S&P 500 Update for June 29, 2010

You better get that magnifying glass out to see if the 13-week EMA is above to penetrate the 34-week EMA.  Today, I was stopped out of my remaining 40% position in SPY at $104.24, which was my average cost.  Therefore, my investment portfolio is now 100% in cash. 

Where do we go from here?  My response is based on what the market is currently telling me.  It is saying that the majority of indexes are either currently in the latter Stage 3 (Distribution Phase) or early Stage 4 (Declining Phase).  This analysis is based on Point & Figure Charts of the various market indexes. 

S&P 500 Update

SLV: Neither Bear nor Bull!

I know that a lot of you that follow my blog are very interested in the precious metals.  That is why from time to time I have updates pertaining to GLD, SLV, and GDX.  Today, I want to illustrate a "Point and Figure Chart of SLV, which is as follows:

From a technical analysis perspective, these are my findings for SLV, which are based on the above chart:

1. Bullish uptrend since November 2008 (Green Line)
2. Cyclical Position for SLV: Late Advancing Phase/Early Distribution Phase
3. Major support at $17, which also corresponds to its 200-day EMA at $16.91
4. Price break of $17 would be the start of the Declining Phase.
5. Price break of $17 would give a downside price objective between $12 to $14.  $14 is the February 2010 low.

Bottom Line: $17 is definitely the critical support for SLV.  A break below $17 would probably precipitate a decline of 23%.  If it breaks $17, I would definitely hold off buying until I see what happens around $14.

Obama Administration Knew About Deepwater Horizon 35,000 Feet Well Bore

According to Oil Price, President Obama and Secretary of Interior Ken Salazar, Secretary of Energy Steven Chu, and Defense Secretary Robert Gates were informed that BP would drill an unprecedented 35,000 feet well bore at the Macondo site off the coast of Louisiana. In September 2009, the Deepwater Horizon successfully sunk a well bore at a depth of 35,055 below sea level at the Tiber Prospect in the Keathley Canyon block 102 in the Gulf of Mexico, southeast of Houston.

During the September drilling operations, the Deepwater Horizon drill penetrated a massive undersea oil deposit but BP's priorities changed when the Macondo site in the Mississippi Canyon off the coast of Louisiana was found to contain some 3-4 billion barrels of oil in an underground cavern estimated to be about the size of Mount Everest. It was as a result of another 35,000 feet well bore sank by the Deepwater Horizon at the Macondo site that the catastrophic explosion occurred on April 20.

According to the Wayne Madsen Report (WMR) sources within the U.S. Army Corps of Engineers and the Federal Emergency Management Agency (FEMA), the Pentagon and Interior and Energy Departments told the Obama Administration that the newly-discovered estimated 3-4 billion barrels of oil in the Gulf of Mexico would cover America's oil needs for up to eight months if there was a military attack on Iran that resulted in the bottling up of the Strait of Hormuz to oil tanker traffic, resulting in a cut-off of oil to the United States from the Persian Gulf.

Obama, Salazar, Chu, and Gates green-lighted the risky Macondo drilling operation from the outset, according to WMR's government sources.

WMR learned that BP was able to have several safety checks waved because of the high-level interest by the White House and Pentagon in tapping the Gulf of Mexico bonanza find in order to plan a military attack on Iran without having to be concerned about an oil and natural gas shortage from the Persian Gulf after an outbreak of hostilities with Iran.

BP still has an ongoing operation to drill down to 40,000 feet below sea level at the Liberty field off the north coast of Alaska.

New Home Sales Plunged in May

This is not good economic news.  According to the Commerce Department, the sharp decline in housing sales was worse than expected. Sales were down across all four regions. Economists surveyed by Dow Jones Newswires had estimated sales would fall 20.6% to 400,000 because of the April 30 end of a tax credit for first-time buyers that was enacted in February 2009 and extended.  The level of 300,000 homes sold was the lowest since the government begin compiling this data in 1963. The 32.7% decrease was also a record.

Who Knew What and When About the BP Problem?

It is being reported that the Deepwater Horizon problem started way back on February 13.  To make matters worse, this Administration knew about the issue.  However, there was no public dissemination of this information.  The following are some excerpts from the article:

1. It seems incomprehensible that the president and other members of the administration still have jobs when it is now being reported that the federal government was apprised by BP on February 13 that the Deepwater Horizon oil rig was leaking oil and natural gas into the ocean floor.
2. In fact, according to documents in the administration's possession, BP was fighting large cracks at the base of the well for roughly ten days in early February. 
3. Further it seems the administration was also informed about this development, six weeks before to the rig's fatal explosion when an engineer from the University of California, Berkeley, announced to the world a near miss of an explosion on the rig by stating, "They damn near blew up the rig."

Further, according to regulatory filings with the SEC, RawStory has found that Goldman Sachs sold 4,680,822 shares of BP in the first quarter of 2010.  Goldman’s sales were the largest of any firm during that time.  Goldman would have pocketed slightly more than $266 million if their holdings were sold at the average price of BP’s stock during the quarter.  Now, what did Goldman Sachs know?

Finally, Tony Hayward, CEO, liquidated about a third of his holding in the company one month before the Deepwater Horizon disaster.  Superb market timing, or did he use insider information to benefit from this knowledge?

SPX: Weekly Update for Week Ending June 18, 2010

Ignorance is not Bliss

For those of you that live in Illinois or know someone that does, you may want to move.  The reason because as a state resident of that fine state you are going to be on the hook for $45 billion.  You may ask, how so?  Illinois Teachers Retirement System's, after losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report.  That is, it has 40 cents of every dollar they need.  In other words, if you are a teacher in Illinois, your "PENSION" is dead.  If you are a taxpayer in Illinois, please bend over!

For the full report, here is the link!  Oh, my the way, the investments of choice were those credit default swaps (CDS), or derivative vehicles. 

A Family Affair

If the government can insist that your children are on the hook for all that federal debt outstanding, I guess you can likewise:

Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

With each passing day, I become more and more "Bearish," not only on our economy but also the stock market.  A prime example of my bearish stance is taken from Bloomberg this morning:  "The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed 75% of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history."  To keep things in perspective consider the following facts: "First, Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of AIG, GM (Government Motors), or Citigroup.  Second, Fannie and Freddie own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10, 2010  Federal Reserve report.  Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise."



I believe the worst case scenario of $1 trillion will occur.  What is the solution?  We must simply return to the days when the standard was for mortgagees to put 20% down.  What is the probability of the that happening?  Probably, zero.

Then, President Barack Obama sends a letter to Congress over the weekend urging them urging them to approve a tax and spending bill currently being debated in the Senate that already would add $80 billion to our nation's budget deficit.  He also requested another $50 billion in deficit spending earmarked for bailing-out state and local governments. Without this "emergency" money, the President claims thousands of government union jobs would be lost.  (Yes, you read that correctly.  It is all about saving union jobs.  Mr. President, what about non-union jobs?  Oh, I see now.  You want to unionize all jobs.) 

Folks, this deficit spending must stop in order to save our Republic.  We simply can not continue to have deficit spending that amounts to 10% to 12% of GDP.  Once again, the solution is simple.  That is, cut spending!

Are You Ready for the "Bear?"

The following S&P 500 chart illustrates the exponential moving average (EMA) strategy utilizes the 13-week EMA and and 34-week EMA.  It is simply an extension, so to speak, of the 15- and 40-week EMAs that I update on a weekly basis.  The only difference, of course, is time.  The 13- and 34-week EMAs are a little more sensitive, simply because of the shorter time frame. Also, I have included the PPO indicator.  I use the PPO indicator as my confirmation to the EMA strategy.  Notice what is happening to the EMAs and the PPO.  The 13-week EMA has turned down and nearing the 34-week EMA.  Also, the PPO has likewise turned down and closing in on "0." 

My advice is you better be very caution in the market near term.  The "Bear" might just be coming out of hibernation. 

Flash Crash

GDX: Declining Phase Dead Ahead?

Start of a New "Bear Market?"

Point and Figure (P&F) Charts are excellent tools for identifying what phase (cycle) the market is in for any give time frame.   There are four phases to any market cycle.  The accumulating phase, advancing phase (bull market), distributing phase, and declining phase (bear market).  The following chart depicts the various phases that the market has gone through over the past year.  I have used BGU for this illustration.  (BGU seeks daily investment results, before fees and expenses, of 300% of the performance of the Russell 1000 (Large Cap) index.)

That proverbial bottom-line is that the market has just entered the declining phase (Bear) when the major support (Green) line was penetrated on the down side.  I plan on using any market strength to exit my remaining SPY (40%) positions (unless stopped out) and start accumulating inverse ETFs, such as DXD, SDS, QID, and TZA.
 

Weekly S&P 500 EMA Strategy Updates Along with TNA & TZA

The weekly EMA strategy is still in a bullish trend as denoted by the 15-week EMA > 40-week EMA.  However, both EMAs have turned down along with the RSI being below 50.  (See the following chart.)

The next chart is TNA (3x Small Cap Bull ETF).

The last chart is TZA (3x Small Cap Bear ETF); which, of course, is a mirror image of TNA. 

A Tale of Two ETFs (TNA and TZA)

I am still waiting for TNA's PPO to turn positive before I reinstitute my position.  See the following chart for specifics.

The mirror image of TNA is TZA.  See its chart as follows:

What has happen to our Moral Compass?