Sit On Your Hands And Wait For The Axe To Fall

April 12th, 2012
in Gary's blogging, Special Post

Some financial analysts say we are at the top and others are promoting a simple pull back while one yesterday predicted the SP500 was going to 800. I just love these articles as they claim their crystal ball is more accurate than mine, such foolishness. Having said that it would be prudent to pause on the side of caution. Most pundits do believe we are going to have a heck of a time moving past recent highs made in early April and that a 4 to 5% correction is still a real possibility.

My own predictions are more bearish for many, many reasons I have repeatedly stated in my articles here. Now is NOT the time to jump in and go long; that much is certain for the executioners ax is poised to drop. Going short now may also be an unwise choice because of the gambling aspect of this casino market of late. Just this morning we have witnessed the market rise unexpectedly to wipe out all of the losses from Tuesday's 'crash' as the 'Dippers' buy up what is left of that pull back.

You are probably wondering what I would do?

Follow up:


First of all I would wait to the end of April on deciding on any moves now, long or short. If the current short term trend again turns negative and dip to the1300 area, the possibilities of making a sound long position become much better. Otherwise, the end of May is another horizon in considering going long. Remember the saying, "Go away in May" and may the odds always be in your favor in this manipulated financial casino may be excellent advise. For now cash is king and you have to be prepared.

Today, and what we have been witnessing for the past 3 months, the continued low volume or lack of investor participation, is killing the market. This leaves the 'manipulators' to mold the market anyway they want as we have seen so far in this session. Every prediction worth its salt is base on volume and lots of it. Until we see that happen, this market is a dead issue, unless you like to gamble of course.

On the other side of the coin one needs to add a bit of reality to keep the ship from listing.


Is Papa Bear Back?

by Rick Ackerman

A few consecutive days of hard selling does not a bear market make, but it’s heartening to see that stocks are still capable of deferring to reality – in this case, weakening corporate earnings. For what it’s worth, the sharp decline has produced the first bearish “impulse leg” that we’ve seen on the S&P 500’s daily chart since last November. This triggered a negative warning according to our proprietary Hidden Pivot Method of analysis. Although the weakness does not necessarily portend the onset of a major bear market, odds of this will increase if, for one, the E-Mini S&Ps smash the key low at 1332.50 recorded on March 6. This is shown in the chart below. » Read the full article

However, the 'weakness' is out there, hasn’t gone away and one would be foolish to ignore these issues as reported below. You can't have a market recovery when petroleum prices are in recessionary levels, copper usage falling and certain European countries nearing insolvency. Any problem in China will certainly spill over to the US and Europe and I doubt that any QE will help.

It was a bad day for European bank stocks, [2012-04-10]as shares of several fell as much as 8% on renewed concerns that countries like Spain and Italy won't be able to pay their debts. The yield on Spanish 10-year bonds spiked nearly 6%; in U.S. trading, STD
-3.5% and BBVA -3.2%. UniCredit (UNCFF.PK) -8.1% in Italy. Also: DB -3.3%, BCS -5.3%, UBS -4.2%.

March sales of construction excavators in China look ugly, plunging 47% Y//Y to 23.3K units, with Caterpillar (CAT) sales off 51%. The numbers may not bode well for CAT Q1 earnings (report date 4/25), or the DJIA, over which the stock has a large influence.

Gas prices are set to rise, according to EIA forecasts. Retail gasoline prices are expected to average $3.81 in 2012 and $3.73 per gallon in 2013, up $0.26 and $0.14 respectively from last months estimates. The energy agency adds that prices are likely to average $3.95 a gallon from April to September, with a peak called for in May at $4.01 a gallon.

Even the Telegraph is not so certain of the Eurozone's future.




Why has the market decided in recent days that the eurozone crisis hasn't really gone away? The BBC's economics editor Stephanie Flanders offers a nice explanation - there are two reasons: economics and politics. She writes:

I think there was a hope that with a fair wind, and some decent growth in the US and the core eurozone economies, European leaders would squeak by without another major eruption - in Spain or anywhere else.

That is still possible. But it's looking less likely than before, for two reasons.

There is NOT much sign that banks from other parts of Europe or the world's institutional investors have gone back to buying sovereign debt in a big way. Nor is there much sign that the cheap liquidity, or the cuts in the official ECB policy rate, have filtered through to households and companies in the countries that need it most.

The second reason why the "squeak by" scenario for the eurozone now looks more difficult is a sudden outbreak of politics.

I say sudden. It's not exactly news that France and Greece are about to have important elections. But it is scary, for international investors. Or ought to be, when so few of the ingredients of a lasting solution to the Eurozone crisis are in place.”

The entire problem of what to do as an investor lies squarely with the financial aspects of the World not being exactly stable. Until we can see solid evidence of progress in China and the countries of the Eurozone I find it difficult to be overly optimistic about the United States solving its economic problems much less taking a major investment position.

It is reports like this that cause my eyebrow to lift and give pause to the current situation and glad I have a wad of cash in my pocket.


Global Systemic Risk Is Rising Rapidly Again

The risk of the 30 most systemically important financial institutions (SIFI) in the world has risen over 30% in the last three weeks as the effects of LTRO fade and encumbrance becomes the new reality. This less-manipulated, government-bank-reacharound-driven bond-market sense of reality has retraced almost 40% of its improvement from its peak last November at 311bps to its best level mid-March at 171bps. The current 226bps level is extremely elevated and as one would expect is dominated by European and US banks (with US banks on average trading wider than Europeans - which may surprise many but Europeans dominate the worst names - most specifically the Spanish banks).

The resistance that lies just above today's levels is going to be a tough cookie to penetrate. The bottom line here is that there are too many financial problems here in the US, in China and the countries of the Eurozone to make sound short term decisions. Continue to sit on your hands and be patient; the 'right time' will show itself in short order I think and let Mr. Market do his thing.

To contact me with suggestions or deserved praise:

Written by Gary

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