31 May Making a Bear Case

GS on ladder.



STI in bullish pennant formation.Note the exceptional volume on last Wednesday 27 May.



HSI reached new height, but the volume is not. The ealier height commanded an exception volume.

Now everywhere is bull. Roubini has now admitted recovery is inplace. Paul Krugman was faster than him. I saw some pennant formation on Equities, Stocks like GS, JPM are on a rising escalator. (literally escalator, you dun need to move your feet). However we all know that the fundamentals are not there. I asked executives of major cooperations, they told me volumes would never go back to 2007 for another 1-2 yrs. Cooperations are going to cut cost, retrench staff to achieve earnings. Consumption would never return to high time. If you know the Japan lost decade and the explanation for it: "Balance Sheet Recession" (Richard Ko of Mizuho). Cooperations are more interested to reduce debt than to achieve profits.

The current abnormally high PE ratio of SPX has no fundamentals.



200 days at 928, easily achievable. ESmini has breached 200 days, not cash. 50 days at 861.



[Chart above: SPX weekly] the unconfirmed low at 666 gave the bull the might case for rally. However the huge histogram with the lower bars give the case for a pullback.



[Chart above SPX monthly] for those who are short the market. Goods news is that the Monthly SPX has confirmed the fall to 666, and another low is in the cards, let say in 1-3 yrs time. Not before a rally. This rally may not be straight up. PERHAPS, with a unconfirmed lower low at 500++, then surge back to 1100-1200. And the final drop 1-2 yrs from now, probably towards end 2010.



[Chart above TNX monthly] This is a bold prediction. 10 Yr Treasury yields to fall back to last low, before rising to new high, a awfully new high. (we all know Inflation is coming).



[Chart above TNX daily] Now comes the 10 year yields. It has been pulling back for 2 days. possible support is the channel lower trendline. Otherwise it may pull back all the way, which has greater significance. Either the yeilds is foretelling another bout of Debt Purchase by FED, or monies fleeing Equities into Bonds.



[Chart above and below Euro] For the EURO junkies, may be it is conincidence that the Euro rise stops at 1.4169, which is the max of W5 <= W3. Monday when Asia opens, we would have the answer. If the current large degree wave is complete (possibly a larger degree wave 3). To be followed by a larger degree w4. And the final larger degree w5, we would have possible 1.4500.



This Euro topping would be a strong case for a Equities pullback. Monday Asia opening would be telling.

After much thoughts as to the nature of this current rally: short squeeze, green shoots, reflation. I found the right word: "LOOTING". The bank executives, government officials are looting the American taxpayers, in return for favours, present and futures.
Would you work for 1 dollar salary like Edward Liddy of AIG ?
Geithner approved Fed NY chairman to purchase GS shares last yr in millions.

A recovering market can take its time, but a market staged by looters are in a hurry before the light comes.

When the market next plunge, it would give us a very good explanation.

Have to admit the odds are against me.