LEPIDOPTERA SECUNDUM part II
By Doctrader
Is seams ironic that unique names do mean something. Katrina is shaping up to be one of the biggest and costliest hurricanes of this century. The butterfly (lepidoptera) effect could be the straw that breaks the camel’s back of the U.S. economy. I take notice that the “Alcalde” is far away from the storm in Jackson Hole, Wyoming. Last week in “The Butterfly Effect” , and in the Alcalde’s speech a few days ago, the ability to predict the future effects on economic condition are limited. The Fed is using risk assessment, to determine costs vs. rewards when gauging economical policies. The Federal Reserve Banking system was designed to weave crinoline into the patch work financial system to soften the blows of recessions and depressions. Yet, I contend, “bon gre’, mal gre’” (willingly or not), more harm, more uncertainly, has been created by the Alcalde from creating disquietude with his disquisitions and proclamations. The Federal Reserve Banking system assumes the role of risk management, weighing outcomes, without considering the “homme moyen sensuel” (the average man on the streets).
For example: The stock market bubble created by the innovations and the abundant liquidity trap that was allowed to build creating a tulip bulb calamity within the NASDAQ market place. Yet earlier in the 1990‘s, the Alcalde cried “irrational exuberance” when human nature drove the indices to higher ground, well below the precipice of 2000. Yet, after the market exceeding the “irrational exuberance” comment, the Alcalde revised his expectations of the future lofty levels by saying he failed to account for the productivity curve. Following the decimation of the NASDAQ market, the Federal Reserve entered into a series of aggressive interest rate cuts, creating trillions for the bank board members with failing bond rates. Meanwhile, disencumbering millions of small investors of 9 trillion of paper profits. The member banks, begin to shift their new found wealth with in the form of real estate to finish the coup de gra on the middle class. The new bankruptcy laws that will be in effect in October, have guaranteed the member banks to inherit most of the real estate, should there be an economic collapse. One thing that never changes, there will be, by human nature, another economic collapse caused by the butterfly effect.
Last week, the stock market continued it’s slow and measured decent below the signal lines on the daily chart. There are several reasons for a slow decent, one is that of massive program trading, which continues above 50% level. The high level of program trading indicates big money managers slow taking profits and buying portfolio protection. The second reason, is most active traders have been on vacation during the month of August. This may soon change, as Katrina builds more energy with the emerging sunspots and possible solar flares dump more energy into the earth’s biome. The end of the month window dressing for mutual funds, who do not want to hold onto their laggards during September may begin to raise cash for emergencies and contingencies related to Katrina.
The McClellan Summation Index continue its downward slope.
My trend indicator indicates 205 stocks of the sp500 are trading below the floor. While the percentage of stocks trading above their 200 day m.a. is at 63% Since this cyclical bull market begin in March 03, the percentage of stock trading above their 200 dma has ranged from 25% to 90%, reaching its precipice exactly 1 year later in march 04. The March 04 precipice followed the fibonacci retracement of 50% to exactly 45% of the stocks trading above their 200 dma. I posted the charts in the club site. Those who have studied the fibonacci numbers can see the significance of the numbers and what the future may hold.
If you are a long term holder of stock, have you bought insurance yet on your portfolio? What?! You didn’t know you could purchase insurance against catastrophic losses? You think the Federal government will come to your aid like the victims of Katrina? Did the Federal government or agency come to your aid when the NASDAQ market fell? What has changed since then? If a rising tide lift all boats in the stock market, then what does a sinking boat offer?
So how can your protect your portfolio with insurance? You have to purchase put options, which will offer you some protection against catastrophic market collapse by increasing in values as stocks prices fall. The CBOT offers for free, and excellent option software and training program, which you can use to determine how to protect your portfolio against losses and to maximize your portfolio with income in stable markets. I have post a link at the free club yahoo users group, docsstockclock.
God Bless,
Doctrader
Sunday, August 28, 2005
Saturday, August 27, 2005
Alcazar is saluting the retiring Alcalde
Alcazar is saluting the retiring Alcalde
The Alcazar is saluting the retiring Alcalde. The master chemist of disquisition has been at the helm for almost 20 years, creating disquietude, while crocheting crinoline in the world's economic biome. His inevitably incomplete knowledge and cognitive dissonance has become the epergne of world wide recognition. His alchemy of a structured and stable economy for the un-informed masses, has created many economic precipices during his reign. The abundant liquidity in the housing market, the stock market, the bond market has caused ephemeral illusions of wealth. The croupier hesitancy and lack of resolve to solve the looming fiscal problems will reward those members at his table while causing others to join the exponentially growing class of bindle stiffs.
Here are some disturbing excepts from the master of creating disquietude.
“Given our inevitably incomplete knowledge about key structural aspects of an ever-changing economy and the sometimes asymmetric costs or benefits of particular outcomes, the paradigm on which we have settled has come to involve, at its core, crucial elements of risk management. “
“Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
“Fear of change is also reflected in a hesitancy to face up to the difficult choices that will be required to resolve our looming fiscal problems.”
“If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.”
“Whether the currently elevated level of the wealth-to-income ratio will be sustained in the longer run remains to be seen.”
Speech by Chairman Alan Greenspan
Reflections on central banking
God Bless
Doctrader
The Alcazar is saluting the retiring Alcalde. The master chemist of disquisition has been at the helm for almost 20 years, creating disquietude, while crocheting crinoline in the world's economic biome. His inevitably incomplete knowledge and cognitive dissonance has become the epergne of world wide recognition. His alchemy of a structured and stable economy for the un-informed masses, has created many economic precipices during his reign. The abundant liquidity in the housing market, the stock market, the bond market has caused ephemeral illusions of wealth. The croupier hesitancy and lack of resolve to solve the looming fiscal problems will reward those members at his table while causing others to join the exponentially growing class of bindle stiffs.
Here are some disturbing excepts from the master of creating disquietude.
“Given our inevitably incomplete knowledge about key structural aspects of an ever-changing economy and the sometimes asymmetric costs or benefits of particular outcomes, the paradigm on which we have settled has come to involve, at its core, crucial elements of risk management. “
“Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
“Fear of change is also reflected in a hesitancy to face up to the difficult choices that will be required to resolve our looming fiscal problems.”
“If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.”
“Whether the currently elevated level of the wealth-to-income ratio will be sustained in the longer run remains to be seen.”
Speech by Chairman Alan Greenspan
Reflections on central banking
God Bless
Doctrader
Wednesday, August 17, 2005
The Butterfly Effect
The Butterfly Effect.
Being ahead of the curve means that sometimes you have to exercise patients. Six months ago I wrote about program trading and it effects on the market. Nothing has changed with over 50% of the daily volume ruled by program trading. Today market commentary mentioned program trading as the cause for the triple digit drop in the market. I warned long term investors about the “IDES of MARCH“, which happens on 3-8-04 thru 3-24-04 causing the sp500 index to drop 69 points and the Dow index to drop 671 points.
While some would say program trading was the cause, why isn’t program trading to blame for inflating the market? The precipitous drop only violated the 50 day moving averages in 2004. Meanwhile, there was ample support at the 200 day moving averages for the market to recover the lost ground in 2004
This year, 2005, program trading is still ruling the market. During the IDES of MARCH, the Dow dropped only 493. The sp500 dropped only 53 points. Unlike 2004, this market continued it’s drop hugging the 200 day moving average for 9 more days, then dropping another 3% for the sp500 and 4% for the Dow. The FED is still behind the curve, always, still raising interest rates. Alan is playing his clarinet keeping the market bubble from popping until his retirement. Oil has broken the $65 a barrel price tag, gold is climbing higher and the CBOE’s Vix is breaking above the 200 day moving average. I have watched the Fed’s “plunge protection team” supporting the market with buying sp500 futures, causing the market to miraculously rebound from a losing session to preserve the “technical indicators”.
Today’s FED plunge protection team couldn’t save the market today, and maybe they won’t save the market until September comes along. I know the market is very choppy with computer program trading buying and selling, base only on the number of points in the indicies. There is definitely a lack of retail buyers in the market, a sure sign that we could be heading for a 1987 crash. Notice how we have not hit the trading curbs like we did often in 98, 99, and 2000? You know why? Program trading is restricted to less than 10k shares and that will cause these money managers to be locked out of the market. If you are a money manager sitting on a million shares, it will take a long time to sell those shares only selling 9999 shares at time. You also can’t buy and extra million shares to dollar cost average your holding when the market has hit the curbs. The NYSE has some interesting stats if you have time to dig around in this massive site. The important link is this one if you are day trading or a long term investor. program trading
So a butterfly flaps it’s wings in Venezuela, causing a tropical storm to become a hurricane, heading for the oil wells in the gulf, oil prices skyrocket with labor day, back to school, and northeast heating oil production begins siphoning off limited supply of gasoline. Meanwhile, the Fed will hike interest rates another quarter point, causing massive re-financing, home prices dropping, banks margins get smaller like 1929, and so on….
Or the butterfly dies because of the pesticides they are spraying to kill the west Nile virus, there are no more tropical storms, we strike oil in Anwar and the caribou population explodes to record level due to the warm pipeline which keeps them warm in the cold winters. Iraqi vote for a constitution, and there begin pumping and dumping more oil in the market causing oil price to plummet to $30 a barrel. Intel invents a completely new chip, make all computers obsolete. There is a national sales tax and not income taxes, stocks begin to pay dividends, because earnings mean nothing if you are a long term holder stocks unless they pay you for your loyalty. Program trading will be banned, illegal immigrants will buy your parents homes for double their current value, causing a new baby boomer generation of Spanish speaking citizens. There will be peace and prosperity in the middle east.
Or….????
God Bless
Doc
www.doctrader.com
Being ahead of the curve means that sometimes you have to exercise patients. Six months ago I wrote about program trading and it effects on the market. Nothing has changed with over 50% of the daily volume ruled by program trading. Today market commentary mentioned program trading as the cause for the triple digit drop in the market. I warned long term investors about the “IDES of MARCH“, which happens on 3-8-04 thru 3-24-04 causing the sp500 index to drop 69 points and the Dow index to drop 671 points.
While some would say program trading was the cause, why isn’t program trading to blame for inflating the market? The precipitous drop only violated the 50 day moving averages in 2004. Meanwhile, there was ample support at the 200 day moving averages for the market to recover the lost ground in 2004
This year, 2005, program trading is still ruling the market. During the IDES of MARCH, the Dow dropped only 493. The sp500 dropped only 53 points. Unlike 2004, this market continued it’s drop hugging the 200 day moving average for 9 more days, then dropping another 3% for the sp500 and 4% for the Dow. The FED is still behind the curve, always, still raising interest rates. Alan is playing his clarinet keeping the market bubble from popping until his retirement. Oil has broken the $65 a barrel price tag, gold is climbing higher and the CBOE’s Vix is breaking above the 200 day moving average. I have watched the Fed’s “plunge protection team” supporting the market with buying sp500 futures, causing the market to miraculously rebound from a losing session to preserve the “technical indicators”.
Today’s FED plunge protection team couldn’t save the market today, and maybe they won’t save the market until September comes along. I know the market is very choppy with computer program trading buying and selling, base only on the number of points in the indicies. There is definitely a lack of retail buyers in the market, a sure sign that we could be heading for a 1987 crash. Notice how we have not hit the trading curbs like we did often in 98, 99, and 2000? You know why? Program trading is restricted to less than 10k shares and that will cause these money managers to be locked out of the market. If you are a money manager sitting on a million shares, it will take a long time to sell those shares only selling 9999 shares at time. You also can’t buy and extra million shares to dollar cost average your holding when the market has hit the curbs. The NYSE has some interesting stats if you have time to dig around in this massive site. The important link is this one if you are day trading or a long term investor. program trading
So a butterfly flaps it’s wings in Venezuela, causing a tropical storm to become a hurricane, heading for the oil wells in the gulf, oil prices skyrocket with labor day, back to school, and northeast heating oil production begins siphoning off limited supply of gasoline. Meanwhile, the Fed will hike interest rates another quarter point, causing massive re-financing, home prices dropping, banks margins get smaller like 1929, and so on….
Or the butterfly dies because of the pesticides they are spraying to kill the west Nile virus, there are no more tropical storms, we strike oil in Anwar and the caribou population explodes to record level due to the warm pipeline which keeps them warm in the cold winters. Iraqi vote for a constitution, and there begin pumping and dumping more oil in the market causing oil price to plummet to $30 a barrel. Intel invents a completely new chip, make all computers obsolete. There is a national sales tax and not income taxes, stocks begin to pay dividends, because earnings mean nothing if you are a long term holder stocks unless they pay you for your loyalty. Program trading will be banned, illegal immigrants will buy your parents homes for double their current value, causing a new baby boomer generation of Spanish speaking citizens. There will be peace and prosperity in the middle east.
Or….????
God Bless
Doc
www.doctrader.com
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