Posts Tagged ‘US Markets’

Stock Market Crystal Ball

Posted: September 25, 2014 in Uncategorized

How many times we have wished for a market crystal ball.

I found this amazing chart that shows the expansion of Federal Reserve Balance Sheet and the US market behaviour.

Every time a Quantitative Easing, the market drop with a maximum time laggard of 3 months.

As Quantitative Easing is ending (unless something weird happens…it is almost October!) the 28 October the end of the Bull Market is somewhere between November 14 and February 15. I would think end of January!

Capture The future

Now we are in June, with July, one of the most risky period for the market.

From April, in the US, there has been a constant flight to safety by the various managers (they practically moved from small stocks and tech to large SP500).

We are also at the highest level of Buyback ever (beating even the last top…casually 2007) which “fakely” improves the earning per share and also decreases the number of shares available.

This makes the SP500 go higher…but in a risky way

So we have several divergences.

-Higher SP 500 / low volatility and stretched valuations / very far from the moving average 200

-Lower Russell 2000 with high volatility

– Nasdaq very volatile

– Bond indicating a much weaker economy than the SP500 suggests.

In the last 56 years, when this situation happened the SP lost between 12 and 18% between June and July.


The market is setting itself up for a kill (like the old James Bond movie). As you can see it has attacked three times Area 1,670. Usually it takes three to five times to take on a strong support. There is also a different action this time. The other two times, the last 5 minutes someone saved the boat (green lines) …this time the last 5 minutes  someone sank the boat.

The market now, to tell you the truth, is in neutral now. But below 1,670 there are the algorithm based machines programmed for automatic sell with target 1,625 (for Australian ASX200 4,927).

Personally I think that the market has been very complacent with the US Congress and their stupid squabbles and now is just to sound a wake up call. A view to a the graph shows 


Well today we have the first day of an extremely strong “end of rally” market signal. The SP500 broke its 50 days moving average. Now if tomorrow the market close under 1,670 (or DJ30 14,920)there is 80% chances we go and see at least 1,627 again -very fast.

The issue is as usual is the Tea Party in  the US Congress. The very big issue is that the political position of the two factions is even farther apart than in August 2011 and that the Republican Party is not anymore a cohesive structure with Boher at ransom of of the Tea Party “Taliban”.

The “Tea Party” is a far right accolade that is against the “big business” (including the share market, logically) as they see the 2008 “Mother of all bailout” a bailout of the culprits of the crisis (big business and banks) and let down of the normal people.

As you can see it yourself, they have a point as it was exactly that. But you can say you cannot save the normal people unless you save the institutions that make our economy work. Unless you want to change the system entirely.

I found this beautifully written article on The Game Theory and Washington, well worth a read and explain very well that, as in a proper US Movie, the countdown to financial apocalypse is 17 October. Will the US President save us. Probably so!

So they tell you that this is the free market …the reign of the capitalism!

As usual they tell you lies. Two weeks ago someone sold at market minute and 30 seconds after the close of the US market a position worth 1/3 of the volume of the previous day. As the index was closed it has not been registered.

Yesterday happened the inverse as it shows in the graph posted below. In the last 5 minutes someone bought so much that moved the entire US index by 0.4%. Long live the free market.

So what we do about it? Play the game. This (and also the looming real battle on the Ceiling Debt) will be a buy opportunity. Probably not now…let the US Debt Ceiling pass.

But be wary that soon or later someone (if you think about the size of the move you can find the guilty) will lose control of the markets. Not now, not soon…but it will happenImage