Tuesday, April 21, 2009

Morning Update/ Market Thread 4/21

It certainly looks like we may have a valid turn that occurred precisely on Armstrong’s mid-Confidence Model Cycle date. Yesterday’s decline was very powerful, a 97% down day by volume. The financials were rocked erasing more than 15% from the Banking Index.

This morning there is follow through on the down side, the /ES has dropped to the 823 area. Here’s a chart of the overnight action:

The question, then, is this a simple correction, or is it the start of the next wave to new lows? Some TA experts show a count that the rally was leg 'a' up of a larger ABC, and others show an ABC already complete. Here’s what I know… this rally was almost exactly the same length of time as the one last year in March and April, so it fits from that perspective that it could be complete. But the real way to know is to watch the depth of the decline and see if key levels are broken.

The fundamentals, of course, have only gotten worse, not better. That is because of the intervention and stimulus attempting to force more debt upon debt. As it becomes known how dire the situation is for the holders of the debt and for the derivatives, I wouldn’t be looking for another rip roaring rally for awhile. Real bottoms do not happen that way, and our economy won’t produce one until the math gets back into a workable form, and that may be impossible without major changes.

But now we have a cop on the beat, Mr. Barofsky (?), who has initiated 20 criminal probes in regard to the TARP. Applause, but let’s see who gets to play the role of sacrificial lamb! My guess will be that you won’t see any members of the “club” behind bars anytime soon, unless one of them is being sacrificed by the others. Now, put them all behind bars, and then we have something there. I’d start with Hank Paulson, in case you’re interested.

And earnings are getting back to reality now that we’re seeing reports from companies that aren’t a part of the mark-to-fantasy, pay yourself huge bonuses for doing so, club.

DuPont slashed their earnings forecast, IBM beat on earnings but missed on revenue, same with Texas Instruments whose revenues droped a stunning 36%, United Technologies earnings fell, CAT produced a loss (its first since 1992), Coke earnings went flat, and Bank of New York Mellon (Shout out to Point!) slashed dividends and reported that net income dropped 51%.

Redbook and ICSC store sales were down last week following 3 weeks of slight advances.

Bonds are higher and did you note that stocks began to fall just in time to take pressure off the bonds? That’s a trick we’ve seen before. Also notice how the leaked Stress Test Results didn’t get leaked until AFTER options expiration? And notice, too, how much of the movement in prices is happening after hours locking out entry points for the little guys? Yes, I’m telling you that are markets are absolutely corrupt and manipulated. But while that’s true, the fundamentals will win in the end and you just have to understand the games that are being played.

At any rate, the next pivot is at SPX 798, the 50% fib is down at 771, the 61.8 is 747. We’ll see how far the decline goes, keep in mind that a short term bounce can happen at any time, nothing ever moves in a straight line and the short term stochastics are oversold after yesterday’s action.

Have a good day,