Sell Short (?)


The Bumblebee Algorithmic Strategic Investment Calculation (BASIC) is predicated on the deep and apparently little known insight that stock prices cannot keep going up when the companies of which the stocks are stock don’t keep making more and more money.

So taking into account that the overall earnings for the S&P have declined for the last five quarters, BASIC forecasts that stock prices are not going to go up unless there is something going on that is hidden somewhere and unknown.  But since what is hidden and unknown is unknown, it cannot be part of the BASIC forecast, and so the forecast is that stock prices are not going to go up.

Now even though that is BASIC’s forecast and Bumblebee Investing’s forecast and my forecast, I am always on the lookout for signs that I’m wrong.  So I took note when Goldman Sach’s somebody was on television several weeks ago explaining that GS was bullish and expecting new market highs.  This was so contrary to what I saw in the economy that I concluded they were talking their book.

And then it wasn’t a surprise when Goldman’s David Kostin appeared on CNBC Thursday and suddenly reversed Goldman’s bullish stance.  Time to talk the market down so they can cover their shorts from their customers’ sales.

This leads me to think maybe it is time for me to sell short so I too can cover from Goldman’s customers’ sales.

Now apart from paranoid speculations, housing is looking good, as is employment, and retail sales came in higher than expected this week.  But industrial production and durable goods are weak, inventories are accumulating, freight revenues are seriously off.

Mostly there just isn’t any pizazz in the economy, and the stock market has yet to mark itself down to reality.  Or it did, but then reversed and came back to La-La Land.  Probably on Goldman’s customers buying.

Bumblebee presently intends to initiate a short position on Monday, assuming there is no contraindication in overnight developments.

SPY ETF daily chart



Gold continues to drift inside its new up-channel.  Technically there isn’t any change, and I don’t expect to initiate any new positions until the bottom of the channel is reached, if it is.

GLD Daily Chart



WTI is also in a channel, near the high and unlikely on fundamentals to go much higher.

It is important to remember that crude oil became “finacialized” some years ago.  That means it became a vehicle for big money to trade and speculate in rather than a hedging tool for consumers of crude.  Prices are to a large extent determined by financial speculators who frequently drive them away from where supply and demand would otherwise place them.

The result is that, like gold, crude oil has to be traded more technically than fundamentally, although, unlike gold, the fundamentals limit the range of price distortion.

Bumblebebee expects prices to decline in the near term, but doesn’t feel strongly enough about this to risk any money.

Chart of Crude Oil CLM16



Money and Banking Part 14: Financial Crises
Eric Tymoigne, New Economic Perspectives

“While Visiting the London School of Economics at the end of 2008, the Queen of England wondered “Why did nobody notice it?”

They Will Never Get It…
Pater Tenebrarum, Acting Man

“We and many others have made a valiant effort over the years to explain what actually moves the gold market…. Sometimes it is a bit frustrating when we realize it has probably all been for naught.”

How Wall-Street Hocus-Pocus Inflates S&P 500 Revenues
Wolf Richter, Wolf Street

“Despite what you might think, there’s a difference between our financial markets and casinos in Las Vegas: casinos are not rigged.”

Michael Hudson: Warning to Europe – How the TTIP Threatens Public Health Care and Pension
Michael Hudson, Naked Capitalism

“The aim of the TTIP is to replace the application of national laws with special courts of referees nominated by the special interests. This includes the organization of health care. Last week Britain’s main labor union, Unite, warned that the TTIP would mean that the National Health Service would have to be wound down and privatized. Although ‘Austria, Germany, Greece and Italy do have explicit reservations in the TTIP text to protect existing rules relating to healthcare,’ the privatization lobbyist strategy is to have the treaty “provisionally applied” to force matters, by backing compliant politicians. Objections will be sidestepped as the “provisional’ law becomes a fait accompli.”


Market Brief – May 11, 2016

I’ve been gone a couple of months during which the markets did much as I expected. Except that I did not expect the bullishness in stocks to continue as long as it did, which goes to show how little the market cares about what I do not expect.


Poor quarterly results from several consumer companies seem to have contributed to a sell-off today, the DOW closing down 217.  In general, both company profits and return on equity have been declining for some time, and there is no particular reason to think that this will reverse.  Consequently, I think that stock prices are unlikely to rally substantially in the foreseeable future.

Chart of S&P futures contract

S&P Futures

The market has reached the resistance  from last July and has been hesitating there for several weeks.  Economic fundamentals continue to be negative and slowly deteriorating.  Basically, we have a wide trading-range market that began about ten months ago and is still continuing.

If so, then we should consider a swing-trade short at somewhere around the current level.


Spot gold failed to sustain a breach of $1,300 last week and has been consolidating since then.  Demand at present seems to be a function of perceived weakness in the global economy.  That is, gold is a fear trade, as usual.

Chart of GLD weekly

GLD weekly

Fear is a psychological reaction to perceived circumstances and is not easily predictable. For this reason, we trade gold mainly on technical patterns.

Technically, an upward channel is apparent on the chart and prices may be headed for the lower bound of the channel.  This is not the time to go long, and traders might consider taking short-term profits.



Crude inventories were reported this morning down 3.4 million barrels, the first drop in weeks.  There was an immediate spike of about $1.30/barrel.

The long trade I was unwilling to take when crude futures were at about $33.90 worked out brilliantly.  At the time, I was inclined to the long side because of technical patterns but afraid to get in because of fundamentals.  It is the sort of result that makes one want to forget fundamentals and look only to technical indicators.

Be that as it may, at current levels producers have, as predicted, started producing.  This, combined with worldwide news that repeatedly indicates that the major producing countries have no inclination to restrict production at present, makes a crude oil price increase unlikely, and we continue to stand aside for now.


Market Brief – February 29, 2016


The S&P 500 consolidated at yesterday’s low for an hour and a quarter this morning, then went up fairly quickly for an hour, and then down for the rest of the day.  There was again good resistance at the 50% retracement line and a double top at about the same place.  It is likely that we are at a swing high and have to think about a short.

The Chicago PMI number was a not good 47.6, and the Dallas Fed Manufacturing Survey registered the 14th month in a row of contraction.  Tomorrow is the ISM Manufacturing number, which is also expected to show weakness.  The Employment Report on Friday is the question mark for a stock short.

SPY Chart

SPY February 29, 2016

It is a tempting trade: a three legged move, against the main trend, stopped at the 50% line, forming a sort of double top, and the expectation of weak data for several days. Short here to rejoin the main trend and exit at the range low or better.

I think it is too early.  A nimble short term trader could enter short and be alert for anything going wrong.  For the end of day swing trader, I suggest waiting for the Employment Report and see what happens.  There is a lot of data this week, including the ADP employment estimate on Thursday, and there is a good chance stocks will just go sideways for a while.

Today is the end of month, and I have to let long term investors know that there is no change in Bumblebee’s recommendation to remain out of the market for now.


As stocks went down, gold went up – gold traders are hoping for a stock market crash.

GLD Chart

GLD Feb 29, 2016

The gold price, though, remained in triangle range, which I am taking as a bull flag, and I think the likelihood is for further upside if the weakness in stocks develops as I expect.

I gather some gold traders think that the flag is extremely misleading and gold is going down sharply.  The majority, however, appear to be in the “it’s going to infinity” camp, which I can tell you is not going to happen.  But I do think the technical indications are to continue holding long.

So that’s what I’m doing, with the plan to exit if the channel top doesn’t hold.


WTI Crude Oil closed up and above the triangle top.  This is bullish, but a safer long trade, if you must take one, is to wait for an up move followed by a pullback to the triangle.  Crude fundamentals are so weak, that I really don’t want to go long right now whatever the technical signals are.

Crude Oil Chart

Crude Oil February 29, 2016

It does appear that some sort of bottom may have formed, and I wouldn’t be surprised by a rally, but it would be a rally in a bear market, and that isn’t what I like to trade.

The April futures contract closed at 33.90.  The frackers have let it be known that if crude reaches 40, they are going to crank up production.  40 is where the last price consolidation happened.

So maybe a rally to 40. That’s about $6,000 per contract profit.  If it happens.  Yum.

Or it could test the bottom again, 28.74.  About at $5,500 per contract loss.  Bleaah.

Say a 40% chance of making $6,000 and a 60% chance of losing $5,500.  I don’t know.  You choose.


Stocks, Gold, and Crude Oil – Conflicted

I haven’t been able to decide whether economic data is a blessing or a curse.  On the one hand, it seems to reveal something about what is going on in the world; and that is good because I can use it to explain how the world works and what the market is going to do and how smart I am that I can see this in the data.

On the other hand, the information almost always conflicts with itself.  I mean that one report says the economy is doing well and another says “not so much.” This is helpful because I can pick and chose and my readers can admire me for making sense of it all.  But first I have to actually succeed in doing that, which is not so easy because the data conflicts with itself.

Federal Reserve of St. Louis

The real problem with data is that there is too much of it. Do you know that the Federal Reserve Bank of St. Louis tracks and makes available to the world 383,000 time series?   No wonder my head goes around.

There are websites and companies that will process all this information for you and send you their experts’ opinions on what it all means.  And they get paid very well for this service, so maybe it is useful.  Or maybe it’s just an illusion that with enough data you can, or any way should, be able to understand what is going to happen in the future.  If we can know that the sun is going to explode in 7.59 billion years, surely we can know what the market is going to do in a week.

If nothing else you can prove to clients with a lot of money that whatever you want them invest in at the moment is the logical and reasonable thing to do because the data says so.  Somewhere.  If things go right, you get a commission and other valuable things.  If if things go badly, you still get a commission and you can say it isn’t your fault because you just followed the data. You may lose the client, but you will win the lawsuit.

The problem is we try to solve everything by thinking. About data. The world is not ruled by the head.  It is ruled by the heart.  Even in stock prices.  Especially in stock prices.

You can take that as the Bumblebee arcane, it may mean something but it doesn’t matter because you can’t make money with it, saying of the day.

Stock Market

Stock market traders are undecided about what the situation is.  The “situation” means the objective factors to which we have react in order to make money trading.  This is typical of turning points in the market.  Unfortunately, it is also typical of markets that continue on in their original direction, so we can’t take confliction as confirmation.

SPY daily chart

Stocks moved up for three days last week and down for two.  On Friday, shares attempted to continue the rally started on Wednesday, but closed down on the day, but  above the recent trading range high.  Meanwhile, on the weekly chart prices failed to hold above the 50 percent retracement level.

There are currently reasons for bullishness and  reasons for bearishness, and traders haven’t figured out which are more important.  With reference to the long term investment environment, I noted in an earlier post:

Bumblebee does not at this time see signs of a major contraction. Employment data is not bad. There is still no sign in bond yield spreads of difficulty. AAA bond yields, which frequently spike before a recession, have not done so. But for stock prices, we believe there is currently no reason to be a buyer.

This remains the situation, and explains the pullback in prices and the hesitancy of traders to commit one way or the other.

DOW Diamonds weekly chart

The economic data on Friday were positive on the surface and somewhat weak on closer examination.  The second estimate of 4th quarter Real GDP growth increased 0.3 to 1.0 percent.  The increase was, however, the result of an change in the inventories number.  Bigger inventories are not necessarily indicative of more demand.

Personal Income was up 0.5 percent MoM, which heartened some, but the YoY change was negligible.

These are the kind of conflicting signals we are getting every week from the data, and they are typical of a changing picture.  It is my belief that the Really Big Picture (RBP) portends a recession to take hold in the next six to nine months for the reason you can read in the “Bumblebee Perspective” box on the sidebar.  I have said, though, I do not believe this outcome is writ in stone just yet, and the conflicting information about the economy condemns us to a trading type market for a while.

We get some readings on the industrial sector next week and the important Employment Report on Friday.  Industrials have not been doing well, and the reports are expected to continue to indicate weakness.  Weakness is not expected in the employment data.

Gold Market

This is my first post covering the gold market, which I introduced last Thursday.  I mark my trading suggestions from that date.

Gold GLD daily chart

Gold is breaking out of a two year down channel and is consolidating just above the channel top.  This is a buy signal, and so I’m long. Because the break out could just be a swing high, I will exit if the channel does not hold as support.

A better entry would have been a long off the bottom of the channel, which was also a swing trade low.  But it’s too late for that now, and waiting for a pullback is unwarranted after the breakout.  This is higher risk than I like, but there’s no other good way to get in.

Gold has one eye on the stock market, one eye on crude oil, one eye on the E.U., one eye on China, and one on the rest of the world.  When the U.S. stock market did not crash last week as gold traders were fervently hoping, gold consolidated in a triangular flag just above the channel line.  This is bullish for gold (and probably bearish for stocks), so we remain long.

Oil Market

The EIA Petroleum Status Report on Wednesday showed a weekly increase in crude oil inventories of 3.5 million barrels and a decrease in gasoline of -2.1 million barrels.

Reports say that crude storage facilities are going to be maxed out soon or maybe sooner, and I don’t know just what happens then.

Futures Contract CLJ16 Crude Oil

Technically, crude attempted to rally out of a triangle on Friday, but prices collapsed before the close, forming what could be taken as a reversal bar.  The general pattern, though, shows a clear double bottom after a long decline and a breakout of the channel in the direction of the channel.

This is not a bearish move but signals us to be attentive to the possibility of a bull rally.  A failure of a rally to materialize would then signal a possibly precipitous drop in prices.  The double bottom leads me to think that unlikely, but for now, I’m just watching.

Recommended Reading

“Prelude to Recession”: the Dallas Fed’s Unsettling Charts
Wolf Richter, Wolf Street

“Also let’s clarify upfront that Evan Koenig, Senior Vice President and Principal Policy Advisor at the Dallas Fed, did not forecast a recession. No Fed official, and no economist employed by any Fed entity, would ever publicly do that. For them, publicly, recessions exist only in the rearview mirror. For them, publicly, economic growth goes on forever.

“Yet they know what’s going on.”

Lacy Hunt: Secular Low in Long-Term Treasury Bond Yields Remains Ahead
Mish Shedlock, Mish Talk

“Hoisington’s bond managers, Lacy Hunt and Van Hoisington, doubt the global economy will rebound soon thanks to low industrial output, heavy debt, and the commodities collapse”

Joshua Brown, The Reformed Broker

“What the hell are we selling? Time-wasters and profit-shrinkers in place of companies and industries. Schumpeter didn’t have the current version of creative destruction in mind when he coined his phrase. This is destructive destruction.”

Why the European Periphery Needs a Post-Euro Strategy
Thomas Fazi, Social Europe

“In recent weeks, Germany has put forward two proposals for the ‘future viability’ of the EMU that, if approved, would radically alter the nature of the currency union. For the worse.”


Market Brief – February 25, 2016

The crude oil – stock price correlation continued today.  Brent Crude moved up 2.6% and WTI Crude closed up 2.9%.  Oil’s strength appears to be based on the idea that producers will agree to freeze or cut back on production and news that Venezuela’s representatives will meet with those of Saudi Arabia, Russia, and Qatar.

People I know in the oil industry say they don’t believe anything will come from the meeting and even if it does, the price of oil will not rebound much for many years.  The only thing I know is the oil went up and stocks went up together. Again.

The Durable Goods report was up strongly from December’s revised -4.6% to +4.9% for January’s month over month change..  However, a lot of this was in the quirky transportation sector.  Looking at the more revealing year over year figures, ex-transportation orders were -0.9% and core capital goods was -2.8%.

The early response to the Durable Goods and Jobless Claims reports was slightly negative, and a “close the gap” trade took prices to yesterday’s closing prices.  Thereafter traders became happier and thought it would be nice to rally.  The Dow Jones Industrial Average closed up +212.30.  Whether this was the economic reports, the price of crude oil, or something else, I don’t know.

Despite the rally today, both the Dow and the S&P are just at 50% retracement on the weekly charts and the overall economic conditions are unfavorable.  Also, as I said somewhere, I was expecting several weeks of rally before the down trend resumed (if it does), so I am content to stand on the side and see what happens with the Personal Income report tomorrow morning.

Dow DIA Diamonds Weekly Chart

I introduced a page today showing my Gold Trades.  This is a very speculative type of trading, and should be used only by those who can afford to lose money.

Gold prices have broken out above a long term channel and are likely reflecting the uncertainty that is also overhanging the stock market.  I will discuss the gold trade more in the weekend update this – well, weekend.


Market Brief – February 24, 2016

The U.S. stock market managed to close up a bit after a sharply lower open.  This could be because WTI Crude Oil closed up 0.9 percent after a drop of  more than 4 percent earlier in the day.

If you overlay a chart of crude oil prices on the S&P index, you will see that since early 2009 the two appear highly correlated. I don’t know whether this is causation, and I don’t know why stock traders should think that the price of crude should be so closely coupled with the price of stocks.  Maybe it’s just an illusion. It’s a pretty good illusion, if it is.

New Home Sales collapsed 9.2% from December, the biggest January drop since 2009, and house prices fell -4.5% yoy.  Sales in the key western region are off 24% yoy.  New Home Sales is not as important an indicator as housing starts, still it is part of the big picture.

Chart of SPY prices Feb 24 2016

Looking at prices this morning, I realized that I should have exited my SPY swing trade at the close yesterday on the grounds that the 50% retracement level was tried and found powerful and also that a double top had formed at that level.

I got lucky with the price run up after about an hour and exited at yesterday’s closing price. The trade wasn’t a huge winner, but did make about $5.60/share, which is something.

Tomorrow is the Durable Goods report and the overrated Jobless Claims report.  Friday we see the 2nd estimate of GDP, International Trade, and the important Personal Income and Outlays report.  One or more of these could move the market, but our Swing Trade position is flat for now.

Stocks are moving in a trading range from the January 20th low to the high on Monday.  The trade, if you take one, is to short against the 50% retrace and 50 day moving average for a move to the bottom of that range, which is also in the direction of the major trend.  I may do this after the data release tomorrow, but only if I can get a good entry.  It is a little too dangerous to chase the market before also seeing Friday’s reports.

The long term investing position (flat or short) is unchanged, and that is unlikely to change until at least after the Employment Report next week.  I suppose a major rally could force me to change my view, but a rally would have to get towards the January high before I started thinking about reversing to long.


Dow Jones, S&P 500 Futzing Around

It’s one of those weeks.  Nothing happened.

Well, really quite a lot happened.  It’s just that the Big Picture of prices in the stock market didn’t change much, which for traders is Nothing Happened.  Changing much is what makes money.  Also it loses money, so maybe it’s just as well that nothing happened.

There were several important economic data releases: Housing Starts, Producer Price Index, Industrial Production and Capital Utilization, FOMC Minutes, Philadelphia Fed Business Outlook, Consumer Price Index.

  • Housing Starts: Weak.
  • Producer Price Index: Rising, except for energy.
  • Industrial Production: Up, but not enough.
  • FOMC: Global risk is worrying.
  • Philly Fed: Not looking so good.
  • Consumer Price Index: +1.4% yoy.

All of these reports feed into the Bumblebee Trading Model (BTM) and do not change my current view that the market is in a down phase.

The CPI number is a little worrying because it might lead the Fed to think that it’s OK to raise interest rates again, which in Bumblebee’s opinion would be a serious mistake added to the serious mistake of raising rates last December.  Unfortunately, the Fed really doesn’t care very much about the opinion of the Bumblebee.  So much the worse for them.

There are significant reports in the coming week – Durable Goods, Existing Home Sales, GDP, and Personal Income are the most important – but I cannot see anything at this time that is likely to change our end of month, long term investing position: stay flat if you are flat, stay short if you are short.  Of course, it isn’t the end of the month yet.

Short term trading was more interesting.

If you took the countertrend trade I noted last weekend, then you presently have a profit.  I originally thought the upward move might last several weeks, and then I thought that the 50% retracement level was more likely.  For SPY that level is 194.41, and SPY was stopped there on 2 February.  Last Wednesday, price did not quite reach the 50% retrace level and formed a three day consolidation.

Daily chart of SPY

It is probable that the Wednesday high and 50% retrace will be tested again, but remembering that the trade is against the main trend, I am nervous, especially with important reports coming up.  The Wednesday high could become the mark for a descending triangle.  Or prices could go back to test the nearby high.  Or they could go all the way to the large triangle top on the weekly chart.

So, you see, I am predicting that price will go down unless it goes up or stays where it is.  Now I can claim market omniscience.

Actually, I’m recommending that anyone in this trade would be wise to have a profit protecting stop and in no case allow the current trade to go negative.

Maybe next week Something Important Will Happen.


Estimates Of Post-2005 US, OPEC & Global Condensate Production Vs. Actual Crude Oil Production
Jeffery Brown, Oil Pro

“In any case, here is the critical point: If it took trillions of dollars to keep us on a post-2005 “Undulating plateau” in actual global crude oil production, what happens to global crude oil production given the large and ongoing cutbacks in global upstream capex?”

I’m in Awe at Just How Fast Global Trade is Unraveling
Wolf Richter, Wolf Street

“It simply doesn’t let up. Global trade is skidding south at a breath-taking speed.”

Michael Hudson Discusses the Federal Reserve and the Global Fracture
Yves Smith, Naked Capitalism

Does the Fed realize global turbulences, what its unconventional policies have caused?

“Sure. But the Fed has painted itself in a corner: If it raises interest rates, this will cause the stock and bond markets to go down. That would reverse the debt leveraging that has kept these markets up. Higher interest rates also would bankrupt Third World debtors, which will not be able to pay their dollar debts if dollars become more expensive in their currencies.

“But if the Fed keeps interest rates low, pension funds and insurance companies will have difficulty making the paper gains that their plans imagined could continue exponentially ad infinitum. So whatever it does, it will destabilize the global economy.”

The economics of language: David Hume & valuing Facebook
Eric Lonergan, The Philosophy of Money

“David Hume is the first great thinker to identify language, law and money as ‘spontaneous’ institutions of social organization. Hume was on to something quite profound, which remains under-appreciated.”