Sep

25

Market Toolbox Blog POMO, SPY, Gold and Silver…What Just Happened?

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Did you read last weekends blog post? Wow. I just re-read it and within the context of what actually transpired, It seemed extraordinarily prescient.

Here’s the quote from last weekend:

“as I’ve been saying this week, I still wouldn’t rule out a “blowoff top” into the yellow box.”

After seeing the action last week, I would like to expound on that concept and suggest that perhaps that “zone” might just be a resting place on the way to the real blow-off top.”

But it’s this statement I made one week ago tonight on this blog that really got me”

 “It almost seems like some “entity” wants to run this market up, force the shorts to capitulate, suck in as much new money as possible, then pull the rug out from under it. They still might have some tricks up their sleeve.”

That was the statement that shocked me when I re-read it, as I did not know about POMO until this week, wow.

We did indeed move into the “yellow box” as you will see on the chart in a minute, but first let’s explore why the market might have been so strong last week.

Let’s look at POMO.

A fairly new acronym has been introduced to the market landscape called POMO. If you already know about POMO, give yourself a pat on the back, you are on top of your game. We have heard speculation that last weeks market rise, and perhaps a lot of this recent strength and market run-up is due to POMO.

For those that aren’t sure what POMO is:

POMO – Permanent Open Market Operations, the Fed lends money into the banking system for the express purpose of supporting the stock market.

The “whisper” is that this money finds it’s way into the stock market, in a leveraged fashion, quickly and creates demand for stocks, driving up the market. It’s essentially the FED propping up the market for various and perhaps nefarious reasons.

 

Global Perspectives summed it up in an interesting way:

“The Fed just completed today’s POMO. The result: $3.9 billion in debt monetized, and swiftly used by the PDs to force the Ponzi ramp to new ludicrous heights. This brings the weekly high beta stock liquidity injection courtesy of Brian Sack to just under $12 billion. After all gotta get the sheeple in: otherwise what greater fool will the HFTs and insiders sell their holdings at ever higher cost bases to? Also, the Fed is just oh so generous: the submitted to accepted ratio was the lowest during the entire QE Lite episode so far. Even banks are not all that confident they can convert the “sure money” from USTs into risk free return in a 1,000,000 PE Amazon.”

International Forecaster has an interesting take:

“As quantitative easing again gets underway the failure of QE1 becomes more obvious. The crisis worsens and the illusion of any recovery is light years away. Over the past three years almost $13 trillion that we know about has been thrown down a rat hole to bail out banking, Wall Street, insurance and selected elitist entities. The dollar figure is probably much higher. We will never know, because the privately owned Federal Reserve makes its own rules. Everything they do is a state secret. The five successful quarters were only a mirage. The funds have been vaporized among lending and financial institutions worldwide. There has been no accounting and there never will be as long as the Fed is not audited and investigated. We are in an inflationary depression and have been since February 2009. Massive injections of liquidity do not work, nor have they worked for centuries under these conditions. You cannot resurrect an insolvent country in a system that is corrupt. The controllers of the US economy are about to lead the American economy and financial structure into a great dark pit. The US and the world is soon to face a global breakdown deliberately engineered by the forces of darkness.” more…

 

ZeroHedge has been keeping track of POMO (the comments are priceless):

http://www.zerohedge.com/article/feds-almost-daily-pomo-market-intervention-process

 

So with all that in mind, the saying “don’t fight the tape” comes to mind. Or was it “Don’t fight the FED”? Anyway my point now is that we did not cross below the 200-day moving average last week so “The time to get short is with a close or two below the 200-day moving average.” did not transpire, hence we did not get the “confirmation” we discussed last week and we did not get faked out at all.

Getting back to the chart, we can take this new information into account and reassess where we are.

 

While the yellow box is in the same place as last weeks chart, I have added the green box as a potential trading zone given POMO. I moved the red box to the right and updated the extended 200-day moving average. (By the way,  you see how the “yellow box” lies right in the “shoulder zone’ )

 

spyw9252010

 

And I thought we were at a critical juncture last week…haha. Next week is a coin flip. The market could just as easily “ramp up” and start a “March-April” run as it could “flash crash”

I’m simply going to watch my 3 boxes here and see how what “they” have planned plays out. My gut and my brain tells me the market should be in or headed for the red box, but my eyeballs and my research on POMO tell me that the “blow-off top” I spoke of may carry a bit further. By the way, a perfectly symmetrical Head and shoulders pattern is rare, but I expect to hear the term “right shoulder” get tossed around a lot next week.

Here’s the good news. We can still make money trading stocks. Last week we closed a couple more winning Trade Plans and we still have ENDP open, currently above Target 2.

While we took a quick and profitable trade in BGZ last week, for the time being it might not be wise to press our luck with the shorting ETF’s next week. As much as I think the market is due for a pullback, what I see is momentum, and we won’t fight the tape. Our swing trades have been excellent this month and we will continue to be very selective. Right now our goal is to continue with these quick 5% gain trades and suggest cashing in at Target 2 on all Trade Plans for now. In this environment, most traders should look at a winning series of  quick 5% gains as respectable.

We generally suggest taking partial profits at Target 1 and partial partial profits at T2, but “near the top of the cycle”, holding anything for T3 is risky. If you are risk-averse right now, consider selling the entire position at T1. You will be in and out quickly with a small locked-in profit and 72% of our last 194 trades hit T1.

What can I say about gold and silver that I haven’t already said? Hmm…well I guess I should repeat this for anyone that hasn’t been with us the past 10 years. Silver is and has been our #1 investment theme this whole time. While it is likely to pullback or get “taken down” in the near-term, it still represents the best “long-term investment” opportunity out there. I wanted to repeat myself for new Members. Once you have too much physical silver to pick up and carry, consider slowly accumulating gold at key technical levels (pullbacks).

The last time I published the weekly GLD chart on this blog was August, 9th. Here’s what we said at the time.

“Gold is in a long-term uptrend as you see on the weekly chart below and is bouncing off the lower end of the channel. GLD is also near a critical juncture with a bit of overhead resistance, but only a stones-throw from a new all time high in nominal dollars. We think it will continue up the channel and move into the green box this fall.”

Here’s the chart when we wrote that:

gld872010

Here is the current chart:

gldw9252010

 

At this point GLD seems somewhat extended, but so does everything else. With gold moving up along with stocks, I can’t help but think when the market pulls back or rolls over, it will take gold and the gold stocks right along with it, but someday, down the road they will “decouple”. We will be watching closely for you.

If you think “gold is in a bubble” as many “professionals” say, stand outside your local grocery store and ask everyone how much gold and silver bullion they have stashed away. In the big scheme of things, no one owns gold, (I have heard 2%) and most regular “folks” sold their gold to the “send in your old jewelry” at much lower prices. Heck they have these “sell your gold” stores at the mall now! What a clever way to take the gold and silver from average citizens and get it off the streets before it goes to infinity.Who knows, maybe an orchestrated “intervention” to take it down and scare as much as they can out first. Nothing surprises me anymore.

 

Anyway the point is that the foundation of the “liquidity pyramid” is built on a base of gold. So should your investment pyramid.

 

Exter liquidity pyramid

 

Join us Monday morning live in the Research Lab as we make fools of ourselves gambling in the casino, while we know the “game is rigged”.

After all, we still chase those fiatscos since we can exchange them for all the things we want and need (like an awesome shrimp po’boy today). They serve their purpose well as a handy medium of exchange indeed. But true wealth, as we know, is not printed on pieces of paper.

Cheers!

 

RL1t
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