Bear Trader "Technical Musings": August 23,2012

MOST RECENT NEWS: The recent previous S&P 500 highs: 1419.04 on April 2, 2012 1418.16 on August 17, 2012 1418.13 on August 20, 2012 Then we see an attempted breakout upward with a 1422.93 open on August 21, opening with a gap from the previous close above the April 2 high on moderate voume, rising to 1426.18 in an hour and ten minutes but on falling volume, the dropping for rest of day to 1413.31 and finishing on the higest peak volume for some time, at least a week (maybe several weeks as Yahoo Finance "forgets" the six minute charts after five days back). So here we have the "classic failed breakout", a bearish short and medium term pattern. Gaping up above resistance followed by a rise to new highs followed by a decline through the gap area to a close for the day at the low for the day (which is lower than the lows of the previous three days lows) on exceptionally high volume. The Wall Street boys are nothing if not superstitious, and this "classic failed breakout" is inauspicious, nay, downright menacing. So now "The Boys" are waiting for the other shoe to drop. MEDIUM TERM NEWS: "Seducing the fair (but shy) Bernanke" - or, "Oh, QE3, QE3, wherefore art thou, QE3?" "The Boys" had just about persuaded themselves that QE3 was coming on the First of September, but now doubts are rising; S&P 500 is too high to make the Fed "ease"; real inflation has dropped from 7% annual increase rate per quarter to 5%, still plenty of inflation but decreasing, whice is good; heavy food inflation is coming because of the drought so the Fed would rather not increase inflation sizeably, which QE3 would do; QE3 would cause a fall in the value of the dollar, making petroleum more expensive (causing inflation) and making the $USD weaker which discourages Chinese, Japanese, European, etc. cash flows into US financial assets, in particularly Federal Treasury and Agency paper, threatening rising rates instead of the declining rates the Fed expects and desires. I believe that we are at the point where attempts to lower US interest rates will instead make US interest rates go higher. Also a declining dollar will make the price of gold in dollars take off. QE3 would become a political football if begun on Sept. 1 as Wall Street hoped but would be ten times more so if triggered Nov. 1. The Fed's power and independence could easily decline, probably markedly, if they get in pissing matches with both the Dems and Pubs at once during a Presidential election. In balance, I don't expect QE3 this year, but the Big Boys are all "Strong Like Bull", sort of like Australian Rugby players, full of testosterone and piss and vinegar, so I am not sure about that. LONG TERM: Soros, Paulson, China, Russia, and the Oracle of Omaha: Soros on his latest SEC filing reports heavy buying of GLD. Paulson has been buying gold in various forms for some time now. (Paulson looks a bit of a loose cannon to me though.) Russian and Chinese national banks are supposed to be buying gold although I don't see anything special in the cash gold price. Berkshire Hathaway dropped a bomb shell Tuesday, reporting that they have bought back credit default swaps covering a collection of State and Municipal Federal income tax free bonds originally sold to Lehman in 2007. The CDS buy back nominal coverage was $8.25 Billion. Bershire still guarantees $8 Billion CDS in the same market for longer duration bonds (a less liquid market). Berkshire must have taken a sizeable loss on the deal as CDS on State and Municipal bonds are much more expensive these days. It seems that Buffett is saying that those bonds are much more risky than Joe and Martha Sixpack think; Joe and Martha have put nigh on to a $1 Billion a month in Fed Income Tax Free bond funds for some time now. Of course old Warren could just be senile. He is eighty one years old, after all. Or, of course, Meridith Whitney was right but early. Looks like a very dark cloud on the horizon. BOILS DOWN TO: Me, I see the S&P 500 stuck under resistance, and stuck good. Unless there is a convincing breakout, gap up, high volume, high above 1425, low and close above 1420 I think that the road is probably down. 1433 is still possible, gives some breathing room. There is good support at the lower bound of the channel that has been building since June 1st. Today that is 1375. There is more support in the 1300 - 1310 area. There is support from last fall around 1150 and Fibonacci support at 855. Uncle Ben would do something around 1300, at a guess. On Tue, Aug 21, 2012 at 12:42 PM, The Evansville Observer wrote: Bear Trader--- I thought I remember you telling me that 1433 was about the top. What does it look like to you.?