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ES and the Great POMO Rally
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ES and the Great POMO Rally

  #831 (permalink)
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Just a quick heads up:

in gold - double-top and an island reversal off the 2nd top. Pretty ominous looking!!!

in ES - the short position by large traders in the ES is at a 4-year high (see COT chart) and the ES is bouncing off major support @1140.00 value area (see 135min chart), so there is no telling how far the short covering rally will carry.

On the other side of the coin, the market is a discounting mechanism, and the smart money is very short the market. This should tell us something.

Attached Thumbnails
ES and the Great POMO Rally-gc-12-11-daily-_-vix-daily-1_26_2011-9_7_2011.jpg   ES and the Great POMO Rally-c950409ea2f34f295403b7f5cef186e6.png   ES and the Great POMO Rally-es-09-11-135-min-9_7_2011.jpg  

Last edited by tigertrader; September 7th, 2011 at 10:30 AM.
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...On the other side of the coin, the market is a discounting mechanism, and the smart money is very short the market. This should tell us something.

What was more interesting was the nature of Yesterday’s trade (Tuesday). From the 9:30 double bottom, much buying was initiating in nature and with relatively uniform volume throughout most of the day. There was a mid afternoon pullback followed by a a high volume run up to the close. The day’s profile was elongated and closely resembled a trend day up. Volume was evenly spread through out the day with limited mid day consolidation.

Maybe this rally was due to some institutions too optimistic. On the daily chart (ES) we seem to be forming a bottom.

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  #833 (permalink)
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What was more interesting was the nature of Yesterday’s trade (Tuesday). From the 9:30 double bottom, much buying was initiating in nature and with relatively uniform volume throughout most of the day. There was a mid afternoon pullback followed by a a high volume run up to the close. The day’s profile was elongated and closely resembled a trend day up. Volume was evenly spread through out the day with limited mid day consolidation.

Maybe this rally was due to some institutions too optimistic. On the daily chart (ES) we seem to be forming a bottom.

That may all be true, but it is simply one day's price action. While I may harbor a short term bullish sentiment, the progression to intermediate term bullishness, would require the market to be accepted at higher levels, and the market's breadth, liquidity and leadership to improve. While we did see the potential beginnings of a turnaround yesterday, the probability of headline risk from Europe could derail the bulls' dreams, as it has so many other times in the past couple of months.


Last edited by tigertrader; September 7th, 2011 at 11:17 AM.
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  #834 (permalink)
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Hard to imagine this rally, as being anything but short covering, although there are a lot of shorts

DAX looks like complete garbage, and looks very vulnerable to any negative news - chart1

US $ looks relatively good, and is showing a divergence to "normal" correlations - chart 2

$VIX needs to get under 30.00 to signal confidence in the market - chart 3

Attached Thumbnails
ES and the Great POMO Rally-fdax-09-11-daily-_-vix-daily-1_25_2011-9_8_2011.jpg   ES and the Great POMO Rally-dx-09-11-daily-_-vix-daily-1_26_2011-9_8_2011.jpg   ES and the Great POMO Rally-es-09-11-daily-_-vix-daily-1_26_2011-9_8_2011.jpg  
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  #835 (permalink)
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In a matter of days, the ES dropped 90 handles from its 50% retracement ~1230 high last week, only to stage a powerful 65 point (72%) bear market rally which began yesterday afternoon and continued into today. While the reason du jour for the rally was an anticipated federal plan to create jobs ( see the POTUS’s speech this evening), and a relatively positive tone out of Europe, the fact that the short position of large traders was at a 4 year high, may have had a little more influence over why we rallied.

Advancing issues outnumbered decliners by about 8-1 on the NYSE and by more than 5-1 on the Nasdaq exchange. The S&P 500 Index has formed a recent series of higher lows, but recent gains have lacked great volume or leadership conviction, while the dollar is showing signs of having made a bottom and the $VIX continues trade above the 30 level. The Dow's 4.08% decline over the first three days of September was the fourth worst start to the month for the index going back to 1900, in what is the worst performing month of the year for equities.

ES now sits at 1200 which is near term resistance formed by last Friday’s pre-NFP trade and the VAh, after having filled the 1186 - 1200 gap. While short term, we could trade as high as the top of the channel near 1245-55, it's difficult to imagine an intermediate term rally developing from this early up leg. Increasingly, it looks like things are going to become worse in Europe before they get better, and it is doubtful if anyone in their right mind, would attach credence to anything coming out of Washington or Obama’s mouth.

Attached Thumbnails
ES and the Great POMO Rally-es-09-11-135-min-9_7_2011.jpg   ES and the Great POMO Rally-monthly831.png   ES and the Great POMO Rally-dowstartssept.png   ES and the Great POMO Rally-noname.jpg   ES and the Great POMO Rally-noname2.jpg  

Last edited by tigertrader; September 8th, 2011 at 09:55 AM.
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  #836 (permalink)
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The stock market has been swinging back and forth in wide ranges, moving from deeply oversold to deeply overbought and back again with extreme moves.Today it was the markets turn to take a tumble as the ES sold off 20points, and the bonds and the dollar rallied, after a benevolent Ben Bernanke failed to offer up any new plans to bolster the economy. Expectations had been running high for further monetary and fiscal easing, and if the market was disappointed by what Dr. Bernanke did or didn’t say, one could only imagine what the market’s reaction will be to what Obama will have to say.

The POTUS will address Congress later today with his $300 BB plan to stimulate both economic growth and job growth. It is hard to imagine that 3 years after the recession began, he would all-of-a-sudden, have a solution to what has been ailing the world’s largest economy for such a painfully long period of time. Perhaps he has been waiting for the right moment to unveil his plan and rescue the unemployed masses from their misery, or maybe he enjoyed his stint as the Tea Party’s George Chuvalo so much, that he kept the answer a secret from the American people? The answer is, of course, none-of-the-above; he has nothing. So, be prepared for the usual vacuous rhetoric and finger pointing from the leader of the free world.


As I mentioned yesterday, it's difficult to imagine an intermediate term rally developing from this early up leg, just as it is impossible to imagine anything positive coming out of Obama’s mouth. The ES rallied all the way back to ~1200 (basis Sept.) and the VAh, filled the 1186-1200 gap and failed, reverting back to the 50EMA. The dollar has continued to strengthen, along with the $VIX while the DAX hovers off it’s lows, and while the open interest shows a very large speculative short interest, which one should always be vigilant of; the smart money, is short.

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Last edited by tigertrader; September 8th, 2011 at 06:31 PM.
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Lol! This thread has become an adventure into financial journalism for Tigertrader. While I appreciate the continuous posts it seems that the original subject has become lost. I started this thread to discuss the Fed's POMO activity and it's influence on the ES e-mini contract as it was such an obvious game occurring. Now that the POMO has largely been discontinued with the exception of a few small(er) POMO days, I'm wondering the relevance on this thread now which is one reason why I've down shifted my activity here.

In any event, I just thought I would comment here as I'm confused as to what has happened with this thread and felt I would say something. I don't intend for this to have a negative connotation in fact, I would be interested in thoughts of a more dans la vent thread that is consistent with the market's current events.

Cheers,
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The POTUS will address Congress later today with his $300 BB plan to stimulate both economic growth and job growth. It is hard to imagine that 3 years after the recession began, he would all-of-a-sudden, have a solution to what has been ailing the world’s largest economy for such a painfully long period of time. Perhaps he has been waiting for the right moment to unveil his plan and rescue the unemployed masses from their misery, or maybe he enjoyed his stint as the Tea Party’s George Chuvalo so much, that he kept the answer a secret from the American people? The answer is, of course, none-of-the-above; he has nothing. So, be prepared for the usual vacuous rhetoric and finger pointing from the leader of the free world.

There is only one cure. TIME. Time to forget how stupid we were. Time to remember how much more we liked it when things were better. Time to get unlazy. Time to pull our head out of our butts... time...

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  #839 (permalink)
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Lol! This thread has become an adventure into financial journalism for Tigertrader. While I appreciate the continuous posts it seems that the original subject has become lost. I started this thread to discuss the Fed's POMO activity and it's influence on the ES e-mini contract as it was such an obvious game occurring. Now that the POMO has largely been discontinued with the exception of a few small(er) POMO days, I'm wondering the relevance on this thread now which is one reason why I've down shifted my activity here.

In any event, I just thought I would comment here as I'm confused as to what has happened with this thread and felt I would say something. I don't intend for this to have a negative connotation in fact, I would be interested in thoughts of a more dans la vent thread that is consistent with the market's current events.

Cheers,
PB


Back on topic, it is !

Sorry for perverting the true essence of the thread - there will not be any more market commentaries from me.

Excellent article on Bernanke's potential next steps.

http://peaktheories.com/docs/TWPSept092011.pdf


Last edited by tigertrader; September 9th, 2011 at 09:01 PM.
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Back on topic again.

I wrote this before QE2, but it is just as appropriate today, as it was then.


The More Things Change, The More They Stay The Same


While walking to the post office last summer, I stopped into a vintage mid-century furniture store named Revival. I wandered into the store that day because I recognized the furniture from my childhood. They say, you can't go back, but for the moment, I proved the cynics wrong as I stepped into this kitschy store, and stepped back in time. My elation was short-lived however, as I realized the century being referred to was the twentieth, and that mid-century was in reference to the 1950's, the decade in which I was born. Newly classified a mid-century antique, I immediately wondered if I should be calling a cab, instead of making the round trip home on my vintage legs. I chose to gut-it-out though, and walk home, affording myself the time to contemplate a much simpler era.

It was a time when we kept our money in savings accounts, and kept tabs of our funds in passbooks. Americans drove American automobiles, women stayed home and raised the kids, and "Father Knew Best". Ozzie and Harriet, Andy Griffith, and Dick Van Dyke were not only the most popular shows on television, but icons of pop culture and symbols of the American dream. Kids played sports, (not video games) - people typed on typewriters, and everybody read the newspaper. However, the fifties' ideals were contradicted by a clear social and political dichotomy. Racial discrimination pervaded daily life, there was little concern for the environment, and the government adhered to a lunatic doctrinal framework which was the basis for a Cold War, that would soon bring our country to the brink of nuclear disaster.

While the Fed''s monetary policies of the 1950's are often criticized, the decade's economic performance contradicts the critics claims. Inflation, measured using the GDP deflator, averaged under 2.0 percent per year between 1952 and 1960, and it never went above 3.3 percent in a single year. Real GDP over the same period grew at an average rate of 2.9 percent per year, and the unemployment rate averaged 4.7 percent. While there were two recessions during this decade, the one in 1954 was exceedingly mild, and the one in 1958 was sharp but very brief. The Fed of the 1950's was obviously just as concerned, as today's Fed, when it came to controlling inflation, and the economic results of their actions, suggests they had figured out the essence of sensible policy. However, economic, social, and demographic factors were different in the 50's; people were big savers, frugal spenders, and were cautious about purchasing items on credit, even though credit was easily available. Oil was still cheap and abundant, and was produced domestically, not imported. Interest rates were relatively low, there was a trade surplus, and the dollar reigned supreme. It was the beginning of the baby boom, and it was the time when women began to enter the workforce.

There have been some encouraging trends since the 1950's; a heightened concern for civil and human rights, including the rights of minorities and women, and a growing concern for the welfare of the environment. Technological innovation dramatically increased our access to information and enhanced our lives, but concurrently created a digital divide. Our economy experienced tremendous growth and was integrated into the global economy, but progress inadvertently introduced problems that affected economic stability and quality of life. With the gross national debt now over 13 trillion dollars, a myopic federal government continues to implement short term solutions at the expense of future growth. Ironically, the same policy makers that originally created these problems, have often lacked either the political will or expertise to correct their mistakes. The Fed's treatment for our economic ills, has always been to lower interest rates and boost liquidity, a cure that may be far worse than the disease itself.

As a result, of these policies the American consumer's wealth has been destroyed because of the record drop in home prices and decimated retirement plans. Unemployment is still near 10%, and home foreclosures and bankruptcies are setting records, as over-leveraged consumers are increasingly squeezed by unaffordable home-equity loan payments, and rising food and energy costs. Even for those who qualify, credit is unavailable, and a declining dollar is reducing the consumer's buying power and causing a shift to other currencies for foreign trade.

2 years ago, fiscal stimulus from the bailout, artificially low interest rates, and the added liquidity provided by QE1 both enabled and forced capital to flow toward riskier assets. With risk mitigated by an acknowledged Fed put and a low yield environment that offered minimal returns on safer assets, the market responded with a 550 point rally in the SPX off the March lows.

But, shell shocked from the recent collapse of the equities market, the flash crash, and the dominance of high frequency trading, investors had deserted the equities markets for the perceived safety of fixed income, gold, and commodities. The retail trade is out of the market, as are the hedge funds, mutual funds; and the pension funds are next to go. All that is left are the indexers and automated traders, and the concentration of stocks they are trading is getting smaller and smaller. In essence, what's left of the equities markets, is solely a vehicle for technical traders and robots. It has ceased to function as reliable mechanism for price discovery and is decreasing in importance and functionality as tool for capital formation.

This has left the door open for the Fed, with help from the 18 Primary Dealers, to artificially ramp up stock prices. There is so much interference by the Government and the Fed that the markets have become distorted. The result is that people are afraid to allocate money to the markets because they can't get good information from the markets. And the more the government and the Fed meddles, the more money will flow out of the market and flow into less risky assets, or just sit on the sidelines.

In an effort to scale back the vast amounts of money it pumped into the economy, the Fed had begun to drain reserves by conducting reverse repos, proposed a plan for term deposits, and terminated it's security purchase program at the end of last March. However, they soon realized that while the market had rallied substantially, there was a tremendous disconnect with the real economy. The real drivers of sustainable growth; employment, corporate investment, housing, and consumer spending, were all lagging far behind.

Fed intervention through permanent open market operations was the immediate response to this situation, however it seems inevitable that further action in the form of an anticipated QE 2 is imminent. In my opinion, QE2 is going to be the mother of all fades, i.e., buy-the-rumor-sell-the-fact. The rally in equities in September was due to almost $10 billion dollars a week of Fed intervention, and institutional "front-running of the fed" in anticipation of a QE2 announcement on 11/03/2010. The more the market rallies ahead of the announcement, the more the easing is going to be priced into the market, and the harder the crash in equities that follows upon actual implementation.

In the past, such low interest rate/loose monetary conditions/central bank intervention, has resulted in bubbles due to the speculative excesses in riskier assets. Paradoxically,this rally is different due to the lack of investor participation and the predominance of government manipulation, but paradigmatically, the market may be setting up for potential price exhaustion, and the bursting of this de facto equities bubble. One caveat however - even though this rally may be significantly overvalued and overextended, it could extend even further as traders continue to price QE 2 into the market.

The Fed's over-reactive policies date back to the borrow-and-spend Regan years, through the doubling-of-our-debt Bush years, to what will undoubtedly be the redoubling-of-our-debt Obama years. It strikes me as ironic then, that the furniture store I walked into that day, was named "Revival": a new presentation of an existing theme. The Fed once again expects the American consumer to re-inflate the economy, but the consumer is already over-borrowed, over-spent, and broke. Besides, the banks aren't lending money; instead they continue to hoard cash and play the carry trade, borrowing money for next to nothing and investing it in government bonds.

So while the past abuses to the financial system, (culminating in the bursting of the sub-prime bubble), has structurally changed the global economic system, dealing with these problems have remained the same. We all understand, you can't go back, but we should also realize...the more things change, the more they stay the same.

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Last edited by tigertrader; September 10th, 2011 at 10:25 AM.
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