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THERE ARE SIGNS OF LIFE

April 24th, 2012 by Leonard

There Are Signs of Life

 

 

 

 

 

 

Inflation

When I became a commodity broker in 1981 I had no pretense about the condition of the commodity markets. I immediately called myself a disinflation broker.

Having studied commodities since about 1977, I knew that the end of real Hyper inflation was when I began my career. And my view was confirmed when I talked to the inflation bubble brokers of the 1970s. The 70s bubbles in real estate and commodities were the first taste of fast money for Yuppie Boomers. 

At about that time the government through the metals exchange COMEX blew up the oil billionaires Hunt Brothers from Texas, who were attempting to corner the silver market. They held about 1/3 of the world’s silver and would use their holdings as collateral to take out loans from banks, and leverage futures positions at 3% margin. They would take delivery, and the market would rise from shortages of silver.

The COMEX exchange solved that little problem. They effectively bankrupted the Hunts with a liquidation only trading edict (restrictive margins for buying silver) for traders in the metal markets. Gold and Silver went straight down. The Hunts couldn’t meet the 100 million dollar margin call.

The Hunt Brothers of Texas

 

Nelson Bunker Hunt was a Bircher. The only importance to knowing that is that he saw no problem in controlling 1/3rd of the worlds supply of silver for no specific reason other than just controlling it while threatening the sovereignty of a nation or two. Increasing your wealth at the expense of the economy brought the Hunts some 2 to 4 billion extra dollars that they lost.

But ultimately he was introduced to how free markets really work. Ten years later, the Hunts were convicted of conspiracy to corner the silver market. So much for the game of Monopoly, but a lot of traders got a taste of fast money during that era…

Commodity brokers in the early 1970s enjoyed the high life. When I arrived at Smith Barney at the Chicago Board of Trade office in the early 1980s, I placed a trading machine on my desk. It was the most sophisticated trading machine in the industry at that time. My fellow brokers who were conditioned to inflationary trading asked me why I needed that machine. I told them to think of it as an F-16 fighter jet. They laughed and said all you need to do is buy any commodity and wait 3 days and it will go up.

Two years later I saw the attrition of accounts by traders who could no longer depend on buying any commodity and waiting 3 days for a rally. We were experiencing disinflation.(the dismantling of inflationary forces) That trend never stopped as America lost it’s manufacturing base.

Once You Taste a Bubble You’ve Got to Have More

Every decade after the late 70s, Boomers were able to create new and bigger bubbles. Just had to get on board and ride the waves and jump off before the crashes.

Fast forward to 2008, and the disinflationary forces that took hold in the 1980s advanced to stage 2… deflation. The difference between disinflation, and deflation is that disinflation removes inflationary forces, and the economy recovers reasonably well as almost all of the business structures remain in place.

Deflation is far more pervasive and difficult to overcome. It takes much longer for the economy to piece itself together, much longer than most people can tolerate, which then leads to the word depression. People simply get depressed when the world around them endlessly stagnates particularly those who have been conditioned to fast money. Resources diminish, people feel locked down, they pull money out of Mutual Funds to use it, and they try to hide what money they do have in perceived safe places like bonds, which is pretty scary when looking at those elevated price levels. Though Mr. Bernanke says they can keep doing that through 2014, unless he changes his mind.

The slightly good news is that so far corporate profits have been better than expected, and it appears that restructuring in the economy is beginning to take place. It is a stop start process held back by obstruction politics, and money in politics. The bad news is that Americans are not a patient people, so they create phrases like Creative Destruction. This serves to help explain the Ying and Yang of why painful experiences are good for you.

Along with the current deflation, Boomers are transitioning. The largest generation on record is retiring over the next 19 years with estimates of 10,000 Boomers a day turning 65. It’s anyone’s guess as to what this group of “me generation” Boomers are going to do, particularly the more narcissistic right to entitlement YUPPIE Boomers who are the creators of at least 4 major financial bubbles and crashes over a 40 year period. How are they going to keep themselves entertained? And what about the Tea Partiers how are they going to continue to vent their anger other than playing Angry Birds on their Smart Phones in airports. Can they create yet another bubble?¬† I’m guessing that they will try, just because they are so damn good at it.

The Rising Market That Nobody Likes

Click on chart to enlarge and then click again for clarity

 

One thing seems to be universal……..that this rally from March of 2009 is not very well liked. There appear to be 3 waves of up moves that have been supported by Fed actions QE1, QE2, and Operation Twist. It doesn’t seem to make a difference if the economy is gaining a little traction. We continue to see generally negative reporting on the economy by the media, the contrarian blogs, the Op-Ed writers in newspapers suggesting that now is the time to be paring back on your portfolio (for those who have a portfolio) It’s not safe out there.

It isn’t often that markets turn bearish just because traders are bearish. The 2007 market was silly bullish where bulls made it a daily ritual to call any bear an idiot doom and gloomer who just didn’t understand Goldilocks.

The S&P 500 vs NASDAQ 200

Yet as the market has been rising, the value spread between the S&P 500 and NASDAQ 200 stocks has gone sideways to slightly lower. I have been talking about this divergence between the Spread and the markets for several months in my 2 previous blogs  BURNING DOWN THE HOUSE The Paradoxical S&P at Years End. Where to Now?

and The Train is Slowly Pulling Into the Station ……But is that the End of the Line? published Feb 26 2012, where I felt that the S&P could have more upside to it than the 1384.00 price level I had forecasted at the beginning of the year. This revised view for further upside came as a result of a bullish pattern on the value spread between the S&P and the NASDAQ. When economies strengthen the broad based market as represented by the value of the S&P index goes up more than the value of the NASADAQ. I also warned that if the spread were to continue to deteriorate that it would pull the market down

The market did indeed push higher to 1419.75 at the end of March before cooling off but surprisingly, the Value of the S&P Index continued to erode against the value of the NASDAQ during that rally, as the economy slowed down and employment numbers flattened out.

The Value Spread is showing¬† recent signs of life and suddenly gaining strength. As of April 11 the market has moved straight up. This is largely due to the NASDAQ (technology) falling sharply while the S&P (financials) are stabilizing. If we presume that the NASDAQ tech stocks were very overbought relative to the broad based S&P stocks, then when the markets have come down, the NASDAQ is losing more value than the S&P. but….

It is interesting to see that the S&P is holding up so well, particularly in light of the financial troubles in Europe as well as a slight political shift in the winds away from the extreme and severe right wing austerity programs. The shift seems to be wanting to replace austerity with stimulation. It is further interesting to note that the S&P seems to be gathering some strength without as much underpinning from the Federal Reserve. No real promises about future QEs etc. The Fed speaks this week.

What we see is a constructive base development in the economy via the spread.

Click on chart to enlarge and then click again for clarity

 

 

 

 

 

 

 

What if The Base is a Plateau?

 If the base is really a plateau, then I believe it would be global forces everywhere coming under stress at the same time that might produce that kind of meltdown. Barring a meltdown, with slow growth,  it would take a while to feel growth rather than just staring at a statistic. Growth estimates have been going up slightly as nearly 80% of reporting companies have done better than expected in this earning season.

There are a couple of undeveloped H&S top scenarios on the daily chart of the S&P and if I see them then I am sure other traders see them, but the patterns need a lot more time to complete the picture, so they are not imminent. And I prefer that markets are psychologically bullish as a pre requisite to topping out.¬† We’ll just keep an eye on them.

There is a lot of work ahead with no expectations that any meaningful legislation will be passed before the elections in November. Who could have guessed?

 Stay tuned

Leonard Novy

I will be starting a new sequence of courses in the first week of May. 2012 with a new 8 week class on the foundations of Novy Principles of Market Flow and look forward to working with all of you throughout this year.

For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly

Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2012
www.trainingfortraders.com

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The Train is Slowly Pulling Into the Station ……But is that the End of the Line?

February 26th, 2012 by Leonard

The Train is slowly pulling into the station……but is that the end of the line?

A couple of months ago back on Dec 26, 2011, my last posted blog (Burning Down The House), revealed a Head and Shoulders bottom formation on the daily chart of the E-Mini S&P. The S&P was trading at the price of 1260.25.

Click on chart to enlarge and then click again for clarity

That H&S bottom projected a price target of approximately 1384.00. As of this last Friday, Feb 24, 2012 the market has climbed 103 points straight up to the price of 1363.25 with no significant breaks. This puts the market only 21 points from it’s target of 1384 projected 2 months ago.

Click on chart to enlarge and then click again for clarity

As the train is pulling into the station we are seeing an old high peak at 1373.50 posted on May 2nd, 2011 serving as overhead resistance. It is the highest point of trading in 2011 marking the decline of the Euro and the resurgence of the “Greek Tragedy”.

When markets approach “known” target levels above, it is common for the taking of profits to slow down the upward progress as well as a general unwillingness to establish new longs into what would appear to be the end of the line.

But is it the end of the line?

The underlying premise for believing in the 12/26/11  H&S Bottom on the E-Mini S&P was that there was also a Head and Shoulders bottom in the US Economy as displayed on the value spread between the S&P 500 and the NASDAQ 200.

Generally speaking, the S&P will gain in value on the NASDAQ 200 when the economy is showing strength.  (You will find the details about this spread by going to)

BURNING DOWN THE HOUSE The Paradoxical S&P at Years End. Where to Now?)

Pictured below is the chart as of 12/26/11 and a recent picture on 02/24/12. What is surprising is that while we have seen a straight up 2 month rally in the S&P 500, the NASDAQ 200, and the Dow Jones, the S&P has lost in value relative to NASDAQ.

Click on chart to enlarge and then click again for clarity

Recent chart

Click on chart to enlarge and then click again for clarity

Earnings season was underwhelming, but economic numbers are showing signs of life.

The pullback in the spread has been fairly consistent with it’s lower distribution peaks even though the individual markets rallied.

I have seen this lagging behavior before from Sept of 2010 thru the end of Nov 2010. During that period of time all of the indexes rallied sharply on the Feds announcement that QE2 would begin in November of 2010. This was to counter Euro problems with Greece. The spread pulled back.

Then suddenly, the S&P played catch up and rallied hard against the NASDAQ when QE2 actually kicked in during November of 2010 and lasted thru June of 2011. When that program ended, the world once again had to sit patiently by watching the Germans tearing apart the sovereignty of Greeks as the markets began to crash in the last half of 2011.

Click on chart to enlarge and then click again for clarity

The other possibility is that the Value Spread collapses and the markets top out.

The Germans cast themselves as the “saviors” of the Euro when in actuality they were fighting to prevent themselves from becoming the lenders of last resort. They are still stubbornly fighting a battle they cannot win. They will be forced to loosen up their pocketbooks or commit financial suicide by destroying the Euro zone. ¬†

When push comes to shove, severe austerity causes even more imbalances than what was brought about by systemic fraud. It’s like over steering and over correcting a big economic ship on the backs of the middle and lower classes.

As I am writing this piece the Germans are still trying to extract more money from the IMF. The US refuses. And the G20 are flat out telling the Germans that they are going to need to show them Euro money before expecting any extra help. They are piling up pressure on Germany to drop it’s opposition to a bigger European bailout fund.¬† This stubbornness and posturing has been going on for far too long and the global economic community is tiring of it.

Having said that it is a difficult and complex situation when fiscal unions threaten to destroy the social fabric of individual nations.

So the question I have for myself is assuming the S&P is able to reach it’s target of 1384.00 and consolidate, will the value spread between the S&P and NASDAQ begin marching upwards in a delayed reaction. And if so wouldn’t that push the S&P even further up to 1450.00 or 1500.00.

In other words The value spread has a target of 195 on the chart per the projection one would draw on the Head and Shoulders bottom. If that happens then the S&P will most likely head up to much higher levels. Perhaps German capitulation will cause that.

It’s bizaare, I know, but not any more bizaare than the comedy of generational politics that we have been watching over the last year and a half. Some of the old fogeys and young excessively fearful Scaredy Cats out there might want to take a lesson from the millennials¬† (under 32 year olds). It’s a lesson my mother born in 1908 who lived through all of the end of the world wars taught me all of my life. She would say “Live and Let Live”.

I will be starting a new sequence of courses in FEB. 2012 with a new 8 week class on the foundations of Novy Principles of Market Flow and look forward to working with all of you throughout this year.

For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly

Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2012
www.trainingfortraders.com

BURNING DOWN THE HOUSE The Paradoxical S&P at Years End. Where to Now?

December 27th, 2011 by Leonard

Burning Down the House    written 12-26-11

The Talking Heads 

The Paradoxical S&P at years end. Where to possibilities?

Once again just before the Christmas weekend the intransigent Tea Party representatives almost succeeded in “burning down the house”.¬†

The market was unimpressed as that caucus of young extreme right wing generation Xers continue to howl into the wind. The older moderates listen but then go about their business just as many countries in the world are turning away from hard right extremism and moving towards the center. Witness the Arab Springs and the recent rejection of Russia’s Putin

It is the rejection of fear. It is the rejection of using fear as a weapon of control.

To quote the early 20th century satirist H. L. Mencken

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

and………

“The worst government is often the most moral. One composed of cynics is often very tolerant and humane. But when fanatics are on top there is no limit to oppression.”

In the 2010 mid-term elections, the Democrats, to their benefit, were able to lose about 28 Blue Dog house of representative seats. These were so called moderates (not…more like right wing conservatives) who were a pain in the butt to progressive movements.

They were replaced by Tea Partiers.

That shifted the gnawing problems within the democratic party to the republicans who although initially embracing the large numbers of new repubs, can’t seem to train them to fall in line.

So we went from an era of muted compromises, to a new era of last minute aborted government shut downs.  The markets are still unimpressed.

The Paradox

The paradox is that the market stubbornly seeks higher ground even in the face of gridlock. This of course is a big surprise to the conservative pundits counting on a 2nd recession to win even more leverage in Congress, if not the White House.

The weapons of market levitation have come from the Federal reserve and it’s QE1, QE2, and Twist Operation, (selling short term notes and using proceeds to purchase long term bonds), to keep interest rates low for the mortgage industry.

The levitation of the stock market in the face of political gridlock here, the Euro-zone and the slowing of global growth has created erratic volatility chewing up fund managers with negative returns.

The synthetic and on going nature of this bear market rally from March of 2009, has been a source of frustration for most common sense technicians, because the market has never really tested it’s lows, nor did it develop a base ( a period of back and forth movement near the lows of March 2009 that test and create solid accumulation).

This is what keeps bearish thoughts at the forefront of many traders minds. The frustration comes from not wanting to participate on the long side without an established base building pattern, yet the market continues to stay buoyant.

The Technical Outlook

Let’s look at the technical condition and the paradox of bullish and bearish signs going forward into the New Year.

Currently the S&P 500 has formed a small Head and Shoulders bottom as depicted on the chart below. This was created by a temporary quieting of the European Unions problems and some better economic reports for the U.S..

The neckline of this H&S bottom is at the overhead 200 day moving average that the market has been trying to penetrate to the upside for 2 months. .

This pattern is subtle and is trapped between the overhead resistance of a Head and Shoulders top created from January thru July of 2011 and a block of market support from August thru September of 2011.

It is a highly unusual spot for this pattern since it would be acting as a continuation pattern forming a large body of accumulation relative to the lows of August and September. 

The target would be roughly 1383 to 1384 on the upside if everything went well for the bulls.

Click on chart to enlarge and then click again for clarity

 

 

 

 

 

 

 

The Negatives

 

Here are the negatives that could cause this bullish move to fail.

The 200 day moving average stands in the way and has been blocking upward progress for almost 2 months.

The pattern is time sensitive in that the right shoulder needs to push the market up now since the right shoulder is approximately the same size as the left shoulder in terms of time created.  Volume levels need to pick up to support any rally.

There are some intraday gaps below on the 60 minute chart that are common, the nearest term being just below 1217. That’s about 43 points lower. The market shouldn’t be going in that direction lower at this time for the sake of the H&S shoulders bottom pattern succeeding. ¬†¬†

Click on chart to enlarge and then click again for clarity

 

Common gaps are usually covered by market activity sooner than later, although there are some exceptions when market sentiment is highly directional that can forestall coverage to a much later date.

We can see the difficulties that lay ahead with this pattern, so let’s look at the one positive that is more supportive.

The Positive

One of the indicators that I use to monitor the health of the economy is the value Spread between the S&P 500 and the NASDAQ 200.  A value spread is different than a price spread in that it reads the actual value difference between the two indexes vs just reading price difference.

If the NASDAQ (NQ) moves 10 points, the value equals $200 for an E mini NQ at $20 per point. If the S&P 500 (S&P) moves 7 points, the value equals $350 for an E mini S&P at $50 per point.

Therefore the NQ moves a greater distance at 10 points vs the S&P moving 7 points but the S&P gains more in value at $350 ($50 x 7 pts) vs the NQ gaining $200 in value ( $20 x 10 pts.). That is an average proportionate ratio over longer periods of time.

The exception was in 1998-2000 when the NQ outpaced everything with the dot com bubble. That relationship moved so far out of whack with the NQ over the S&P that when the 2001 recession took place the NQ lost 80 percent of it’s value in that crash.

The S&P is looked at as the meat and potatoes of the market representing the economy while the NQ represents a lot of technology and is often a fickle index used by traders for quick gains that are pumped then dumped. This is related to the constant innovations in technology. The NASDAQ can lead in price movement to lay the foundation of what will be used to enhance the economy as the S&P begins to respond to the groundwork. But the S&P index must improve in order to sustain the economy and any technology sales

It is the value of the S&P that leads the way in a broad based rally representing all of the sectors of the economy.

In the spread below you see that there are 3 panes. The top pane is the S&P while the 2nd pane below is the NQ. The 3rd pane is the value spread difference between the 2 contracts.

Click on chart to enlarge and then click again for clarity

 

4 months ago the value spread was no better than it was at the bottom in March of 2009, yet the markets are a lot higher now than back then. Therefore the value of S&P stocks relative to NQ stocks were no better in August of this year than when they were in March of 2009. This is related to the banking problems both here and abroad. In many ways this chart also looks like the housing market.

A Basing Pattern has Developed on the Value Spread

Over the last 4 months a Head and Shoulders bottom pattern on the value spread has developed. The spread has broken out to the upside.

This is coinciding with the better economic numbers coming in lately in employment and housing. It raises a thought that if this spread continues to improve that the economy whether temporarily or permanently is improving and may be providing evidence that the S&P could rally into the New Year.

Click on chart to enlarge and then click again for clarity

 

 

 

 

 

 

The Performance

Again it will be very easy to tell if this will happen because it must happen very soon or jeopardize the failure of the bottom pattern causing liquidation of the many positions built up by the bulls over the last 4 months.

We need to see a nice upward push through the 200 day moving average on the dailyE-Mini S&P chart with good volume and it needs to happen very soon.

I wish all of you good fortune into the New Year.

We will be starting off the sequence of courses early in Jan. 2012 with a new 8 week class on the foundations of Novy Principles of Market Flow and look forward to working with all of you this coming year.

For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly

Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

CLASS WARFARE

October 11th, 2011 by Leonard

Class Warfare

It didn’t start last week, it didn’t start last year, It didn’t start with President Obama or with former President George Bush. It is a permanent fixture of American life as it pertains to capitalism and it always has been that way.

The intensity of class warfare increases and decreases in accordance to the imbalances in the distribution of wealth.  This can go both ways.

Deflation to Inflation to Deflation

The last 70 to 80 years can be distinguished by 2 very different economies each lasting about 35 to 40 years.

The deflation based economy of the 1930s moved to a peak inflation based economy in the late 1970s and then back again to a deflation based economy as we see it now.

Politically Driven Economies

We went from a union driven, manufacturing based, politically liberal democratic economy, to a non union, yuppie boomer white collar F.I.R.E based, politically conservative republican economy.

The 1930s thru 1973 created the largest and strongest middle class of all time.

The mid 1970s thru current times have created the wealthiest upper class of all time

The politics of the left that drove the manufacturing economy began topping out around 1973.

The politics of the right that drove the White collar F.I.R.E. economy began topping out around 2007.

Elections and Backlashes and Backlashes Squared

In 2008 there was an electoral change of the presidential congressional government.

In 2010 we saw a political backlash to that 2008 election (as one would expect). A 35 year old one way political bull market path to the right is not going to top out easily. When bull markets end, there is almost always a test of the former top.

The Tea Party is that test of the former top in 2008. They are the last blast of emotional over run to the hard right, hoping to institutionalize regressive behavior. It’s not working.

As younger Americans finally began to assimilate and understand exactly what happened before and after the 2008 crash, they are realizing that they need to create their own framework for their generation that will serve them over the coming decades.

Each generation passes thru life with what they have created as a framework when they were young and idealistic and in the formative stages of their development.

The youthful ones are realizing that the generations above them are waging old time political battles that are bogging down the nation and bogging down their progress. Young people are less subject to believing that the Emperor is wearing New Clothes.  The mature generations simply defend the status quo and try to get them to fall in line.

 

It’s interesting if not amusing how the Occupy Wall Street protesters use hand signs to communicate “approval”, or “I’m not feeling it” or a “block”.

In their own way through their loosely constructed simple rules, they seem to be instructing congress men and women on how democracy looks when it is working. If that isn’t¬† what they are doing then it seems that through their frustrations they want to understand how the system gets bogged down into gridlock.

Since they have many agendas it appears that they continue to define, shape and clarify what the finalized agenda will be…………using the collective minds.

The Separation of Wealth

 

Somewhere in the 1970s computer technology and globalization caused the great divide that ended the dominance of the “Great Society” the American middle class and initiated the rise and dominance of the wealth class.

On the chart below you can see a red line depicting the average income of the top 1% from the late 1970s thru current times.

Notice that the upward accelerations of those income bursts are all associated with investment bubbles most of which were rife with systemic fraud…

the late 1970s hyper inflation metal and housing bubble……

the late 1980s housing bubble and de-regulated savings and loans debacle…..

the late 1990s IPO internet bubble…

and the most heinous of all bubbles the recent real estate investment banking systemic fraud bubble of the late 2000s.

Click on chart to enlarge and then click again for clarity

 

Notice that the line of productivity (green line) continues to rise as worker’s salaries (blue line) stagnate. Workers got paid less and were expected to work overage. That increases corporate profits that are not shared by the workers but are distributed to shareholders through dividends.

That is a definition of “distribution of wealth”. It is also a definition of the “transference of wealth” on the backs of the workers, that first goes up to the corporate coffers and then is “distributed” down to the investors. By proxy, this is one way how the extraction of wealth from the middle class has taken place.

Trickle down never made it past the first tier of investors.

Investors should expect and get a return on their money as long as there isn’t something terribly inequitable and morally corrupt in how it’s done.

The S&P

 

Last month I presented this chart and cautioned that closes below 1123.00 were required to threaten a bear move down to 912.00, other wise the market may rally. We saw an attempt to close one time below 1123.00 but that was quickly reversed on another promise that by early Nov, Merkel and Sarkozy will have it all figured out for Greece.

Click on chart to enlarge and then click again for clarity

 

For now it is invoking another trading range. Deflation is a long term event and is waiting patiently to continue wringing the speculative excesses out of the marketplace.

Click on chart to enlarge and then click again for clarity

 

Paul Volcker fought inflation in the 1980s. It took him about 7 years to make a big dent in that psychology. It actually took a 1987 crash to put the final stamp on inflation.

Ben Bernanke is fighting deflation in the late 2000s at the opposite end of the spectrum. The great experiment is still on going. I’m just moving with the market flow for now.

A new 8 week Training for Traders class will begin during the week of Oct 17

 
For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly
 
Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

OK LET’S TAKE A LOOK AT THE MARKET FLOW OF THE S&P

September 15th, 2011 by Leonard

Ok let’s take a look at the Market Flow of the S&P

 

It’s been a few month’s since last I wrote. That was May 5 but everything in that blog is still completely contemporary. If you look at the chart I posted and my notes, I clearly said that the market needed to turn back up from the 1340.00 level and surpass the highs at 1373.50 on a closing basis or the failure to create that accumulation would threaten the pattern (Head and Shoulders Bottom) and induce liquidation of positions. That is exactly what happened. We are now trading in the 1184.00 range.

Head and Shoulders bottoms are very punishing to bullish traders who are vested in the pattern. Back at May 5, the market was testing the neckline of the pattern after having moved up to 1373.50 and back down. That is why I needed to see a rally. Failure to move up and confirm accumulation induced liquidation.

 

Interestingly The 1373.50 price peak became the top of a head and shoulders topping formation with the right shoulder being created in July.

The shoulders of head and shoulders patterns must be equidistant in their development. In other words they must spend the same amount of time in development. Since the left shoulder developed over a 2 and 1/2 month period (Jan thru mid March) then the right shoulder needed to do the same thing. The right shoulder began in mid June and should have completed it self at the end of August.

¬†But ………..traders began to see the pattern, and began liquidating prematurely in July, completing the pattern one month early. This is never a good sign for the pattern.

 

Here’s the difference. A head and shoulders pattern that is not symmetrical tends to cause forced liquidation with very high volume that leads to a climatic event also known as a blow off. That usually leads to a turn around and a rally.

Whereas a symmetrically shaped head and shoulders can be a legitimate permanent top for a bear market. We had a large symmetrical head and shoulders top in 2007 that lead to a bear market. But since March 2009, we have seen a few head and shoulders patterns that had stubby right shoulders that all failed to produce bearishness. These bearish failures occurred all along the upward path of the market.

What you see¬†above is the head and shoulders top with it’s blow off volume at 6 million contracts. That was the same peak volume during the crash of 2008.

Additionally, the market moved down to the minimum price objective of the pattern (at about 1117.00). It stopped there and has been consolidating into the “look” of a bear flag.

To measure a minimum price objective of an H&S top just draw a plumb line down from the peak of the head to the neckline and use that same distance to project downwards from the neckline as the market falls.

So where to now?

As I mentioned, during the month of August the market has created the look of a bear flag.

A bear flag is a continuation pattern meaning that the market normally breaks down from this pattern and moves very quickly in liquidation. Flags fly at half mast so therefore we measure the straight line move down from 1350.00 near the end of July to the 1117 level (bottom area of the flag) in early August (235 points) and project that distance downwards from the breakout point of the flag.

Roughly speaking if the market began breaking down below 1123.00 there is a chance that the fundamentals driving the break could bring the market down 235 points in the neighborhood of 888 to 912.

 However I go back to the fact that the H&S top that brought the market down to 1117 is flawed as a top to a real bear market and looks like it created a blow off bottom. With tons of bearish news out there the market is resisting the bearish pattern and waiting for the Federal Reserve on Sept 20-21 to kick in a program or two.

 So far Operation Twist has been bandied around where the Feds sell the short end instruments and buy the long end bonds with the receipts to keep rates down for mortgages. Other rumors are that they will cut back on interest payments on reserves to banks forcing the banks to put their cash to work.

 My feeling is that the Fed is not likely to waste any bullets deferring to patience to see if the markets will crash. Bernanke would have better political moral grounds to take action under that scenario.

 So the game is on. Bear flags do not go on forever. They begin with accumulations and move into distributions. The market needs to move down very soon or perhaps we will see a strong rally.

A little on politics

I watch all debates

It appears that CNN is trying to take a bite out of the Fox Network viewership with the Sept 12th CNN¬† co sponsored Tea Party debate. This is pretty easy to do. First, hire Wolf Blitzer to moderate. You want innocuous, simple, and non threatening. Secondly, create a 2 minute video intro to rival the World Wrestling Entertainment¬† Inc. The announcer introducing each competitor with typical “galloping violins”¬† in the musical background generating excitement. These were the titles given each wrestler, ah sorry politician.

The announcer speaks in a low voice about each contender

 

Michelle Bachmann……….. The Fire Brand?….A lightening rod?

Rick Santorum………………..The Fighter?… Known for throwing hard punches…from the¬†right?

Ron Paul ……………………….The Libertarian? Billing himself as the freedom fighter in the race?

Herman Cain…………………..The Businessman? Who plays up his experience as a Pizza Executive?

Rick Perry ……………………..The Newcomer? Conservative voice…folksy and brash?

John Huntsman……………… The Diplomat? Carving a more moderate path to defeating¬†his former boss the President?

Newt Gingrich………………….The Big Thinker? Once the most powerful man in the house¬†now looking for traction after an¬† early stumble?

Mitt Romney…………………….The Early Front Runner?¬† Focused on attacking the¬†President, now turning his attention to a more immediate opponent?

The announcer goes on……….

“Tonight… 8 candidates ….One Stage …One chance to take part in a ground breaking debate. The Tea Party support and the Republican nomination… on the line…Right Now”

[Zoom in on Wolf]

[Show the audience].

The candidates take their positions at their podiums with the front runners in the center and the laggards out to the edges . John Huntsman is to the far left because for most Tea Partiers he is a democrat. Cain is to his right. All the way to the extreme right is Santorum with Gingrich to his left with Ron Paul the Texan tucked in between Rick Perry the Texan and Gingrich. Two Texans side by side is an entire football team of manhood.

 

I might point out that the what looks like low-lites on Huntsman, and Romney’s hair was nothing short of spectacular. Those fine silver lines of wisdom woven thru the youthful darker coloring was impressive. Perry’s hair was better this time than in the first debate where it had a dusty look lacking any shine. And of course as soon as Michele Bachmann hit the road as a candidate her make up do over was an amazing improvement.¬†

Ok that ‘s all I have to report on politics. See you at the next American Idol event on Oct 19.¬† Be there for more excitement.

Here’s the link to the video if you want to take a look

http://cnn.com/video/?/video/politics/2011/09/13/tea-party-debate-part-1.cnn

 A new 8 week Training for Traders class will begin during 

the week of Sept 19

 
For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly
 
Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

TRADING IN THE PARALLEL UNIVERSES……..DO YOU TALK TO YOURSELF MORE OFTEN?

May 5th, 2011 by Leonard

 

¬†TRADING IN THE PARALLEL UNIVERSES…..DO YOU TALK TO YOURSELF MORE OFTEN?

Any day of the week you can pick thru a smorgasbord of news items on TV, the internet, or the news stand, and attach any news item to any story line you create. You can use the same news item in a dozen different ways. Each news item can have dozens of interpretations and meanings that speak more to the point of view of the interpreter, than it does to the news item without moderating.

There don’t seem to be any actions of neutrality. Every action that is reportable has an opinion tied to it. So in hearing that news item you must not only absorb the news but deal with the opinion.

What if the news was recorded kind of like stenographers in court?…..boring…..

Opinion shaping is a big business.

Maybe this is a step in the evolution of mass consciousness, but for now it creates parallel universes with pretend outcomes linked to a point of view. One can sift thru those points of view in order to ferret out fact without opinion, or one can take the easier route and submit to the interpreter and rest easy in the delivery of opinion and implied thought over journalism.

Various television and radio moderators along with news stations have Brave New World listeners. They know their listeners well and bring them their daily dose of negativity. Those listeners can understand simple negativity over the more complex idea of change that frequently offers up confusion. The exploitation of fear based thinking is opinion shaped to bring the listener around to the same spot every day, reaffirming that the world is still simple, but negative.

Sophistry is a big business

 

Learning how to skillfully twist the facts to suit a narrow point of view or to use current facts to revive old arguments or to talk around the facts with un-vetted half truths is skillfully managed by sophists. Assumptive and implied lies are normal.

When we’re not busy sorting out opinions, and lies from fact, then we are constantly being asked to volunteer for only a 2 minute poll for “how did we do” and “do you like the product”. No longer do companies want to find out the hard way that nobody liked anything that they did or made. Or in some cases the polls are sent out to make you think they care.

Trading the Parallel Universe

Everyday of the week, traders find themselves attempting to sort out what matters in a synthetic versus real universe. ¬†The synthetic bull market created by QE2 has often appeared to be disassociated from real life. Investors who lost large chunks of their fortunes in 2008, have no trust in a bull market propped up by the largest investor in the world ….Uncle Sam. Yet one must find upside targets if the market wants to continue to rally.

I am not a historian of the Federal Reserve but I wonder if any previous chairman had worked this far into the cycle of a grand experiment to supply liquidity into the banking system to counter the affects of deflation? On the other end, that of hyper inflation, we know that Chairman Paul Volcker spent 7 years breaking inflation psychology in the early through late 1980s.

The Injection of the Federal Reserve

¬†When you are about to unload 600 billion dollars into Bonds and assorted other arenas analysts tend to take out their calculators and try to figure out how many months of bullishness they think they can expect from the injection. They don’t have to like the market or the economy. None of that matters.

Wall Street becomes Audrey II

 

Audrey¬†II is the voracious plant from the musical play “Little Shop of Horrors”, who needs constant feeding of blood and who wants to consume the entire world. Audrey II sings

Feed Me! Feed Me! Feed Me!

Feed Me, Seymour all night long

Seymour is the Federal Reserve.

That’s right boy

You can do it

Feed Me, Seymour

Feed Me, all night long

Cause if you feed me, Seymour

I can grow up big and strong

What me Worry?

As long as the Federal Reserve feeds Wall Street, the market survives those pesky humanitarian issues like tsunami nuclear meltdowns in Japan, the generational changes of power and control in countries of the Mideast, a divided Europe, a divided America, tornadoes, fires, floods and snowstorms.

On a positive note it also survives disinformation.

Bulls have been particularly hopeful in the face of bad news. Bad news assures that Seymour at the Fed will continue to feed Audrey II at Wall Street.

One might even be able to conclude that the Fed at times had put itself in the awkward position of being held hostage to Wall Street.

¬†Most likely there will be a QE 2.3 …..a looser, less formal accommodation to feed and support asset levels by ………keeping the dollars given to the banks out of circulation, by paying the banks more interest on their reserves, to offset the bad paper and loans……at least until the economy can live without injections. ¬†But the quant calculators will not be able to look ahead with impunity unless the Fed announces another package.

Current Targets

 On the chart below, there sits an Inverted Head and Shoulders continuation pattern on the daily E-mini S&P chart. The market has broken thru the neckline on the up side and has fallen back to test the breakout of the pattern.

The upside volume has not been impressive bringing into question the ability of this pattern to meet it’s upside price objective of 1428.50 based on the pattern.

As we approach the end of earnings season and the end of QE2 in June the economy is showing spotty signs of weakness in the areas that were beginning to show some signs of life. An unemployment report on Friday could have a major affect on Fed policy.

The market needs to turn back up from here for the bulls, and to surpass the high of 1373.50 on a closing basis. Failure of this accumulation will threaten the pattern and induce liquidation of positions.

Click on chart to enlarge and then click again for clarity

Silver Gold and other Relationships

Speaking of liquidations it was only a matter of time for the moronically priced silver market to take a hit. The Faux inflationist’s are beginning to understand that the money the Fed has pumped into the banks is not going anywhere. Soon to follow could be a dollar rally, Euro breakdown, commodity breakdown, and stock market breakdown, as the CFTC is considering reinstituting commodity futures positions limits. We had them in the 1980s, and they are needed now. ¬†

Commodity markets were not created as playgrounds for Hedge fund players who have the ability to distort by massive volume, those markets that depend on commercial hedging for price efficiency. This has nothing to do with free market doctrines.

Lastly

While I like you, am moving through the parallel universes of synthetically created asset elevation, that is supposed to make an economy better, it still seems backwards, when traditionally, one expects the economy to drive the market.

What we do know is that “when”, not “if”, the down turn comes around, it will be very sneaky and catch a lot of folks by surprise.

Since most traders hate this bull market it never seems to get the appropriate headstrong bullishness that normally tops out markets. Much of that is because by comparison to the good old days of bubble fraud (the markets that bubbleheads could believe in), they are stuck with a synthetic structure created by the Fed.

With the prospects of an election ahead¬† in 2012 and an intensifying of partisanship, along with a new nationalism (Bin Laden’s demise), almost anything can happen here and abroad.

The great Bernanke experiment rolls on.

As a repeat from my previous blog, I have to say

The Entertainment Value is Incredible 

It‚Äôs just remarkable how many people want to be President of the United States. The egocentricity of the modern politician is puzzling and amusing. Most of them will end up on ‚ÄúDancing with the Stars‚ÄĚ doing the ‚ÄúRonald Reagan Redux Reflux‚ÄĚ.

If you want to register for the ‚ÄúFree Training for Traders Critical Interim Updates‚ÄĚ then on the website¬†www.trainingfortraders.com you will see an area at the top right that says ‚ÄúFree ‚ÄĚ TFT¬† Critical Interim Updates. Click on that. It will ask you for your name and email. Then you will be sent any urgent reports on the technicals of the market.

 A new 8 week Training for Traders class will begin Mid May

 
For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly
 
Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

TESTING THE DOW 12,300 BENCHMARK…SHOULD WE STICK A FORK IN IT?

February 24th, 2011 by Leonard

If you’re Bearish and you know it, clap your hands (clap clap)

If you’re Bearish and you know it, clap your hands (clap clap)

If you’re Bearish and you know it, then your face will surely show it

If you’re Bearish and you know it , clap your hands (clap clap)

 

Ok  I just had to lighten up the dreariness of bears with a little cheer leading song. The most dangerous thing a technician, analyst, economist, fundamentalist or blogger can do for their careers is to talk about a specific price or time when this market will turn bearish.

The path of failed projections in picking a Bernanke top is littered with very credible market readers, who in using all of their common sense, and life experiences with markets, have missed the mark. And these are really some of the best of the best.

I appreciate their bravery and talents. I myself have for the longest time been eyeing the low 900s for the S&P.

My Good Bullish Calls as a Bear  

However I have also made extraordinary bullish calls such as the bottom in March of 2009, pointing out an extremely bullish Head and Shoulders Island Bottom formation on the hourly charts, and mentioned that the market would go straight up and take no prisoners.

Click on chart to enlarge and then click again for clarity

 

I warned traders against getting bearish when a false Head and Shoulders top formed in July of 2009 on the daily E-Mini S&P chart. After suckering in the shorts the market turned up sharply on a Meredith Whitney buy the bankers call.

Click on chart to enlarge and then click again for clarity

 

Similarly, I warned against getting bearish when a very large false Head and Shoulders top formed on the E-Mini S&P daily chart in late June 2010. That particular formation was bandied about throughout the financial blogging industry as the perfect example of a top but it too suffered (just as the July “09″ fake top) from a very stubby right shoulder that encourages forced liquidation as bearish traders piled on in an attempt to self fulfill their prophesy.¬†

 Click on chart to enlarge and then click again for clarity

 

On Aug 31, 2010….. I recommended to the traders who signed up for my free TFT Critical Interim Updates, that bullish traders would try to create a right shoulder bottom in the 1050 area of the E-Mini S&P and drive the market up to the neckline at 1130. The market did that and continued to move higher to reach the minimum projection of that pattern at 1252.

Click on chart to enlarge and then click again for clarity

 

And even though the market moved higher than that,  this did not and does not change my overall projection for the E-Mini S&P to eventually come down to the low 900s. Higher markets do not make me forget that a synthetic economy was built on systemic fraud from the early 2000s through the financial collapse of 2007-2008.

Predicting a substantial turn, has and will continue to be difficult, because underneath the sociopathic buying spree is an underlying sick feeling, that something is not right.

The bottom of 2009 has never been thoroughly tested.

However, we are in the midst of a great experiment. If you have been a follower of my blog you will note, that I have not been critical of Ben Bernanke. He’s the Fed Chair and he’s running an experiment.

To Fed or not to Fed 

I have not engaged in the arguments and merits of whether we should or shouldn’t have a Fed. I don’t believe that keeping interest rates too low for too long in the early 2000s or that supply side economics in itself was the cause of why we are struggling.

The problems we are experiencing are the man-made side effects of un checked greed, fraud, and criminal activity on the part of bankers, carnival barkers, and carpet baggers better known as Wall Street Prima Donnas.   

If Bernanke can pull it off and prevent a global economic crash while amortizing several hundred trillions of dollars of lousy paper and bad debt over the next 20 years, then that in itself will be a miracle. I still don’t think he will be able to get away with doing that without the E-Mini S&P visiting the low 900s .

Testing 12,300…….¬†on the Dow

The chart below is of the monthly DOW JONES. On it you will see an NTM Projection Channel Line. We have been waiting for the Dow to reach upwards to the 12,300 level where the down trending line is positioned. The Dow penetrated that line to a high of 12,391 and has since backed down

Click on chart to enlarge and then click again for clarity

 

Since this is a Monthly chart the Dow would need to close near, at or below, 12,300 by Monday Feb 28 to at least validate the channel line as a point of resistance.

If that happens it would not necessarily mean that the top was in. It would mean that the market is validating that point of resistance.

Currently there are no confirmed distribution patterns resonating other than the recent break down from the 12,391 level. There are plenty of other indicators such as record insider selling, record low short interest and an array of other very interesting studies all pointing to an over extended market.

So like you, I will be watching the market to assess it’s strength and weakness and take this one step at a time, because when it tops¬†it will be down for a while.

What to Watch 

First on my list is whether the Dow can close below or at 12,300 by Monday Feb 28.

 Then I will need to see how it plays out in the month of March. For the resistance at 12,300 to be pertinent the Dow would need to close below 12,300 as well at the end of the month of March. If bearish formations on the daily chart spring up during the month of March, then my interest will be piqued.

Now that we have a Synthetic Recovery we can have a Real Recession  

At this time I don’t perceive a major crash mode unless all of the known global imbalances begin clashing all at once. This would include, the BRIC countries, the EU, ongoing turmoil in the Mideast and our own domestic turmoil.

Sociopaths Take Notice 

As far as near term downside targets for more sociopathic buying of a lifetime, I would take the E-Mini S&P and put up a pit session hourly chart. You will find lots of common gaps below on the chart that will attract buyers like a moth to a flame.

The Entertainment Value is Incredible 

It’s just remarkable how many people want to be President of the United States. The egocentricity of the modern politician is puzzling and amusing. Most of them will end up on “Dancing with the Stars” doing the “Ronald Reagan Redux Reflux”.

If you want to register for the ‚ÄúFree Training for Traders Critical Interim Updates‚ÄĚ then on the website¬†www.trainingfortraders.com you will see an area at the top right that says ‚ÄúFree ‚ÄĚ TFT¬† Critical Interim Updates. Click on that. It will ask you for your name and email. Then you will be sent any urgent reports on the technicals of the market.

 A new 8 week Training for Traders class will begin Mid March.

 
For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly
 
Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

Once Again it is Time for Great Theatre…..Corporate Earnings

January 14th, 2011 by Leonard

Once again it is time for great theatre…….. corporate earnings ……This is when corporate America gets a chance to show off it’s ingenuity in bottom line curve fitting. ¬†

The concept is fairly simple …in the boardroom, draw an up slanting line into the future on a chart representing profits, and earnings, and then do anything and everything to make earnings and revenue look like the line on the picture graph.

Creating the Image

As you can imagine there are complexities involved in the way a show is presented. The preparation can be meticulous. The magic is in how to make a company look good on a relative basis compared to the economy and other competitors.   

To get the numbers right sometimes requires firing bunches of workers, and closing outlets. In good times, it may require hiring more workers to manage more outlets.

Some of the preparation time is spent in creative accounting.(renaming various activities on the books so that they fall into different categories that create positives). Then there are temporary actions, like off loading debt (hiding debt) just before earnings season begins, only to bring it back on to the books after earnings season comes to a close. These are pre arranged agreements to repurchase what was temporarily sold. 

The Bernanke Challenge

Corporations do make profits, we know that, but investor mania about the imagined end of the world is helping to drive the creation of synthetic markets. For as long as the markets remain on life support through Central Bank intervention, is exactly for how long the public will distrust the environment. Getting into this situation is a whole lot easier than getting out of it. In a nutshell, it is Mr. Bernanke’s next and greatest challenge to date. He has to become a great timer for his experiment to work.

Some Reasons of Concern for the Bulls

I’m guessing, but I believe that even if the experiment works perfectly as the training wheels come off, that the market would eventually air itself out. It must find intrinsic value. It must get closer to representing the actual value of the economy minus debt, minus excessive leveraging, minus inflated PE ratios. It must be allowed to find that value. It must be allowed to probe for weaknesses, otherwise a false bottom, one that is never tested will result in nervousness about the sustainability of any asset level. That’s pretty exciting for traders but perhaps not as orderly for buy and hold investors.

Yet Mr. Bernanke hopes that the public will trust a synthetic stock market and do what? Return to the days of borrowing? Return to the days of over spending? And what if he is miscalculating the consumers financial strength. What if he discovers that consumers are not holding back, but locked into tight budgets?.

And while the Fed is an independent body, there is no guarantee that congress will help with filling in the crucial missing parts of the great experiment. That would be job creation and work programs. These¬† programs don’t look to be in the forefront as priority has been given to more symbolic gestures such as repealing bills.

 

There’s No Such Word as Deflation…..Just Not Enough Inflation

Mr. Bernanke is careful not to use the word “deflation”. Instead he will say “there isn’t enough inflation”, yet 2011 will face a massive foreclosure problem , municipal defaults, budget cutting resulting in firings and layoffs still all pointing to contraction.

People are suspicious of “controlled” markets particularly after seeing their dreams vanish into thin air with the financial crash of 2007-2008.

Perhaps Bernanke feels that his effort at maintaining elevated pricing of assets will just help to slow down the speed of contraction (deflation). A measured deflation might be better than an out of control deflationary spiral.

Consumer Spending

If getting the consumer to spend is his intent, then that can be tricky, particularly if consumers are buying only what they need rather than what they want. How they spend is as important as how much if deep discounts become a way of life.

Consumers are not stupid. They will spend when they have ample proof that their jobs and careers are more stable and even after that, it will take a long time before they are willing to engage in spending excesses.

Testing the QE2 Flotilla

The real test of resolve will come when Mr. Bernanke pulls out the QE programs. If the market breaks hard, will he come in to save it?

The Long Term Monthly Chart

Below is a monthly chart of the E-mini S&P. On it you will see a pair of down slanting channel lines. The market has penetrated the top line at 1260 after hitting the target of 1252 that was the minimum price objective of the H&S bottom (as seen on daily charts).

The market needs to close at or below 1260 by Jan 31 on this monthly bar to validate the channel line as a resistance point.

Click on chart to enlarge and then click again for clarity

 

If you go to www.GatesOfConfirmation.com you will find the latest information about any free upcoming webinars with Leonard Novy

If you want to register for the “Free Training for Traders Critical Interim Updates” then on the website¬†www.trainingfortraders.com you will see an area at the top right that says “Free ” TFT¬† Critical Interim Updates. Click on that. It will ask you for your name and email. Then you will be sent any urgent reports on the technicals of the market.

 A new 8 week Training for Traders class will begin during the week of Jan 17.

 
For information regarding this class please inquire at   info@trainingfortraders.com
or leave a voicemail at 760 841 1522 
Calls will be returned promptly
 
Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2011
www.trainingfortraders.com

Newly Elected Tea Partiers Decide to Target Matthew Lesko‚Äôs ‚ÄúFree Government Money‚ÄĚ Book to Begin Reducing Government Spending

November 12th, 2010 by Leonard

Newly elected Tea Partiers decide to target Matthew Lesko‚Äôs ‚ÄúFree Government Money‚ÄĚ book to begin reducing government spending.¬†

Well maybe not………..Maybe they were just attracted to his costume…..but at least he has gone through the trouble of creating a list and has been talking about it for years.

Every time he comes on TV we say ahhhhh what a generous government we have. And the remarkable thing is that hardly anyone uses the money. It just sits there.

President Obama’s bipartisan deficit reduction commission co-chaired by Alan Simpson and Erskine Bowles also made a list of proposed deficit reductions that just about scraped the smiles off of every member of Congress.

And Tea partier Rand Paul had his first bout of budget cutting reality when he decided that earmarks are ok after all ..at least for Kentuckians. Mitch McConnell wasn’t in favor of cutting out earmarks. He said it doesn’t save any money.

Electoral Backlash

So now that we’ve gotten through the electoral back-lash wave, pundits are now faced with round two of deflation hysteria. Ben Bernanke is spending up to another 600 billion over the next several months to try to keep American’s 401Ks shimmed up in hopes that the consumer will come out of the closet to create demand.

Without demand there is no income. Without income there is no demand. 

Mr. Bernanke’s Experiment

 

I don’t have a major problem with Mr. Bernanke’s experiment. For every Keynesian clown as they are called by some, there is a Supply Side sophist wanting just one more chance to prove that trickle down really works. Well maybe it does work in a vacuum, where Spot the dog lives behind a white picket fence in Oke Dokeville, but when Supply Side comes in contact with real life human greed and immorality, it looks more like grand theft.

That is why the largest percent of all money has gone to the top 2% to 5 % of the wealthy over the last 30 years with the savings and loans bubble in the 1980s, the dot com bubble in the 1990s, and the real estate CDO, MBS wall street bubble in the 2000s. That’s Reagan, Clinton and Bush with Reagan and Bush being the 2 largest deficit creators of all time.

Footnote: Not all wealth is ill gotten.

Mr. Bernanke and many other notable economists believe that Keynesian economics always suffers from lack of political will to see the stimulus through. It’s an interesting dynamic. Its history has been start stop start stop. This is because one can make the most simplistic argument that you can’t cure debt with more debt. This leaves the door open to Supply Siders who engage in blowing up the economy with excessive debt and leverage while being the recipients of major amounts of fraudulent money, who cleverly convince an angry electorate to shoot their own feet. Night is turned into day.

Well no one can stop Mr. Bernanke from spending money now. He is an independent body and if he wants to run an experiment then so be it. He was good enough for George Bush and he’s good enough for Barack Obama.

Target Practice……….Redirecting Anger

Bernanke has become the target of entire countries that are also running the same con game of deflecting public anger at a villain. ‚ÄúIt‚Äôs not us‚ÄĚ ‚Äúit‚Äôs those Americans and Bernanke‚ÄĚ. The Chinese government has numerous problems over steering its economy and the Germans are not having any fun either. So they have chosen Ben Bernanke and by proxy the U.S. as a global villain. What rubbish.

Even Sarah Palin tried her hand at target shooting Bernanke as she struggled through the reading of notes that seemed foreign to her, most likely written by her publicity agent. Where’s the shame? It was so obtuse, kind of like watching Kim Kardashian advising Tim Geithner.

The socio-political dynamic will continue to rage and offer many hours of entertainment. And oddly, somewhere in the back of my mind I keep thinking, you know perhaps they may all actually get some things accomplished, but then I’m awakened from my day dream by some new utterly bazaar antic by a lawmaker in Congress. It is the most interesting of times.

Lets look at some strains and stresses in the markets

The Silver/Gold Ratio

The gold silver ratio is the representation of how many ounces of silver are needed to buy one ounce of gold.  That ratio used to be 32 ounces of silver for every one ounce of gold or 32 to 1. This was a ratio back in inflationary times in the 1970s that peaked around 16 to 1. In modern times since dis-inflation began in the 1980s the ratio has sat at 40 to 1 or 45 to 1.  This would represent normal pricing of gold $360 as a slight inflation hedge and with silver $8 being priced for normal industrial use.

You can see on the chart that gold and silver prices began changing radically in year 2006 and that by the end of 2008, the ratio moved to depression levels mirroring the perception of little industrial demand for silver while gold moved up in price as a safety haven. The ratio was near 85 to 1.

In further examination of the red line on the chart it appears that when the ratio moves down to 45 or 50, while the pricing of both metals are astronomically high doesn’t bode well for bulls. While the 45 to 1 ratio is somewhat normal with more normal pricing it is not good when metal buyers tire of buying gold and then begin pumping up silver artificially on pure speculation.

You can see on the chart that when silver begins to verticalize and go straight up to extraordinarily high prices with no fundamental industrial basis while the ratio drops down to 45 to 1 that the bull market comes to a halt. This buying of silver comes from investors looking for something to buy that hasn’t yet been tapped out.

Click on chart to enlarge and then click again for clarity

The Great Ball of Global Equity Looking For a Safe House

The same phenomenon has been taking place with the 10 year T-note moving up on excessive gains relative to the tapped out 30 year bond as speculators seek places to stuff their money in what they believe hasn’t gone up

Then there is the excessive pricing of the Swiss Franc (a sister to gold) relative to the poor Eurodollar. It’s all about speculators parking their money in what they believe has not participated in a move.

And the biggest disparity is in the gains of Nasdaq stock vs the S&P 500 Blues Chip stocks. The stock market will not be able to sustain high price levels unless the S&P leads in value. Speculators use the Nasdaq to pump and dump.

This mania about buying what hasn’t yet moved reminds me of the Dow 30 in 1987 when one stock was carrying up the entire market before it all crashed.

On a long term basis I have not changed my target for the ES to eventually come down to about 910

It won’t be the end of the world. Bernanke will not be able to hold the markets up here or at higher levels. As deflation continues to rule we should see a contracting base in the economy (not talking about GDP). Prices don’t need to be up here even with QE2.

Perhaps Bernanke will consider it to be a plus just to be able to prevent another crash if the S&P can hold ground at 900 and form a base. I think the general public would find that comforting rather than wondering about when the floor boards are going to give way on artificial life support.

UPCOMING Free Webinar…. Go to www.Gatesofconfirmation.com  to register for Sat Nov 13 at 12:00 noon EST
 
A new 8 week Training for Traders class will begin during the week of Nov 15.
 
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Leonard Novy
 
This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2010
www.trainingfortraders.com

Sign Up for the Free TFT Critical Interim Updates to the Right

November 7th, 2010 by Leonard

A new blog post is forth coming this week for November.  A major Blog is published every 4 to 6 weeks as long term dynamics in the structure of the market change 

In the meantime I want to direct your attention to the 2 most recent critical technical calls that would have either saved you or made you a lot of money.

These updates are FREE and are called TFT Critical Interim Updates and are published at random for shorter term considerations in between the major Blog posts

While I am providing you these reports as examples for your viewing, you can only receive new TFT Critical Interim Update links by providing your name and email address in the sign up box in the upper right hand area of the www.trainingfortraders.com  website.

Again a new major blog looking ahead at projections for the markets will be published later this week.

Enjoy and have a prosperous trading week.

 Leonard Novy

 760 841 1522

 info@trainingfortraders.com

TFT Critical Interim Update for August 31, 2010

Hello Traders,

Below is the latest TFT Critical Interim Update for August 31, 2010.  The market has vacillated wildly over the last 3 months as concerns about the banking and investment houses on Wall Street has given way to concerns about the economy.

Early in July speculators drove the market up in anticipation of a ‚Äúgood‚ÄĚ earnings season. Prices are now lower than when earning season began.¬† Bulls are hanging on and turning the market up on any news that has slight positivity.¬†¬†There are more depressed bulls than there are aggressive bears.

Below is a chart displaying the conflicted bullish and bearish patterns that have the market locked up. I expect a resolve in long term direction within a week or two.

Click on chart to enlarge and click again for larger version

Leonard Novy

www.Trainingfortraders.com

info@trainingfortraders.com

760 841 1522

This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2010
www.trainingfortraders.com

TFT Critical Interim Update for October 14, 2010

Hello Traders

Below is the latest TFT Critical Interim Update for October 14, 2010. Many sectors of investing and trading are reaching some extremes. There are relationships within Metals, Currencies, Bonds and Stocks that are  indicating a willingness for speculators to take on excessive risks as the giant ball of global equity seeks higher returns in an attempt to outpace the losses brought on by deflationary forces of contraction.

Since quantitative easing is an experiment without a track record,  we can only guess at the outcome in the long run. Experiments are subject to criticism but then put the critics in the Fed Chair and see how well they do.

In terms of how speculators are reacting to this QE experiment is another matter since many seem to be betting on QE2 to keep the bullish fires burning. This is purely perception and guesswork when pricing the stock market, currencies, metals and Bonds to perfection. Tread carefully as the extremes become more extreme.

Below are charts of Gold and the US  Dollar. The rally in Gold may be hitting resistance and the break in the Dollar may be hitting support. If that becomes the case then I would expect that stocks may be close to hitting an upside wall. If Gold and the Dollar push past their resistance and support points, then the extremes that are in place now will simply become more extreme  as investors scramble to get vested. The playing field will get very crowded. Tread carefully as the extremes become more extreme.

Click on Chart to enlarge and Click again for larger version

Leonard Novy

www.Trainingfortraders.com

info@trainingfortraders.com

760 841 1522

This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2010
www.trainingfortraders.com