Monday, August 31, 2009

Morning Update/ Market Thread 8/31

Good Morning,

Usually the end of the month is a positive time for the markets, but last night was not so kind to the markets in China. That helped to drag our markets down, here’s a chart of the DOW and S&P Futures overnight:

The dollar is up, bonds are down, gold is down, and oil is down significantly.

The Chicago PMI comes out this morning at 9:45 Eastern. Later in the week we’ll have the manufacturing ISM as well as the non-manufacturing ISM, motor vehicle sales, factory orders, and the biggest release will be the employment situation on Friday.

The Shanghai market fell 6.87% last night as they are realizing that price is getting far ahead of profits. In fact, the valuation of companies based on earnings is actually HIGHER than at anytime in the past 6 years! Below is a 3 year chart of the Shanghai, it does not reflect last night’s action, but you can see an exponential rise leads to a parabolic top and subsequent collapse. That’s followed by a reaction rebound and then another move down:

Below is a Point & Figure chart, again not updated with last night’s action, but showing a target significantly lower:

Our market is similarly valued way too high for what actual earnings will support. That’s a disconnect. Disconnects do not end well for those who do not recognize what’s happening.

But let’s be careful because while we may be topping, McHugh’s Elliott Wave count allows for a decline, but he still believes we head powerfully higher in wave 3 up of c up of B up. Of course he could be wrong and that’s what makes trading in this territory difficult.

1,018 is the SPX pivot point here that’s currently offering support. We failed last week to get over the 1,041 pivot and that is usually a sign that the rally is running out of steam. The next lower pivot after 1,018 is at 990, but there will be a lot of support in the area just above 1,000.

There was ANOTHER small movement in the McClelland oscillator on Friday, that was a most unusual string of them. I would expect that once we break this range that the move will be substantial.

Have a great Monday, and just remember that you still have Goldman and your own government in cahoots and they are still playing games with the markets and with people’s lives…

Joe South - "Games People Play" 1969: