Saturday, September 19, 2009

S&P Technicals and a few thoughts

I haven't been able to make much sense of the market recently but today I found something that was interesting regarding the technicals.

Check out this trader who is one of the big S&P players in the pits. He explains that the market is looking to roar back up to S&P 1100 in order to fill a gap from last Sept. when the market collapsed.

I thought this was some excellent insight:




My take:

I haven't seen the market this bullish in a long time. This is very often followed by a large correction. Everyone now thinks the recession is over. We all know this is utter horse****.

The news continues to get worse. Everywhere I go right now whether it be a restaurant, a retail store, or a bar is completely empty. As far as I am concerned, we are in a depression right now as we speak. I had a cab driver in the city tell me that he routinely made $400 on an average Saturday night a few years ago. He said today he is lucky if he makes $150.

I see nobody out anywhere! It actually creeps me out. Sometimes I feel like Will Smith from that movie "I am Legend" where the world gets wiped out by a massive plague.

Speaking of spooky: There is now some frightening data out there showing that the delinquency rates on FHA loans is now over 20%. It appears to me that FHA is nothing more then another Freddie/Fannie housing bubble.

Folks, you can't expect people to pay loans back when they only put 3% down. Most of these buyers have no business owning a house. They are renters disguised as home buyers!

I wouldn't even think of buying a house until this Ponzi lending goes back to "old school" standards which is 20% down with a DTI(debt to income) of 36% or less. When FHA blows up(and based on these delinquency rates it most assuredly will) I believe you will finally see lending get back to where it needs to be.

The problem is when this FHA blowup finally occurs, housing prices will once again plummet because who has 20% to put down on a house? Just about 20% of this country isn't working! Many can't even afford to put food on the table right now!

In the bubble areas many homes still sell for 500k in the nice burbs. Who in the hell has 100k to drop on a down payment for one of these crapbox McMansions at a time in which the economy is imploding?

Higher end housing is totally screwed. Jumbo loans are now unaffordable in this new world of higher interest rates for large loans. The banks don't want to lend huge sums of money, period! The risk for losses is simply too high!

The Bottom Line

Will 1100 be the level where stocks roll over? I really have no idea right now. I like the above trader's premise though. I'll be honest: I can't invest long or short when I don't understand what the market is doing. I can remember Warren Buffet saying the exact thing about tech stocks. He avoided the whole sector because he didn't understand it.

In the long run this was a very prudent and wise decision. The one thing that I do know is that the dollar is collapsing because we are carrying trillions in debt. I will stay in metals in order to protect myself from a potential collapse in the dollar.

Could the Fed raise rates in order to prop up the dollar? Yes, but they will destroy housing and the rest of the economy in the process. I don't think the Fed has the balls to do this.

If they do then gold and silver could get crushed. The odds in my view are that the gutless Fed will do nothing and continue to keep this debt bubble propped up.

If I see signs of this changing, I will sell off some of my metal protection and take some profits. For the most part I sit here in cash and bonds until things make sense.

In general my take on the economy is this: I am VERY scared. I am starting to see no way out without severe pain.

12 comments:

John Maynes said...

The FED can't make any good choices any more. They sit between shit and crap to bend a common proverb. If they keep letting the USD fall they make gas more expensive. No economic recovery with $4.20 a gallon. If they raise rates to make the USD more attractive it'll be the same story. I think they won't let the USD fall to a point where there is no technical support. We are at this point almost. So it's hard to say what will come next. All we know is that the long-term outcome will be very devastating for the US.

Anonymous said...

Your right,I'm a Inductrial electrician trained in High Voltage(12,500v+),PLC's Drives, Motion,Robots,CNC's and more,at places like GE ABB Fanuic and more.Last year used to get calls for Headhunters 3 times a week.Now they don't call back.Layed-off on unemployment now I don't see it coming to an end.One big Wall Street pump and dump,Waiting to short the S__T out of this pump job.Fall back to 950-975 for one more short squeeze,run-up then a big brown shoot crapper.
PS.Watch the 3X inverce etf they will be rockrt shots,the players have then so shorted.Check out the volume on SRS with the roll over friday

Anonymous said...

one more thing Unemployment is not ending.The Government knows one thing

HUNGRY PEOPLE RIOT

Jeff said...

John
Yup

The fed has painted themselves into a corner. We are all pretty screwed at this point.

Jeff said...

Anon

I am sorry to hear about your situation. I wish the best of luck with finding a job. Its frightening right now in the corporate world.

I also see the market playing out the same way. We get one pullback here that the bulls will look at as a buying opportunty. We then bounce as a result before stocks plunge into the abyss.

CT-Hilltopper said...

I see a deflaationary collapse in things that we own that we used to count on to make us seem more prosperous (housing, things like that).

I see inflation in energy due to the collapse of the dollar. Probably food prices too.

There just isn't a way to come out of this well.

bdrube said...

Excellent post. We've been in this maddening holding pattern since the spring and it is becoming very wearying. The worst part is that I see people around me making what I know are bad financial decisons based upon expectations of a complete recovery.

The propect of the next crash is indeed very scary, but at least if it comes quickly it will help prevent even more bad decisions from being made.

getyourselfconnected said...

Jeff,
notice the IMF selling 1/8th of their gold to fund "operations" or whatever. Gold and silver are now being called back in real delivery, who knows where it ends.

PS,
you have mail and I thank you for checking in. It is not a good time for me.

Jeff said...

Bdrube

Thanks.

I think a lot of traders are frustrated with the price action recently.

It's hard to make money trading when the market is filled with so much fraud.

I spoke with a source I have in lending that shared some ugly numbers around FHA/Freddie today.

Things are bad and getting worse. I should have a post up on it tomorrow.

Anonymous said...

Hey Jeff:

Is there an abnormal amount of short interest in the broad markets today or on Monday? I heard a disturbing rumor, not worth mentioning just yet...

thanks..

Jeff said...

Anon

Haven't heard that. It wouldn't surprise me though.

If I see anything I will let you know.

Anonymous said...

I agree with the technician, my theory is that the market will reach Dow 10K, everyone will cheer and then a slow unsuspecting descent down as real economic data sinks in.