Madoff Money

Once again, greed has reared its head among the big financial institutions.  In case you still don't know what I'm talking about, former Nasdaq chairman and veteran fund manager Bernard Madoff has conned a lot of people out of their money by using the good old Ponzi scheme.  In layman's terms, he used pyramiding to entice everyone.  We've seen this before and unfortunately, hardly anyone learns their lesson even if others made the same mistake.

To sum it up, various banking institutions like Banco Santander, Royal Bank of Scotland, and even HSBC exposed millions, even billions, of their money to this scheme and are now paying for it after being bodyslammed by the subprime crisis.  It is said that the total exposure that Madoff has gotten runs to around $50 billion.

The scary thing here is that no one suspected a scam was in the works as this was being headed by someone who was supposedly reputable in the financial world.  He's a former Nasdaq chairman, dagnabit!  Who would suspect someone like him to dupe institutions around the world?  Alas, they found out about it too late.  They should have suspected something when the promised returns were too good to be true.  Even I would raise an eyebrow at a promised return of 10% per annum even in bad times.

This kind of situation has shown itself time and again in various forms but it all boils down to one thing: the person has enjoyed a particular lifestyle and is having a very hard time simplifying his lifestyle that he has to think of ways to support the high maintenance life even at the expense of others.  Either they were born without a conscience or they threw it out the window after enjoying the lifestyle of the rich and famous.

I guess this now puts to rest the question if many of the banks' actions were well thought out or were they lured by the big returns.  No wonder greed is one of the mortal sins.  It really destroys lives when it's not controlled.

Standard & Poor: A Fitting Description to the Index

That's right. Not only is the name of the index S&P 500 (SPX) known as Standard & Poor's but that is the best way to describe the condition of the index right now. Why say something like that about the broader based index? Take a look at how the long term chart looks and tell me if you see something pretty.

After rising up to the year 2000, the whole index has gone sideways for more than a decade. No wonder, many have had a hard time making money out of this market. Everyone was trading in a chaotic environment.

What we see on the long term chart is that SPX has formed a double top pattern that has spanned nearly 12 years. The neckline has been pegged at 770. It was breached Nov. 20 but the index has gone above it again on Nov. 21.

It's quite possible that the index will just bounce off this neckline and climb to higher levels. But the MACD tells us that's highly unlikely and that this is bound to breakdown soon as the oscillator has been lingering below the zero line. Once the neckline is broken decisively, we can expect the SPX to drop to a downside target of 375.

What would this all mean? Even if you don't trade the US market, this would affect the other markets that you do trade. It is a known fact that many countries have placed money in various funds that invest in the US markets. Normally, these funds only go long and it would be quite illogical for financial institutions to place their money in a fund that would short sell their investments. Unfortunately, going long in a dangerous market like the US is like playing russian roulette as that means going against the trend, which is downward.

When the index comes crashing down, expect a lot of trouble to come in many economies. In fact, it's already happening with layoffs being dealt left and right, the biggest of which is Citigroup (NYSE: C) with 56,000 job cuts so far. They've even gone as far as considering the idea of selling the whole company.

Remember the biblical saying: Those who humble themselves will be honored and those who honor themselves will be humbled. The time for the US to be humbled is at hand.

Double Trouble

You think we're in a lot of trouble now with the DJIA and other US indices moving wildly and widely, wait till you see this.

One of the lesser noticed index, the S&P 500 (SP500 in bigcharts.com) should be a better gauge of how things are doing as this is an index that is represented by 500 issues, hence the name. Because of what is seen here, it's scary to think that this bear market is just the tip of the iceberg.

It is quite clear in the chart that the S&P500 is right in the midst of a consolidation. Whether this is a double top, or a possible triple top, we still don't know. What we do know is that this seems to be a topping pattern that will reverse the previous uptrend. When this will be, we still don't know.

What we do know is that the support of the index is currently pegged around 770. Should this break, we could see the index drop to a target of 383. That's the scary part here. Things are already battered as it is. It appears there's more where that came from.

Notice also how the MACD has been oscillating throughout the whole duration of the chart. It's been consolidating around the zero line, telling us that as early as 1996, the index has been consolidating all this time.

One more thing to note is that the volume has picked up since the downtrend started October 2007.

Things will get more brutal in the coming months. Try to enjoy your Christmas and try not to think about this yet. It seems to be inevitable anyway.

Frenzied Dow

In what has got to be one of the wildest weeks of trading, the DJIA manages to finish the week higher.  However, it still ended the week on a low note.

This is one week where both the bulls and the bears don’t know if they’re coming or going with the index acting like a bungee cord.  One moment it’s extremely negative, and then give it a few hours, it’s substantially positive.  Go figure.

If we take a look at the weekly chart of DJIA, we’ll notice that the previous week was the worst in the past d

ecade, at the very least.  The selling pressure for that week was so significant that the bar was quite long that this week’s trading is nothing more than an inside bar, meaning that it might succumb to more selling pressure in the coming weeks.   In fact, it’s so bad that the MACD fast line just fell into a ravine.

On the daily chart, it doesn’t show the DJIA settling down anytime soon.  It’s so volatile that a 500 to 800 point trading range is becoming a common phenomenon on a daily basis.  In fact, many investors are now not shocked anymore to see this kind of volatility that they’ve become apathetic to what’s happening and have just decided to let things settle before they even make a move.

At this point, we can only speculate that the market could be starting to consolidate.  The problem is, it’s very hard to see through all this instability to make a firm call.  When in doubt, don’t make a move.

Rotten Apple

Gone are the days when Apple Inc. (Nasdaq: AAPL) has its share price lording it over its rivals.  From a "measly" $40 back in 2005, AAPL has climbed up, with the help of its innovative products the iPod and iPhone, to as high as $200.  Because of this, many have already regarded Steve Jobs as God's gift to technogeeks.

AAPL dove down to as low as $115.44 before climbing back to the $180 area.  From there, it took around 6 months before it nosedived again.  It started diving steeply in September and hasn't stopped since...until last Friday.  Before its performance last Friday, it formed a double top to create a neckline around the $115 area and it was pointing to a downside target of $65.  Friday's market probably had people capitulating that things seem to have turned around suddenly.

From a start of -$3, it ended the day in positive territory, creating 

a bullish outside day although the volume is a bit suspect.  The MACD is not yet reacting that a rally is in the offing but we could check this out and see if the momentum will carry over into next week.  Should this prove to be the reversal point, a quick 3 to 5% profit won't be hard to get.

All this remains up in the air depending on how the markets react to all the efforts being done to stave off a global disaster from happening.