Tuesday, October 21, 2008

I think the worst is over

I think the worst is overSocialTwist Tell-a-Friend
Fari Hamzei

Last Wednesday thru Friday, NDX $wPut/Call Ratio hit 4.6, 5.9 & 40+ on huge $wVolume ($700M, $2.4B and $7.4B, respectively). That is a lot of put buying by the institutions (NDX options are NOT for mom & pop traders, even at normal vol levels (VXN stayed above 60 last week)). The last time we saw these $wPCR levels for NDX, it was during the 2001-2002 dotcom debacle.

For those of you who remember my calls on CNBC back then, the readings at these levels for NDX are very bullish 1 to 3 days forward. We should expect 100 pt move in NDX in 3 days (registered 41+ today) which means, most likely, the AAPL earnings report tomorrow after the close, will be viewed very favorably.

In addition, a major perma bear threw in the towel today, LIBOR had eased off overnight and US short-term interest rates went up. In the last hour, there was a lot of mutual fund buying today. This is all good for equities.

Bottom Line: The chance of revisiting the Oct lows is now highly diminished albeit not zero.

Friday, October 17, 2008

Warren Buffett has been buying here

Warren Buffett has been buying hereSocialTwist Tell-a-Friend
Fari Hamzei

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."

from http://www.nytimes.com/2008/10/17/opinion/17buffett.html

China is closed right now. This news will get more exposure over the weekend. Stay LONG !!!!

We like DDM, MOS, KBR, JPM, GS, MS, GE, DD, HIG, HPQ, QQQQ and SPY here.

Reg FD: We have established, for some of our affiliates (family and friends), long positions in the above names in the last two weeks for a long term hold (with no use of margin or leverage).

Saturday, October 11, 2008

What History Tells Us About the Market

What History Tells Us About the MarketSocialTwist Tell-a-Friend
Fari Hamzei

http://online.wsj.com/article/SB122368241652024977.html

Friday, October 10, 2008

Food for Thought for this Chapter of our Journey Together

Food for Thought for this Chapter of our Journey TogetherSocialTwist Tell-a-Friend
Fari Hamzei

http://faithhopeandfiction.com/blog/comments.php?no=203

Friday, September 26, 2008

Comments for Timer Digest as of Friday, September 26, 2008

Comments for Timer Digest as of Friday, September 26, 2008SocialTwist Tell-a-Friend
Fari Hamzei

As I sat down to write the commentary for today, Friday, September 26—given what we have gone through in these tumultuous past two weeks—I recalled the words of wisdom of a respected colleague and good friend. These words were bestowed on us as the first salvo in the first chapter of Master Traders by none other than one of the greatest market tacticians in recent years, Jeff deGraaf, CMT, CFA, formerly of Lehman Brothers.

"In the market, arrogance without fear will eventually break you. Fear without arrogance will leave you paralyzed at the most inopportune time. The delicate balance of fear and arrogance fosters appropriate aggressiveness without the recklessness."

As Washington continues to bicker over the fate of our frozen credit markets, while investors worldwide hold their breath, and with Presidential and Congressional elections in less than 40 days, I see our forward near-term game shaping up as a binary trade, with a 1 or 0 outcome. Since the ZERO outcome is not acceptable to our way of life in this great nation, we will march forward with a strong LONG BIAS. Our markets are eager to ratchet up as soon as the Proposed Treasury Authority to Purchase Troubled Assets is approved by both houses of the Congress and the news hits the wires.

For this play, we prefer the financials, capital goods, technology and consumer cyclicals.

Saturday, September 20, 2008

My Market Timing Comments for Timer Digest as of Friday, September 19, 2008

My Market Timing Comments for Timer Digest as of Friday, September 19, 2008SocialTwist Tell-a-Friend
Fari Hamzei

Last week, we experienced an extremely oversold market that led to a classic capitulation as our global financial system shook to its core. This was telegraphed by very high “new lows” readings, high “down-volume to up-volume ratio” readings, and also very high VXO and VXN readings (based on our Sigma Channels patterns). Sunday marks the Fall Equinox. As I have written every year, within +/- 2 days, Fall Equinox often marks a key reversal for the markets—in this case, mostly likely to the upside.

Comrade Paulson (who was just awarded his second Order of Lenin Medal for his Thursday Night Massacre of Net Short Hedge Funds) and Uncle Ben timed the US Government's $700+ Billion taxpayer (read: poor) bailout of our investment banks (read: super rich) extremely well—just hours ahead of expirations of September Equity Index Futures and European-style Equity Index Options. (Seriously, I consider this a brilliant move that truly did save the integrity of our equity and credit markets and, perhaps, Capitalism as well, from a meltdown).

For the next two weeks, we suggest that you stay the course and keep your longs in tact. We expect a "local" peak around Oct 2nd / 3rd and a "local" trough by Election time (Nov 4th).

Thursday, September 18, 2008

Implications of Gold's Rise Relative to Oil

Implications of Gold's Rise Relative to OilSocialTwist Tell-a-Friend
Ashraf Laidi

Over the past 8 weeks, we alerted clients that the gold/oil ratio would continue to recover from its July record lows as oil begins to underperform gold. The latter would recover as the dollar drops on deteriorating macroeconomic fundamentals and further erosion in financial markets, thus, triggering re-emerging expectations of Fed cuts. Ever since the gold-oil ratio bottomed to a record low of 5.8 in July-courtesy of soaring oil prices relative to gold, the rebound was inevitable, especially as the ratio was well below its 37-year monthly average of 13.0 (see dotted horizontal line).

The latest jump in gold oil prices to a 5-week high of $895 per ounce and the simultaneous dip in oil prices below $92 per barrel is consistent with the aforementioned analysis. The chart below shows each time the gold/oil ratio had bottomed, a rebound was accompanied with a US recession, Fed easing and dollar weakness (accompanied by rising gold). In fact, since 1972, each of the last five U.S. recessions was preceded by 20-30% declines in the gold-oil ratio from its most recent highs. (See attached file )

RATIONALE
During economic expansions, rising demand for industrial metals and energy boosts both oil and gold prices, thus leading to a rising or steady gold-oil ratio. But when substantial advances in oil are the result of supply factors (political risk, wars, acts of god, labor union action, OPEC action/rhetoric, refinery shutdowns and falling inventories), oil prices tend to overshoot, clearly outpacing any gains in gold in relative terms, producing cost and inflationary repercussions for importers and consumers.

The chart shows how bottoms in the gold/oil ratio (shaded areas) were followed by declining or contracting GDP growth. In each of those cases, the Fed was obliged to cut rates and the dollar sustained fresh damage.




1973-75 Recession
1974 quadrupling of oil prices triggered sharp run-ups in US gasoline prices and a subsequent halt in consumer demand. Resulting USD drop pushed gold up by 15%. But faster oil appreciation dragged down gold-oil ratio from a high of 34.0 in July 1973 to 23.2 in October of the same year, before extending its fall to12.2 in January 1974. By 1974-75, the U.S. and the major industrialized economies had fallen into recession.

1980-82 Recession
Tumbling dollar and record oil main culprits to the 1980-82 recession. Gold-oil ratio dropped from 15.3 in January 1979 to 11.4 in August 1979 due to a doubling in oil to $29 and a more modest 30% increase in gold.

The 1977-79 dollar crisis forced OPEC to further hike prices to offset FX value of oil revenues. Iran revolution endangered oil supplies, thus ensued a 200% increase in oil between 1979 and 1980, giving rise to the second oil shock within less than 10 years.

The Gold-oil ratio fell anew from early 1981 to mid 1982 as oil remained around the mid $30s while gold plummeted from the $830s territory to $400 on waning impact of Soviet-Afghan. In summer 1981, the gold-oil ratio dipped to a 4-year low of 11.4 amid plummeting gold and stable oil, then onto 9.0 in Summer 1982, in line with the deepening 1981 recession which extended into mid 1982.

1985- 86 Slowdown
In autumn 1985, the gold-oil ratio bottomed at 10.6 from its 16.9 high in February 1983 due to relative stability in gold & oil. 35% decline in gold-oil ratio proved successful in signaling the 1985-1986 slowdown and resulting Fed rate cuts in February-July 1986.
Unlike in prior cases of falling gold-oil ratios, GDP growth avoided a contraction partly due to the offsetting positive effects of 1986 oil price collapse following OPECs flooding of oil.
The same idea applied for the recessions of 1990-91, 2001-2 and the current slowdown which has yet to called a recession.

MORE DETAIL ON HOW THE GOLD/OIL RATIO IS USED CAN BE FOUND IN CHAPTERS 6 AND 9 OF MY BOOK.

Tuesday, September 16, 2008

Confluence of Dollar Top

Confluence of Dollar TopSocialTwist Tell-a-Friend
Ashraf Laidi

Risk aversion is increasing looking like a pendulum swinging violently, with both extremes signifying heightened fear, with the lowest point of the pendulum reflecting short-lived reductions in aversion. Barclays announcement to reject the purchase of Lehman, the confirmed bankruptcy of Lehman and Merrill Lynchs announcement to sell itself to Bank of America each signified a rapid reduction in risk, which was principally guided by broad dollar declines and yen rallies. Temporary relief in volatility and risk aversion were triggered by announcements from a group of international banks forming a $50 bln fund to save help troubled banks.

Careful with FIFO Analysis on Currencies
A major fundamental argument sustaining the prior dollar rally was that of First-In-First Out (FIFO), supporting the hypothesis of the US recovering earlier than Europe because it had preceded it in entering the global slowdown and has delivered more aggressive fiscal and monetary measures than the old continent. While this notion is partially true, it overlooks the fact the impaired US banking capital and broadening credit woes (in interbank market and hedge funds) are the main factors distinguishing the US challenges from those in continental Europe. Stated differently, the Eurozone patients may have joined the global intensive care unit well after the U.S., but it in no way suggests that their condition is more critical than that of the U.S. Consequently, the collapse of Fannie/Freddie and Lehman, and near collapse of Merrill Lynch exemplify the repercussion on the increasingly fragile consumer fabric and employment foundation. The argument for Fed rate cuts is not only aimed at shoring up liquidity or inter-bank confidence, but adding from what remains of the Feds firepower to the ailing economy.

A Cut in the Discount Rate or Fed Funds?
As in August 2007, the Fed may be expected to try markets reactions with a rate cut in the discount rate rather than in the Fed funds rate to further increase banks access to the feds lending window. The discount rate currently stands 25-bps above the 2.00% Fed funds rate, half than where it was before the beginning of the easing campaign last August. At a time when the Fed has tripled the period of term loans to banks and expanded the range of loans it could buy from banks, it only makes sense to lower the discount rate down to the Fed funds level. The Fed's inflation priorities are now largely overwhelmed by their obligation to save the financial system as well as the economy.



Since June, I have been predicting that the next interest rate change will be down than up, compare to majority of pundits who had expected rate hike. Here are the articles June 27 and June 18 .

Planet Alignment for a Dollar Top?
The charts below show confluence of macro forces acting to halt the dollar rally. US dollar index gives way at the 3-year trend line resistance of 80.70, while EURUSD stabilized last week at the major support of $1.3877, which is near the 3-year trend line (blue line) and 50% retracement of the rise from the $1.1638 low (Nov 2005) to the record high of $1.6036. Similarly, oil's decline has yet to breach the $98.66 support, which is the trend line support from the January 2006 low. Gold shows to have bottomed at $745, which is just above the key support of $730 support (previous resistance in May 2006) and the 50% retracement of the rise from the March 2005 low to this years fecord high.

The fundamental underpinning of these chart formations is emerging from the latest woes in Wall Street and from a possible reduction in the dollars yield foundation in the discount rate. We continue to expect 50 bps in the fed funds rate, with the most plausible scenario occurring between Tuesdays FOMC meeting and the October meeting. But we are not yet ready to pronounce the end of the dollars upward correction due to what may occur in European banks ties to Lehman as well as the macroeconomic weakness in the continent.

CHF and JPY continue to outperform across the board, especially against the wobbly USD and GBP. USDJPY seen capped at 106.20, with pressure pulling back towards 105.20 and 104.80. USDCHF eyes 1.1160, EURCHF eyes 1.5850, AUDJPY capped at 86.20, eyes 84.60 and 84.20.




Friday, September 12, 2008

Comments for Timer Digest as of Friday, September 12, 2008

Comments for Timer Digest as of Friday, September 12, 2008SocialTwist Tell-a-Friend
Fari Hamzei


Last Wednesday (before the close) we wrote you the following:

all eyes are on LEH ..... Fed will stand ready to protect the 4th largest investment bank as Treasury stepped in to protect the housing market (by buying 80% of FNM & FRE) last Sunday.

STAY LONG for now...



as of the Close today, very little has changed:

LEH will be sold in an orderly manner, most probably to the BAC-led group. LEH does not have a liquidity crunch like BSC did back in March. GM & F (and Chrysler) will be helped out too with retooling loans. As I wrote to you a few weeks back, it is election time and the politicians will have no other choice but to push to the right our Economy's structural problems and past the November Elections.

With Housing (Mortgages) and Autos [temporarily] fixed (but not cleaned up, and more like, band-aided for now), the market should get less risk averse in the coming weeks.

For now CONTINUE to STAY LONG......

Have a great weekend.....

Go Chicago Cubs !!!!

Monday, September 8, 2008

Notice of Change of Bias

Notice of Change of BiasSocialTwist Tell-a-Friend
Fari Hamzei


From: Hamzei Analytics LLC Admin [mailto:Admin@HamzeiAnalytics.com]
Sent: Monday, September 08, 2008 7:31 AM
To: MSA (M_S_A@HamzeiAnalytics.com)
Subject: Notice of Our Change of Bias

This morning Timer Digest has confirmed our Change of Bias as of Sunday afternoon ~ 3 pm EDT.

F



From: Timerdiges@aol.com [mailto:Timerdiges@aol.com]
Sent: Monday, September 08, 2008 6:07 AM
To: Fari@HamzeiAnalytics.com
Subject: Re: URGENT>>> how late can I change my bias today (Sunday) on SPX Short I put on August 22nd ???

September 8, 2008

Fari

We will log your S&P 500 Buy signal as of the 09/05/08 close, but confirm that this is what you want to do.

Technically you have until 4:00 AM ET to receive the previous market close.

Thank,

Jim


In a message dated 9/7/2008 3:04:10 P.M. Eastern Daylight Time, Fari@HamzeiAnalytics.com writes:

From: Fari Hamzei [mailto:Fari@HamzeiAnalytics.com]
Sent: Sunday, September 07, 2008 2:04 PM
To: Jim Schmidt (Timerdiges@aol.com)
Subject: URGENT>>> how late can I change my bias today (Sunday) on SPX Short I put on Aug 22nd ???

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