Saturday, January 21, 2012

The SPY orbital launch

During this rainy Saturday in Southern California, I have looking at a lot of charts and marveling over the incredible low volume ramp in the SPY.  This is during peak earnings for this cycle and decelerating GDP.  The rationale is the FED already started QE3 through the back door to Europe, and we are getting the additional kick off of the LTRO.  All may be and is probably true, so I looked to see how QE1 and 2 impacted SPY, from an absolute level, the duration, and the speed of the ramp.

All of these numbers are rounded, but serves the purpose of my post.

QE1 one Started early March 2009, and went for approximately 56 weeks.  Price rose from 67 to 121, a 180% gain. the speed I assigned was .032 using simple division.

QE2 started the beginning of September of 2010, and ran to the middle of March of 2011 for 30 weeks.  Price rose from 104 to 135 for a 129% gain.  The speed was even quicker at .043.

QEstealth started the second week of October 2011 and let's assume for arguments sake ended on Friday.  This is a 14 week ramp, with prices moving from 107 to 132, a 123% gain.  The speed number .088.

The gains have been a diminishing commodity, with the speed of ascent at an accelerated rate.  To boot, volume is abysmal. We also now have negative margin debt levels.  Bernanke better show up this week in a helicopter as this market has front run just about everything else.

For me I enjoyed the ride higher in miners, and established a short position the first week in January with SDS and selling OTM one strike weekly calls against them.  Friday, I added Feb EDC puts.  I also put on and aborted oil and silver shorts taking my losses quickly.  I will trim my miner positions on Monday and Tuesday and go with my gut and the cycle guys in looking for a correction starting this week.

The corrections have been larger and longer going from 16 to 22% and averaging 3-4 months in the process.  An interesting note is that there is only an initial slight retracement and then a push to higher prices over 1-2 months, then the big sell off.  I am still looking for a profit taking event to the mid 120's then an assault to a double top, but I won't be surprised it it simply falls from here, but it does appears that the next earnings season puts a feather in this cap.

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