I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Friday, October 29, 2010

Still looking wedgy

To me at least

Thursday, October 28, 2010


Look at those candles. Nothing healthy looking about those.

Wednesday, October 27, 2010

Still thinking...

This is still what I am thinking.

.... not that I am thinking

I haven't been thinking for months. Years if I am being honest ... but that would require too much thought.

Tuesday, October 26, 2010

Monday, October 25, 2010

Some thoughts on QE

constitutionorslavery and DennisP had some very interesting questions and comments on Quantitative Easing in my last post. My response turned more into a separate post.

This is not a comprehensive list, but rather just some thoughts off the top of my head. I explored some of these topics in more detail here a few months ago: The Matter of Deficits, Sovereign Default, and Modern Monetary Theory. Also many of these ideas come from the Pragmatic Capitalist who I am convinced has been right on most of these issues for awhile now.

Quantitative Easing is an asset swap. At the end of the day, it is nothing more fancy than that.

It is not 'money printing' in how most people think of it. What the Fed and the Treasury are doing with QE is swapping interest bearing assets (Longer term Treasuries) for non-interest bearing assets (Cash or Cash equivalents).

Why are they doing this?

Under the assumption (which I believe is erroneous) that more cash (i.e. more liquidity) will get lending and borrowing going again.

But that is not the issue at all. There is already tons of reserves at banks. There is already tons of liquidity in the system. Borrowers (you know, everyday people that have been forgotten in this whole debacle) are not borrowing. Does the Fed really think that if mortgage rate drop from 4.25% to 4.00% or even 3.00% that will prop up the housing market? No. Borrowers are already over-extended. They do not want, nor need, to take on more debt even at historically cheap rates.

This is why TPC calls QE "stocking the shelves". Let's say you go to a grocery store, and nobody is buying apples. There is already a huge display of apples and nobody is buying. The manager says "let's make it a wall of apples instead of just a display!". Does the increase in the volume of apples for sale actually sell more apples? The answer is intuitively no. If nobody was buying apples before, why would more apples for sale entice them to buy?

Same is true with borrowing. If there is little lending and borrowing activity at historically low rates, why would an increase in reserves change that?

Because it won't.

QE is not inflationary. QE is not money printing.

But! (you say), the first round of QE caused a huge stock market rally!

.... uhhhh, sort of. But not for the reasons why QE proponents say that QE II will spark a similar rally.

2008 was a deleveraging and liquidity crisis. In this case the financial system was seizing up. There were no apples for sale to use the analogy above. But the Fed established absolutely gargantuan Dollar Swap lines and liquified the system to stop the freefall.

This is why QE 'worked' (used loosely) at the beginning of 2009.

And this is precisely why it will 'not work' now. Because there is no longer a liquidity crisis. There is more liquidity than is needed, and so adding more liquidity will not change anything.

There is no borrowing or confidence on the side of Main Street. And until Main Street fixes its collective balance sheet (which will take years), there is no sustainable recovery IMO.

Friday, October 22, 2010

Lots of overlap

None of the moves down or up the last few days are impulsive. The overall structure does not have the look of a diagonal, but it sure does have the feel of one.

At any rate, the candles are very long and have a reversal look to them.

Wednesday, October 20, 2010

Not Surprising

Move today was not really surprise. I remarked yesterday that the move down looked like a three. Move up is sharp and essentially closed the gap. However the next move should be *very* interesting, if the April move is any guide.

Tuesday, October 19, 2010

Interesting Day

Sharp move down. Right now it looks like a three. The fact that there is a huge gap stinks.

But things are further weakening. The NYMO also attests.

Monday, October 18, 2010

That's very comforting, but I'm afraid you'll just have to wait.

Inigo: "I hate waiting. I could give you my word as a Spaniard."
Man in Black: "No good. I've known too many Spaniards."

Things are still in topping mode: check.
Is this the top? Hold your horses sonny.

I am just watching and waiting. The market will top when it is ready.
Be patient. Have some iced tea. Read a book. Call your mother.

Friday, October 15, 2010

This is welcome news

The Pragmatic Capitalist does a great job of watching the sentiment surveys. The AAII bulls have been very bullish for a weeks. But the Investors Intelligence bulls have been more skeptical. Well, not anymore. They are now in extreme bullish territory as well. This is good to see.


Thursday, October 14, 2010

Was the mere threat of more Tommy Boy jokes enough?

Interesting price and volume behavior the last couple of days

Wednesday, October 13, 2010

If the market keeps this up, I will start making Tommy Boy quotes again

Well, the Ending Diagonal count no longer looks particularly compelling, and I have yet to see a nice count that doesn't make me want to 'puke my guts out'.

Time to start eating paint chips and wait for the market to resolve the divergences.

Tuesday, October 12, 2010

Complicated Wedge

Move down since yesterday is a three (I am not thinking it is a 1-2, 1-2 count or even a really distorted five). So we have the option of a yesterdays move being the wave 4 of our wedge.

Monday, October 11, 2010

Red Rover, Red Rover, send Wedgie right over

Wedge at the end of a wedge?

Friday, October 8, 2010


I wonder if Mayor McBull is watching this?

Thursday, October 7, 2010


The last few days seems very overlapping and sideways, yet decidedly up. Ending diagonals at play?

Edit 3:55

Daily chart is rolling over. Lots of topping candles and finally negative divergence on Daily MACD

Wednesday, October 6, 2010

What does the stock market and most hams served during Easter dinner have in common?

Both are overcooked.

Based on my arguments yesterday, I still like this for a top, and not another big 5th wave run up based on the size of the extension in the 3rd wave.

As an added bonus we have a triple top on the Nasdaq 100.

Tuesday, October 5, 2010

So much for that theory ... sort of

Move down from the 1157 high turned out to be a three and couldn't develop an impulse down. So what of my question from yesterday: Just a pause on the way to new highs?... I'm not so sure about that. Do we head up to 1170-ish like many are saying?

Again, I am not so sure about that.

First I don't buy the triangle theory. The move up today is a very clear impulse. It is already to the top of the range, so I highly doubt it will serve to be the A leg of D of a triangle. I don't buy that at all.

I think it is far more likely that this move is part of 5 up. The question is how high?

Consider the fact that Minuette 3 based on how I count it, is appox 4.24 times Minuette 1. This is a Fib extension ratio (see Randomly Useful: Fibonacci Ratio Table) and a highly extended one at that. So does the market make another strong run after that? I think the odds point to 'not likely' IMO.

All of my 'Top 10' observations are still in effect (well, more like 8 of them) so I still think we are near a top and don't have a lot more upside with this wave.

Monday, October 4, 2010

Just a pause on the way to new highs?... I'm not so sure about that

The Nasdaq Composite, which has been the undisputed leader the last 3-4 weeks, is now looking weaker than the SPX. I have serious doubts that this is just a "routine pullback"

Saturday, October 2, 2010


We did not get a follow through day on Friday. No lower low and then just sideways chop for the rest of the day. This wave may not be dead (... yet) and may have just a little more upside next week. But I think we either topped, or if not then we are very near the top.