Wednesday, June 10, 2009

An Update on Our Moving Averages; and Bond Sale Today

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I wanted to do a quick update on our 200 day moving averages; we discussed the disparity between "simple" moving averages and "exponential" last week, in regards to the 200 day. [Jun 3: Why I Use the Exponential Moving Average]

At the time the 200 day exponential was at S&P 948, and the simple was at 923. The gap has widened further - exponential is down to about 947 while simple has dropped to about 917.

EXPONENTIAL



SIMPLE


I point this out today because with even more days in our rear view mirror since I wrote the June 3rd piece we can see the exponential moving average has continued to stand as a ceiling. Even with the "Paul Krugman" rally (10 S&P points in a mere minutes) late Monday. The 200 day is also a major major line in the sand that shifts psychology. And last - with such a strong level to break through the market could use a catalyst

I see 3 in the next 30 hours.... we have 3 bond auctions this week, the 3 year, the 10 year, and the 30 year. Yesterday on "good" results for the 3 year the market picked up a few S&P points. The 3 year is meaningless since it is not as if our foreign debtors are fleeing the short end of the yield curve... 3 years is nothing to a foreign central bank. The Empire won't crumble that fast. Remember, China is actually INCREASING their reserves of US debt but shifting the duration to the shorter time frames... [May 21, 2009: NYT - Chinese Becoming More Picky About Debt]

... but it got me thinking; if these bulls are so excited about something we took for granted for years (a "successful" 3 year auction) what sort of fireworks will we have once we see the Chinese showed up in force for a 10 year auction (today). Or indeed a 30 year (tomorrow)? Remember, Prince Geithner was in Chinese last week and while the students laughed at him (I have yet to post about that) when he said Chinese investments in the US were safe, the leaders of China are more strategic. Do they really want to embarrass the Prince right after a visit? So simply by keeping a bid in, they can assure us all of China stands behind us, and we can continue on our merry way of spending like drunken sailors til the cows come home.

That could be the rocket fuel needed to finally have every bear cry uncle (if they have not already) and get us on the next rocketship "to the moon Alice" rally. And in between these two auctions are tomorrow morning's retail sales. Remember, when we analyze a government report we have to ignore everything the actual retail companies are saying in their reports and trust statisticians from D.C. (who know better than retailers on the ground) Since gasoline prices alone jumped substantially in the past month, this alone should provide "better than expected" retail sales (remember, high gasoline prices are a good think because they stoke monthly retail sales - just wait how "good" $4 gas will be for this number)... and boy oh boy the only thing the market needs to confirm green shoots is the "consumer is back". Oh yes, we also have 800 Chrysler dealers who were liquidating this week (green shoot) having to sell merchandise at distressed prices, so that could show "better than expected" sales in autos. Boo yah American consumer - I missed ya!

So we have a lot of catalysts for our destiny with S&P 2200 - now this morning we have the weekly mortgage application data which we thought might show a sharp slowdown in refinancing last week (it did) and now rates are only increasing further so it could slow refinancing even further. But that can be quickly forgotten with the 10 year bond auction later in the day - as our Chinese saviors put in a bid.

So there you go - green shoots all around.

Downside?

None - I'm taking the blue pill and connected to the matrix. Buy stocks. (boy this is a lot easier way to go folks, I feel so little stress thinking like this)

Ok ok if you insist you raving bear - the 20 day moving average provides downside protection; down there at S&P 918 which also happens to be where the 200 day simple moving average has retraced to... if something wacky happens like the 10 year auction goes bad; you could see a quick fall down to that level in a jiffy but that's not how we think around here. Think positive and only good things can happen... we're turning over a new leaf here and it's green. Assimilate or die.

The movie relies on the premise that an artificial reality that is advanced enough will be indistinguishable from reality and that no test exists that can conclusively prove that reality is not a simulation. This ties in closely with the skeptical idea that the everyday world is illusory. In the movie, a Redpill is the term used to describe a human who has been freed from the Matrix, a fictional computer-generated world set in 1999. Bluepill refers to a human still connected to the Matrix.

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