BMF Investments. Inc.: May 2011

Friday, May 27, 2011

Triangles of Terror

Could it be? Is it possible? Can the Dow Jones Industrial Average be allowed to suffer a monthly decline? Since the Fed’s QE2 was announced in September, 2011, only the month of November has experienced a loss. That loss was probably due to the mid-term elections. Otherwise, every month has shown a gain.

Yet, May began with a thud. By Friday the 27th, the Dow had registered a loss of some 400 points. The past week, the last full week in May, was a most curious week. Monday started with an immediate selloff that threatened the market with something ominous. A correction was in the cards should the precious Dow continue to fall. So, around midday the indices turned up. Only at the end of the day, there was a rather nasty rash of selling in the final thirty minutes of trading. Insert each day of the week for Monday in the previous sentence and you have the week in perfect recap. Each day suffered from selling just before the close. Well, except for Friday. As the selling started to get out of hand, some buying did overcome the selling.

No doubt the PPT had an active roll in trying to prop up the markets this week. No doubt as well, sellers were looking to unload as the market rallied. In all, May still looks to be a negative month with one trading day left. What should we make of this?

The action resembled triangles of terror. The Fed has been trying so desperately to sell the world on economic recovery and lead the world into believing the answer to every problem lies in central banking wisdom. Their ploy has been to prop up the market indices to distract and mislead the masses. Yet, it is obvious that some investors want out. As the PPT bids the market up, sellers take it down to form triangle trading patterns. It would appear that the PPT wanted to mute the market decline in the last week in May so investors’ won’t be exposed to an ugly monthly statement. That way they won’t concentrate on real estate devaluation, inflation, and high unemployment. You know - the ‘green shoots’ of recovery. But as we turn the calendar to June, look out! These same manipulators might let the sellers have some fun as we blast into the month of QE2 termination. We might find out the real fundamentals of the market. No Fed - No Market!

The chart below is the DIA over the last full week in May with 10-minute bars. The blue triangles are the triangles of terror that forced the PPT to save the market each day. Notice the volume increases at the bottom of the chart that correspond to the selling. Also notice the immediate and sharp changes in trend. There is almost no rounding turns on this chart. One minute the market is going down. The next minute the market is going up. This economic news this week was almost all bad. Home sales were down, durable goods were down, unemployment claims were up, and Greece was still broke. And yet the band played on. Let’s see if the PPT still wants to play this game in June. The triangles of terror must be scaring the crap out of them to bring out their desperation.

5/23/11 -5/27/11 10-min bars: DIA

Chart courtesy StockCharts.com

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

Saturday, May 21, 2011

Currency Kisses

We all know there are different kinds of kisses. Since disciplined investing requires an avoidance of passion, I will stick to the physical contact of the act. Before the reader’s mind goes racing to a dark corner, I want to make sure we are all on the same page. When two lines on a chart touch, that’s a kiss. There is nothing tongue and cheek going on. It’s just a kiss. The reason it is a kiss is that when two lines touch each other on a chart, it is generally a meaningful touch. There is some significance to the touch.

In the case of the US currency, the dollar, and the European currency, the Euro, they have developed their own kind of kiss. It is a bit more of the ‘kiss my #%@’ or ‘you can kiss your you-know-what goodbye’ kind of kiss. In other words, the Euro and the US dollar are on opposite ends of a see-saw. When one goes up, the other goes down. Every couple of months for the past eight years, the USD and the FXE have been throwing a kiss at each other as they pass by on their respective trends. The chart below is the past 8 years with the USD in red/black and the FXE in black. This is a very simple chart but sometimes simple is profound. After all Einstein explained the universe with only three variables.

It is clear from the chart that we have a pattern. The two currencies can only stray so far apart. One goes up. The other goes down. Then, something happens and they begin moving towards one another. Whenever the trend changes for currency, the USD and the FXE continue until they touch and cross one another. Where are we right now in the currency trend? It would appear that the two currencies have reached the zenith of their parting and are now coming back together. What does this mean?

It is simple. The USD is going to strengthen and the FXE is going to weaken until they are at least close enough again to share a kiss. The two lines will soon be touching. This generally leads to some ‘X-Rated’ activity in the stock markets. Obviously there are some reasons for this behavior. In the US, the daffy Fed actually believes they can terminate QE2 stimulation and the economy will revive. That leads investors to think there will be an end to monetary/ credit expansion and therefore less dollars coming out of the printing press. The dollar should gain in value. The Euro is under pressure because the insane ECB has raised interest rates in the belief that the European economy has been resuscitated. Yet, it becomes more obvious each day that chronically debt-saddled members like Greece and Portugal are like cancerous tumors growing from the nose that continues to grow more bulbous each day from all the government lying. Therefore, the ECB is going to have to print more Euros and pretend they can fix a burnt steak. Both are laughable. Both are pathetic. Both are intoxicated by their usurped power. Both will fail.

In the near-term, should this pattern play out and realize a stronger dollar and weaker Euro, we all know what will happen to stocks. They will likely take a tumble. After all, the modern Fed has rendered all investments ‘commodities’ by their seizure of economic power from the masses. When the USD gets stronger, commodities get weaker. As the Euro weakens toward the dollar, it seems to be telling us all to “Kiss off!” Hey, the Euro doesn’t have to tell me twice. I’m not waiting for the kiss. I’ll take my portfolio and go home before I have to do so with lipstick on my collar. That’s real trouble!!

Past 8 years: USD in red/black, FXE in black

Chart courtesy StockCharts.com

Friday, May 13, 2011

Gold Canaries

Investors are always on the alert for a sign that a trend is changing. Investing is like being deep in a mine shaft. It is dark and dangerous and there are a thousand things to focus upon. Perhaps most importantly, we should focus on the canary.

Yes, if the canary falls over, the gas level has increased to a dangerous point and it is time to find the exit. But where is the canary in the stock market?

Let me bring the reader’s attention to a canary candidate. The chart below is the Dow Jones Precious Metals Index over the past 5 years. The index is weighted at the top with companies like metals (including gold) miners Barrick Gold and Goldcorp. Regardless of the holdings and regardless of the opinions, the important thing is the chart. What does the chart say?

Obviously, the Fed has engineered a market rally over the past several years. Well, to be clear, the Fed has engineered a rally in everything including precious metals. The rally has been a wonderful diversion from the process of stealing money from the oafs to enrich the big banks in the name of economic recovery. Nevertheless, everything has rallied. As we can see from the chart, the precious metals index (DJGSP) started to rally before the Dow started to rally back in late 2008. Now, the DJGSP seems poised to surrender some gains while the Dow is still clueless. The DJGSP may be our canary.

We must accept that the gains in the Dow (and everything else) have been on the wings of inflation. The US dollar decline has been instigated by the Fed and spend-a-holic administrations. The weak dollar inflated everything. Now, at this moment in time, it would appear that the Euro is coming under selling pressure because the Greek debt problem cannot be resolved. (This is really only a problem for the banks in Germany and France that hold the credit default swaps tied to the Greek debt.) The ECB is going to have to print more bailout Euros and the US dollar will therefore strengthen. In turn, commodities will weaken. And yes, Virginia, I think if we were all honest we could now view the Dow Jones Industrial Average as a commodity too! Of course, the leading edge of commodities is the metal world.

I have drawn a blue line on the chart to approximate the area of support/ resistance for the DJGSP. Coincidentally, it works rather well with the Dow as well. Our focus for the next several days should be on this blue line area. Should the DJGSP continue to deteriorate below the blue line, the Dow and other indices will surely follow. We do not need to debate whether or not the canary is sick or just taking a nap. If it falls over it falls over. Run for it! The DJGSP is losing the line of support.

This could all be by design. I suspect the Fed has a plan to gain even more dominance. Yes, they are ending QE2 in June. With the Dow trading over the 12,000 level, there is no appetite on the part of investors for a QE3. Everyone wants the Fed to stand down at this point. However, I suspect if the Dow were to take a several thousand point tumble, those same investors would be begging for a QE3. I also suspect this same canary would give us an early indication of that scenario. Keep your eye on the gold canary.

Chart 1: 5 years - Dow in gold, Dow Jones Precious Metals Index in red/black

Chart courtesy StockCharts.com

Monday, May 2, 2011

The Wrong Answer

I'm going to keep it simple this week. Everyone is trying to guess the market's next move. Everyone is trying to guess the next catalyst of a market move. Everyone has a wrong answer. The right answer is the Japanese yen.

World domination is the goal of the central bank and world domination can't work unless there is only one currency. Conversion to a single currency is made much simpler when all currencies exhibit valuations of parity.Most of the major economies of the world are already there but one - Japan. Before they were HAARPed with the earthquake/ tsunami of March, the yen traded at about 85 to 1 versus the US dollar. The immediate currency reaction was a severe strengthening of the yen. The BOJ intervened to weaken the yen and jolt the stock market. They yen sank. Japan was re-HAARPed and the yen resumed its strengthening trend.

I have included below a chart that shows how the world has wrong answers to market direction. The chart shows the 2-beta yen ETFs that Proshares offers - the YCL is long the yen and the YCS is short the yen. The green line is the YCL and the red line is the YCS. Obviously, over the two year time frame of this chart, the long yen has gained and the short yen has lost. What is most interesting is the volume. Traditional wisdom and strategy has bet on the weakening yen theme as witnessed by volume in the millions per day for the YCS while the long yen YCL barely garners a few thousand shares per day. It seems that no one understands that the central banks are working to facilitate a one world currency invocation and they need to vastly strengthen the yen. Understandable, Japan has debt issues and economic growth issues that render its central bank incapable of raising rates to strengthen the currency. The dirty work now falls to outside forces. Nothing is off the table to the illuminati that control the central banks. Look at the chart below and determine for yourself whether you think the yen will continue to strengthen or will soon weaken. Remember, if we conclude the yen will soon weaken, that means the US dollar will strengthen. I think we all know that since Bernanke seized power in 2007, the US dollar is doomed for obsolescence.

Chart 1 - 2 years YCL in green, YCS in red

Chart courtesy StockCharts.com

The current trend will likely stay intact until the yen closes in on the US dollar parity line. That means more inflation, higher equity prices, higher metals prices, and more Federal Reserve control. The US dollar must be weakened by any means necessary. So sayeth the Fed!

When Money Isn’t Money

Standard and Poor’s rating service put the US debt on ‘negative’ watch on Monday, April 18, 2011. The service said they might be forced to downgrade the US ‘AAA’ rating to something lower in two years. The stock market stumbled early in the week but recovered for a weekly gain. As with everything is this surreal market, the bond market reacted to the S&P news with a yawn. In fact, bond prices actually gained. Yes, that’s right. After the ‘negative’ pronouncement hit the market, buyers stepped in and bid the Treasury bonds and notes higher. The chart below is the 7 - 10 year US Treasury ETF, IEF, over the week with 10-minute bars. We can see that Treasury note prices turned out to have a good week. What could make the price move even higher? Maybe more ratings services could call the debt outlook ‘severely negative’. Maybe it could be ‘doomed for failure’ or ‘impending bankruptcy’. Of course, this would only drive prices higher and yields lower. The con job continues.

The bottom line is US government debt cannot be sold. First, there are no buyers other than the Federal Reserve and second, Treasury selling leads to higher interest yields. This cannot happen as the nation pushes towards $15 trillion in debt. If a higher interest rate trend were to continue, the nation would soon be spending more on debt service than anything else. Eventually the con has to end. But not now!

Our lesson for the week is this. Money is no longer money. Money is a liability. The Fed’s destruction of the currency through various ‘save the big banks’ programs has led to ravenous inflation that makes holding the currency a loser’s game. We have a precedence for this and it is Zimbabwe. A few years ago when their central bank set out to destroy their currency, inflation became so bad that people didn’t want to put their money in the bank. Why? Because even by the end of each day, their money would buy less stuff. The recourse is to, as Mr. Obama likes to say, ‘invest’ the money in something else. Anything else. Anything besides money. Spend it. Transfer it. Convert it. Buy hard assets. Do anything but don’t save it. Money is no longer money. While it evaporates in the saver’s hand, assets are transferred to the issuer’s hand. This is the central bank strategy.

So, risk ratings and earthquakes aside, people with money have to put the money in something other than money. And yes, they even buy bonds that are issued by failing governments rather than risk the purchase power destruction of inflation. Surely too, a lot of money will be allocated to stocks. One only has to look at a chart of gold or silver to see what investors really think of inflation and its impending destruction of currency values. The bottom line is simple. The Fed will continue to destroy the value of the paper money that they issue. And yes, the Zimbabwe Industrials soared in 2008 when all other markets tanked. It turned out to be a con. So too will our market. Until then, the real con is thinking that money is actually money.

4/18/2011 - 4/21/2011 IEF 10-minute bars

Chart courtesy StockCharts.com

Feuding Fed Presidents

Week ending 04/15/2011 - The Dow experiences a negative week. I demand to know the whereabouts of one Ben Bernanke! He can’t let this go on. After all - it is his index. Actually, his underlings have been feuding this week. Dallas Fed Head Fisher ended the previous week by chirping (a week ago Friday) that the Fed had already done too much stimulating and QE2 should be ending early with no QE3 reprisal. Knowing full well that Fed stimulating was the only thing driving the markets, little wonder the markets fell. Sure enough, first thing Monday morning, Fed Head Yellen came out of the shoot with an opposite opinion. She was followed by several other Fed Heads that reassured the market participants that the Fed was still on board with stimulation and zero percent interest rates. Besides, once gasoline, groceries, metals, commodities, and everything that we consume gets stripped out of the inflation survey, there really isn’t any inflation. That gives the Fed liberty to prime the pump with stimulus and free money to the bankers.

Our Congress, meanwhile, agreed on a fiscal budget finally. They cut out $38 billion in spending. Well, actually when the budget was dipped in truth serum the cut was only about $20 billion. Actually, when the budget cut was dipped in truth serum and exposed to a very bright light, it wasn’t really a cut at all. The federal government is going to spend more money in 2011 than in 2010. The beast is just not going to spend as much as originally proposed. Gee whiz! Why can’t anyone just tell the frickin’ truth these days! Anyway, we have a budget in place. Big deal. It still puts us another $1.5 trillion deeper in a whole from which we will never escape.

The key this week was the Fed sending out mouth-pieces to talk up the stock market. All the data confirms the story of the economic recovery. But like inflation, the recovery can be sold as long as the seller doesn’t include the unemployed that can’t find employment, housing starts that are quitting, productivity gains that are driven by unproductive wage freezes, corporate earnings that are driven by derivative gains that are unearned, and commodity price increases that are not really increases because the Fed has deemed them ‘transitory’. Somehow, the stock rally must continue. If it doesn’t, the Fed will have a somewhat more difficult time in their wealth confiscation operation.

The chart below is the Dow Jones Industrial Average over the past six years. the blue line is the neckline of the bearish head and shoulders pattern that forewarned of the plunge from Dow 14,000 to 7,000. Now, we are back to the neckline. I think the point is very simple. The trend is struggling a bit to break through the neckline of the old head and shoulders. That is completely understandable. Once we break through, I believe we will see the Dow assault the old highs of 14,000. The assault is waiting on something. Perhaps it is waiting on QE3 from the Fed. All we need is a little announcement or a nod of the head. Perhaps Ben could just put his finger on the side of his nose like Kris Kringle and give us a wink. The Fed has to be a complete idiot to believe their own mirror or drink their own Cool-Aid. There is no recovery. The market and the economy have simply responded to tens of trillions of dollars pumped into the system by central banks throughout the world. Pull those dollars away and down she goes. The flip side to the blue line on the chart is if we suddenly develop a down trend at this point, we have absolute confirmation that the head and shoulders is still choking the market with a bear claw. However, I believe we will break through to the upside. All we need is a little fairy dust from Ben. And of course, they need to shut that Fisher fellow up. Come on, fella. We are waiting!

DJIA - 6 years

Chart courtesy StockCharts.com