Thursday, January 15, 2009

Morning Update - Fantasy Island...

Good Morning,

Futures were down last night but have come up this morning to about flat. Why? I guess JPM losing “only” $2.9 billion with earnings down 76% is good news – worse was feared! LOL, the truth is that JPMorgan is the most highly leveraged institution on the planet and if they were forced to mark all their “assets” to market today wouldn’t be worth spit. They are the lynchpin to the world of derivatives and they are being allowed the freedom to manipulate their accounting, to exchange their bad loans for cash, to have the taxpayers back their buying of other worthless companies, and to hide and obscure the value of their assets BECAUSE when, not if, the house of Morgan falls, the entire shadow banking system goes down with it. Oh, and they are the FED, in concert with the other central banks.

Speaking of central banks, Trichet’s hand was forced over at the ECB forcing him to cut interest rates by another .5% and thus Euroland rates now stand at 2%.

And speaking of bank shenanigans, Morgan Stanley is said to be looking for more oil tankers. No, not to move the oil that the speculate with, but to store it. What is the point of having investment banks own more above ground oil than oil companies? Is that necessary or make the system of delivery more efficient? Didn’t think so… it’s just another symptom of a money system gone wild.

The Producer Price Index fell by 1.9%, the first drop in seven years. Again, more evidence of deflation, but remember that none of the government inflation numbers represent reality, they are complete hedonistic fantasy.

And finally, an economic indicator that is growing… Ahh, the New York Manufacturing Index ROSE from a NEGATIVE 27.9 to a NEGATIVE 22.2, showing that the contraction in manufacturing is still ongoing, but it’s growing? – ha.

The Philly Fed survey comes out later this morning.

Jobless claims for the past week jumped from 470,000 to 540,000, another very negative print. Continuing claims actually fell a little but are still extremely elevated at about 4.5 million.

Steve Jobs won’t talk about his health, but everything’s fine, just fine, keep on buying the stock while he doesn’t disclose his health condition, everything’s fine. I mentioned a couple weeks ago that owning AAPL shares was like gambling on Jobs’ health, and if you were one of those gamblers, you just lost your bet. Now this morning we find out that doctors may have to remove his pancreas leaving him without the ability to produce insulin. Everything’s fine, just fine.

From a technical perspective, not a lot to say other than an emphasis on the fact that volume is expanding again now that the market has been going down. We’re oversold on almost all time frames up to the daily charts, and I’m sure that JPM fooling its stock holders for another quarter will lift the spirits among those who want a piece of the “super bargains” available in the financial space.

I note that the long bond has come back down some this morning but has not made it back into its channel. HOG continues to get slaughtered and is now sitting at about $13 a share, down from $20 just a few days ago.

We still have a potential bearish flag on the table, but since it didn’t break last night I’m beginning to wonder if this move is close to over. This latest downtrend is most likely either wave ‘b’ of the larger wave ‘B’, or it is the beginning of wave 5 down, probably wave 1 of 5. If that is true, the place to get short is near the top of wave 2 which may be coming soon as we have short term oversold conditions and I can count 5 subwaves down inside this last move.

For now the 840 area has to remain resistance for the selling to continue. The next support area after that is in the 820 range, and after that we’d be looking at 800 which is a round number and has two Fibonacci coincident with that level. The November lows then beckon all the way down at 740. Don’t think we’ll make it all the way down there without bouncing first, so be patient and pick a good entry. Also be careful because if this is wave ‘b’ of ‘B’, we’re close to getting wave ‘c’ – doesn’t “feel” that way to me after yesterday’s action, but it’s still a good possibility. What’s left to keep the fantasy going at this point? More stimulus? Lower rates? Printing? Uh, huh, that’s what I thought. What happened to the Santa rally? The Obama inauguration rally? The fantasy is dying.

Sadly, the last piece of news is that Ricardo Montalban has passed. He was great in his bad guy roles in the Star Trek movies, but I never understood how someone would pay $50,000 for a trip to Fantasy Island? I mean that was what, 1978? A dollar was still worth something then… it was only seven years removed from Nixon yanking the gold standard. Perhaps that was my early bubble economy radar at work?!

Fantasy Island:


PS – markets just opened and the selling continues, DOW down 75 as I post this…

Have a good day,

Nate