Friday, December 18, 2009

Morning Update/ Market Thread 12/18

Good Morning,

Equity futures are up overnight, they got a kick yesterday when Oracle and Rim made positive statements and drove the NDX higher. Below is the overnight in the DOW and S&P which both appear to have made little H&S top patterns overnight:

While the NDX is up, the RUT is barely up, having already broken below its little pattern on the 5 minute chart. The dollar is higher once again, pushing the Yen and Euro lower. Amazingly, even against the strong dollar oil is up a little – games galore being played here. Gold is about flat after a huge move down yesterday and it now resides at about $1,100. If you remember, when gold broke its rising formation I said that I thought the first area of support is about $1,070, and we’re almost there. Of course that’s just the first area, it certainly could bounce there and then proceed even lower… the next area of heavy support will be at about the $1,000 mark.

No economic data today, however I note that M2 was reported yesterday as having fallen by $12.8 billion in the prior week, and that the Fed’s balance sheet expanded by $22.8 billion – gee, taking in more garbage from banks who are supposedly paying back the TARP?

The funniest article of the morning has to be about the losses that Harvard University is incurring. Turns out that while Larry Summers was there he was buying interest rate swaps (derivatives) betting that interest rates would rise. How did that turn out?
Harvard Swaps Are So Toxic Even Summers Won’t Explain

The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school suspended work on the building last week.

“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”

That’s right, they had to pay $1 Billion just to terminate them! And this is the guy running our economy, Obama’s right hand man.

That experience is a classic example of the risks that derivatives pose. Construction occurring that shouldn’t have been, the geniuses believing that their risk was offset, they simply failed to perform their due diligence. Of course the irony is that not only is Summers running our economy, but that Harvard continues to be the source of education for the supposed top economists in the world.

Hey, timing is everything, too bad he wasn’t following my bond market analysis, he would have been short interest rates knowing that a flight to safety would push yields down. And then he would have seen the top, like I pointed out one year ago - Bond Market Hide & Seek – A Domed House & 3 Peaks...

And as Mike Larson just pointed out:
If you purchased the iShares Barclays 20+ Year Treasury Bond Fund (TLT), an exchange traded fund (ETF) that owns long-term Treasuries, at the end of 2008, you would have already lost more than 20.5 percent! That INCLUDES interest payments, by the way.

As a matter of fact, 2009 has been the absolute WORST year for total return on long-term Treasuries since at least 1973. That includes dismal years such as 1994 and 1999, which occurred during Fed rate-hiking cycles.

And in yet another sign of how poor the economy is, Pepsi, after 23 straight years is taking a pass on advertising during the Super Bowl this year. Like I said yesterday, the money involved in professional athletics is squarely in bubble territory, a bubble that is just beginning to unwind.

Yesterday was close to being a 90% down volume day, it did do some technical damage in a few areas like the XLF. Below is a WEEKLY chart of the DOW, just to show what has happened following the weekly hammer that was produced last week. That is now a confirmed reversal indication on the weekly chart, occurring at the same time that the weekly MACD is rolling over to produce a sell signal. If we close today at or below the channel bottom, it will be a very bearish pattern, but again, that area will also offer support, so being impatient is just not prudent. I would expect that the weekly volume will be higher once today's options expiration volume is added.

And so we end this velvet smooth week focusing back on Freedom’s Vision. Although not perfect yet, I am going to begin posting my outlines today. Make no mistake, this is a battle for freedom, a battle for the future of America. Thus the final tune of the week portrays a battle over saving Liberty, the good guys against the bad. Gee, which side of that battle would Larry Summers be on?

Velvet Revolver - She Builds Quick Machines: