Friday, November 20, 2009

Morning Update/ Market Thread 11/20

Good Morning,

Equity futures are down once again this morning, making lower lows than yesterday. There is what appears to be a Head & Shoulders top formation forming which you can see in the /ES chart below, the neckline is the double red lines (about 1,086). If that’s the formation that’s occurring, the left shoulder took four days to form, so the right shoulder may take that long (1 day already), or it could break at anytime – the markets like symmetry, however:

The dollar is up sharply overnight, breaking out of the top of its descending wedge. That is a huge sign, but I will not be surprised by a retest. Bonds are close to flat, while both oil and gold are down.

The market is talking to us here. Importantly, very short term treasury rates moved down to basically zero yesterday. Below is a three month chart of the IRX… the last time we were here was last September, the 17th, to be exact. That was followed in the days immediately behind by the largest plunge of the year. What this shows is that money is seeking safety, a shelter as a storm approaches:

There are other signs of stress… The Ted spread, for example, is climbing. But last fall we had other clear warning signs that are not in place now, like a Hindenberg Omen. That means the character of this fall may be different. Instead of a cliff like crash, this decline may be more of a slow grind. The clues signaling an outright crash are not there other than this move in the IRX. Usually a crash is preceded by very divergent breadth or it can be preceded by another market dislocation, like a large move down in the dollar. The dollar bouncing is a sign that the market is under control for now, but is correcting.

The last wave up could be over, but it has not been eliminated yet and won’t be until we start making lower lows. It sure looks like a good start to wave C down, but we’ve been fooled before, and thus the market makes us cautious. But there’s no need to get in front of what will be a very large move. The market moves in waves and playing wave 1 is usually a risky proposition because wave 2’s usually retrace deeply. Yes, there is the occasion where the market doesn’t offer a great “in,” but you can make an in at almost any time if you use stops correctly and know the pivot points and key levels.

Speaking of pivots, we are currently now beneath the 1,090 pivot. The next lower one is at 1,061, but the 38.2% retrace is at 1,081, the 50 dma is at 1,070, and so on. If 1,090 breaks on the upside, then 1,101 will act as resistance and after that would be the 1,107 pivot point.

There are no economic data releases today, by the way, but keep in mind that today is options expiration.

Want to see a glimpse into the future? Okay, below is a video showing protestors at University of California locations not happy about the state jacking up tuition 32% this winter and ANOTHER 32% next spring. Obviously the state is broke, as in bankrupt. They cannot raise taxes anymore, so they are resorting to moves like this:

CNN – California Tuition up 32% now, another 32% later:

Link: University of California students protest 32 percent tuition increase...

Let’s face it, colleges were in a bubble and this is the beginning of that bubble popping. Education is great, but the money must come from a PRODUCTIVE society. We can’t send everyone to college and then have our largest product be credit derivatives! That is not an economy, it is a recipe for disaster. So, look for more drastic measures and what will follow will be more protests. Will they stay peaceful? How extreme will it get? Stay tuned, we’re going to find out.

Hey, this is how people pay the price for supporting a government that is out of control and failed to rein in our financial system. Here's what's happening here in Seattle, yet another SYMPTOM of our debt backed, must get credit flowing, money system:
Seattle’s power price jolt

For Mark Lindberg, president of equipment manufacturer Young Corp., the 13.8 percent hike in Seattle electricity rates “couldn’t come at a worse time.”

Lindberg’s South Seattle company, which makes specialized attachments for heavy equipment, already has cut its work force from 45 to 35 during the recession, and slashed production in half.

“We’re struggling to get orders in the market and cut costs where we can,” he said, “and now this is going to make it that much more difficult to hold onto customers who have other options with foundries around the country and around the world.”

Welcome to a debt based, never ending growth world. How we lookin?