TCM Notes : 5/11/09

• Research was uneventful this past weekend as rest and recuperation were at the top of the agenda. All the same things are being kicked around in the blogoshpere and the main stream financial media. Is this rally for real? Are we overbought? And several other second guessing titles with very little substance to the underlying text. Here's the thing that people fail to recognize. The market is a trend chaser by nature. That's why moving averages are so powerful. Their direction creates the trend, nurtures the trend, and thus carries the trend into levels that usually cause anguish to those trying to fight said trend. The 200dma is still above us, but the short term averages that I deem to have the most influence on directionality are still trending higher with power. The 9ema and 20ema. These are the two favorites of fund managers and prop traders alike. As long as the 9 stays above the 20 the push higher will continue. Most likely until the 200dma is tested. If we fail at the 200dma then the 9 and 20 will be critical support. If they can't absorb any selling pressure well then we may get a decent pullback. To short into any pullback you will need to see that 9 cross downward through the 20 in order to get some selling momentum. However, with so much money sidelined and now nervous about under performing there could be a hell of a downside fake out if the 9 and 20 converge. My eyes remain focused on these averages.
• VIG was a name mentioned for a quality dividend etf.
• One thing that I think the bulk of Johnny come lately bears have forgotten is that hedge funds move fast and mark to market by the second. With 1471 funds being liquidated last year and assets under management cut in half; perhaps the doomsday scenario of a market implosion are for sure gone. There is no doubt those liquidations exacerbated the overshoot to the downside. Especially when every prop desk and quant shop knew who was in trouble and what book they had to unload. Shorting ensued....prices collapsed further......funds were closed......positions were balanced........shorts covered, but some stayed a bit too long it seems. I say this because the break neck rally from the lows has been due to lots of short covering, and plenty of underinvestment by those waiting it out. Like a forest fire that rages through and takes out all the dead growth the hedge fund industry has cleansed itself (with no bailouts to be had.) Going forward less leverage and aum will lead those left standing to take a more cautious approach to investing/trading and more than likely place valuation ahead of flash. With regulation looming we may see these vilified participants pullback out of the spotlight. All they have to do is ride the trend being created by their mutual fund counterparts as they push money back into equities at an aggressive pace. The boys in Boston are pushing the trend at the moment, and it would be wise for partnerships to keep a low profile and trade with this trend. It is how they proliferated in the first place. Creating too much volatility, while it ultimately rewards the most astute and nimble, for the most part effects the industry as a whole in a negative manner.
• USO has been getting attention lately as an inverted head and shoulder pattern candidate. I'll agree with that, and add that if 33.81 gets penetrated to the upside 39 is the target. Using the UCO a break above 10.38 would put 26 in play. The caveat : populist upheaval coupled with a "do good er" administration. I can hear it now : "I stand with the person filling up to commute to work....I don't stand with those speculating in crude oil and gasoline futures." And then a release from the SPR for good measure and voila.........deflationary pressure in crude. I can't see oil getting too pricey while we try to pull ourselves out of this mess. And those pressing too hard on the long side may very well find this out the hard way. If there's one take away from the first 100 days it's that your wings will be clipped if you try to fly too high. Paper barrels will be put in check as wet barrels will be the ultimate dictator of the supply/demand balance. As it once was in the past. Or so my thinking goes.
• SPY weekly pivots:P=91.53/S1=89.93/S2=86.69/S3=81.85/R1=94.67/R2=96.37/R3=101.21. 86.97 (20) and 87.15 (9) should provide major support.