Found this interesting from Gary Vaynerchuk in his blog at the WSJ pointing out that while bank lending has been plummetting, the banks purchase of US debt continues to soar.  This has left many scratching their head but having a 25 year mortgage banking background myself, it’s not that difficult to analyze.   Number one: What’s the incentive to lend when unemployment is 10% and heading higher?  You’re just asking for further defaults.  Number two:  You have billions in Commercial real estate loans coming due soon; loans you need to refinance.  You’ll use those saved up pennies to refi. the CRE because if you don’t, you’re sitting with empty strip malls on your books; almost impossible to dump down the road especially given the huge supply and a loooong economic recovery ahead.  It’s more important to keep those commercial loans afloat and forget the single family homes.  Push ‘em to the side.  Your plan would be to make some half-hearted attempts at loan modifications.  You pick through the good ones, selecting the cream of the crop first.  Of the remainder, at least 50% can easily be denied right off the bat by merely pointing a finger at lack of job stability, undocumentable income or excessive debt-to-income ratios.  After all, there’s no incentive to help those homeowners when you’ve got accounting rules on your side and let’s face it – people will always need a place to live [they don't always need a strip mall].  f.y.i.  That *is* a long chanted catchphrase in the business ‘people will always need a place to live’.   Let them default – time is on your side.  Then in six or 12 months once the foreclosure process is over, you take the home back but wait, yes…….the homes value was increasing throughout the process so you’ll end up writing off less of a loss than you would have.  The gov’t can’t make you lend.  There’s a million excuses to use so that’s a no brainer.  Now buying US debt?  Oh hell yes, that’s something you can really sink your teeth into.  That’s a win/win propsition and why not?  You’ll be guaranteed a long term profit off of the investment, even if it’s small and what better insurance could you ask for?  After all if you own a ton of Uncle Sam’s debt – they can’t let you fail now, can they?  Banks; the original shell game.

Be certain to have stops in place today ahead of tomorrows GDP release at 8:30am EST as this sucker can dramatically move a market.  GDP is the all-inclusive measure of economic activity and followed closely by investors to track the economy because it usually dictates how investments will perform.  It’s our most comprehensive economic scorecard.  The advance 3Q estimate came in at a very bullish 3.5% with the help of the cash-for-klunkers program however, analysts are now expecting a downward revision on that number which could really hurt the market since we’re near the top end of the trading range [many would say a downward revision is not "baked in"].  Concensus for GDP now stands at 2.8% [estimates range 2.5$ to 3.4%].  To understand why investors care about GDP, CLICK HERE.

When the pundits came out two weeks ago stating that the easy money [trade] had been made; they weren’t candy coating it.  The Feds program of purchasing its own debt had ended and while they continue to purchase MBS, the hard-core selling of the US Dollar had come to an end.  That doesn’t mean that the greenback skyrockets.  No way.  It’s still enormously weak and the amount of debt now owed will take years to be repaid but by the same token, they can’t allow it to plummet being sold by other soverign nations either.  For one, it must be somewhat propped up to appease China [our largest buyer].  It’s selloff has also inflated other countries currencies to the point where they need to somewhat deflate their own currency a tad.  [There've been a few articles in WSJ and Bloomberg to this which I will hunt down and add here] 

Aaaaannnnyway, while there are many more crosscurrents involved, it’s all adding up to some short term strength [chop] in the USD which is putting pressure on the market.  I’ve adapted my trading style here to buy equities at the USD top of the channel and sell equities at USD bottom for as long as this pattern holds.  Who knows how it will continue.  Could be a day or two.  Could be longer.  In the meantime, I’m playing the pattern until it’s not anymore; then I’ll get long for one last leg up.

*If* investors are taking profits on their riskier positions, I’d think anything in the shaky auto industry will be one of them.   Ryder [R] broke down out of symetrical triangle Friday on high-than-normal volume and now poses a low capital risk short opportunity.  While I will short this Monday morning for a one-three day swing, I wouldn’t be surprised to see it come back up and re-test that breakdown resistance; at which point I will add to my position.  Risk appetite and the uncertain mood of the market adds to the probablility of success in this type of trade.  While I have a box highlighted for a potential target, beware that it *could* bounce and reverse off its 200d EMA.   After all, the holidays are coming and Fund Managers aren’t selling yet since they came late to the [rally] party.  This increases the possibility of a Santa Claus rally so I would not be surprised to see buyers lingering there, a bounce and surge back higher to at least the 50% retracement level; possibly up to 61.8% before any major profit taking.

This channel’s pretty straightforward.  Set alerts for the top and bottom range.  Whichever breaks is your direction to trade however, do not be surprised if it comes back to backtest support or resistance.  Be prepared and don’t get shook out.    A breakout would be nice b/c of the enormous 15% gap.  No real resistance until the gap is filled.  o/c one could trade within the channel, but how boring would that be

[Edited to add content]  Flipping through futures charts this evening [looking for longs] I stumbled across Sugar futures coming close to the apex of a flag.  Sure enough, the sugar ETF SGG is flagging and although  these are typically continuation patterns, that doesn’t mean you should buy now b4 the break - here’s why.  First of all I don’t endorse watching the news during trading hours [I'm a music or AMC person myself] or trading based on small news-related price swings.  Such movements can fail and price reverts back to the direction of the original trend increasing your chances to be left with a loser.  More importantly, however, is that flagging patterns formed over a long period of time are very often created due to mounting tension on important sector news such as earnings or, in this case, a crop report.  Just recall the Duke brothers from 1983s Trading Places when  Billy Ray Valentine and Winthorpe eventually destroy Randolph and Mortimer Duke who had bet heavily on the orange juice report.   The Bulls/Bears argue back-n-forth over which direction the price should go until ultimately the crop report comes out and wham, one of the two parties is run over [this is why you don't trade such setups until they breakout or breakdown unless you have the stomach for large losses].  A quick  WSJ news search revealed that not only is the sugar cane crop in India in question right now due to a lack of rain, but there is also a fairly-heated debate taking place in the country as Parliament argues over higher state-fixed sugar cane prices for farmers.  Obviously seasonality has much to do with this trade and who has time to sit and watch the news reports so alerts and triggers are your tools to catch the move for future profits.  Maybe an alert for an increase in volume or a close above the 100d would be sufficient but in either case, sugar’s certainly one to keep an eye one.  Best of luck

Very intrigued by JCP action here.  While I was originally eyeing this as a good entry level for a long, I’m not convinced that market sentiment is what it should be for the trade.   After all, SPX has retraced almost a full 50% of its ‘07 high and while this doesn’t mean the market has to  sell off, it does begin to make investors nervous and they begin to lighten up on their riskier positions [small caps & financials as of late].  So to enter this JCP trade I decided I’d better do further research.  Looking around the retail sector what I found was many like JCP; already under distribution.  LTD just broke down after earnings on Thursday and many others are forming triangles or in their tight little channels with weakening MACD so yeah…………….don’t think I’m ready to pull the trigger on JCP just yet.  I’ve drawn another new channel on its downtrend and set an alert for a close above the 200d EMA; above that with some convincing volume and I may just take a dip for the holidays.

Life intervened with a plethora of doctor appointments this week for my son however, heading into the weekend, my focus is to take a step back at the markets movement this week and what are we in for next week.  My first stop was this interview with Ashraf Laidi, Chief Economic Strategist @ CMC Capital Markets as he speaks on the state of crude oil, gold [will it ever come down?], the US Dollar and the our dependence on China.  I will post more as the weekend transpires as on the home front, we will begin the long, arduous task of decorating for the impending holiday season.  Never an easy task

A quick way [for me] to gain perspective of a ticker, or at times, the overall market is to view a chart without the price viewing only the moving averages and perhaps a Bollinger Band.  In this chart of GS, the first things jumping out to me beside the MACD cross is not only the 21d EMA cross below the 50d SMA, but how perilously close the 50d is to going above the upper BB; a definite sign of weakness in my book.  It’s not quite there…..but it’s damn close.  Lastly, look closely at the ends of the BB.  Both are now pointed down………

Personal observations and comments this week which left an impression:

1. Russell index fell first as investors took profits on their riskier positions; small caps
2. Financials fell next; again the riskier of their portfolio
3. Who’s next?  Energy?  If so, what % of the S&P does crude represent and can the S&P go higher without it and the others above?
4. The DOW is outperforming here as large caps are outperforming their riskier peers.

I’d play this pattern in miner BBL until it doesn’t work anymore.  I especially like the declining volume.   A short entry here with about a $1 stop above todays high and let it ride.

Occassionally when trading you’ll stumble across a “spike” on your chart which very often skews or distorts the picture.  Generally these are either out-of-sequence trades [oops, I forgot to enter that one] or an ISO – Intermarket Sweep Order.  The easiest way to determine which is to judge by the volume of shares traded and before you begin screaming “dark pools”,  ISOs are totally legal and needed each day to add liquidity across the markets; especially in tickers trading at high volumes such as SPY.  The easiest way to understand them is let’s pretend that Chicago is running low on shares of SPY but Philadelphia has a boatload.  They negotiate the trading of shares at an offmarket price and the limit order will temporarily be reflected on the chart.

**If** your broker is doing his job, these “spikes” are generally removed from the charts within the hour OR whenever possible, the sweeps are performed after trading hours and then removed so as not to disrupt things but on high volume days, you’ll see them.  Hopefully your broker has a way for you  to remove it from your chart; otherwise you may have to wait, email or call them to do so.

One bummer about them – they can and do trigger stops and can cause your trade to exit prematurely.  Whenever I’ve brought this up to traders they raise their eyebrows and scoff but I cannot tell you how many times I’ve caught that it’s happened to me.  Maybe it’s because [at times] I will day trade quite a bit and I see what’s happening.  Occassionally I’ve had luck complaining to my broker and they’ve replaced my shares.  Other times I let it go because [as it turned out] I would’ve been stopped out anyway.  The biggest reason I’m writing this post today is not only to explain what they are, but if you ever see someone on twitter or another social network telling you that the “spikes” are an indication of what direction the stock is going………….block the blockhead!  If you’re subscribing to the guy and actually paying him a fee, block yourself.  They have absolutely no bearing on the direction of a stock as you can see from these charts.  The dude is totally clueless and you’re bound to end up just like him if you follow like a lemming.  You should at least do your own research at the SEC website or via the web and don’t trust your money with some “schmo” who trades based on spike direction.