Wednesday, April 28, 2010

Morning Update/ Market Thread 4/28

Good Morning,

Equity futures are higher this morning following yesterday’s tumult. The SPX gave up 2.3% on the day and overnight the Nikkei Index lost 287 points or 2.6% in sympathy. The dollar and bonds are slightly lower this morning, the Euro is up slightly after making new lows yesterday, oil is up a little and gold is down a little.

The action in gold yesterday was interesting as it moved up strongly in opposition to the market. That’s an important clue for what to expect as it becomes more clear that indeed sovereign risk is for real and it’s not just a Greek problem – it’s a global problem.

According to Bloomberg:
The yield on two-year Greek notes surged to more than 23 percent today, and the nation’s securities regulator imposed a two-month ban on short sales on the Athens stock exchange.

The euro gained today after the Financial Times reported the International Monetary Fund may increase its financial assistance in the first year to Greece by 10 billion euros from the current 15 billion euros, citing unidentified bankers and officials in Washington. The currency was trading at $1.3195 at 12:45 p.m. in Tokyo, having earlier traded at $1.3145, the lowest since April 29, 2009.
Got to love those unidentified bankers, and when all else fails ban short selling, yeah that'll work... not! The bankers don't care about any "risk," they are certainly willing to print up an instrument of debt and skim from the people’s productive efforts – austerity, that’s for other people.

The worthless MBA Purchase Index produced yet another wild swing, gaining 7.4% on the week. The refinance index, however, lost 8.8%! The composite index lost 2.9%. I don’t even know why I waste my time with this report, somebody please make it stop! Econoday plays right along, gee, no mention of the weather?
The approaching end to second-round stimulus is giving a big lift to housing demand as the Mortgage Bankers Association's purchase index jumped for a second week, up 7.4 percent in the April 23 week. But the outlook after the latest stimulus expires at month-end is in serious question. This report two weeks from now will likely offer the first indication of how deeply stimulus pulled sales forward. MBA reports a disproportionate share of government purchase applications which rose 11.9 percent in the latest week vs. a 3.5 percent rise for conventional purchases.

If it weren't for sovereign-debt issues now pulling U.S. rates lower, the prospect of high mortgage rates was a central risk to future housing demand. Rates did rise in the week, up 4 basis points on 30-year loans to 5.08 percent, but rates are very likely to move lower in the next report given ongoing sharp declines in long Treasury yields. Lower rates should help the refinance index which however fell 8.8 percent in the latest reporting week. The fall in the refinance index offset the rise in the purchase index, making for a 2.9 percent decrease in the composite index.
Of course the FOMC meeting announcement will occur at 2:15 Eastern this morning, boy, can’t you just wait to hear what these geniuses have to say? I’m still waiting for Bernanke to utter the words “debt saturation” which he actually came pretty close to yesterday. In fact, he came pretty close to saying that there’s no more room for deficit spending, and doesn’t that fly in the face of his entire prevent depression thesis?

Here’s a thesis for you – central bankers and their debt backed money schemes are the CAUSE of credit bubbles and depressions. Let’s see whose thesis wins out over time.

Yesterday’s move in the markets produced a bunch of technical damage, most of the current uptrend lines were broken, but not all. McHugh’s current short term count shows that we may need one more wave higher, but I’m not so certain that we’ll get it. This descent had a different flavor to it, it was very strong, a 95% down day on much heavier volume and it was not just based on one concern, it was based on several.

It is quite typical that following a 90% plus move that some correction or sideways action occur to digest that move.

Note that the selloff occurred the day following an all time record high number of new highs. Here’s the resultant chart of new highs, according to the WSJ new highs fell to 191, that’s a huge drop from 674:

The other technical indicator to watch is the VIX which gained more than 30% yesterday, leaping over the 50dma and even bounding over the 200dma to close miles outside of the upper Bollinger band:

The close outside of the upper Bollinger sets up a market buy signal that will be triggered once the VIX returns to inside of the normal range. That may happen quickly or it may take a few days depending on the market direction from here. Once triggered, the coming market buy signal may indicate that a wave 2 bounce is coming. Remember, these VIX signals usually lead by a few days or even a week or two, but they are highly reliable. Keep in mind that this is a future event we’re talking about, it’s quite possible that there is much selling between here and there – if I had to guess, this was not a one day wonder and may be the start of a larger correction. If that read is correct, we should resume selling with the VIX remaining above the upper Bollinger for perhaps a few days – we’ll see, we really need a little more on the downside here to break the uptrend lines on indices like the RUT.

Many of the indices, including the NDX, produced new bearish targets on their respective Point & Figure charts. The VIX produced a new bullish target of 36. The 30% move yesterday certainly made options instantly more expensive, removing good entry points for retail "investors" (gamblers) to get positioned:

For now Goldman is higher having bounced off the $150 level. There is strong support for their stock just beneath that range, however, should it break beneath there it may prove to be quite damaging for them.

From my perspective DEBT continues to rattle the world, one event after the other. This will not stop, it will continue to get worse until we either change WHO controls our money and how it is backed by debt, OR we rush headlong into other nasty events that history says is coming if we’re not smart enough to remove the central bankers from power. Don’t buy the bullshit, the world’s problems are not caused by unions, illegal immigrants, or any other such nonsense. They are caused because We The People have failed to uphold the rule of law and demand that our representatives take back control of our money as the Constitution, the basis for law in this country, demands.

Did you see the Goldman billionaires slither like the snakes in the grass they are? No apologies forthcoming from the snakes. Lord Blankfein is up today, more fun in the theatre of the absurd.

Velvet Revolver – Slither: