XLF target: 16,5

If it breaks 15.

Muni bond market

Something is wrong in the municipal bond market. Interesting opinions on this topic:


Warren Buffet: Muni Bond Market May Be Next Phase of Financial Crisis

How to Play the New Muni Market:

Municipal bonds are backed by local or state governments or other public entities. Investors like them because their interest payments are generally exempt from federal income tax, though states often levy taxes on out-of-state bonds.

A freakish confluence of events sparked the selloff. Treasury yields rose, which led to losses on all types of bonds as investors sold older bonds to make room for newer ones. A massive amount of muni-bond supply hit the market—about $34 billion through Nov. 19, the average issuance for an entire month in 2010. And the Republicans' retaking of the House of Representatives on Nov. 2 made it more likely that the Bush-era tax rates will be extended for all taxpayers, reducing the urgency for upper-income earners to hold tax-free munis, and threw into question the future of the Build America Bonds program, in which the federal government subsidizes municipalities that issue taxable bonds.

The problems started when bond insurers, with massive exposures to subprime mortgage debt, fell on hard times. Now they are exiting the muni market in droves. Whereas about half of all newly issued bonds in 2006 carried insurance, that number has fallen to about 7% in 2010.

The financial crisis also drained the muni market of liquidity. Bear Stearns and Lehman Brothers were two major muni-bond dealers before they blew up. Other banks and brokers have been less willing to hold large amounts of muni bonds on their books, while some hedge funds that used "arbitrage" strategies in the municipal-bond market pulled back or disappeared.

The market's fragmentation makes it difficult for investors to gauge whether munis are cheap or expensive.

Back when more of the muni market was insured, the direction of interest rates was the primary driver of yields. Treasurys and municipal bonds typically moved in the same direction, with a fairly predictable ratio between their yields.

The historical average was around 82% for 10-year bonds, because that was the ratio that produced a yield roughly equal to a Treasury once taxes were factored in (the "taxable equivalent yield"). When the ratio moved higher or lower than that, it signaled a buying or selling opportunity to some investors.

Now the direction of interest rates is just one of many drivers of muni yields, and the relationship between Treasurys and munis has weakened, say traders and analysts. The correlation between the two since 2008 is just 1%, versus an historical average of 91%. (A correlation of 100% means two assets move in lock step; a correlation of -100% means they move in complete opposition.) So while the taxable-equivalent yield ratio is now 103%, it doesn't mean munis are cheap.

The recent trading in ETFs and closed-end funds shows how tricky it can be for investors to value a muni portfolio. Muni-bond ETFs, which trade on exchanges like stocks, are generally more liquid than the bonds they hold, so there can be big differences between the two during periods of volatility.

For example, the iShares ETF and the SPDR Nuveen Barclays Capital Municipal Bond ETF on Tuesday traded about 2% below the value of their underlying holdings, according to investment-research firm Morningstar Inc. Before November, both ETFs had generally been trading within 0.5% of their net asset values this year.

Investors should focus on national muni funds rather than their single-state competitors, analysts say. And they shouldn't be too tempted by the higher yields now available—there still is more pain to come, say advisers. "There will be a general decline in credit quality," says Warren Pierson, comanager of the Baird Intermediate Municipal Bond Fund. "I think you'll see more downgrades than upgrades," which would hurt muni-bond prices.

Instead, investors should focus on high-quality short- and intermediate-term funds. Bond prices fall as interest rates rise, and longer-term holdings are more sensitive to these shifts. That is especially important given the uncertainty about the Build America Bond program. If it is allowed to expire at the end of the year, there could be a fresh flood of long-term municipal issues, which could cause long-term muni prices to drop.

Time to cover shorts in the euro

TLT: volatility is coming for some days..

200 daily moving average is the key.

TBT & the 20 year us treasury yield

Buy signal in the 20 year US treasury yield. First resistance: 3,95.

DIA & SPY

Buy signal in the DIA ETF, not confirmed in the SPY.

Alcoa - AA

12.71 critical support. Still above the 200 Moving average. Uptrending.

High frequency trading

An interesting article on HFT. There are new participants in the market and we should understand them very well.

Here I extract the most important paragraphs. To read the complete version, click here. (CBSNEWS.COM)

Just four years ago, high frequency traders accounted for 30 percent of the stock trades in the U.S. Today, estimates range as high as 70 percent. And institutional traders, like Joe Saluzzi of Themis Trading LLC, have come to believe that the game is rigged. 

Today it is still the public façade of Wall Street, and a television backdrop for reporters relaying financial news.  But less than 30 percent of the trading is conducted there now, and the specialists and the noise of the floor is being replaced by the speed and quiet efficiency of computers, and the action has moved elsewhere. 
There are now more than 80 alternative trading systems around the country, plus two brand new electronic stock exchanges which most of you have probably never heard of: BATS and Direct Edge. 
They're owned by the big banks and by high frequency trading firms, and neither of them would give "60 Minutes" an interview or let us inside to film their operations, but they trade more than a billion shares a day at blinding speed, and most of those bets are being made by machines. 
The players range from firms like Goldman Sachs, Barclays, Credit-Suisse and Morgan Stanley to hedge funds and smaller operations like Tradeworx, which is the only high frequency trading firm that would talk to us or let us in. 
It's run by Manoj Narang and a small group of mathematicians and scientists called "quants," which is short for quantitative analysts. Their high speed computers trade 40 million shares every day. 

Actually, high frequency traders are getting the same market information that Saluzzi gets. They are just getting it a little bit sooner - it's only a few fractions of a second sooner, but if you are running supercomputers, Saluzzi says, it can be an eternity. 
"What you're saying is the people with the fastest computers have an advantage? They get the best deals?" Kroft asked. 
"Every time. Absolutely. There's no doubt about it. I mean, if they're spending that kind of money, and they're using that type of infrastructure, they're doing it for a reason. And it is to get a speed advantage, in that respect," Saluzzi replied. 
It's not just the speed of the super computers that's important - it's also their physical location. The closer they are to the stock exchange's server the quicker they will be able to get critical market information. 

"Do these high-frequency trades have anything to do with market fundamentals?" Kroft asked. 
"Valuation is irrelevant. It's all about just moving the price up and down the ladder all day long. Each day is new. Each day starts fresh. So, you have to question the true valuation of the markets now," Saluzzi said. 

BA: wave 5 to 107?

US dollar: long?

Wall Street Journal: Why Letting the Dollar Fall Could Be a Good Thing

In this video, the economics editor of the WSJ explain the reasons why the falling of the US dollar affects the equilibrium in the international trade, particularly with the developing world and why Bernanke did not make this strategy public.

Another strange move in NYSE

Take a look at this explanation in Bloomberg on what happened today in the SPY. Some important paragraphs:

"Data published by the electronic venue at 4:15 p.m. New York time showed the SPDR S&P 500 ETF Trust at $106.46 compared with its opening price of $117.74. The apparent plunge in price involved 7.2 million shares in the closing auction on NYSE Arca, according to data compiled by Bloomberg at 4:30 p.m."

"The 104-page study released Oct. 1 said trading software known as an algorithm linked the rate at which it traded the E- Mini contract to overall market volume. The initial sales spurred a flurry of buying and selling among high-frequency traders, which in turn led the algorithm to sell faster."

Another proof of the weak controls in this market.

May be today we have a new millionaire...

Nyse breaks trades of S&P 500 ETF showing 9,6% plunge

Krugman and the bond bubble

In this post, Krugman explains why the bond bubble have it roots in the low CPI and the high unemployment rate. Enjoy.

"The Taylor rule and the 'bond bubble'. Wonkish"

SPY: updating elliot wave count

Updating my EW count from September 1st, this could be the road-map. If the market is following this pattern, we are now in the wave 5, wich should take us to 140 SPY. But without the help of the financial sector (the XLF, and specially the big banks, are underperforming the indexes) the risk is high.

DIS: Walt Disney Co

Some keys of Disney (source: yahoo)

GE: opportunity to get in or get out

Look at the doji, the long red candlestick and the bear divergence in stocastics. But the target of this pattern (the inverse head and shoulders) is 19,25. And then? Long or short?. We should wait until the close of the market to make a decision. May be is a buy with SL @ 16.50

PBR:

A break above 37 is a buy.

SPY: elliot wave bear count

In opposition to this bull count, I am following this bear count. May be we are seeing the final stage of the wave 2, and we should have a big drop next week if this EW count is the right scenario. I am following two alternative scenarios. This is the bear:

The big picture. If we use some imagination, don't you think that this chart looks like a big inverted Head & Shoulders pattern, in which the white line is the neckline?

Fibonacci's retracements:

GOOG: intraday alert

It has broken the 38.2% fibonacci´s resistance. In addition, accum/dist buy signal and the neck of the inverse Head & Shoulders. 

XLV: update

XLV has broken the 38.2% fibonacci´s resistance and the channel in the Accumulation/Distribution indicator. Bullish divergence in the MACD indicator. I recommend the stop loss @ 29.70. Notice the low volume. It could be a bull-trap.

XLV

Top 10 Holdings (60.32% Of Total Assets)

Abbott Laboratories ABT 5.44
Amgen Inc. AMGN 4.48
Bristol-Myers Squibb Company Co BMY 3.83
Eli Lilly And Company LLY 3.02
Gilead Sciences, Inc. GILD 2.71
Johnson & Johnson JNJ 14.47
Medtronic Inc. MDT 3.57
Merck & Company, Inc. MRK 9.69
Pfizer, Inc. PFE 10.22
UnitedHealth Group Incorporated UNH 2.89

Source: yahoo

PFE: update

S&P500 in EURO

If this hypothesis is right, we will have a rally on the S&P.

FTSE in USD

This EW count is in line with the counts in the other indexes. 

TLT is showing some keys

In the big picture, TLT looks like it is developing wave 4, until 96.72 (we know what this means for the S & P the US treasury bonds downtrending, at least in the short term). This is supported also by the reversal pattern (hammer followed by a red candlestick). The target is 96.72. In addition, the last news are showing a change in the mood of the market (jobs report, FED speech, etc.). We can add to this, the behavior of the VIX during the last week (weak and without a clear trend in the weekly chart). I am thinking on possible objectives for wave 5. Still I do not know the target of that wave. 

TLT daily chart:

IYZ, in the edge

IYZ Ishares (telecom services) has outperformed the SP500 in the last 2 months. If it breaks 21 consistently, 23.5 is the next step.

Updating my EW count on the S & P 500

I think we had a complex correction pattern: a triple sideway pattern. I am checking proportions, but the basic rules are accomplished. If it breaks 1010, this count is ruled out.

GOOG: andrew's pitchfork tool

DOW JONES: Andrew's Pitchfork tool

China: covering shorts on US treasury bonds?

China: Rumors of the Central Bank Chief's Defection | STRATFOR 

I just read this news and is worth to notice that, even if this is not true, it is perfect to explain the last rally in US treasury bonds. Last months we were trying to find something that explains why the yields tanked again. I did not saw panic in the market (only in the fat finger day). In addition, I think this last movement on yields does not looks like a "flight to quality" and the yields were relatively low (compared to other investments) to justify a big buy on them. The last explanation to this big buy is china covering big shorts....I am still in research on this matter.

Updating some indexes

Some possibles count for the wave 4:

This are some possible long term EW counts for the most important indexes.

DOW JONES INDUSTRIAL:

LONDON FINANCIAL TIMES STOCK EXCHANGE:

DOW JONES TRANSPORTS:

DOW JONES US FINANCIAL INDEX:

PFE: too good to be true ?

Continuation pattern: flag.

SPY / S & P 500: Intraday situation

GOOG: Update

DIA

PFE: EW count

I have very limited knowledge in EW counts, but what do you think about this one?