S&P 500 - November 12, 2010

POMO-POMO

POMO-POMO

POMO-POMO

I can’t help thinking that this POMO-POMO fits well in a chant by some tribal witch master conducting a tribal dance for rain – a rain of money perhaps

Or is that the rein of money?

Seems like I was not the only person amused by headlines flashing Fed-Glitch and, later, the thank-god-sigh-of-relief resolution of the Fed-Glitch

The good folks of ZeroHedge seems to have been amused by the glitch-saga as well


They seem to have a much more cynical view of the whole QE business than I do. I think Fed is doing what is available to it to do to keep the system in place the way they think it should be kept in place

I still think the POMO business is a big picture, fundamental backdrop to the whole show. Some, maybe many try to time the minute-by-minute market action based on when Fed completes a bond purchase.

It has worked and it may work for the length of the program, but if it has gone main stream and become The Event, then days like Friday can happen, and may happen more often.

Day trading the POMO aside, the chances are that QE’s will be good for asset prices – no guarantee which asset(s), mind you!

To benefit from a bigger picture, I think it is better, for me, to lean in a certain direction and not get tied up with the second-by-second minutiae of the POMO dance. That is, if I get the big picture right.

I may get it wrong, though, because, as my friend and colleague Joe K. noted on Friday, if the FED action – which has been a fundamental driver for most of the entire rally from 2009 – now fails to drive equities and/or commodities higher, we may have good reason to question ourselves: what in the world else would....???

Good Question, Joe. I wish I knew the answer.

Yet, we can ask what constitutes a failure of the FED to maintain or increase prices. Are we talking failure over days, weeks, months, years?

Are we talking a temporary correction causing a reset of overbought values and bullish sentiments? Or a collapse?

I do wish I knew the answer.

All I can do is to decide on the driver of the big picture and monitor prices and see what happens. The driver of the big picture may commit mistakes and derail whatever it is he is driving.

So, who, or what is this driver?

I have three quotes for you:

“First, the FOMC will strongly resist deviations from price stability in the downward direction.”

— Ben Bernanke


“We are going to continue to try to strengthen the recovery under way so we can dig out of this as quickly as we can”

— Tim Geithner


"higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

— Ben Bernanke

The POMO-POMO dancers seem to tend to believe a risk-free belief in the reflating abilities of the reflationists. There ain’t no such thing as risk-free anything.

Nassim Taleb was full of warnings about risk in this interview

http://www.youtube.com/watch?v=mhSRaehWSvY&feature=player_embedded


It’s 20 months since the low of March 2009. From that day to this day, there has been no shortage of opinions on each side of the multi-sided track of the markets.

Opinions + Opinions + Opinions + … = NOISE

I use charts to perhaps recognize the bigger picture and stay on the correct side of it. I also use charts to perhaps filter out the noise.

So, let’s do some charts

This is a weekly


We are down to 1200 which I said would be an immediate support. As longs as index stays above 1175, it’s either consolidating or advancing. If things get really nasty, I would not be surprised to see a break of 1175. If such break happens on extremely bad breadth and/or extremely poor momentum, then I would be watching to see if index can recapture 1175 on a reaction, and, if it does, how the price structure may look.

Below 1175, we have 1150 which coincides with 13 EMA right now

This is a daily


The formidable 13 EMA finally cratered on Friday. We also got another MACD cross. Index is at support and if it fails to creep back up, it may see a trip down to 1175-1180.

If the current count is correct, we should have another move up (intermediate 5) to at least challenge the highs. Yet, even if the count is correct and we are correcting down an intermediate wave 4, it can cut deep and last long without violating the count. I am not predicting anything, just examining possibilities. One likely target for the correction is the area of the previous wave 4 - 1170-1195

Daily volume came a bit above average. Daily breadth was very poor.


McClellan plunged down


Longer term breadth measures are still OK


As we all know, change happens at the margin. The short term breadth is getting oversold and, if the bull spirit is alive and well, we should be setting up for at least a bounce next week

This is a 60-min chart


We so far have had a gap fill. It takes a move above 1216 to perhaps indicate a change in short term trend.

If this is indeed a wave 4 of some degree, it may chop around and render closer levels of intraday charts frustratingly useless. So far, the move down looks corrective to me, but even if I am right, corrective moves can correct deep and long. Short term momentum is quite oversold. If the bull is still of some might, we may soon see an attempt at a bounce.

As I have repeatedly pointed out, so much depends on the universally hated, globally derided US Dollar. Pomo-Dancers all dance the same sell-the-dollar-buy-whatever dance.


Bucky has had a bounce to what looks like a first line of resistance. Keep an eye on it!

On November 6, I said:

“Trending markets have a funny way of dragging all sorts of non-believers and skeptics into their prevailing course of action. At some point, most, if not all, get aligned with the market, and create a void on the other side. That causes an extreme in sentiment. Markets change course either due to fundamentals or really extreme sentiments creating a situation with a lack of fools to perpetuate the foolishness.

Fundamentals are the same as they have been: a much maligned economy, a much hated currency, and promises of more Fed-Ease to come. Sentiment is a funny beast: it may take forever to produce something. Yet, it may pay to exercise caution when all around you are adventurous. Extreme sentiment and a ferocious run of a market may (I emphasize MAY) lead to a sharp nasty snap back of a correction. Yet, a trend is in place until it is not, and I have 1210 and 1200 as first levels of concern.”

There is no magic to my methods. Just a set of simple tools, a lot of respect for market and its price behavior, and a desire to place the market action above and beyond all sorts of opinions and noise – friends or foe – Booya lunatics or learned pundits – market takes precedence over them all.

This week may tell us the story and the market’s vote on Fed’s commitment to a new round of bond purchases.

An adverse market action may be a hint at something bigger in the making. Fundamentals may change by choice (Fed stops its programs for example) or by force (an all-out international currency war for example). Markets usually sniff those changes ahead of them being apparent to the masses (which includes me). So, let’s keep an eye on the levels we have, keep an eye on the Dollar, and keep an eye on gold.

OEW pivot support at 1187 and 1176. Pivot resistance at 1222 and 1240.

Long term trend is up. Mid-term trend is up. Short term trend is down.

Enjoy the Rest of Your Weekend!