Citigroup Fraud

This is not the first time the question of fraudulent banking activity has been mentioned on this blog. We have a credit card with Citi. Last month's bill was paid in full, more than a week before the due date. This month's bill has a finance charge for the unpaid portion of last month's bill. Of course, there was no unpaid portion. So we called Citi and asked how they could charge a finance charge on a zero balance. They confirmed that we had paid last month's bill, and had paid it on time. They could not answer the question. Finally, they agreed to send us a check for $50.
We've had credit cards for over 20 years and have never made a late payment, and have never paid less than the full balance. Of course it's hard to believe that a company as large as Citi would be blatantly defrauding their customers. We began to wonder if in these desperate times, could Citi be resorting to desperate measures to stay in business? Has the government given them amnesty for minor "errors" to keep the failing bank alive? Of course we don't know what's going on behind the scenes at Citi, or any other bank for that matter, all we know is that this is the first time in 20 years that we've had reason to call them.
Check all of your bank and credit card statements more carefully than you typically would. Something just doesn't feel right.

Updated Chart

Click chart to enlarge

Above is a chart of the Dow including Monday's action. Needless to say, there was a simultaneous and decisive break of the channel and moving average at the open on Monday. These short term chart patterns are not as reliable as longer term patterns, but if TA is any guide, market sentiment changed this morning. We should continue to sell off from here, but of course anything is possible. Today we sold the other half of what we bought at Dow 6700/6800. We were hoping for more upside, but there's a lot of risk now that we've been so blatantly rejected once again at the 75dma. We're more interested in buying than selling now, and are hoping for a return to the lows. If instead the market moves against us (goes higher), our next sell target is Dow 8400/8500.

New Channel

Click chart to enlarge

We drew a new linear regression channel on the chart of DDM, beginning at the breakout on March 10th through today. The recent weakness has brought the slope of the channel down a bit, relative to the slope it had when the rally was only 8 days old. The longer a channel, the more significant it becomes. The bottom of the channel is running parallel to the moving average, increasing the chance that other traders will pick up on it. This is a 35 minute chart for no other reason than that all 14 sessions of the market's current rally fit on the screen.

75 DMA

Click chart to enlarge

The chart above is a chart of SPY (S&P500). This way, we can't be accused of having a myopic, Dow-centric view of the market. The chart is virtually identical to the Dow in that both charts are flirting with their moving average. It happens to be the 75dma, but the actual number is irrelevant. All that matters is that it's the moving average that it hasn't been able to break for the past 8 months. The 4 small diagonal lines show the points where the index got rejected at this line. Needless to say, we're at a critical point. Do we break out or do we go for another test of the lows? We have no idea. All we know is that if the market drops, we're going to begin accumulating shares rapidly. If it continues to move higher without correcting, then we'll unload a small handful of shares at each resistance level. The next of these levels is at SPY 880 (Dow 8400), the Feb high. For the record, the 100dma is at SPY 840 (Dow 8125), within easy striking distance for tomorrow, and the 200dma (the important one) is at SPY 102 (Dow 9526).

Regardless of how you want to play it, it is important to take note that if the indexes break this moving average, it will be the most bullish move they've made since the start of this whole debacle. Don't expect fireworks, but do mark the day on your calendar.

12 Month Chart

Click chart to enlarge

Above is a one year chart of the Dow. The moving average shown is the 75dma. It is not as significant as the 100 or 200dma, but it's what the Dow has been responding to (bouncing off of) all year long. In our minds, this makes it more significant than the 50 or 100dma. We're going to sell about 1/4 of our shares tomorrow, hopefully into strength. If the Dow should break the downtrending resistance line and moving average, it should be seen as the strongest move it's made for the past year. These lines are not set in stone. There is an art to drawing channels, it's not an exact science. The channel drawn could be off by a couple hundred points depending on its slope. Although we use a computer generated center line, the start and end points of the line can alter its slope. Nevertheless, the basic concept is sound. A significant break of the channel and moving average would suggest that sentiment wants to change for the better. It would not rule out a return to the lows, but would make it more likely that the recent lows will hold. If instead we start dropping from here, there would have been no change to market sentiment with this recent rally. In that case, it would just be another bear market rally, setting latecomers up for rapid losses.

Either way, this is our cue to become a little more defensive. We bought at Dow 6800 or so. Selling those shares here just makes good sense, considering we'll still be holding the majority of our stake.

Channel Break

Click chart to enlarge

The chart above is a chart of DDM... same thing as the Dow for the intents of this post. The channel has clearly been broken. It's too early to say if this is the start of a return to the lows yet, but it's fair to say that the momentum has changed. This is no longer a dip within the channel, but rather a change of sentiment for the market. At least for the short term, there's been a shift from the recent "buy the dips" mentality to a new "sell the rallies" mentality. If we gap up on Monday, people will be looking to sell at the recent highs rather than buy into the upward momentum. Like we said in a previous post, when the channel breaks, it is a swift and decisive move. It doesn't just slowly go sideways through the support. It just drops.

Dow Update

Click chart to enlarge

The Dow is just riding up the bottom of the channel today. Despite a triple digit loss earlier, it's an uneventful day as long as it stays within the channel. This channel is so well-defined and has been validated (tested) enough times that there's no doubt a chart like this is up on the computer screens of traders around the world. When the Dow finally does break down from this channel, the initial drop will be very significant. You'll know then that these channels are used by many. We'll post it here when it happens.

Intraday Dow

Click chart to enlarge

The chart above is a chart of the Dow on an intraday basis. Each candlestick (bar) represents 20 minutes. The chart shows the entire recent rally from March 10th to present. We would recommend holding tight until this chart breaks support. If you want to sell at the top of the channel and repurchase as it returns to the bottom, you could theoretically increase your shares at no cost. We have no intention of selling any shares as the market rallies unless the top line is broken, or the Dow reaches the top of its larger, downtrending channel at approx 7700/7800. Other than those occurences, we will continue to buy the dips. We continue to believe that we have hit a bottom for the market, although the economy itself will not appear to improve for 6-12 months.

Updated Dow

Click chart to enlarge

The chart above is an update of the Dow. We're nearing the top of the channel and moving average. When people ask should they buy or sell here, the answer is it depends on how invested you are. Which is why no one can really advise you. We're only 30% invested, with the goal of investing more into the indexes. If we were to sell any part of our holdings, it would only be tempting at 7800 or so. And in that case, we'd only be selling the portion of our shares which were bought at 6800. We're not focused on selling, but rather on continuing to accumulate shares for the long term. That is, until a new leading sector emerges. At that point, we'll shift from the indexes to the leaders of that sector. That shift could be a couple years away.

We have inside knowledge of the health of the high end real estate market. It is an excellent barometer of the health of the overall economy, and perhaps even a crystal ball. We find that after a two year lull, wealthy speculators are starting to buy land and build houses again. It may seem early, but these are people with close ties to the major brokerage houses in New York. Billionaire investors are scooping up land at firesale prices, and are beginning to revitalize the otherwise slumping local economy. This is the earliest sign that a major turn in the economy is brewing. It will likely be about a year before this spending trickles down into the pockets of the plumbers and electricians and such, but the turn is coming. Our guess is that 6500 will be the bottom. A return to 6500 should be seen as a great opportunity, as it will not be long before others realize that a major shift in the economy is just around the corner.

Dow Channel

Click chart to enlarge

The Dow didn't quite reach the bottom of the channel, but we did at least buy a small amount of SSO on the dip. We'll sell that same amount if the Dow reaches 7600 or so. The top of the channel is currently at about 7700/8000, depending on whether you view a log chart or arithmetic chart. Either way, the line parallels the moving averages, giving its slope further validity. This resistance line connects points from September, January, and February, which we believe makes it long enough to be showing up on screens on trading desks everywhere. In this range (7700-8000) is where we think the current Madoff rally will pause. We may have a retracement of some of the recent gains before making it to the top of the channel, but the odds do favor a return to upper 7000's.

From there, it's anyone's guess as to whether we break out and move higher, or retest the recent lows. The poll we have in the left sidebar of the blog suggests that investors remain bearish. Of course this is a small handful of voters, but the votes are more decisive than in previous polls. The majority of our readers believe we're ultimately headed for new lows. We hope this is the case, as we've been looking for a washout move significant enough to convince investors that we've hit a permanent bottom, giving them confidence to re-enter the market for the long term. We think that when the eventual recovery happens, both for the market and for the broader economy, that the snap back will be fast and steady. Everything today takes fractions of the time it took in the past. The market may collapse faster, but if our common sense is any guide, the speed of the recovery will be equally unexpected.

Bought SSO

Click image to enlarge

There now exists a piggy bank in the image of con artist Bernard Madoff. It's made of faux bronze, fitting for a faux money manager. The plug at the bottom is fused shut, so money deposited in the bank is lost. That is, until you smash Bernie over the head with a sledge hammer. Hats off to Palmer Murphy, the NYC artist who created it.

We bought some SSO today, enough to bring our long positions back up to 30%. They had deteriorated to just 24% of our account given the selloff of the past few months. We don't intend to do any more buying unless the market breaks down to new lows. The fact that Citi has been operating at a profit for the past several months is great news... if it's true. It would mean that we, as taxpayers, would no longer have to bear the burden of paying Citigroup's bills to keep them alive each month. When we were, it was costing us $15B a month, $3B more per month than the cost of the war in Iraq.

If today does turn out to be the start of the next sustained rally, then you're not too late to buy. We could potentially rally another 1,100 points to Dow 8,000, which is where the 75dma currently is. We're mentioning the 75dma because the Dow seems to keep bouncing off of this line each time it rallies. A break of this resistance would be very significant in that we haven't traded above it since last June. We returned to it in September and then again in January, but haven't broken through it. It therefore is the strongest resistance level the Dow has right now, despite being an "odd" number. It coincides with what once was support for the Dow, that 8,000 level that the market struggled to stay above for 4 months before finally breaking down in February. We would certainly do some selling near the 8,000 level if it turns out to be the next stop for the market. Until then, we remain focused on buying somewhere near the bottom of any major selloff.

Madoff Kills Two

Bernard Madoff, now the most vilified man (if you can call him that) in America, killed two people recently. A plea bargain is being sought in the case in order to protect Madoff from serving justice for toppling investor confidence, bankrupting charities, leaving widows impoverished, and killing the two men shown above. Madoff will likely face a $75 fine when the swift arm of the SEC slams down on him.
At left is pictured William Foxton, who put a bullet in his head after learning that his family's life savings were wiped out after being invested (if you can call it that) with Madoff. At right is pictured Rene-Thierry Magon de la Villehuchet, who slashed his wrists when he learned that his family's life savings had vanished thanks to an investment with Madoff.
Meanwhile, back at the ranch, Bernie and wife Ruth are sipping margaritas, that we're paying for, in their luxury apartment, that we're paying for. The margaritas they're enjoying are costing each American taxpayer just fractions of a penny. Which isn't so bad. The apartment, however, is costing each American taxpayer 7 cents. We don't know about you, but it pisses us off that we're paying 7 cents to fund this guy's retirement. In fact, we feel he owes us. We used to love this country, but we're really on the fence now. Every day Madoff is free on bail is a slap in the face to the rest of us. We're spending the first 19 seconds of our work day working for Bernie and Ruth! That includes the cost of the margaritas, by the way. If everyone in America were to punch the clock 19 seconds late each morning in protest until Madoff is behind bars, it would send a message to Washington that we're not paying for this!
We think Bernie should be brought up on manslaughter charges and be behind bars on that basis alone. In all other aspects of life, if you contribute to a person's death, you're partly responsible. Apparently Wall Street has written its own set of rules, in which our role as the State has been reduced to just to paying the bill.

Ready to Buy...

Click chart to enlarge

Here at the Snotwheel Group, we're getting geared up to buy the indexes, but aren't pulling the trigger just yet. We're under water on the first layer of index ETF's we bought months ago, so we've been waiting for a washout move upon which to double or triple our current number of shares. Remember, as it goes lower, it becomes less and less expensive to double your shares. In a sense, a falling market gives you leverage, provided you're not fully invested.
We haven't pulled the trigger yet because we're still eyeing the channel, waiting for the market to reach a position where it will be as oversold as it's been at its worst times since the start of this global depression. The market's level of "oversold-ness" can be determined by how far below the moving average it is, on a percentage basis. For example, on 10-16-08, the Dow hit a low of 8,200 while the 100 day moving average was at 11,300. In other words, the Dow was 27.4% below the moving average. On 11-21-08, the Dow hit a low of 7,450 while the 100 day moving average was at 10,423. At that low, the Dow was 28.5% below the moving average. The chart above shows a 90 day moving average, just fyi. It does not matter what moving average you use for this calculation, as long as it's the same one for each comparison.
It's safe to say that when the Dow is 27% below its 100 day moving average, it's as oversold as it's been over the past couple years. Today, the 100 day moving average is at 8,360. For the Dow to be 27% below this, it would have to be 6,100. For it to be 28.5% below it, it would have to reach 5,977. Anyway, this gives us a rough idea of where we would be looking to buy. Of course, there's no guarantees it will reach that target, no guarantee that it will stop falling if it does reach it, and no guarantee it won't just go slowly sideways or lower from there. Nonetheless, as a long biased retirement fund, this is where we will focus our next layer of buying.
It should be noted that if anyone wants to engage in such "risky" activity, it would be a good idea to check such numbers against the S&P500 index, as the Dow is the worst performing index of late. We intend to buy SPY and/or SSO, not the Dow this time around, so we'll be checking the math on a chart of SPY accordingly.
If the market does not reach those lows, then we just stay put. There is no rush to buy at any point that does not represent a severely oversold condition. If the market rebounds early, the next oversold condition will not be at 6,000. It may be at 5,000 or 4,000. We are not interested in buying at 6,000 per se, but at 28% below the 100 day moving average, whatever the market's level may be at that time.
Tomorrow morning we will get the all-important jobs report. This will determine the direction of the market, and if it is negatively received, we could easily hit 6,000 by early next week. If the market continues to crash over the next few sessions, and you intend to buy, it's best to turn CNBC off and just focus on nothing but the market's level. The media will be overwhelmingly negative, and it will appear that the bottom is falling out of the market. There could be talks of runs on banks and such, along with many excuses as to why the market is falling. Truth is, it is only falling because people are selling. And people only sell for one reason... they think it's going lower and they don't want to lose money. It's a self-fulfilling prophecy. If you intend to buy, don't get caught up in the emotion. Just pull the trigger when it feels most scary to do so, and then just walk away.

GE

Click chart to enlarge

One of the more ominous looking charts is that of GE. Currently (10amEST), the Dow is up 50 points, and GE is down over 5%. Just judging by the chart, GE looks like it's in every bit as much trouble as C, BAC, and the automakers. With chart activity like this, it's very possible that we see GE drop to $2 and become the next big news story, complete with bailouts and talks of bankruptcy. Whatever is going on at GE, one thing is clear... investors are running for the exits.

Letter to AIG

To Ed Liddy (AIG CEO),
I understand that you received $40B from TARP in November, and are now set to receive an additional $30B. More bailout money has gone to your company than any other thus far, and even more may be coming your way.
As an individual American taxpayer, I alone have sent you $700, effectively paying your bill for the amount of marble flooring visible in this photo of your office building's lobby. It just so happens that I was in the middle of renovating my bathroom when I received the bill for your marble, which means that I can no longer afford to finish my own project. I had set aside the correct amount to finish my bathroom floor, but did not count on having to pay for yours first. Thanks to your incompetance, I will be without a bathroom for the next year, and am therefore writing to ask that you leave your facilities open to me 24/7 until I can recover from the burden of having to pay your bills.
Thank you for your cooperation.
Sincerely, Al Smith
.....
P.S. - Considering your company lost $61.66B this quarter, don't your executives have anything better to do than hang out in the lobby posing for photos?

The Dow

Click chart to enlarge

The chart above is a log chart of the Dow over the past 7 months. Channels are more reliable on the way up, but we've nevertheless drawn a downtrending channel to attempt to gauge how oversold the market currently is, relative to recent levels. We know that the slope of the channel is valid because it parallels the moving average, and roughly approximates the highs and lows of the market for this time period.
The slope of this channel is steeper than most bear markets. The oversold levels reached in October and November were very extreme. There is no guarantee that we'll reach such extremes again, but recent history is the best guide we have. If the market were to plunge over the next few days, we could reasonably expect it to stop at 6,300, with 6,000 being the extreme low. Of course, the longer the drop takes, the further the lines move down.
Although buying in a bear market is not safe, the further the market drops below its moving average, the better off you are. The best case scenario (for us, anyway) is a hard drop directly to the low 6,000's. At that point, we would at least double our long positions. There would be a good chance that from there the market would either consolidate sideways for many months, or move higher. Many are now calling for Dow 5,000. We don't need to see Dow 5,000 in order to tempt us in, we'll feel comfortable adding in the low 6,000's, no matter how scary the environment is if/when we get there.