Friday, July 31, 2009

Daily Comment July 31, 2009

End of the week:

Technical Preview:

Talk about being completely wrong on the 3-4% correction. Well at least my trades are still on the right side. Either way, even with the drop it wasn't much of an opportunity to benefit from adding to a position or opening a new one as the drop was only around 1%.


I should have remembered my friend sauros saying the RSI tends to go oversold at least twice before a reversion to the 50 line (parameters on default). With this being said, its hard to believe another correction is in place as if one back tests to mid 2005 to mid 2006 we see a clear up trend and many times that the RSI touched the 50 due to 2 - 3 bearish days alone.

The best indication to see if the RSI is indicating a trend change would be to look to SMA formation. Currently we are getting very strong bullish formation in the SMAs with all the long term SMAs under their shorter terms counterparts.

Back testing in the mentioned time frame from above shows that time periods that the RSI was oversold only led to .8 - 1.4% Drops on the S&P500 in one day and over a few days the largest drop seen is 2% (but this was due to a much longer time frame of the RSI being over extended).

So compared with the past days this week, 7/28 and 7/29, we saw 1.3% and .9% decreases respectively and combined a 1.31% drop (open to close). At this point we will mostly likely see a continued upward trend and the RSI to revert back to the 50 line which means a lot of small down days a head (if continued with lower highs this is more confirmation for a continued bullish trend).


One should watch the MACD carefully for a convergence of averages as this would confirm a 2%+ drop if the RSI is in overbought territory, if not, it is just oscillating from lower highs.


I will put a price target of 1010 until it meets Resistance. Over the next week if the RSI does go on a path back to 50 this will be a smooth trend up. However if the RSI tends to stay in overbought territory a more significant correction of 2% + will be warranted (considering the fundamentals of earnings this scenario is possible).

Inter market Analysis and Considerations:


The correction in oil was beautiful for the bulls. It would seem that ICE Brent Crude is leading NYMEX Crude. Either way both are still confirming bullish moves in equities on a technical level.


EUR correction may have been exaggerated but great support for the bulls, the Pound and Aussie maybe reaching oversold levels and may warrant correction. Watching these two pairs and any affects seen in the equity markets is worth while.

The CAD beautifully went in line with the "equity correction" and bounced off support but is overall still in a down trend (a.k.a dollar weakness).

And again we are seeing a low correlation of the eur/usd vs the jpy/usd of .35 . I still opt out on trading the yen.

Overall, currencies are still in line with a bullish thesis on equities though, some major pairs may question this.

Long vs Short term UST:

US Treasuries are telling an interesting story. From the charts that I am looking at it seems the spreads have tightened. Perhaps this is profit taking from the recent strong performance this past June in the bond markets. Either way if the spread continues to tighten, it may confirm a more significant drop on the S&P500. Or perhaps indicating the overall longer term trend.


Gold is another interesting story, talking to some traders today, some say that the spike in prices today was lead by gold markets.

Some cited possibly a large buyer in the SPDR Gold Trust.

I was considering GDP data as a mover but this would not make sense since GDP was worse off then expected, unless people some how became more bullish on the economy and were citing inflation fears.

If inflation were a driver in this environment we would definitely see a strong sell off in the bond markets and a much larger spike in gold, so I dont think short term movements are coming from inflation worries.


Overall inter-market analysis is telling me to maintain my bullish view. Though, its possible that if equities stay oversold we may get a signficant drop of around 2%, which if the S&P500 is not at the 1000+ levels one can add in or open a new position depending on their price target.

I am saying a price target of 1010 before resistence. At which I will reasses for new trend developments.

Thursday, July 30, 2009

Daily Comment July 30, 2009

Looks like that correction I was talking about came yesterday. But don't buy yet, the markets got room to fall further south. Im thinking about a 3 - 4% drop on the S&P500 before prices bounces off new support of around 940. A buy is warranted at these levels if you are aggressive, if one is more conservative look to trend confirmation since across a few valid indicators.

My position on the EUR/USD took a huge hit today, I have had not time to manage my position between incorporation and interning. Overall my trades are still inline with the bullish trend, but missed out on a chance to hedge or decrease my position.

My GBP barely budged overall slightly down, Along with my AUD position which is a bit more down.

Its a bit too late for the weekly post as most of the exciting action happened yesterday, but Ill post what I can.

Friday, July 24, 2009

Daily Market Commentary - July 24, 2009

Im definitely expecting a short term correction in the Equity, Oil, and Currency markets soon (ie major pairs dollar related).

Monday, July 20, 2009

Market Commentary July 21, 2009

Unfortunately due to logistical and technical issues Group ANLZ could not meet this week. Though I will blog on some big developments that happened this past week and update you on my forex positions and new trend developments.

Review of Last week:


I'm Proud to say our calls on the Financial Sector were all correct, I cite last weeks statement:

"Overall, we expect financial equities to be above or inline with analyst estimates with the exception of C."

Though we were slightly more bearish on BAC and JPM they posted surprises, and GS blew earnings away before and after its release. C of course had lots of bearish news coming from it. Overall the GS news fueled a good portion of the nearly 7% jump we saw in the S&P500 last week (a 61 basis point move vs 14 average true range (ATR)).

Our call on Google was actually correct as well, they cited trouble from having trouble from ad sales but overall beat estimates.

JNJ was the same as they also surprised on earnings.

YUM definitely was also a good call as they also surprised earnings.

NOK however is a different story. Apparently the market feels different than we do. We were correct in that market shares were relatively unchanged, though markets felt that blackberry and iphone were more of a threat than we perceived. Despite surprise earnings this news still loomed in the back ground.

Overall our individual calls in equities were quite decent. We were correct in support holding at 758-877, and we were correct on the initial move up. However we called for a price target of 880+ by the end of the week. We were wrong and markets actually ended up much more significantly higher ending at 940 at the end of the week.


Some Equity Earnings Perfomance Reviews from last week on Financials (Updated July 21, 2009)

The Beast on the Street
By: Patrick Ambrus
July 21, 2009

Goldman Sachs
On Wednesday July 15th Goldman Sachs Group Inc. reported second Quarter earnings. Once again they did not disappoint. Overall Net Income was $3.44B on $13.76 of Net Income. EPS came in at $4.93/share which is up 23.87% (from $3.98) on q quarterly comparison and up 7.6% year over year (from $4.58-q2-2008). The Strength of revenues hails from fixed income, commodities, and currencies trading. Trading in these securities accounted for $6.8B in revenues alone. Also, equity trading generated $3.18B in revenues. Additionally, revenues were strong in the investment banking division Debt Capital Markets Group: $736M. However, Financial Advisory in Mergers and Acquisitions only produced $368M of revenues down 54% year over year. Diluted EPS came in at $5.71/share excluding a one time preferred dividend payout of $426M related to the Tarp. Another plus came as investors received a 23% return on Equity in the second quarter and 18.3% for the first six months.

Other Additional Highlights include Goldman's repayment of the $10B Tarp funds last month. This means that Goldman will still be regulated as a bank holding company by the federal reserve, but the group has the freedom to run its business as it sees fit; especially when it comes to pay. Of the $13.76B in revenues, Goldman Sachs used 49% to put in the year end bonus pool. In total $11.4B has already been earmarked for bonuses. If the record breaking trading profits are maintained in the second half of the fiscal year then each of the 29,400 employees on average could earn $770,000. Take that Capital Hill.

Even though many positive revenue streams exaggerate the euphoria of Q2, there are still underlying issues on Goldman's balance sheet. The firm still maintains $8B worth of exposure to commercial real estate; of which $1.6B in the deadly Mortgage Backed Securities. Additionally, the other $6.4B remain on the books at a value just over half of Book Value. When CFO David Vinair was asked if he expects earning growth to continue he said, "We're in a volatile business."

My Outlook on Goldman Sachs for the second half is Positive. The Group is first in Financial Advisory of Global M&A according to Thomson Reuters. I expect global Mergers and Acquisitions to pick up in the second half as corporations look to buy on cheap valuations. Also, the firm's liquidity rose 4.2% to $171B in the second quarter. This reassures investors of Goldman's stability if the economy were to further decline. Additionally, David Vinair when asked about the firm's Security Services business explained, "Money is starting to flow into hedge funds." Expect this business to increase profits in quarter 3. Not to mention, Goldman paid a $0.35/share dividend to common holders. Undoubtedly, the most important information to consider is Goldman's competition. Last year at this time the firm had 3 more major competitors; Bear Stearns, Leheman Brothers, and Merrill Lynch all of whom no longer exist independently. Less competition means more Profits for The Goldman Sachs Group.
Price Target: $175-180.

Highlights from Citigroup, Bank of America, and J.P. Morgan Chase:

Revenues- $30B
Net Income- $4.3B
CitiCorp- $3.1B
CitiHoldings- $1.4B
Diluted EPS- $0.49/share
Tier One Capital Ratio- 12.7%

-Results include an $11.1 billion pre-tax ($6.7 billion after-tax) gain associated with the Morgan Stanley Smith Barney joint venture transaction, which closed on June 1, 2009

-Total deposits were $805 billion, up 6% sequentially, and flat with prior year levels

-Headcount declined by approximately 30,000 from the first quarter of 2009, to 279,000

-Credit costs increased to $12.4 billion, including an addition of $3.9 billion to loan loss reserves, bringing the total allowance for loan losses to 5.6% of total loans

B of A
Revenues- $32.774B
Net Income- $3.2B
Diluted EPS- $0.33/share (deducting preferred dividents to U.S. Gov. and other preferred holders)
Tier One Capital Ratio- 11.93%

- Bank of America Merrill Lynch ranked No. 1 in high-yield debt and leveraged loans based on volume

-Average retail deposits in the quarter increased $136.3 billion, or 26percent, from a year earlier, including $104.3 billion in balances from Merrill Lynch and Countrywide

-The provision for credit losses was $13.4 billion, flat with the first quarter

-Nonperforming assets were $31.0 billion compared with $25.6 billion at March 31, 2009

J.P. Morgan
Revenues- $27.7B (record)
Net Income- $2.7B
EPS- $0.28/share
Tier 1 Capital Ratio- 9.7%

-Repaid in full the $25 billion TARP preferred capital

-Extended approximately $150 billion in new credit to consumers, corporations, small businesses, municipalities, and non-profits

-Reported record Investment Banking Fees and Fixed Income Markets revenue in the Investment Bank; $7.3B revenue and $1.5B net income

-Return on Equity was 18% on $33.0 billion of average allocated capital


OIL (from previous week):

Congrats to Kell who made the call on oil at 65 towards the end of the week. Oil it highs of 64.83 by Friday, though pulled back temporary during the weekend. More importantly the groups call of resistance of 55-60 held as prices bounced off 60 trading early Monday.


This weeks S&P500 Earnings:


• Cabot Oil & Gas
• Diamond offshore drilling
• Halliburton
• BJ services

• Southwest airlines
• Boeing

International Presence:

• Coca cola
• Caterpillar
• Starbucks
• MacDonald
• Kimberly Clark
• 3m


• Wells Fargo
• Morgan Stanley
• American Express

There are A LOT more in tech and other sectors though we will focus on these. Unfortunately I will not go into individual charts and fundamental analysis since I am limited on time.

Oil Equities:

For oil equities, I don't follow as closely as my associate Pat, who looks at actual supply and demand numbers. Though I will point out that consumer demand is still weak, exports around the world are weaker, I'm sure corporate demand for oil has weakened, and there is relative weakness in oil prices (from around mid 70's from a few weeks earlier). Since the drop in oil prices has been more recent its possible it may not be reflected in earnings, though there should be no outstanding performances in my opinion (I making this call based off top down analysis, no fundamental or technicals involved).


I expect to have inline to a negative surprise in earnings with less consumer demand for travel and increases in savings.

Financial Sector:

We may see similar trends in the Financial sector though, we may see weakness from AE, E*trade, and maybe Wells Fargo.


The international stocks may be an interesting story, as some of them may be mixed.


I will not be making any specific calls for equities since I have done no in depth analysis in each sector.

The S&P500 This Week:

Technical View:


The S&P500 is currently trading in a bullish environment as prices moved 1% + higher. The very important level of "950" was breached today as prices closed at 951, however I am still waiting for a very solid close above 951 to be even more bullish. Its possible if we get a break in 950 resistance we will see 970+ by the end of the week.


However on the whole the RSI is telling me the S&P500 will need to make a new higher low in order to sustain such rapid upward moves. What does this mean? BUY ON THE DIP. A long as prices remain above the previous higher low, you should be buying above that level (ie buy above 877 at this point in time).


The MACD is given full out support of a bullish move up as the short average has crossed above the longer term average.


Arguably you are getting quite a bit of bullish volume based off the Bloomberg charts.

Patterns Analysis:

It is possible the bullish continuation patterns I cited last week (flag/pennant and rectangular continuation) may have been true even though lack of concurrent volume confirmation. It is possible volume confirmation was given way back in early march when the bear market rally ensued (that is if we can even call it a bear market rally anymore).

It would also seem that the bearish head and should pattern I cited was not as strong and apparent for the bearish argument. It would be well worth studying why this is the case for future head and shoulder pattern formation developments (study to see if a new head and shoulder formation is legitimate or not). its perhaps I drew my pattern formation wrong, but this I will need to look into deeper.

For equities, I maintain a short term bullish stance. As the 200 SMA approaches convergence under the 100 SMA I am becoming more and more bullish mid term out. If the 200 SMA stays under the 100 SMA with strong bullish indicators I will have to re-evaluate my long term bearish stance. Though for now I remain bullish with mixed to inline earnings, and short term bullish formations.



Technical View:

I am bullish on oil technically to 70+ over the next two weeks.

I cite:

  • 50, 100, and 200 SMA formation

  • bollinger band expansion to the upper deviations

  • bullish volume confirmation

  • On the downside though, its possible prices will hit resistance around the 70 levels.

    Fundamentally it would be nice to see numbers supporting such a move however, I have not looked into this side yet.



    I'm glad to show that I'm finally making positive profits on my forex positions. I corrected my AUD position and it still had room to the upside which I am currently still profiting from. I thought I had entered short on the USD/CAD which would have made sense considering correlations to the pairs I'm trading along with my overall dollar thesis (currently bear on the dollar vs most the major pairs).

    Luckily I got some charts today, so I will make some brief comments. I will start the EUR/USD which is worrying me right now:


    Currently the price is scratching along and slightly above the upper 2nd standard deviation bollinger band (SD BB). Some back testing shows that prices won't necessarily re-visit the lower bollinger bands, and the MACD if it continues the way it is at, certainly would confirm continued dollar weakness. Though considering that prices are coming to a squeeze it is certainly making me nervous. If I were truly trading this market, I would have a tight stop to secure my profits.

    The RSI may show that prices may dip to the mid bands and continue upward.

    I will maintain my position for now...


    I'm a bit more bullish on the Pound as prices have pierced lower bands and have room to move to the upper bands. RSI confirms further movement north and the MACD is also favorable for the bulls.

    Currently prices are coming to a squeeze, I feel that prices will break resistance levels at 165-166, which may force prices actually to pierce upper BB bands and cause a temporary retracement before continuing a bullish trend up.


    AUD is similar to the pound in a technical sense, though maybe moving of very different fundamentals considering its geographic location in the Pacific Asia. Though on a whole Asian markets are very correlated to US markets and so we are overall seeing strong correlations amongst major pairs.

    It has room to move upward, but may pierce upper deviations, again the MACD is favorable for bulls and the RSI needs a retracement before any continued move up. Which means the Aussie will need to break resistance at .80's.


    The looney is a more interesting chart. We will probably see a bounce off support levels off 1.105 which means temporary dollar strength. This will happen before the support levels are retested. Certainly the MACD says support levels will be broken. It will be interesting to see how this pair plays out, though I am not trading it currently.

    I will continue to opt out of this pair as it seems a bit questionable as to whether it is reacting of oil fundamentals vs. economic fundamentals or some sentiment driven event such as risk aversion.


    I will end by citing Bullish Evidence for the financial markets form a fixed income perspective.

    Stacking the 2 year vs 10 UST:

    Short term yields are diverging from long term yields. The trend has been continuing this way for the past few weeks. This is pretty bullish evidence for any of you green shooters out there...

    To be honest, the markets and economies have lots of crap out there in my opinion, but its hard to ignore all this bullish evidence...

    -Alexander Lê of Group ANLZ

    Asset Portfolio Diversification vs Strategy Portfolio Diversification

    Portfolio Diversification, one of the first things you learn in any financial 101 class. You hear it from the media, your broker may say it, your financial adviser says it, and even maybe your parents say it.

    It is often that this phrase is thrown around, and has been taken for granted over the past few decades. That is until 2008; the year that no asset class was safe from the ongoing “crisis.” Typically, with my limited understanding, since I am no finance student, the phrase is generally meant to hold different kinds of “asset classes” in one’s portfolio to eliminate the risk of loosing everything at once if the portfolio performs poorly. It is even preferred to have uncorrelated asset classes strengthening against diversification risk (if possible).

    Though, I would assume, in a typical 401k or some form of a nest egg, the average middle class American would hold typical vanilla products (i.e. some mix of stocks, bonds, or money market products) and call it diversification.

    Perhaps in the “pre-crisis” era, this form of “diversification” was acceptable, though in a globalizing world this may not be the case any more. (Bear with me while I try to make a point) Those who would like to argue a decoupling theory, I simply point to an event such as 2008, point and case. If those who are still adamant and wish to cite the recent performance of Asian markets, I will point out that the majority of emerging markets are far from being fully developed in order for capital flows to significantly diminish any affect of trade flows. Even if the currently focused emerging markets were able to fully industrialize in the next decade (which is impossible), you still have all of Africa that could occupy the developed nations for well over a few decades. From an economic perspective, necessary natural resources will always have a close intimate relationship with trade flows in a scarce world. This is one perspective I can certainly agree with from a neo-classical perspective.

    The point being, diversification is not as simple as investing emerging markets or simply buying bonds vs. stocks. Simply put, asset diversification may become a thing of the past as the financial landscape is being remodeled in this current day.

    I’m well aware that there is a huge amount of literature on this subject, though I wish to make a point whether this is a well covered topic or not. As hedge funds are making their supposed recovery, a new breed of fund managers are emerging. In addition, we are seeing new asset classes being formed every day, such as hedge fund ETF oriented strategies. Even traditional mutual fund managers such as Charles Schwab are broadening investment vehicles to their clients. Further more, often I hear chatter from ibankers about future changes to front office models.

    Along with all these changes in the landscape, the type of diversification will need to change as well. As I hinted from above, perhaps it is not the asset class that matters, but it is the strategy and philosophy of different funds and financial institutions that will make up the fabric of portfolio diversification. As opposed to picking the assets that are uncorrelated, it maybe more important to solely focus more on a type of strategy a fund employs.

    One may think that if this is the future scenario, hedge funds are best suited to profit from such an opportunity. I will argue that this may not be the case, as again, 2008 showed that hedge funds were just as vulnerable as any other institution (be it for sentiment or fundamental reasons). Hedge funds, more so larger hedge funds, will be more exposed to a lack of portfolio diversification as they are often invested in wide array of asset classes. Even with uncorrelated assets in their portfolio, another disaster could produce similar results as seen in 2008.

    Arguably, it maybe the smaller specialized hedge funds or boutique funds that can benefit from a downturn. Given the right strategy and discipline of a boutique fund, performance can be positive even in the worse case scenarios. Asset class exposure risk is limited as boutique funds will specialize in their niche market, and will rely more on their strategy and be more focused to produce returns. In larger funds, there is an inherent risk of managing many different asset classes as they all require different forms of analysis, risk evaluation, method and approaches, and subject to different taxes and regulation. This is extremely costly in terms of time and capital to maintain positions across many asset classes. The larger the fund gets the larger the risks gets. The risk of managing varying asset classes diminishes if you are a specialized boutique firm. However, I will point out that the larger funds that have survived the 2008 crisis, mainly have survived due to a good disciplined strategy, which was strong enough to out weigh asset class risks. Overall though, performance suffered due to higher exposure over many asset classes.

    Though, I do say strategy may be more important for future portfolio diversification, since two different funds invested in the same asset class can produce varying returns, I do realize that assets are still important since they may generally correlate. An inherent risk in this model is if copy-effects take place in a large number of boutique fund participants, leading to similar sentiment led environments we have today that are reminiscent of expectation-driven models.

    It would be important to stress that fund strategy be unique enough to produce desired diversification results. It is in this context that we may extrapolate that Hedge fund of Fund models (HFoF) maybe best suited to benefit from strategy oriented portfolio diversification. Perhaps this may lead to a new model of Funds of Boutique Funds, which allow for investors to gain exposure to unique varying fund strategies that are specialized in whatever asset class or market sector.

    Whether or not this idea is in the currently literature or not, I feel it is important to emphasize or re-emphasize as change comes about. As investors look for new avenues to invest, diversifying ones portfolio by strategy is well worth considering in order to avoid such herding disasters as seen in 2008.

    Lastly, many of these developments of course depend on the rapid current regulation and compliance changes we are seeing through out the world. Are policy markers competent enough to produce the necessary regulations to facilitate healthy market growth and boost investor confidence, or will they choke innovation that may lead to financial stagnation? For certain, I am hoping for the latter scenario which may lead to new innovations as discussed above.

    -Alexander Lê of Group ANLZ

    Wednesday, July 15, 2009

    Spot Forex daily Commentary - July 15, 2009

    Made some bets against the dollar on MT4 last night on the 14th. Through the day it proved that I made the right call. I guess after I left work the Aussie decided to move out of whack and trade down for the short term opposite to the other major pairs current short term trends.

    Overall, I will be long on the Aussie, and the same goes for the pound. I swear I had entered a short for the looney but I guess I must have hesitated on conflicting indicators. Considering the whole "bear on the dollar" theme I should have just shorted it, though I didn't bother with correlation studies.

    To be honest All pairs are screaming bear on the dollar over the next few weeks. Though Arguably on the EUR we are getting conflict on short term indicators as by the end of the week the EUR may hit highs in the 1.41XX + to 1.42 and then retrace. The conflict being between short term bearish pattern formation versus possible bullish trend developments. Considering the other major pairs and the RSI Id be leaning towards dollar weakness thus confirming the bullish trend develop, and short term indicators just maybe temporary whipsaws out of trend.

    The Aussie and the Pound are definitely trend wise and indicator wise bullish.

    Interestingly we are seeing a fundamental economic divergence between the US economy and the Canadian economy or perhaps oil prices are currently more relevant to the Canadian Currency. It looks to me as if the dollar is set to advance against the looney.


    I apologize for my jumbled thoughts, as I post more Spot Forex Updates Ill be more precise and organized in my blogs.

    As of now, I expect the Aussie to gain back what I'm currently loosing over the next week. While I question the trend of the EUR though it seems to be favorably bullish in relation to other major pairs. The Pound definitely has room to continue upward into 1.65.

    For now I'll opt out of the CAD. The yen I also will opt out of since its correlation is out of sync right now.

    Hopefully tomorrow I can provide some charts and annotations.


    Terrible mistake on the AUD I used the shortcut key and entered a short vs a long. Luckily this is all on paper only. I know one of my friends have entered real trades opposite to what he wanted even though his analysis and call were correct. Goes to show how carelessness can lead to disaster. Even though I was just playing around and was only trying to catch trends and swing in a sideways market, this experienced how serious and how much concentration one needs as one tiny mistake can ruin it all. These are the benefits of paper trading, a good lesson learned that I will carry with me for the rest of my life.

    Monday, July 13, 2009

    Market Commentary - July 13, 2009

    Yesterday Sunday July 12, 2009 Group ANLZ held its first Market Discussion.

    We mainly covered the oil markets and S&P500.

    Continuing from last weeks commentary we believe that S&P500 will hold support levels on mixed earnings from top names mainly:



    Health Care:








    There were other important earnings that could potentially move markets, though we choose to focus on these main 7 equities.

    Without going into much detail:

    Technical Health

    Bullish stocks:

    1. GS
    2. JNJ
    3. Yum


    1. C
    2. GE


    1. BAC (slightly more bearish)
    2. JPM (slighty more bearish)
    3. Nok
    4. Goog

    Fundamental Health:


    Again we only briefed through some of the financial statements. We felt GS earnings would be best of the financial this week, we cite their ability for their workers to be paid an average of $65,000+ despite poor conditions in the financial sector. Unless management is rotting within, such a decision much be supported with stronger earnings.

    For JPM we felt their commercial side would be supported by increased personal savings (unfortunately we did not get to look at quarterly reports to see if deposits and loans had increased). Though the chart for JPM was quite questionable.

    For BAC we felt that personal savings would also support their commercial side, and we cite that BAC holds 14% of Americas deposits. Though we felt that management within BAC is questionable and the Merill Lynch acquisition maybe a drag in the short term.

    For C, we felt poor management, poor culture, and an unhealthy chart were all reasons to be bearish on C. Though one may make the argument that lots of capital flows going to Asia may have supported their business. However, we know on the C in China mainly functions for corporate banks and may not be well positioned to advantage of any deposit growth vs the larger Chinese banks.

    Overall, we expect financial equities to be above or inline with analyst estimates with the exception of C.

    Health Care:

    We felt JNJ overall with its broad base involved in many industries should perform well. If anything be inline with analyst estimates.

    Retail and Tech:

    We felt Nok and Yum would give some insight into broader markets as they are well positioned in all regions Americas/Euro/Asia Pacific. Though Nok maybe facing tough competition in Americas it certainly should be holding up in Europe and Asia. Yum despite it being on a higher standard in Europe and Asia for Pizza Hut, other major names such as KFC is standard. From a micro perspective, Yum can be seen as a normal good, so in this recession we feel that Yum should perform inline or above estimates.
    Though there is the risk that commodity input prices may have cut into earnings, but commodities are starting to stall with the past few months weak dollar and may lead to some improvement in the third quarter (though we cite a weak dollar in the thrid quarter may not bode well for their 4th quarter earnings).


    We felt goog is having a tough time with their ad sales, but in general we do not see a huge lost in market shares and possible support from their android business segment.


    GE we feel is just a bad stock and technically is ugly.

    On a whole we see mixed earnings with some of the bigger neutral names being announced towards the end of the week (JPM Goog Nok)

    Mixed earnings may lead to more sideways trading on the S&P500 along with support holding at 875-877 (depending on your view). Currently the Risk/Reward profile remains in favor of the bears, though arguably there are convincing evidence for both sides.

    We would also like to cite very quiet volume these past few weeks, though mid may there seems to be looks of bearish/bullish volume seen in different individual stocks. Though on a whole for the index trading volume is quite light, which may lead to further evidence of support holding.

    To see a technical analysis perspective CLICK HERE

    Price targets are at a low of 880 to high 885 (out of 3 analyst estimates)


    Crude Oil:

    All in all due to a high correlation in oil markets we see oil bouncing off support of 55-60 and ending up around a low of around 57 and a high of 65 with the average estimate of 61 (2 out of 3 different analysts' opinions)

    For a brief technical view on oil"CLICK HERE" and scroll down to the oil section (towards the bottom)

    Natural Gas:

    Due to the recent low correlation between oil and natural gas we opted out to forecast in the futures market. However, we are seeing different dynamics in the ETF market where possible regulation limits and speculation are pushing NG higher. On a whole UNG NG is far from is 52 highs, and may find support of around 12-13. For the whole market NG has been the winner along with retail this past month in June.



    Where is Oil Going?
    By: Patrick Ambrus
    July 14, 2009

    Price volatility:

    Where is the price of crude oil heading? As we exam this, the first thing to keep in mind is oil’s rise to almost $73.50 from $30/barrel in the first quarter. This is the biggest quarterly price rise in 19 years (since 1990), up 41% in quarter 2. Also, see the sharp two-week price decline to the current $59-60 per barrel. This is important in showing how volatile this commodity has been over the past two weeks. The key is to figure out if crude is a supply or demand story.

    Another piece of information on oil’s price increase to $73.50 to retain is the story of the rogue trader at PVM. Apparently on Tuesday June 30th at the 1 p.m. (NY) there were 16M barrels traded, an unjustified amount, which led to a $2/barrel price increase. Many traders became weary and by the end of the week combined with the jobless claims the sell-off began. The rally was killed before it had a chance to take off.

    Supply and Demand factors:

    First let us exam some economic numbers: On Wednesday July 1st Crude inventories fell by 3.7M barrels/day (1%) to 350.2M b/d. If the supply is cut why does the price continue to decline? We took a closer look into the industry to see what oil refiners are saying about supply. XOM, according to their most recent SEC filing, capital and exploration spending increased from $5.5B to $5.8B last in the second quarter (5% increase).

    On the demand side, the International Energy agency claims global demand for light-sweet crude will decline 3% in 2009 from 2008 levels. This is the most severe year over year contraction in demand since the 1980’s. Also, since the Jobless Claims (615.25 jobs lost) came out on July 2nd, the price has declined from 69.32 by 13.73%. These stats suggest that demand among consumers still may not have recovered. Which says more about the recovery of the U.S. economy as a whole.


    On June 7th 2009 Gary Gensler of the Commodities Futures Trading Commission proposed to place “speculative limits” on futures contracts. Specifically, He wants to limit the volume of contracts that pure financial investors would be able obtain. Mr. Gensler also announced his agency’s intentions to secure disclosure on aggregate trades from hedge funds and financial traders. Long –term this type of regulation may push activity out of the oil and commodities markets while traders speculate in less regulated markets (derivatives anyone?).

    In his budget, Barack Obama included cap & trade legislation, which would make large corporations such as airlines pay for the right to pollute. This will force airlines to spend more money (which they don’t have) on new technology and penalize them for using crude oil. This legislation could severely affect the demand for oil in the U.S.


    Short-term (2 weeks) I see a target on crude for $55-57/barell on New York trading. This has more to do with economic factors than anything else. If the markets do not believe in growth and inflation from underlying economic and or financial reports there will be no demand for higher prices. Additionally, there has been a very strong pairing between Crude and the S&P 500 over the last two weeks. I believe traders are waiting to see signs of recovery in the equity markets before crude prices go any higher.

    Long-term (2-3 months) I see a price target of $75-80/barell. Much of my opinion is based on a recovery in the economy and the equity markets. Already, 3rd quarter earnings have been solid with Alcoa, Intel, and Goldman Sachs. This leads me to believe we will find positive equity market movers in the next few weeks. Additionally, jobless claims and unemployment should begin to ease as Obama’s Stimulus money is digested. Hence, I do see rising inflation in the 3rd and 4th quarters.

    Authored: by Alex and Pat
    Contributors: Kell and Clark

    Please comment for questions or concern, or if you have other questions you can contact us at

    Thursday, July 9, 2009

    S&P500 Daily Comment July 09, 2009

    Well it seems that some things are clearing up, but no absolute clear signals for up or down. But my inklings are making me want to learn a bit more bullish mid term . The high risk of the downside makes me wonder if a drop is necessary before a continuation in bullish pattern. Though however it seems that if things do go bearish it would need to be longer than short term, hence still the unclear picture. So let me clarify...

    Trend: (neutral)
    Trend is a big "?" mark ... From 4 Quarter 2009 until present, one can say there hasn't been much of a change.

    Lets take a look at the general trend 2008 and 2009. Yes the S&P500 dipped below 700, but its only recently was about recover gains from the begging of the year. In the bigger picture there is no real strong trend in place, arguably sideways accumulation (one can also argue short term bear market rally from march as more significant, but Im considering a wider scope).

    SMA action: (short term: bearish, mid term bullish, long term is showing signs of possible bullish moves)

    Evidence to this downward - to side ways accumulation is seen by the SMAs. Starting from June 2008, short mid and long term SMAs (50, 100, and 200) are all above prices until Mid march 2009 ( 200 over 100 over 50 = bearish). Which is when we get this bear market rally and mid bear market rally we get prices crossing above the 50 and 100 SMA. The 200 SMA managed to stay under prices for the past few weeks but currently is facing a huge battle of staying under or above prices.

    Here's my final interpretation of the SMAs 50 SMA is above the 100 SMA which means this is more bullish mid term, however currently prices are above the 50 SMA which means short term downward pressure. OVERALL the 200 will seem to be the big decider. In a few weeks out it seems that the 200 SMA will cross under the 100 SMA making things even more bullish. Though short term risks can change the 200 SMA path.

    If Friday can close out above the 200 SMA strongly this may mean shorting at these levels maybe a bad idea.

    (arguable bearish short term, I say overall useless)

    I tried using the RSI as indicator for ideas of momentum and it seems that in the short term it confirms a bearish pictures(not over the next few days, but maybe into next week or the week after). Though on a whole back testing shows the RSI is not the best indicator for precise trend reversal signaling.

    Support/Resistance: (support: bullish)

    my 877 resistance level held! On supposed surprise news on Alcoa earnings, the bulls came to defend the level (close of July 7th). Through the day I assumed that the 877 level was going to break, which would have made me much more bearish since this would mean prices closed under the 200 SMA strongly. However, this was not the case, support held and the 200 SMA is neither above or below prices.

    seems to me the mid term telling me to be more bullish and the short term is a big "?" mark. After friday's close hopefully some of these indicators will be more clear.


    Ill present two patterns that can point to more bullish signs, though unfortunately they have questionable volume confirmations(no strong volume accompaniment, though one should consider that you won't always find textbook charts in the real world situations)

    Pattern 1: Flag/pennant continuation pattern (bullish sign - though lack of clear volume support)

    Pattern 2: (can be read bullish or bearish) rectangular continuation or rectangular ... FAIL

    I point to the abnormally large bullish volume (the first circle)in mid June (June 19th I think?) . Too be honest I don't know where this volume comes from since the volume on shows something COMPLETELY different. I even tried playing around with the parameters but apparently Bloomberg's volume doesn't match up with stock charts (its probably because I'm making some noob mistake in setting up the volume parameters).

    Assuming bloomberg is correct in its all mighty powers, then this volume for surely points to possible confirmation on any bullish pattern formation!...


    To be honest, I won't be pulling any buy triggers from these signs due to lack of clear volume confirmation and questionable indicators as from above (see table charts)

    Though take them for what they are worth since they maybe true!


    I'm now going to throw down the more solid evidence for bulls. I do EMPHASIZE however, the downside risk remains significant for the short term.

    Chart 1: (CO1 ICE brent, very similar and highly correlated to NYMEX crude CL1)

    Now some of you maybe wondering why Im thrownin down the oil charts. Well some view markets as currencies leading commodities and commodities leading equities (or equities leading commodities?). Well whatever the arguement is, the oil markets maybe sending early signals of a bounce off support of 60 or if more bearish 55!

    SMA action:

    Oil SMA action is much more clear, 200 already crossed under the 100 and the respective order of 50 over 100 over 200 is in place. The only thing is short term downward pressure of price being below the 50 SMA. Though overall more bullish in all time frames.


    RSI is a much indicator for oil and it tells me its about to enter over sold conditions or bounce of 30 (it will go oversold if we see 55 support holding). On the whole more bullish.

    All these indicators tell me oil is going to rebound off a short term support be it 55 or 60.

    So how does this affect equities?

    with a .8135 correlation, that's how!



    I was doing very brief currency analysis as I finally learned how to take advantage of technical features on bloomberg! It seems to me all this dollar strength we have been seeing (possibly causing the S&P500 to trend sideways and oil to dip to new support), was really only the dollar trending sideways. On a brief analysis it looks like the dollar will continue to be weak well into the 3rd quarter!

    So if we get Dollar weakness 3rd quarter (which will lead commodities) we will see oil strength and equity strength as well.


    Again I stress that its probably better to be conservative and wait for bearish indicators to disappointing as the risk is still there, but the bullish evidence is getting more compelling as I analyze more.

    Obviously, today would be a great opportunity to buy if you were long or to short if you were short.

    But don't jump the trigger my fellow traders, stick to the discipline and wait for a trend to develop with the appropriate confirmation signs!

    Monday, July 6, 2009

    S&P500 Weekly Market Commentary, July 6th, 2009

    Chart 1


    Chart 2

    july 9 2009 resistence levels

    Chart 3


    WOW my gosh, these are some of the most interesting charts I've seen on the S&P500 in awhile, the amount of conflicting patterns indicators and trends are making my head spin. These apparent mismatch of signs are clearly reflected in the bull/bear fight that has been going on. The markets have been undecided as to where to take the S&P500 over the past two months.

    One thing for sure a big move is on the way whether it be up or down.


    The best part about technical analysis is the interpretation. One can interpret charts in so many ways, and clearly today's chart exhibits this.

    Firstly I will point to chart 1:

    For the past two months the S&P500 has been trading in a sideways range of around 877 and 956. This is clearly showing markets indecision of recovery is really hear or if the markets should head lower. This blog entry will go over both bull and bearish arguments from a technical perspective.


    • Support at 877 has held for the past two months

    • The 200 SMA is still strongly under price action <--- quite compelling

    • The two bottoms on June 23 and July 6th are higher lows (893 and 898 vs lows from may 15 and May 22, 882 and 887 respective)

    • Given that support holds the RSI bottoming soon will be inevitable unless you get over exuberance in negative sentiment and RSI gets oversold (though back testing the RSI shows that even in high crises mode the RSI only dips to oversold levels a briefly; 3-4 times over the past two years; and currently sentiment doesn't point to a strong negative oversold moves)

    • Last but not least I point you out to chart 3, a failure of bearish sentiment July 9th (today), right above support levels. The bears fought really hard as seen by the long lower shadow, but however bulls regained step by the end of the day.

    • -------------

      BEARISH VIEW: (I will have to say the bearish view presents equally compelling evidence)

    • I will point out volume first; some basic back testing on volume shows that this current volume trend may be quite bearish. Looking at the bear market rally in early march we see an abnormal spike in bullish volume (see chart one - around march, the first blue circle). As follows the volume trend peaks off and we get a full out rally in this time frame (March all the way to mid may). Then we get another huge abnormal spike in volume, but in bearish volume (second blue circle mid may), and as follows the volume tread peaks off, however leading to an indecisive market. Considering the spike in volume was bearish and abnormal this may show that a downward trend is about to start forming.

    • Scarily, we get a pretty strong confirmation pattern inline with the volume trend. Looking at chart two, we see a pretty clear head and shoulder reversal pattern. What is key support is in the bullish argument, will be the confirmation bearish sign; as if prices go below the neck line we may get a full out trend reversal (I don't have much experience in pattern analysis, but this seems pretty cookie cutter text book to me).

    • back testing on the MACD shows that prices can go much further; if prices do break support at 877, I see new support levels anywhere between 800 and 877 as shown on chart 2. This leaves a huge skew on risk/reward profiles (quite dangerous to trade the S&P500 right now).

    • given worse case scenarios I see a risk/reward profile of about 12.25/6 . A potential gain of 50% of what could be lost! (given 952 as the resistance level seen in chart 1). This is not very appealing at all for the bull's.



    If one were a brave soul given the risk/reward, he or she would be shorting the S&P500. For myself, I would do no such thing as there is short term potential upside as seen in chart 3 (green circle). Today's (July 9th) sentiment was positive; good confirmation would be to look at 1. the vix and or 2. the S&P500 futures (no time to go look at these, I need sleep!).

    Looking at the SMA's;the long term seems to paint a bullish picture with the 200 SMA strongly under price action (this contradicts my long term bearish stance on the S&P500; perhaps I got my analysis backwards and it is more appropriate to be short term and medium term bear and long term bull; which would mean we are in recovery mode thus confirming green shooties! WHAT!? <-- lets hope that I certainly am not wrong about being bear long term since I totally do not agree with what these green shoot economist are saying!)

    All in all if one were to play this as a true technician, it would be appropriate to be more bearish short and medium term, especially with confirmation from the 50 SMA being above price action and the 100 SMA being below the 200 and 50 and well below price action.

    For my forecast:

    I will sit on the side lines and wait for a clear trend to develop before making a full out stance. Though I will say this for price targets:

    Bearish: 800-877
    Bullish: 952 (1000+ if we get a break in resistance!)

    This will be a very interesting week.


    Wednesday, July 1, 2009

    S&P500 adjusted for inflation - "Secular Cylces" - July 1, 2009

    My My, what a very interesting chart I came across reading on rizholtz "The Big Picture; this chart is originally from TheChartStore.

    From my university studies I understand that, if my memory on index construction serves me correctly, this chart takes the S&P500 Index and deflates it with a price index (the CPI index), to get real values (since all neo-classical economist are interested in "real" stuff).

    Aside from all this basic technical blabber, the implications of this chart are quite profound if we are indeed in a current "Secular Cycle." As the chart explains "Secular Cycles" are "a series of cyclical ups and downs." For example, "the crash of 2008" is merely within a secular cycle that started from the crash of 3/31/00 (look on chart). So if this is really the case, arguments of V shaped, W shaped, O shaped, Z, A, B, C or whatever shaped recovery analyst are speculating about, can be quite irrelevant (if this secular scenario is true).

    From a technical analyst standpoint, its very possible that this current market is finding a bottom and starting recovery. However, considering the time frame of the secular cycles this could be a very prolonged recovery that happens slowly. Which means, this leaves room for short term (year to year) downward movements. However, as long as a bullish higher high and lower high can be established, recovery maybe surely in track. The problem is seeing such long periods trends is very difficult as we are all affected by the short term data and the happenings of the now.


    *Historical note:

    1st. Secular Cycle

    From a historical perspective, these secular cycles occur during some of my favorite periods in economic history. I'm not sure what happened in 1906, but this is right in the middle of the start of late industrializors such as India, Japan, and Russia. Of course one of the peaks of the secular cycle start with 1914 World War I. Post WWI all the previous nations mentioned suffered from post war depression. With huge decreases of demand, rapid prices falling in agriculture and manufacturing.

    Though fortunately the during "interwar" period there was recovery, in the United States I'm not sure of exactly how they recovered, but Japan exported there way outta the depression (to no surprise, look at their current situation today with reliance on exports; score one for the school of dependency!). Russia with the whole scissor crises arguably "squeezed agriculture and forced" industrialization (huge debate in the literature I won't bother to get into the details). Towards the 1930's India managed to gain some tariff autonomy and enjoyed temporary gains from ISI (though again this is also arguable). As we see most of these nations experienced a recovery to similar to pre-war levels give or take a few (in agriculture and industry, though in Russia Industry growing much faster). All this is enjoyed up until 1929; this we can call the first "Secular Cycle" that ChartStore choosed to point out.

    As we see the first secular cycle can be said to included two major events in world history.

    * World War I
    * The Interwar Period

    The Second Cycle:

    We all know as 1929 hit we see the infamous Great Depression. The literature on this event is huge! The effects of the great depression had profound world wide effects with the birth and death of new institutional order (anyone want to argue this? can the great depression be constituted as an Olsenian shock?). The second great event seen in this "second secular cycle" would be World War II. Post 1945 we see a slight depression, but then leads into that Famous uptrend post 1945 that we always see in our highlighted Macroeconomic 101 text books (approximately 1949 to the mid 60's as seen on the chart).

    As we see two great events in world history for this "second secular cycle." :

    *the Great Depression
    *World War II

    The "Third Secular Cycle"

    I'm quite unfamiliar with this part of history though I know enough to perhaps to throw a few ideas around. In terms of world implications I'm not sure, but certainly the Oil Crises and the Vietnam war were big factors within the "third secular cycle," in the United States. One of the words that gets tossed around in this period is stagflation, also this is the time when central banks were like little babies exploring the new world order (look at the monsters they turned into today, from concerns with stable growth, price stability, and healthy labor market, to getting their hands dirty in politics, regulation, and world policy and much more...)

    I haven't studied the economic effects of the Vietnam war, but I can only imagine the huge drag on the economy it must have been. Though, the cultural imprint they left on Vietnam, may have left traces that could have contributed to Vietnam's Current economic position today (I'm sure there's a literature on this but I haven't explored it).

    I will point out a few things for this "third secular cycle" :

    * Oil Crises
    * Poor Monetary Policy may have exacerbated the economic situation
    * Maybe the Vietnam war had negative effects ( maybe examine the cost of the war of as a % of GDP?)


    If we are indeed in a 4th secular cycle I can certainly list a few events contributing to this cycle.

    * Obviously the first would be the tech bubble crash
    * The housing crises would be the second big one

    Subprime, the Credit Crisis, systemic damage... I would probably categorize all of them as sub categories under the housing crises.


    Final Thoughts:

    At this point, if the secular cycle ideas/theories/hypothesis are indeed true, it is only a matter of fundamentals working itself out over the short/long term (over the next few years), before we get a nice sustained long rally in the S&P500 (rallies similar to 1875 - 1906, 1949 - 1968, and 1982 - 2000).
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