29 April Green shoots and Dafodil

So much talk of greet shoots, glimmer of hope, and now we read "paying the price for waiting on the sidelines", "use dollar cost averaging", "emerging markets and developed market is now on par, buy emerging markets".

Today coming we have GDP 1st Qtr, and FOMC meeting decision. The results of the 4 May results are semi-known, as in BoA and Citi are the 2 casualties, while the rests pass the test with distinctions.

Stress Test Scam
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The stress test is a confidence building exercise. It gives something for the market to look forward to, extending the current rally beyond Obiwan 100 days in office (his 100 hundred days expire on 30 April). The result is supposed to be known only on 4 May though the banks have been given prelims last Friday, and are on gag orders.

FED has picked 19 banks, and as I read, the candidates of the 19 banks seem to be a fluid list, as in certain banks get dropped off half way, and others added. The baddies get spare, while the good ones get invitied to make the results sparkling.

Geithner has on last Tuesday said most banks have sufficient capital and triggered a rally off the 826 low.

The Obiwan administration is a giant PR machine with illustrious staff like Emmanuel, Summers, etc. Every moves is a calculated move to build confidence in the markets.

Indeed it worked, side monies are now flowing into the market. PPIP seems to get the vote from Blackrock, soon banks would join the queue. There is a very good article in a popular magazine describing the ways banks can enjoy the ride by bidding for its own toxic assets, offload them onto the taxpayers and generate guaranteed returns.

It is little wonder, that Soros said that banks can earn their way out of the crisis, however other sectors would suffer.

Hence do not belittle the US banks. However let us see how CitiGroup and BoA would survive this call for capital. I suspect the bondholders would have to take a cut in the coming weeks, when they have to convert debt to equities, not unlike Chrysler and General Motors.

Possibly the BondHolders are given a path to the promised land with rising share prices.

Mid Term election next year 2 Nov 2010
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As you can see mid term election is 19 months away. Can a rally last for 19 months ? unlikely especially in a primary bear trend. Probably the FED and the Obama administration would engineer a market drop (not crash) to reset the rally and move it towards end of this year. Noting that we are in 7 weeks of continous rise, which is astounding by any standards.

Now why is this not a new Bull rally ? Reason being deleveraging is still going on, the tools and incentives for the past rally is now no longer relevant. Commercial Real Estates, Credit Card debts, Corporate Bond defaults are looming on the horizon. With FED quantitative easing, it would spark a rally leading to inflation further down the road (like in 2 years of so).

As Bernanke is a student of Depression, I am a student of the Kondratieff Cycle. A Kondratiff cycle last on average 30 years at least. And we are at the beginning of such a cycle. The bear trend would ends only in 2030 or so. Within this 20 years, we would see numerous mega Bear Rallies. Now we are in one of these.

SPX at 666 was the bottom, engineered by the Obiwan administration with help of the GS.

GS
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GS is a the strongest company on wallstreet, it is a partnership, its management are well checked. They made the wisest bet against the Mortgage Backed Securities when MBS and other credit instruments were soaring in 2007. They emerged relatively unscathed. Most of its business is in Trading and not investment advisories (there was a good article in Market Watch describing GS businss strategies).
Now it is betting big on a Market Recovery, having partook in engineering the turnaround at 666, when everybody was looking at 620-640. It is now buying every dips for the past weeks (evidence provided by some traders on its trading position and volumes).
GS want to seize the day and distinguish itself from other firms. Blankfein has openly stated that it always market its investment to market, they do not fuddle their books.
The current earnings of the major firms are just scams, by virtue of the new Mark to Model account rules. Hence this one time adjustments would not last into the 2nd quarters. Banks have now think of a new earning model going forward against calls for greater bad loan provisions.

To be objective, the chart patterns of GS is indeed intriguing. It has unfinished business. Hence caution warranted.

Pig and the market
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There are calls in Indonesia that Swine Flu is engineered by the US pharma to rig their share prices higher through selling Flu medicine. It is intriguing at least that the source of the Swine Flu is still unknown. Though some has pointed to a Pig farm run by the US in Mexico.

It is amazing to say the least when Bird, Human and Swine strains merge to have the current efficient Human to Human strains.

The Swine flu is more infectious than the Bird Flu, as its starts infecting once the person get it, instead of having an incubation period. It has a proven record in 1918 Spanish fever.

The consolation is that now US, Europe and the Northern hemispheres countries are moving into Summer, not conducive for flu spread. Also so far no deaths have occured in countries other than Mexico.

My guess is that the Swine Flu would fizzle out in next couple of weeks, as in more cases but no fatalities. And it would come back with a vengeance in winter, with a more efficient and fatal strain. The 1918 Spanish Fly happened in 2 stages, with millions death in the 2nd stage.

Nonetheless it is a damper on the stock market, with the risk averse taking monies off the table.

The Objective
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What is the objective of the current rally. Though we do not know when the current Bear Market Rally would end, we know the objective for sure.

The objectives is to rake in as much monies as possible, to prepare for the winter.
It is like the Bear scouring for food, storing them ahead of the winter.

Hence more firms would be making rights issue, issing new shares. It started with GS selling shares on its earning annoucements.

Incidentally those Asia countries whose SWF has spent their bullets are now asking its domestics affiliated firms to raise cash in open markets.

Even private equities firms are asking for more monies from its investors.

China is planning a rave of IPOs.

This is indeed what we called the Private Public Partnership. When the Governments run out of monies, it goes to the people.

The Means
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The means is simple to rig the share prices on a global level. Singapore traders have complained that late market buying of large illiquid shares at market close have marked index up. This happended back in HK on 6-9 March, when biggies rigged the HSBC to 30 HKD/share, way below the trading average of 35 on those days. Subsequently it was lambasted by Donald Tseng.

Markets have been lethargic to say the least, trying to follow every step of US markets, especially SPX. The biggies have been rotating their play, today Tech, tomorrow Financials. Though Energy is a drag.

If you follow the Biggies and day trade, it has been most profitable. Buy on dips, sell on strength within a day. Hence GS has a good bunch of followers to help its cause.

The Ends
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How would it all ends short term ? Newtons Law of Apples rule. Everthing that goes up have to fall. MY GUESS is that the market would stage a capitulation towards 880 to 900 take out the stops at 875, and then begins its next leg down.
How far down would it goes ? It can go to 668 to complete its retest. Though traders expects somewhere 770-780. Jim Rogers said 740. It may be just at 805.
805 to 850 is the neckline of the decade long double top SPX. Hence it is heavily defended by the Bulls.

Hence my advice is to stay out of the Biggies way, and wait for it at higher levels to cut the pain of waiting.

The Bear View
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Hence we have seen that even the Swine Flu is not denting the spirits on the current rally (despite new headlines of market drops, blah, blah, blah). Or rather say that the market is not respecting the Flu.

When the pandemic threat becomes real, like rallying numbers of New Yorkers get infected and death happens. Then the market would drop like a rock into the deep abyss of 500, with HSI to test its SARS bottom at 8333, and FSSTI to test 1200.

Then the uncompleted Wave 5 of GS would be running in earnest. Possibly we would have nationalisation of at least one of the banks: BoA or Citigroup.

I.e. 17 April (last OPEX date) we have seen the high at 875, and it is started its wave 1, now in a whipsawing wave 2 and then big time wave 3 down into the navels.


The Mainstream view
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The rally would continue into 1000 (Jim Rogers have spoken of 1000 on National TV), albeit with a shallow pullback, to 740 to 810.
May be the FOMC 29 April would be the trigger, or the 4 May Stress Test news release. From a Astrologist standpoint, the pull back date may just be 8-11 May. Noting that 15 May is option expiry.

The Bull view
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the market keeps on iching upwards, with sudden spurt e.g. after FOMC, and after 4 May stress test release. and with a fading Swine Flu worries, market just keeps inching upwards to 1000 to meets the 200 days moving average.

A lot of traders are positioned for this: short from 875, if exceed 875 long position with view towards 1000.

The pick is yours......