Fubarrio Expat Trader

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UG

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OK. Yesterday I said that I thought after the stunning decline that we could see a positive day in the broad US equities markets.

I was right. We were up somewhere in the vicinity of 4-5% depending on what market you were looking at.

So, where do we go from here? Good question. While yesterday it “just seemed ripe” for a rebound, today I have to give credit to “Genesis” at tickerforum.org for pointing this out.

Here is what he pointed out, and I’m also seeing setting up technically – by “technically” that means that i’m just looking at price and volume action and ignoring all the “news items” and fundamental factors because:

1.) i don’t have time to parse and sort them

2.) i don’t believe them anyways since they are all filtered through entities with ulterior motives (i know that sounds tin-foily, but trust me, when you are a trader you can hear the bias in the voices of the news anchors and their comments really really easily — especially if your trade happens to be on the other side of their bias)

First an Introduction to Elliott Waves.

You could hold my knowledge of Elliott wave in a thimble. My understanding is about as deep as a parking lot puddle. But i’m going to tell you what i think i know nonetheless.

The basic idea (i think) is based on fibonacci mathematics, the symmetry (and ubiquity) of the spiral in nature and the mathmatical ratios that it produces.

In that theory it predicts that the market will move in “waves”

To make a long story short, 5 waves in the direction of a main move, and 3 wave “retracements”

In what length? (you might ask)

where this is where it gets tricky. In any length, basically. Like the spiral in nature, the theory is that the math is fractal in nature — meaning you’ll see the same pattern at any degree of “zoom” that you care to look at the markets.

What’s this Have to Do with the Markets Today?

Click on and zoom in on the following image. This is the ES (s&p futures) since Sunday night. Each bar represents 1/2 hour of trading.

I tried to label these to make it clearer but i’m a doofus with my charting package so squint and maybe you can make out 1,2,3,4,5 and also a 1A, 2B, and 3B at the minor turns this candlestick chart shows.

Coming off the top as futures opened on Sunday night, you can see that the market did wave 1 (down), wave 2 (up) before the announcement that the bailout bill would not pass. After the bill failed, we saw wave 3 (down) , wave 4 (sideways), and wave 5 down before the closing bell.

Click on the image above to get a better view.

Now, overnight, the troops rallied, floated some rumors, started working on a new bill, announced possible accounting changes (cuz we really need more lies and leverage- NOT) and got the president to speak.

From Monday’s close on you can see wave 1A (up), 2B (down) and wave 3C (up).

Now, remember what i said about Elliott Wave — 5 waves in direction of movement and 3 in retraces.

But what about direction changes?

ah…that’s the problem….until this resolves to either go ABOVE 1179′ish or below 1154′ish with conviction (with volume during trading hours) we won’t know for sure if the three wave retracement is over and time for another big leg down

OR

there is one more (5th wave) up.

So, what to do?

Notice that these breakout price points are also the predicted fibonacci retrace numbers of 38.2 and 61.8%–amd further notice we closed out the day almost dead on a 50% retrace of yesterday’s move.

A reasonable trade is to go short or long at a break through of those points and to set a stop a point or so under it in case you’re wrong.

At times this doesn’t work and you get whipsawed, but right now the S&P market is “counting” from an elliott perspective pretty well it would seem….even with all the news/”event risk” out there.

Happy Trading,
Uruguay Guy

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There was some fear and loathing in the markets yesterday (it’s now after midnight in uruguay).

Unfortunately, there is so much more to write about this than I can possibly do at this juncture.

Suffice to say, today’s action in the equity markets will undoubtedly get the headlines. The real tells are in the credit and foreign exchange markets however.

In a day riddled with financial news that on any other day would have been “stories of the year”, they threw a fast-ball by you (high and tight).

I’ve taken the liberty of copying it from Bloomberg below.

My take on the markets tomorrow — who knows — I think that the powers that be would like to see some more tankage to stoke the fear while the house is off and turn up the heat on them getting a deal (any deal) done.

HOWEVER, if we get as low as 1070 on the s&p (we were down about 95 points to 1115-ish today) there is huge technical support there for now. I know this sounds crazy, but right now i’m expecting a dead cat bounce tomorrow and possible close above yesterday’s — not playing heavily either way.

from Bloomberg — this creates artificial demand for dollars, btw…keeping commodities priced in dollars low and the dollar itself high. when this trade unravels….look out.

Sept. 29 (Bloomberg) — The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression. The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide.

The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities. The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry.

The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone. “Today’s blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, “the Fed’s balance sheet is about to explode.” The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970.

Credit markets deteriorated further as authorities tried to save more financial institutions from collapse. European Rescue European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor’s 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

“If people think the authorities may give in to fears, they are wrong,” Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting.

“There is willingness and determination on winning the battle to restore confidence and stability.”

Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn’t be repaid by counterparties, driving up the cost of short-term loans between banks. Funding Risk

“By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,” the central bank said.

The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs. All the banks extended their facilities until the end of April 2009.

The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion. Special Sales In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.

The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system. Paying interest on reserves puts a “floor” under the traded overnight rate, which would allow a central bank “to provide liquidity during times of stress” without affecting the rate, New York Fed economists said in a paper last month.

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Now, that that’s over I’ll get back to the story about our trip.

So, after skipping the city tour in Cusco, and getting hopped up on coca tea we were ready for the sojourn to the main event. While the *real* travellers do the 4 day walk along the Inca trail from Cusco to the monument, we aren’t quite that hearty….nor did I have that much vacation

The train steward, who was a bit of a bitch, wasn’t pleased at all by the loose mate grounds staining his white linen tablecloth

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Golden Lotus and I actually left (gasp!) the apartment during the middle of the week this last week and went to lunch.

This is a bit of a rarity for me, as I often end up working through my lunch hour and stopping only for a moment later in the afternoon when i can’t stand it anymore to eat.

But, the sun came out for a minute (yah!) and we launched a redesign of the site at work we’d been working on for far too long (double-yah!) and decided to venture outside.

Our neighborhood is Punta Carretas. Now the venerable punta caretas has an upscale mall at its core (yeah i know upscale mall is an oxymoron, but work with me here). ever since this prison was converted to a mall it’s kind of been a retail mecca of sorts for the city. realestate values exploded and a lot of the higher end restaurants setup shop in this neighborhood.

However, there aren’t a lot of good lunchtime options for food.

I’m not sure if it’s because retail employees don’t have the money for “upscale” (read: not chivitos) lunch and the “fancier” residents who live here are all busy working in other neighborhoods or what….also the mall and the “food court” maybe add some “supply” to the market that outstrips native demand…i’m not entirely sure.

Let’s just summarize by saying there are alot more places to eat dinner than lunch.

So, GL and I hopped a cab to the puertito de buceo for what we hoped would be an outdoor lunch at el italianito — a casual outdoor, mostly seafood restaurant between buceo and neuvo pocitos on the coast.

Unfortunately, they were closed for winter and/or improvements, so we wandered up the road towards montevideo shopping (another mall) and looked at some of the restaurants we never ate at while living in that same neighborhood.

GL chose a small, very casually appointed cafe called BM Bistro.

Not wanting to ruin GL’s lunch I kept my mouth shut regarding what the initials BM stood for in English, but laughed out loud when I saw the logo was a “steamer”

That said, the food was really really good by Montevideo standards.

Huge quiches, tortas, salads, wraps, all the food seemed to be very very colorful and interesting. The chef, I believe was classically trained somewhere else or had cooked at a large hotel in UY perhaps…I didn’t ask.

When it came time for desert, a plateful of different dessert options came out that were ALL head and shoulders above the typical UY stuff. Both of our desserts were very very well done, appropriately moist (they ahve a problem where they don’t like to add eggs to cakes or something here which can leave them disappointingly dry if you’re used to northern tastes).

Overall, I’d have to put BM Bistro (despite the unfortunate name, logo and deceptively “country casual” furnishings) right near the top of the MVD food scene.

Ciao,
UG

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it’s late.

i have a more complete analysis of what’s happening, but i wanted to get this out there…another straw in wind. From Reuters:

BEIJING, Sept 25 (Reuters) – Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

“The decree appears to be Beijing’s first attempt to erect defences against the deepening U.S. financial meltdown after the mainland’s major lenders reported billions of U.S. dollars in exposure to the credit crisis,” the SCMP said.

A spokesman for the CBRC had no immediate comment. (Reporting by Alan Wheatley and Langi Chiang; editing by Ken Wills)

>>>>>>>>

If true, this is either:

1.) really big, or
2.) the chinese working to spread the panic so we can ram the bailout bill down the throats of americans, or
3.) they’ve secured an agreement to be able to invest in us financials in return for continuing to fund the us govt, and would like to pick up a few at lower prices

on reuters, the news was so big, it was 5th down the list of stories for the day after a fluff piece “Gay stars thriving but await a-list company” / sarcasm

glad to see that everyone realises the relative importance of this development.

ciao,
UG

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The newsflow coming out the financial sector has clearly overwhelmed my ability to post any kind of coherent summary, much less analysis of it.

However, let’s address the most recent in a recent string of atrocities being contemplated.

The Treasury Secretary and the Federal Reserve Chairman briefed some high ranking members of congress. In that meeting, they basically said that he financial system (as they know it) was getting ready to have a major dislocation. The congressional leaders are reported to have been very scared coming out of that meeting.

Mission Accomplished!

Be Afraid! Be VERY Afraid! Because that’s how we get you to make stupid decisions without thinking, much less discussing the ramifications — that benefit “us” — you see?

Is the US Congress so stupid that they forget how they rammed the Iraq war down their throat? (don’t answer that – it was rhetorical)

Interestingly, it wasn’t really a *danger* until Goldman Sachs (the company that the Treasury Secretary used to head up) came under the attack of the short sellers…People betting that their balance sheet was full of falsehoods and misrepresentations which would preclude their ability to raise additional capital or merely buy back their own now “undervalued” stock (yeah right).

You see, Goldman (ball)Sachs used to be private. During the last boom (1999) they foisted that turd off on the public.

In return they got some capital to allow them to “expand” (read: liquify their principals).

So, in theory, if the stock ever got down to their original price, it’s no problem right? They’ve been using the money they got to expand operations into profitable lines of business for the now owners (the stockholders) and the corporate entity is now worth far more than in 1999, right?

What’s that? They’ve been spending 10’s of Billions in MASSIVE bonuses to management and corporate insiders and they haven’t really been keeping that value in the institution to benefit the owners?

Oops.

Guys, this fear mongering by Hank and Ben are nothing more than utter b.s. YES, there is a massive dislocation in the financial markets. However, in this case the suggested medicine is worse than the disease.

And, it’s, once again, just more socialism for the rich. It’s a way for them to get their assets out of the fire while pensioners, taxpayer and the other bag holders get ready to “swing”.

Don’t believe me?

In addition to this little bit of treason being foisting onto the public, they (temporarily) made it illegal to short a stock — illegal to bet that a stock will go down in price (temporarily). However, not just any stock. Just financial stocks.

Some misguided people think that a stock goes up the company gets more money….WRONG. They got their money the day they sold a tranche to the underwriters. After that, stock price moves only enable secondary offerings and stock options — both of which dilute existing “investors”.

I’ve already given the “speech” that anyone who is buying a stock with the intent on selling it later for a higher price is really “speculating” — even if they think they are investing. An investor intends to hold the stock forever and collect money from the dividends only.

Ever bought a stock with no dividend?
Ever bought a stock with the intent on selling it for more money later?

If so, you’re a speculator.

What makes speculating long vs. speculating short more righteous? I’ll tell you. Because it keeps the monied elite in their positions at these overleverage financial firms in a position to continue to leech from you….long enough to push this crap debt they benefited from selling over the years, onto the national debt for you and your kids to pay for in the form of higher taxes, lower levels of services, and a less valuable dollar.

“But spending 700 Billion now on a hasty plan giving Hank Paulson carte blanche to do what he wants with the funds and no oversight is better than the alternative.”

Really?

Why are we so afraid of a “downturn” in the business cycle?

I know some people’s lives and livelihoods are tied to models that demand constant growth. But a ponzi scheme by mathematical definition is doomed to failure.

Is it really better that we “put a floor under home prices” when salaries in many areas don’t allow people to afford the homes at the price they sell for?

I’ll grant you that this has been a rambling, incoherent, message at best. But I wanted to say this in summary:

There is no “magic money machine”. No “free energy device”. No “free lunch”. Someone pays for it. In this case, they are suggesting it should be you rather than the wall street elite.

Wake up.

This does NOT stop a crash from happening.

Illegalizing shorts does NOT stop a market crash from happening. It does NOT suddenly make these firms solvent. It does NOT suddenly raise the value of shaky assets.

I predict this will be pushed through congress quickly (like all the other bailouts). Once again, they will realize they’ve solved nothing. I’m guessing that by then, they hope, the election will be decided already and all their wall street piglet friends will have already gotten their affairs in order.

My suggestion is to vote out each and every congress person who votes for this and prepare yourself for an even Greater Depression.

ciao,
Uruguay Guy

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Gold had its biggest one day move every supposedly today!

Check out my post from yesterday where I say that Gold still has one more leg down…hahahaha, nice call, huh? We’ll see what happens over the next week to see if it continues going up, but so far it’s lookin flat wrong.

That said, when I turned on CNBC over the lunch hour goldman sachs and morgan stanley were running in the “Bug” where their quotes were rotating as part of the market indicators — like the DJIA or price of oil.

I don’t know what it’s like these days, but back when I lived in the US, that was the usually the sign that a trade was “over”.

I’m not sure if the trade is over on morgan and goldman (short) BUT even it is is, there is still a bunch of truth that still has to come out of these financial institutions’ balance sheets.

UG

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TEOTWAWKI

and i feel fine,
UG

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Hey Everyone,

It’s been awhile since I talked about gold as a speculation — I wanted to jot off this note though since I’ve been talking privately with folks about it, but haven’t really come out into the public in a definitive way and given people my thoughts.

(I’m writing this during my lunch hour, so I may have to double back with appropriate charts to make my points more clear this evening.)

Pretty much all of the commodities have been getting slammed.

Without getting into a deep analysis of “why” (plenty of “reasons” could be cited as potential contributory reasons) let’s just accept that “it is what it is”. So, what to do?

If you’re long gold stocks, ETFs, Silver, Miners of either, Platinum, etc you’ve been enduring a great deal of pain. Technically speaking it looks like you are in a small recovery phase off a recent low, which an Elliot wave theorist would say is the 4th of 5.

The Five waves predict: wave one, down, wave two up, wave three down, four up, and five down to complete the five wave movement.

So far, when looking at the chart, a case can be made that we still need to have one more wave down.

If you are looking at the volume vs. price indicators on a daily you’ll see (as well) that as the price is recovering slightly here, you see the volume going down. That is to say, as the price increases there is less interest in trading — that’s usually a sign that more downward price pressure is coming as well.

So how low could it go?

Assuming what I just said predicts more downward pressure in the price, it could break 700 on the downside and go into the mid-600’s pretty easily. While that sounds horrific if you are holding precious metals or mining shares as a speculation, a move like would have me looking very closely for a “turn” back northward in price.

All of this could be a bunch of hogwash obviously, but if you are NOT already *in* and contemplating a jump in “because it’s cheaper” beware the potential for a fifth wave down….right now, you have so many moving parts that it makes “fundamental” analysis pretty useless….while theoretically a rate cut or more liquidity tricks by the fed and treasury to prop things would be supportive of precious metals, there is a lot of counterparty risk and hedge fund (etc) deleveraging which will be driving the price action. In situations like this it’s better to be late (buying) than early.

my 2 cents.
Uruguay Guy

p.s. if you’re already holding physical as a hedge or as “insurance” don’t be freaked out. Tis much better to never have to cash in your insurance, right?

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