SUSI WEEKLY UPDATE

The COT (CFTC COMMITMENT od TRADER - red line shows the net position trend adjusted) data from Friday shows that the Commercial have gone long the Dollar some weeks ago and following the washout are now back at a level where the DX (DOLLAR INDEX) could show some strength.

The Dollar will be the linchpin of the next go around, if he strengthens the market will tumble and vice versa.......


Our week with SUSI has turned into a bearish turnaround on the model side....

SUSI is taking a stance here !! The outside Reversal day on the FED day seem to have triggered some volatility.

SUSI Roadmap for the next month or two....

This is the price range we have to deal with.......

Susi bets on sell from a good overbought medium term level....

...with a potential next stop in October...

...for the DOW as well as for the Banks...


...and all happend right in the turning time zone of the bear market rally.

IS this the one? We don't know yet and need more confirmation. This could develop into it but doesn't have to....so let's take one step at a time.....

Volume update

Volume is at an Extreme!!!

Mutual Fund Flows: Buy Bonds and take it easy on stocks....

Who is propping up stocks? The mutual fund "sheeple" are moving over to fixed income........

TIC data update

Focus is clearly on TSY paper....

Bretton Woods II sill in full force...

It's good to have friends in ASIA and in the Middle East buying your debt no matter how weak the dollar becomes......but they are getting picky by buying Treasury only and shunning Agency paper ......

Equity Supply from last week's FLOW OF FUNDS

The Insiders are still selling or better are selling again, now with new IPO's and secondary offerings in the market in Sep. 2009.

SUSI WEEKLY UPDATE

Comments:

• If the Baltic Dry is any indication for the state of Global Trade than SUSI is hinting into the same direction with CHINA back on SELL
• Key tell will be the Fixed Income Market given that most of the excesses have taken place there. The action in the Equity markets pales against the action in Fixed Income (High Yield, High Grade, Emerging markets etc.).
  
  

You're asking why? Because this is a deflationary debt bubble that has just started to collapse. The Fed/ ECB etc are playing AGAINST THE GODS of our evil team Mr. Market and Mr. Margin.

Speak after me, as long as the MONEY VELOCITY collapses faster that the FEB/ ECB can grow high powered Money/ Monetary Base in a CREDIT ECONOMY (!!) Deflation will always overpower Inflation !! (because Leverage is nothing else then the fact that CREDIT is a large multiple of the Monetary Base of what we call combined the MONEY SUPPLY)

simple 1st grade math:

1) Money Supply = Credit + Monetary Base

2) CREDIT= Monetary Base * (Muliplier = 10) ; for the sake of the argument

3) Credit goes down by 6%, then the Monetary Base has to grow 6% * 10= 60% just to offset

4) Fed prints 50% => still Deflation !!

Bottom Line:

The next couple of weeks (October !) should show us the way...

How does too far, to fast look like ?

The Reflation Trade shows first cracks....

Now that Heli Ben has officially called the end of the recession nothing can go wrong anymore.

Ask yourself, what could inflict the max. pain to most Market participants?
Answer: You know the answer (at least when you're a regular reader).....

Now let's have a quick look at the status of the Risk Trade or should I better say the "Melt up". Final moves can go parabolic but never have an happy ending because they go too far, too deep, too long and usually have sucked too many sheeps in who at some point all look for the same crowded exit.



Equities and High Grade Credit and FX Carry (short $, Yen + long High Yielding FX) are all still in sync.

VIX, short term Credit (! refinancing of the Banks!!) and recent ultrahot High Yield have already used the backdoor. All 3 have to com back to see a continuation of the Party.....now that the recession is over.....

Breakfast with Dave: WHO IS DOING THE BUYING?

This piece is another great comment from Dave Rosenberg. If there is one sound voice in the ocean of insanity it is DAVE. I strongly recommend to sign up for this FREE daily piece. I'm also tracking Credit outstandings , Mutual Fund Flows, CP outstandings and it all leads to the same conclusion as said here by ROSIE.....

September 18, 2009

WHO IS DOING THE BUYING?

Is it the private client? Not really — stock funds actually had net outflows of $1.33 billion last week, while bond funds enjoyed an $8.2 billion net inflow.

Is it corporate insiders? Well, heck no — Robert Toll (CEO of Toll Brothers) just disclosed that he sold a total 1.6 million shares of his company’s stock yesterday.

Is it buybacks? Not at all — in fact, S&P 500 companies bought back a mere $24.4 billion on stock repurchases in 2Q, down 72% from a year ago and the lowest in recorded history, according to Howard Silverblatt of Standard & Poor’s.

So who’s doing the buying? Very likely it is still a combination of program trading, short coverings and portfolio managers desperately trying to make up for last year’s epic losses.

WAY TOO MUCH RISK IN THE EQUITY MARKET

Never before has the S&P 500 rallied 60% from a low in such a short time frame as six months. And never before have we seen the S&P 500 rally 60% over an interval in which there were 2.5 million job losses. What is normal is that we see more than two million jobs being created during a rally as large as this.

In fact, what is normal is for the market to rally 20% from the trough to the time the recession ends. By the time we are up 60%, the economy is typically well into the third year of recovery; we are not usually engaged in a debate as to what month the recession ended. In other words, we are witnessing a market event that is outside the distribution curve.

While some pundits will boil it down to abundant liquidity, a term they can seldom adequately defined. If it’s a case of an endless stream of cheap money, we are reminded of Japan where rates were microscopic for years and the Nikkei certainly did enjoy no fewer than four 50% rallies and over 420,000 rally points in a market that is still more than 70% lower today than it was two decades ago. Liquidity and technicals can certainly touch off whippy tradable rallies, but they don’t take you all the way to a sustainable bull market. Only positive economic and balance sheet fundamentals can do that.

Another way to look at the situation is that when you hear and read about “liquidity” driving the market, it is usually a catch-all phrase for “we have no clue” but it sounds good. When we don’t have a reasonable explanation for what is driving prices our strategy is to watch from the sidelines and express whatever positive views we have in the credit market and our other income and hedge fund strategies.

Sep 17 brings us into the FIBONACCi TIME ZONE

I'm still using the 1938 scenario as my BEAR MARKET RALLY reference point, which shows that we are now entering the ZONE (Sep17-Jan16).

Bear in mind that this timewindow has 2 more critical dates like Nov17 & Jan 16.

If the Bull surpasses the Jan 16 & S&P500 1228 then we have the a high Probability confirmation that we have entered a NEW BULL.

Lot"s of things can happen from today to the other side of the rubicon and until now we consider the current market just as a historical and secular BEAR MARKET RALLY.

pls see here...

http://reflections-of-reality.blogspot.com/2009/08/are-we-there-yet.html

The VIX CONUNDRUM

Either The synthetic SPX i.e. the VIX OSC (vix based) is right or the cash market......

old Vix OSC

...same picture here, developping divergences similar to the bottoming process we saw from Nov. to March only now reversed .

Breadth Update

Pls find both Institutional breadth graphs depicting the standard IM and the Tech portfolio.

Both develop lower highs in both categories, i.e. BUYING PRESSURE and New Highs.

The same can also be found by the way in the blue center lines, that show the deviiation from the respective 50d MA.

Conclusion:

DIVERGENCES develop and indicate fading strength

New VOLUME ANALYSIS

Dear Reflectionistas pls find our newest anlytical tool to provide a fresh look at trading Volumes. This new perspective should contribute to our Golden 5 Framework and be viewed in this context.

The Chart looks a bit crowded but once you get into it you will appreciate the multiple Volume analysis perspectives it offers.

You will find the following on the Chart:

(a) the Share Price (rescaled to 0-100)

(b) Large & small traders/ Trading Flow
We use a certain algorithm (for each day) to separate HIGH Volume flow from LOW Volume flow which we then weight with (Close (t-1) - Close (t))/True Range (t) which in turn will then be accumulated.
Interpretation
A rising blue line stands for large Volume Accumulation. A falling line represents Distribution. Our objective is to follow the Elephants therefore we trade with the blue line and ignore the small traders as noise ....
see (1) : The Elephants start to leave without putting to much pressure on the XLF Price!!(Pls bear in mind that this kind of proxy Analysis provides a probabilistic approach only and can be wrong at times!)

(c) Active Boundaries
This approach tries to guess the current average rate of unrealized returns of current shareholders. As you can observe the brownish line oscilates around the "Zero-Line" (Value: -50) which indicates that a certain group of active traders that follow this particular shares tend to prosition profit targets and Stop Losses within a certain % range.
For example here in the XLF ETF we can see that most current investors that are still in average a Rate or Return of around 10%. (Current Value: -40 - Zero-line: -30= +10 %).
Pls also see (2) that the average return was higher in the 1. Week of August and that traders have started to silently take profits at still relatively constant prices.

(d) Divergence of Volume Flows to Price Rate of Change
This fairly complicated Indicator measures divergences btw. the Price and Flow movements. Interpretation:
- red line above ZERO-LINE: Price move is in sync with the large Volume Flow ("Elephants"): Bullish
- red line below ZERO-LINE: Price move is out of sync with the entire Volume Flow: Bearish


FLOW STATUS of XLF (Financials ETF)

(1) Elephants are taking profit
(2) Traders are taking profit. Next checkpoint (see 08/07/09) for the avg. RoR: -8% (=> -16% from currently +8%), after that -25% (see 06/03/09 =>-33% from now)
(3) Divergence Indicator: NOT POSITIVE

Another observation:
Pls notice how aggressively lg. traders started to buy into the rallies around Mr 6, Apr 20, Jul 8 and then sold off on Mar 16, may 8. This feels like a traders' market with no true convictions.

--------------------------------------------------------
(correction: (see Chart) Zero-line Value: -50)

(The ideas and concepts are interpretations of http://www.amazon.com/Value-Time-Trading-through-Effective/dp/0470118733/ref=cm_cr_pr_product_top )

SUSI WEEKLY UPDATE

• The Melt up continues but we are still in this first 38% Time & Price Retracement window where the Market could turn. If it doesn't turn the Market can run another 2 Months before hitting the next High Probabilty turn window.
• It feels like that Sep OX (option expiration) and the action around it will shed light into the dark....
• Will Gold fly from here ? It could, but pls bear in mind that the most dangerous moves come from failed Patterns that the main street (HERD) follows, like the major inverse Head & Shoulders Pattern in Gold.
• be careful out there....

(the posting has been light the last couple of weeks which is a function of a host of other projects I'm involved in. There is so much to blog these days like the FLOW data, Credit data, Breadth data....which I hopefully can provide again in the future.....thx for your understanding)

Effective Volume*: Institutionals have left the field to the Gamblers and/or Program Trading

Observations:

• SPY and IM (Institutional Money) Flows are consistent showing that big Institutional have clearly slowed if not stalled further accummulation in the later stages of the rally
• UYG (DOUBLE LONG FINANCIALS: hedgefund trading vehicle in order to "play") has cleary seen some profit taking on the large traders side
• EEM (emerging markets) has been pumped up by small traders (maybe High Freq. Traders / Program Traders ?) and not by any Institutional Money
• GLD (GOLD): same as in EEM despite the "baby" spike in Institutional buying last week
  
  

Conclusion:

THIS RALLY HAS NOT BEEN DRIVEN BY HEALTHY INSTITUTIONAL BUYING!!

......but IF the sentiment holds and the FED continues to provide the tradings desks with free capital anything is possible.......

This is cleary bubble territory which will end as all un-healthy moves do. The timing will be tricky because they try to suck everyone in. As stated last week this can continue longer although unlikely. The rally has to end on good news (like ISM etc.) , ie. it has to exhaust itsself meaning there simply will not be any buyers left that are willing to gamble. The above shows that we have plenty of Institutional money on the sidelines, but they let the "others" play......

_____________________________________

(*I have applied the Effective Volume concept on daily data with an objective to minimize potential information losses. Therefore we run it on various time series in order to achieve a consistent and coherent interpretation)

SUSI WEEKLY UPDATE

OBSERVATIONS

• We are entering the period of labor day to Option Expiration in September. You might have noticed that we further improved our TCS (TimeCycles) clustering in order to get to medium term high probability "action Zones". This is besides our traditional TCS model that has a longer time horiyon and is more geared towards patterns. Long story short, we see a series of TCS in various markets that cluster exactly around the next OX (Option Expiry). This could lead to increased Volatility.

• Nat Gas is exhausting itsself and we simply have to watch the outcome

• One of our basic concepts is to use the CTI(weekly) as a reality check against SUSI. It also acts as an intermediate Overbought/ Oversold Indicator. We observe a that most of the markets are in a CTI bearish position, which could limit the upside or signal downside