Friday, July 24, 2009

Morning Update/Market Thread 7/24

Good Morning,

Equity futures are down this morning, but not as hard as they were last night:

Amazon missed on their earnings report, then Microsoft announced sales were down a staggering 17% year over year last quarter, and then American Express missed huge too. Here are their charts showing the immediate effect:



Sorry, but those who think a real recovery are underway are as deluded as they were (if not more so) than when they were snapping up stocks and real estate back in 2006 and 2007.

At 9:55 Eastern this morning Consumer Sentiment is released and that will wrap up the economic reports for the week.

There’s bad and then there’s horrific… the amount of bond offerings next week can be called nothing short of horrific. The total? For one week? $235 BILLION!!! That’s nearly a quarter trillion in just one week of DEBT issuance. Annualized, that’s over $12 trillion, which of course is completely not doable. Heck, I don’t believe $235 billion in one week is truly doable. Seen the TIC data? Overseas investors have been net sellers of our debt lately, so just who is going to buy up all that debt? I have my suspicions because the math is not adding up, and yes, I would love to see a complete and thorough, INDEPENDENT audit of both the FED and the Treasury, because I think they are funneling funny money (much more than their announced $300 billion) through their surrogates (hello JPM, GS)! Now, that’s just a hunch, but I’m smelling something worse than smoke. Indirect bidders? Who exactly are they? Boy, I hope I’m wrong about that, because if I’m right there is going to be a serious manure storm in the currency and bond world. Transparency? Let’s see it.

Yesterday’s large and unbelievable ramp job, call it “Computers Gone Wild – Part 9,666” obviously fulfilled the large price move called for by Wednesday’s small move in the McClelland Oscillator.

Volume did expand on the up side slightly yesterday but we closed on all the major indices ABOVE the upper Bollinger band again and overbought on all the timeframes from daily on down. McHugh’s been using EW to count this rally pretty well and this appears to be wave 5 up of 1 up of c up of B up. In a nutshell, the rally should end soon, we should get a pullback, rally some more, and eventually the bottom will fall out again. When is always the question and there are probably too many people expecting it this fall, but we’ll see.

Here’s a chart showing the percent of stocks above their 50 day moving averages. You can see that we are back to being in Lala land, over 1 standard deviation above the norm:

So, yesterday the Transports made a new short term, NOT MAJOR, high which confirms the most recent minor new high in the Industrials. There are many, many technicians who watch this and will call a buy signal on that occurring. I am not so sure, I would not call it until a SIGNIFICANT new high is established in both. Where is that? I have drawn in small circles for minor highs, but the larger circle is where I think that the significant new high would occur:



My interpretation may not be the same as others and I’m sure there will be much ado about it.

Now then, I must point you to that chart of the Industrials. There is a large inverted Head & Shoulders pattern forming and we are at the neckline now. That’s a huge pattern, worth about 2,500 points and would have a target above 11,000. Not that I think we get there, but I’m pointing it out and I would not eliminate it as a possibility. Of course it would be disconnected from the real world should it occur, but the pattern is there.

It’s also now on the Point and Figure charts. Take a look at these new targets and you will see targets up in that range. Again, I am just pointing them out and think it’s pure Alice in Wonderland to think they will get there, but with surrogate buying of $235 billion of debt in one week, if it does it will be strictly a monetary phenomenon.




So, there you have it. This may be a part of wave B psychology… that would be my view, but timing on being short needs to be careful. I think we’ll see the signs of exhaustion, the panic buying yesterday and overall lower volumes are arguing that the rally is NOT REAL. It is bear market panic buying, the stuff of failures, not REAL and LASTING economic growth. We’ll see, and if stocks can overcome the stinker reports of last night, then you have to respect the bulls and their computers, they’re on fire!

Bruce Springsteen - I'm On Fire: