Tuesday, January 13, 2009

Morning Update 1/13

Good Morning,

Futures are down yet again this morning with the DOW futures off just a little, but S&P futures are down about 6 points.

Bernanke is saying that they are going to have to bail out more banks again, only a few weeks after Paulson said that we saw the last bank failure. These guys are flat out liars and Paulson belongs in prison, and it would be fitting if Bernanke became his “domestic partner.” In their zeal to rob America, I mean prevent a depression, they are absolutely causing one by making the math worse than anyone could have imagined. I hope you all read my latest article on the bond market, you can find it here http://economicedge.blogspot.com/.

The U.S. trade deficit narrowed to $40.4 billion in November, the lowest in more than 5 years. It had been running over $60 billion a month, a number that was not sustainable, and now is falling as we cannot afford to buy imports which are falling off a cliff.

I would also like to point out that it was Charles Dow who postulated that the transports are a leading indicator. The trucking confidence index just hit the lowest level in history and the Baltic Shipping index has lost more than 90%. What does that tell you about the future of equities?

ICSC store sales came in down 2.2% for the week and that was close to the amount expected. Meanwhile the Redbook store sales for January was down 1.9%, substantially more than expected. Tomorrow the “retail sales” figures come out.

From a technical perspective we are getting close to a 100% retrace of the entire last rally, that’s at the 856 level and we are at about 864 now. If 856 falls, that’s complicated as it will signal that we are either done with ‘c’ up, or the thinking that we were in ‘c’ up was wrong. EW is difficult here because the swings are so huge, you don’t know which count is correct until you go all the way down to the old lows and break them. We are oversold, so if we break the 856 SPX area I will wait patiently for a retrace before entering, I will not short the hole.

My biggest play right now is short TLT as I talked about in my bond article. It hit the top of its current channel yesterday and this morning has pulled back in as I was expecting. That means that, for now, bonds are going down while equities are going down, that’s one of the signs to look for. Here’s a chart of TLT on the left and the long bond futures on the right. On the /ZN, 135 is the magic number, if we break that going up, I’ll exit that trade for now.

Have a good day,