Well, well, well. Last weeks price action changed things somewhat in the near-term (no worries, I'm still a bear). I spent some time going over the daily/weekly/monthly chart on the SLP500 showing higher numbers in play. Near-term of 943-968 , 980,1006 and 1060 perhaps. but those numbers are no secret). I don't like it one bit, but it is what it is. My call for the reflation trade to reverse this week is in jeopardy. Perhaps I am capitulating by buying the copper and natural gas last week. Now EWZ will do nothing bu serve as a hedge towards the PCU, XLE (might as well be PBR) and towards the remaining commodity longs. Started last week uncomfortably exposed to the short side of commodities but as the dollar rout progressed I had to temporarily adjust. Do not mistake this for me being bullish, it is not. I'm still quite the bear. It's just that I realize the market will contine to be propped up until all this capital can be raised from the markets (ie: drain wealth)

The 200 day moving average will be taken down now. The computers behind the curtain will make sure of that. As a result I am upgrading the melt-up scenario from plausible to likely. 943 and 963 will be reached sooner rather than later before we get any pullback. Remains to be seen if there will be a rally through summer. 908 is a first target. Not until 875 is broken would I expect to see any downside momentum pick up. Once this garbage rally is finally done I'm looking to 850, 736, 620 and 585 as downside targets.

DXY level I'm watching is 77.77. Gold still tracking to the original target of 1060. I would prefer to see it pullback to 935 before launching that assault though. Oil has some resistence at 68 and 75 . Soybeans has a 1233 target now, even though I'm short at 1161, I will continue to hold this one for now. Everything in commodity land is overbought, but most have been that way for a bit now. Therefore it can stay this way longer. My EWZ and RIMM shorts have my ankles looking like hand-grips. Again though, I am long XLE,CLF,GOLD,PCU,UNG,CAL so I'm alright. I'm not liking my DB short now as 75 comes into play for it now that the market is going to take out the 200dma. I wish I had added one of the shippers a couple weeks ago (DRYS,EXM), but oh well. Not chasing those here.

Will post charts later.

VWAP bands shown above in the /ES futures.  

As you can see, things went parabolic in the final minutes of trading for reasons not known.  Maybe it was Batman? Nearly a 20 point departure from the volume weighted average price (blue line) in the final 15 minutes and right after the closing bell when the /ES futures spiked to 927.75 (the cash index closed at 919.14).  Unfortunately the chart I used is showing closing prices for each bar, therefore the intrabar highs are not shown.   I'm not going to redo the chart now :)   VWAP was declining for most of the day with the bands tightening slightly before the rocket boosters took prices into orbit.

I've updated the chart in the previous post to highlight some ginormous trades made in the final 10 minutes.  Perhaps a forced liquidation with 10 minutes to go, on a Friday, on the last trading day of the month?  Stop Loss takedown?  Bernanke opened account at E-trade?

Note: Chart times are central time.

Above is final 15 minutes of regular trading up until futures closed.  Below the chart is a some trade data queries of Time and Sales where the contract trade size was greater than 500.  Umm, you do not normally see trade sizes like this (had to photochop from multiple queries due to interface limitations, therefore some are misaligned).  Heck, even when the PPT appears to be at work I do not see > 1k contract sized trades, very often.  

Did the Supplimental liquidity program kicks in with 15 minutes left on a Friday to go from 908 to 920?   I must have missed some bad economic news late in the day that caused the market to take out the highs going into the close, and as I type this the futures went from 920 to 927 in an instant right after the close.  I wonder if Goldman and the other insiders got told some  juicy GM tidbits before monday.  What in the wide world of sports is this?  Check out the volume at the end (140K burst at the closing bell).  Man, I need to get on the super secret insider mailing list.  Do they blog? Tweet?  908 to 927 (futures) in the last 10 mins? Seriously?>

This is becoming hilarious.

That's how the MSM reports today's 5.7% drop in GDP versus the estimate of 5.5%. Yesterday the unemployment numbers were 13,000 less than expected on a 600k number. You would think that would be considered roughly in line or slightly better than expected. However, the MSM said the unemployment numbers were much better than expected and a 3,000 drop in a 4 week moving average of 625k is green shoots.

At this point, the only thing driving equities is the reflation trade. I still suspect this trade will reverse starting next week. I'm not sure how all commodities doubling in a years time will fertilize these green shoots. Especially with falling wages and higher taxes. If the reflation trade sticks then the Consumer stocks have no business joining in the equity orgy. And even though the bond vigilantes have flexed their muscles, the REITS continue to go higher. What a joke. However, it doesn't stop RIMM sticking it to me like Teddy KGB. EWZ short is underwater but the long CLF, XLE, GOLD has picked up the slack. Last week I started buying a little US Wampum, mostly to hedge to my gold position. The long TLT trade lasted all of two days when it went from a small profit to being stopped out for a small loss. I went back for more punishment yesterday and put on a small long TLT position once again with some July 93 calls for 1.90.

Yesterday I picked up 3 additional positions. UNG, PCU and CAL. I got lucky to picked up UNG at the open before it jumped 9%. PCU was added only because copper was relatively flat yesterday when the other commodities started to run. I'm probably early on CAL as 8.55 might be a target but I took a half position in some JUL 10 calls for .80 . I view this as a round-about way to short oil near 65 but has added benefits. I prefer to ease in and then gradually leg into a spread that I try to work the position for the duration of the expiration. For example, last expiration I had a straight long IYR May 28 calls that gradually turned into a 28/30 vertical, which eventually turned into a 28/30/32 butterfly, that then turned into a bear call spread after I sold the 28's, bought some 32's to make it a short 30, long 32's. As if that was not enough, in the last week of expiration I sold the 32's that left me naked short the 30's, which was uncomfortable. Fortunately the IYR pulled back to 30.80 allowing me to buy those back for a profit. This is the reason providing updates on positions here is impossible. On any given day I may adjust a position for various reasons. All in all I was lucky to have profited on every morph of this position. Now the example above is not the norm and is a recipe for disaster. However, in a range-bound-whipsaw market, I have to adjust my style. CLF has started to become the IYR of last month. I've went from long the Jun 24's, to a 24/26 vertical on a 3:2 ratio, that now stands at long 20 of the 24's, short 30 of the 26's and long 15 of the 28's. Wtf? lol. Today I will likely go ahead and take this to a full butterfly by being long 20, short 40, long 20 on the Jun 24/26/28 strikes.

Finally, I know why everyone is wanting to get long Ford. It's going to be an uphill battle for my short, but in due time the balance sheet will rear it's ugly head.

[update 1:25pm] CLF is now a butterfly. I was able to achieve the ideal scenario in that now I have a full blown butterfly spread by being long 20 of the 24's, short 40 of the 26's and long 20 of the 28's, and for a net credit as a result of the position morphing described above. Now I get another look next week with no risk to see how this dollar massacre plays out. DXY has breached below the measured move of 79.75 (at least the way I drew it) and is currently at 79.39. I will start to get concerned real soon if it does not stop falling. I'm not sure if this is part of the master plan to get to banks to earn they way back to profitability, or to screw our creditors via inflation, or just a bi product of BerTanke's QE, unnecessary panic over the dollar (its too soon, imho), or this is the real deal, or all of the above. *thurgy scratches head* I'm still sticking to the deflation theme for the next 12 months, but I'll admit that my confidence has been shaken.

From Zero Hedge

As of 1 am last night, the petition in support of the Ron Paul /Alan Grayson / HR1207 initiative had over 2,500 signatories and climbing fast.

The link to endorse the petition is here.

Presented without comment

(Update1 11:00am)

Longs

TLT (started), AMED(existing), GOLD(sold half), **XLE(existing), CLF (existing), US Wampum(started)***

Shorts

**XRT (existing), LTM (started), JOSB (existing), DB (started), IYR (started), F (started), RIMM (started), Soybeans (@1160), POT (existing @110), EWZ (@51)

Closed

NFLX short 

**+XLE/-XRT is a pair trade treated as one position.  

*** Means I'm short the EUR/USD (1.378)

Notes

Just booking proifit in Gold, will look to buy on a pullback.  940 is resistence for now.  I have initiated tad bit short exposure to commodities right here, uncomfortably so.

(Edit: Completely left out the SPY 75 puts mentioned here)

AIPC has dropped 30% in the 39 days since taking the position.  There's always a bear market somewhere...  I'm closing this short position out.  Now if only my swing trade short in POT would stop going the wrong way.  

Last Update: AIPC trade update

See: Thurgy Reiterate Buy Rating on Gold (Gartman bearish)

Why would someone be bearish on something that is in a secular bull market?  I thought he was the commodity king.  

The dollar continues to get kicked in the junk which is fueling buying in all commodities.   Starting to get overdone and I would expect by next week the slope may reverse.   I'm not convinced the dollar will lose it's safe haven status so fast.  Europe still has a larger set of problems that we do, therefore I would expect thie Euro to weaken after this rally peters out.

Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Other reports showed companies continued to cut stockpiles as demand slowed, and climbing oil costs pushed up prices for imported goods.

Unexpectedly?  Really?  I'm shocked someone could expect otherwise if you take a look at this. Ladies and Gentlemen, I present you the result of credit:

Watch out for a bounce off the 875 level.  I am anticipating (not trading) a bounce from there up to 900 perhaps.  if 875 goes there is 860-865 as the next level of support.

Around 935 thurgy set an initial target of 835. If I could predict the future I would say 875, 850 and finally 836 would be the pivots and that it would look something like (1)935 down to 875, (2)875 up to 912, (3)912 down to 850, (4)850 up to 875, (5)875 down to 835.  Or something like that.  But then again, I can't predict the future, it's just a guess.  Will have to assess the market once it gets near those levels.  I don't think 835 would be the "bottom" in this pullback, but a stopping point.  Too early to start calling bottoms, I'll leave that for CNBC.  Hell, too early to rule out a run back to 950 either.  The Thugs at the Whitehouse might surprise you.

Link to Bloomberg Article Here

May 13 (Bloomberg) -- Former Treasury Secretary Paulson said nine U.S. banks would have to accept $125 billion in government investments or be forced to by regulators, according to a memo prepared for a meeting with the lenders’ chief executive officers in October...

Three and a half hours after the meeting was scheduled to begin, Paulson had obtained the bankers’ signatures on half-page forms along with the handwritten amount of the federal government’s investment, according to the documents. He announced the actions publicly the next day.

In releasing the documents, Judicial Watch said Treasury initially said it had no records about the meeting. It didn’t release a transcript of discussions between government officials and bankers...

Accompanying Paulson were Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and New York Federal Reserve Bank President Timothy Geithner, who succeeded Paulson as Treasury secretary...

The Monday meeting came after Paulson huddled with Geithner, Bair and Treasury aides Sunday afternoon and then placed calls that evening to each CEO except Blankfein, according to the secretary’s daily activity log.

Birds of a feather flock together. Both Paulson and Bernanke have publicly denied this. Ooops. Obama has also stated Geithner has not been involved in much of these things. Ooops. Who stopped collecting FDIC premiums in the boom years? Now they are out of money. Ooops.

Zero Hedge also provides more into this at 'FOIA Disclosure Busts Paulson, Geithner And Bair'

I wanted to pen something regarding those betting on reflation and how I felt they were wrong.  Fortunately for me Leo Kolivakis wrote a very good article (posted at Naked Capitalism) explaining in great detail about money supply and velocity.

Required Reading:  Is Inflation Inevitable?

Jobs Contract 16th Straight Month; Unemployment Rate Soars to 8.9%

SPX closes at 929.23 on better than expect jobs number. Well, on the surface they look better. Back out the temporary census workers recently hired and you have -611K. More on that below. I mentioned a close above 925 in a previous post but the number actually is 930-935.  I'll repost the image here from a prior post 'Navigational Beacons'

The jobs number is misleading in that there is this magic BLS blackbox. Read what Mish has to say about it in 'Jobs Contract 16th Straight Month; Unemployment Rate Soars to 8.9%'

Ticker Guy also explains in 'Unemployment Fried-Day' why you can't believe the headline numbers and the constant better than expected babble.

Finally, Zero Hedge explains in 'The Real Memo Out Of The Bureau Of Lies And Statistics' how employment numbers seem to always come up better than expected at key market points.  Watch for revisions to today's number going forward.

Starting to look that way....Starting a swing trade position short EWZ, which is trading at 51 as of this posting.  Have a few of the June 48 PUTS , half to start as usual.  I wanted to wait until after the stressless tests as well as to get a look at the price action before totally committing to the trade.  She still can bump up to 52.50 .  I think if the market fails to close above 925 a pullback is in order.  We'll see how much exurberance is left out there.  With earnings and the drama surrounding the results the 'STRESS no one will fail' tests, I could certainly see how the bulls might be emotionally drained. 

Edit: Original post said the 47 strike, its the 48 strike... Sorry or any confusion.

So now we've seen these results using the more adverse scenario (right) for capital cushion requirements until the end of 2010.  Imagine what those figures would look like without the accounting rule change that magically created profits for the banks.  So what's the need for the PPIP program then?  I'll take a wild guess and say the couple trillion in off-balance sheet doo-doo was ignored under these tests?  Or, could it be the government used assumptions for offloading this garbage onto the taxpayer leveraged lending facility also known as the PPIP.  

Why is insider buying at the lowest levels ever when we are supposed to be seeing green shoots?  What is Bernanke still buying the long end of the curve to try to keep rates down if we have these green shoots?  What is the driver for earnings with so much debt overhang in the system and a consumer that will be deleveraging for two years.   All I'm seeing now is a lot of P and little E.  Sure there were a lot of beats this quarter, but that is only because the analysts lowballed most estimates after the egg on their face the previous Q.  The current valuation on stocks is quite rich.  

Lastly, the bulk o market participants have come to expect a moderate pullback with a rally through the summer.  When the bulk of the market starts to expect something you should start to prepare for the opposite.  That's not a call, just a warning that the pullback might not be so shallow.

For the time being keep eating those green shoots pictured above and you will hallucinate visions of Lincoln Navigators and Hummers.

4-May-2009 article in the WSJ:

The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.

During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy...

The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value.

This just out:

NEW YORK—The Federal Reserve Bank of New York announced today that Stephen Friedman, chairman of the board of directors of the New York Fed, has informed William C. Dudley, president and chief executive officer of the New York Fed, and the Board of Governors of his decision to resign effective immediately. 

Paging Cuomo, you got your ears on?  Resignation is a start, but I want more.

See Also: Fed Directors' Ties to Banks Spur Calls for Changes

And here is the final verdict.

After taking account of losses, revenues and reserve build requirements, in the aggregate, these firms need to add $185 billion to capital buffers to reach the target SCAP capital buffer at the end of 2010 under the more adverse scenario.

In other news, the banks will be needing an additional $800B in capital buffers.  Stress Tests v2 through v4?

Must take profit.  38 and change is a fibonacci level.

See: Position Update: NFLX

Bloomberg (boldface mine):

May 7 (Bloomberg) -- Federal regulators today unveil what Treasury Secretary Timothy Geithner said will be a “reassuring” picture of a U.S. banking system able to withstand whatever stresses the recession may inflict on it once a handful of institutions add to their capital base.

The only "stress" part of the test has always been to "stress" that we will let no one fail, which means they will never be said to be insolvent.  Again, the purpose of these shennanigans is to foster confidence in the system in order for the banks to be able to raise capital in the private market.  

I'm guessing a bunch of the "pass" banks will be rushing to do secondary offerings soon.

20,38,50 week simple moving averages shown 

At/Near resistance.

R1 is at 92.40 (also happens to be the 38wk sma above, which is what I use in weekly charts) and R2 93.60.   I have 83.60 as a retracement target after that (with several stops along the way, including the now solid 875 support).  Picked up some SPY June 87 PUTS today and added to the JOSB puts.  While they may squeeze my Charmin, but at this resistance point, being massively overbought in the daily and weekly and what looked to be a throwback rally signalling a short-term top...I'll take my chances here now that most everyone has been squeezed out.  There will likely be a few more squeezed on the way to 93.6 (SPY), but I'm okay easing in on a  few more names that I've been patiently waiting for to re-enter earth's atmosphere before shorting.  Long exposure has been cut considerably for the short-term.    The +XLE/-XRT pair trade is developing nicely so I will continue to ride that one.

Remember the Supplimental Liquidity program started was to provide fair market making, for liquidity purposes.  Zero Hedge points this out:

Goldman Sachs has hit a new trading profit record: in the past quarter the company generated over $100 million trading profit on an absolute record of 34 trading days, according to its 10-Q filed today. Not only that, but GS was profitable on 56 days in the quarter and lost money on only 8, meaning it was profitable 87.5% of the time trading in the last quarter (and this isn't even a weighted number). Notable is that the ratio of +$100MM days to -$100MM days in Q1 is 34 to 0. If one adds the orphan month of December, the $100 million+ days rise to 44, and Total Profitable Days rise to 70. The last record for GS was 28 $100MM+ days in Q1 2008. As all regulators' systems are based on statistical analysis, maybe this multiple sigma deviation event will finally set off some red flags.

We are playing in Goldman's House.  Making money on 87% of their trades doesn't sound like fair market making to me.  I'm guessing the 8 losing days they had were probably the only 8 down days we've had in the last 60.

Famous Words: "somewhat", "tenative", "may"

My Translation: Things aren't so hot, but we must paint a green shoot picture to gain support.. We know these green shoots will likely wither and become shrooms on cow dung.

Bernanke Warns `Relapse' in Banking System Would Stall Economic Recovery

My Translation: Don't fux with me.  If you give us any pushback we will play the economic recovery card.

"Lazlo Berini says so. Since the decline was 'X' days long and the rally is only on day 'N' and based on the trajectory we should reach 1400 by year's end."

Up cycle lasts as long as the down cycle? What about Sir Fibonacci? What if the upswing lasts only 1/3, 1/2 or 2/3rds the down cycle?** I can't rule out 1400 on the SPX but I can say if that happens GOLD will be at 2k. The only case I can make for equities going that high is in a bad case of inflation...when your purchasing power is cut in half...but hey your 401k doubled. Net change? But that's besides the point, inflation is still a WAYS away.

Some other tard furthered Lazlo's belief by saying 'There is tremendous opportunity if the economic indicators improve". Well no shit, Sherlock. If Frogs had wings . . . I'm pretty sure economic indicators will improve. We will see GDP overstated and unemployement understated. We'll see all sorts of "confidence boosters". Eventually things work themself out though. Keep a close look at average hours worked, number of full-time to part-time changes and other non-headline numbers.

I wonder if they chauffeur some of these guys in on the Short Bus...

**Edit: Fibonacci in this context is referring to "Time Cycles" and not retracements. Ie, the duration of the rally in totality.

What a massive jam job the fed has coordinated in the equity markets.  Equities will be in a bubble at 1000.  I say that without sarcasm.  Fins will  get bid up before this "stress test".  The stress tests that ignored the off-balance sheet toxins.  Wouldn't surprise me if the drama around the tests results arent staged as well to give the impressions the examiners are being tough.    They've did nothing but float up test baloons for weeks now. Postponing the results of the stress tests to dangle the carrot in front of the shorts face.  You don't think Goldman isn't aware of every technical aspect of the indexes, do you?  Remember, to them this has always been a crisis of confidence and not one of liquidity...They will go to any lengths to restore confidence without addressing the core problem.

I would love to see Goldman publish just how many orders they do on the buy side versus the sell side.   I'm guessing they will be excluded from the "fair market" rules.  GS is now responsible for more than half  the volume on the NYSE.  They are single-handily trading more shares than all the others combined.  Also, their overnight risk is at record levels.  Considering the GS and the US are basically the same  thing, I suspect Supplemental Liquidity Program is actually to supplement the banks.  Goldman is running over all the quant funds and the shorts, which creates further buying.   Question is, how long can they keep this up?  I've already said I suspected we'd squeeze straight to 912, and this is why.  It makes me sick to see our government attempt to misrepresent the state of both the banking industry and the economy in an attempt to further an agenda to transfer wealth from  the taxpayer to the banks.  This transfer can come directly from taxation, or from  losses a potential investor might incur due to this sham.  The bond market and precious metals aren't fortelling green shoots.

The NYSE report that Zero Hedge discussed shows Goldman Sachs trading over 1 billion shares in the principal program trading category. What the table doesn’t show, but a deeper look at the numbers reveals is that the vast majority of this total is trades by our quantitative trading desk. This desk is participating in a relatively new NYSE program called Supplemental Liquidity Providers. The NYSE started the program to attract liquidity to the exchange. As an SLP, this the desk makes markets in NYSE stocks. They often do high-frequency trading (which is simply auto-quote market making) where they send out hundreds of “baskets” of stocks at one time. Program trading, as defined by the NYSE report is any strategy that sends out a “basket” of 15+stocks at one time. I am happy to discuss this with you if that description doesn’t make sense.

Recommended Reading from Zero Hedge

Goldman Sachs Principal Transactions Update: 1 Billion SharesObservations On NYSE Program Trading

She's up nearly 20% since the start of the position.  Should find resistance at 35.80 .  Taking some profit on the Sept 45 calls just in case.  Avg Cost: 0.52 .  Asking 1.35 now.

See: Starting AMED - Amedisys

Would stop out over 46.

Previous Updates:

NFLX Update

 Selling down this position.  Now sits at 1/3rd original lot.  Will look to add on a pullback, if it ever does.  Usually when I sell out of a position it will keep running :)

Related Posts:

New Position - CLF

Position Update: CLF

Link: Minyanville Op-Ed: The Great Bank Swindle

I'm going to quote-a-quote in that article.  Dr. John Hussman writes: 

“That's what these bureaucrats want during their stint in government service, that's how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders. 

“...It's frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares, because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run.”

Thurgy reiterates 'Buy' rating on Gold.

Dennis Gartman bailed on Gold and says he's bearish on the yellow metal.  I've found myself on the opposite side of the trade once, which was written about in 'UBS sees $20 oil, $300 gold in 2009' and  'Gartman wtf?'  It was less than 30 days later when he was saying he is upping his target on gold as soon as it breached 1000, only to have it reverse.  Kass vs Gartman celebrity deathmatch anyone?

A failure of 880 and Gartman wins.  Otherwise get long and wait for him to turn bullish before looking to exit a trade.  Gartman also said for the first time we'll have deflation and inflation at the same time because wages are under deflationary pressure and now the threat of the costs of goods rising.  My definition could differ from his but that's stagflation, and we've had it before.  

Reasons I like the power play in gold here.

• We are entering the seasonally strong months in gold
• Gartman bailed
• I like the chart I posted here.
• Currency instability worldwide.  
• Protect purchasing power.
• China acquired a large portion sold by the IMF (China is in a dollar trap)
• Lots of bearish bets on Gold right now mostly for the wrong reasons.

Here are just a few of the quirks of trading Gold:

• Market goes up, Gold down...sometimes
  
• Market goes down, Gold down...sometimes.
  
• Central bank dumps mega-tones, Gold goes down...sometimes.
  
• Central bank says something, currency moves, Gold moves.
  
• Nobody know wtf is going on, Gold goes up.
  
• All is well, Gold drops off like a prom dress.
  
• Gold moves, currency moves. Currency moves, Gold moves.

Trading Ideas

I prefer to trade gold in the futures market but there are GLD, GDX (Gold miners), UGL (Ultralong) etc... 

I have no problems being wrong or looking foolish with this call.  I have ideas behind the trade as opposed to listening to someone on TV.  But then again blaming the TV for bad trades sounds reasonable.

Edit: The only difference between my stance then (post linked above) and now is that I'm not been short of oil for months.