Babak's Journal

Status
Not open for further replies.
Looks like the indices are setting up for a false breakout (out of the so-called wedge) . I think often times when there is some patterns like that taking weeks to unfold the market will breakout one way only to trap more traders then reverse sharply. The charts today look strange though I don't know what to do. I think the bulls are not going to give it up so soon and will try to rally weakly to retest. I was just looking at a quartely chart of the US markets, if this is a bear flag I see then we are going to have another huge free fall.

Funny you mentioned HTLD Babak, I have been watching this one for a long since Tuesday but stayed away as it seems this stock had a tendency to print bullish patterns and then drop. I started looking for individual stocks, knowing it has been my own contrarian indicator (that the rally was about to end) nonetheless I took a small position into another stock (CELL) and sure enough it's not doing what I expected.
 
Not much new really. Things are just playing themselves out.

The BP% for Nasdaq is at a 6 year high (56.85) slightly above its usual resistance level of 50-55. The NDX BP% is at 77, almost at its resistance line of 80.

There is a lot of bullishness and complacency (in light of the recent small declines today and yesterday) as expressed in the listless VIX. Traders are completely secure that this decline is temporary and limited to be followed by higher levels.

As I mentioned the bond market is giving a big signal here but I don't think people have really been noticing. By the way, a good way to play the bond market is through ETFs (thanks to Deron for pointing this out to us) like LQD, TLT, and SHY. If you think the market (stock) will crash and burn, you want to be long these babies.

According to Lowry's, there simply isn't any selling pressure. This confirms the wedge definition of E&M where it isn't selling pressure that causes a wedge rally to implode, but rather a petering out of demand.

What else? the transport sector is beginning to droop, but will it continue? I mean is this "it" for the transports? Could be, who knows?! :) All I know is that this smells like a top.

Finally, I'm paring my gold positions as I believe that we are going to see either a pause here or a decline in gold shares in the coming weeks.

Don't get me wrong!

I am not abandoning my thesis that gold is in a secular bull market (probably the only around right now) that the dollar is headed for the crapper and that Greenspan will go down in history as the worst Fed chair in the history of that institution (and may even cause its dissolution).

No, its not that at all, I'm just thinking that I can be nimble enough here to preserve some hard earned profit from the March call. I'm going to be reducing and eliminating my gold position (hopefully!) into strength as some of the best gold stocks start colliding with resistance levels. Some good examples are IAG, RIO, GSS and GLG.

I do have to say that DROOY has been surprisingly droopy. I thought since it is one of the highest cost producers, the price of gold would propel it much, much, higher. But that simply hasn't happened [sigh]. This may be due to some political infighting at the boardroom level or it may be something else. :confused:

It is altogether possible that I am wrong and gold (and its stock cousins) will rocket ahead through this resistance. If that does happen, I will probably say something like Doh! and check to see if it was on high volume and check at the level of the k ratio and then maybe go long again.

Just may happen. :)
 
What do you think is going to happen on Monday? The charts are really bullish short term here, despite sentiment indicators being bearish. Looks like the Dow is finally going to break out. VIX broke to new lows. Unless something unexpected happens over the weekend I think there will be a rally on Monday.
 
someone writes:

"Babak,

A terrific journal....keep it up."

How is a journal that's consistently WRONG, a "terrific" one?

Babak's been calling for a sharp drop for weeks now, and the market SLOWLY MOVES UP.

How much MORE wrong can you be?
 
Quote from Jesse J.:

someone writes:

"Babak,

A terrific journal....keep it up."

How is a journal that's consistently WRONG, a "terrific" one?

Babak's been calling for a sharp drop for weeks now, and the market SLOWLY MOVES UP.

How much MORE wrong can you be?
More...

Roughly translated: "Why are you guys paying so much attention to Babak and so little to me?"
 
Just a few thoughts ahead of the week:

The Fed is in full inflation mode, which is like saying Jabba the Hut is a might peckish. Greenspan and his minions are vowing to create inflation no matter the methods or the consequences. I don't know about you but I get a picture in my mind of Greenspan as a father with an apron on covered with strained peas glowering over a baby high chair screaming "Swallow damn it. SWALLOW !!"

The Fed has been injecting an incredible amount of liquidity into the US economy. For the week of April 28, the boad money supply (M-3) has increased by $55.4 Billion.

But is anyone noticing this frantic priming of the pumps?

The bond market is. Take a look at the long bond over the long term it looks like a descending triangle. It looks like a child jumping up and down on a glass floor with increasing rapidity.

The currency market is also noticing what the Fed is doing. With every downtick of the dollar, it become less and less rewarding for foreigners to hold or buy US denominated securities. The US indices look absolutely horrendous to a European. For them to be rewarded, the markets must rise even more to compensate for the currency weakness.

An indicator that a lot of people pay attention to recently is breadth. It has been improving, which excites a lot of bulls. But I don't think that you can lay the responsability on a new bull market. Rather I think it all comes back to the bond market.

The NYSE is chock full of closed end funds which invest in fixed income (corporate, intl, convert, munis, and junk bonds). And as these CEF respond to the same forces as their underlying holdings, they rise in price, pushing up the AD and effecting everything from the breadth to the M Oscillator to the Summation index. These fixed income CEfs have been going absolutely haywire (take a look PPR HSF BPK etc...). Does that explain the stretched levels on these indicators?

I'm trying to get a hold of common stock only breadth numbers. But they are rather difficult to find. If anyone has them, please share and enlighten us.

Another interesting thing to note is that some European markets seem to have exited from the wedge formation I mentioned before (Amsterdam, CAC40, DAX and Mibtel). But this could be a false break down as they probably will rally on Monday to catch up with the late Friday action in NY.

And finally, in Barron's this week there was an article from the Tech Guru at UBS. It is a rather lengthy interview in which he goes on at length into what he sees happening in the future (5+ years) in terms of disruptive technology. I don't know about you, but I had a good laugh at the sheer audacity of the fellow. I suppose he is trying to earn his keep. But who is to know what is coming down the pipeline? Would a disruptive technology be desruptive if you could foresee it?

Conclusion? Bearish and patient. :)
 
Lowry's includes a chart of NYSE operating companies A/D. This excludes bond funds and preferreds. It has been in an uptrend since early March.

The A/D line for all NYSE issues, including closed end bond funds and preferreds is on a much steeper ascent, as you said.
 
Quote from Babak:

An indicator that a lot of people pay attention to recently is breadth. It has been improving, which excites a lot of bulls. But I don't think that you can lay the responsability on a new bull market. Rather I think it all comes back to the bond market.
More...

I imagine you're familiar with the AVDV differential, that is, the difference between volume of advancing issues and volume of declining issues. This provides a more accurate picture of what's going on with regard to breadth than simple advancers and decliners since it measures, to put it simply, the power behind the move rather than just the move itself.

In any case, the AVDVd for both the Comp and the NYSE have been lagging badly. This is the weakest type of divergence, but I've tracked it for more than a decade and have found that it's worth paying attention to.
 
Status
Not open for further replies.
Back
Top