The FIX Is In

Or How the Bulls have Rigged the Stock Market

On the surface its simple and been covered in past Investors411. The Fed prints & dumps money into the economy. Yesterday’s dump was 8.309 billion More money  = more wealth in USA. This drives the dollar down relative to other currenies and US companies sell more goods abroad because they are cheaper.

But the devil is in the details – The FIX is being run by US shadow banks, our opaque central bank/The Fed & The Treasury. Here’s how

• You buy Treasury bonds from the US Treasury
• But our Fed buys bonds from from its 21 Primary Dealers

Aside – Primary Dealers is basically a synonym for giant opaque shadow banks. “Somethings Rotten in the State of Denmark” Let’s use Goldman Sachs as an example. The Fed buys these bonds from GS through its NY Fed office. William Dudley, runs the NY Fed and is also Vice Chair to Bernanke. Oh. by the way, Dudley was also chief economist for Goldman Sachs for over 20 years. Ya think, GS is getting a good deal or front running the bonds it sells to the Fed? Take a look at the recent rise in yield of the 10 year Treasury bond. (Link to chart on right side of blog)

Never forget there are puppet masters who pull the strings of the puppets we call democrat and republican politicians. But let’s get back to the bulls rigging the stock market.

• Remember we allow our shadow banks to be giant investment brokers
• The giant investment houses run Black Box/High Frequency Trading units.
• Follow the money. – Is the $$$ these primary dealers are making going to finance mortgages or is it going into the stock market?

Aside – Now if you are a greedy investor, like me, scroll down to “Reading The Tea Leaves” which maps the course of the money as it flows into stocks and how to make $$$ from it.

• So,  for investors. shadow banks, globalized US companies, most stocks the fix is in.
• Good economic news – No worries thing are getting better for the economy and stocks should go higher. But shadow banks could loose a major source of revenue.
• Bad Economic news - No worries Shadow banks, investors, globalized companies will all prosper.

You betcha, This short term fix is another bubble building. We are still the world’s economic Big Kahuna and we’re getting away with this market manipulation because we can and it works.  What were doing now should work for months. However once you turn on the steroids its hard to stop injecting. What’s really needed is fiscal reality – raising taxes/cutting social security/stop building an unsustainable military empire/cutting medicare.

Europe is taking a different road –  The Black Swan (great name) Nassim Taleb who predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.  If your looking years into the future their austerity measures will work much better than what we are doing.

START Treaty (Haven’t forgot about it – Monday)

STOCKS

Investors411 tries to keep it basic.

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

-

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

World Stocks -.

USA – Rally was confirmed yesterday and volume was relatively high,  and there’s a chance just a few people may be reentering stocks.

Job’s number for October = Rate Up to -9.8% Gain of +39,000 jobs Far Worse than expected.

Europe – Most major European markets did better than USA. The Black Swan (great name) Nassim Taleb predicted the 2008 meltdown and says that Europe is making more progress on debt than the US He’s right.

Emerging Markets – EEM (ETF for emerging markets) again outperformed US stocks. Up +1.96

———–

Chart Pattern for benchmark S&P 500 has formed a classic 8 month long cup and handle trading pattern. Stocks are accelerating to the breakout point now @ 0.50% higher (SPX at 1121 & breakout 1127) The acceleration into the breakout resistance point is OMG news for stock analysts.

When you break out to a new high and an 8 month major chart pattern is involved, it often is like adding  jet fuel to the breakout.

————-

Reading The Tea Leaves -

Bulls Rule – Today the employment numbers will probably show solid improvement. This will probably rally the dollar, and the dollar moving higher might hurt stocks. If it show an unexpected rise – the same thing will happen.

It’s the dollar/stock relationship that is key. One mantra of Investors411 has been a reminder that High Frequency Traders dominate/make 50% to 80% of all trades. They trade in both the larger currency markets and smaller stock markets.  Dollar up = Stocks down and visa versa. Here’s why the bulls are in control

• For 8 trading days the dollar went up (one was flat) Most of these days were significant moves higher.
• For those same 8 trading days stocks did NOT move down but sideways
• For two days the dollar have now fallen significantly and stocks have rallied significantly

Basically, the trend is stocks move sideways on bad dollar news and rally on good news.  There are some fundamentals behind this that have been mentioned in the past and will go over on weekend or Monday. But the important part is that bulls sure look like they are in charge.

Additional points – BDI seems to be showing early indications of a reversal in trend and that’s good news.  MO at +5 gives us lots of room to move higher. Rough interday gauge for MO is 100 Dow points are worth about 20 points. So Dow goes down 100 points MO would interday be at about -15. Reality the McClellan Oscillator has little to do with the Dow

Positions

• EEM - (Emerging Markets ETF)
• UWM – (2x small cap stocks ETF) As mentioned yesterday sold 1/2 of UWM at 39.11 for +9% gain
• UCO – (2X oil ETF) Bought at 11.37

Plan to  buy the dip today starting with UWM and on a huge dip TYH.

Look for Paul R’s always enlightening remarks on stocks and sectors in the comments section of the blog. See POSITION section of blog for lists of potential stocks & ETF’s including “YOUR Stock List.” -

I’d add to positions on YOUR Stock List too. Unfortunately many stocks are overbought (or close to it) right now. Paul R has a good grasp on individual stock positions.

Lots of you think of GW Bush like this but…

George Bush The Hero

Troubled Asset Relief Program (TARP) Treasury Secretary under BUSH Hank Paulson and Fed Chair Ben Bernanke sold Congress on the $700 billion insurance plan to save shadow banks. Phase 2 was carried out under OBAMA & his Treasury Secretary  Geithner

From screamers - Tea Party Patriots on the Right to Rachel Madow on the left the TARP gets bashed. Even Democrats run & hide when the TARP is brought up.

Yes it was a bait and switch by Paulson, yes it kept the shadows in business, And yes some fat cat CEO’s got fatter because of it (lots of blame to retiring Senator  Dem. Chris Dodd on the last point).

The Bottom Line – Simply a second great depression was averted. Lehman collapsed and if the other dozen or so major investment firms had fallen along with AIG, GE, GM (also add any other worldwide companies that had over leveraged positions) it would have started the dominos of panic and we’d be seeing unemployment at way over double what it is today. Imagine a dozen firms all bigger than Lehman’s going belly up and the other mega banks failing throughout the world. Add media hype. Result Great Depression #2

Story on this from Politico’s Ben Smith – TARP A Success None Dare Mention

FYI on TARP – From Wikipedia “as of April 12, 2010, is down to $89 billion, which is 42% less than the taxpayers’ cost of the Savings and loan crisis of the late 1980s.”

Postscript – 33 Hero Democrats in May of 2010 voted to break up those too big to fail shadow banks. 61 Republican & Democrat caved into the shadow financial institutions and their lobbyist.

—-

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

-

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

Mantra for September - ”The Black Box/High Frequency Traders BB/HFT control the majority of trades. Jim Cramer -”BB/HFT make up 80% of trades.”

Term for the Day – High Frequency Trades - From Investopedia – “High frequency trading is an automated trading platform used by large investment banks, hedge funds and institutional investors which utilizes powerful computers to transact a large number of orders at extremely high speeds. These high frequency trading platforms allow traders to execute millions of orders and scan multiple markets and exchanges in a matter of seconds, thus giving the institutions that use the platforms a huge advantage in the open market.”

US Markets – Ended up flat in what passes now for moderate/average volume. Much less than in the past because retail investors have been exiting stock and trading is dominated by HFT’s.

Brokerages, Mutual Funds & Platforms that cater to individual or small groups of investors/traders are seeing profits diminish as retail investors continue to leave stocks.

Holding onto gains is usually a bullish sign after a major rally day. But there was a divergence in the normal relationship between the dollar and stocks that have been moving in almost 100% different directions since July. The dollar took another big hit and stocks instead of moving higher were flat. (more below)

Gold like Silver last week broke out to new highs. Mea Culpa – Investors411 talked many times about buying GLD on dips but never did.

Significant Indexes

• The Dollar (USD) [Anything daily price move over +/- 0.50 is significant. Dollar moves inversely to stocks] The dollar, fell ANOTHER HUGE -1.01% yesterday.  Dollar at 81.08 and has a another major support level at just below $80. For stocks =Bullish
• The Baltic Dry Index (BDI) [measures cost of world trade. Also proxy for China & emerging markets] Fell a  -1.21% yesterday.  The BDI does not have the immediate impact that the MO or Dollar does. Two relatively minor down days in a row. Right now longer term chart pattern still = Bullish
• McClellan Index – (MO) [The rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks.] MO fell to +45.56 yesterday. Back to = NEUTRAL

Reading Tea Leaves

We may have missed at least a short term selling or shorting opportunity. We had the MO at +61 & the Dow climbed another +60 points in to the the AM. (just short of the +100 criteria) Investor411 has only one small long position in EWS, so I took no action in the 411 account.

The Baby Bull is still alive. But…

There has been a key divergence. The dollar is in meltdown vs. other currencies. From yesterday on the dollar  “one ugly bearish chart” This dollar meltdown should have been good news for stocks. Stocks should have rallied. But they stayed flat & the MO dropped 16 points. Sometimes it takes a day for stocks to react, but, for right now, overbought stocks went nowhere despite good news in a falling dollar.

This could signal at least a short term top.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

(I do manage 6 accounts that have other positions)

Current positions –  EWS (Singapore).

EEM (the major ETF for emerging markets) is overextended from 50 DMA. So are other breakout countries. It would be natural to see some sort of consolidation.

Along with the Baby Bull the upgrade to CAUTIOUSLY BULLISH is not yet firmly in place. We still could fall back to neutral.

Here’s the test – The MO falls to about zero or +20 and stocks rally from that point.

I’d be willing to invest/risk a bit more then. Yes its not -60 on the MO – a better entry point, but emerging markets & a falling dollar are pulling US equities along for the ride. A consolidation after a run is not to be feared. Also time to start looking at YOUR stock list

Long Term Outlook – CAUTIOUSLY BULLISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

-

Hottest 6 Months Ever

The last 6 months have been the hottest ever on the planet. The record breaking heat waves of the East Coast are part of this

“The record temperatures we’re seeing now are especially impressive because we’ve been in “the deepest solar minimum in nearly a century.” It now appears to be over.”

This NASA news should have been the headline of every major paper. Instead the top link I found was the following minor site. If you want some science data on greenhouse gasses, global warming & how it works see National Reasearch Council of National Acadamy of Sciences

Alternative you can laugh with the Drudge Report or Fox News when they headline a goup of climatologists meet and it snows. Or read when they healine a couple climatologist who have seemingly fudged data, but are later exonerted. They, of course ignore or bury the NASA data.

“We’re getting a dramatic taste of the kind of weather we are on course to bequeath to our grandchildren,” says Tom Peterson, Chief Scientist for NOAA’s National Climatic Data Center.”

Reboot America

16 of America’s Leading Economists/Historians have come together to fight the Tea Party/Fox/CNBC/ Libmbaugh/Bachmann/Palin (Thanks to Popeye for his Bachmann comment) message of cut the deficit NOW. They realize that Jobs is the #1 priority NOW.  Their conclusion-

The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s. It will prolong the great recession, harm the social cohesion of the country, and continue inflicting unnecessary hardship on millions of Americans

Obama’s Address

Republican’s have been blocking aid to small business and unemployment compensation for weeks. Here’s Obama’s weekly address.

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

Investors411 record – 5 years of beating benchmark S&P 500 and almost all major US indexes

Technicals, Fundamentals & Analysis

Economic fundamentals, some bad earnings report, and an options expiration Friday seemed to have made the Black Box/High Frequency Traders dive for cover.

Volume was a bit above average for the older DOW & S&P 500. Still it was NOT the kind of volume you’d associate with a major stock meltdown, but more the kind of volume you’d expect when options expire (The 3rd Friday of the month) Translation – Black Box traders clearly in charge of markets.

Almost 3% decline – Bearish

Earning come out big time week.

You can check pre market trading here – Just type in ticker symbol

Significant Indexes-

• McClellan Oscillator (MO) fell to +7.53 [+60 or above = Overbought = sell. -60 or below = Oversold = buy]. StockCharts has a better version of the McClellan chart ($NYMO) LINK. –  & Investopedia on –  How the MO works. = NEUTRAL
• US Dollar –  The dollar Friday was basically flat -0.09% [Anything over +/- @0.50 is significant.] The dollar is important  to stocks – Dollar up = stocks down and visa versa. The Black Box traders, have used the inverse relationship of the dollar as a key part of their trading system. This inverse relationship is part of their algorithmic system. There was a delayed reaction the last time the dollar fell over 1.00% – The next day we had an almost 3% rise in stocks.  For stocks =BULLISH
• BDI - The  Baltic Dry Index (Measures cost of shipping – Higher costs good = more being shipped = Bullish. Also good proxy of China.) BDI is in free fall from a high of @4200 to 1700 yesterday. This is a huge -60% drop 8 weeks.  Often a leading indicator for stocks. Here’s a 3 year chart of BDI for context. The BDI rose for the first time in 8 weeks Friday +1.18% yesterday. At long last the BDI finding a bottom – a bullish sign, but too early to tell. Fundamentally the -60% drop is very BEARISH

Reading Tea Leaves - I haven’t figured out the algorithms associated with High Frequency Trading. So its near impossible to make an accurate predictions of what they will do. However the majority do seem generally to follow the basic +/- 60 indicator on the MO.

Answering The Critic - (see comments section of blog)

• The Good – Yea with a little luck did call the top and the last bottom. This came about by using both the meltdown in the BDI and MO reaching oversold.
• The Bad – Why not invest more? I did set up a probable group of trades (short ETF’s) if the major indexes became more oversold Wednesday and/or Thursday.  Bottom Line – Its not the old time stock market any more. – Phony capitalism rules along with High Frequency Trades. Those ETF’s you mentioned are impacted by phony capitalism and HFT’s so you have to be more cautious. My trades tend to be more conservative (example SH last week instead of SDS) YOU can be more aggressive.
• The Ugly – Fixing High Frequency trades (or phony capitalism) Most of the trades in the 1000 point meltdown were cancelled. However HFT and phony capitalism (example-shadow banks) banks are a reality. In the USA (the leading GDP capitalist country), if the moneyed class keeps getting richer and the middle class poorer market fundamentals will continue to deteriorate.

Positions

The  Positions Section link to latest & former buys and sells  - These are positions I actually own

Updated over weekends Investors411 holds ONE position at this time

SH – The ETF that shorts the S&P 500 was bought at 51.45. It’s up over 3% now. 1/2 will be sold at 3% profit and a stop/loss has been put in place at what it was bought for.

I’m not so sure Friday’s meltdown was as bad as it looks. It may have been something exaggerate by HFT and Options experation.

No other positions long or short are contimplated in immediate future because MO is neutral.