Thursday, February 14, 2008
Mad Dogs and Congressmen
by David Yu
I didn't even know this site had been down till I tried to publish my Wednesday update late last night. I had shot 2 emails over to my ISP, but I've yet to hear from anyone. I'm sorry for the inconvenience. I had to scratch my Wednesday's work and started all over again.
Anyway, short-term trend continues to show weaknesses since my February 4 update. But, before we revisit my intraday composite technical indicators chart. I'd like to show you what had turned this avid baseball fan off.
Online poll conducted by ESPN (Chart 1) after the Congressional hearing of Roger 'The Rocket' Clemens' alleged steroid use shows that nearly 80% of the voters felt Clemens' then trainer, Brian McNamee, to be more believable. About 60% of the voters believed Clemens's guilty, notwithstanding the congressional hearing. And, almost 70% of the voters thought that The Rocket should be indicted on perjury.
Chart 1
My personal feelings imitate that of the general consensus. Once the integrity of the game's in question, the passion for the game is now replaced with cynicism. And, that makes it impossible to get excited watching Barry Bonds' homer parade.
Here's the final note on the hearing from this political junkie's perspective. It's intriguing to note that the Republican committee members had chosen to defend Roger Clemens. How did that happen? How did the Republicans collectively decide, once again since the war in Iraq, to go on the unpopular side? Indiana Republican Congressman, Dan Burton's belligerent red-in-the-face personal attack on McNamee marked the highlight of the show. Why?! One of McNamee’s lawyers, Earl Ward, called it a “public flogging.”
Alright, enough of these two mad dogs and Congressmen. Let's get back to the market.
This intraday chart was one of the charts (Chart 2) that I had prepared for yesterday's update that never got posted due to problems with my website. It's rare that the market showed no attempt to narrow the gap between the Nasdaq's Up Volume and the Nasdaq Trin Index, as it did per my 2/10/2008 chart. This shows tremendous buying pressure throughout the day as far as the price was concerned. However, from this market contrarian's perspective, this was a display of imminent hazard. The narrowing of the gap throughout the day represents the safety valve that lets out the steam when the market's overheated.
The buying had gathered so much steam yesterday with no release from the narrowing of the gap that an explosion was almost a foregone statistical conclusion. And, so it did today. The blame might've been placed on Bernanke's congressional testimony today or the UBS' further writedown, but it's merely a technical reaction to me.
Chart 2
Armed with this info, I went ahead and wrote some QLD (Ultra Long QQQQ ProShares) March $80 call options in the last minute of yesterday's trading session for $2.30 (see order ledger below). They're priced at $1.50 today -- a quick 53% gains when I buy them back to close.
But yesterday's blow-off was just the culmination of the technical process that all started in early February. This was the chart (Chart 3) that I shared with you on 2/4/2008 when I mentioned that the market appeared over-extended as the fast line of my Intraday Indicators Composite Index surged into the overbought territory.
Chart 3
This is what happened after that (see Chart 4 below). Both lines have turned lower since then just like clock work. One thing worth noting is the gap between the red and blue lines. Statistical reversion or correction always takes place when the fast line ran too far away from the slow line (blue line). Such is the case now as it was two weeks ago when the fast line ran up and away from the slow line.
Chart 4
While the short-term picture continues to show signs of weaknesses, the longer term picture still indicates January 23 as the bottom. We'll stick to that till the market tells us otherwise. This January 23 bottom, coincidentally, was also flagged by the sudden surge in the Fed's money supply. For the week ended 1/21/2008, M2 money supply increased $50.7 billion from the prior week. That was the largest increase that I've ever seen for quite sometime. Another $72 billion was added over the next two weeks. Three straight weeks of extraordinary liquidity injection appeared to have reversed recent money supply downtrend that had started a year ago (see Chart 5 below).
Chart 5
This explains why members of the Fed had been expressing concerns over inflation of late. Nevertheless, the Fed's determination to re-inflate the system had been clearly demonstrated through recent liquidity pump. The liquidity will sooner or later find its way to the financial markets. This is one of the reasons I suspect that the market would go down at all, as predicted by most "experts", this year. And, then there's the Chinese Zodiac Cycle, by all means.
That's all, folks. There will be no writing this weekend. I'm wishing all of you a stress-free, relaxing weekend.
email: dyuguard-2@yahoo.com