Ana_Idkit

In Inflection Points Fast Approaching, I suggested that the S&P may retrace before going higher. The market has broken to new highs without the retracement. What does this move suggest to me?

Well, as Figure 1 shows, we are unlikely to see a bullish-conviction close above 894: we’d need to see at least 50% of April’s body close above 894 and see a close no lower than 33% of April’s range from the highs. Given the bar’s location at the moment, I deem it  unlikely to form a bullish-conviction close. The door is still open for a downturn in May. If we had seen a bullish-conviction close above 894, this would have created a buy setup.

What is the current evidence and what would I need to see to suggest that downturn may occur?

1. The 13-week corrective swing (quarterly trend) is severely overextended in time and price.
2. The same can be said for the 18-day impulse swing (monthly trend). This does mean that the market will come down; it does mean it is a high-risk buy without a correction.
3. There is seasonal weakness from May to October. Seasonally (MRCI Report), we have two possible highs – in the first and in the second week of May.
4. The ChannelAnalyzer (Hurst Cycles) suggests two dates May 1 +/- one day and May 21 +/- one day.
5. Intraday cycles show that after 1:00 PM EST today to 1:00 PM EST tomorrow is the time period for a likely turn.
6. Figure 2 shows the Normalized Volume for yesterday; we see below average volume coupled with normal range. In Wyckoff terms, this pattern shows that the institutions are selling to ‘Joe Citizen’. While we may see an upmove today, unless the S&P attracts enough volume to form a normal volume and normal range day (35 to 20 points), it is unlikely the rally will continue.

So the conditions for a sell-off by Monday May 4 exist. If the sell-off fails to materialize, we have in place the conditions for a possible 1966 to 1982 range-bound type market.

How would I play the market today?

• If the pre-market prices hold, we should see an open-gap of at least 12 points. Given the position of the intra-day cycles, I would not expect a fill of at least 50% of the open-gap in the first 60-minutes. I’d then expect to see, at or after 1:00 PM EST, a break of the day’s lows. By end of trading today, I’d expect to see a bearish-conviction close (open at least in top third of range, close no higher than in bottom third of range). Ideally I’d see a close below yesterday’s close.
• If that does not occur, the next scenario is for us to see an open-gap and a small range day. In this case, tomorrow, I’d play my variation of an exhaustion gap. This would entail an intraday entry.
• Finally, if we see a bullish conviction close tonight, I’d wait till end of trading tomorrow to formulate a strategy.

Stay tuned.

FIGURE 1 12-month S&P

Figure 2 S&P Normalized Volume

To paraphrase Ayn Rand: “reality is the out there as seen by the in-here”. In other words, our reality is our perception of the ‘real world’. To the extent that our map fits the territory is the extent to which we will be successful. This proposition goes against much of what is being taught as a success model – that our reality determines the ‘real world’.

It’s a message the Governments of the world seem to have taken to heart as they ‘battle to save us from the ravages of a deep recession’.

In this blog I’d like to address some popular misconceptions about the Great Depression; in particular I’d like to consider what caused it. In doing so, I’ll look at the depression of 1920 to 1921.

Oh yes, there was a depression in 1920 to 1921. To finance World War I, the Fed inflated the money supply. By mid 1920, the downturn in production was worse than they would be one year into the Great Depression. To cope with this downturn, the Fed and US Government did nothing or at least very little. What the US Government did do was to keep spending and taxation low. As a result, the US economy rebounded quickly, so that by August 1921, the economy was on the mend.

It would be useful to compare the Japanese response in the 1920s. To prevent falling prices, the Japanese Government, banks and industry combined together to keep commodity prices high. This resulted in a banking crisis in 1927 that sank many a bank and industry. Unlike the US that recovered within 12 months, Japan took seven years. No sooner did it appear that it had recovered that Japan had to face the Great Depression.

Let’s turn to that and examine US FED policy.

Between 1921 and 1929, the FED increased the money supply by a massive 55% – an annual rate of 7.3%. This increase took the form of easy loans to business. As a result we saw a bubble in the stock market and the October 1929 crash.

At this point one of the greatest myths enters US history – that Hoover was a laissez-faire President. In fact Hoover was one of the greatest interventionists of all time. A study of US economic history shows that he:

• launched public work projects
• raised taxes
• extended emergency loans to failing institutions
• reduced international trade through ‘protective’ legislation
• attempted to prop up wages

If we examine FDR’s policies, we find that much of the New Deal was to expand, extend and institutionalize Hoover’s policies.

Now, let’s turn to today’s crisis.

The bubbles – stock market, credit and real estate bubbles – were caused by cheap money leading to a misallocation of resources. So too was the cause of the 1929 crash. To deal with the crisis, both Hoover and FDR embarked on a massive spending spree – so too did Bush and so too has Obama; and so too did Japan.

When this crisis first broke out, I had hopes that it would be over in two or three years. Not any more – 2015 is my best guess. Of course, we’ll see rallies. If we are lucky, we’ll have a 1966 to 1982 type recession rather than a 1929 type deflation. But even if we experience the latter, if history rhymes, we should see some sort of decent rally in 2010 to 2011.

When we surface from this morass and we will, my only question will be: will politicians ever learn to keep their mitts off the economy?

I have met Mark Cook at an ATIC event about two years ago and wish to share this post  by Jim Wyckoff:

How to play, and never miss, a short term pop

We’re often asked at MarketClub just how to play short-term pops. Regardless if you are look at stocks, futures, or the forex market, it’s always the same… MarketClub Alerts.

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This applies to our trading strategy, MarketClub Alerts, and the steps we need to take to capture profits and stay on the winning side of those short-term moves.

Please enjoy the video, as always its with our compliments.

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Brad Stafford
Director of Marketing
MarketClub

I have been asked to contribute a post today and with all the headlines on Swine Flu, I feel it is time for us to be alert, but not to panic.

What are the implications for markets?

World stocks tumbled today , after seven weeks of gains, and oil and the euro fell as concerns intensified the spread of swine flu, which has killed more than 100 people in Mexico, would hit the global economy.

Travel and leisure-related stocks tumbled while the Mexican peso fell 2 percent against the dollar as the World Health Organization warned the flu, which has spread to the United States and possibly as far as New Zealand, has the potential to cause a worldwide pandemic.

The threat of the pandemic will add further weakness to global trade.

“If the disease proves to be more fatal, the dollar would rally and cross-yen would come under pressure,” BNP Paribas said in a note to clients.

Given the recent ‘green shoots’, the market would take any worsening of the outbreak as an obstruction to the global recovery process.

Gold steadied in Europe on Monday after rising to a four-week high earlier in the session as equities fell on concerns over the prospect of a global flu pandemic, which boosted interest in bullion as a haven.

The precious metal is also underpinned by technical factors after breaking above $900 an ounce late last week and it has been boosted by news China has significantly increased its gold reserves, analysts said.

However, gains in the dollar versus the euro are limiting gold’s climb.

Equites in pharmaceuticals would benefit.

Futures in Pork and Corn and Soybean meals will drop. However eating pork that is properly cooked should not pass the swine flu, according to medical sources.

On the health side, we must stay alert without panic.

Swine flu or influenza is a respiratory disease of pigs caused by type A influenza that causes outbreaks of influenza among pigs. Swine flu viruses do not normally infect humans; however, human infections with swine flu do occur, with human-to-human spread of swine flu viruses being documented.

CDC –Centres for Disease Control and Prevention:

Laboratory testing has found the swine influenza A (H1N1) virus susceptible to the prescription antiviral drugs oseltamivir and zanamivir and has issued interim guidance for the use of these drugs to treat and prevent infection with swine influenza viruses. CDC also has prepared interim guidance on how to care for people who are sick and interim guidance on the use of face masks in a community setting where spread of this swine flu virus has been detected. This is a rapidly evolving situation and CDC will provide new information as it becomes available.

There are everyday actions people can take to stay healthy.

• Cover your nose and mouth with a tissue when you cough or sneeze. Throw the tissue in the trash after you use it.
• Wash your hands often with soap and water, especially after you cough or sneeze. Alcohol-based hands cleaners are also effective.

• Avoid touching your eyes, nose or mouth. Germs spread that way.

The symptoms of swine flu in people are similar to the symptoms of regular human flu and include fever, cough, sore throat, body aches, headache, chills and fatigue. Some people have reported diarrhea and vomiting associated with swine flu. In the past, severe illness (pneumonia and respiratory failure) and deaths have been reported with swine flu infection in people. Like seasonal flu, swine flu may cause a worsening of underlying chronic medical conditions.

So far, 20 cases of the new swine influenza strain in humans have been confirmed in five states, but all have been mild cases, similar to the seasonal flu, which continues on the decline in Massachusetts.

New Zealand’s health minister, Tony Ryall, said today that 10 students who just returned from Mexico have tested positive for influenza. He said the cases are “likely” to be swine flu.

The new strain poses the threat of a possible pandemic because it has jumped from pigs, where it is common, to humans and there is no background immunity nor effective vaccines. We do have to take this seriously, although we are probably better prepared than we were in 1918, the last flu pandemic.

The World Health Organization has us at alert level three, because we have a specific flu strain, H1N1, that we are looking at and there has been some person-to-person transmission. If cases increase, the alert would rise to level four, and level six would be a global pandemic.

The link to the federal Centers for Disease Control web site information is: www.cdc.gov/swineflu/investigation.htm

ANA aka IDkit

Ag Moderator

PS

CNBC -Swine Flu & Markets

http://www.cnbc.com/id/15840232?video=1104651935&play=1?__source=CNBC|newsnow|vid2|2009|

Short term pops

http://awanginvest.com/?p=1221

Key economic data for the week starting April 27th, 2009. Numbers shown are consensus estimates (market anticipates this value) and prior value.

Tuesday:
	9:00 AM Consumer Confidence Apr – 28.8 26.0 - 10:00 AM S&P/CaseShiller Home Price Index Feb – -18.8% -18.97%

Wednesday:
	8:30 AM GDP-Adv. Q1 – -4.9% -6.3% - 8:30 AM Chain Deflator-Adv. Q1 – 1.7% 0.5% - 10:35 AM Crude Inventories 04/24 – NA +3857K - 2:15 PM FOMC Rate Decision – - NA 0.00% -0.25% -

Thursday:
	8:30 AM Initial Claims 04/25 – NA 640K - 8:30 AM Personal Income Mar – -0.2% -0.2% - 8:30 AM Personal Spending Mar – -0.1% 0.2% - 8:30 AM Employment Cost Index Q1 – 0.5% 0.5% - 9:45 AM Chicago PMI Apr – 34.0 31.4 -

Friday:
	9:55 AM Mich Sentiment-Rev Apr – 61.5 61.9 - 10:00 AM Factory Orders Mar – -0.7% 1.8% - 10:00 AM ISM Index Apr – 38.0 36.3 –

Think That Central Banks Move the Markets? Think Again
April 23, 2009

By Mark Galasiewski

The following is excerpted from Elliott Wave International’s Global Market Perspective. The full 120-page publication, which features forecasts for every major world market, is available free until April 30. Visit Elliott Wave International to download it free.

Conventional wisdom says that central banks can influence or even direct financial markets and the macroeconomy. The very existence of Elliott waves challenges such assumptions. For if markets responded to every central bank directive, how could Elliott waves exist? Parallel trend channels, Fibonacci price relationships, the similarity of form between waves of different sizes and time periods—none of that would be possible. Central bank decisions would have to coincide perfectly with turning points in Elliott waves, and we know that just doesn’t happen. But even without using waves, we can expose the conventional wisdom for the fallacy that it is.

Take, for example, this assertion in a recent article in a U.K. economic weekly: “Part of the aim of central banks in driving down interest rates is to encourage a greater risk appetite among investors.” Two key assumptions underlie that statement: a) central banks determine interest rates; and b) lower interest rates can increase society’s appetite for risk.

To see how the first assumption is false, let’s take a look at the daily chart of Australian interest rate data. It duplicates a study that Elliott Wave International has often done with U.S. interest rate data. It shows how movements in the cash target rate set by Australia’s central bank, the Reserve Bank of Australia (RBA), appear to follow those in 3-month Australian Treasury Bills. After decisive moves up in T-bills from 2006 to early 2008, for example, the RBA faithfully raised its target. T-bills have since led the RBA during the financial crisis of the past year. In fact, the record indicates that the RBA almost always follows T-bills over time.

The proper conclusion to draw is not that the RBA has orchestrated the decline in rates since the early 1980s—but that it’s been riding it. During good times, central bankers look like geniuses; during bad times, they get tarred and feathered. Closer to the truth is that their interest-rate decisions are not proactive, but reactive, and that they continually follow in the footsteps of the market for lack of any other useful guide.

Now let’s look at the second assumption: that lower interest rates increase society’s appetite for risk. A simple glance at the weekly chart shows this assumption to be false. After the 1987 crash, the ASX All Ordinaries actually rallied for two years on rising rates and then sold off through 1990 on falling rates. Stocks then rose in 1991 on continued falling rates and sold off in 1992 on even lower rates. Continue following the chart to the right and you will see that there is no consistent correlation between the direction of interest rates and that of the stock market.

The myth of central bank potency is so pervasive that conventional analysts can’t even imagine a better explanation for price trends: that the market is the dog wagging its central bank tail, not the other way around.

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For more information, download Elliott Wave International’s FREE issue of Global Market Perspective, available until April 30. The 120-page publication covers every major world market, global interest rates, international currencies, metals, energy and more.

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Mark Galasiewski is the editor of Elliott Wave International’s Asian Financial Forecast and member of EWI’s Global Market Perspective team covering Asian stock indexes.

I have been waiting for some commentator to make the point. But it’s almost as though there is a conspiracy of silence.

Every bank that I have seen, their  earnings report has come out with better than expected figures for the last quarter. Try as I might I have been unable to determine whether the sub-prime loans were valued at mark-to-market or the mark-to-model that came into effect April 1 2009. Note that the new standards could be used on first quarter results. Hence my attempts to determine what model was used to come up with the earning results.

Why do I care?

Well:

1. mark-to-model means that the banks are valuing their toxic debts based on the models that failed them in the first place. Think of it this way. I have a rather untidy mess in my study that my maid has failed to clean up. Suddenly she gets word that I am arriving home rather unexpectedly from Singapore. Instead of cleaning up the mess, she uses my computer carpet to hide the mess; you know the sub-prime loans, CDOs etc. Now, the mess has not gone away; just hidden. And as long as there is no second-wave tsunami, the toxic assets will not cause greater damage. But if a second wave occurs……well I’ll leave it to your imagination.
2. If the surprise results were based on mark-t0-market, we can expect third quarter results, if based on mark-to-model, to contain some greater ‘better than expected earnings’.

For those not up with the arcane ‘mark-to-market’ and ‘mark-to-model’, here are some references:

• Mark-to-market: http://en.wikipedia.org/wiki/Mark-to-market
• Mark-to-model: http://en.wikipedia.org/wiki/Mark_to_model

————————————–

There is scam floating around. I checked with Citibank and they are aware of the problem. Here’s how it works. You get the e-mail below. When you click on the link, you are taken to an ‘official looking site’. If you complete the details, you will have given the scammers the info they need to steal your money. Beware!

From: alerts@citibank.com <ALERTS@citibank.c0m>
Date: Sun, Apr 19, 2009 at 11:21 PM
Subject: Banking Alerts: 53567582
To:

This is a Security Alert you requested to help you protect your account. Your account has been blocked. You have exceeded the number of three (3) failed login attempts. To unlock your account, please go to your account Thank you for your cooperation. Citibank Service Center Attn: E-mail/Internet Services 100 Citibank Drive Building 3, 1st Floor San Antonio, TX 78245

This e-mail is intended only for the use of Citibank, N.A., Member FDIC Citibank.com is the source of information about and access to domestic financial services provided by Citibank retail banking and the Citigroup family of companies. Citibank, N.A., Member FDIC. Citibank Credit Cards are issued by Citibank (South Dakota), N.A.

How important is it for you to be right? Let’s say I could guarantee that you would make money by the end of the year—lots of money—but you would probably lose money on 90% of your trades. Would you like that? Could you tolerate that? Would you accept that? Most people would probably answer “no” to all three questions. And if that is you, you probably are denying yourself the opportunity to make money simply because being right is more important than making money.

Some of you might be saying, “How could you be wrong 90% of the time and still make money?” The solution goes back to the golden rule of trading, “Cut your losses short and let your profits run.” Let’s say that 90% of your trades lose money and that your average loss is $100. On the year you make 100 trades so you end up losing 90 of them for a total loss of $9,000. However, let’s also say that your average winning trade is a big R-multiple. It’s an R-multiple of 100 or a $10,000 winner. You have ten of those in a year, so you end up making $100,000 on your winning trades. If you subtract your winnings from your losses, you’d end up with a profit of $91,000 at the end of the year. You make $91,000, yet 90% of your trades are losers.

My guess is that 99% of the trading population could not trade a system that would produce those kind of results. The reason is because they don’t get to be right enough. They have too many losing streaks. They have losing streaks that are longer than five in a row. Most people cannot tolerate long losing streaks. When they occur, they totally abandon what they are doing. In such a system you could easily have 25 consecutive losses. At that point you become certain that your system is broken, and you try something else.

Let’s look at the opposite end. Suppose you got to be right 90% of the time. Suppose your average win was $100 and that your average loss was $2,000. This means that you’d have a total of $9,000 in winnings and $20,000 in losses. You would lose $11,000. Would people trade that system? Yes, they would. They would probably trade it for a number of years until they went bankrupt. Why? Because they get to be right most of the time and that is very rewarding.

You might be saying, but how could people possibly tolerate losses of $11,000 after 100 trades? It is easy; they turn the losing trade into a long-term investment in their mind and say, “it’s only a paper loss.” For example, I’ve had workshop attendees who were probably way above average in terms of sophistication. However, I asked them to raise their hands if they had an investment in their portfolio that was only worth 50% or less of what they paid for it. Eleven people raised their hands—over a fourth of the class. And my guess is that among the overall population of investors, most people are sitting on a number of big losers, hoping they will come back. Why? Because they cannot stand to be wrong on an investment and they are waiting to be right on those losing trades.

What is the cost of having losing investments in your portfolio? It’s major. First, you are using valuable capital up with nonproductive investments. Second, you are missing many good opportunities.

Why Being Right Seems So Important

There are two primary reasons why we focus on being right. First, we are conditioned to be right by the school system. Second, everyone in the trading industry gives people what they want—ways to be right—which tends to perpetuate the myth. Let’s take a closer look at these two reasons.

First, we are conditioned by the school system to the importance of being right. In school you are taught that there are right answers and wrong answers. What is a right answer? If you learned how to survive in the system, you learned that a “right” answer is whatever the teacher wanted.

Your performance is measured periodically through tests in which you are asked to pick the right answer. If you cannot get more than 70% right on the test, you are labeled a failure and ostracized. Your humiliation might even be in public in front on all your friends. And if your humiliation isn’t public, it certainly is semipublic. Your “poor” performance goes home in the form of a grade with a comment that “Johnny is a little slow or Johnny is bright, but he just doesn’t try.” Usually, at this point, the most important people in your young life get involved—your parents.

Even if you understand the system and work hard to know the right answers, you still might be taught that your performance is not good enough. It usually takes 94% right to get an excellent grade. But how many children go home and show their 94% test to dad only to get the response, “Why didn’t you get 100%?”

Thus, it is no wonder that traders want to be right all the time. And being right usually costs them dearly in terms of profits. Whether you’ve been through 20 years of schooling and have a graduate degree or less than 10 years of schooling, you still have the same conditioning about being right.

The second reason people want to be right is that service providers for traders and investors feed the bias to be right. First, software vendors tend to provide systems that can be highly optimized. Once you’ve optimized your trading, you can lay a line over the prices and see exactly where you should have bought and sold. It seems obvious. However, the same optimized system does very poorly when applied to the real world.

The Solution: Expectancy

What you must do now that you are trying to survive in the real world is learn about expectancy. My book, Trade Your Way to Financial Freedom is one of the best sources I know that covers this topic. By definition expectancy is how much you can expect to make, on the average, over many trades. Expectancy is best stated in terms of how much you can make per dollar that you risk. I cover this important topic as well as detailed instructions on how to calculate expectancy. My objective is to show you how to incorporate expectancy into a successful, profit generating trading system.

by Van Tharp

If you think about Peak Performance trading you could look at a market genius and how that person approaches their craft. However, you could also look at a genius from some other area and notice if some of their behavior could be usefully applied to trading. In that regard, I’ve been thinking about how Einstein would think about the modern markets. I learned that one of the things Einstein did so well was to dissociate. Which means he used imagery to step out of his body and assume another perspective.

This is an exercise in my Peak Performance Course for Traders and Investors Try it for yourself. During each part of the imaginary adventure that follows, notice what your thoughts are and what your experience is like.

Here is the first imaginary scene. See yourself (your whole body) on a movie screen skydiving. See yourself in the airplane with your parachute attached. Now see yourself getting ready to jump. After you jump, see yourself free falling for about ten seconds and then pull the ripcord. Notice what happens when you pull the ripcord; it’s like the parachute pulls you up in the air. Now, watch yourself gently floating down to the ground. That’s what’s called being dissociated.

Repeat the same scenario only now see it out of your own eyes. Notice your hands and feet as you are sitting in the plane getting ready to jump. Now, move over to the door, get yourself ready, and then jump. Notice yourself moving rapidly away from the plane as you free fall. After about ten seconds, see your hand as you pull the ripcord and notice what the experience of your parachute opening is like. Now, feel yourself floating gently down to the ground. That’s what is called being associated.

Notice that the scene was the same for both experiences—you were jumping out of an airplane. Yet the images, both of which were imagined, were quite different in each case.

We live most of our lives in an associated state. As a result, everything seems so real. Our feelings seem real. Our beliefs seem like reality. Yet that is simply because we seem to be part of it. What we are thinking seems to be all there is.

As soon as you assume another position—dissociated—your experience changes dramatically. Your thoughts are different. Your experiences are different. Yet is this second experience any more or less real? No, it’s just another experience.

This quality of assuming other perspectives, especially this dissociated perspective, is common of many great people in many fields. Einstein is just one example. Great quarterbacks have claimed to have the perspective of being above the entire football field (even while they are playing) so they can see the entire field in a detached manner.

Imagine the perspective that would bring for anyone who could do that.

Michael Jordan has claimed to be able to imagine himself floating over the basketball court and from this perspective see everything that is going on. Perhaps that explains why he just seems to know where everyone is. Again, think of the advantage that such a skill would give you.

I did two interviews with former fund manager, Tom Basso. Jack Schwager who gave him the nickname, Mr. Serenity, interviewed him in The New Market Wizards. In my interview with Tom, he revealed that his ability to dissociate was one of the secrets of his success. Here’s a little of what he said:

“In situations where I felt I needed improvement or in which I wanted to improve my interactions with other people, I would just play key events back in my head—figuring out how others handled the situation…I’ve always thought of it as some Tom Basso up in the corner of the room watching Tom Basso here talking to you in this room. The funny thing about this secondary observer was that as time went on, I found the observer showing up a lot more. It wasn’t just at the end of the day anymore. As I got into stressful situations, as I started trading, doing more interacting with a lot of people, getting our business off the ground, dealing with clients, etc., I found that this observer was there to help me through it. If I felt awkward or uneasy, then I was able to watch myself do it. Now, I have this observer there all the time.” — Excerpt, Course Update #9, December 1990.

A fundamental presupposition of NLP (Neuro Linguistic Programming) is that if one person can do something, then everyone else can do it too. Since being able to move to another perceptual position is one of the critical aspects of genius and greatness, it’s important to start practicing.

Here’s an exercise for you. At the end of the day, replay the day in your mind, especially critical junctures in the day. Do it from a disassociated point of view in that you watch yourself going through the day. Once you’ve completed the exercise, write down what you notice about yourself.