Blog for December 7, 2009 [See POST-CLOSE REPORT]

Doesn't UXG own property next to ABX's Cortex Hills? Might be worth watching to see if any spill over effect on UXG today.

I don't think there are many people who pay attention to these things that DON'T believe the dollar has long-term problems. But it is long overdue for a bounce, and the train that left the station Friday seems to be rolling ahead after a weekend of "digestion".

Euro Close Below 50-Day SMA Shifts Structure; More USD Gains Ahead

I wanted to call out a site I found last week that is focused on active traders. It has a number of excellent interviews with professional traders. Some duds, too (e.g., you can skip the most recent interview with Tim Sykes).

Miss Trade TV

I'd very much like to see Bill and Vad interviewed there. ;)

BBBY - numbers raised at Government Sachs. Shares now seen reaching $41. Estimates also boosted, to reflect improving home sector trends. Neutral rating.

BMY - price target higher at BofA/Merrill to $25 from $23. Reiterate Neutral rating.

POT - upgraded at Government Sachs from Neutral to Buy. $140 price target. Estimates also boosted, to reflect higher industry demand in 2010.

I have uploaded a "study" of $USD, similar to what I have previously uploaded for $GOLD and $SPX. (Incidently, those two both seem to be accurate at this point, correctly predicting the turn, though it may be too early to evaluate the results or the methodology.) This amounts to doing a two frequency sine-cosine curve fit to the 10 week centered MA for $USD. The price series from Oct 1, 2006 to Oct 1, 2009. I have included a separate graph of the two sinusoidal frequencies as well as a graph of the full curve fit with the long term trend and the two frequency graphs represented in a single mathematical curve which can be used to predict future behavior of the index. I should caution that there are good arguments against this type of curve fitting. This curve fit represents the "best fit" in terms of frequencies, amplitude, and phase. A possible weakness is the fact that I used a least squares *linear* regression for the long term trend. This is standard practice but, in this case, it tends to lower future estimates perhaps more than necessary. (Notice that the bottom of the current downtrend is at 72. I'm inclined to think it is around 74.5 base on extending a trend line on an OHLC graph from the previous low at 72.) If it turns out that we are in a bull phase for the $USD, it would be perhaps better to use a quadratic regression for the long term trend.

The tick marks on the t-axis are in units of three months on the "USD Oct06 to Oct09" graph. Oct 1, 2009 represents t=12 and Jan 1, 2010 represents t=13.

I am also including a Stockcharts version of the original data curve at

http://tinyurl.com/yfxb94q
[Open in new window]

Strong work!
I thought long time ago that stock prices oscillate with complex harmonics due to built in positive (as well as negative) feedback loops. Just like amplifier feedback of plucked string. I lacked good handle in mathematics to put this theory into work though. I'm afraid this model lack precision though as similar cycles exist in different timeframes. Then you have the unpredictable events like crushes, market interventions, black swans and so forth. Keep us posted on your work.

I thought stocks would be weaker considering the strength of U$D over the weekend. Looks like decoupling?
Thus I sold FAZ held since Fri at a modest profit. Still holding GLL on a tight stop.
A number of market gurus is hinting a possible wave of stock melt up soon while others suggest strength in dollar. I think both could happen but at different timeframes.

lol, sold FAZ too quickly. Can't blame myself as it approached my mental stop level.

This one is what we call DBI - Drop-Base-Implosion. It's a mirror of JBE, and works in exactly the same way, just to the downside. Annotations on the chart show the trigger and stop. Risk is 15 cents, hit 1:1 easily and bounced slightly from 2 cents shy of 1:2.

Actual low tested prior the break was .75, it's just the scale of the chart on the sscreenshot that shows in 10 cents increments. If I zoom in closer, it's easier to see. Look at attached piece of chart zoomed in so we see 5-cents incremental. I annotated the candles that formed support and the one that broke triggering the short.

I bought some at $5.01. I see that hog prices have been going up since bottoming out in August, which is when the fears about Swine Flu were at their peak. Since then the prices have steadily risen and are now up about 40%.

http://futures.tradingcharts.com/chart/LH/C9

Thanks Vad
I was thinking that the two kangaroo type candles at about 10:12 and 10:25 formed the bottom of the range and then the break at about 10:40/57.80 would have been the trigger with a .10 cent stop at 57.90.

So gold has rallied up to the bottom of yesterday's closing bar, which one of the team has suggested is a good low risk entry point for taking a short position in a downtrend. So I'm giving it a shot: short gold at 1159.30 with a stop at 1164.

Supporting this I see the dollar rallying off its lows.

Interesting trade idea TOF. Chart looks pretty good despite run up from the lows. Cup-handle with nice volume on the recent upmove and lower volume on the pullback.

KC

short BAC at $16.12 and PLD at $13.68 to hedge my longs should the market tank.

took a small loss on GS at $164.30. Letting go of some of my longs here...

Do you think it was more sensible when politicans in the last administration changed scientific findings at the EPA, or is it better when scientists make findings and present them to policy makers and industry to act on? Have you read any of the science?

back in at $164.2

Hi Fjd - Reading the tea leaves again are you? Current Co2 levels in the sky are about 387ppm, while science suggests anything over 5000ppm may be a health risk - not a reason to destroy 200 years of progress to grow leftist governments across the world. On the warming front the earth has been warming for 20,000 years raising sea levels ~125 meters - we are now in an interglacial period. Better get used to it. Happy Trading

davefairtx -

Why not short ABX? See Mr. Cara's downgrade report at the start of this thread. It just bought out it's hedge book as gold reached its most recent peak and appears to have used Gordon Brown as an advisor (See Brown's Bottom).

http://www.reuters.com/article/idUSTRE58767F20090908

Even Prof. Fekete thinks the company could go bankrupt:

http://tinyurl.com/ycvmwma

Disclosure: Holding my bullion; not short any PM

Hi Jock - Thanks for the heads up this morning on this one. I expect Pierre also looks forward to absorbing the team at International as well - a valuable resource as you would know having visited with D. Silver. Happy Trading

I think the takeaway in the current mindset of humans controlling the environment is cost. It will cost more to do many things and the result will ultimately be a hit to profitability as Company's grasp addtional carbon related expenses. So, as the farce in Copenhagen starts an interesting column from a Canadian paper:
http://tinyurl.com/ydooplm

wonder if the big boys will get Ma and Pa's egg money tomorrow. They have so far tonight.

GDX gave a Triple RSI sell alert as of the close on 12/3.
ROY also gave a Triple RSI sell alert the same day so one can take the alert with a grain of salt.

However, MFN, BVN, IA, EGO, HL, NEM, RGLD, ABX, SLW, GFI, AUY, GRS, and NXG also gave Triple RSI Sell Alerts in the past 6-7 days. Sumthin to think about.

Don't have a dog in this one, other than a pretty good sized DZZ position.

GL.

the question is whether one is a buyer or a seller at these prices. And note that FDX is about where it was in mid Sept, 2008 before it rolled.

Dec opts max pain is 80, 75 for Jan. We'll see what happens

No position

I know I'm biased with a long position, but I really feel like Goldman is due for a big bounce higher. Everyone is looking at GS and thinking that it's pullback is the sign of bad things to come. At the very least they are saying that the market can't go higher because GS is faltering.

Well, I'm thinking this is due for a rebound. It is back to only about $10 higher than it was back in June and no matter where you stand you have to agree that the economy has gotten better since then. While unemployment as a percentage has risen since then, all economic trends have gotten better.

And I'm thinking that while the general economy won't bounce back immediately to old highs, the corporate earnings picture will. That means that M&A will continue to increase, which is a good thing for GS's earnings.

When I look at GS's earnings, I see that it is trading at only 8 to 9 times it's 2009 earnings. That's a pretty reasonable price to pay for a premier financial institution. And I believe they will be boosting their dividend soon.

While it's a stretch, I look at the sharp turnaround in the Nikkei as a sign of what can happen when people get too bearish on something when the markets are in the middle of a bull market. This price action is the opposite of what happened during the 2008 downturn, which featured sharp rallies only to be followed by a continued downward bias. Well, now we're seeing sharp pullbacks only to be followed by a continued upward bias.

I am, of course, biased with a long position in the stock, but that's how I'm feeling...

Ever since the EPA declared the essential plant nutrient, CO2 a pollutant. One cannot grow a plant in a CO2 free environment according to my old 7th grade science book, CO2 is essential to photosynthesis and resulting sugars, carbohydrates, and many vitamins made by plants. Wonder what a climate significant reduction in CO2 would do to crop size and nutrient content?

I am also interested to see how the heavy coal using utilities fare tomorrow.

Thanks Loannetter. That's interesting. On the commercial side in my neck of the woods (Midwest), regional banks are setting up credit lines with former board members and their ilk who then buy the debt of the best properties in the bank's portfolio, while aware of the borrower's dire circumstances and waiting for the default to take title to the property. Before the default occurs, the line is used to pay off the bank's bad debt while taking the loss off the bank's reserves since credit lines don't count in the fractional reserve equation under FOMC's FUBAR accounting rules. Game of mirrors.

loannetter -

Wikpedia sums up reserve requirements nicely here (scroll down):

http://www.answers.com/topic/reserve-requirements

F.U.B.A.R. is an acronym used by U.S. soldiers in WWII to describe just about everything they saw or did you know that already?

The board members aren't the officers seeking the golden parachutes because they are already the ones with all the money. They're more likely to get first dibs on the prime deals with super prime terms to boot. As my father used to say, it's their piggy bank and they can do what they want with it.

Here's what happened to Sam Zell's prime office portfolio after he unloaded it at the very tippy top of the market. Zombie buildings. This is happening even in my little college town of Ann Arbor where Sam got his start in student apartments while matriculating at U/Michigan:

http://www.chicagobusiness.com/cgi-bin/article.pl?...

Guess who's buying that debt now? None other than Sam Zell, inventor of the REIT and uber insider in the CME world. Just follow the money.

Should be an active morning.

I also read the below news clip. Do I believe the HB&B will be broken up? 99% no. But I can dream.

"Five House Democrats will call this week for a return to a Depression-era law that separated Wall Street investment banking from Main Street commercial banking.

If adopted, the measure would give banks one year to choose between being commercial banks or investment banks. The nation's biggest -- those now commonly referred to as "too big to fail" -- would be broken up. The Obama administration opposes the measure.

The amendment's five co-sponsors -- Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts - want to restore the Glass-Steagall Act of 1933, which prohibited commercial banks from underwriting stocks and bonds. The act was repealed in 1999 at the urging of, among others, Larry Summers, now President Barack Obama's chief economic adviser.

The five congressman all voted against the repeal then -- and now they want it back."

Dr. Strangelove, thanks for the links.

I've witnessed the harsh realities of the commercial/investment world and stories like your zombie buildings. Like any product, commercial developments, and their various stakeholders have a certain shelf life/product cycle.

In my current world, we are talking about people's homes and supposedly our lending laws were designed to protect homeowners from overt market forces. Seems Fannie, Freddie, AIG and their HB&B pals have lept into commercial greed mode. Is there any stopping these oinkers?

Well said muniman. Thankyou for taking the time to articulate what I feel every time I log on to the Cara Community. Confronted everywhere by proof of the topsy-turvy interventionist world we live in, I am ever grateful for the commitment to social equity that Bill demonstrates here day in day out. If I were to add one thing to your eloquent post it would simply be to acknowledge the efforts of the rest of team Cara, some of whom are more known to us readers of this blog than others, but all of whom are contributing to our growth as students of the market and who seek to empower us as individual traders in what is very often a lopsided fight. They do it because it is right. And we in turn are the direct beneficiaries.

Mackinaw, very good analysis! You must have a quantitative background. However, as opposed to steps 2 and 3 that you mention in your comment, the two frequencies are found at the same time. An obvious weakness of this is that the shorter period curve must complete several cycles in the time that the longer frequency curve completes just one or two cycles. Thus the regularity of the peaks and valleys in my graphs. It seems unrealistic that there would not be some contraction or expansion of the period and amplitude of any given frequency over time. How to incorporate this in the algorithm I use could be a headache.

Thus, I'm inclined to follow your idea of doing a one frequency fit to get the long cycle and do the short cycle frequency fit only for more recent data. That way, the short frequency cycle would have a more up-to-date frequency and period. This would also permit me to add even shorter cycles, effectively producing an n-frequency fit, possibly giving rise to a good trading indicator.

Regarding residuals, the assumption has been that since these are best-fit curves, they accurately find the dominant two cycles in the smoothed data. Any residuals are thus considered to be noise for this analysis.(I hope this also answers Jack Black above.) I agree with you in general about curve fitting being dangerous business, which is why I emphasize in my posts that these results are suggestive only. I also say that one should not project forward more than one or even one-half of the shorter period using this approach (though my graphs show much longer projections, just to emphasize that having an underlying equation allows for prediction of the future.)

I view this as another tool for technical analysis. Many chart patterns such as triangles and head and shoulders can be easily "explained" by adding cycles of different periods and phases. Hence, why not try to uncover these cycles? Rather than waiting to see if a triangle is going to have an upside or a downside breakout, you can make a very good guess ahead of time using extracted cycles. It will be interesting to assess the accuracy of my results for $GOLD, $SPX, and $USD in three to six months.

One of my motivations in doing this work is that technical indicators tend to either lag the data or are at best concurrent with the data. If this curve fitting, which seems to give a hint as to future direction, is consonant with, for example, the MACD and the ADX indicators as they develop after the the last data point used for the fit, that would be a strong argument in its favor.

Hear! Hear! to muniman and cwinsor.

my guess is a kangaroo tail reversal.