UPDATE:  3:15 PM

SPX attempting a comeback.   Could be nothing more than a back test on the small H&S; pattern just completed that indicates 1352 to the downside.

I’m watching the 30 and 60-minute RSI’s for signs that it’s more than just that.

The daily RSI is still looking quite bearish, having broken the yellow TL.  However, the purple line awaits.

ORIGINAL POST:

Building on short positions…

Added 300 SDS @ 16.24
225 UUP @ 22.12
-125 EUO @ 19.39

ISM Services survey results out…read the entire report here.  Overall positive, except for slowing employment and rising prices — which will be seen as problematic in a market addicted to QE.

SPX has finally joining the party — making what looks like a definitive break from the rising wedge and reaction off the 1.618 Fib level of the Butterfly and .786 of the big Gartley patterns.

We’ve seen a clean break of the SMA 10 and a test of the SMA 20 coming up at 1358.04.  The EMA 3 is about to cross the SMA 10, which would be further sign of a trend change.

The daily RSI appears to have broken its trend line.  The hourly definitely has.

RUT continues to show weakness.  Recall that it already broke down from its rising wedge and its RSI TL on Feb 29.  The SMA 50 is just ahead at 792.72.

VIX showing strength, up over 8% this morning.  Note how the RSI has obeyed the rising TL as we suspected it would.

We can see a completed IH&S; pattern and a clean RSI TL break on the 60-min chart.  The IH&S; pattern points to 21.38 in the near run.

I’m going to load a 5% position in TVIX — buying 300 shares here at 16.55.

Here’s a snapshot of the current positions in the model portfolio, showing prices as of mid-day.  We are still in 64% cash, as I’d like to see more downside momentum (moving averages broken, MACD’s turn negative, etc.) before adding to our current shorts.

My call to American Express the other day…

Nancy:  American Express, this is Nancy.  How may I help you?
Me:       Hi, Nancy, I’m calling to request an increase in my credit line.
Nancy:  Okay, I’m looking at your account, here… how much were you thinking about?
Me:       I’d like to double it.
Nancy:  Double?  That’s quite a large increase.  May I ask the reason?
Me:       Well, the thing is, I’m in kind of a bind.
Nancy:  I see.  Some sort of emergency?
Me:       That’s exactly what it is.  I don’t have enough money to pay my bills.
Nancy:  And, having a higher credit limit…
Me:       Well, if I could borrow more, I could pay my bills and still buy the stuff I need every month.
Nancy:  I see.  And how would you pay off your American Express bill?
Me:       You guys don’t make me to pay it off every month.
Nancy:  Yes, but we do want you to be able to pay it off eventually.
Me:       Oh, sure.  But, “eventually” is so far away, ya know?  It’s like, in the future and everything.
Nancy:  How about your income… has it increased lately?
Me:       No, not really…
Nancy:  Maybe a reduction in your expenses…?
Me:       Nope.  One in college, two on the way.   And, they’re driving now.  Seen gas prices lately?
Nancy:  How about investments?  Any money coming in?
Me:       If my brother-in-law would pay me back… but he’s broker than I am.  Nope, it’s pretty bleak–
Nancy:  I’m sorry, sir.  I wish there was something–
Me:       But, wait.  Things are getting better!
Nancy:  Okay, great.  Tell me about that.
Me:       Don’t you watch TV?  The economy is improving.  It’s all over the news.
Nancy:  Uh-huh.  Okay, well your credit report shows your debt has increased quite a bit, lately.
Me:       Oh, yeah, everyone’s been really cool.  I just got off the phone with Household Finance.
Nancy:  Don’t they charge a pretty high interest rate?
Me:       It’s insane!  But, I’m getting a new big screen out of the deal.
Nancy:  You mean a TV?
Me:       No.  A 70-inch 3D, LED, flat panel.  The detail is so incredible–
Nancy:  I’m sure it is.
Me:       Did you know Katie Couric had really bad acne?
Nancy:  I happen to like Katie Couric.
Me:       Exactly!  Everyone likes her.  But, if they had a big screen like this…  know what I mean?
Nancy:  Sir, if your debts keep rising, all your creditors could double your rates.
Me:       They can’t do that.
Nancy:  I’m afraid they can, and they probably will.
Me:       But… but, my payments would double.
Nancy:  Exactly.
Me:       How would I pay the rent, insurance, groceries…?  Groceries are going through the roof.
Nancy:  That’s what I’ve been trying to say.
Me:       Ah, jeeze.  What was I thinking?   How could I be so stupid?
Nancy:  It’s okay, sir.  It’s not too late to change course.  We can help.
Me:       Wow.  Really…?
Nancy:  That’s what we’re here for.
Me:       I can’t thank you enough.  Okay, so if we triple my credit limit instead of doubling it–
Nancy:  [click]
Me:       Hello?  Hello?  Nancy, are you there?  Hello…?

If rates return to the 2000’s 6%, however, the annual interest burden would rival our annual expenses for Social Security, Medicare or Defense.  At 1980’s rates, it would eclipse Social Security and Defense combined.  These figures, by the way, assume we miraculously and immediately balance the budget — which would require a 66% increase in taxes or a 40% drop in expenditures.  Don’t hold your breath.

Bernanke and friends are doing the only thing they know how to do — they’re keeping their patient alive with an adrenaline drip.  Congress and the White House are slipping him pizza and smokes when no one’s watching.  And, the American public…we’re so engrossed in daytime TV in the hospital lounge that we can’t hear the heart monitor blaring.

Does the national debt matter?  Not at all.  Until it does.

ORIGINAL POST:

Stocks are off to a modest sell-off.  The RUT continues to move ahead of SPX, trading below the SMA 10 and 20.  I’m adding an additional 150 shares to my model portfolio which, as of yesterday’s close, looked like this:

Some of the charts I’m watching…

RUT has broken its rising wedge and completed a back test of its RSI TLs.  I’m comfortable adding to my shorts.

SPX looks like it’s breaking down on the daily chart.  Looks like a back test on RSI…

But, the 60-min chart shows the importance of watching a variety of time lines.  I’d want to see a break of the red RSI TL before adding to my modest shorts.  In a normal market, I might not be quite as cautious, but this melt up has faked us out too many times to throw caution to the wind.

TZA with a solid break of its TL.  Tiny little back test, we might see more…

Oil is taking a breather today, with CL off 2.37 at this time.  I might be tempted to pull the plug and take the remaining profit, but look at the 60-min chart:

The decline was only to the bottom of a well-defined channel, and the RSI depicts a back test (of the yellow trend line) — albeit a deep one.  I’d like to see prices climb back above the red TL in order to maintain the medium-term uptrend.  As I mentioned when I put the position on, the price channel will be my guide.

On the high octane side, AAPL is hanging onto a slight gain, while NDX itself is flagging.  AAPL broke through its weekly rising wedge, but the monthly chart is still hanging on, with obvious negative divergence on all time frames.

NDX, currently at 2641 is looking good for a reversal around 2687-2696, the confluence of two crab patterns and a rising wedge and on negative divergence.  The RSI TL on the daily chart is showing signs of breaking down.

More after the close.

Feeling bullish?  Excited about auto sales after headlines like these?

Take a closer look.  From GM’s own investor relations website:

Notice the 3.9% year-over-year decline from Feb 2011?  How about the 2.2% decline versus ytd 2011?  They’re made all the more negative when you consider the channel stuffing going on.  Channel stuffing, for those who aren’t familiar with the term, is forcing sales through dealer channels even though there’s no demand for them.  It’s deceptive.  Period.

And, lest you think this is an aberration, check out this very telling Zerohedge chart reflecting GM’s growing inventory:

As they say, a picture is worth a thousand words.  Although, if GM were in charge, it would be worth two thousand (but dealers all over the country would be holding clearance sales on them, come December.)

Dig into the numbers a bit, and the 30,410 fewer vehicles sold ytd in 2012 versus 2011 is positively dwarfed by the 150,096 increase in inventory since a year ago.  The month-over-month increase of 2,278 vehicles was crushed by the 47,641 inventory increase.

I get tired of saying it, and you’re probably tired of hearing it, but financial reporting has become largely a confidence game.  Companies like GM have no compunctions about blurring, shading, or even outright lying about their results.  And, the mainstream media has absolutely no problem reporting this crap as gospel.

Why?  Because good news is good for markets.  And, strong markets are good for bank, brokerage and investment banking profits.  You know, the same guys who buy all those ads in the WSJ and on CNBS.  Even (some would say “especially”) our government encourages this outrageous conduct. Rising markets virtually guarantee reelection; it ain’t folks who emptied their 401(k)’s to pay the rent that contribute to campaigns.

The SEC used to care, and would occasionally prosecute someone for lying to investors.  Now, it’s up to the blogosphere, fringe guys like me who are drowned out by the incessant bullish drumbeat of the Murdocks and Buffets of the world.  

Like all good soothsayers, I take this responsibility seriously.  But, there’s just too much for one person to keep up with.  So, check Zerohedge, ShadowStats and Mish daily.  And, ignore us tin foil hat wearers at your own peril.  As Julius himself would tell you, better safe than sorry.

Stay tuned.

UPDATE:  11:15 AM

The market is shrugging off the horrible economic news, meaning it likely has more upside in store.  Remember, we have several targets we’ve been discussing for the past few weeks.

The big Gartley that started in October 2007 at 1576.09 never quite reached its .786 Fib level in May, coming up 11 points shy of the 1381.50 target.  With yesterday’s new intra-day high, I’d say it’s definitely back in focus.

Likewise, watch the Butterfly pattern that started on 10/27/11 at 1292.66.  Its 1.618 is immediately ahead at 1375.47.  We reached the inverse H&S; targets (1272) we discussed on Feb 23.  The larger of the two was triggered was back on Dec 27.  And, because yesterday’s intra-day dip broadened the rising wedge, the apex has risen to about 1396.50.

After yesterday’s rally, our model portfolio is 100% in cash.  We booked a quick 1% gain on the opening plunge, then closed almost all our shorts/puts.  The AAPL position I tried at the double top was quickly stopped out.

I will look to initiate more shorts around 1375 and 1380, but will place fairly tight stops.  I might try a little put position on AAPL when it hits its 2.618 at 529.25.  More on specific trades later.

ORIGINAL POST:

Lots of big economic news out today…  starting with the durable goods orders decline of 4% month-over-month.  Ignoring the seasonal adjustment, which I hope I don’t need to mention by now, the actual drop was a whopping -15.3%.  While still 8.8% better than 2011’s January figures, both the 4% and the 15.3% data suggest all is not well in recovery land.  BTW, inventories were up 3.1%, a figure that will weigh heavily on tomorrow’s GDP report. 

Next up, the Case-Shiller housing data at 9:00 and Consumer Confidence at 10:00 AM EST.

Case-Shiller home price indices just out, and they’re not pretty.  The national composite was off 3.8% in 4Q2011, and down 4% versus 4Q2010.  The 10 and 20-city composites were both down 1.1% in December over November, and fell 3.9% and 4.0% respectively versus December 2010.  All three composites are at their lowest levels since the housing crisis began in mid-2006.

Nationally, home prices are back to their late 2002 levels.

Consumer Confidence from the Conference Board just out — up to 70.8 from 61.5 with the bulk of the increase coming from “expectations” as opposed to “present situation”.  The expectations index increased from 76.7 to 88.0, while the present situation index increased from 38.8 to a still dismal 45.   From briefing.com, a graph showing how far we’ve fallen, and how long the road back.

Remember, there’s a lag with survey reports like this — which means that the recent run-up in gas prices hadn’t yet been felt when these results were tabulated.  Look for the cheerleading-amped numbers to ease once consumers experience a few weeks of $80 fill-ups for the Sienna.
 

UPDATE:  11:45 PM

Very strange day in the markets…   Earlier this morning I posted:

Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.

What did we get?  Another false breakdown that bled off positive sentiment and overbought conditions, setting the stage for the melt up to continue.  Really gotta learn to keep my big mouth shut!

It doesn’t bother me to have made a small gain on the day.  It’s just that the reversal was, IMHO, another completely bogus move — made possible by a few rather lame news items on pathetic volume.

Pending home sales are up?  Really?  Check out the actual numbers published by the Realtors (as if they could possibly be taken seriously…)

Jan 2012 was up 2% from December, 8% from Jan 2011.  As I always say, though, ignore the seasonally adjusted numbers.  “Seasonally adjusted” is simply another term for “manipulated.”  These people, even more so than most of the outfits who publish economic data, have an agenda.  They want us to believe the real estate market is better.  If we do, we’ll buy more homes, and they’ll get to keep their phoney baloney jobs, gentlemen.  Hrumphhh.

The real numbers are labeled “not seasonally adjusted.”  If we are to believe their raw data, January 2012 pending sales were indeed higher than December 2011, at 78.2 versus 63.8.  But, the index was still lower than any other month in the past year — going all the way back to Jan 2011.

Wait, you say, index?  What index?  Oh, yeah… these numbers aren’t actual reported contracts on homes, but an index derived from a survey of 100 MLS’s and 60 large brokers — all of whom also have an agenda.  An index of 100 relates to the average level of contract activity from 2001; so an index of 78.2…still pretty much sucks.

Then, there are the issues of quality of sales (foreclosures/REO versus traditional sales) and the lovely little ramp up in foreclosure activity just getting underway. 

BTW, there’s a great piece over at Naked Capitalism on the scam foreclosure “fix” being offered by the OCC.  Check it out.

UPDATE:  1:00 PM

SPX up 4 on the day, 15 pts off this morning’s lows at 1370.48 for the day’s high.  For anyone watching, this puts us only .10 way from where we started in May.

Now, like then, we have negative divergence on the daily and hourly charts — the purple TL on the RSI — and MACD that looks like it really wants to roll over. 

The rising wedge, normally so reliable, managed to widen a little with this morning’s head fake.  As I’ve discussed several times lately, these normally reliable patterns have been redrawn many times over the past two months, with dips that fail to follow through to the downside.

The net effect, however, is a gradually decreasing slope to the melt up — meaning that over time we will get to the top of a hill.  The rate of change graph illustrates this phenomenon pretty clearly.

We got a double top on AAPL to go with the one on SPX — tagging the RSI TL on the 60-min chart as we discussed earlier.  I’m putting on a little position (5 Mar 510 puts @ 5.95) in our portfolio with the intention of bailing on any follow-through to the strength, or adding to a pullback.  I’ll put in a tight stop just above the previous high.

UPDATE:  11:45 AM

German Parliament approved the latest Greek bailout package.  Markets reacted by soaring .00001% higher.

UPDATE:  10:45 AM

Closed out the rest of the AAPL puts on the break of the 60-min RSI TL — evidence it was more than a back test.  Took a small loss on these, leaving me up about 1.1% on the day.

Before

After

I would be tempted to take the long side, but that purple RSI TL coming down off the recent highs is bothersome.  From the looks of it, it’ll be tagged within the next couple of hours and could serve as another reversal point — probably marking at least a double top.  The daily pattern shows no signs of a reversal, despite the fact that we’re well overbought and  operating in nose bleed territory.

With SPX back in positive territory, I’ll look for new entry points with lots of dry powder. I don’t usually

UPDATE:  10:05 AM

The decline, which seemed to be pretty solid just after the opening, is fizzling.  We saw a good bounce off the 60-min RSI, and haven’t seen the rising wedge break just yet.  Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.

I closed most of my shorts, scalping an overall 2% daily gain on the portfolio — leaving half my AAPL position just in case the bounce is just a back test.  BTW, AAPL is just a way for me to take the contrary position on the market’s overbought condition.   I’ll jump back in if it appears we see a more significant break with a completed back test.

ORIGINAL POST:

On Friday, I constructed a $100,000 portfolio to track the actual trades I had been making.  It doesn’t reflect my cost basis in my existing position, but it’ll allow us to follow specific positions on an ongoing basis.  I’ll generally limit individual names to 5% or less of total equity.

This portfolio will be growth oriented, but significantly less aggressive and active than my usual trading style. I will utilize ETFs heavily, and options less so — so I have some adjustments to make.  I’ll rarely put on anything that looks like a fixed income instrument, unless there’s a price move I’m trying to capture.  I’ll try to update it daily with targets, stops and the like as appropriate and will post trades as they occur.

I continue to hold a short bias, with small put positions on AAPL, MSFT and SBUX, calls on VXX, a short position in GLD and a small spread on SPY.  Current positions include:

• 10 AAPL Mar 510 puts @ 7.5
• -25 GLD ETF @ 172.13
• 25 MSFT Mar 32 puts @ .88
• 25 SBUX Mar 47 puts @.49
• 5 VXX Apr 20 calls @ 5.20
• 20 SPY Mar 136 calls @ 2.16
•  -20 SPY Mar (Wkly) 136 calls @ 1.42

It’s a fairly non-committal portfolio at the moment – almost 90% cash.  While I am still bearish on the market, I’m waiting for more confirmation before diving in more aggressively — particularly on SPX.  A broken rising wedge would be a good start…

I’ll try to post charts on each of these positions throughout the day as time permits.  My first task is to make a decision on gold.  The daily chart is showing significant negative divergence, but the 60-min chart is threatening to break out of the little channel it’s been in.  More later.

SBUX daily RSI broken trend line.

AAPL 60-min RSI broken TL and reversal off the .886 on the Bat pattern.

More later.

Those wacky Fed governors are at it again — Bullard going on about how housing won’t recover for years, and Williams pounding the table for aggressive stimulation (QE.)  Big surprise, but the dollar is plunging — even as a House bill is introduced to strip the Fed of half its mandate (the stimulation half) and transform it into an inflation fighter/dollar protector only.

In Williams’ back yard, Stockton, CA is mulling bankruptcy.  This city of 300,000 souls is California’s 13th largest and a hub of the Central Valley’s agricultural activity.  From 1998 to 2005, real estate values tripled.  Since then, they’ve crashed so badly that Forbes considers Stockton America’s “most miserable city.” Official unemployment stands at 18.4%, and the crime rate (2009) earned Stockton the distinction of being America’s 5th most dangerous city.  Oddly enough, an $18 million cut to the police department budget hasn’t helped.

If Williams has his way, the Fed will buy up even more MBS than it already has in Operation Twist.  It will drive down mortgage rates to the point where buyers will show up in droves, bidding up real estate and saving the economy.  The fly in the ointment, of course, is that lower interest rates mean a lower dollar.  A lower dollar means higher prices for such luxuries as gas for the Family Truckster (CL topped 109 a few minutes ago.)

Will the thousands of foreclosed-on families in Stockton (the highest foreclosure rate in the US) jump back in the market if mortgage rates come down 50 bps?  100 bps?  Will banks suddenly relax their underwriting criteria?  Will cities like Stockton, operating at huge budget deficits thanks, in part, to a mismatch between property taxes and profligate spending, suddenly wake from their financial comas?

As Bullard himself said: “central bankers are having difficulty crafting policy in this recession and subsequent recovery because this is the first in which debt levels were too high.”  Do ya’ think?  These bozos are caught between a rock and a hard place that they, themselves, erected.  Once the debt genie is out of the bottle, he’s very difficult to stuff back in.  The only solution, as Stockton is learning the hard way, is to reduce the debt to the point where it’s consistent with the ability of the underlying asset (the city) to service it.

Whether you’re Stockton, Vallejo, Greece, Portugal or the good ol’ US of A, taking on more debt won’t fix the problem of too much debt.  At some point, the lenders who made all those stupid loans are going to have to face the fact that they made some very bad decisions.  They’ll have to accept the inevitable and book the losses that are already hiding in their phoney baloney balance sheets.

It will be hard.  It will be painful.  Most banks, thanks to their servants at the Fed, will survive.  Homeowners, taxpayers and investors will get slammed.  But, hey, with the Dow over 13,000, why should we worry?

UPDATE:  1:15 PM

AAPL hit the (presumed) Bat target and has paused around 522.  If it holds, look for the downturn to resume.  If not, then the new target is 529.25.

Meanwhile, FactSet reports that, absent AAPL and AIG, last quarter’s S&P; 500 earnings growth would have been 1.1% rather than the 5.9% reported thus far.   Wow.

UPDATE:  10:40 AM

Meanwhile, the dollar continues to slump, dropping through key support — reportedly in response to expected additional QE (despite protestations to the contrary by various Fed gov’s.)  It’s dropped below its Feb 9 low, but is looking very oversold in the short run.

If it can’t remain above 78.43, I think we’re looking at a drop to the 1.272 of 77.938 or even the 1.618 at 77.311, right next to the SMA 200 at 77.275 and a pretty clear channel line.

ORIGINAL POST

I’m hearing this grating refrain a lot lately.  Besides friends, family, clients…I’m asking it of myself, staring into the mirror after a market like yesterday’s when time seems to stand still.

One of the indicators I’ve been watching is AAPL.  A thousand shares in 1997 would have bought you a used Aerostar van.  A thousand shares today would buy you a brand new 56′ Beneteau.  AAPL is a leader amongst increasingly narrow leadership — a bell cow among lemmings.  As AAPL rumbles to new highs, bulls party like it’s 1999.  But, when AAPL stumbles, it takes the bulls down a notch — sows a few seeds of doubt.

This morning, AAPL is flirting with the .886 of what might be a Bat pattern.  We talked a few days ago [see: Just Do It] about AAPL’s run-in with the trend line from 1994, negative divergence, the Crab within a Crab pattern, etc.  Since the Feb 15 high, however, our attention has been on whether it was capable of making a new high.

For one thing, the smaller of the two Crabs has a 529.25 target that we didn’t quite reach (we came up 3 pts short.)  But, the reversal to 486 off the 526 high was impressive enough that we didn’t care all that much at the time.  Now, as SPX is inching back towards 1370, I find myself caring.

We’ve retraced nearly 88.6% of that 526 – 486 drop.  Regular readers will recognize .886 as a Fib number associated with Bat patterns.  They’re set up by Point B’s at less than a .618 retrace of the XA leg.  In this case, our Point B was right around the .500 level, so there’s a possibility it’s a Bat.

The other alternative, however, is a Crab pattern — which features a Point B up to the .886 retracement.  The difference is in the outcome.  Bats reverse course at the .886.  Crabs go on and extend — typically to the 1.618 level, but sometimes further (2.0, 2.24, 2.618, etc.)

One way to play a suspected Bat is to short just prior to the Point D, with a stop just beyond — in case it turns into a Crab.  The other imperative is to watch other technical indicators for evidence of a turn.  In the case of AAPL, we have a pretty impressive TL on the 60-min RSI that suggests 521.86 will be the end of the retrace.  But, I’d put a stop just above 527 just in case.

We got up to 521.10 this morning — close enough, in my book for the pattern to be considered complete.  But, I’d want to see a sell off before considering it done.  SPX has exactly matched its intra-day high from Feb 21 of 1367.76, and seems to be thinking about a run higher.  Whichever path it takes, it’ll be easier if AAPL leads the way.

Stay tuned.

ORIGINAL POST:

SPX just completed a little inverse H&S; pattern that points toward 1372 — the same level as the inverse H&S; and just above the May 1370.58 high.  I don’t know whether we’ll exceed 1370 or not, but it’s a watershed mark for investors — especially those who care about Elliott Wave theory.

This morning’s attempt at a sell off had no juice behind it, and the bottom of the rising wedge held once again.  Hitting 1372 would take us back to the upper bound of the rising wedge.  And, the beat goes on…

VIX is off 1 pt as of this writing, taking prices as far south on the falling wedge as possible with re-entry.  On the other hand, there’s a TL on the RSI that supports the idea of a bounce.  And, divergence is positive on both the daily and the hourly charts.

SBUX trying to rally, but the 60 min channel is holding so far. 

The problem is the daily RSI TL, which looks like it’s not ready to break just yet.

I’m closing the rest of my position for a slight loss and will try to reenter on the back test around 49.

**************

Re XRT, off the cuff I think the magic number is 64.44.  There are overlapping Crab patterns that both point to the same price at their 1.618 extensions, and the rising wedge has plenty of room to accommodate it.  The RSI and MACD would argue for a turn here, so maybe we see a dip along the way (59.96 @ 1.272?) to set up some negative divergence for the final push.

more later.