Tuesday, December 23, 2008

Morning Update 12/23

Good Morning,

Equity futures are flat so far with about 45 minutes to the open.

Third quarter GDP was revised mostly flat at -.5%, which matched estimates. Some internal components where revised down slightly like Consumer Spending which was revised down .1%. Just a reminder that our GDP numbers in no way, shape, or form reflect reality. They are hedonistically adjusted as the inflation “deflator” introduces every error that is contained in our now convoluted inflation data. Therefore, comparisons to history are not valid, and because of constant changes and adjustments are not even that good as a quarter to quarter comparison.

While I’m on that subject, a lot of people are looking at the spike in the money supply aggregates and are getting all worried about re-inflation. Those money aggregates do not capture the destruction of credit and wealth that are occurring, just as they did not capture all the false credit that was created by the Shadow Banking System. In other words, they also do not reflect reality or provide any useful or usable information. True transparency is NOT allowed, witness the fact that Bloomberg and now FOX are having to sue the Treasury to gain information about how the TARP money is being spent. Well, there will be no true transparency as long as the criminals are still running the show. True transparency would put their businesses down and expose them for the crooks that they are – thus it’s not going to happen until the entire system comes unglued which is going to happen sooner rather than later.

Year over year corporate profits were reported down 10.1% this morning. Consumer Sentiment, New and Existing home sales figures are released at 10:00 AM Eastern time this morning.

There’s much debate raging about where we are on a technical basis, especially Elliott Wave count wise. It’s just not clear at this juncture, but my best guess is that we are still in wave B up/sideways. Some are saying we are in wave 4 and that 5 down will follow. That doesn’t work for me on a time basis, wave 4 would be out of proportion on the long side, but it is definitely still possible. That’s the thing about EW, it doesn’t forecast the future, it only eliminates certain possibilities by following its rules. Once you eliminate some possibilities, it’s useful because then you can weigh the odds of the remaining possibilities. In this case if we’re in wave ‘B’, then we should see more rally before the next major leg down, but if we’re in a wave 4 then we may not and we may begin the next leg down soon. That is what is creating the uncertainty now, and if you’re betting on one outcome over the other, all I can say is that I hope you’re betting small and not betting the farm.

Here’s a 3 month daily chart of the SPX with all my drawings turned off. Note that we are still exactly where we were on October the 10th. In fact, just about the last month has been spent inside the confines of that one day’s candlestick. Why is that? Well, there are several very long term support lines in this area and there is also a cluster of Fibonacci lines in here as well. We were very deeply oversold when we landed here and we’ve been taking a breather ever since. Meanwhile we have been unable to get above and stay above the 50 day moving average and now we have a sell signal on the daily stochastic but that’s being countered by the buy signal on the weekly timeframe - I note that the DOW is very close to a buy signal on the monthly as well. Nothing moves in a straight line. Corporate earning do not, and will not in the future support the price levels where we are now. The market will seek its equilibrium and that is much lower than here.

Our government’s reckless spending will NOT support the REAL economy. In fact, their actions are the crushing blow that sends us way over the edge. The math didn’t work before, that’s why the parabolic economy turned negative to begin with, now they are making the math work even more against us and speeding us to our eventual destination which is the fiat scrap bin of history. Hey, I’m just the messenger, don’t shoot.

Remember that the short term stochastic says that upside is possible today, and I note that the DOW is now up by about 25 points and the SPX is up about 3. Gold is down and TLT is down as well – the bond market deserves watching closely here and there are some auctions going off today which could upset the balance, so be careful if you’re trading, especially with such thin volume. Tomorrow is a shortened trading day too…

Have a good day,