Rotation Out Of Commodity Related Sectors
RUN FOR THE HILLS!!! (Even those with iTards should get this)
Rotation out of commodity related sectors with the 2 biggies including GOLD and OIL as these 2 sectors are an extremely over crowded trade because they happen to be tied into many of the same traders shorting the $USD which from what the charts tell me only has one way to move and that is up. Let's call this it's own "carry trade" if you will. What has worked for years short the $USD while going long OIL and GOLD worked just as much as shorting YEN and going long POUND, EURO and many other even more riskier carry trade bets.
Much to what everyone might think that the $USD has been going down because the FED has been cutting rates; this is likely the worst lie they have been telling themselves.
The $USD has been dropping for 6+ years, the fed has done only 3 rate cuts in the past 3 months so far. The market looks ahead but it doesn't look that far ahead. The rate cuts have NO impact on any $USD decline but rather these things.
1. The United States has a lot of debt with or without rate cuts we don't save money but rather spend money we don't have and that is why the $USD has been going down.
2. The Untied States plays big brother to the world spending billions of dollars a day saving everyone else's country while we ignore our own that is another reason why the $USD has been going down.
3.The banking/brokerage/lending sector for years has been on a free money give away to anyone that wanted to borrow it as I warned long long long ago before "sub-prime" and "dodgy debt" even became a household name. That is another reason why the $USD has been going down.
4. If anyone wants to blame the decline in the dollar we certainly can come up with 1,000 reasons on why it has been in a 6 year spiral down but none of that has to do with the fed's last 3 rate cuts.
For once they are actually doing something right after years and years of getting it wrong, Will it be too late? Of course it is that is like me chopping off my left arm and saying "Gee ya think a Band-Aid is in order? "I'm no doctor but I did stay at a Holiday Inn once".
But what does that have to do with the rotation into TECH and the CHIP RALLY that I said starts in the last ½ of 2007 and will likely last a year from the time it starts. Well we have to look at the signs. INTC it all starts with INTC, the box makers the router makers and the gadget makers. (Let's call this the trickle down effect).
First it won't start until INTC can lead the way, I believe the fact that INTC is going on a 3 year high is now official that the rally in chips can now begin. But this is a CYCLE RALLY that happens every 4 years.
Not A Chart Pattern Rally As A Stand Alone Call.
Not A Elliot Wave Rally As A Stand Alone Call.
Not A Point And Figure Rally As A Stand Alone Call.
Not A 1-2-3 Bullish Or 1-2-3 Bearish Trend Reversal Rally As A Stand Alone Call.
But a CYCLE rally in a sector that is no different than many other commodity related sectors except this sector has everything to do with DRAM prices which have not seen this big of a rally in about 6 months. Yesterday we saw a 5th day of gains on the DRAM index giving it the longest winning streak not seen for at least the past 6 months. It's been that STRONG due to demand mostly coming from the emerging markets.
DRAM (Chips) trade on an exchange just like anything else, they have charts just like everything else. When those charts bottom and prices start moving higher there is a pecking order as to which stocks see the most juice first. Well with the exception of WFR, NVDA, and SIGM all those chips are already suggested.
So as far as timing this rally with "charts" well it helps but it has never been the "Holy Grail" to this call. It is all about the CYCLE that starts when it starts typically about every 4 years and has been going on for at least the past 16 years. As to the EXACT day it will begin and the very last day it will end, well if I knew that I would be on a beach drinking margaritas.
So when will the chip cycle rally end? Typically 8-12 months after it begins. When did it begin? Typically when INTC starts breaking out to new highs, and then the "trickle down effect occurs".
As stated before you can't have the mother board makers, the box makers, the router makers, the gadget makers, the graphic design makers, the nets and operating software system makers all go on new highs but the very thing that powers them and makes them all function remain in the gutter. It doesn't work that way, but they do lag and they also catch up VERY FAST. I can never get anyone in on every stock on the EXACT lows when we are dealing with CYCLES. It's impossible, no human being can, and anyone that tells you they can only knows how to lie and I'm not very good at that.
But is that the only story going on here that NO ONE is talking about? NO
We also have these other side bullet points that I have mentioned throughout the past few weeks and months that will lead this market into a stealth rally and tack on at least 500 NASDAQ points from CURRECT levels.
1. The third quarter was the eighth in a row of more than $100 billion in buyback spending.
2. Companies announced more than $33 billion in new share buyback's last week.
3. We have the highest short interest EVER in the history of short interest going on in the SP500 right now in a float shrinking at a very rapid clip due to all the share buy backs. Think of it as a supply demand issue, when stocks are hot there is much less supply to buy and it works in reverse when stocks aren't because fewer and fewer shares are on the exchanges. Hence the reason ETFs can move entire sectors even though I believe the SP500 ETF (SPY) makes up only about 6% of the actual index. Momentum is still there.
4.The YEN carry trade appears to have finally run its course and is likely to resume its downtrend (meaning Japan has blatantly stated speculators causing the run-up in the YEN better watch out, it wasn't a hint it was flat out a blatant statement).
5. The FED like in 1998 cut 3 times just like Greenspan did (but back then it was about the Asian currency crisis) but the chart patterns within the DOW, SP500 and NASDAQ were the same as pointed out in February, March, April, May, July and August of this year in about 30 different updates.
1998 Chart--FED RATE CUT X3
2007 Chart--FED RATE CUT X3
6. The $UTIL will lead the way as stated all along. When it topped in May we knew rocky times were ahead, well guess what? As expected in December of 2007 it broke out to NEW all time highs, once again history repeats the past of what happened before will happen again. The Utility index is the most interest rate sensitive index we have. They carry the MOST debt on their balance sheets, when they rise to new highs we can safely assume that rates are NOT headed higher.
7. The rally in China will continue also through 2008 and is NOT in a bear market according to news letter writers whose names I won't mention but you have seen the charts and the updates with the triple 3 Ascending Triangles that clearly state the highs are not in.
Now let's talk about shorting, we have thrown on a few shorts in RGLD and GOLD but that is it so far.............Much More For Subscribers
John
Thanks for the technical analysis of today's fed reaction, John. It puts things back in perspective and removes the emotions.
It seemed like such a farce. The minute the news hit things went down, as if someone pushed a button somewhere. What a way to manipulate us. I was getting the feeling that the big boys were given a "blue light special" sale.
With your GPS, we won't get lost and stray from our original plan. If we do, we'll just stop and pick up some beer along the way.
Sybil 12/11/07
Great Big THANK YOU JOHN for keeping me in the race!
Fizzy 12/11/07
