Moment of Truth

Well, GLD hit my downside target of 116 (big fib line) on Thursday, and I believe selling has exhausted itself.        If that Thursday low does not hold, we have major deflation issues in front of us, but if you reference my post from last week Ben and company will not allow that to happen without throwing the kitchen sink at the problem.

I also think the miners have exhausted themselves to the downside.  The fact traders were buying Friday before quarter end is a tell for me.  Lazy traders who read the news that the bull is dead in gold were caught flat footed on the reversals.  The Central Bank knows, and smart money has been positioning for the liquidity to continue and we will start seeing the money flow into commodities.  What will help is some disappointments in employment on Friday and Q2 earnings, and Q3 outlook.  This will pressure the broad markets and we will see some of the long equity and short metals/miners/commodities trade unwind.

Believing that,  I give the stock market one more week to break through the 50 again and try for new highs.  If yes, I will stay in my XIV trade, if no I will close it, and buy TZA/SH.  At any rate I will start building a short position again next Friday for a multi-month correction in the stock market.

Related, I believe bond yields have peaked.  China will relent and provide liquidity, and Ben will keep on keeping on.  When stocks roll over, there is no other liquid haven for big money to hide.

Finally, I have been watching and trading the solar stocks of late, and they are waking up.  China will resolve its differences with Europe, prices will firm, giving them higher margins, and electricity prices are going up (11-25% in CA for 2014).  I have some inside insight as I am a Solar dealer and installer.  My neighbors and friends have been getting the SDGE letters telling them how much their bills will rise, and I never had more inquiries since I started this business 6 years ago.  At the same time my distributor is warning me prices on equipment will rise 10% this fall.   Seems like a recipe for higher revenue and margins for the industry.

If Ben Wants a Depression

Well I was half right, gold took a cliff dive, and looking at the fib lines I follow, and my view where SPY is heading GLD 116 is still my bottom target, and we will get there in a month.  I am wrong if GLD moves higher than the 132.50 next week.  It could gap fill and roll back over, as well.

Now for SPY; I think more is going on than meets the eye.  First off we had Quad OPEX and obviously the bets were skewed bullish so we had pressure on the markets to correct that imbalance, and there is China.  Chinese banks appear to be under a lot of stress, but much of that is manufactured.  Their banks are hoarding cash for quarter end regulatory reporting, and the Central Bank is not lending to them because they want to force new lending to go in other directions than real estate, so they are playing a game of chicken.  This resolves itself next week.  

There is simply no way Ben allows the bond market to crash, this is how currencies fail, and you already saw the back pedalling on Friday.  Also, we all know the reason given for the bond rise is how great everything is in the U.S.  LOL, the housing market only exists due to cheap credit, ditto for the auto industry.  I have three friends in the Mortgage business in three markets, and they immediately saw loan apps plummet.  The MBA reported extreme falloff in demand, etc.  The banks are still sitting on massive inventory, and no way they are going to let the one they control, the CB to cut their throat.  If Ben wants a depression, he'll just stand back, but judging the public's mood about how all Americans are being played by their government, I doubt the banks want to be lined up in the crosshairs right now, and you will see a miraculous recovery in rates.  If I am wrong, I will have buy stops set on EDZ as the dollar will go through the roof.

I see SPY moving up through the 50, and to at least the 20 by the 6th of July.  A close below Friday's lows by Wednesday will have me rethinking the above rant.

A bonus chart is YGE.  It is defying the selloff and forming a nice cup and handle.  I see a 50-75% move in its future.

All About Ben

Last week I stated that we will have one more push higher before the wheels come off, and judging by the supercharged defense of the 50 EMA I am keeping to that opinion.  Over the last 60 days the Fed has learned a lot about what the market thinks of tapering; and rising interest rates, and falling equities is not in the best interest of an organization will certainly be blamed for any economic dislocation caused by said tapering.

But c'mon, does anybody really believe they will let interest rates rise while headline inflation is non existent.  In fact I can argue that deflation is a very real problem, and rising rates would plunge us into said deflation with a depressionary topping.  I am looking for more blah, blah, blah, we will watch carefully, blah, blah, blah, but do nothing, blah, blah, blah.  Plus wit Syria erupting and the Saudi stock market in free fall today, it is doubtful we will throw another log on the fire.

So, my view is SPY up to new highs, GLD down, IEF up, and energy most certainly up.  Bonus, the solars look ready to rock, for at least the small caps. ( I have a series of buy orders set in this space)

If I am wrong, I have stops set on my long positions ( mostly energy, Ag Chem, commodity, and some miners), and buy orders on puts, but don't think I am.

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Last Hurrah

For those who read my posts regularly, you know I am and have been calling for a new and last highs to at least 170, or even up to 184 on SPY.  This is based on some back of the envelope math regarding the Fed's balance sheet and its projected growth.  But first we needed to touch the 50 EMA to clear the way for the final assault. We got that on Thursday.  If you follow me on Twitter, you saw I had SPY puts, closed them Wednesday at the close, and bought Calls Thursday mid morning.  The move to Friday evening was even stronger than I thought as SPY almost got back to the 20, and I closed my calls.

I am still in the camp that we make new highs before we correct down to at least the 200 this time, or even retrace 61% of this entire move.  I also think the Q2 earnings reports will be the catalyst for the move down as the estimates do not match reality.

I am watching to see if the 20 is breached before my signal tells me to sell.  If above, then that is my stop and I will buy calls on the close above, if below, I will short it again, and I believe the 50 will probably not hold it this time.

If SPY is matter, then GLD is antimatter, and looking at the chart, it appears a final low is going to happen.  Looking at the fib lines, I see 126 as a minimum.  I bought 130-125 put spreads for June.  Above 139 this week, and I go long, but I doubt that happens.

Energy has about finished its coil, and it has been following the SPY, so I think we break higher.  I bought HAL on Friday, but a number of stocks hit my screen, that I will buy next week.  Also, solar looks like the next run is setting up, as well as Natural Gas stocks.

Ag Chem is waking up, and I bought POT, but IPI also hit my buy screen, and will consider a trade in that one, as well.  We had a nice trade in that a couple of weeks ago.

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Mexican Stand-off

The dividend yield dipped below the 10 year bond yield last week, and the Nikkei hit multi-decade resistance.  These plus a re-balancing between stocks and bonds put a halt to the equity juggernaut.

What comes next is very important.  The conventional view is Bernanke loses control of the bond market, but that is implausible to me.  There is simply no way the man with the printing press is going to allow their member banks to be put in a catastrophic mark to market position.  Incomes have not moved in ten years, and if interest rates start moving higher, credit card, home equity, and junk defaults will sky rocket.  You can also kiss the housing market good bye.  Not going to happen.

My view is and always will be is interest rates will stay rock bottom unless and until the energy or food markets get away from them.  We are not there yet, however a new concern of the bankers is coming to fore that bears watching though, banks are slowly strangulating on QE forever as their net interest revenue is slowly drying up.  Not sure what remedy the banks have though, and I think they prefer this route over a uncontrolled back up in rates.  Plus, I think we are still deflating, and this back up in rates is going to stabilize around the dividend yield.

This leaves equities vulnerable though, as the Fed will protect the bond market over the stock market.  As most know I am expecting a move to at least the 50 on SPY, and that looks very likely.  Friday's sell off  was a bit exaggerated, so I am looking for a re-trace up to the 20, then for the market to continue down.  A bigger selloff is in our future as the third quarter earnings estimates and confessionals start coming into view later this month.  The estimates are way too optimistic.

So bottom line next week I expect a up Monday/Tuesday, and a overall down week for SPY, increased volatility, gold selling off to complete that bear flag, interest rates to fall, and miners to climb.  I have been short short SPY and long UVXY calls, short DUST, and long miners and some special little short squeezes.