Bill Cara’s Blog for Apr 12, 2012
CTA Trading Desk Morning Report
[8:15am ET] Good morning, Geoff here.
The 50 dma is now providing resistance to the S&P 500 and the 1370 level appears to be as important as we thought it would be. I would like to see a drop to the .236 fibonacci at around the 1340 area before buying back stocks that we sold. That area is also the March low and should price get there, we could see a bounce that squeezes shorts which would create solid support.
My money flow indicator is showing outflows in stock ETFs like SPY, QQQ or DIA and until that indicator goes positive, stock rallies are suspect.
Positive money flow is showing up in GLD, SLV, CEF, PHYS and the bond ETFs. That is not surprising. What is interesting is that I am seeing an uptick in money flow into GDX and GDXJ which could be a sign of things to come.
AAPL has an unusual amount of outflow relative to price movement. This could mean that traders are starting to exit the stock.
This money flow data is only a few days old and is not a good timing tool, but it shows cracks in the dike.
Lets see how the market reacts to the economic data and earnings season but right now, I like the support at 1340ish and if the market shows strength above the 1370 level, we will see that as positive.
Gold is finding resistance on the downtrend line from the February high. I’d like to see another 5 trading days lower than these levels before we break that downtrend line because then time will be on our side also.
I have been asked why I did not want gold to rally last week and that is a good question.
I try to think in probabilities and use the analogy of a stool when I view a trade. The more legs on a stool, the stronger it will be. Adding a leg based on time with another 3 or even 4 legs will make for a really strong stool and a higher probability trade. As I have been saying for weeks, I think the next run up in gold will blow your hair back and I want the timing leg to be in place in order for that to happen. Another week or two and we will be ready for lift-off.
Have a great trading day!
9:05am ET: This is Bill.
When ChrisM gave us the link to an article listing the most shorted goldminer stocks, I was surprised to see McEwen Mining (MUX) at the top of the list, with some 22.2 million shares short.
My immediate thought was that this happens to be the result of UXG and MAI.TO pre-merger arbitration that was followed by the long-side replacement with MUX and the short-side still sitting there. But I don’t know.
What I do know is that, particularly on the books of large financial institutions, there are, on occasion, erroneous positions that remain for many years. I recall reviewing the portfolio of an institutional client of one of the major firms I once worked for. On the books was a large holding, accounted for at cost, of an oil company stock where the company had gone bankrupt at least five years before. Upon inquiry, I was told the responsible manager had long since departed and nobody there wanted to look guilty for the write-off. Amazing.
As I see it there is no reason to be short MUX at this level. McEwen himself last bought the stock at $6.50, about $20 million dollars worth. Remember, Rob takes no salary or options. He runs the company like his job title says, “Chief Owner”.
Most traders who are short have done so because they believe that the current share price is very much higher than the fundamental value of the company, hoping to buy in the short if, as and when the market comes to its senses. But there are many other reasons for short positions.
Athough there are many reasons, I happen to think that one of the big ones for a short position is tax related, which could be illegal. The same trader could be purposefully setting up tax losses in a high tax jurisdiction and establishing a profitable position in a low or zero tax jurisdiction via a series of wash trades.
In fact, the SEC has recently accused Royal Bank of Canada management of wash trading in proprietary accounts. Of course RBC denies it, but the SEC is proceeding with its case. As for me, I believe this tactic has been standard fare at some banks for many years, and needs to be investigated.
There is, I believe, a tie-in of the SEC/RBC case and a recent case where a US judge ruled in favor of UBS after their “offshore” client sued them for fraudulent tax advice after getting fined by the IRS.
Years ago, I had a private lunch in Bahamas with the president of RBC Dominion Securities at the time. I queried him on their practice of offering “offshore” solutions, saying “You cannot have it both ways” and “I think in many cases the clients are being misled”.
At the end of the day, people know whether they are doing the right thing or not. The problem lies in the culture of an organization. As an example of that I look at the recent problems of Goldman Sachs, believing the source to come from the 1990’s leadership of Bob Rubin, Jon Corzine, Henry Paulson et al.
The power of these big banks, the ones I call Humungous Bank & Broker (HB&B), is really enormous. To keep them in check the public needs a strong regulatory system, not one managed by former HB&B associates, friends and family.
As for the market today, there is the need for Earnings Season to measure up to the expectations of traders expressed in much higher prices in Q1. There is a concern that economies of the US, Europe and the BRIC countries may be too soft to support business conditions that would result in much higher profits. Of course labor is a factor in that profits can be gained via lay-offs, but then the economy is largely built on consumer purchases, which are hurt by unemployment. Government spending too must be curtailed as debts and deficits are at extreme levels relative to GDP in so many countries. So, the bottom line is that central banks must create the new money needed to sustain economic activity levels, and at the same time hold down the interest rates to levels that are not economic for investors. That policy depreciates fiat money. For these reasons, precious metals must rise in price, and would if not suppressed by government sales, taxation practices and use of the bully pulpit.
Without question, with all the intervention involved today, this is the most difficult period in which to trade securities I have seen in 50 years of trading. Even the consumer and financial stocks that have had such a strong year are burdened with question marks, leaving investor confidence very brittle.
But, we persevere because we must. We know that market prices are affected by cycles, and always there is good that follows bad.
Have a good day.
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||9.45 (0.46%)||Components, Chart, More|
||0.80 (0.04%)||Components, Chart, More|
||7.56 (0.23%)||Chart, More|
||37.16 (0.56%)||Components, Chart, More|
||3.22 (1.05%)||Chart, More|
|^OSEAX||OSE All Share||465.82
||0.54 (0.12%)||Components, Chart, More|
||1.73 (0.53%)||Components, Chart, More|
||17.79 (0.29%)||Components, Chart, More|
||6.12 (0.11%)||Components, Chart, More|
||2.40 (0.26%)||Chart, More|
||12.39 (0.82%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||714.23
||9.38 (1.30%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report