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What's Hot Wednesday!
1 minute ago
Wednesday, May 30, 2012
STOCKS: Cash is a Position
By Brian Shannon
The markets have been wearing on people’s patience lately.
I see it on Twitter. I hear it in news stories and conversations and see it in the charts. It can be exhausting to watch a great uptrend that rewarded dip buying turn into a relentless sell-off. From its intraday peak on May 1 to its low on May 18, the S&P 500 ($SPY) dropped 8.5%. It currently is attempting to stabilize from those losses, but the evidence of a turn has not revealed itself yet.
The current environment has been plagued by uncertainties ranging from global economic, concerns over earnings, mismanagement of risk procedures at JP Morgan, a disastrous FaceBook IPO, etc. There are always reasons to worry in the market, and stocks often advance when economic conditions appear to be bleak.
I am sure you have heard the phrase "markets climb a wall of worry." Phrases like that certainly ring true, but stocks also can go down in the same conditions. It can be confusing, but the ultimate filter of any news, rumor, opinion, etc. is price action.
VOLUME
You know I am fond of saying "Only price pays" and for good reason. Look at the S&P 500 chart below. First notice the volume trend, the large rally of the first quarter occurred on diminished volume, many participants were unwilling to believe it could last, because the low volume represented low confidence. While the market is making higher highs and higher lows, we have to give the benefit of doubt to the buyers and always play a strong defense. If the market (or a stock) breaks below a key level of support you have to take immediate action to preserve capital, this is not a time to lollygag!
VOLUME WEIGHTED AVERAGE PRICE
More important than volume alone is the volume weighted average price (VWAP). VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day, according to Investopedia. It represents the average price paid over a certain period of time. On the SPY chart below the purple horizontal line represents the VWAP from Jan. 1 through May 24. Although the SPY is showing a YTD gain of 5.60% in absolute terms, the volume weighted average price which the SPY traded hands is ~135.55 which would mean the average participant since the beginning of the year (think dollar cost averaging) is actually down close to 2.2%. Looking at it another way, the average short seller is up by that amount. So who is really in control, buyers or sellers?
We can take it another step back and look to the climatic October 2011 low and measure the VWAP from that point to the close on Thursday. The blue horizontal line represents the VWAP from the October low. It is ~129.32, which means the average participant from that date is barely maintaining positive performance.
TIME FRAME
http://www.sfomag.com/SFOWeekly/Detail.aspx?ID=709&StoryDate=05292012&STID=345D6467-14E8-43B1-A63C-F67AC8999157
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19 comments:
GAW said:
I am of the opinion the EUro will not last out the year, or if it does, it will be without many of the present members.'
The only 'solution' is massive goct boOND buying by the ECB or an official bank bailout that will require a new treaty.
Spain is looking awful at the moment, and not just becuase of Bankia. VAT receipts are plunging and the deficit for the first 4 months of thsi year is WORSE than the correspnding 4 months of last year. There's no way they are going to meet their target.
GAW I agree but these
elitist banksters seem to be able to hide everything. Nothing has come to light and everything seems to be able to be bailed out. Common sense would tell us otherwise.
Sorry if some of you had to get out a maginifying glass to read the print. I didn't look at it again after posting so late.
One of the reasons I like my Mac is that it's easy to expand the text size on the screen with just a finger motion. Smallness is no problemo.
Hi Mammouth-- got your message on my blog-- here's my take on PMs. Whats happening now is deflationary; m3 money supply in EUtopia is contracting very quickly, thus the downtrend in PMs. Going forward, I think there is a high probability of some sort of central bank intervention due to Greece, Spanish banks and the money supply. They really have no other answer. If I were short, I'd be mighty nervous. Money printing and instability are bullish PMs, and going forward it looks like we're going to have both, and possibly in very large doses. Just my $.02
Spain is in real trouble here, folks. Today was calm, but there is still no answer on how they're going to fund the Bankia bailout. Tax revenues are collapsing. Due to those LTROs, as Spanish debt goes down the tubes, go goes these banks' balance sheets. Simply printing money is not allowed in the ECB charter, nevermind Germany's opposition. The ECB itself is already loaded to the gills with PIIGS debt and at some point you have to question the ECB's solvency. If something really clever isn't done by the end of the weekend, next week could be very ugly for Spain and the EU as a whole. Even if the ECB begins bond purchases, it still does not solve the problem of their collapsing tax reciepts and insolvent banks, beginning with Bankia.
Sell in May and go away indeed.
PRECIOUS METALS http://quotes.ino.com/exchanges/?c=metals
August gold closed lower on Thursday as it extended the trading range of the
past two weeks. The mid-range close sets the stage for a steady opening when
Friday's night session begins trading. Stochastics and the RSI are bullish
signaling sideways to higher prices are possible near-term. Closes above the
reaction high crossing at 1601.40 are needed to confirm that a short-term low
has been posted. If August renews the decline off February's high, the 75%
retracement level of the 2010-2011-rally crossing at 1461.30 is the next
downside target. First resistance is the 20-day moving average crossing at
1583.90. Second resistance is the reaction high crossing at 1601.40. First
support is the reaction low crossing at 1529.30. Second support is the 75%
retracement level of the 2010-2011-rally crossing at 1461.30.
Mr K + Shaza = you have your gold covered from all angles
My daugnter's best friend is from Spain...she is about to have her second baby and is leaving Aus to go back to her family...she works in Advertising as an executive...she holds little chance of working there so will telecommute from Spain...she said 50% youth unemployment ...that there is grounds for a revolution....meanwhile IMF head pays no tax!!! Weird...
I have no doubt the EUrocRats will try some sort of Grand Failout Part IV or whatever in the next few days or weeks, to attempt one more can kick in EUrope.
But like I said, the number of AAA rated nations in EUrope who have the credit capacity to back that up are about none by now. If Spain is bailed, it cannot contribute to the Failout, so that just puts more pressure on France and Germany and the few other nations who would have to back that up with their credit.
WHich is likely to lead to downgrades of all, including Germany, which ends the EUro dream right there - Finnland and Denmark aren't going to carry the rest.
If any ratings agency downgrades France, the game is over, as they will not have "2 major ratings of AAA" anymore. Germany will be on the hook for so much of the other nations debt they will likely be downgraded...
COntrary to rumors of today, the IMF has neither the credit nor the green light to bail out Spain - that would require US approval, among others, not possible in an election year. Canada is staunchly opposed, China and Japan have huge issues of their own and aren't going to bail out EUrope...
I don't see any positive outcomes here. Even if they do manage to cobble together some sort of Failout, it won't solve the underlying issues, and won't hold for long anyway. The half life of these interventions grows shorter each time, and is now down to days, not even weeks, never mind months.
Note that the Greece issue has been completely over shadowed by Spain now, but it still lurks, waiting.
If a Greek default on their E 1.3 Trillion of total external debt obligations is enough to blow up the global financial system, then what happens when Spain goes over the edge?
We enter Great Depression II instantly, as few Banks anywhere will survive that. If the "resident sovereign" Governments try to back their banks, they will go down too.
Withjin days or at best weeks, the rest of the PIIGs will follow, down to Davey Jones locker. As will almost every Bank in Europe, then the rest of the world, as they are exposed to other Banks who will be failing too.
They are all carrying debts owed by other Banks as "money good", when in fact, they are not. As ZH sai years ago, every Bank's assets are really just some other Bank's liabilities. THe inter-connected nature of the global Banking system relies on all or nothing, there is no middle ground between solvency and bankruptcy anymore.
If you thought I am somewhat apolacyptic, how about this guy:
ZH: ""The End Game: 2012 And 2013 Will Usher In The End" - The Scariest Presentation Ever?"
"If Raoul Pal was some doomsday spouting windbag, writing in all caps, arbitrarily pasting together disparate charts to create 200 page slideshows, it would be easy to ignore him. He isn't. The founder of Global Macro Investor "previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe... Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes." It is his writing we are concerned about, and specifically his latest presentation, which is, for lack of a better word, the most disturbing and scary forecast of the future of the world we have ever seen....
And we see a lot of those.:"
I am a sunny optimist by comparison. And that guy knows better than me, I would guess.
http://finance.yahoo.com/news/euro-zone-inflation-drops-15-090744272.html?l=1
"ECB, EU officials warn euro's survival at risk"
"BRUSSELS (Reuters) - The European Central Bank stepped up pressure on Thursday for a joint guarantee for bank deposits across the euro zone, saying Europe needed new tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.
The European Commission's top economic official, Olli Rehn, warned that the single currency area could disintegrate without stronger crisis-fighting mechanisms and tough fiscal discipline.
The twin warnings came as worries about Spain's banks and Greece's survival in the euro area pushed the euro to a two-year low against the dollar and hastened a rush into safe-haven assets such as Austrian and French bonds, whose 10-year yields hit a euro-era low..."
Austria & France, LOL some people are dumber than a box of rocks.
Neither a "a joint guarantee for bank deposits across the euro zone" nor a "massive goct boOND buying by the ECB or an official bank bailout that will require a new treaty" is going to do it now, we are past that point.
Those might have worked a year or two backed, but they still do not solve the underlying issues:
Too many years of nations spending more than they could afford, too much credit everywhere that led to too much debt, that will never be repaid, and that is too large to be "guaranteed" by anyone any more. There is not enough credit capacity left on Earth to do the job now.
All of the above is in line with the long forecast progression of the Kondratiev Wave cycle, which is fully on track, towards the real "botom" around 2016-2018. And that forecast assumed all interventions would fail, as they have, and will. Deflation can't be denied after the crack-up boom, as Von Mises said so famously.
Sadly, I see no real place to hide. If you bought gold at prices well below prsent levels, you may hold the line at break even.
Everyone else, who has their wealth in real estate, Government Bonds, or in their own companies or stocks of major companies - not so much. Few majhor corporations will be able to carry on when their Bankster collapses, or won't lend them anything any more.
Ideally, you would want to be working for a Government, and have lots of seniority, as even they will be laying off en masse.
For the rest of us, good luck.
But there is light at the (far) end of the tunnel... it's just a long dark journey from here to there.
It's just our bad luck to have to live through these times.
It's just economics, the affairs of humans, which in the greater scale of the Universe, are pretty insignificant.
Everyting turns around in time, and this Depression will end too. Which will usher in a new era of economic rebuilding and expansion that should last for the following 20 years and beyond, built on new technologies like hydrogen powered cars etc, things which are not even widely thought of yet.
If you bought gold at prices well below prsent levels, you may hold the line at break even.
My attitude is that if gold falls to selling for $100 an ounce in a deflationary world, then a good house will sell for $20,000 (aka 200 oz. of Au) so I'll still be doing OK.
Everyting turns around in time, and this Depression will end too. Which will usher in a new era of economic rebuilding and expansion that should last for the following 20 years and beyond, built on new technologies like hydrogen powered cars etc, things which are not even widely thought of yet.
Trouble is, in the long run we're all dead, as Mr. anti-von Mises said. I'd like to believe your rosy long-term forecast, GAW, even though I won't be around to see it. I do have a child, you know. Except your prognostication does not take into account rising CO2 levels, a planet that cannot support 7 billion top-predator mouths to feed, depletion of oil, fish, forests, soil... The list goes on.
What would be best for the 1% is if 80% of the 99% died. Quickly. If the human population was reduced to 1 billion, that would leave enough working hands to build the Lear Jets, provide chefs for the master-class's mansions, etc. And the 1 billion would suck up the remaining hydrocarbons so much slower. Maybe the bluefin tuna would even be able to make a comeback. Some of the masters are going to want sushi, eh?
If you look at how things are going through a prism of "Maybe the owners just want most of us to die" then all of what's happening makes more sense. The only question is how they can get enough of us to cark it fast, without nuclear blasts. I'm thinking hands-on mass murder a la Rwanda 1994 or an epidemic of suicide would be a popular platform for the 1% to push on the rest of us.
GAW says:
'Neither a "a joint guarantee for bank deposits across the euro zone" nor a "massive goct boOND buying by the ECB or an official bank bailout that will require a new treaty" is going to do it now, we are past that point.
Those might have worked a year or two backed, but they still do not solve the underlying issues:'
No they don't but they buy timemas the US, UK and Japan are doing. Not saying it's a good thing, mind.
Having said the worrying thing is that the ECB balance sheets has already balloned more than the Fed's, and lookm what's coming down the pike.
If you're like me in Spain, you really have to cover all bases. In my case, that means gold, German and Finnish govt bonds very near expiry, the FXE euro currency ETF, a US-based trading account in USD, Swedish kroner, Swiss francs, Canadian dollars, and two snmall small income produxcing real este investments in the US and UK.
I think I'm diversified!
GAW said..."Few major corporations will be able to carry on when their Bankster collapses, or won't lend them anything any more."
- - - - -
A colleague who works in the accounting dept. once told me our employer would not be able to function without carrying debt.
Faced with a choice between letting tens of thousands of businesses shut down vs. printing to keep the banks solvent - can you guess which option the US will choose?
Thanks Mr. K. for your reply; from your answer I take that as long as the instability continues - and if they DO manage a massive euro-bailout - this will drive PM's up.
This morning's jump in PM's appears to be a bear-trap, though.
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