Berkshire reports a 96 percent drop in 4Q profit

On October 26 2008, I wrote the following about Market Fundamentalism that sounded quite offending to many type-two suckers who manage multi-billion funds based on valuations and market fundamentalism.

Collapse of Market Fundamentalism

Did you read the 5th paragraph?

This morning, Berkshire Hathaway Inc. reported a 96 percent drop in its fourth quarter profit because of largely unrealized losses of $3.25 billion on investments and derivative contracts. In the report, Mr Buffet confesses that it is all his mistake. This alone makes me rethink about his ability to learn despite his age and honestly I might have been underestimating his adaptive skills.

However there is still an army of thick headed fund managers in the business that will not understand what has really changed and why it is different this time, until the grand day of reckoning. Until then the wealth transfer from this army of suckers to the minority at the top of the pyramid will continue like a fight between dinosaurs and their predators... lengthy and bloody.

S&P may open below 700 on Monday

Markets may accelerate to the downside into the close before the announcements by several European banks this weekend, I wish all xTrenders best of luck.

shorted BBY @ 29.46

shorted JNPR @ 14.4

Shorted GS @ 93.1 and AMZN @ 64.4

You don't really believe we can break down here, do you?

xVix shows some complacency.

Into the oblivion...

Major world markets may crash alltogether in two weeks.

I have readings similar to those I got in August / September 2008. As you know, I have been talking about this terminal sell off since SPX 900-950 level but instead we got a slow motion sell off (only 200 SP points so far). In the last few weeks, several significant developments took place in major world markets including US. We have been consolidating under the important trends that will likely push prices lower over the intermediate term.
However, from here on, markets will likely accelerate to the downside at very fast fashion. It will have to be somehow faster than October 08 event by nature... unfortunately.
This may all take, unlike October 2008 sell off, one or two days, or it may be something like October 1987 event.

There is an intermediate term trend line passing through 750-755 on SPX and obviously it can not be taken out intra-week. What is most likely to happen is that , we will probably close around 750 on one of Fridays to open below that trend line with a sizable gap, probably on the following Monday. It may trigger the event or it may not. Hard to fine tune the timing at this moment. BUT dont forget that it gets darker before the dawn. For a healthier market, perhaps for another bull market, this has to happen.

Since this will likely be a terminal move, since it will be harder to predict the exact moment, I insistently stay short SP from 757 and higher. Plus several domestic and European banks.

Don't say you weren't warned

Dear all,

JB3 here. Two things:

1. Don't say you weren't warned

...not that we have any kind of obligation to warn you, but here I go anyway. 

These kinds of events that are coming very soon get wild. In the past wave down and bottoming process we saw a number of xtrenders blow their accounts up. Following in the same vein as Atilla's last post:

Margin  x  Volatility  x  Emotion  x  Inexperience   =   KABOOM

or 

Margin  x  Volatility  x  Emotion  x  Inexperience  x  Greed  =  MUSHROOM_CLOUD

Recall the last wave down, as shown in the chart below. Pay particular attention to the shaded areas:

 

2. Elliott Waves update

Trying to make a case that the price patterns in the recent bounce are impulsive (ie. bullish) is a difficult one indeed. I see quite a bit of overlap and general untidiness indicative of impulses. 

EDIT: Sorry about the typo: That should read: I see quite a bit of overlap and general untidiness which is NOT indicative of impulses.

Right now I am 90% convinced the Elliott Waves are corrective. I will be 100% convinced when the SPX prints below 758.

That's not to say the bounce won't go higher. I would be surprised if 818ish was tested, and I would be proven wrong about this short term analysis if 876 was taken out.

"What????" I hear you say? "Geez man 876 is a long way from here!.... I'm going short anyway even though I'll get margined out at 820 'cos I'm not gonna miss this one!".... If that's your view, save yourself the heartache and the brokerage fees and transfer the funds in your account directly to me, 'cos you're on a slippery slope to Trading Account Armageddon and rather than give your money to some silver-suited shark why not give it to a fellow xtrender instead ;-)

Seriously, now.... manage your risk prudently or suffer the consequences.

Take care out there,

JB3

F=M*G

That is Newton's second law. You know what I mean.

No double bottom I see

What I see is a cause building on short squeeze, not a double bottom.

The cause for the inevitable selling climax into the oblivion.

Staying short SP from 757 and higher, also shorted banks and brokers, expecting SPX to take out 700 this week.

Short BK@23.60, long FAZ @ 65

Shorted ES @ 757

sold ES @ 757, FAS @ 4.74

long FAS @ 4.45

stop 4.35

xVix

Site traffic was huge yesterday. This indicator usually acted like a vix index in the past. I call it xVix. This kind of spikes almost always occurred at the important swing tops or bottoms.

Update

Still long from 750. ES closed at 745, I expect it to open above 754 , tho I would appreciate little heavy lifting by Atilla tonight.

Also stopped out of SKF short at 199.

All shown at http://xpositions.blogspot.com

reinitiated long ES @ 750

with no advertised stop. I will post when I get out - realtime.

added 25% ES @ 756

fully long now

stop 754

Edit: shifted stop to 752

added 25% ES @ 758

stop for all ES 755

added 25% more ES @ 759

stop for ES 755

long ES @ 760, 25% position

covered WFC @ 11.3

shorted SKF @ 194

stop 199

shorted WFC @ 12.6

stop 13.2

Sold ES @ 779.5

Goodnite folks.

long ES @ 763.25

stop 758

What I think is most likely over the coming days

Hey everyone,

JB3 here. Sorry I can't post more often but it's physically impossible for me at the moment (he says as he peers, albeit lovingly, through the cracks of his red bloodshot eyes across the room to his lovely little 5 month old girl).

Well... back to business. I'll focus more on Elliott Wave based ideas, because Atilla and Sol do such a fantastic job at everything else that there's not much more value I can add.

First, an update. Earlier this week I shifted my ES/SPX shorts over to NQ/NDX shorts because, all going according to plan, NDX should outperform SPX and the DJI to the downside. Yong Pan (aka Cobra) sums the situation up well with his QQQQ/SPY ratio chart here.

But since Thursday I began to reduce my NQ shorts, and eventually closed them all on Friday, because to me the Elliott Waves (which have been serving me extremely well since the top at 944) and various nearby support/resistance levels (and gaps) indicate that there is high probability that taking profits now and reloading shorts at higher levels.

Now, for some prognostications:

From an EW point of view, these are the top 3 scenarios I see unfolding from here, and I'm treating them all as equally likely:

1. Tiny bounce stopping at about 785ish and then the impulse extending down in an accelerated fashion, probably leaving more gaps. I haven't got a sketch for this one.

2. Small bounce, followed by new lows (possibly around 740) and then a bigger bounce before the next wave of the capitulation. See chart below (the dark blue box is my ideal targets, the lighter blue is my next most preferred targets):


3. The bounce that began on friday continues immediately to the targets as drawn below:


For the record, there is another more bullish scenario that I think is highly unlikely but I'm keeping it on my radar - a C wave of a flat pushing up towards 920.

Also, I hope most EWavers would agree that a triangle should not be considered as being in play any more because the DJI and OEX have broken the Nov 08 lows.

Well, that's about all I've got time for at the moment.

FYI: Although I have closed my NQ shorts, I am still short a bunch of stocks and indexes:
Short CFX (Australian RE Stock) at 1.71 and 1.795
Short AZO from 139.36, and looking to add if it goes higher - but I think upside is limited
Short BBBY at 24.39 and 25.10 (small position) and will add if it goes higher
Short FPL from 52.22
Short MA from 163.77
Short RIMM from 58.99 and have been adding as it falls
Short V from 55.46
Short XOM at 77.66 and added at 80.88
Short ASX S&P 200 futures from 3480
Short Nikkei futures from 7802, adding on the way down.
Also short a CFD version of XLE, riding the exit from the triangle

This week I also took profits on QCOM, and German DAX futures shorts and will look to re-enter at appropriate levels.

On friday I also closed my long term Natural Gas longs at a loss as there has been a key break below critical support levels at 4.03, which broke my trading plan. The new plan is to re-enter for the long term below 3.62-ish, with the understanding that it may go as low at 2.0-ish so I'll keep plenty of powder dry to add. I would like to see these lows in Natural Gas coincide (roughly) with the impending IT bottom in the SPX.

This state of affairs with Nat Gas, Oil, TAIEX and other charts I watch further confirm a longer term deflation scenario and reduce the probability that we'll see inflation any time soon. In the long term, recent action convinces me even more that the USA and many other major markets (esp European mkts) are entering depressions (some are already in them, albeit not officially recognised) and these depressions are bigger (possibly much bigger) than the Great Depression. That said, I'm no sell-out to any thesis... if future action dictates a change in stance, I'll change.

All the best,

JB3

Don't get me wrong again.

We have not seen the bottom. We have not even approached the bottom. In my opinion, we are 100s of S&P points away from the bottom that may lead to a cyclical bull market. You know my target for S&P500: 400-450: Almost 50% from here.

But in trading, you have to capitalize on the moves that are highly probable, that is why I got out of the shorts at 755. I will continue to trade this market on the bear side.

Covered JNPR @ 14.5

Atilla short covering 755

Covered BK @ 22.22

sold QID @ 58.95

Covered GS @ 79.75

Covered BAC @ 3.03

closed ES shorts @ 758

I am said to be a very patient person.

Covered RIMM @ 42

Sold SRS @ 81.1

sold SKF @ 183

Et ce jour tu ne l'oublieras pas

long SKF @ 167.7

Sold SKF @ 176.25

Another example will be made soon

If you believed Mr Nassim Nicholas Taleb's Black Swan Theory, then in late summer 2008, you were thinking I was an insane person when I repeatedly said 10s of thousands that the market would crash in early October, in fact, 4-sigma portion of it 2 hours before it took place on October 9, 2008.

For centuries, humans tend to call unexplainable events unpredictable, illogical or chaotic because it is the human psychology that forces man to cheat. Less uncertainty gives man more confidence and inner peace, sometimes at the expense of truth.

I think the market will make another example out of it in near future. Whether you call it Black Swan or not, it is once again all over the charts !

Update on cyclical target for SP500

During the last few weeks, the markets showed that 600 level on S&P500 could no longer be an important support for this bear market. I expect the benchmark to stabilize between 400-450 before the next possible cyclical bull market. Not only several major indices but many heavily weighted components are somehow giving similar implications on long term charts.

Shorted 25% more ES @ 835.75

Possibility for a sizable gap down tomorrow

that should be the start of the terminal move I talked about before

Shoerted ES @832 %25 Position

But the tables are turned...

There will be one less shark in the killing zone...

long SRS @ 58.5

Covered EXPD @ 31.8

covered ES @ 833

Shorted EXPD @ 34

covered FPL @ 51.2

lightening up little

Attention to Stimulus Lovers

Did you panic during the crash of 2008?

Somehow I tend to think that this crash never set a panic/crash tone in sentimental way although price action clearly demonstrated the greatest panic of the last two decades.

I don't know, maybe I am missing something. Because of the fact that xTrends called the crash at the precise time and price and 10s of thousands here were enjoying the move, this could mislead me in reading sentiment overall, perhaps.

However when I think about the stuff coming down the pipe these days, I think I may be right about it. Seriously, is there anyone out there buying BAC for an investment? Do you really think its end will be different than AIG, WM, LEH, BSC, MER, CFC, WA, FNM, FRE, C ...
When was the last time you check xTrend's archives to see what I was telling about all these tarts including BAC. Don't you suspect that most of the banks could end up like them since they all now are showing similar setups on lifetime charts?

Since November, the market has been chopping without a trend. AND without a spine because something has been broken on Dec 1 2008, with monthly gap. The market is consolidating , compacting energy for the next sell off. So far, the median range since Nov 2008 has been 800-950. This will soon change. When it does, hopefully I will be there again and hopefully I will see some crash sentiment to feel more confident about SPX 600 level.

Holding shorts into the next week

Obviously traders are expecting more upside after the release on Monday. I believe the trends I am following will have the last word.

If you need a "WHY"

IF you will need a "why" to explain the coming shock wave, perhaps the final one to terminate this cyclical bear market, I am going to try my best now.

It is now about the economy. Regardless where the rates are, how big the stimulus joke gets and how high they raise your taxes! If this was only a bank problem, the market wouldn't even let Lemon Bros go. Credit and mortgage was the triggering events. The cancer now went through the system and somethings gotta give. It is no longer a credit and mortgage story, it is about the whole system. The market knows this, benchmarks can not even break through immediate resistance in the face of a massive multinational effort to elevate financial markets.

Me, I do not need to think about the whys and wherefores, I had seen this past crash coming in 2007, perhaps little early and I am seeing more to come now. Couple of months ago, the markets broke through century-old trends that defined the economic and social structure of this country. Based on my trend theories, It will never be the same for many western economies and the markets will eventually do the inevitable. I had defined the basic analogy behind the current situation in one of my articles before. This bear is something you and your ancestors have never seen before. In my opinion this is the beginning of the end of market fundamentalism, this will feed on itself for years. Another chapter of history is in writing, and you have been watching it realtime !

I am proud of Sol

I can not express how I felt when I reviewed the most recent trade record of Sol. It is a unique priceless sensation when you see your methods and teachings successfully used in different time frames on different instruments. I believe Sol will be making the best use of his crash check and is my biggest candidate to to be in the next revision of Market Wizards.

Forming a broad top across the markets.

This is a very important day in my calender because I received significant number of setup alerts from stocks and indices. This happens when the market is at apex or important pivot. The type of setups implies the market formed an important top today.

I tried to enter ES short positions with tight stops three times, didn't work so far. I will not let the train leave without me. I am building swing trade positions on those with chart setups. ES is one of them.

Shorted JNPR @ 15.89

I think we are forming another important top as many stocks and indices test breakdown levels.

long SKF @ 148

This could be an important pivot for the market. I may hold these positions into the next week. Hopefully I get more confirmation by the end of the day.

shorted GS @ 93.5

shorted @ 836

stop 839

I am insisting because lows should be tested today.

short ES @ 829.5

stop 834

Short ES @ 825.5

stop 828

sold SKF @ 160

covered ES @ 818

shorted the other half @ 848

Not a day trade. We will close the week below 780 according to Atilla before a possible crash in option expiration week.

shorted ES @ 846

50% position

Shorted BK @ 27.7 and BAC @ 5.15

The second wave of crash is well underway

I call it terminal move which should take SPX below 600 soon. I suggest everyone to be careful in the second half of this week. A few month ago, I said C and BAC will be near $2. BAC will crater below $5 on gigantic volume tomorrow. But more important ones are the coming FUBARs. I expect JPM WFC and BK to share the same destiny. This will continue until there is almost no bank left in USA. Perhaps one or two private banks together with a government controlled bank.
Also time has come for a 4-sigma move in FTSE due to the reasons I explained couple of months ago. And believe or not, the coming blood bath in commercial real estate here will make the collapse of investment banks look like a minor event.

long SKF @ 147.8

fixing my early mistake

short RIMM 55.8

shorted FPL @ 51.90

short ES 832.25

stop 837

Covered MS @ 20.9 , BK @ 26.4

Sold SKF @ 147.5

Covered QCOM @ 34.05

covered ES @ 822.5

for 15 points profit

covered BAC @ 6.19

for 6.2% profit.

I am overloaded, can't carry too many positions. Otherwise BAC is going to $2 in a week or two (possibly , not surely)

Shorted BAC @ 6.6

EOM