,
I'm guessing "voila" - viola being, I think, a stringed instrument
Posted by: cyderman at
March 26, 2008 1:13 PM [link]
number2son: ORCL looking very weak today, putting in an outside down day today (so far). Can we read much into this re: their earnings report tonight?
Dave
Posted by: DaveB at
March 26, 2008 1:24 PM [link]
Old Goat and Photogray, thanks. I get it now I guess, but I have to raise my eyebrows at the notion that daytrading is "risky," whereas say buying Citigroup a year ago and holding wouldn't be considered risky?
Posted by: Denny at
March 26, 2008 1:29 PM [link]
Yeah, telling BSC buyers at 03/14 that day trading is risky will earn you a back eye as surely as asking Torontians this spring to fight global warming
Posted by: Vadym Graifer at
March 26, 2008 1:35 PM [link]
dr.cosa re XSB.TO XBB.TO
Today is an Ex-Dividend Date for those ETFs, check iShares.ca, so th
Posted by: DamirK at
March 26, 2008 1:36 PM [link]
... so they are down just a couple of cents.
Posted by: DamirK at
March 26, 2008 1:37 PM [link]
ah thx Damirk, no wonder.
though the gap down seems larger than others on the chart non?
Indeed, Denny,
One time a broker chastised me for buying an OTCBB stock. I told him, "yea, I guess I oughta put this money in a large, safe stock like Enron or WorldCom".
Regards
Posted by: Bull Hunter at
March 26, 2008 1:38 PM [link]
Justin,
We never know what's going to happen to prices, beyond eventual reversion to mean. In the meantime (sorry!) you need to consider why you want to buy gold. If you are doing this for "peace of mind" against future chaos, then you should consider buying a portion of your planned investment now. Not because I know the price in USD is going to rise, but simply because we don't know that now is not the low, and as each day passes you'll keep asking yourself the same question. IMHO, of course. As always, you do your own DD.
Posted by: cyderman at
March 26, 2008 1:40 PM [link]
Is it just me or does trading seem to be really low volume today?
Rob.
Posted by: Finger Lakes at
March 26, 2008 1:41 PM [link]
protesters inside the Bear Stearns building gained media attention on CNBC. They are protesting the bailout using taxpayer money.
Posted by: CapN at
March 26, 2008 1:42 PM [link]
€1 = $1.5802
Posted by: OldGoat at
March 26, 2008 1:47 PM [link]
DaveB, re ORCL I noticed the weakness in the chart, too, but I also see a slight bullish bias in the put/call trading today, although the April OI is weighted in puts. I'm steering clear.
Posted by: number2son at
March 26, 2008 1:51 PM [link]
Finger Lakes, not you it's visible on my screen. Been declining for past few days. Not sure if it's a simple case of slow news cycle.
I miss the armageddon news days of yester...err..last week. The caffeine was really flowing good. I actually feel a little withdrawal from the lack of excitement.
Come on rumors!
Posted by: geckojb at
March 26, 2008 1:52 PM [link]
"Is it just me or does trading seem to be really low volume today?"
Nope, it's not just you. Volume is below average on all the stocks I watch.
Posted by: number2son at
March 26, 2008 1:55 PM [link]
Thought community would enjoy the quote below.
"The element of manipulation need not discourage any one. Manipulators are giant traders, with deep pockets. The trained ear can detect the steady "chomp, chomp", as they gobble up stocks, and their teeth marks are recognized in the fluctuations and the quantities of stock appearing on the tape".
Richard D. Wyckoff, The Day Trader's Bible, originally published in 1919
Posted by: Vadym Graifer at
March 26, 2008 2:05 PM [link]
Thanks for the replies. With this lack of enthusiasm for selling, it makes me wonder if G034 is on to something.
Of course, it could be traders holding everything until end of quarter.
It just makes me nervous being short with such an apparent lack of conviction in selling, even with all the bad news released this week.
It's almost as if we've heard so much bad news that we're immune to it now.
Rob.
Posted by: Finger Lakes at
March 26, 2008 2:10 PM [link]
Trade fees: IB vs CIBC
For certain trades, CIBC's Edge Advantage ($6.95) wins hands down. If you read the fine print, certain trades can be counted as one trade. So lets say you buy 1000 ARU @$10 and then sell $1000 @ $10.50.
Then you buy again 1000 @ $10.10
Lets say you do this all day (playing both sides of the ARU trade)
That buy, and all subsequent buys of ARU on the same day, is counted as ONE TRADE. Ditto sells. Yes, this is a loss leader for CIBC but worth moving to CIBC for. (Basically CIBC is not charging investor the liquidity fees the TSX charges, eg for taking liquidity)
"Electronic trades placed on the same day, same stock, same side of the market, will be
consolidated into a single trade and be counted and charged as one trade."
Section 3
http://www.investorsedge.cibc.com/ie/pdf/terms-conditions-EA.pdf
Regards, D
Posted by: CapitalStreetGroup at
March 26, 2008 2:11 PM [link]
Maybe low trading volume due to a large downward move/selloff expected tommorrow or pre-market. It is just a thought.
Posted by: ShredHulk at
March 26, 2008 2:11 PM [link]
NOT.V - Noront Resources Commences Work Programme on Hawk 50/50 JV Property-"Ring of Fire" Area, McFaulds Lake
http://www.marketwire.com/mw/release.do?id=836603&sourceType=3
Posted by: OldGoat at
March 26, 2008 2:14 PM [link]
"Maybe low trading volume due to a large downward move/selloff expected tommorrow or pre-market. It is just a thought."
I think you're right. And I think what the market is waiting for is final Q4 GDP, due out tomorrow @8:30 a.m. est.
Posted by: number2son at
March 26, 2008 2:25 PM [link]
just FYI:
a leading article on MSN money is about trading in your personal gold jewlery-
heard an interview on local talk radio regarding it earlier this week-
this was one of the indicators i'd told myself to watch for. the next is when the shoeshine boy tells me to buy gold, time/newsweek covers, etc.
Posted by: FattyArbuckle at
March 26, 2008 2:34 PM [link]
Number2son,
That's a great observation. I'll bet you're right. And the GDP numbers will probably be bad enough to squelch any ORCL inspired rally.
Rob.
Posted by: Finger Lakes at
March 26, 2008 2:40 PM [link]
Think I have "male pattern day trading".
How can SKF be up 6% after Bove gave the "All Clear"? I did in fact double SKF when he said that.
Posted by: Aurator at
March 26, 2008 2:43 PM [link]
Posted by: Aurator at
March 26, 2008 2:47 PM [link]
Justin - Welcome!
How many traders here would like to have gold fall to near $900 again to buy? Probably a lot...but at the time, they probably didn't have the cajones to do so.
I like the $880 to $900 level to add to positions, but as I have mentioned before, dollar cost averaging at every $50 down will probably work out in the long run.
Ask yourself these questions -
What % of my portfolio do I want to have gold exposure?
Around that "core" holding %, what would my minimum and maximum be?
Does that core % provide enough exposure if gold rallies to new highs and is it the correct amount to live with the loss of a decline?
So, if you determine that 10% (making that up) of your portfolio is about right, with 5% minimum and 15% maximum, you should buy weakness growing towards maximum and sell strength bringing down towards 5%. Learn about price oscillators of RSI, Stochastics and MACD.
For every 10% of portfolio value in any security, a 10% decline or rally will lead to a 1% change in total portfolio value.
You need to get a grip on your long term views of any security in order to trade it from the correct side, keeping in mind the long term trend.
You also need to be able to control your emotions, buying fear and selling greed - if you can do that, you will outperform 90% of traders out there.
Not too specific, but I hope that helps.
Posted by: g034 at
March 26, 2008 2:49 PM [link]
Fatty - I also am of the opinion that when the public is talking about mining stocks with the knowledge that they had about technology stocks in 2000, that will be close to the top in precious and base metals. Years away is my guess.
Posted by: g034 at
March 26, 2008 2:51 PM [link]
FattyArbuckle, speaking of contrary indicators such as waiters and barbers telling you what stock to buy, here's another good one. I was in Beijing on vacation last August. Walking in old Beijing, I passed two rickshaw pullers standing by their rickshaw intensley reading a paper, cigarettes drooping from their lips. I got closer, and saw that it was the newspaper stock tables. I thought, hmmm, rickshaw pullers intensly studying stocks. Could it be time to sell the China market? That was last August....
Posted by: allen at
March 26, 2008 2:51 PM [link]
In my port., TSO and FRG are strong today.
May 5 calls on FRG are still cheap IMHO.
Posted by: Aurator at
March 26, 2008 2:58 PM [link]
Vadym, great Wyckoff quote, follow the elephants the question is how.
My choice is to look at block volume of 250,000 shares or more to see where they are playing and than look at the charts for entry points if I like what I see.
I also follow about 5-7 really smart hedge funds (monitor about 30) to see what they are buying and selling and look for shifts in their sectors. Again, if I like what I see from the charts I look for entry points.
I’m also interested in finding a source for large options volume spikes indicating big money knows something. However, I only know of option monster dot com and they want something like $300 or $500 a month for the info. Do you know of any sources where this can be obtained?
Vad, what do you do to identify the elephants moves?
Posted by: Telestar3d at
March 26, 2008 3:10 PM [link]
Option volume indicator: There is one the Najarian bros run called Heatseeker if I recall. Not sure how to sign up but it might be thru Phillips/ChangeWave. Will post if I find the details.
Posted by: Aurator at
March 26, 2008 3:18 PM [link]
Couldn't the volume anemia be because of end of quarter? These seem like good marks to take considering the markets melted down during quarter. We saw the same thing in December - a sellers strike that ended the moment the bell rung on January 2nd.
Posted by: moab at
March 26, 2008 3:26 PM [link]
Haha, great story allen!
& g034: i agree, there's a world of difference between a news article and actual frenzy... we've likely got some time to kill. or short, as it were.
it was just the first noticeable occurence of what i instructed myself to watch for a couple years back.
Posted by: FattyArbuckle at
March 26, 2008 3:28 PM [link]
Any recommendations where to buy gold or silver bullion. I am sure this has been asked before but I probably missed the answer.
Thanks!
Posted by: ulvy at
March 26, 2008 3:29 PM [link]
Telestar... would take me a book to describe it all... wait, it actually did, lol. But, it's a fair question, I'll try to sum up several major points later today, in a few hours after market close.
Quick point I'd like to make for now: I am careful about big blocks. While they do serve as an indication of interest, there are just too many unclear things about them since those blocks is but a piece of mosaic. They could consitute a closing transaction being net neutral thus carrying no indication whatsoever since you have no way of knowing any components of it; They could be behind-the-scene negotiated transfer printed on the tape when negotiations are over, thus not giving you any idea of net impact; Finally, it takes two to tango, so even if it's a straightforward trade how to tell who is right, buyer or seller - not even speaking of how hard it can be to qualify a huge print as buy or sell considering that for such amount of shares one goes where it's available which may not be market price at the moment.
But from your comment that you look at the chart to find out whether you like it and to seek entry points I assume you know all this... just want to add some details :)
Posted by: Vadym Graifer at
March 26, 2008 3:29 PM [link]
Yes, here is the Heat Seeker ad. They should be out in Vegas in May and I plan to look into this in depth.
Posted by: Aurator at
March 26, 2008 3:30 PM [link]
correction: *indices* to short.
Posted by: FattyArbuckle at
March 26, 2008 3:31 PM [link]
Vadym and Aurator thanks. Vadym, if you wrote a book about movements of the elephants, I would be interested in its title.
Thanks again, and look forward to your elaborated comments if time permits later.
Posted by: Telestar3d at
March 26, 2008 3:38 PM [link]
FXP- taking profits here-> rotating part of the proceeds into (ie, now overweight) DUG/SMN...
Posted by: 2nd_ave at
March 26, 2008 3:39 PM [link]
Telestar,
it's Techniques of Tape Reading. Just don't let the title fool you, I had fair share of those who thought tape reading necessarily requires staring at Times and Sales window... in fact that share was big enough to warrant this post: http://tinyurl.com/22mdow
Title I wanted was A Trader's Jorney into Reality, with subtitle: Where modern technology meets ancient art of tape reading. McGraw Hill decided otherwise.
Posted by: Vadym Graifer at
March 26, 2008 3:47 PM [link]
"Data worse than economists expected."
This phrase has been in use so often, I have to wonder why they still don't expect it.
Posted by: Aurator at
March 26, 2008 3:48 PM [link]
The Najarian brothers run OptionMonster.com. You can sign up of the Heatseeker there. I think it is included in something like "Inside Options" on their site. As I understand it, "Heatseeker" tracks call option activity and their "Depth Charge" tracks unusual put activity. I don't use it, but I have used some of the free stuff on their site.
Posted by: watermelon at
March 26, 2008 3:48 PM [link]
I'm an economist. You're an economist. Everybody's an economist.
Posted by: FranSix at
March 26, 2008 3:49 PM [link]
Vad- wow...did they also edit the part about checking which way the wind was blowing before entering a trade? ;)
Posted by: 2nd_ave at
March 26, 2008 3:50 PM [link]
"Any recommendations where to buy gold or silver bullion. I am sure this has been asked before but I probably missed the answer."
Ulvy, see the first link to source a gold/silver dealer nearest you. As noted in the second link though, you may not be able to purchase any silver because supply is drying up quickly or already non-existent.
2nd_Ave.
In On DUG with you...
50 @ 37.90 NICE
50 @ 38.30 O.K.
All right,
I'm not putting any money down but I bet ORCL disappoints. We'll soon find out.
Rob.
Posted by: Finger Lakes at
March 26, 2008 3:58 PM [link]
2nd... not only that, they also evicted my honest confession that I use datrboard to pick stocks :(
Seriously though, it was a shock to me that author has no last say in the title of the book. Standard agreement says that, and as a first time author what are you going to do when they say it's non-negotiable, reject it?
Posted by: Vadym Graifer at
March 26, 2008 4:00 PM [link]
Rob- no bets on the table without cash ;)
Posted by: 2nd_ave at
March 26, 2008 4:01 PM [link]
Vad- seriously, congrats on getting two books published...
Posted by: 2nd_ave at
March 26, 2008 4:03 PM [link]
I'll repost this from March 20:
"""
Vadym,
I'm about half way through your book, _The Master Plan_ and like it so much that I ordered your _Techniques of Tape Reading_, which will be delivered tomorrow. I especially like the way you lay out the psychology of contrarian focus on unfolding market data. I've hit that point in my trades where what I think I know makes me more vulnerable than when I started and knew nothing! I aspire to the state of Bill's "floating like a butterfly through the markets" and find your style of presentation very illuminating. Thanks.
Posted by: johojo [TypeKey Profile Page] at March 20, 2008 9:51 PM
"""
Posted by: johojo at
March 26, 2008 4:05 PM [link]
Rob, my man...coulda/shoulda/woulda...
Posted by: 2nd_ave at
March 26, 2008 4:06 PM [link]
Vad wrote “But if you are doing it for living, year after year - how long before you burn out? Don't forget, volume and speed at Jesse Livermore times were nowhere near what we have now.”
How true. The time compression of price movement today versus the last twenty years is almost unfathomable. Almost long for the old days when moves were slower to develop.
Vad, I will buy your book, but I basically stopped buying books over two years ago since everything after awhile seems to be a rehash of same old same old.
A few exceptions, Bill’s book which should show up any day now.
Surf’s up on South Shore. Market’s closed. Surf it is for mind and body.
Posted by: Telestar3d at
March 26, 2008 4:08 PM [link]
Vad- can you get us discounts on them if we type in the keyword 'dartboard?'
Posted by: 2nd_ave at
March 26, 2008 4:08 PM [link]
2nd,
I hear you. I felt sure they would disappoint but didn't have the cajones to back it up.
But I still do have my DIA puts so we just have to hope everyone expects the GDP report tomorrow to be not that bad.
And then when it's really bad we'll be on the right side, opposite the majority.
Rob.
Posted by: Finger Lakes at
March 26, 2008 4:12 PM [link]
held onto 2x short NDX, so hopefully the ORCl damage will carry over
Dave
Posted by: DaveB at
March 26, 2008 4:14 PM [link]
Not that I'm complaining, but a 10% hit seems a bit much for meeting earnings estimates and coming a hair under revenue estimates...
Posted by: FattyArbuckle at
March 26, 2008 4:19 PM [link]
johojo, thank you, this is very rewarding to hear!
telestar, just get your local library to order a copy for you... at the rate of couple bucks per each sold copy to me, I won't be terribly offended :)
Posted by: Vadym Graifer at
March 26, 2008 4:20 PM [link]
It is the reaction to news that is telling, not necessarily the news itself.
Posted by: moab at
March 26, 2008 4:21 PM [link]
Vad- right now it's the publicity...when we start seeing your name in ads for scotttrade, we'll know the money followed...
Posted by: 2nd_ave at
March 26, 2008 4:27 PM [link]
cyderman and g034,
Thank you for taking the time to respond and educate. I wasn't asking for specifics, just a general strategy, and I got exactly that from your response. This place rocks! Wait, I need to learn to control my emotion. :)
Justin
Posted by: Justin at
March 26, 2008 4:36 PM [link]
Justin...
When I first starting coming to Bills site and then posting on Bills Site, I told myself and everyone here I AM AN ADDICT...
Well, nothing has changed, I just have a lot more friends now to help me with my addiction..
Thanks Everyone
whoa- don't like the negative connotation associated with the word 'addict'(which is entirely contextual)...one can be addicted (devoted) to family, baseball, reading, or trading...it's only when applied to destructive activities that it becomes a problem...life is to be lived-> curtailing any activity that you enjoy and benefit from will be to your detriment...(i know you were just kidding, but i know some people would not be)...
Posted by: 2nd_ave at
March 26, 2008 5:03 PM [link]
Hi,
Some comments on PoG:
Something in this rally is making me suspect it. After such serious drops, reclaming 38% of the loss in three trading days is either something strange, or plain and simple short covering, or signal of an extremely bull market.
The ideal framework would put PoG back for a retest of 904, but of course that may not happen, we do not know.
At the time when PoG did 904, buying at 904, with a rising USD, blow off in equties going on, and such massive selling underway would have been a very agressive trading attitude.
It may have worked, but to pull out one of those trades you need to loose a pile of other trades doing the same, so I guess it is hardly worth it.
Now, CCI on the daily charts has been oversold and rising, but stil oversold.
As I write, PoG is trading more or less at former support levels, which is, or should be, resistance.
Time will be with patient traders, I guess, as PoG will tend to consolidate at some price level at some stage, where a less risky entry may be made.
Cheers!
Posted by: maromatics at
March 26, 2008 5:12 PM [link]
Trading can be quite destructive, have first hand experience...
Posted by: occam_razor at
March 26, 2008 5:15 PM [link]
occam- understood...any activity can be (self-)destructive, depending on the individual...taking hits in the early innings of any activity is expected-> part of the learning curve...beyond that, if one continues to take hits and loses control, well then, it's time to stop...
Posted by: 2nd_ave at
March 26, 2008 5:21 PM [link]
PoG: I knew it was too hard to pick a bottom, so I bought a chunk of DGP when Gold was 940 and another at about 915. Lucky so far. If it blows thru the old high, will add more. (This is the trading portion). If it blows out lower, then time to buy more physical bullion and probably just hold the shares. No sense in realizing a loss when there is near certainty it's going higher, and the US Dollar lower.
PoG should be a topic of discussion tonight on Schiff's weekly broadcast. 8PM Eastern here:
Posted by: Aurator at
March 26, 2008 5:45 PM [link]
herb greenberg out with nice things to say about bears:
"That got me more interested in the subject of bear raids, so I Googled the topic and checked with a few folks and came across an absolutely marvelous piece on the subject by Edward Chancellor, who has authored his share of articles and books on the financial markets and speculation. Headlined, “A Short History of the Bear,” his bear raid story it was published in 2001 in the Daily Reckoning. (Scroll about a third of the way down the page to get to the story.)
Snippets
Bubbles occur when speculators drive asset prices
far above their intrinsic value. The collapse of a
bubble is frequently accompanied by an economic crisis.
Who gets the blame for this crisis? Not the bulls, who
were responsible for the bubble and the various frauds
and manipulations perpetrated to keep shares high, while
cashing in their profits.
No, it is invariably the bears who are blamed for the
post-bubble crises and are the main objects of anti-
speculative legislation. Yet during the bubble periods
it is the bears who are generally the lone voice of
reason, warning people of the folly of investing in
overpriced markets. In the aftermath of a bubble, they
continue their forensic work of exposing unsound
securities and bringing prices back in line with
intrinsic values, a point which must be reached before
the recovery can start."
Posted by: 2nd_ave at
March 26, 2008 5:57 PM [link]
Went to hear Jim Sinclair speak today at the Fifth Annual Precious and Base Metals Investor Conference.
Unfortunately, the room was filled to capacity and I was not let in, despite having a reservation! I was hoping to report here my findings...sigh.
Posted by: onlineaces at
March 26, 2008 6:14 PM [link]
USD at 71.38.
seems to be drifting lower while gold is creepig higher,
if gold passes the $960 level and can hold it through the week, i wonder if all that money waiting to re-enter gold and gold shares at $900 and below will panic and begin at least some buying in anticipation of another test of $1000.
im not doing much until i see some real power in the gold shares on volume and relative strength, it would be a strong indication that larger scale buying is starting to happen.
In respect to earlier exchange on distinguishing Smart Money vs. Crowd action, I'll try to describe the basics of the approach. Please allow for a framework of the blog exchange that severely limits the depth.
Some postulates:
1. I prefer term Smart Money over Deep Pockets or Big Players or Professionals etc, because big Money is not always Smart Money; small time player who decoded the tape message and joined the right side is a Smart Money now. It's largely irrelevant of which participants Smart Money is cast in particular case.
2. Simliarly, I prefer term Crowd to Small Players, or Retail Traders etc, because if a big fund hysterically buys at the top of a parabolic move, it becomes a part of the Crowd - and it's not like they never do that :) It's largely irrelevant of which participants Crowd is cast in particular case.
3. Smart Money acts differently from Crowd.
4. This difference can be seen on the Tape (please do not consider Tape being actual tape as in ticker or T&S, this was discussed earlier at http://tinyurl.com/22mdow)
5. Main principles of tape Reading are commonly described in widely known literature, I won't waste space here to recite them, let me just refer to a few resources:
- Tape Reading and Market Tactics by Humphrey Neill, 1931
- Studies in Stock Speculation by H.J.Wolf, 1924
- Techniques of Tape Reading by yours truly
6. Action of Smart Money is more organized even though it's not necesssary the result of any kind of consipracy; it's simply the nature of the beast resulting from better skill, stricter discipline and, importantly, fewer entities involved.
7. Action of Crowd is chaotic and hysterical, dictated by extreme panic or just as extreme elation. This results from less sophistication, lack of understanding of the market as a mechanism that discounts future today (hope that was English) and from highly fragmented nature of the crowd where a lot of entities create contagious emotional effect on each other.
8. Nothing is absolute in the market. Correct reading of the tape puts odss in your favor but does not garantee 100% success rate. Things change, intentions change, unforeseen events happen.Sorry for stating the obvious but...
Now, let me describe three case studies that will put it all together best I can in a single post. I will also mention particular symbol to illustrate the description.
1. Bullish case. Stages and how you see them on the tape:
a) Nobody cares. Stock in point is lying around on the ground, no volume, no interest, barely moving.
b) Slow accumulation starts. Smart Money decides to accumulate the shares, for this or that reason. Particular reason is irrelevant. Major task of Smart Money at this stage is to accumulate as much as possible without attracting attention. You are going to see price increase at obtuse angle, very slow and with almost no volume increase. Smart Money avoids unwanted attention, taking care that stock doesn't pop up on price and/or volume scanners; it doesn't want to send price rocketing on its own buying and it doesn't want anyone else to join and pump the price before accumulation is completed as much as possible.
c) Accumulation is getting noticed. At this stage some other players start paying attention and try to get in on action. Smart Money hasn't accumulated enough yet so its task is to calm down and shake out unwanted guests. You are going to see steeper angle on the chart, more volume and sharp pullbacks with intimidating volume as original accumulating entity may even become a seller; to get rid of day traders it may put out huge offers visible on level 2. Sharp setbacks will be used by the same "boar-scarer" to buy back the shares at better price, thus starting to improve its cost basis and pocketing some interim profits. After such pullbacks price is bouncing back and reaches new highs. At this stage we can sometimes see reverse volume phenomenon: volume is higher on pullbacks than on advances which is unusual for bullish case.
d) New highs and volume increase attract broader and broader attention. It becomes harder to act against the new buyers. There are more of them, volume is too big now for easy manipulation. Chart takes more common appearance: shallow pulbacks, volume decreases on setbacks and increases on advances, angle is about 45% now.
e) Something triggers wide public attention. News, some popular newsletter coverage, TV coverage, upgrades, scanner signals - any of those events or combination of them triggers last stage of the movement - Euphoria. Crowd hits the stock with vengeance, price skyrockets, volume multiplies, pace becomes insane. Those all are signs of Crowd action - impulsive, "get me in at any price", emotional, hectic. Our orioginal accumulating entity, aka Smart Money starts unloading into this frenzy. It knows this is last stage, there won't be anyone left to buy when it's over. Cynical sayings "When the circus is in town you gotta sell peanuts, because when the circus leaves who are you going to sell peanuts to", 'Feed them when they quack" are exactly about this stage. If you ever felt the temptation to buy into parabolic move up because it seemingly unstoppable, that was this contagious effect of Crowd action. If you never felt it - sorry, I don't believe you :)
Look at the VLNC chart for the case in progress. Currently at the stage c-d.
2. Bearish case.
It's easy. Replace low with high, up with down, pullback with bounce, advance with drop, accumulation with distribution, euphoria with capitulation, buying with selling/shorting, selling with buying/covering...
No need to go further than BSC chart over last 6 months or so.
3. Price-information divergence case.
This is one of typical tape reading scenarios where the tape denies information. We already touched on it earlier, in http://tinyurl.com/3ck4k4
For various reasons too obhvious of a thing is not what market is going to do. Event has been discounted and priced in already is one of the frequent cases. Presence of certain information unknown to broad public yet but considered by the Smart Money is another. Simple shakeout before moving in the "right" direction is yet another. Whatever it is, chart is going to show stronger than expected support on what seems to be nothing but bad to worse to worst news; no new lows, bounces become stronger, resistance is getting tested once and again... and when it finally broken, rally of mind-boggling strength stuns market observers. Whether you take your position with Smart Money closer to support keeping tighter stop, or wait for a confirmation (break of resistance) is a matter of your personal level of aggressiveness as discussed at http://tinyurl.com/38jfhy . But by positioning yourself on the price action side vs. information side, you are doing exactly what Bill calls "trading prices" and you position yourself on a Smart Money side. Attempt to insist on your point of view is usually ego-governed and doomed - unless your time frame is vastly different from the one in which action described above takes place.
No need to cite particular chart eh? Scenario unfolds right before our very eyes.
Gosh... that was long... are you sorry you asked yet... :)
Posted by: Vadym Graifer at
March 26, 2008 7:31 PM [link]
dr. do you watch the gold etf's or do you watch the miner stock prices?
TIA
Vad,
Thanks for taking the time to write it. You have a great understanding of the market.
Rob.
Posted by: Finger Lakes at
March 26, 2008 7:52 PM [link]
Hi,
In my web surging this evening, I ran across this old post dated 1999 which I find interesting:
http://greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=001aDK
Posted by: maromatics at
March 26, 2008 8:34 PM [link]
Vadym,
While reading your description of an uptrend in the slow accumulation phase, I could see in my mind's eye the RSI turning up towards the 30-level threshold, while MACD hits an inflection point (I track the 1st derivative zero-crossing from negative to positive). These simple indicators, as advocated by Bill, when combined with some fundamental understanding of the longer-term sector trend, have yielded excellent returns for me while filtering out the hype.
Thanks for putting it into words.
Posted by: French_Canuck at
March 26, 2008 8:44 PM [link]
SF Chronicle getting down to financial news-you-can-use:
Posted by: 2nd_ave at
March 26, 2008 9:20 PM [link]
Photogray:
i watch both, and the spot price.
and the xau..... and everything else gold related.
mabey too much gold watching!
Posted by: dr.cosa at
March 26, 2008 11:02 PM [link]
hey onlineaces....
summary of Sinclair's talk today at
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24442994
Posted by: daveinmarinca at
March 27, 2008 12:56 AM [link]
SteveC,
Unfortunately, I was mistaken about the second parameter. I emailed Stockcharts and this was their reply:
The first parameter is the EMA; the second is the multiplier applied to the Average True Range (ATR)...a volatility indicator that is the basis for the channels; and the last is the duration for the ATR.
More info on ATR here:
Conversely, Bollinger Bands are standard deviations from the SMA (usually set at 2).
Posted by: eventhorizon at
March 27, 2008 1:00 AM [link]
Here are some comment's form PDAC, by David Duval. Vad thanks again for your expanded thoughts and ideas.
Who You Gonna Believe? - Certainly Not Wall Street
Author: David Duval
Dear CIGAs:
Hardly a day goes by it seems without some Wall Street analyst predicting the commodities boom is coming to an end. At least one of these wiz kids has even compared the boom to the dot.com bubble which must be the dumbest thing I’ve ever heard.
While there’s obviously a speculative side to the commodities business (just like any other publicly traded market segment), what you are really dealing with in this case are industrial commodities whose price is largely established by good old fashioned supply and demand. LME metal inventories drop because of rising industrial demand and the price of the commodity goes up, reflecting real or perceived supply shortages. It’s not really too complicated in my view.
First on their list was gold and now these Wall Street wizards are targeting base metals, claiming that an economic downturn/recession in the United States will drive these critical industrial commodities appreciably lower. It’s happened like this in the past and this time won’t be any different! Historic prices, they say, are the only measure for determining future prices as we all know. Well, don’t bet the farm on it - or even the outhouse for that matter.
Let’s face it, most of the world’s largest investment firms were negative on gold for most of its mercuric rise from the mid-$250s. Who can forget Goldman Sachs’ November 2007 recommendation to sell dollar-denominated gold because of its assessment that the U.S dollar would soon stabilize. “We would now use a short exposure in gold, expressed in U.S. dollars, to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months,” Goldman analysts said, adding that selling gold would also provide “an avenue to benefit from the prospect of stabilization in the U.S. dollar.” In the annals of bad calls, this must qualify for an Olympic gold – the only “tarnished” one ever to be awarded I might add.
A few weeks ago I was in Toronto on business and took in a few technical sessions at the annual PDAC (Prospectors and Developers Association Convention) which draws more than 20,000 delegates from well over 100 countries. These are the people that really have their fingers on the pulse of the minerals industry. Of particular interest to me personally were the various presentations on commodities which were given by some of the world’s most knowledgeable and credible authorities. What I gleaned from these presentations reinforced my belief that we are in a super cycle for commodities that is without precedent in history and will likely not end any time soon –if ever. Mind you that’s not to say that there won’t be some weak periods along the way.
Immediately below, I’ll discuss some of the key points brought up by the various speakers. But first let me say that you don’t have to look too far for tangible indications about the future of commodities markets - especially for base metals. London-based Rio Tinto PLC and Australia’s BHP are seeking a 71% increase in iron ore prices from the Chinese who are also resisting demands from both companies to sell a portion of their contracted volume on spot markets where prices are substantially higher. Rio Tinto sold iron ore on the spot market for as much as $190 a metric ton in December - more than twice the equivalent of $85 a ton that it’s sold under contract. That’s serious pricing power and a good indication of things to come in my opinion.
As most people know, iron ore is used to manufacture steel which is critical to every industrial society. But a lot of other mineral commodities are used in the steel manufacturing process including metallurgical coal which, incidentally, has tripled to approximately $120 per metric ton (Western Canadian contract price) since 2001. Without doubt steel is among the best indicators of what demand could be for other key industrial metals including nickel, cobalt, molybdenum and many others.
Don’t be hoodwinked into believing that the U.S. is the main driver for commodity prices these days. Raw material demand is booming in China as consumers there use more grains, metals and energy products. Also worth noting is that China’s steel output is four times that of the U.S. which was virtually obliterated by the U.S. administration’s high dollar policy. In addition, China’s next door neighbor, India - with a population of 1.1 billion - is expanding rapidly and is sorely in need of infrastructure improvements which will create new demand for metals that are already in short supply. Low stockpiles of critical commodities should keep prices volatile and projections for new sources of supply could prove to be overly optimistic.
With real economic growth largely confined to Asia, currencies such as the Chinese Yuan and the Indian Rupee are destined to become stronger. That will make commodities in these respective currencies cheaper including gold which has strong cultural underpinnings in Asia.
Nevertheless, despite this positive outlook for metals, some analysts are predicting a significant downturn in base metal prices as the U.S. economy cools. This has prompted Ernst & Young (a leading professional services organization) to note that metals analysts generally don’t stray too far from the “comfort zone of historic averages” which has proven thus far to be a big mistake in this historical bull market for commodities – and will likely continue.
In summing up I would like to report a few broad observations that I cobbled from various speakers at the Toronto conference, breaking them up into specific commodities:
Gold
Watch for continued safe haven buying as the sub-prime mortgage crisis unfolds. The dollar decline has contributed to higher gold prices but gold has also been supported by the recent decline in bond yields, by demand growth, and by limited Central bank selling. Gold has also been closely tracking some of the so called second tier currencies including the Euro and Japanese Yen. On the other hand, reduced jewelry demand is a negative for gold but it’s worth noting how Indian demand jumped sharply after gold fell of its recent highs. (At $900 plus per ounce it seems even the price sensitive Indians are finding it cheap).
HSBC Securities analyst, Jim steel, arguably one of the most astute readers of the gold market, said that he’s seeing a rotation into resource stocks along with increased investor interest in the broader commodities market. Gold remains supported by commodity price strength and monetary inflation which can only become worse with accommodative monetary policies in the U.S. and in other Western countries. In any event, he sees strong gold prices for the remainder of the year at least.
Silver
Often referred to as the “poor man’s gold,” silver is an industrial metal that seems destined to benefit from the move into hard assets. Two years ago, investors became net buyers of silver bullion which has helped to drive the price higher. While silver demand has dropped by 25% in India, investment demand has more than offset that drop and in fact has produced a net gain. Steel feels that silver will trade over $22 this year which incidentally is the same as the 1980 average when the Hunt brothers tried (unsuccessfully) to corner the market. Silver is an 800 million ounce physical market in which fabrication demand is expected to rise 20% this year.
Copper
Global copper demand has been growing at an estimated 3.7% annually over the past decade which is huge by historical standards. However, copper consumption in the U.S. and Europe has been declining, probably because these are mature economies. In China, annual copper growth has averaged around 11% for the past decade. Other developing countries, mostly Asian, have also contributed to copper’s amazing growth rate. Worries about a downturn in the U.S. housing market (historically a big consumer of copper) affecting the broader copper market appear to be unfounded given the probability that increased Chinese demand will more than offset any reduction in U.S. demand. Clearly, the U.S. is not the force it once was in commodities markets. Concerns over new mine supplies and
Not too long! Great stuff as always, many thanks.
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at
March 26, 2008 7:50 AM [link]