Thursday, October 8, 2009

Update: Stocks/Gold

9918 top of C is almost certainly the correct call. Euphoria in both stocks and gold has reached a crazed frenzy. Fox Business has replaced the Dow ticker with gold. Volume has dried up. The weakest traders are about done buying the end of a few percent short squeeze; a normal minor retrace. U.S. Dollar remains in a massive 18 month uptrend against all major currencies. 3M-T is zeroing out as an ocean of smart money vacates stocks and commodities.

Bear remains in full swing.



  2. FDR, can you help me to determine who is buying stocks here? Does the fed purchase outright equities or futures or have someone do it for them? Do banks that are receiving money from the fed use it to buy equities instead of lend out? Just trying to figure out who is buying equities at any price day in and day out. the volume is almost non-existent but the stocks go up in price 5% a day. What are your thoughts on the driver and the exact mechanism behind it?

  3. Wasn't it oil not to long ago that everyone was focusing on? I remember what happened to that.

    Oil will hit $300 by.... oops sorry.

  4. "Just trying to figure out who is buying equities at any price day in and day out. the volume is almost non-existent but the stocks go up in price 5% a day. What are your thoughts on the driver and the exact mechanism behind it?"

    I've written a lot about this already, but price doesn't mean anything without volume. An example from the real street can help:

    Let's say that over the past 80 years, there were an average of 1 or 2 homes for sale in your neighborhood. Let's say the avg price, at peak, was $500K. Suddenly, the Fed stops much of the previous borrowing by requiring buyers to put 20% down instead of 0%.

    Inventory quickly piles up, to maybe 36 months of homes sitting on the market. Due to a lack of lending, there are now 50 homes for sale instead of the usual 2.

    People notice the change, and a few knock $10% off the price to keep selling, but most buyers can't afford that so the number of transactions slow down. The people who have to sell, lower their asking price 30% and at that price the number of transactions rises.

    Then it goes dry. People are out of work, there is no appetite for borrowing, there is no appetite for lending, and the market stagnates with only clueless sellers asking way too much and mostly flat broke buyers.

    But every once in a while, a house moves, because they find someone who is forced to buy, or doesn't realize they are paying too much. The one lucky home seller drains the buyer for as much as he can, and the sales price of that home might even be equal to peak pricing. At the moment, we have:

    Sale price--spiking.
    Sales volume--tanking.

    Watching price without considering volume is simply meaningless information. Only clueless people buy into high volume markets when activity is at a standstill, because the smart money is gone for a reason:

    Price, sans volume = the wrong price.
    October 8, 2009 3:24 PM

  5. So you are saying that all the buying of stocks is retail etrade investors actually and not the banks. i would assume if mutual funds and some sort of bank consortium were trying to lure people into the equity markets or to inflate 401k holding so people would go spend again, then we would see more volume.

  6. We don't know who it is, we only know they are paying too much since volume is low.

    The New York Times ran some interesting charts showing that the govt is the only player left in most markets. My guess is that money is sloshing around, unconcerned about price. In fact, the singular goal is to pay too much.

  7. Watch the 3M-T. It takes serious money (volume) fighting to exit other markets to drive entire countries like China to accept near 0% yield.

    Near 0% = major market correction in progress.

    I continue to believe the Dow 9918 entry was perfect. Gold's gone a few percent the other way, but is also hovering above low volume.

  8. FDR when it comes to EW interpretation I am a mere acolyte. Some things do catch my eye however like the recent 30YR rate action (especially the move today). I know you are not a particular fan of "Big Daddy" because other deflation geared investments offer greater profit potential. That said it would appear from my untrained eye that an ABC correction is in progress from 5 waves down and we are in the C wave. This would be consistent with capitulation to (imaginary) inflationary forces similar to what I believe gold and the dollar are reflecting. I am watching and thinking of adding to a position I established in July.


    I found this interesting in that I asked you about this very thing several days ago. Your response was that it would matter if people wanted to get their money out, I believe. Interesting that this article was almost verbatim in that every things phony. We should have a "go and see if you can withdraw $2000 in cash day at the bank", could they pay?

  10. FDR

    As you have pointed out and i have noticed, how there is deflation with homes, cars, gas, some food and then some, i am miffed how on CNBC and Bloomberg, all they talk about, is how the dollar is getting clobbered

    All i can come up with is that they think these price declines are temporary.


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