Saturday, January 24, 2009

Thain – Pigman Flunky…

With the recent “resignation” of John Thain and not to mention inhumane lockup of Bernie Madoff to the torturous confines of his multi-million dollar apartment, it is obvious that Pigmen are finally felling the pressure:

David Bowie & Queen – Under Pressure:


Yes, the piggies are really squealing… Bill Gross made the grade by buying billions in bonds and then clamoring for a taxpayer bailout of his new assets; and don’t forget Uncle Warren who recently earned a premier pigman membership as I described in my recent article Buffett Flips Again…

Often when writing my articles I refer to the term “pigmen,” or in its singular form, “pigman.” I want to make this term perfectly clear... Yes, it is a term meant to be a derogatory slam aimed primarily at the central bankers! In general the central bankers rule the world through the use of their fractional reserve, fiat, debt based interest bearing monetary system which does indeed sound very complex – so complex that you probably don’t understand what I just said – and that is their point! But being the master of simple that I am, let me boil all that fancy jargon down to just two words for you now that everyone is so intimately familiar with them – wait for it… wait for it… okay, those two words are 1. Ponzi, and 2. scheme!..

Of course everyone credits Charles Ponzi with inventing the scheme whereby payouts of an “investment” are made from the money of the new investors. But, point-in-fact, this scheme was invented way before Charles Ponzi, Social Security, or even Bernie Madoff came on the scene. No, that games’ been run for as long as central bankers have been in charge of money...

But forget about Ponzi for a while, when I look up the term “pigman” at Wikinateia offline, I find a picture of our own (now former) Secretary Treasurer and former CEO of Goldman Sachs, Hank Paulson who, in typical pigman fashion, sold debt based derivative products around the world while at the same time using his firm to place huge bets against the value of those very same derivative products. This is true! He had teams of salesmen that would travel the world selling their “wares” to unsuspecting municipalities, retirement funds, sovereign nations, and basically anyone who wanted higher yields and a “safe” investment vehicle. He even threw parties for his salesmen when they returned! For this, in the highest of pigman fashion, he personally reaps hundreds of millions in bonuses and gets appointed Secretary Treasurer of the United States where he is then allowed to pillage the Treasury and the taxes of future generations for the direct benefit of his personal fortune and those of his fellow pigmen (notice the use of both singular and plural uses of the word in one easy run-on sentence!). Yes, he definitely fits the term “pigman,” and deserves an honorable pigman salute – Oink, Oink!

Of course if you follow my writing then you are well aware that the central or “Federal” banking system in the United States, and throughout much of the world, is not really “federal” at all – it’s privately owned and controlled by the very top wealthy elite. It is they who are the puppet masters – their money literally rules the world. Those in upper reaches of political power cannot gain access to that power without their monetary backing. Usually their puppets are well trained and well behaved…

But every so often, one of these central banker puppets does a stinky “no-no” on the carpet for all to see and smell.

This brings us finally to Pigman Thain, who we learn, spent more than $1.2 million on office furniture last year as the CEO of Merrill, and was at the time of those much needed purchases, laying people off and getting ready for the disintegration of his company:

Bloomberg article

Thain Said to Pay $1.2 Million to Redecorate Office

By Peter S. Green

Jan. 22 (Bloomberg) -- John Thain, the former Merrill Lynch & Co. chief executive officer ousted today, spent $1.2 million redecorating his downtown Manhattan office last year as the company was firing employees, a person familiar with the project said.

Thain hired Los Angeles-based decorator Michael Smith, chosen by President Barack Obama and his wife Michelle to redecorate the White House, CNBC reported today. Thain paid Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza, CNBC said.

“It is pretty surprising that John Thain would need to spend that much on a power office in this economy,” said Sheila Bridges, a New York interior designer who decorated former President Bill Clinton’s Harlem office. “I do hope the designer’s fees were also included in that price tag.”


Ha, ha… “designer fees!” At least he was using bubble money to keep someone employed – what a generous man. No wonder he was appointed CEO of Bank of America!

But wait… what’s that pungent aroma wafting around pigman central? Was someone a bad little piggy and go poo, poo in public?

WSJ article
Merrill paid employee bonuses before sale to Bank of America

Despite Merrill reporting a massive loss of $21.5 billion in the fourth quarter of 2008, the report noted that the company had “set aside $15 billion for 2008 compensation

London: Collapsed banking entity Merrill Lynch accelerated the payment of bonuses to employees just days before closing its acquisition by the Bank of America, says a media report.

“Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America,” the Financial Times has reported.

The daily pointed out that the timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s Chief Executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal.

Last week, the US Federal government had pumped in another $20 billion into Bank of America mainly to absorb losses incurred from the buyout of Merrill.

This is in addition to $25 billion which it ploughed each into Bank of America and Merrill last year, respectively.

Despite Merrill reporting a massive loss of $21.5 billion in the fourth quarter of 2008, the report noted that the company had “set aside $15 billion for 2008 compensation…

Ha, ha, hardy, har, har!

So, let’s see if I got that right… basically, Thain and fellow Merrill Lynch executives paid themselves more than $15 billion in bonuses during a year that Merrill LOST a staggering $21.5 billion! Ha, ha! Pee, yew… that’s some stinky poo, poo! The smell of it surrounds you…

And that’s not even the really funny part. No, the punch line is Paulson convincing Washington D.C. to bail them all out with YOUR money! Now that’s like scene right out of “Pulp Fiction!”

Lynyrd Skynyrd - That Smell:

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Another Expert Weighs in on Bonds… Now we're getting to the heart of the matter!

Mike Larson, of the Weiss Research team, made some clear and intelligent comments on the treasury and bond market yesterday in his Interest Rate Roundup post Treasuries mauled as my "no free lunch" theme gains traction:
I have been hammering home a clear point for several weeks -- there is no such thing as a "free lunch." You can't simply bail out anyone and everyone, especially when you're a debtor nation, and expect your creditors to just grin and bear it forever.

Now investors seem to be waking up. Treasuries have been getting mauled this week, losing value every single trading day this week (Long bond futures are going for around 128 21/32 vs. 136 7/32 last Friday). Yields on 10-year Treasury Notes have shot up to 2.68% from their December 30 low of 2.06%.

This is exactly what the 3 peaks pattern predicted as I spelled out in my article Bond Market Hide & Seek – A Domed House & 3 Peaks...

Larson expands on his fundamental view which I share:
As a refresher, we’re flooding the world with hundreds of billions of dollars in Treasuries to fund our ever-growing deficit. Next week alone, the government is selling $40 billion in two-year notes, $30 billion in five-year notes, and $8 billion in 20-year inflation-protected securities. Total borrowing needs may hit $2.5 TRILLION this fiscal year, according to Goldman Sachs, up from the firm's previous forecast for $2 trillion in issuance.

As if that weren't enough, incoming Treasury Secretary Timothy Geithner just fired a shot across China’s bow by saying the Chinese government is “manipulating” its currency, the yuan. The Obama administration believes that China should allow the yuan to strengthen against the buck.

There’s just one problem: China is the world’s biggest holder of our government debt…
I think if you revisit the fundamentals section of my article that you will find that both Bill Gross and Peter Schiff would agree.

I made some comments about the latest technical developments in my latest End of Day Report.

Here is a big picture look at the technical pattern “3 peaks and a Domed House:”

TLT 2 Year Daily:



TLT 60 days:



Nate


I believe Mike Larson is a sharp cookie who is getting to the heart of the matter!

Eagles – Heart of the Matter:

Technicals by DoctorMad – Together, We Can All Be Heros!

It is my distinct pleasure to introduce my other set of market eyes, Mark – A.K.A. DoctorMad! He is the one who I communicate with via instant messenger (IM), in real time during trading hours, and also strategize with after hours and on weekends…. Together, I think we would both agree, we are better at “seeing” the market and thus profiting from it.

The good Doctor has agreed to contribute and share both his superb technical skills and some fundamental articles. I think you will find that he understands the fundamental situation quite well, that he communicates his points well, and that he just makes better charts than I do! As you’ll see, he “goes into battle” with his money as his “troops,” and him as a general orchestrating the war (this is a terrific analogy that I’ll leave up to him to explain more fully)…
Stocks. I don't think we could have ended up anymore in the middle on the ES. A perfect indecision point in the markets heading into next week. The key trenchline for the bears to hold is around the 842 pivot. The bulls must hold 800. My count has wave 2 starting with the rally at the beginning of this week so we are only a little more than 3 days into it compared to the 10 day decline for wave 1. We also haven't even made it to the 38.2 so you would expect more extension both time and price wise on wave 2. A powerful 2 that retests the bottom of the broken pink channel (the former uptrend line from the NOV lows) also remains a distinct possibility. Break 800 however and the rout is on. The market may be indecisive right now, but the battlefield map and important trenchlines look clear. I'm going to continue to lean into position shorts while daytrading with a long bias to hedge off any wave 2 strength.



Bonds. Is this a wave 4 before one more final push in the 30 year bull in bonds, or did bonds already turn into a bear market when the calendar switched to ‘09? Short-term it doesn't matter. I'm short and plan to remain fully short until the bond bulls muster the strength to break both the pink nano and main yellow trenchline – for now, the bears remain in control for more short-term downside. I've also got fibs up on this one from the bottom of the parabolic launch… We still haven't even retraced 50% of the launch from October despite the big selling since the beginning of the year. Something to consider before you start calling this a bear market in long-term government debt.



Gold. Not so fast on your breakout goldbugs. You are knocking at the door, but you haven't kicked it in yet. The gold bears simply have to hold this string of lower highs on gold right here, or you are going to see a major breakout. If the bears do manage to hold for now, then it might be the bulls turn to have to defend their uptrend line (that has led to this assault on the major bear line). At the very least gold has to consolidate a bit before breaking out, right? If we get that consolidation then I might look to initiate a play. A straddle at the convergence of the 2 major trendlines would be one interesting way to play it. By the way, my long-term count for gold has this giant triangle as a wave 4 of the bull run for gold over the past decade.


Look for more of the Doctor’s contributions in the future. Mark’s strengths are clearly in channeling the latest moves, analyzing chart patterns, and developing strategies for profiting from them. It’s great to have a team where different people contribute their unique strengths. Be sure to welcome Mark by clicking the “cool” button below and by adding your comments and additions to the team on this and the daily market threads. Together, we can all work the markets to be Heroes!


David Bowie – Heroes:


Very cool Bowie tune to crank the volume – btw, it’s the hero theme I’m going for here – lol!

Friday, January 23, 2009

End of Day/ Week 1/23

The day started down hard and made what proved to be the lows of the day right after the open. Shortly thereafter, Polosi & Company came out talking about bigger and faster stimulus – oh boy, where have we heard that before? Frankly, I’m hearing tons of bullish talk about how we’re going to be able to stimulate our way/ print our way back to economic growth, but I’m here to tell you that it’s just not going to happen. Thus the market is setting itself up for disappointment.

I won’t be surprised that, when we do finally get a big Obama bailout on the table, it turns into a sell the news event – again. “But maybe it will be so massive that it’s 3 times larger than anyone expected!” Well, in that case, I’ll simply short the bond market, wait about 12 hours for the drugs to wear off, and then I’ll short the stock market! LOL, you can’t help but see the humor in their attempts – it humors me to no end that people still think they can create changes that will somehow defy economics, math, and gravity. I actually give defying gravity higher odds, but that’s just me.

Anyway, the markets did stage a comeback of sorts, the DOW only finished down 45 points, the S&P finished UP .5%, the NDX lead the way and was up .7%, while the small caps managed to gain .3%. Of note, the transports lost another 2.2%, and the XLF gained 3.3%.

The internals were slightly positive today with advancing shares slightly ahead of those that declined – volume was nearly two to one bullish. Diverging bearishly, the number of new lows, however, grew over Thursday with nearly double the number of new lows on the NYSE. Looking around the data and the charts I see several small bearish divergences (NDX), but I also see some small bullish ones.

Gold broke out above resistance today. Here are a couple of P&F chart showing the breakouts on XAU and also GLD. Note the new higher targets. This is not a trade that I have on at this point as it is counter to my current deflationary hypothesis, and I have learned not to play counter trends in that manner. BUT, I will note that so far this year gold has outperformed handily and may very well continue to do so for a time:

XAU:


GLD:


As you can see on the 10 minute SPX chart below, I ditched the triangle I had drawn as we broke both below it and above it today. Instead, I drew a smaller top line. You can see that we have a series of lower highs but slightly higher lows. The blue line at the bottom is a trendline coming up from the November lows. If we were to break higher, it is conceivable that the lower trendline would combine with one off the last high to produce a triangle. Could be, that’s what McHugh is thinking, but I’m not sold. Note on this chart that the last RSI peak is quite a bit lower than the previous one, while prices were nearly equal – that’s a small bearish divergence:



When we go over and look at the same timeframe on the DOW, it doesn’t look so much like a triangle as it does a descending channel. It is narrowing slightly which could be bullish, but I think we’ll have to give it more time to see. This chart I did not redraw today and look at how it banged down to the bottom, went all the way to the top and was rejected again. Here and on the 30 minute chart the stochastic is midrange again. The 60 minute is mid range on the DOW but overbought on the SPX:



Here’s a one month daily chart of the DOW. It produced a red semi-hammer/doji on slightly lower volume, but again it looks different on the DIA. Note the fresh buy signal on the daily stochastic here. ALL the indices produced those with my settings today. While that is a bullish signal that cannot be ignored, sometimes it will turn up like that and then turn down again if we are in a flat or triangular pattern:



Here’s what the DIA candle looks like on the daily. As you can see, once again we have a completely different candle. Again, the difference is the way in which they handle the opening gap. Here it was on higher volume. I’m not going to cover the SPX and SPY tonight, but they are both notably different as well (interestingly on the SPY there was lower volume on an up candlestick):



The Transports look the weakest overall. Here’s the daily, it made a new recent low today and is very close to breaking the pin lows of November. No, I don’t buy that we are set up for a Dow Theory non-confirmation. This must close below the LOWS of November, not just the closing lows:



Let’s do something different and look at a 20 day chart of the Major Market Index, one of the biggest and most broad index there is. I have not polluted this chart with my drawings… and what do we see? I see a large move down with a big descending triangle at the bottom of that move. Five lower highs in a row with a base at about 895. How would I expect that to resolve? Down:



Sometimes it helps to pull back and look at the broad market like that because different segments can have bearish or bullish slants… but when you put them all together it’s telling the bigger market story.

Last, let’s look at a 20 day chart of TLT, the 20 year bond to check on its progress. This chart basically encompasses the right side of the head and right shoulder if you remember from my article Bond Market Hide & Seek – A Domed House & 3 Peaks.... Here the big blue flag produces a target that is all the way down at the 100 level. When we dig into the latest decline I can spot what appears to be a 3 wave movement down into this morning’s lows which is followed by a small flat. That sure looks like a wave 4 forming. Note that wave 1 was about 5 points, wave 3 about 7, and if wave 5 is equal to wave 3, that would place it right into the 100 neighborhood. I do note a positive RSI divergence here as you can see by the short red lines:



Overall, I note that we are still producing a series of lower highs. On the DOW and Transports we’re also making lower lows, but on the other indices we’re making higher lows. Triangle, flat, whatever you call it, we’re still in the same range as the past few days and it still looks like a wave 2 to me. There are technicians who believe that we’re going to break out higher… I’m still leaning bearish, but can see it both ways so again do not want to do anything too large until we break out of this range in one direction or the other. One thing’s for certain, change will be coming soon.

And look for changes to my website soon too. I have the developers attempting to create a better and more readable layout. It may not work exactly like I want, but it sounds like it will be close. Hey, sometimes change is good!

David Bowie - Changes


Have a great weekend,

Nate

Exxon Mobil Now 5.5% of S&P!?

VERY interesting 3 minute CNBS video regarding Exxon (XOM). XOM is now, wait for it… 5.5% OF THE ENTIRE S&P 500! One company!

XOM, by itself, is larger than the entire Utilities Sector! Is it too big? I think this analyst nailed it pretty well…

CNBC Video – 3 minutes

Morning Update/ Market Thread 1/23

Good Morning,

Futures are down BIG. DOW is down more than 200, and S&P down more than 25 points and is sitting right on the 800 level.

No economic reports this morning, but the dislocation seems to have emanated in Europe were shares are diving. All triangle bottoms appear to be broken, but beware that there are often retests of important technical breaks. I think of this like the market being in disbelief and it needs to taste it to prove that it meant it! That’s how it often behaves at any rate.

Interestingly, VERY interestingly, the bond market is NOT going up with equities down big. That has got to have the administration worried, and it should have YOU worried too. That is very likely to feed on itself if people get nervous about it you will see capital fleeing America. What else are people going to do with their money? Yes, the mattress is an option, but the big money players will NOT stick around and watch their money get flushed in stocks AND in bonds. It is time to pay up the hard way America, we best be ready for that. By the way, I will note that fixed rate home loans have actually climbed by more than .5% in the past week or so. The Fed has lost control of the situation, do not buy into the BS that money is leaving bonds and going into stocks. That’s just not happening.

GOOG did well yesterday, but the gains have bled off almost entirely overnight, and this morning GE matched their earnings estimates and stood behind their dividend payments. That really pisses me off, frankly, as they turned their finance arm into a “bank” in order to exchange THEIR crap for taxpayer money. That dividend money should be going to the holders of THEIR crap first, the taxpayer. Whatever, the math is so unworkable now, we might as well just throw ourselves an endless $150 million or billion (doesn’t matter) party. Oh, and GE stock is DOWN this morning.

I am watching the Euro / Yen (EUR/JPY) cross today and notice that it is climbing off its bottom a little. That should be something to watch.

There is support immediately below here, first at 800, then at 896, then at about 789 (a pivot), 768 (a pivot), and finally at the November pin lows which are down at 741. After that, well, let’s just say that it’s not good.

There is resistance immediately above here at 804, and I would not be surprised by a run up to about 815 to taste that triangle.

If this is wave 1 of 3 just beginning, look out, it should run far and fast. Wave 1 was about 140 points and wave 3 could be more than that. If it were to equal wave 1, the break of the triangle came at about 815, so the target would be down around 675! YIKES. But don’t get too excited, we must get beneath the November pin lows, and here’s the thing. I can almost bet you that the Obama Administration will come out with some super duper sounding stick save this weekend. BE CAREFUL. If you did not catch this move short and you pile in here, you could be in for a nasty surprise. If, on the other hand, they do not act this weekend, then that target becomes very real, very quickly. Watch the bond market! Stocks cannot rally for long if bonds are falling, as that will mean higher interest rates for businesses and for everyone!

Going to be a wild day, watch and please contribute to the comments section of this thread. That's also where you will find the latest charts.

Have a good day,

Nate

Thursday, January 22, 2009

Microsoft cutting 5,000 jobs...

As I’ve been saying all along, the Puget Sound area tends to lag the rest of the nation by about 18 months. Our cycle was always tied to the fortunes of Boeing, who in turn was tied to the airlines, who were tied to the broader economy – thus the lag. Now we have a more diverse economy with all the high tech companies in the area, especially MSFT.

A year ago people in this area couldn’t believe that housing prices could decline HERE. That, too, lags the rest of the nation here. Now the effects are beginning to be felt. It was just January 9th that Boeing announced they were laying off 4,000 jobs. Sadly, I fear that it’s just the beginning:
Microsoft cutting 5,000 jobs

Puget Sound Business Journal (Seattle)

Microsoft Corp. said Thursday morning it will cut 5,000 jobs over the next 18 months, including 1,400 today, and announced earnings well below previous estimates.

It is the biggest layoff in the company's history. The job cuts will range across the company's research and development, marketing, sales, finance, legal, human resources and information-technology departments.

The job cuts, which had been rumored in recent days, vastly exceed the sporadic layoffs Microsoft has made over years, usually a few hundred employees.

Chris Liddell, Microsoft's chief financial officer, said slow sales of software and PCs had forced the company to cut expenses, and he took the unusual step of not offering revenue or profit estimates for the remainder of the fiscal year, which ends June 30, 2009.

“Economic activity and IT spend slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact,” Liddell said in a press release.

“We are not immune to the effects of the economy,” said Microsoft CEO Steve Ballmer, in a statement.

For the second quarter, Microsoft said revenue rose to $16.6 billion from $16.4 billion in 2007. Net income fell to $4.2 billion, or 47 cents per share, from $4.7 billion, or 50 cents per share a year earlier.

Analysts polled by Thomson Financial Network expected second-quarter revenue of $17.1 billion and earnings of 49 cents per share.

Citing the “volatility of market conditions,” Microsoft said it won’t provide revenue and earnings guidance for the rest of the fiscal year.

End of Day 1/22

Thain being shown the door at Bank of America? That didn’t last long! Let’s see, Merrill, then BAC, and now we find out that bonuses were being paid all the while receiving BIG bailout money from the government. OINK. And if that wasn’t enough, he and others in close proximity with big public announcements of stock purchases in their own company’s stock just as Obama is taking office. Hmmm… If I were thinking like a criminal, or like an attorney, I might just want to buy some so that later I can say, “see I bought stock in my own company, even I was fooled,” as a way to keep from going to jail – which is exactly where they all belong. How long has this kind of manipulation and outright theft been going on now? Too long!

Today the DOW finished down 105 points, the SPX down 1.5%, the NDX down 1.5%, and the RUT was the ugly one again losing 3.1%. Notables were the XLF which lost 6.2%, C gave back 15.3% in yo-yo fashion, BAC lost 14.5%, and GS managed to keep the con going longer and gained 1.6%, along with JPM who gained 2.1%.

The internals were almost the reverse of yesterday with nearly 4 to 1 down issues and declining volume seriously outweighing advancing volume.

Google reported better than expected profits and revenues after the bell and is up a little, but not affecting the NDX much at all. AMD posted its ninth loss in a row, perhaps that’s keeping a lid on the enthusiasm.

Southwest Airlines (LUV) jumped 17% today after reporting a strong quarter despite losing more than $61 million on fuel hedges. The XAL was up a little more than 2% today, one of the few segments that was higher.

Speaking of airplanes, did you see that they found bird parts on the wings and engines of flight 1549 that crashed into the Hudson River? Yep, here's a picture from "intelligence" indicatating that it may have been an act of terrorism:



Still looking like Geithner’s Secretary Treasurer appointment is moving along – he cleared the Senate today. He also accused China of manipulating its currency and claimed to the Senate Banking Committee that he wouldn’t be asking for any more TARP or bank bailout money any time soon – oh yeah, words you can believe in there. Sorry if I sound sarcastic.

Speaking of sarcasm, did you hear that Toll Brothers is offering 3.99% fixed rate mortgages on their existing new homes? There’s a deal there!

No economic reports come out tomorrow… with the way today’s housing and unemployment data came in, I’ll take it that people will view that as a relief.

Well, this morning I said that if we didn’t break yesterday’s lows that I would be thinking we are in a triangle… well, that’s what happened and I see triangles all over the place now. As you look a the charts, keep in mind that this very likely means that the move down from the January 6th high to the 21st low was POTENTIALLY wave 1 down of 5 down. If so, then the current triangle is wave 2 and that would mean that wave 3 down would be next. Keep in mind that triangles are a wave two or a wave 4 phenomenon. The rule of alternation suggests that if a triangle occurs in wave 2, then later wave 4 will tend to NOT produce another triangle and would more likely produce some sort of flat or zig-zag pattern. Of course we still haven’t broken the November lows, so that still leaves the door open to us being in wave B up/sideways, but that just isn’t what the charts are telling me. I know that’s what they are telling some others, and it could very well be. Again, I wouldn’t be betting the farm on anything here and now. If we break down out of this triangle, however, you should give the wave 5 down scenario a lot of weight, particularly if wave 3 begins impulsively down.

Speaking of triangles, let’s begin with the charts by looking at a Point & Figure chart of the SPX. Yesterday the same chart had posted a “low pole reversal warning.” Today, that is gone – the 695 target remains. And, if you look at the action, what do you see? A triangle is forming! What way was the triangle entered? From above, which means it’s supposed to break down. And how far is it expected to run? The length of the shaft is typical, and that’s a long ways – in this case about 140 S&P points which is pretty similar in size to decline segments of last year:



Next, let’s look at the one month XLF. Note that we pinned the lower Bollinger band, bounced up, then down, then up – to produce a “spinner” candlestick. These are a thick bodied Doji that indicate indecision or consolidation. They are also an indication of being in a triangle. Volume was decent, again certainly not a washout and slightly less than yesterday’s advance:



Next let’s look at a 10 day chart of the same XLF. This is an unusual one. Still looking like an expanding pattern which could reverse higher, but note that it was stopped twice more today on that same trendline and that it closed right on the blue triangle bottom line. That triangle runs out of time tomorrow, so we should get resolution one way or the other. Here, the 10 minute stochastic is oversold, but the 30 and 60 are in the middle, just as we are in the middle of a triangle as you’ll see in the indices:



Next up is the DOW daily. That’s a big ‘ol inside hammer candle… or is it? Again there’s a huge difference between the candle produced here and on the ETF. This is one of the errors that a Martin Reality Index (MRI) would get rid of – again, the error is introduced by the way the indices draw a line at the open instead of gapping higher or lower like the ETFs do. Note the consistent and elevated volume level:



Here is the same chart but of the DIA ETF. That’s a Doji, certainly NOT a hammer. Can you believe the difference? No wonder people have trouble with the markets. Here you have a down day on higher volume with a Bollinger band that is descending to allow for lower lows:



Here’s the SPX with the same hammer as the DOW:



And here’s the SPY ETF with the same Doji as DIA, again on higher volume. Can’t you just see the triangle there? Where’s the momentum taking you?



Okay, here’s a fun one. Let’s look at the NDX (tech stocks) daily. I highlighted the previous hammer that so presciently predicted the following decline, and now we have a “spinning top” candlestick. Note that here the NDX pinned its 50 day average and collapsed. If you look back to the candle produced on the 13th, you will see a smaller version that was a positive close. What happened after that candle? Big gap down and move lower. Is this one similar? I think it looks like a continuation candle… sure, it could reverse from that, but it just doesn’t look bullish to me – now, if it was an inverted hammer, then it would be bullish:



Internally, the NDX is doing some unique things… let’s look at a 30 minute chart. I highlighted two areas that look very similar, don’t they? I would call that a double – double top! Note that we’ve been making lower highs and today made higher lows to go along with those – that’s what makes a triangle as I’ve outlined in blue. Look at the top on the 6th… it descends down a perfect channel and bottoms on the 15th; sure looks like a wave one to me. Then we move sideways in a triangle… that sure looks like a wave 2 to me. What comes next? You can be long if you want, but not with my money! Note the mixed stochastic – in the middle and confused, just like you would expect in a triangle. Something else to note here is to look closely at the RSI on both double tops – what do you see? I see even tops but lower highs in the RSI… that’s a bearish divergence that in the first one led to selling. In fact, look at the stochastic on this chart too… here I see a repeating pattern of a tall peak followed by a lower peak which is followed by a subsequent dump in the price:



Would you be long into that? Actually, triangles are very difficult to play unless you are on them early like I was on this one. The XLF’s triangle runs out of time before the rest, its action will be the clue, but don’t be surprised if there’s a headfake or two first – this market is brilliant at doing that. Keep in mind that there’s a legitimate goal for the market to draw in fiat currency and return them to the ether from which they came – don’t let it draw in yours!

A word of caution… while I see a good case for this going lower, a break in the upward direction is not out of the question and would probably be pretty violent if it did.

Now let’s look at a 3 month chart of TLT to see how it closed. Well beneath the 50dma (green) and bending the bottom Bollinger down on higher and rising volume. The target on that blue flag is 100… note the gap in that area of the chart. That would be a huge move that if we’re really tracking that 3 peaks and a domed house pattern will probably be just as steep on the backside if not more steep! Caution here is that the $TNX ran right up to its 50dma and did not get above it – something to keep an eye on, and this chart is getting pretty oversold, but could obviously stay that way for a while:



The VIX is acting a little differently, it could be forming a little triangle too. It managed to stay above 46 today and closed above 47 after making a higher low and a lower high. Sound familiar? It’s an inside day and a hallmark of a triangle. Breaking down below 46 would be bullish for equities as a whole, while breaking above the 50dma would be bearish.

Overall, I think this action is still bearish overall. I hear a lot of analysts on TeeVee saying that we’re “basing” around 8,000 for a run higher. Maybe, but that’s not what the charts are saying to me right now. I also heard them yammering about “money that’s flowing out of bonds and into stocks!” What a bunch of maroooons, wait until they realize that higher interest rates and a country that can’t finance their debts is not generally a “buying opportunity of a lifetime!” How long has the media been pumping while those in the financial world have been robbing the world blind? A pretty long time:

Ace – How Long has this Been Going On?


And just to wash your ears out from having to listen to Ace (hey, I like *that* song), here’s someone who is just a little more “cool.”

Bob Dylan – Hurricane:

DOW Distorted...

This is exactly what I've been saying about the indices in general. They do not reflect reality and there are many more distortions than these. That's why I'm proposing to make a new series of indices to be known as MRI's - that's Martin Reality Indices.

I'M SERIOUS, and looking for someone with knowledge and a little time to be a project manager for this. Please contact me via email if you're interested.

Bianco: The Dow is Distorted

January 21, 2009

Guest commentary by James A. Bianco, Chief Executive Officer, of Bianco Research, LLC

Comment - The Dow Jones Industrial Average (DJIA) is a price weighted index. The divisor for the DJIA is 7.964782. That means that every $1 a DJIA stock loses, the index loses 7.96 points, regardless of the company's market capitalization.

Dow Jones, the keeper of the DJIA, has an unwritten rule that any DJIA stock that gets below $10 gets tossed out. As of last night's close (January 20), The DJIA had the following stocks less than $10...

Citi (C) = $2.80

GM (GM) = $3.50

B of A (BAC) = $5.10

Alcoa (AA) = $8.35

If all four of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.

The financials in the DJIA are...

Citi (C) = $2.80

B of A (BAC) = $5.10

Amex (AXP) = 15.60

JP Morgan (JPM) = $18.09

If every financial stock in the DJIA went to zero on today's open, it would only lose 331.25 points, less than it lost yesterday (332.13 points).

If you want to add GE into the financial sector, a debatable proposition, then:

GE (GE) = $12.93

If the four financial stocks above and GE opened at zero today, the DJIA would only lose 434.24 points.

The reason the DJIA is outperforming on the downside is the index committee is not doing it job and replacing sub-$10 stocks and the financials are so beaten up that they cannot push the index much lower.

So what is driving the index? The highest priced stocks:

IBM (IBM) = $81.98

Exxon (XOM) = $76.29

Chevron (CHV) = $68.31

P&G (PG) = $57.34

McDonalds (MCD) = $57.07

J&J (JNJ) = $56.75

3M (MMM) = $53.92

Wal-Mart (WMT) = $50.56

For instance if all the sub-$10 stocks listed above, all the financials listed above and GE opened at zero, the DJIA loses 528.63 points. To repeat if C, BAC, GM, AA, JPM, AXP and GE all open at zero, the DJIA loses 528.63 points.

If IBM opens at zero, it loses 652.95 points. So, the DJIA says that IBM has more influence on the index than all the financials, autos, GE and Alcoa combined.

The DJIA is not normal as the Index committee is not doing their job during this crisis, possibly because to the political fallout of kicking out a Citi or GM. As a result, this index is now severely distorted as it has a tiny weighing in financials and autos.

We thank Jim Bianco for giving us permission to share his firm's research with our readers.

David R. Kotok, Chairman and Chief Investment Officer, email:

Morning Update/ Market Thread 1/22

Good Morning,

Futures are down pretty good this morning on bad news flow from around the world. Dow futures are off by more than 100 points and S&P futures are off by more than 13 from yesterday’s close. Bonds are up a little but coming back down and the dollar is up strongly.

Two economic reports out this morning, both are a stark reminder of the reality of the situation:

Housing permits fell 10.7% from the month before, while housing starts fell by more than 15%. Nate’s take? This is actually a GOOD thing, it is part of the healing process. When there are too many houses, the correct thing to do IS TO STOP BUILDING. Eventually overcapacity will diminish and THEN prices can stabilize, not before. Can you believe that people haven’t been seeing the folly in trying to keep building? Everyone wants THEIR business to keep going and yes, everyone wants to keep their employees employed. If an employer doesn’t like laying off their employees, then they should exercise self-restraint during “boom” times.

And that is translating now in a big way into the unemployment figures which shot up this week to a new bear market high of 589,000, an increase of 62,000 from last week. Speaking of last week, I read some research that said seasonal adjustments last week caused the numbers to be under reported by, get this, nearly 400,000! Yes, that means that when “seasonal adjustments” are removed from the data that last week nearly one million Americans filed for unemployment.

There is a bunch of other news out this morning, like dire warning from Sony and LG talking about demand falling off a cliff and thus warning about future profits. I’ll post some articles up during the day today as I see a lot of things that need to be brought to your attention.

As I’ve been typing, the futures are falling even more. It’s difficult to know where we are in the EW count as you can tell if you’ve been reading my updates. Yesterday evening I said that there were three possibilities… that we were making wave 2 and were about to start 3 down of 3 down of 5 down, or we were creating a triangle, or we had begun wave ‘c’ up of B up/sideways. Well, this move so far this morning is pretty strong and gets me wondering if we just began 3 of 3 of 5? Could be… if we break yesterday’s lows, that’s what I’ll be thinking. If we bounce prior to those lows, I’ll be thinking triangle.

As a word of caution, I can count 5 waves down this morning from the overnight highs in the futures, so shorting the hole here is probably not a super wise idea!

Below is a current picture of the overnight futures, DOW on the left, S&P on the right, so that you can see the pretty obvious 5 waves. I, however, do discount moves from overnight, as their total move should be considered within the framework of the prior trading hours movements.



Remember that we went out yesterday with overbought short term oscillators and so today will be working that off. I’ll keep you up to date in the comments thread of this post with more of the technical picture.

Best to your day and to your trades,

Nate

PS - if you're a bull, don't look at MSFT or GE!

Wednesday, January 21, 2009

End of Day 1/21

Still a lot of believers out there! Today was a big up move that undid a lot of yesterday’s rout… there’s a lot to consider here as we could be in a wave 2 retrace, creating another triangle, or as unlikely as it sounds, we could still be in wave ‘B’ and have just begun ‘c’ up.

On the day the DOW gained 279 points (3.5%), the S&P rose 4.4%, the NDX was up 4.3%, and the RUT rose 5.3% to lead the indices higher. ALL of the major indices posted inside days with the transports looking weakest still, but on higher volume. Notable was the XLF that did close above yesterday’s open on higher volume, but the rest of the market’s advance was generally on lower volume. A lot of the notable financial horror show banks reversed themselves today… GS was up 18%, JPM up 25%, C up 31%, and BAC up by 31% also.

So Ken Lewis is buying up BAC shares while making a public spectacle of it… nice, he’ll expense that to the marketing department I’m sure! As they say, sold to him!

Timothy Geithner (Secretary Treasurer Nominee) gave confirmation hearing testimony today… he sounds very much like an insider who offers no real change from the status quo. His personal tax issues seem out of place, plus he just doesn’t strike me as a strong leader. It looks like we’re going to find out, though, as it sounds like they are going to confirm him.

Internally, yesterday was yet another 90% down day, while today share volume was strong on the up side, but not 90% up, while advancing issues outnumbered decliners by about a 4 to 1 margin. I note that the P&F charts did not reverse their lower targets on today’s action, although the S&P 500 did issue a “low pole reversal warning.”

Speaking of Point & Figure charts, the subject of the Semi-conductors came up today in the Morning Thread and while the SOX bounced later in the day, it was not before producing a technical breakdown with a much lower target:



Let’s take a look at the one month chart of the XLF. Remember that in order for the markets to rally, the financials have to at least go along for the ride, and today was the first day in a long time that they led… a 14.7% advance that managed to close above yesterday’s open on higher volume no less! Note that the stochastic looks like it may issue a buy from oversold conditions pretty soon, and also note the volume pattern over the past month – increasing volume again on the down move overall. Today’s action placed the XLF back above the lower Bollinger Band:



Now let’s look at a 10 minute chart of the XLF to zoom in on it a little. I highlighted a couple of open gaps in the recent decline… nature abhors a vacuum and may want to fill those fairly soon – they are something to be aware of. Also note the expanding megaphone pattern here. These are usually terminal reversal patterns, but they are not super reliable and can break the wrong direction. Another trip to the bottom wouldn’t surprise me though, and look at the short term stochastic here, overbought and just triggering a sell on this timeframe and is overbought on the 30 minute time frame as well. A break of that upper trend line I would consider bullish for the overall market, but a trip to the bottom will be painful as that is a steep slope if it goes there:



While we’re on the 10 minute timeframe, let’s look at the SPX. Here you can see an expanding megaphone type pattern as well. I just took that blue triangle trend line, extended it, and look at where the market came to rest. That was a very large retrace of yesterday’s action, more than 61.8%, and that bolsters the case that we may be starting a new larger triangle pattern. Tomorrow’s action will be telling in that regard. Note that we are now overbought on the 10 and 30 minute stochastic, as well as the 60 minute fast. (Everyone knows that when I say those are overbought that the odds of a decline the next day are pretty good, right?) It could be that we go higher first though, the oscillators don’t give me a for sure thing, but knowing where they are can help you place the odds in your favor. For now, we still have lower lows and lower highs overall:



Let’s zoom out and look at the DOW daily. Big bullish candle, but inside of yesterday’s and on slightly lower volume. Note the daily fast stochastic is oversold and is narrowing in on the slow. The RSI just started to rise again and produced a fresh buy signal coming out of oversold:



Now, to contrast that, is the same chart but of the DOW ETF, DIA. Pretty much an identical picture, but notice we have a very different candlestick than the full body one on the index. The difference is produced because the ETFs will produce a gap on the opening move whereas the index does not – it traces a line that’s not there! Unlike the day before yesterday, I do not see a significant difference in meaning here. Again, today’s action got us back above the lower Bollinger:



Next, let’s look at the VIX on a three month chart. The action today here may be bullish for equities. Note that it couldn’t stay above the 50 day average, it broke below the low point of yesterday’s mammoth move, and it broke an uptrend line. It did not, however, break beneath that 46 level, but if it does tomorrow I would consider that bullish for stocks. Note, too, the fresh sell signal on the stochastic. It could reverse, keep an eye on it for tomorrow.



Next is a 3 month chart of TLT, the 20 year bond fund. Bonds were killed today on a giant move. More than 3% in one day is big and some key areas of support were breached. If you remember, this chart came from my article Bond Market Hide & Seek – A Domed House & 3 Peaks.... I re-entered this trade yesterday and it paid today with a big move down that breached the neckline on that H&S pattern. This is an important development for the entire market. Don’t let the people on CNBS sucker you into believing people moving their money out of bonds is good, it’s definitely not! It means higher rates for almost everything in the end, and it may mean that people are no longer willing to finance our deficits. Note on this chart that we are also nearing a sell signal but are running up on the 50dma and lower Bollinger band which is turning down now to make room. Please read that article I wrote on this pattern if this is Greek to you, as it has very large implications for our economy:



Lastly I want to say “congrats” to my Instant Messenger trading partner for nailing a long position on AAPL today! I didn’t have the guts, but they beat their low ball estimates on record revenue and once again low balled their estimates for next quarter so that they can try to keep beating “estimates.” Here’s the reaction right after the announcement – AAPL on the right and the NDX futures on the left:



Finally, eBay also reported after the close. Here’s a chart with eBay on the left and AAPL on the right… as you can see, eBay didn’t fare so well:



Overall, my take is that we are now overbought short term, but there are some bullish signs like the VIX that need to be watched. The bond market also needs to be watched, if that 3 peaks pattern is running, you will start to see interest rates come up and eventually people will figure out that’s not so cool for stocks. Today’s rally was stronger than I expected, it throws into question whether we have really begun wave 5 down… it could be that we are going to create a triangle, or it may be a steep wave 2 move… tomorrow will be important, and AAPL is providing a bullish start for tomorrow just as IBM did today. I went out on the day more neutral, as I’m not super confident in the direction short term here as I can build a case in both directions for tomorrow. But, if forced to guess for tomorrow, I would guess maybe a little higher tomorrow morning with pullback later, that’s what the short term stochastic is saying.

Hey, I have to give Obama a little credit with his call today for a more transparent administration and also for his lobbying restrictions. That’s a positive sign too. Frankly, it gives people HOPE that we can change the culture of D.C., and as far as people who are buying banks, well… some people just don’t stop believing!

Journey – Don’t Stop Believing:



PS - I consider my charts to be "working man" charts... they may not be real pretty, but they tell me what I want to know and I don't have time to doll them all up, especially when I post so many! Don't fret, though, I have a treat coming as I'm going to have a guest posting some technical pieces soon and he makes really clean and nice charts that you'll enjoy - he's the one who nailed the AAPL call today... hey, sometimes it's better to be lucky than good!


Obama Announcements and Wilbur Ross Expects “Horrific” First Quarter…

LOL! Obama, after just spending $150 million on his inauguration party, announces he is freezing/capping top government executive pay (those who make more than $100k)! On the good side, he is placing restrictions on lobbyists – hurray! Those are definitely welcome by me. Like, he says, that anyone who leaves his administration cannot lobby government while he is President – right on, but I would take it even further.

He is also announcing an open information policy, giving preference to those seeking information. He is talking about transparency and rule of law, but let’s see how he applies it to the banks and financial system, eh? Good first measures, I applaud them, but actions speak louder than words, so let’s see them!

Here’s what Wilbur Ross now thinks is likely for the first quarter:

Wilbur Ross Expects ‘Horrific’ First-Quarter Earnings, Job Cuts

By Tom Keene and Zachary R. Mider

Jan. 21 (Bloomberg) -- Wilbur L. Ross, the investor who made billions turning around distressed steel and textile companies, expects “horrific” first-quarter results from U.S. businesses and said the unemployment rate may reach the highest in 26 years.

“Just look at the announcements that have been made about job cuts since the first of the year,” Ross said today in a Bloomberg Radio interview. “You’re going to see unemployment get up toward the 10 percent region.”

The unemployment rate climbed to 7.2 percent in December and companies from oil refiner ConocoPhillips to Advanced Micro Devices Inc., a maker of computer processors, announced plans to cut jobs amid a global credit contraction. The banking industry won’t stabilize until the U.S. finds a way to stop the decline in housing prices, said Ross, who bought a Florida bank last week that he plans to use as a platform for more acquisitions.

The biggest U.S. banks “clearly” will need more government support, Ross said. “Maybe a good thing to do as part of the renovation process is to have them divest of some things so we minimize the danger of systemic failure in the event they get themselves into trouble again.”

Ross said on Jan. 16 he agreed to buy 68.1 percent of First Bank and Trust Co. in Indiantown, Florida. The bank had $83.5 million in assets as of Sept. 30.
The U.S. unemployment rate hasn’t exceeded 10 percent since June 1983, according to Bloomberg data.


Are these just two excitable boys? Here's more Zevon...

Warren Zevon - Excitable Boy:




Morning Update/ Market Thread - 1/21

Good Morning,

Quite the inauguration festivities yesterday. I tried to be enthusiastic about it, really… but watching the global financial industry and stock market tank at the same time left me feeling as if we were throwing one last really good “Bankruptcy Ball!” I mean why not throw another $150 million into the fire? It’ll make everyone feel better, right?

Meanwhile yesterday’s rout was the largest inauguration day decline in the history of the markets. And remember the old axiom, “as goes January, so goes the rest of the year?” Well, I have the DOW down more than 1,000 points and the S&P off 125 points… how’s it looking so far?

Don’t worry, though, nothing to see here, move along and remember that there’s always hope.

And the futures are up this morning with IBM beating on earnings and their stock up nearly $4 a share despite revenues that were down and a little tiny note buried in their report about their pension fund being under funded by OH, ABOUT 50%! But hey, if people want to own that, they are certainly welcome to. And the entire market feels hope over that situation despite the fact that Ericsson announced they are laying off 5,000 people and BHP is laying off 6,000.

Nothing to see there, the DOW futures are up about 70 points and the S&P are up about 10.

The markets did land on a support area there at 805 on the SPX yesterday. And the short term oscillators, as I said, are very much oversold, so what most would call a relief rally is very possible. I would likely call it wave 2 up of 3 down of 5 down (or it could be on a lower level too). Now, not everyone agrees with that count, and it’s just one possibility. This is a game of odds, and yesterday’s action placed that count higher up in Nate’s way of looking at the charts. Yesterday was very bearish, and I think it’s very likely that we may be destined to be lower sooner than later.

But don’t bet the farm on that, I’m not. There’s another likely scenario in which we build a triangle with higher lows and lower highs – that’s what McHugh is thinking and I certainly wouldn’t bet against him, however, he and several others who I follow have been having to adjust their thinking into more bearish scenarios. We won’t know for sure which count is correct until we break the November lows.

By the way, Richard Russell came out yesterday and said that we have a potential DOW Theory non-confirmation because the Transports closed below the November closing lows and the Industrials did not. I mentioned this and provided charts yesterday, but I don’t play the little game of closing lows and pin lows… that game is for others to play, if it offers them warmth and comfort, that’s nice for them. For me, the deal is not done until the Transports close beneath the November lows. Then it will be confirmed when the DOW closes, or not, below the November lows. You can believe what you want.

Just looking at the charts this morning, it looks like it’s possible that we run to about 822 in the short term or maybe a little higher this morning as we work off those oversold indications, and it could very well be that we are in wave 2, so we could retrace a considerable amount of yesterday’s decline.

The financials are bouncing a little, gold is down, bonds are down pretty strongly again (watch closely), and I see the dollar in what appears to be a triangle. Watch the dollar too, if it breaks up, look out in stocks…

Below is a chart with the XLF after hours action, and on the right is /DX, the dollar futures and the triangle that is about out of time and just broke lower (good for equities). I also see a potential bear flag on the /ES… should be an exciting day, the oscillators need a break and IBM may have given it to them, but the banks are ultimately going to set the direction:



Btw, the economic reports are very light this week, obviously we have earnings, and later this morning we have the State Street Confidence index (no biggie), then tomorrow Redbook and Store Sales, Housing starts and Jobless claims on Thursday.

Please use this thread for comments below, I’ll be putting updates here. Show us your best charts, and your thoughts here too, the more eyes on the market the better.

Nate

Tuesday, January 20, 2009

End of Day 1/20… What a Way to Welcome a New President!

Sell the news/ bank carnage is the only way to describe today. Banks on both sides of the Atlantic were KILLED. It was so bad that I will caution everyone that it has the potential to turn into a major panic. Again, I remind people to protect your assets. This is what the banks have needed to do all along:

Monty Python – Bring Out Your Dead:


On this historic day, the DOW lost 332 points (4%), the S&P lost 5.3%, the NDX was hammered for 5.1%, and the RUT was absolutely creamed for 7% of its value in one day!

Take a look at the carnage in financials: RBS down 70%, STT down 59%, BAC down 29%, C down 20%, GS down 19%, WFC down 24%... on and on, it’s almost too much to look at. And the thing to me is that it does NOT look like washout selling! IYR lost 10.8%, SRS gained 20% (remember that reversal hammer?), GLD gained 2.2%, USO lost 4%, and bonds finished almost flat.

Before I jump into the charts, I want to point out that very few people saw this coming, many of the people I follow were still talking rally to 1,000. Go back and read my Friday End of Day report and you will see that I pointed a series of reversal hammers that proved prescient.

Today was a very important day from a technical perspective. It made a lower low on all the major indices and closed there. While it is still possible that we’re in wave ‘B’ up/sideways until we break the November lows, it’s looking increasingly possible that we were never in wave ‘B’, and were instead in wave 4. If that’s the case, we probably just began wave 3 of wave 5 down… that would be bad, a more bearish scenario than being in wave ‘B’. It means that the ultimate lows will likely be even lower. My feeling is that wave one down of 5 began on Jan. 6th, and ran until the 15th. Then we produced a truncated wave 2 (very bearish), and are now likely making wave 1 down of wave 3 down of wave 5 down. If that’s the case, getting short on top of wave 2 of 5 will be the last really good play before the end of what should be the end of A down.

Let’s look at the charts, I’m just going to throw a bunch of them at you…

Start with the SPX 20 day, 30 minute chart. First of all, note that we are oversold on all the short term oscillators up to the 60 minute level on all the indices. Note the double top formation by the double green lines… that formation is on all the charts, especially the NDX. It created a classic M pattern which is very bearish. That was, I believe, wave 2 and today’s selling began wave 3. You can see how we made new lows and closed right on them. The DOW is beneath 8,000 now, but the SPX is at 805:



Now let’s zoom out to a one month SPX chart. Wow, is that an ugly candlestick or what? 45 points of range… remember, in percentage terms that’s the equivalent of what was a 90 point move last year at this time. Note that the daily stochastic turned back down and stayed in oversold with the slow coming down to meet it (I have my slow set real slow). There really isn’t much support now until we get to the November lows down at 741… well, there’s a little at 796, 789, and then 768:



Next let’s look at the DOW one month daily. Big bearish candle that basically engulfed the past two up days plus a bunch. It was on about equal volume but note that there was about a 2 hour period in there today when Obama was talking that there wasn’t much trading going on. Look at how far beneath the 50 day average we are already (green line):



Next up is the XLF. Horrid. That’s a 16.5% loss on the day! The volume was higher, but certainly not panic levels, that is bearish. What is possibly most bullish in the short term is the close way beneath the lower Bollinger. I look to reverse trades like this, but not this one – no way I want to step out in front of that freight train!



While we’re on financials, here’s a chart of RBS… see if you can find today’s candle! That’s right, look way down there… see, there it is 70% beneath the prior candle:



And here’s a chart of Goldman Sachs. Gee fellas, what’s the matter? No sick women or children to sell your toxic waste to?



Next up is a 3 month chart of the Transports – that’s a 6% loss on the day. I put up 3 months here so that you can see how close it is to breaking the November lows. That’s important because it’s ahead of the Industrials in that regard and if it breaks first, will set up a possible DOW Theory non-confirmation. I’m not worried about that possibility, I’m reasonably sure the Industrials will confirm:



Next I show a 3 month cluttered chart of the DOW just to give you perspective… the Industrials are a little bit behind the trannies, but not that much. How much support do you see from here to the November lows? If your answer is “none,” you sir, are correct:



Okay, these last few charts are simply showing you what happens if you ignore technical basics like looking for hammers… this is the one month NDX – people were looking long even after seeing that hammer. Remember, I pointed out previous hammers like it and told you what follows:



Next is the Diamonds. Look at that hammer and the subsequent result. Go back up and look at the one month DOW to compare last Friday’s candlestick again. The lesson here is to check both places, both charts have their own errors and you must know which is which:



The last chart is the same example with the SPY. Compare to the 1 month SPX chart above:



So, overall very bearish from a technical perspective. Also, the VIX rose 23% on the day and closed above its 50 day moving average. This action is saying that a retest of the November lows is on deck. There’s still a chance that we turn and go higher, but that’s going to be difficult with the reality setting in that most of the world’s leading banks are, in fact, insolvent and there’s very little that Obama or anyone can do about it now.

The correct thing to do was to preserve taxpayer capital and let the banks default. New and healthy banks would have arisen, but they cannot in this environment.

As a reminder, if my count is correct, at some point we are going to get a wave 2 bounce. Wave 2’s tend to be steep, so when it comes I’ll be looking to get pretty short on the top of it, that will potentially be a big money maker or loser depending upon whether you still believe in Santa or not! Be careful, or the werewolf banks of London might get you…

Warren Zevon - Werewolves of London:



Have a great evening,

Nate

PS – would love to have more participation on that daily thread, bring your best chart tomorrow and put it up there for us to see!