Debt Ceiling

Noise Noise and more Noise!

Posted by Investing Freak on September 06, 2011
Market Analysis / 1 Comment

The news have been going on and on about how the US economy is back to disappointing data, European countries are all in trouble as Italy is now getting thrown around just like Greece, Ireland, Portugal & Spain.

If you think the market action of the past 4-6 weeks has been on the data then please stop reading and save yourself five minutes which you can use to watch Jim Cramer over at CNBC.

On the July 28th post titled “Deal or No Deal -Debt Ceiling Edition- $SPY” I talked about how the market had been setting up and that no “Debt Ceiling” deals would matter. It was obvious a debt “downgrade” was coming but that should have been no reason for the market to really go skydiving as it did.  If you were an great A+ student and partied a bit too hard, if your next grade was an A nobody would treat you with less respect especially when they’re getting grades from B+ and lower, (the analogy here being US credit rating vs ratings of many countries in the world).

The market was simply setting up for a technical Head & Shoulders pattern and there was a great chance of it playing out (which it did). Click chart below to enlarge.

 

The chart above is an updated chart of the previous post. The light yellow represents all the time It took since my last submission to the blog. The Fibonacci retracements drawn on the monthly chart really have helped see that we were about to enter a rangebound market (the area between the Red and Green boxes).

The “crash” from 1300 to 1170’s surprised me in terms of the velocity in which happened.  I expected it to trickle down for a few weeks but when the dam broke there simply wasn’t enough incentive to stay short the weeks following as there was a great possibility for a short cover.

The suggestions I made was to buy some SH shares or SPY puts.  I did both and got out with enough profits to allow me to break away from the markets for a few weeks.  Now I am back and so are many professional traders and when they fire up their charts they will see what I am showing above. They will wait out this rangebound trade until either a break above 1235 or a break and close on Weekly chart below 1120 which could set up for another 80 point slide.

Right now we are mid range and since Daily is too noisy I’ll keep checking the Weekly every few weeks and report the progress.

 

Hope some of you made money or at least the posts have been helpful to give you a second view from a Freak’s viewpoint.]

Till next time,

K

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Deal or No Deal -Debt Ceiling Edition- $SPY

Posted by Investing Freak on July 28, 2011
Market Analysis / 2 Comments

     The US Debt ceiling could get hit on August 2nd which is 3 business days away. While everyone is struggling to make ends meet, Wall street and Pennsylvania Avenue are business as usual. Wall Street wipes out retirement investments and retail investors while our Elected majesties play games with each other like they are in kindergarten and whoever wins the argument gets a prize.

     Wake up because the time to act has passed. Instead of throwing money to bail out banks, and prop the markets for the past 2-3 years (Bubble 2.0) we should have let the “economic collapse” happen and now we’d be either in a hot burning inferno or on a better stage to recovery Worldwide.

Deal of No Deal

     A week ago S&P rating agency warned that the USA could lose it’s AAA debt rating if things weren’t solved for a better fiscally sound future, just today S&P said that it will not likely downgrade US debt rating. BULL$h!t we know full and well that with or without a debt resolution in the next few days that our rating will be cut one way or another. If it’s not S&P it will be Moody’s etc, these rating agencies are the ones that allowed things to get here when they rated the Credit Default Swaps & junk bonds safe and apparently it was blamed on a “programming code mistake” of sorts.

     If we do not reach an agreement on the debt ceiling the economy will go in a tailspin. Stock market will head to the south pole for the economic ice age, USD $ will be worth less, imported goods (Yes Chinese lead painted toys, middle eastern oil and the goodies in between) would become more expensive, US consumer spending would halt, US workers, contractors, aid for people, road work etc would be at a stand still and no money would be moving much if any at all. Unemployment would rise higher, banks would loan no money as they seek to avoid risk and stay liquid. And with a downgrade in our rating which is a no-brainer that would mean we’d have to pay higher interest on future debt we incur (Look at Greece interest rates on debt spike at downgrades, that will be the same here).  Anyways that is the doomsday scenario but right now we can do nothing but stick a fork into each politician and have them for dinner when we can’t afford food.

Take a look at how all this money came to become the $14 trillion+ debt.-Click to Enlarge– or go to NYT article

Whats in it for me?

     Lets take a quick look at how the market might be affected by this uncertainty,  but the obvious thing is most of the stocks will head down because on the 10-K SEC filing of every company one Risk factor is “Economic Uncertainty”.  Two weeks ago I posted the chart of /ES saying that it looked like a head and shoulders formation. This time the chart has the fib retracements that were drawn on a Monthly chart spanning back 20 years and drawn from major peaks to major troughs.  The ratios are hard to see but you will immediately notice where a lot converge.

So here we have a market that wants to hit 1250-1268 area in initially but ideally the 1225 in the very near term is last resort for support and thats 70 points below as of this writing.  Lets see what our knuckleheads do today, most likely nothing as always.

 

Possible downside trades would be SPY put options or buy SH shares for a hedge (SPY inverse)

Happy Trading,

K

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