Is the Worst Over?

[Soultrader 12]

Excerpt from Think For Yourself by Robert P. Crawford

 

".... when the great majority of people expect a certain calamity to come, it does not come because they have taken all the precautions to be ready for it. Hurricanes do not kill people when people have prepared for them. When people expect still worse financial conditions, they liquidate everything that can be liquidated and are "sitting tight" awaiting the worst. Of course the worst never comes. In 1929 the great majority of peopl expected still better conditions and were hanging on to their possessions. Nearly everyone expected things to continue upward. That made them all much more vulnerable."

 

So the question, Is The Worst Over? Take a look at a ES daily chart with triple bottom action.

 

 

July 1st shows a bar of strength. Most financial firms have taken every measure now to overcome the credit crunch. Layoffs have been completed... are they likely to lay off more ppl?

 

I do not want to pick bottoms but my intentions are to show that there is a good risk/reward opportunity in place at the moment. Cant quite explain how I see this but June 26, 2008 seemed like a desperation sell-off with July 1st a reversal caused by bull confidence.

Interesting article here

 

"Saudi Oil Minister Ali al-Naimi said he was troubled by the current high levels of petroleum prices, but added, "We have nothing to do with prices where they are today. He denied the problem is one of immediate oil supply."

 

I have to agree with Ali al-Naimi. The crowd has been led to believe we are facing an oil crisis. Is that really so? There are massive reserves available in Brazil and now Iraq is auctioning its oil fields. My view is that with high oil prices, technology to use other sources of energy will become more efficient decreasing the consumption of oil. And by the time this happens, it will be as cost effective to use other sources of energy than oil.

 

Also, fewer people are now consuming oil due to high oil prices. There are fewer cars now on the streets and consumers are more conscious about using energy. Have we reached the tipping point where instead of the assumption of increased oil consumption, we are likely to go backwards to using less oil? Public transportation will probably be used more... public buses, subway, etc... meaning less cars and less oil. Flying overseas is now unbelievably expensive. A retail roundtrip ticket from Tokyo to Brazil costs $10,000!

 

On top of this, I do not think we will ever get to a point of using the last bit of oil left on this planet. Mankind are not idiots.... we will most likely resort to an alternative altogether. And when we do, expect oil prices to tank.

 

So, I have my eyes on companies like Toyota who lead in hybrid technologies. I see this oil hike as a potential opportunity in other sectors of the market.

 

My random thoughts here.... always feel free to disagree. Thanks.

 

 

 

[Sledge 13]

I have to agree with Ali al-Naimi. The crowd has been led to believe we are facing an oil crisis. Is that really so? There are massive reserves available in Brazil and now Iraq is auctioning its oil fields. My view is that with high oil prices, technology to use other sources of energy will become more efficient decreasing the consumption of oil. And by the time this happens, it will be as cost effective to use other sources of energy than oil.

 

My random thoughts here.... always feel free to disagree. Thanks.

 

 

I was absolutely STUNNED to see oil hit $142 a barrel. When you saw 3 days of sickening volume banging its head at $139 and not making any further headway. It looked as if a top was in place.

 

Anyone who was a technical trader would never have said "Ooh lets go long" on a chart like this:

[ATTACH]7223[/ATTACH]

[BlowFish 10]

As you probablly know I am quite a fan of Tim Morge (though un-affiliated apart from owning his book). Coincidently I just got notified of a new article at http://www.medianline.com Tim talks about fundamental conditions (inflation in particular) and shows a trade at the end. Several interesting points including why he tries to be extra careful trading when he has an opinion.

 

From the article my guess is he does not think the worse is over, but check it out its not a bad read.

[atto 20]

I'm seeing signs of at least a short term bottom, but still believe we'll be in a bear market for several more months. The technicals and fundementals are pretty awful for the market (long term).

[cowpip 10]

That's an excellent quote, James. And you have some solid reasoning combined with a clearly bullish candle pattern.

 

You have to trade what you see, not what you feel.

 

But nonetheless, we probably shouldn't completely ignore the fundamentals either. My personal opinion is that I don't believe the sun will really rise on equities until we see house prices start to stabilize. Until then, there will probably always be a risk of further downside.

 

However, that said, trading what you see will often yield sufficient profits to protect your entry on bounces - just in case there is further downside. Look at the temporary bottoms in your chart. At the time they formed, people thought they might be real bottoms. If people would have traded what they saw, they would have (and likely did) make a decent profit.

 

I'd be a bit careful trading before this Thursday's NFP, which is likely going to be a bit screwy with the low liquidity.

 

Why did they move it to Thursday instead of waiting until next Friday like they have done in the past? And does anyone think that perhaps the Fed/Treasury will consider this a golden opportunity to intervene? They would definitely get more bang for their buck on Thursday with liquidity so low.

[darthtrader2.0 10]

The markit ABX indexs have been interesting to watch through this whole thing. This last selloff looks like the AAA paper finally was hammered nicely more than the junk paper.

 

Paul Van Eeden is my fav macro guy, he thinks the best long term bet here is to short long bonds and bet that the yield curve has to steepen to clear the system.

http://howestreet.com/audiovideo/index.php?pl=/fbn/index.php/mediaplayer/284

 

Equity wise it just seems like there is just enough bad news to send us to the bottom of the range but what can possibly happen now to break that range? Same thing at the top in reverse.

So any of you guys swing trading the index long here with your longer term money? Buy and hold doesn't make much sense to me but damn..its hard to ask for a more defined range to trade mid term than this.

[james_gsx 16]

I say no, the worst is not yet over. A few political reasons which you may or may not disagree with. Obviously, politics is typically very opinionated.

 

1 - The $600 stimulas checks were not because our government loved us. But since the vast majority of GDP is from consumer spending, $600 would cause that spending to artificially inflate. We all know what the technical term of a recession is, and with the elections coming up you do the math. Neither political party wanted to announce a recession at the same time of the election, therefore the $600 would prolong that from happening. Obviously markets don't care, as you can see from the charts.

 

2 - If that was in fact the case, then that shows we are in a recession (theoretically) and probably won't get out for a few quarters. Markets tend to move before the actual economic pieces hit. Hence why we rally when things come in better than expected. We all understand how everything gets priced in.

 

3 - Notice how the first 2 times price literally crashed to 1250 then rallied back up. Now this third time, price steadily fell to the 1250 level comparatively speaking. This shows me that price was indeed "suppose" to be at that level if that makes any sense lol

 

4 - I think for using a long term approach and finding a bottom a daily chart is not sufficient nor is a weekly. I want to look at the monthly. A few months ago we had a nice wide range spinning top at support of 1250. Price moved below the 50sma, but buyers quickly came in and bid the price back up. We rallied to the 8 and 21 ema, where they eventually crossed over. We had an inverted hammer, which was confirmed in June. Notice the kicker, we closed BELOW the 50sma on the monthly. Last time that happened in 200 the S&P fell over 500points. Will that happen this time? Who knows, but it's something to take into account. We notice when it falls below the daily 50sma, and in this case I think it's just as important to note it fell below the 50. The major difference is the time frame, we could potentially sit around these levels for several months before moving lower and just experience a TON of volatility.

 

5 - I don't have a chart of the VIX and I'm too lazy to pull one up, so I'll leave that to you. Pull it up and look at where it sits now, compared to the last two times we hit the 1250 level. Major difference, it tells me that price is being accepted at this level.

 

At the end of the day, I think this is good. I want the markets to fall further. This way we get a fresh start and can move forward. A lot of money needs to shift hands, and I don't feel that has happened sufficiently. I'm not calling for the ES to hit 8000 or even 1000. But I do think we have some more room to fall over the next 12-24 months. Who knows, we could bounce off this level and make a text book cup and handle on the ES and move to 2400.

 

But as far as the daily goes, as I said in another thread I think we could see a snap rally before moving lower.

 

 

EDIT: I just re-read James' quote about people expecting the markets to fall. I agree and disagree. I think it works better with actual crashes, such as the two times we tested 1250. Everyone expected the market to continue to crash and saw doom and gloom, then the markets reversed in their face. This time, with price steadily falling to these levels and the VIX remaining relatively low, that tells me that people don't necessarily expect it sort to speak. I'm not really sure how to explain it in words for everyone.

[Sledge 13]

1 - The $600 stimulas checks were not because our government loved us. But since the vast majority of GDP is from consumer spending, $600 would cause that spending to artificially inflate. We all know what the technical term of a recession is, and with the elections coming up you do the math. Neither political party wanted to announce a recession at the same time of the election, therefore the $600 would prolong that from happening. Obviously markets don't care, as you can see from the charts.

 

 

I read this yesterday and it bodes very well with your observation:

 

Dollar General Q3 Profits up- 7.1%

 

The Matthews-based retailer reported Wednesday that its third-quarter profit rose 7.1 percent, thanks in part to companywide belt-tightening and increased sales of household items such as food, paper products and detergent.

 

That's largely due to warmer weather and the federal economic stimulus checks, which had only just begun to arrive by the end of March-May quarter. Their fuller impact should be felt in the current quarter.

 

So this $600 that was intended to "stimulate the ecomomy" is doing nothing but allow people to "survive" a little nicer until it evaporates. The governments idea that people would take that $600 and go out and buy big ticket items appears to exploded in their face.

Sledge

[cowpip 10]

So this $600 that was intended to "stimulate the ecomomy" is doing nothing but allow people to "survive" a little nicer until it evaporates. The governments idea that people would take that $600 and go out and buy big ticket items appears to exploded in their face.

 

Bernanke and company were largely betrayed by oil and energy, but their early "secret" policy of allowing the dollar to depreciate is probably what really sunk this (the rebate check) boat.

 

I'm sure Bernanke screams at night in a cold sweat, "I'm in a car-crusher and can't get out. Help!"

 

For someone who has devoted most of his own life to a study of the Great Depression, his worst nightmare must be close to a waking dream by now. I'll bet his pharmacist loves him. "Oh look, here he comes again. Break out the sleep med boxes, Ethel!"