Sunday Evening Post

Good Evening Capitalists,

This author doesn't have any clue about what happened last week, so I won't even pretend to understand or explain it. "It is it what it is." This is what can happen in markets where almost everybody is long and nobody is that short. That is why stocks can go 'bidless' and crash. It was probably some sort of "mistake" that caused a stock like Accenture to hit ZERO in a nano-second, but the way this "mistake" caused all Global stock exchanges, commodities, bonds and currencies to all react in a hugely negative way should serve as a powerful reminder of how "fragile" and connected these markets remain. So much for diversification....

There is only one way to diversify: Stay long some amount of cash*.

*Cash does NOT mean municipal bonds, corporate bonds, US Treasuries or money markets.

DXY Update With Some S&P 9 May 2010

46 comments:

McFearless said...

re: 1987

I thought this was an interesting tidbit from the STU on Friday:

"The NYSE advance/decline ratio closed at .056:1 (there were nearly 18 stocks down for every 1 up), a very strong downside day. Since September 1984 (when our CQG data series started), there have been only 3 stronger downside days; October 19, 1987 (.018:1), the day of the crash, September 15, 2008 (.054:1) and September 29, 2008 (0.52:1)."

I've seen a few other ew analysts mention the 87 crash this weekend, sadly, most of them are doing so to reinforce the impulsive count they are suggesting off the 2009 lows, indicating much higher prices to come.

mcHAPPY said...

Thanks, Andy. Some very interesting charts. I am obviously quite biased but I do not think 1202 will be bested for some time either.

What do you think about Lara's count on the DXY? Your count on page 4 is very similar.

Lara's count.

Nic said...

S&P futures gapped open and aren't looking back right now.

McF I agree about EUR, thx :)

McFearless said...

I don't like how the DOW fails right into the 61.8....too simple.

Tyler said...

last night I watched a TV movie with a story line involving a sex crime/murder within the realm of the political and (economically) well connected elites (very much along the lines of "eyes wide shut")

Anyway, when the cover up gets going, one of the political types, who was somewhat a party of the "party", skips town under the pretense of a medical emergency in the family.

So, is this a case of life imitating art? (not the sex part, the all so convenient "medical emergency" excuse when the SHTF). Though he doesn't come out and say it, Mish has a post up which sure sounds like he is about as skeptical of this as I am. I, however, will do the non-PC thing and actually say it -- liar, liar pants on fire. The Germans are stalling for time.

Tyler said...

Ben, in the last thread you said "I'm seeing these comments all over the place" and then you went on to provide a particular posting.

Where did you find that one? I actually seem to recall having seen/read that very post myself somewhere (just can't recall where yet). I'm wondering if it was the same source (that I had read as you had) or whether there was some sort of spamming going on.

McFearless said...

I pulled that one from TBP Tyler but I can't remember which thread.

karen said...

Look at first-second-third week of Oct 08 if you don't think the dollar can pull off another up week or two..

Anonymous said...

Looks like Europe is pulling an H. Paulson.

Andy T said...

mcHappy.

I don't really like here overall larger count. I think it's the same count the EWI guys have. I think they called that first move off the lows a "text" book impulse, even though it wasn't. The first two legs higher from the late '09 lows never looked impulsive to me, at all. However, if I were to just assume those first two legs higher were impulsive, then they were both the same size. Therefore, "IF" this is an impulse off the lows, then we should be witnessing an extended fifth wave right now. What she was calling a wave-5 was actually a corrective move and was part of what looks like a triangle of some kind. I think she (and EWI) will probably shift their count to an initial impulse off the lows which has not yet completed. She admitted herself that the tiny wave-2 looked too shallow and short...

Who knows though. We'll see in the fullness of time. Whether you believe in my counting or EWI, they're saying similar things longer term.

karen said...

From Doug Noland (safehaven.com)

Perhaps "purge the rottenness out of the system" is too strong. But the financial world would be a safer place today had zealous government market intervention not bailed out the crisis-imperiled "leveraged speculating community". At one point yesterday, the Japanese yen was almost 6% higher against the dollar - and up a stunning 8% against the euro, Swedish krona and some other currencies. Those that had speculated on "carry trades" - say, borrowing in yen to finance leveraged long positions in euro-denominated Portuguese bonds - were crushed yesterday in what was likely a significant unwind of money-loosing trades.
The reemergence of "contagion" definitely makes the financial world an unstable and uncertain place in which to operate. A crisis in confidence in Greek debt led to dislocation in the market for Greece's Credit default swap (CDS) protection - that jumped to Portugal and then quickly engulfed European CDS and beyond. Dislocation in European bonds and CDS placed significant downward pressure on the euro and upward pressure on the dollar - in the process fostering general currency market instability. Most commodities (not gold!) sank, while the emerging markets came under heavy selling pressure. Global tumult incited a flight into bunds and Treasuries, causing additional havoc for myriad other "carry trades". Here at home, spreads between Treasury yields and higher-yielding debt instruments (i.e. MBS and corporate bonds) began to "blow out." In short order yesterday, the yen melted up, Treasuries melted up, risk spreads widened dramatically and 2008-style deleveraging returned in full force.
Throwing Trillions at a highly-speculative and dysfunctional global financial "system" has begun to present itself as a somewhat more conspicuous failure. The Greeks and Europeans are furious. And I doubt the ECB is too impressed right now with the "inflationist" prescription of monetizing euro debt issues. Here at home, confidence is shaken but not yet broken. The dollar is well-bid and yields are low, so things could definitely be worse. There should be, however, little doubt that the sequence of Goldman Sachs testimony, Greek riots, the eruption of contagion risk, and a quick 1,000 point market downdraft has reversed momentum away from Greed and firmly in the direction of Fear.

mcHAPPY said...

"Who knows though. We'll see in the fullness of time. Whether you believe in my counting or EWI, they're saying similar things longer term."

I am learning this as I go on with regards to EW:
The destination is usually known unfortunately the journey is not.

Thanks for your thoughts, Andy.

Anonymous said...

www.nationalpost.com/most-popular/story.htm/?id=2951052.

Close encounters of the risky kind. Meeting aliens might be disastrous for mankind - Physicist Hawking warns.

Universe populated with 100 billion galaxies. Highly likely that there are more Earth like planets out there.

McFearless said...

I really like slide 7, that looks like a very good count and the fact that the H&S would mirror the giant H&S forming over the last decade is a plus.

Tyler said...

ahh, okay. thanks Ben -- that's likely where i saw it too then.

Tyler said...

hehe -- I think it would be too funny if we hit limit up by morning.

spoonman said...

looks like it's bazooka time...

Nic said...

So it is past midnight in Europe, the EU press conference is more than 4hrs late and I am starting to wonder if they will have anything agreed before Europe opens for business in the morning. Of course if they wait until tomorrow and the market is falling then they would really be under the gun just like Paulson and "you have to give me the TARP right now or the end of the world is here"

I am hearing rude comments about the UK election not being resolved. All I have to say to that is "hanging chad" and "supreme court" :)

bob said...

"have anything agreed before Europe opens for business in the morning"

It's Europe, they firmly agreed to a non-binding resolution that an agreement should be worked out and a plan for an agreement will be announced as soon as an agreement on how the plan will be agreed to has been agreed upon.

karen said...

I have to give up imagining tomorrow's scenario.. seems the futures have been seesawing!!

Nic said...

Karen did you see 60minutes tonight about mortgage defaults:
http://www.cbsnews.com/video/watch/?id=6470184n&tag=contentMain;contentAux

Andy T said...

Looks like they're going to 'test out' all those Euro shorts this week....

Nic said...

Well the Fed have reopened swap lines to most central banks but still nothing from the EU.
The discussion seems to be about more guarantees than money and they have discussed buying govt bonds in the open market which is of course QE and negative for the EUR currency.
The most positive thing discussed is enforcing the budget deficit limits of 3% which presently not even Germany adheres to.

Andy T said...

Holy shit. I just took a look at the SP futures....yowsa....

At moments like this you have to ask yourself:

a) Am I pissed because I'm gunned too short and I'm getting killed overnight?
b) Am I relieved to see a bounce because it allows me an opportunity to sell (to get out of length or add to shorts)

I'm feeling like letter B right now...thankfully.

This sort of feels like an opportunity. The 1150 on the SP500 was supposed to be support and it got sliced through like butter...1150 "should" be resistance now.

Andy T said...

Nic,

"which is of course QE and negative for the EUR currency."

Was QE negative for the Dollar? "Theoretically" it's negative for the EUR but Mr. Market works in weird ways sometimes...

DL said...

Significant rally tomorrow... probably extends into Tuesday. If it does extend into Tuesday, might be worth shorting (at that point) for a day or two.

SC said...

In retrospect, it's pretty clear that the original QE program in the US actually put upward pressure on yields. It shook public confidence in the intrinsic strength of the bond market, while simultaneously creating the expectation of hot money flows into risk assets. The EU would have to be collectively insane to follow the same path. Which means of course that they'll probably do it.

Bruce in Tennessee said...

Futures are amazingly up. When you sit down with a cup of coffee in the morning and mull this over, you still come to the conclusion that there are countries in the EU that cannot compete with the likes of Germany. Pigs will still be pigs in the morning. Night all.....

karen said...

Nic! thanks for that link.. i have an extreme interest in housing, as you know.. I was even a realtor in phoenix in the mid 80s (a very bad time!) The fact is, if lenders had shown fiscal responsibility in lending, home prices never would never have reached that unsustainable zenith..

This is another immemorial story of empires in decline, societal collapse, and decay of moral character.. not to get CV, going.. ; )

Nic said...

AndyT
I think QE was negative for the dollar at first, yes.
It is going to be interesting to see what Europe makes of this package when they digest it. Mkt is very heavily short EUR so we could also see some wicked squeezes. Volatility rules.

bob said...

On the long term view of the EUR, 1.32 is the 23.6% retrace of the all time low to all time high.

Right now the top for this week is right around a 50% retrace of last weeks range

The binary universe 50 50 rule, either it happens, or it doesn't.

bob said...

Pardon, not all time low on the EUR, the 2008 low.

karen said...

A great rant by Ratigan at http://www.fundmymutualfund.com/

Sunday, May 9, 2010
[Video] Dylan Ratigan Explains Thursday's "Flash Crash"
Posted by TraderMark at 9:16 PM TweetThis
Let us be so thankful Dylan left CNBC and is on a mainstream cable channel so some in the non financial world hear the truth.

Dylan on last Thursday's "fat finger" (cough cough). Please only view if you wish to leave the Matrix. Otherwise it was a sole finger on a grassy knoll that caused it all...he of big fingerness pressed a "B" instead of a "M" and that was enough to wipe away $1 trillion of value". Yep!

DL said...

Karen,

Nice picture.

karen said...

Irène Jacob in Red. Thank you.

DL said...

I see.

http://www.leninimports.com/irene_jacob_gallery_1.jpg

mcHAPPY said...

Oh dear... poor bears today. I wonder what Tuesday might bring.

mcHAPPY said...

I guess I was wrong with how today would play out... not surprised though (that I was wrong).

mcHAPPY said...

The markets in Paris are up over 8% but no one is rushing to shut them down. People rushing to BUY in a panic. Yet there is no problem with this. It is so silly.

mcHAPPY said...

You don't think it had anything to do with the Euro being ridiculously oversold? 2% bullish? Nahhhh....

mcHAPPY said...

Whoops... FAZ is not looking good pre-market.

BinT said...

President Obama is set to nominate Solicitor General Elena Kagan to the Supreme Court, potentially making her the first justice without judicial experience in 38 years.

...The entire gang can't shoot straight...why change with the new justice?

McFearless said...

holy futures, well, this ought to be a fun week, two in a row now!

McFearless said...

how come there is no talk of a fat finger trade to explain the giant futures move?

AmenRa said...

Ben

You know and I know that fat finger trades only happen in extreme down moves...

CV said...

NEW THREAD UP

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