Monday, December 1, 2008

End of DAY 12/1

YOWZA! That was one heck of a change of direction! I’ll say one thing for this market, when it decides to move, it really moves.

The DOW finished the day down 679 points, the S&P lost nearly 9%, the NDX gave up 8%, and the RUT (small caps) led the way down giving up a tremendous 11.8%! Just like that, half of the gains of the past 5 sessions were given back. I hope you’ve been following my writings; this market is amazing in its ability to pull in new money that will ultimately be returned to the same place from which it came… the ether!

Fundamentals: The negative manufacturing ISM was followed by an official call that recession began in the United States in December of last year. The way the market reacted to this news is noteworthy as the official declaration of recessions USUALLY marks the bottom in equities. I DO NOT believe that will be the case this time as this move is on a much higher level than an ordinary recession. This time the math simply cannot be overcome with more manipulation, we have reached a point I will refer to as “MACRO-DEBT SATURATION.” My next full length article will discuss this concept.

The bond market is clearly saying “deflationary credit collapse,” which is exactly what all the math says. The TNX closed down another 8%, pushing 10 year rates down well below 3%. TLT closed at a new high above 109, and the IRX (3 mo) resembles a cardiac patient who is just not responding to the paddles!

Technicals: We went from over bought to oversold in the very short time frame. This move was impulsive and CRASHED through several support areas, erasing almost exactly HALF of last week’s rally. The DOW was stopped right on its 50% Fibonacci retracement while the S&P managed to get a little underneath its 50% fib line and also a little underneath my 820 target, finishing at about 815.

Big, and Bad move! That will teach anyone who stayed long to ignore the volume indicators that I talked about this morning.

Note on the chart above the volume pattern (volume confirms price) and also the daily stochastic rolled over and exited overbought. You can see how this move retraced exactly half the gain. This is a good place to take some profits from the move and I did that right at the close. Tomorrow will be an interesting day.

I see two medium term paths; one that follows a higher trend – the infamous B wave up/sideways; and the other is that we just began wave 5 down. We won’t know which until we either make a new high or a new low. Right now I’d put my money on that volume pattern and of course I see the fundamentals agreeing with that.

Speaking of agreeing with my fundamentals, today Meredith Whitney came out with another opinion that basically says the worst is no where near over in the financials. I tend to listen to the few people who have been right about what’s happening, and she’s one of them. She offered up some solutions, however, that I DON’T agree with. My new “Cut the Crap” article series will spell out why and will offer up what I believe are fixes to the root of the problems, not patches that will provide the drug addict with another “hit.”

PSYCHOLOGICAL: Boy, did the VIX and VXO ever reverse direction too, or what? The VIX rose 24% to close at 68. Obviously fear and volatility levels are still high, but not so high as to show any type of reversal at this stage.

I should be posting a full length article soon. If you follow these, my hope is that we can eventually head to a better system that’s built to sustain this country through the long haul, not just the next political election!

Have a good evening,