Jim McCaughan: Gold Will Get Dangerous When Rates Rise (Principal Global Advisors)

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I like to put different points of view on this blog. Jim McCaughan, CEO of Principal Global Advisors ($200 Billion under management), was on CNBC on 10/13/2009. Jim, like Nouriel Roubini, believes gold is a bad investment.
"There are no inflationary pressures in the US economy. Capacity utilization remains very low around 60% and there is no wage push at all with high unemployment, currently just under 10% and headed above 10%. So in those circumstances the US will not be generating any inflation for any time soon."

"I think further more that gold will get very dangerous within a year from now. When rates start going up, it becomes very expensive to hold a non-income producing asset. So though gold has positive momentum for the next few months, gold is a dangerous place to be when rates start turning up. As they will in a year or two's time."

He believes Treasuries are less dangerous because in a deflationary environment, where growth is slow, rates can remain low. He thinks 2-4% could be a new range for the next few years.

I'd prefer to just watch the charts.. Just in case Einhorn is right.

Roubini: If Dollar Carry Trade Unravels, Markets Could Crash (CNBC Video - 10/26/09), Did He Spark $UUP Call Volume Today?

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Roubini was on CNBC on 10/26/2009. He said we are seeing the "mother of all carry trades" with the US Dollar. If the carry trade unravels it could reprice and/or bring volatility to the global markets since everyone is shorting/borrowing cheap US Dollars to fund risky assets around the world. Since global assets (equities, commodities, credit) are "perfectly correlated and levered" to the US Dollar carry trade, "once we have a realization that the Fed will start tightening or they can't defend the long end, global assets could come crashing and that's a risk we are facing". He thinks gold will only go higher if there is inflation or a global financial meltdown. From a trading perspective, watch the US Dollar for a catalyst.

BTW, did Roubini spark up some $UUP call buying today?? So far today, 6,000 $23 November calls traded with 30,750 open (last 0.15), 32,100 $23 December calls with 96,637 open (last 0.25) and 6,800 $24 December calls with 38,816 open (last 0.10) (hat tip
OptionMonster). All volume was UNDER open interest so you'll have to decipher the nature of the volume and new open interest. Also there is nice volume on UUP, charting it out.

Transports $IYT Showing Weakness, AAR Rail Numbers Less Bad But Negative YoY, Industrials In Rising Wedge, Sector ETFs 50dma and RSI Comparisons

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Numbers out of railfax through October 17 are LESS bad than July/August of this year but they are still negative year-over-year and year-over-2007. Railfax posts weekly reports using data from the Association of American Railroads. Below is a snapshot of this week's "Total North American Rail Traffic - Combined US, Canadian and Mexican Traffic". I don't see any gains over 2008 or 2007 however traffic data is LESS negative from mid-2009 to now (chart below of 13 week rolling averages). I provided the most recent AAR Rail Time Indicators video update below (for September).

Source: Railfax
Source: Railfax

Will AUD/USD, $FXA Retrace the WHOLE 2008 Move?

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Will AUD/USD (Australian Dollar priced in US Dollars) and the the etf $FXA retrace 100% of it's losses peak to trough from 2008? Here is the FXA chart and I slapped on some triangles. We are at another inflection point to ride. This chart and the BRL (Brazil Real) are the underlying currencies of the successful global reflation trade so far. There have been minimal retracements. Waiting for resistive forces.....

Sergey Brin at Web 2.0 Summit 2009 (Video)

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Sergey Brin (Google founder) had a conversation with John Battelle (Federated Media Publishing) at the Web 2.0 Summit on 10/23/2009. Found at OreillyMedia channel on Youtube.

Financial News for 10/24/2009: S&P, Bernanke, China, Goldman..

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  • S&P 500 Retreat Signaled by ‘Bearish Wedge’: Technical Analysis (Bloomberg)
  • Bernanke Says Financial Firms Should Pay for Closings (Bloomberg Video)
  • Goldman Sachs Still Paid for Swaps on Redeemed Bonds (Bloomberg)
  • VIX Futures Show Lingering Risk of Stock Swings: Chart of Day (Bloomberg)
  • U.S. Risks Japan-Like ‘Lost Decade’ on Stimulus Exit, Koo Says (Bloomberg)
  • Irish Bar Values Plunge 40% as Pub Culture Mirrors Economy Bust (Bloomberg)
  • China Economy May Slow Next Year, Stephen Roach Says (Bloomberg)
  • Obama Declares Swine-Flu Emergency (WSJ)
  • Capmark, Big Commercial Lender, May File for Bankruptcy (NYT)
  • Capmark Financial near bankruptcy: WSJ (MarketWatch)
  • U.S. Bank Failures Exceed 100 for Year, First Time Since 1992 (Bloomberg)
  • Blackstone plans IPO for Merlin Entertainments: report (MarketWatch)
  • Existing-home sales rebound to 2-year high (WashingtonPost)
  • Suit: Cocaine, sex in Madoff's workplace (CNN)
  • Shift to e-books to hurt bookstores, analysts say (AP)
  • CIT Warns of Big Losses if Investors Reject Plan (NYT)
  • Icahn Could Become Top Shareholder at CIT Group (WSJ)
  • JAL faces $8.8 billion excess debt if liquidated: source (Reuters)
  • GM board to reconsider Opel in early November (Reuters)
  • Secondary Market Now Driven by Mega-Funds, Not LP Liquidity (PE Hub)
  • DEALTALK-Las Vegas Sands loan faces bumps, may pressure IPO (Reuters)
  • Soros says taxpayers right to resent bank bonuses (Reuters)

Big Unusual Volume On XHB November $16 Calls, Existing Home Sales and Tax Credit Speculation (Chart, Links, 10/22/09)

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Big money moved into the $XHB November $16 Calls today, probably betting on the existing home sales number tomorrow at 10:00am. Also, speculators could be placing bets on a potential tax credit extension (ACUMA Comments: Extending the $8,000 First-Time Homebuyer Tax Credit-Reuters). About 100,000 November $16 calls were bought for 0.30. On the minute chart using OptionXpress (anyone have an embeddable options chart?) showed that 40,000 and 45,800 hit at .30 at around 2:36. An institution threw $2.5 million on this trade. The trade might not be speculative, it could be hedging a voluminous short position. But lets say someones got a mil to burn and wants to see XHB over $16.30 by November 20 expiration. A total of 123,000 November 16 calls traded with 7,000 open.

On the ISE, XHB option volume was 7.6x average volume and the ISEE exploded 10,600% to 856 with 21,770 calls opened/2,540 puts opened on the International Securities Exchange. The chart is being squeezed in a triangle just above $15 support from 2008. It closed at $15.38 today just above the 50 day moving average on strong volume. RSI and MACD have been trending lower with neutral price movement, however both are hovering around the neutral 50 and 0.0 level respectively. Obviously a breakout or breakdown would be a nice trade. It's also testing the downtrend from 2007. Are these calls levering up here?

XHB Chart (Courtesy of Stockcharts.com)

Calls go through roof in homebuilders (optionMONSTER)
SPDR S&P Homebuilders (XHB) $15.28 +3.38% (WhatsTrading)
Bullish bets placed on the home builders: XHB TOL LEN (Trading RM, LLC)

Also this is interesting: Goldman Sachs Positive On Homebuilders Ahead of Earnings/Tax Credit Extension (XHB, DHI, MTH, TOL) - (Street Insider)

Hat tip Adam Warner on StockTwits today.

NYT, WSJ, Google and HuffPost at Web 2.0 Summit on Journalism (10/22/09)

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Wow... The Wall Street Journal (Robert Thomson), Google (Marissa Mayer), New York Times (Martin Nisenholtz) and Huffington Post (Eric Hippeau) talk about the evolution of journalism with John Battelle of Federated Media Publishing at the 2009 Web 2.0 Summit. They talk about reporting, stealing content, traffic, advertising etc. Title:"Discussion: Whither Journalism?". Web 2.0 content jacked courtesy of Oreilly Media on YouTube. So will Rupert make a major move and bring volatility to journalism?

Niall Ferguson: US Dollar Could Lose Another 20%, $UUP Around $22 Support, Put/Call Open Interest Ratio and Short Interest (10/22)

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On Tech Ticker from the Buttonwood Gathering, Harvard Economist Niall Ferguson said the US Dollar could lose 20% by year end. Major points he made:
  1. The stock market rally from the foreign investor's perspective has been an illusion because "the dollar's depreciation negated all the appreciation of the S&P 500 from March". Why would they want to hold dollars with a sliding currency and no investment returns.
  2. The real trade weighted dollar index is "only down 9% from it's post crisis peak, it could go another 20% and be well within historical probability."
  3. Reserve currencies don't last forever.
  4. "Fed could get pushed by the bond market into monetizing more debt".

The Fed Owns Crossroads Mall in Oklahoma City, $24 Million Listing Price

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Bernanke will give you this mall for $24 million. Here is the Crossroads Mall website.

FEATURE: Deserted shopping mall bleak symbol of Fed bailout (Reuters)
Fed Chairman Bernanke: Crossroads Mall landlord (NewsOK)
Bear Stearns Rescue Turns The Fed Into A Lawsuit Magnet (Business Insider)
Fed becomes reluctant landlord (Reuters Blogs)

View Larger Map

Hang Seng Property Index, Henderson Land (0012) Break Out, 39 Conduit Unit Sells For $57 Million!

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Distressed Volatility (仿旧波动) - China Section (中国科)

I am testing the waters on the HKEX (Hong Kong Stock Exchange) on
Google Finance. I've been watching the Hang Seng Property Index (HSNP:Hong Kong) and Henderson Land Development (0012:Hong Kong) on the HKEX for a few weeks now. The Hong Kong Property Index broke out of a symmetrical triangle recently and ran all the way up to 30,000 (above the August highs). It is currently trading at 29,952 after reaching 30,112 a moment ago. I talked about this trade on October 5 and October 13 when it was approaching the potential break out point. It could fly or retest support from here.

Henderson Land Development (0012:Courtesy Google Finance)
Hang Seng Properties Index break (HSNP:Courtesy of Google Finance)

The reason why I'm watching the Hong Kong Property sector is because Henderson Land Development just sold a unit (翠錦園:39 Conduit Road)‎ for a world record price of HKD439 million aka $57 Million!

This is from the press release:
"A Record Breaking Deal that Tops Asia

Mr. Lam stated, "The supply of new luxury residence in Mid-Levels is extremely scarce while luxury properties in such area have always been a sought after choice. We have recently witnessed record-breaking deals in luxury property market. As a result, we have offered exclusive previews of showflats of 39 Conduit Road for selected VIP buyers the past weekend. Market response has been encouraging and we have received numerous enquiries since then. Among all our deals, the top floors special units recorded a HKD71,280 per sq ft (68th floor, unit A, size at 6,158 sq. ft) deal that totaled to HKD439 million. The deal also created records in numerous area, including the followings:

* Record-high of construction price per square foot
* Price per square foot surpasses all residential properties including mansions and houses
* Set new record among properties in Asia
* Challenges to be the highest global price per square foot on split level units (comparing usable area)
* The second highest deal in '39 Conduit Road', reached HKD64,605 per sq ft (68th floor, unit B size at 6,144 sq.ft) deal that totaled to HKD397 million. The Deal also sets a record deal in Hong Kong property market. " (Source: hld.com)
Recent News & Views:

China markets up as Hang Seng property index surges 5.8pct (ProactiveInvestors.hk)
Hang Lung boss a skeptic over sky-high luxury prices (The Standard)
Legislators slam Hong Kong developer's tall storeys (AFP)
In Hong Kong, a $56.6 Million Apartment (New York Times)
Hong Kong Has World's Most Expensive Apartments (조선일보(영문판):Chosun.com)
Singapore's DBS Group retains "buy" rating for Henderson Land Dev't (HK$57.50) (ChinaKnowledge)
Hong Kong flat 'most expensive' (BBC News)
Hong Kong apartment sold for a record 57 million dollars (Rabihdagher.com w/ BBC Video)

Here it is...
Source: AFP

Prechter on Fibonacci, Fractals and Financial Markets (Video Documentary/Socionomics Institute)

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Robert Prechter on Fibonacci, fractals and financial markets.
"View a 7-minute clip from the groundbreaking documentary from the Socionomic Institute, History's Hidden Engine, which discusses the existence of the Fibonacci ratio or "Golden Number" in many of life's systems, including the financial markets. To view the entire 1-hour documentary for FREE, click here." (Source: ElliotWaveIntl)

Full disclosure: Although I do work as an affiliate for Elliott Wave International, I have followed Bob Prechter's work and am confident in the quality of his products and services.

Brazil Taxing Foreign Debt, Stock Purchases, BZF, EWZ, USD/BRL at Resistance (Charts). Will It Work?

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Brazil is trying to slow down hot dollar inflows by imposing a tax on foreign based "real" denominated fixed income and stock investments. Will it work? Brazil is a commodity exporter, and higher commodity prices and Chinese demand have made it a target for hot money, carry trades etc (interest rates are at 8.75%). The iShares MSCI Brazil Index Fund ETF has been on fire and so has the real. The trend is your friend, but watch out for a strong reversal (it closed at 73.20 -4.04% in after hours).

Recent option activity: EWZ saw a November Put spread on 10/16/09. 10,000 November 74 Puts were bought at $3.10 and 10,000 69 Puts were sold at $1.45 according to Andrew Wilkinson of IB. That trade will profit below $72.35. It could make it. Someone also bought 2,000 November 75 calls that day for $3.30.

Brazil Real Cut to ‘Underweight’ at RBC on Tax (Bloomberg)
Brazil’s ‘Desperate’ Tax Won’t Stem Currency’s Rise, Cunha Says (Bloomberg)
Brazil’s ‘Moment’ at Risk as Real Gains, Freitas Says (Bloomberg)
Brazil Exchange-Traded Fund Plunges 3% on Tax on Foreign Inflows (Bloomberg)

US Dollar/Brazil Real (USD/BRL)

ForexProsForex Charts Powered by Forexpros.com - The Forex Trading Portal.

BZF (Brazil Real ETF)

EWZ (Brazil ETF)

Hat tip 0HEDGE for tax news.

Will Currencies Be The Next Lehman? Einhorn's Speech (Dollar, Euro, Pound, Yen, Gold)

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With all of the money printing going on globally, many people believe there will be a currency crisis and eventually a repricing of sovereign debt risk (US Treasuries priced in US Dollars, JGBs in Yen). Lets not forget the aggressive currency players betting on a prolonged period of 0% interest rates by shorting US Dollars and putting on carry trades (selling lower yielding dollars for higher yielding currencies BRL, AUD). So there are definitely people trying to profit off of the demise of purchasing power. Kind of reminds me of Lehman shorts and CDS holders pre-bankruptcy. Commodities investor Jim Rogers has been warning about a currency crisis for a while now (see his CNBC interview on June 16.).

So now hedge fund manager David Einhorn of Greenlight Capital, who publicly shorted Lehman before it's demise, is positioning for a currency crisis by buying gold. He's not singling out the US Dollar either, he doesn't have faith in the Yen, Euro or Pound. The full speech PDF is available at Rolfe Winkler's Reuters blog post. Interesting points he made:

"I believe there is a real possibility that the collapse of any of the major currencies could have a similar domino effect on re-assessing the credit risk of the other fiat currencies run by countries with structural deficits and large, unfunded commitments to aging populations..."

"I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis..."

"....When I watch Chairman Bernanke, Secretary Geithner and Mr. Summers on TV, read speeches written by the Fed Governors, observe the “stimulus” black hole, and think about our short-termism and lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The Euro, the Yen, and the British Pound might be worse. So, I conclude that picking one these currencies is like choosing my favorite dental procedure. And I decide holding gold is better than holding cash, especially now, where both earn no yield.

Along these same lines, we have bought long-dated options on much higher U.S. and Japanese interest rates...."

He was right about Lehman and the bond insurers, so keep an eye on gold. He did say he could be wrong if "our leaders implement much greater fiscal and monetary restraint" (Volcker style interest rate policy). But he's been right more than he's been wrong... We shall see!

Medical Marijuana Inc. MJNA Up On Obama's Medical Marijuana Guidelines (Videos, Press, Charts - 10/19/09)

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I don't usually look at penny stocks but today is the exception. Medical Marijuana Inc. (MJNA) and Cannabis Science (CBIS) popped today on Obama's new medical marijuana guidelines: Medical Marijuana Policy Eased by Justice Department (Bloomberg).

"Oct. 19 (Bloomberg) -- The Obama administration is advising federal prosecutors not to seek criminal charges against those who use or supply marijuana for medical purposes in accordance with state laws".

Medical Marijuana Inc. (MJNA) is up 20% today at 0.32 last time I checked. Below I found an interview with the CEO. He might be high but he thinks it is the next Microsoft! Go to the website: Medicalmarijuanainc.com.

Also, "Breaking News: Cannabis Science (CBIS) Reports Obama Administration Issues New Medical Marijuana Policy; One More Step Toward Legalization As The Federal Government Won't Prosecute Medical Marijuana If Compliant With State Law" (Reuters/BusinessWire).

This is interesting.. Crime around medical marijuana dispensaries in Colorado. They should just legalize it. Maybe we will see Marijuana Farm REITs down the road.

Full disclosure: I do not have possession of Medical Marijuana Inc or Cannabis Science and there is no recommendation to buy marijuana stocks, or pot on this post.

CIT 3/2011 Bonds at $55, CDS 40bps, Icahn Offers $6 Billion Loan

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An update on the CIT Group mess... Icahn, the largest creditor is offering to underwrite a $6 billion loan. I also provided a view of the CIT Group retail note that matures on 3/15/2011. It is trading at $55 and yields 54.17%. View the quote and charts at FINRA.org's Bond Center. As of 7/16/2009 Moody's rates the bond at Ca and S&P CC. Looking at Markit's quotes, CIT Group CDS trades at 40bps up front.

CIT 3/2011 Note Price (Courtesy FINRA.org/Marketwatch)

Egan-Jones On Why Carl Icahn's CIT Overtures Are Irrelevant (Zero Hedge)
CIT’s Changes Do Little to Enhance Debt Swap, CreditSights Says (Bloomberg)
Icahn offers CIT Group $6 billion loan (AP)
UPDATE: Icahn Offers To Underwrite $6B Loan To CIT (WSJ)
Icahn Offers CIT $6 Billion Loan, Calls Board ‘Incompetent’ (Bloomberg)
Icahn offers CIT 6 bln dlr loan, blasts board (AFP)
The Daily Docket: CIT Amends Exchange Offer (WSJ/Bankruptcy Beat)
CIT Sweetens Exchange Offer (WSJ)
CIT Group Revises Debt Plan (NYT)
10/13: CDS On CIT Hover As Bankruptcy Looms (Derivatives Weekly/subscription)
10/5: If CIT fails, Goldman wins -- with a $1 billion payoff (DailyFinance)
10/5: CDS in the spotlight in Goldman purchase of CIT debt (Financial Times)

S&P, SPY Elliott Wave C, 50% Fibonacci Retracement Charts

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Robert Prechter uses the Elliot Wave Principle to determine market moves. He correctly called the March lows and is now predicting a wave lower based on momentum indicators, sentiment and the Elliott Wave principle (10/5 interview). What is it....
The Elliott Wave Principle
In the 1930s, Ralph Nelson Elliott, a corporate accountant by profession, studied price movements in the financial markets and observed that certain patterns repeat themselves. He offered proof of his discovery by making astonishingly accurate stock market forecasts. What appears random and unrelated, Elliott said, will actually trace out a recognizable pattern once you learn what to look for. Elliott called his discovery "The Elliott Wave Principle," and its implications were huge. He had identified the common link that drives the trends in human affairs, from financial markets to fashion, from politics to popular culture.
Robert Prechter, Jr., president of Elliott Wave International, resurrected the Wave Principle from near obscurity in 1976 when he discovered the complete body of R.N. Elliott's work in the New York Library. Robert Prechter, Jr. and A.J. Frost published Elliott Wave Principle in 1978. The book received enthusiastic reviews and became a Wall Street bestseller. In Elliott Wave Principle, Prechter and Frost's forecast called for a roaring bull market in the 1980s, to be followed by a record bear market. Needless to say, knowledge of the Wave Principle among private and professional investors grew dramatically in the 1980s.
When investors and traders first discover the Elliott Wave Principle, there are several reactions:
  • Disbelief – that markets are patterned and largely predictable by technical analysis alone 
  • Joyous “irrational exuberance” – at having found a “crystal ball” to foretell the future 
  • And finally the correct, and useful response – “Wow, here is a valuable new tool I should learn to use.”
Just like any system or structure found in nature, the closer you look at wave patterns, the more structured complexity you see. It is structured, because nature’s patterns build on themselves, creating similar forms at progressively larger sizes. You can see these fractal patterns in botany, geography, physiology, and the things humans create, like roads, residential subdivisions… and – as recent discoveries have confirmed – in market prices.
Natural systems, including Elliott wave patterns in market charts, “grow” through time, and their forms are defined by interruptions to that growth. 
Here's what is meant by that. When your hands formed in the womb, they first looked like round paddles growing equally in all directions. Then, in the places between your fingers, cells ceased growing or died, and growth was directed to the five digits. This structured progress and regress is essential to all forms of growth. That this “punctuated growth” appears in market data is only natural – as Robert Prechter, Jr., the world's foremost Elliott wave expert and president of Elliott Wave International, says, “Everything that thrives must have setbacks.” 
Basic Elliott Wave PatternThe first step in Elliott wave analysis is identifying patterns in market prices. At their core, wave patterns are simple; there are only two of them: “impulse waves,” and “corrective waves.”
Impulse waves are composed of five sub-waves and move in the same direction as the trend of the next larger size (labeled as 1, 2, 3, 4, 5). Impulse waves are called so because they powerfully impel the market. 
A corrective wave follows, composed of three sub-waves, and it moves against the trend of the next larger size (labeled as a, b, c). Corrective waves accomplish only a partial retracement, or "correction," of the progress achieved by any preceding impulse wave. 
As the figure to the right shows, one complete Elliott wave consists of eight waves and two phases: five-wave impulse phase, whose sub-waves are denoted by numbers, and the three-wave corrective phase, whose sub-waves are denoted by letters.
What R.N. Elliott set out to describe using the Elliott Wave Principle was how the market actually behaves. There are a number of specific variations on the underlying theme, which Elliott meticulously described and illustrated. He also noted the important fact that each pattern has identifiable requirements as well as tendencies. From these observations, he was able to formulate numerous rules and guidelines for proper wave identification. A thorough knowledge of such details is necessary to understand what the markets can do, and at least as important, what it does not do. 
You have only just begun to learn the power and complexity of the Elliott Wave Principle. So, don't let your Elliott wave education end here. Join Elliott Wave International's free Club EWI and access the Basic Tutorial: 10 lessons on The Elliott Wave Principle and learn how to use this valuable tool in your own trading and investing."

I attempted to chart out some waves on SPY and also provided trends and Fibonacci retracements on the S&P 500. Mr. Prechter please comment with your thoughts.

Here is a potential "corrective" wave formation. To attempt a breakdown $SPY needs to break below 107.5 support and retest the 50 day moving average (103.74).

Charts courtesy of Stockcharts.com
Attempting wave patterns from 2007 peak to March 2009 trough. "C" must be confirmed before declaring this move a bear market rally.

The S&P 500 closed at 1,087.68 and is near the 50% retracement level (1,121.44) and 61.8% retracement (1,228.74). The S&P is also close to the downtrend that hits the y-axis around 1,160 and is near July 2008 resistance (1,200). Which number will be hit before we see a correction 1,121, 1,160, 1,200, 1228 or.... 1,576. That would be a great black swan.

Is it time to hedge a potential wave? I know this goes against the Bernanke liquidity trade, but there HAS to be a decent correction at some point! Watch the streaming S&P chart below to see what happens. By the way, visit the Afraid To Trade blog by Corey Rosenbloom for Elliot Wave analysis.

VIX Update: Implied Volatility On Volatility (10/17)

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According to Bloomberg (VIX Posts Worst Losing Streak in Four Years as Dow Tops 10,000 ), the $VIX (Volatility Index) is down 74% from the November 2008 high. It closed at 21.43 on Friday. The $VIX is the forward 30 day implied volatility on S&P 500 index options (Go to: Ten Things Everyone Should Know About the VIX at Vixandmore.com). So if you're worried about market volatility going forward, buying puts on the S&P are CHEAPER than they were 6 months ago. The only problem is they could get cheaper (if appreciation is your main goal). Here is the CBOE VIX Index streaming via freestockcharts.com.

There are also options on VIX futures contracts that you can follow. For a few months now (chart below), implied volatility on the VIX has been higher than 30 day historical volatility. Spikes in $VIX implied volatility have translated into underlying $VIX moves, however the VIX moves translated into either a higher market (late July) or minor sell offs.

Now we have interesting action again in the $VIX, $VIX implied volatility and VIX futures. As of 10/17, VIX Implied Volatility is at 106.59% while VIX Historical Volatility is at 58.42%! That is a decent spread between what the market is implying going forward vs. 30 day historical VIX volatility. Hat tip @smsearsBarrons. Not only that, there's a big spread between VIX put implied volatility and call IV. Ivolatility.com data shows that VIX Put IV is at 111.54% while call IV is at 101.64%. People like those puts, watch the 10/16 Volatility Sonar report. Eventually VIX volatility will sell off (imo) and the $VIX will move, just like the July 22 peak (Put IV was also higher than Call IV at that time). The actual $VIX calculation is hitting lows at 21.43, the October VIX future is at 22.35 while the February contract is at 27.30. Something has to give here, again.

VIX Implied Put/Call Volatility (Courtesy of IVolatility)

For better interpretation and knowledge hit up OptionMonster, VIXandMore, DailyOptionsReport and InvestingWithOptions. If you have a website on volatility put a link in the comment bar, I'd like to see it.

Geithner Speech Video At Buttonwood Gathering 'Fixing Finance' Event

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Secretary Tim Geithner spoke at the Buttonwood Gathering (Fixing Finance) event. You can find it here at Bloomberg.com. It's a 58 minute video.

Robert Shiller: Don't Expect Dramatic Continuation to Rally, Surprised By Momentum and Housing Turn

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At the very end of the video Yale Professor Robert Shiller says:
"My idea is we're kind of bouncing around a resistance level... My price/earnings ratio is around 20 now... You know it's ok to buy stocks but don't expect a dramatic continuation of this".
He's shocked by the market momentum and rebound in home prices. "This is the sharpest turnaround we've seen since 1933". Watch the whole video.

How Goldman Made $3 Billion in Q3: Dylan Ratigan, FICC Revenues (MSNBC Video)

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Hat tip Zerohedge.

Goldman Sachs made $10.02 Billion from trading and principal investments! Fixed income, currency and commodities (FICC) net revenues increased 368% to $5.9 Billion from $1.6 billion a year ago (8/29/2008). These numbers were lower than Q2. I have some good news for the U.S Taxpayer though. From their earnings release.
"On July 22, 2009, the firm repurchased the warrant issued to the U.S. Treasury pursuant to the Treasury’s TARP Capital Purchase Program for $1.1 billion. The U.S. taxpayers’ annualized return on their total investment in the firm was approximately 23%" (Source: Goldman Sachs)

Goldman's Q3 Revenues By Segment (Earnings Release)

Goldman you should come out with a rap album to demand respect in the game.

Hedge Fund Insider Trading Case! (Galleon, New Castle, Intel Capital), Recent Ponzi News 10/16/09

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Hedge fund Galleon is in some trouble for insider trading.
  • Galleon Statement (Reuters)
  • Galleon Busted In $20 Million Insider Trading Case (Zero Hedge)
  • One Of U.S.' Richest Men , 5 Others, Charged In Insider Trading (NPR)
  • Who Cooperated With The FBI On Galleon? (DealBreaker)
  • Insider Trading Arrests Rock Wall Street (Thestreet.com)
  • Hedge-Funder Raj Rajaratnam Got Cranky When People Refused to Partake in His Insider-Trading Scheme (NYMag)
  • GALLEON PRESS CONFERENCE BLOG: FBI Says 'Average' Investor Got Hurt (WSJ)
  • Galleon's Rajaratnam, Others Charged In Insider Case (WSJ)
  • Galleon’s Rajaratnam Charged in Insider Trading Scam (Bloomberg)
  • Hedge Fund Executive Is Charged With Insider Trading (DealBook)

Full report by David Faber at CNBC.com (Six Charged With Hedge Fund Insider Trading)

How about recent ponzi scheme news while I'm at it (I found Indian and Canadian schemers as well, to make the US feel a little bit better). I present to you Madoff aftershocks.
  • SEC Charges Three Florida Men in Alleged $14.3 Million Ponzi Scheme (WSJ)
  • S.F. man accused of 30-year Ponzi scheme (SFGate)
  • Florida man indicted in $20 million Ponzi scheme targeting Harrisburg area (TheSentinel)
  • New Jersey man confesses to $6 million life insurance Ponzi scheme (IFAwebnews)
  • Elk Grove Village man accused of stealing millions from investors in Ponzi scheme (Chicago Tribune)
  • FBI, IRS looking into Canadian Ponzi scheme (MontrealGazette)
  • Detroit Man Indicted in $200 Million Ponzi Scheme (Bloomberg)
  • Mass. Hedge Fund Manager Gets Seven Years For Ponzi Scheme (FINalternatives)
  • Breaking: Alleged Ponzi Schemer Nicholas Cosmo Jailed (WSJ Blogs)
  • Broker accused in SEC complaint of luring elderly into Ponzi scheme (Freep)
  • Second Man Arrested for Fraud in Canada’s Biggest Ponzi Scheme (Bloomberg)
  • Firm booked for duping investors of Rs 1.2 cr (TimesofIndia)
  • Beverly Hills investment advisor pleads guilty in Ponzi scam (LA Times)
  • Riverside County man sentenced to 100 years for operating Ponzi scheme (LA Times)
  • Montana Seeks Assets in Alleged $14M Ponzi Scheme (NY Times)
To keep you updated here is a google news search on "ponzi scheme" during the past month. Wow, so much for ethics classes.

Break Point

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Break Point (Update on California and oil by Gregor.us)

If Google Finance Had a Stock Chart Embed Feature, I'd Use It!

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It would be cool if Google Finance had a stock chart embed feature so I could throw them up on my blog. Kirk and Cartoon Barry are with me on this one too. I see a "link to this chart" feature but no embed. I'd embed the charts every day If I could draw trend lines on them. Google Finance has great charts for stocks and indexes on foreign exchanges, let alone the NYSE/NASDAQ etc. For example here is the Hang Seng Property Index and Henderson Land Development Co out of Hong Kong.

Exact Chart Source at Google Finance

Joe Saluzzi Is Not Buying This Rally On P/E, Q-Ratio (Video)

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Joe Saluzzi of Themis Trading is not buying this rally. Summary of his thoughts, watch the video.
  • If you're looking at a forward P/E over 16, that prices in a vibrant economy, not an economy that is still suffering.
  • Regarding banks: Fed is giving away money for free and they lend it out at 5% (easy money).
  • If the economy is so great, why is the Fed keeping interest rates at 0%?.
  • "I'm betting still that the problems that we have in housing and unemployment and the deficit rising are going to trump all of that".
  • Foreclosed shadow inventory will put pressure on housing.
  • Realistically we have to be 15-20% lower to start. Looking at cyclically adjusted P/E and the Q-Ratio (total price/replacement cost) he sees a 35-40% retracement.
  • The market is not efficient.
Regarding the Q-Ratio, Bill Gross mentioned it in his December 2008 Investment Outlook called Dow 5,000 Redux where he explains it. A corrective wave will come people!

Marcus Millichap's Harvey Green: Commercial Real Estate Update (CNBC, 10/15)

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David Faber challenges Harvey Green of commercial real estate broker Marcus Millichap on CNBC. Here are a few of their national outlook reports from October 2009 on retail, apartments, office, second half medical office, industrial, senior housing. All can be found on their research tab, you have to sign up for free.

Peter Schiff's Thoughts On Dow 10,000, USD, Oil Breakout and Inflation (Video)

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Here is Peter Schiff on Dow 10,000, the US Dollar and an oil breakout. In real terms, measured in purchasing power (US Dollars), the S&P hasn't moved much over the year even with the swings. Look at the USD/SPX chart. It beat holding straight cash though. Pedro also believes that the market could fall in nominal terms or WITH the US Dollar, which would break apart the current inverse relationship. David Tice of the Prudent Bear Fund is also in this camp. Something to keep an eye on... By the way it does look like oil broke above resistance, if $75 sticks. Next up is $85 resistance from early 2008. We'll see if there is real growth attached to this action.

S&P vs. US Dollar Index (Courtesy of Stockcharts.com)

West Texas Intermediate Crude Oil ($WTIC - Courtesy of Stockcharts.com)

Partying Like It's 1999 Again, Dow Hits 10,000 (3/29/1999 CNBC Video)

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The Dow hit 10,000 today. We haven't budged in 10 years. Here is a look back on March 29, 2009 when CNBC reported that magical day. Now a crisis and a trillion dollars later, we were able to reach that level again.

March 29, 1999

October 14, 2009

Stuy Town/Peter Cooper Village Default Risk Updates (Video, Links)

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Remember that other shoe? Here are Manhattan commercial real estate updates:

An 11,000 apartment complex in Manhattan, owned by Tishman Speyer (a unit of BlackRock Inc), could default on it's loans. And it looks like pension funds could lose $600 million. From the video below: The property was bought for $5.4 Billion and financed with a $3 billion first mortgage plus a $1.4 billion mezzanine piece. An equity investor included the Church of England. Real Point said the property is now worth $2.1 billion.

  • Update: Stuy Town Still Screwed (Gothamist)
  • High-Profile Tishman/BlackRock Property in New York in Danger of Default (WSJ.com)
  • NYC housing complex on verge of loan default: report (Reuters)
  • Pension funds stand to lose $600M in Manhattan venture (LA BizJournals)
  • Real estate deal could cost CalPERS $500 million (SacBee)
  • T Minus Four Months Until Stuyvesant Town Defaults (New York Magazine)
  • Church of England could lose in StuyTown (The Deal)
  • Real Estate News: Stuy Town Teeters, Insurers Drop Drywall Victims (WSJ Blogs)
Also, Zero Hedge has an interesting article on the Union Square W Hotel .

Jim Rogers: Inflation Could Be Worse Than Seventies Stagflation (TT Video)

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Jim Rogers was on Tech Ticker a couple days ago. He says inflation going forward could be worse than the seventies.
  • The Government is printing a "stupendous" amount of money.
  • He mentions that there are shortages developing of everything (agriculture, mining products) and capacity constraints.
  • "All of this before has led to higher prices".
  • "The way inflation works is, it starts slow and it gets worse and worse and worse".
  • "The Federal Reserve has laid the groundwork for some serious inflation down the road by printing all this money but so have many other Central Banks."

The seventies had stagflation mainly as a result of shortages from price controls. So prices went up even when the economy was bad.

Explaining the 1970s stagflation (Source: Wikipedia)

"Following Richard Nixon's imposition of wage and price controls on August 15, 1971, an initial wave of cost-push shocks in commodities was blamed for causing spiraling prices. Perhaps the most notorious factor cited at that time was the failure of the Peruvian anchovy fishery in 1972, a major source of livestock feed.[16] The second major shock was the 1973 oil crisis, when the Organization of Petroleum Exporting Countries (OPEC) constrained the worldwide supply of oil.[17] Both resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fueling stations and increased production costs for industry.[18]"

The deflation argument is still alive and well though (Prechter on 10/6). Aaron Task also mentioned something interesting on Twitter:
"When the Dow 1st hit 10K in '99: total U.S. debt was $24.6T vs $50.8T now, gold was $280 vs $1,070, oil $16.44 vs $74.80 etc. -Peter Bookvar" (Source: @atask)

Hang Seng Property Index Battling 28,000 Level, Tsang Has Bubble Concerns

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Distressed Volatility (仿旧波动) - China Section (中国科)

Switching it up. This for traders at the HKEX (Hong Kong). I was watching a symmetrical triangle form on the Hang Seng Property Index (
HSP quote/chart) on this post and it could be breaking out. It still needs to clear the 28,000 resistance level to prove it has strength to retest 29,000 (August highs). There are risks. Andy Xie thinks Chinese stocks are overvalued and imo the chart does look ripe for an extended pullback at some point. So if HSP fails here and volatility picks up, it could test 26,000. Another risk to the downside is Government intervention. If I was on the long side I'd have puts for protection and to play downside volatility, if it shall arise.

HSP just tested 28,000 and sold off as we speak. There isn't a Hang Seng Property Index ETF so you have to go straight to the source at the 香港交易所.

Hang Seng Property Index (Courtesy of Bloomberg)

Looking at the 5 min chart, it pierced through 28,000 after the lunch break.

30Y Treasury Yields Lower at Resistance, $TLT Up (Live Charts)

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Updates on the 30 Year Treasury yield and $TLT (20+ Treasury ETF). 30Y T-Yields are selling off of a clean downtrend and what looks like 50 day moving average resistance. It could be the "no rate hike" speculation, safe haven buying or the Fed propping up the market. If you know disqus below. Here are a few articles by Bloomberg:

Treasuries Rise on Speculation Rates to Stay Low, Dollar Falls (Bloomberg)
Oct. 13 (Bloomberg) -- Treasuries rose for the first time in three days on speculation the dollar’s decline will spur demand from foreign investors as the Federal Reserve keeps interest rates at a record low through late 2010.
Treasury Bond Rally Fails the Asset-Bubble Test: Caroline Baum (Bloomberg)

TIPS Show Bernanke Isn’t Whipping Inflation Concerns (Bloomberg)

I prefer to watch price action for updates. Here are charts of the CBOE 30 Year Treasury Index and $TLT. Keep an eye on that TLT uptrend, if it breaks here there could be some yield volatility. $TYX would have to break above that downtrend.



Housing: XHB, PHM Calls Positioning Before October Expiration

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Earlier this morning I saw that 15,000 October 15 Calls traded with 4,400 open. $XHB is trading at 15.42.

This is interesting because OptionMonster just came out with a release on Pulte Homes (PHM) showing that the October $11 calls were active. What's up here, levering up or hedging short positions. They got 3 days until expiration.

Options look for pop in Pulte Homes (OptionMonster)

Pre-Earnings Chart Analysis: SPY, VIX, XLK, TLT, XLI, IYT, UUP, GLD, USO (10/12/09)

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Here are charts and technical analysis before major moves occur this week and next. I first charted out sector ETFs individually (Tech:XLK, Energy:XLE, Transports:IYT Industrials:XLI) and then did a 20 day performance comparison.

XLK has had a monster run and is now challenging the September '09 high and early 2008 lows. RSI (strength) is at 61 but has been diverging with price, same with the money flow index. The MACD (momentum) has been diverging with price but is still above zero, meaning the 12dma (faster moving avg) hasn't crossed below the 26dma (slower moving avg). You can also see that XLK is trading in a steep triangle and is near the moment of trend judgment. It did break above that 2 year downtrend and it is currently above the 50dma. IMO, wait for the catalyst. Either we retest the 50d or break out to 24.

Same goes for XLI, but it needs to break above the September 2009 high to reach the next resistance level, 32. Money flow is below 0 at -0.064. IYT has a historical ceiling and a downtrend to break above. MACD is just above zero so watch momentum. What's interesting is the money flow index. It is at -0.0176, hitting levels not seen since June.

XLE looks the best. It just pierced through resistance and if there is a follow through XLE could test 2008 levels, or 62. Money flow and RSI are strong but there has been price divergence.

Looking at 20 day sector performance comps, energy outperformed up 5.88%, tech was up 2.37%, industrials were unchanged while the transports lost -2.38%. Strength must pick up in the transports.

All the rest are self explanatory. The SPY needs to break above near term resistance if it wants to test 117 (July 2008 resistance). The VIX is hitting yearly lows for the third time at 23. I also provided charts of USO, TLT, GLD and UUP. USO is riding oil strength and is brushing up against symmetrical triangle/June resistance. A break above those levels would be interesting. I'd say provide some charts in the comment section but Disqus can't embed pictures. Wack.

XLK (Courtesy of Stockcharts.com)



XLE,XLI,XLK,IYT 20 Day Performance