September 23, 2008

One point I think was not made forcefully enough if at all is how unaware all the Wall Street firms (including supposedly supernaturally aware Goldman) were of their dire predicament. Cognitive impairment of the highest order.

As always, one of the best analyses out there comes from those "crazy liberals" over at the New Yorker (best weekly mag bar none in my opinion). James Surowiecki notes that "Considering that Wall Street firms spend all day dealing with the market, they have been slow to understand just how vulnerable they were to it. Companies like Lehman and, earlier, Bear Stearns saw going public as an excuse to take on more risk and act more recklessly, when in fact becoming a public company makes caution more important, since the margin for error is smaller, and the punishment for failure swifter."

I remember fairly well the whole debate in the late 90s about Goldman going public. Resistance from the older partners and particularly the retired ones was fierce and while most of it might have had some not so noble motives (fear of change, fear of losing control and influence, etc...), some of it was spurred by the old timers' well-founded fear that just what happened the past few months would happen.

September 22, 2008

The Ban

It seems to me banning short-selling would only delay the bottoming process if not derail it altogether. One bottoming scenario I can think of is the kind where we stay in a range for a while with false breakouts and false breakdowns and people playing the range. Enough shorts get trapped that a final attempt forces them to cover and spurs a rally that completes the bottoming process. That kind of scenario can't happen if there are no shorts.

September 18, 2008

Gold

So many historical things are happening this week that gold's historical move yesterday was not given proper attention. This monster one-day 11% rise in GLD, the gold ETF, on 5 times the average daily volume speaks to the pure panic gripping the financial markets right now.

On a very much related note, this is Barney Frank sharing a conversation he'd apparently just had with Ben Bernanke:

“I asked the chairman if he had $85 billion to bestow in this way. He said ‘I have $800 billion.’ ”
“No one in a democracy unelected should have $800 billion to dispense as he sees fit,” Mr. Frank said. (New York Times Online 09/18/2008)

This boast by Bernanke makes me (and apparently all those gold buyers) a little nervous.


September 16, 2008

Now That's Engulfing!

As I've probably mentioned in a previous post, the engulfing pattern is one of the most powerful candlestick patterns.

What we have here is a massive bullish engulfing pattern on XLF, the financial ETF. It happened on extremely high volume and we're still comfortably above the low (16.77) established in July so this could be what I would call a tradable bottom for now. Show we break last week's intermediate high just below 24 and the 200-day moving average (now at 24.83), we could start calling it something else.

September 12, 2008

Miners Anyone?

This is one ugly-looking chart (for longs, that is).
GDX, the gold miners ETF, has been destroyed 52% from an intraday high of 56.87 reached on 03/14/2008 to an intraday low of 27.35 witnessed yesterday. Obviously, trying to call a bottom here would be akin to catching the proverbial falling knife (or falling safe depending on which version you prefer).

However, the adventurous soul could do much worse than start building a long-term position, add to one or simply go for a quick rebound at these price levels. Why? Well, just because, as incredible as it may seem and as wrong as I might be proven, I am seeing a few bullish signs in this chart.

First, GDX has seen some monster relative volume the past few days, potentially indicating some type of capitulation.

Second, we have a classic RSI bullish divergence, i.e. a new low in the stock that does not lead to a new low in the 14-day RSI.

Third, and purists could fault me for mixing my Technical Analysis schools as one mixes their metaphors, from an Elliott Wave viewpoint, it looks to me like we've completed wave 5 of an ABC correction.