September 24, 2011
Market Letter & Charts
Allocation Monday Sept. 26, pre-opening
It was just a week ago that we reversed our long positions for a highly opportunistic ”trade”. Thanks to Bernanke’s Twisted operation it became exaggerated and highly rewarding. On Thursday we sold our inverse positions, taking advantage of their “gap-up” opening, and bought back “long positions” which concurrently gapped down, near the low.
In the Daily S&P graph below you can see that this is the second Diag > that comprises wave iv of the larger Diag II.
As you see the minimum upside is just below 1340, which marks the first touch point of the uppermost Diag >.
We might still expect a third & final Diag > before a likely SPIKE to complete the upside. While the much larger Diag II indicates the beginning of a long move down, proportional to the product of the areas of three Diag IIs in series, (only two are shown above). In the meantime, the two Diag > in wave iv, indicate dramatic reversal ahead, to compound the violence of the subsequent plunge.
We are now transtioning back up, after an extreme reaction to more FED meddling, but also characteristic of Bear Markets of Supercycle degree. In effect we remain in Supercycle degree until the Crash completes.
What ‘s new is Diag IIs in virtually all our long charts, as you will see in detail shown in 10-min detail in several charts. These indicate the beginning of a long move up, proprotional to their area. Of course these and far smaller than the three colloasal Diag IIs of Supercycle degree since 2007.
You will also note that there are concurrent Diag IIs of the smaller degree in the inverse ETF charts. These indicate a “relatively long way down”, for inverse funds opposite their eventual parabolic moves up, concurrent with the Crash. How ironic that only now when investor pessimism is the highest, a major rally is building momentum for a surprise assult on risk-off investors – the final “denial” rally.
Meanwhile the investible VIX, VIXX is on the way down sharply to at least 21 in the chart above.
Above you see UPRO the long S&P ETF beginning a sizable rally with a Diag II. Concurrently SPXU the inverse fund shows a mirror image Diag II.
Current positions in blue-green including open orders; changes in red
Timer Digest
SPXU Inverse S&P 500; UPRO long S&P 500
full pos UPRO cost 46.22
Only two days ago we closed out inverse positions for a very handsome profit.
Meanwhile bonds which usually move inversely to stocks are on the way down. As you see below the Long Bond has peaked in a Vth wave that extended from a Diag >, to indicate “dramatic reversal ahead” , now in process.
We hold the inverse bond ETF TMV. As in long equities, inverse bonds are kicking off with a Diag II to mark the beginning of a long move up…see below.
TMF 20-Yr long Trees Bond; TMV 20-Yr inverse Treas Bond
full pos TMV
sell 1/2 pos TMV limit 15.5
buy 1/2 pos TMV limit 14.5
sell 1/2 pos TMV limit 20.5
Bonds
TMF 20-TMF 20-yr. Bond; TMV 20-yr inverse bond
Pension 2/3 pos TMV
sell 1/3 pos TMV limit 15.5
buy 1/3 pos TMV limit 14.5
sell 1/3 pos TMV limit 20.5
Traders full pos TMV
sell 1/2 pos TMV limit 15.5
buy 1/2 pos TMV limit 14.5
sell 1/2 pos TMV limit 20.5
Equity Allocator
35% DRV Inverse Real Estate; DRN Real Estate One Fund Strategy
Pension
2/3 pos DRN cost 40.6
Just on Thursday we sold our inverse Real Estate fund DRV for a 29% gain in less than a week!
Traders
Full pos DRN cost 40.6
Here too you can see the Diag II below in detail on the 10-min chart. As you see in many of these close-ups the (ivth) wave of the Diag II contains a Diag > which indicates dramatic reversal and is always followed by another a-b transition, as opposed to Diag IIs which do not.
35% EDZ Inverse Emerging Markets, EDC Emerging Markets
Pension
2/3 pos EDC average cost 19.29
Sell 1/3 pos EDC limit 22.8
sell 1/3 EDC limit 24.5
Traders
full pos EDC average cost 19.29
Sell ½ pos EDC limit 22.8
Sell 1/2 EDC limit 24.5
After not much action for a week, emerging markets have woken up and were the top movers on Friday.
30% FAZ Inverse Financials; FAS Financials
Pension
2/3 pos FAS (average cost 11.27)
Sell 1/3 FAS limit 13.8
Traders
full pos FAS (average cost 11.27)
Sell 1/2 FAS limit 13.8
The dollar is on the way back down to at least 73.25, as the stock market climbs, we sell dollars to buy stocks, and inversely selling stocks to buy dollars last week resulted in the spike.
Last week commodities including gold, oil got hit and are now reversing back up as the expectations of demand increase with a climbing stock market.
Best regards,
Eduardo Mirahyes