No matter what anyone says or does, watch the market action. Only the market action tells you the true trend.
There is so much confusion in regards to the $700 billion bailout. Remember, that it's not written in granite just yet.
Looking at the market action... I have to say that this market is still not healthy and looks as though it will continue to erode the equity markets.
Gold continues to consolidate and appears as though it wants to move higher in the near-term.
What always amazes me, and it shouldn't amaze me anymore as I have seen enough screw-ups in the market, is the government's inability to act before a major financial disaster takes place. This latest rescue plan is a perfect example. Everyone in the industry, and even people not involved in the investment industry knew all about the "garbage" that was going on. Everyone knew except Washington, and in classic Washington style the regulators buried their heads in the sand and just wanted it to go away.
I'm sure you knew folks in your own neighborhood who suddenly became mortgage brokers as that was the thing to do to make some fast money. I wonder what the qualifications were for that job?
I don't want to be too cynical, even though this post will probably put me in that camp, but the facts are the facts... we had incredibly inexpensive money for several years thanks to Alan Greenspan. Interest rates were at 40 year lows and it was so inexpensive to borrow money and basically speculate in housing and stocks. Many uneducated people were sucked into speculating in stocks and real-estate based on cheap money. Imagine buying a house with no money down and no verifiable income. It defies commonsense and logic, yet this was common practice at the height of the market.
Wall Street dug itself into this disaster because of greed. The CDO's and SIV's were the brainchild of someone who had no clue as to what they were creating. These two non-exchange traded and non transparent investments could only spell disaster for the US in the long run. In the market there is no free lunch, and I think that this $700 billion lunch bill is the perfect example that will be taught in financial classes for the next five decades.
I am sure that after things settle down, Washington will once again hold their famous hearings about who did what, when, and who is to blame. While the blame has to go in my opinion, squarely on the SEC and the FED due to their lack of leadership and lack of rule enforcement. I would still love to know who pulled the strings to remove the uptick rule in 2007. I would also like to know why the 1-20 leverage rule was removed in 1999 under the Clinton administration. All these SEC rules were put in place to protect the public and to avoid bear raids on stocks.
Hopefully we can make some sense out of this and get back on our feet as a country and start building products and making things again to make America strong.
Okay, enough preaching... let's look at a recent event in the marketplace.
We received a lot of e-mails yesterday based on the sharp run-up in October crude oil. The reason for this run up was a classic squeeze on the shorts.
We have always advocated you should not be trading in the lead month of any futures market, and certainly you should not be trading on the last trading day for any futures contract. This should be left to the professional institutions, who are either making delivery or taking delivery. This, the biggest one day move on crude oil, was a classic case of a tug and war between these institutions. Today's pullback just shows you the true picture as to what's really going on. I am sure the headlines on the crude oil today will not read ... crude oil down $24 for the day.
Once again, if you are a speculator in futures, do not go into the lead month with a position. It just does not make sense, and the chances of you losing money are very high.
Thanks for taking the time to read this blog posting.
Every success in the future,
Adam Hewison
President, INO.com Co-creator, MarketClub
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Walter Bressert has been using market cycles to trade stocks and commodities since the 1970s when his HAL Commodity Cycles was one of the most widely known advisory services focusing on cycles.
