Sunday, August 12, 2007

Looking to the stars

Central banks around the world injected some US$339 billion worth of liquidity over Thursday and Friday of last week. Remarkable was that the Fed took in $19 billion worth of MBS as collateral for its first open market operation on Friday (I have seen no mention of how they were valued and whose bids were taken). It will go a long way towards calming the nerves in the credit market. As I have said many times, we need to separate the liquidity crisis from the underlying economy. There is a good chance that the equity market will bounce back as confidence is restored and the sea of liquidity finds a resting place.

However, I couldn’t help but wondering that a new appreciation for risk will linger no matter how successful the central banks’ market supporting endeavors. At a minimum, mortgage lending standards will tighten when trillion dollars of ARMs are still facing resetting in the next year. Near term, worries of the US economy and the remnants of the latest liquidity injection will have to battle it out. I’m keeping an eye on IWM (proxy for the Russell 2000) which is stuck between its long term trend line and the 200 DMA (about $75-80), a break either way should be telling.

Bradley Siderograph
We live in interesting times. For those of you wondering about the future and looking for a good laugh here’s something completely off the beaten path, from the field of astrology to be exact.

The Bradley siderograph was developed in the 40ies by Donald Bradley to forecast the stock markets. Bradley assigned numerical values to certain planetary constellations for every day, and the sum is the siderograph. It was originally intended to predict the stock markets. It is crucial to understand what the siderograph is about since almost all traders (and even and even financial astrologers!) misunderstand it. Over the decades it has been observed that the siderograph can NOT (!!!) reliably predict the direction but only turning points in the financial markets (stocks, bonds, bonds, commodities) within a time window of +/- 4 calendar days (in a few cases up to +/- 7 days). Inversions (i.e. a high instead of a low and vice versa) are quite common. Also, it is not a timing tool for short-term trends but rather for intermediate-term to longer-term trends because the turning window is rather wide.

Two important dates, 8/26 and 10/17, are fast approaching, with 10/17 being the most important date of the year.

Needless to say, I do not recommend trading base on this information.