Saturday, April 11, 2009

Weekend Update

“Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you."

And I am stuck in the middle. I have been reading and writing a lot the last few days and can say that without a doubt the market is either going to launch into a hypersonicinflationaryspiral OR we are going to collapse into a depressionarycreditcollapseofmajorproportionspiral. One or the other. Possibly both. ;-)

Actually, reading Martin Armstrong’s work helps me to look around for underlying shifts in the fundamentals as he has a mid-cycle point that is on April 19th. That doesn’t mean it’s a top or that an underlying change happens on that exact day (a Sunday). It does mean that we should be looking for signs. We have recently seen an unprecedented global effort to reinflate the world. Bernanke QE, Stimulus everywhere, China M2 growing at 25%+… that’s the hypersonicinflationaryspiral part. The other part is debt upon debt, consumers who are tapped out and losing their jobs, asset prices that have fallen and continue to fall, TAX REVENUES that have fallen off a cliff, quant funds and investment banks playing games and DISTRIBUTION AT THE TOP of a large bear market rally. That’s the depressionarycreditcollapseofmajorproportionspiral part.

The retail investor sees a breakout on Thursday on higher volume (SPY/DIA/XLF/DOW). P&F charts that produce higher targets. Goldman Sucks announces they are going to be selling stock to raise capital and pay off the TARP. To which I say BFD to the T-A-R-P. The TARP, the recent rally, the change of accounting rules, the quantitative easing, the phoney baloney “stress test” all of it a big bag of stinking manure, morally corrupt LIES and MANIPULATION. Other than that I have no strong opinions.

And the break out above trendline is plain as day for everyone to see. Look at the markets during Great Depression and you will see several breakouts above lower level trendlines. The long term bear market indicators, moving average crosses and DOW theory, are not even close to being reversed. As I look into the market I see signs of distribution, of the large guys selling to the small guys. I see advance/decline divergences that are growing larger, and I see a potential ending diagonal that conflicts with the obvious breakout. In fact, a move lower on Monday would turn your basic breakout into a throwover.

Last Thursday was the end of trading for a shortened holiday week and thus we had a low volume week – but it was on track to be low volume regardless. The rule of alternation before Opex says that if the Thursday prior to Opex is up, then the week of Opex is down (about a 70% rate of success). Well, last Thursday saw the DOW rise 246 points (3.1%), the S&P rose 3.8%, the NDX gained 3%, and the RUT rose a whopping 5.9%.

Internals were strongly bullish once again, another 90%+ up day – I’ve lost count. Anyone here think that’s a normal healthy bull market? What, no hands? 93% of the volume was up and there were 13 new highs (a slight decrease despite an up day), and no new lows.

The XLF went on a 15.54% moon launch on word that, wink-wink, all 19 of the banks are going to pass the stress test, nudge-nudge. And WFC rose 32% on RECORD profits, courtesy of AIG, spreads widened with QE and taxpayer money, USURIOUS consumer credit rates and fees, and good old fashioned Enron accounting principles. Basically all the things that show our economy has come back to its previous full glory.

The XLF chart produced yet another huge gap overnight opening above the 100dma and quickly penetrating the upper Bollinger band where it closed. A pullback would be expected to get back inside. Note the higher volume… that was everywhere Thursday:

The XLF Point & Figure diagram produced a breakout target of $20. Note the lack of price volume resistance until you arrive at the $20 area:

Just don’t look at the CMBX indices or those rates might make your hair stand on end.

And despite the risk of implosion in the Commercial Real Estate segment, IYR climbed 12% breaking out and producing higher targets on the P&F charts:

Here’s a 3 month weekly chart of the DOW. That is a pretty clear looking hammer which is normally indicative of a top. Note the volume pattern on the weekly here… falling prices – rising volume. Rising prices – falling volume. The Weekly stochastic fast is just touching overbought here, of all the major indices, the DOW is the least overbought on this timescale:

The SPX weekly is also a hammer and is overbought on the stochastic (btw, the NDX closed ABOVE THE WEEKLY BOLLINGER):

The SPX daily, 3 month chart shows that we’re up above the 100dma and getting near the prior secondary tops in the 878 area. There is resistance in the 865 area as well, but the next higher pivot point is all the way up at 912. The next lower pivot is now support at 848:

The 30 day SPX is where I see a potential ending diagonal that I highlighted in red. If this pattern is in play, we may have just a little higher to go and then we should be done with the pattern and fall out of the bottom. Some EW experts, however, believe we are in wave 3 up of wave C. I will not venture a guess as to the count here, again it’s too complex a formation for me and is built entirely of manipulation as far as I’m concerned, so I won’t try to count it. Note that the stochastics are overbought on all timeframes UP TO WEEKLY!

You can see on the SPX P&F chart that it broke the downtrend line and produced a triple top breakout with a target of 1,065! NO, we are not going there this week or even next! In fact, of all the targets produced by the P&F charts, this is one that I am most suspect of, and note that there are conflicting targets still such as the dollar which still has a higher target. The SPX is not going to 1,065 with a rising dollar – period:

The P&F for the VIX has a target of 33. It closed in the 36 range on Thursday and can still be considered to inside of a large bullish pennant. The gap down produced an odd candle for the VIX, just sitting there out in the open. A gap back in the other direction would abandon that candle and be very bearish for equities (confirmation of course):

Here’s a chart of the Nasdaq Advance/Decline line versus the Nasdaq price. That’s a very large bearish divergence. The NYSE also has a bearish divergence, but not anywhere near this large. This is another indication of distribution and that we are nearing a top:

And here’s a chart that someone posted on Tickerforum – I’m not sure who originated it, but it’s a good one. It shows the percent of S&P 500 stocks that are above their 50 day moving average. Tops tend to occur when this average is above 80, and right now it’s way above:

There were several other really good charts on Tickerforum this weekend that others have compiled. One that struck me was the buy/sell volume which clearly shows that this rally is being sold into.

So, overall I think we may be at or near an intermediate term top. At least some correction is expected in the short term. Do we turn and go straight down? It’s a possibility – hell the tax revenue short fall should scare everyone with an ounce of common sense into protecting whatever wealth they have. The government will be after it at some point. The government is now stuck. The wealthy are stuck. The middle class are stuck, and the poor are just out of luck. All I see are “Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you."

Stealers Wheel - Stuck In the Middle with You (ht backwardsevolusion):