Blue Skies and Pink Clouds

Ok that last post was a bit depressing. Maybe I am bearish because Nixon and Volcker made a big mess. I can blame them because hindsight is easy to see faults. I will explain the mistakes they made which led to excessive money supply combined with an over abundance of credit in a detailed post later. In short, their action then inaction created excessive consumption of equities, real estate and anything else that moved or didn’t move. That excessiveness coupled with excessive government spending and corruption is seen at peaks of empires.

Our Presidents are also a sign of a peaking empire. Clinton, who was that last full term President in a rising empire, got away with lying. “I did not have sexual relations with that girl”. Everyone was so drunk and high they simply said… “OK, even if we proved you did, and caught you red handed in a lie; we forgive you because we are stoned and please pass the bong. Oh right, he didn’t inhale-yea right….

Then we elected Bush who was totally unqualified to be a President, We didn’t care, we were drunk. The only thing he had going for him was the momentum of the empire and he had a father who was an experienced President to ask for advice when times got tough. But Bush being Bush relied on the wrong father for advice.

His term was the actual peak. We were still drunk so we reelected him, then we started to sober up and we started down the backside of the mountain. Bush was so bad that we had two minorities as the only real candidates for election. McCain’s big mistake was Palin as he tried to compete with the popular minorities in the other party. All I can say is we are lucky he chose her as he might have been President and we would be in war with North Korea and Iran right now. That will come - be patient.

Poor President Obama – They guy doesn’t have a chance. Even if he was a good President, which there are few as you must be a good leader and they are only good at getting elected which doesn’t qualify you to lead a country, he is fighting the pressure of a declining empire. Only a very strong leader and visionary can make the hard and unpopular choices that are needed to slow the trend. I think he is a smart guy but his handlers will never let him make the right choices. He is certainly not a leader.

The pace at which we consumed life during the ’80’s and ‘90’s is simply a pace that can’t be sustained forever. Sooner or later we have to pay up. Adams Smith’s invisible hand has to “Beech” slap us for all the abuse and misbehavior we participated in. This happens every 40 years or so. It’s just a cycle, this one being bigger than the last few.

Nevertheless, I could be wrong and events might reverse the current direction. These events are yet to come so my outlook is bearish but still, it is possible that the EU breaks up and dollars are in demand as safe haven which will be put to work in treasuries and equities. Its possible that China never measures up to their growth expectations as they have no value for the Rule of Law. As mush as they try to grow and expand their economy it will still be suppressed by the distribution of wealth but not to the poor who can consume goods and better their quality of life but to the crooks who pick and choose what to make, when to make it and who will supply it.

If so, we will likely chop around the 10,000 area just like we did 1,000 and 100. Then we will break to a strong rally and there will be nothing but blue skies and pink clouds,, Oh yea, we will have to get out of two very costly wars and avoid two others for this to happen. Otherwise even if the EU and China are not good investments, neither are we.



Tim Mack

Panic set in !!!!!

I was in the mall this weekend and panic set in. I could not find my way to the espresso bar. Luckily I came across a map marked with an arrow “you are here”.

Simply look up were I wanted to go and I knew what direction to head.

Here is a “possible map” I could be wrong but I used a fractal comparison of the 1929-1930 price action to 2007-2010. My theory is that similar excess investment capital created both highs and the same contraction of credit created the declines off the highs.

The recent period took longer because there are many more players in the market and a lot more capital. Nevertheless, crowds behave the same under similar conditions.

I am wrong if we take out the April high.

Love is in the air…….

Its our anniversary. My wife and I were married 14 years ago today… She forgot.

At least the S&P has found love. Love with 1085. The next objective is this 1102 area which is the top of this longer term value area. As long as we can hold this area we have a shot for a big rally. Its ok if we trade lower tomorrow but we will have to bounce right back up and take off. Watch how price responds to this area and that will give you a clue where we are headed.

Paper sold size off the open and locals were long…Here comes Joey on offer pushing lower. He likes to fade the pit especially when paper is inactive. We couldn’t get the market past the OR which was a great signal that we were set for a bullish day. When he cant muscle the market the market forces are too big against him.

Tim Mack

Everyone has an opinion…including me.

I can't stress enough the importance of listening to others but forming your own.

One opinion that should be weighted more than anyone else’s is (in my opinion, lol) the markets.

The market’s opinion matters a great deal. If the market is going up it has a bullish opinion, if its going down, a bearish. If it is rotating between price levels it has no opinion; it is in value and is not biased to one side or the other. It’s that simple.

On a short term bases the market is looking more and more bullish providing we trade above 1085.00 Sept S&P.

We can test below, maybe gap lower on Monday but if after the bell, we trade through 85.00 by 3 handles and find “love above” then we will look toward 1102.75 area for yet another retest. We have already been there twice and have been rotating between that level and +/-1040.

Based on the weekly close 1085.00 being higher than last weeks close 1062.25 (June) and the Paper buyers coming in light but steady before and after the parade on Friday, if I had to guess, we will see 1102.75. But again, I wont put my money on that opinion (and its even my own, lol). My money will be in the direction of price soon after the bell come Monday.

On a longer term or intermediate term basis, this is where you have to put on your thinking caps and open your ears to the markets opinion. No one else’s

The market has found value in this range of +/-1102 - +/-1040. It’s found a home, a very comfortable level. It has no opinion. Markets don’t stay range bound for ever. Sooner or later the market will break out of the range and decide if it will seek lower prices to find value or higher prices. You can recognize early telltale signs like if we “find love above” 1085.00 then fail to take out 1102 and trade sharply right back through 1085.00 on a rejection. That says the market wants no part of that area and we will likely not only test the low of +/-1040 but cut right through it since it will be our third trip down there. I would rather see a double bottom than a triple. I favor this scenario as we have been trending down since April and markets tend to work off aggressive initiative trades with sideways action, this is also common in a 4th wave.

We can also just kiss +/-1102.00 good bye and rotate right back down to +/- 1040.

We can also trade right up through and find 1102.00 as support which will send us off to test 1118.00 and probably make higher highs until August. That would put the right amount of market analysts on record with a wrong opinion on a contrary move.

The point is, on a longer term basis, the market has a potential to stay in rotation within this valued area, play it safe, and let the day traders have a little fun or, it can break out and there will be some great profit opportunities for longer time frame traders.

Read the price action and it will clearly tell you what the markets opinion is.

Tim Mack

“It is no use saying, 'We are doing our best.' You have got to succeed in doing what is necessary.” - Winston Churchill

Where will the market go next?

If you step back its clear to see that the market is trending down. However the trend is driven by larger time frame traders or decision makers like my buddy Joe da Sixes and large funds.

I’m a day trader so I am short below the OR and right now really enjoy that position, or long above the OR and will take profits early. I am quick to take profits as we rotate inside the Value area as well.

I caution everyone reading this blog who listens to anyone who thinks they know what the market will do. They will claim huge historical successes or that they have been watching the markets for years thus supposedly giving them some insight, or they have written a book or have provided years of commentary.

They don’t have any more of a clue where the market is going to do than the next guy who is looking at a 50 and 200 day MA. In fact it amazes me how some industry professionals who have been on the floor for years and who think they know enough that they can give advice are so clueless.

If they really did know anything they would be traders and not talkers.

Look and listen but draw your own conclusions. If you are reading this post I bet you are smarter than most of the clowns on the floor.

Tim Mack

“Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense.“ - Buddha

What is Joe Six Pack going to do?

Its my opinion that Joe believes the market goes up and the market goes down. And its way too complicated and far too manipulated for him to bother figuring out.

He thinks…..

The stock market gains an average of 10% in value over time.

If he adds a little each paycheck, on the 15th and 30th he is “dollar cost averaging” and he will smooth out the volatility. So just as long as he sticks to the “Plan” his statement will show gains over time. All those investment books saying the same thing must be right….right?

He is not about to freak out on sharp declines by calling his broker and shouting “SELL EVERYTHING”. Why? Because he will leave the market timing to Wall Street. If he wasn’t smart enough to know that going into March 2009 he certainly learned his lesson the rest of the year.

And look at the last decline how it snapped right back. He says: “Those bastard Algo traders! They are manipulating this market. As long as I buy good American companies they will do well. America is the greatest country in the world so it is guaranteed that my stocks in Blue Chip America will always gain value….over time. And I am in it for the long haul…God Bless America”

He then remembers to order that oil pan gasket for that transmission in the bathtub (you need to read Richard Maybury, which I highly recommend, to get that joke)

The problem with Joe is he only knows what he has experienced. He never opened a history book, or if he did, he only read the books provided in public schools which tell a one sided, partial story

Joe experienced 1987. No big deal, the market zoomed off to crazy highs and rewarded those who held stock.

Joe experienced the greatest bull market in history through the 1990’s. Everything goes up especially if its a blue chip.

Joe experienced the pain in dabbling in biotech stocks and dotcoms.

Joe experienced 1999-2003 and then witnessed new highs; It pays to hang tight. Right?

What’s Joe going to do now?….. What’s Joe going to do when we break new lows?

Figure out what Joe is going to do and you can more accurately predict market behavior. This is part of Elliot Wave theory. Bob Prechter had a good description of the emotion that makes up wave 2 and wave 3, what we a probably in now on a very large (but not super cycle but big) degree. I just cant find his quote, but its based on how all humans act and react…pain (fear) and hope (pleasure).

I’m going way out here but…..

Religion is popular because it plays on these two emotions. Very simply put: early on, man (and woman) were fearful of lightning, thunder, wind etc so they prayed. The act of praying triggers relief of the stress of fear. They felt better (pleasure) after praying intently so they kept doing it. Eventually they figured out that the weather was not controlled by Gods and should not be “feared” but should be “understood”. Still, praying offered pleasure (in the way of stress relief) so they switched to praying to a God as we still do today.

This is simply how humans work, like it or not, and understanding how humans work is the key to understanding and predicting how markets works. The markets are made up of Joes (and fund managers). I know several fund managers and more than a few are on par intellectually with Joe.

Joe will eventually feel pain. He will realize that the market stopped going up. He will recall 1999-2003 and 2008-2009, still fresh in his memory. He will look at his 401K statement with performance in brackets. He will long for the feeling of pleasure just seeing a statement that didn’t show a loss. He will feel the pain knowing that his retirement years, as a baby boomer, are close by.

He will then sell. And he will sell everything. It won’t be the big funds, these managers are just trying to stay par with the S&P. They aren’t trying to take big “short” risk to show huge profits. Its more popular to be in bonds then to be “short” when your managing the Teachers Union’s account.

So when will Joe sell?

The market has been looking to break last few days. Today we saw more buy Paper than we saw in a week. So we may not get the break I was expecting on Monday. Still the market is weak and will react violently to any bad news. If terrorist weren’t complete idiots (I am sure glad they are) they would pick now as a time to strike. They would do more damage to the financial markets with a single car bomb in Times Square now than any other time.

Still, if an event created a hard break Joe won’t sell. He hasn’t seen enough losing statements yet. Wave 3 may very likely turn out to be a slow grinding decline as statements show up in the mail and Joe’s pleasure and hope turns to pain and fear.

Just for the record I love America. I have full size replicas of the Declaration of Independence, The Constitution and the Bill of Rights hanging on the walls in my office. I look at them often and wish our political leaders believed in them as much as our founding fathers did. They will again one day………… after a lot of pain.


Tim Mack


"A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government." - Thomas Jefferson

Sellers…..The Story

Paper sold the bell with JPM selling 250 soon after, Swiss banks sells 200 and the story continued. The rally off the open was long locals. They kept the market bid until they found paper buyers on stops near the IB high were they covered. Without the locals on the bid the market went were the market wanted to go. The trend that was in play prior to the holiday counter trend move resumed and we closed well below the open, Fridays settlement, the Value area low and on the lows.

88.50 was last week and the month settlement. This figure will be an important level as we progress through the week and the month.


Tim Mack

"Don't be afraid to give up the good to go for the great." - John D. Rockefeller