Tuesday, May 11, 2010

Morning Update/ Market Thread 5/11

Good Morning,

Equity futures are down substantially overnight, but are possibly still inside of a potential bullish flag, so caution is advised especially with the lunatics out to defend (destroy) their currencies. The dollar is higher despite the trillion just thrown at the Euro which is already not too far from the crash low. Below is a daily chart showing the dollar on the left and Euro on the right, both are coming back to their channel boundaries.

Bonds were higher overnight but are correcting back to near even as we head into the open. Oil is lower and gold is very close to its all time high at $1,227, now at $1,222. Gold certainly looks headed to new highs, deservedly so with the sociopaths running the money of the world and pushing debt as if it were candy – the world’s most profitable candy that is.

The Shanghai Composite Index sank another 1.9%, pushing its losses since the November high to 21%, that makes it officially another (continued) bear market for China. Below is an updated chart of the Shanghai market (color) with the SPX in the background (black) that I showed a few days ago, in fact I showed it just prior to last week’s crash. When these two markets diverge in recent times, they eventually move back together:

There is again no meaningful data released today, it’s a light week. Wholesale trade is released at 10 Eastern today with International trade numbers released tomorrow.

Yesterday’s short covering rally into the face of sociopaths hell bent on committing fiscal suicide, was on lower volume although not light volume. Once again, ALL the move occurred after hours, eliminating any non-insider from being able to enter the “market” (the word “market” is in quotes as it is now assumed to be dead and only a simulated/ manipulated game played by the sociopaths). Folks, to have companies who never have a losing day throughout an entire quarter is a CERTAIN sign that the markets have been completely co-opted. It is a sign… a very negative and very ominous sign. The “markets” are obviously built upon computer trading and hot money controlled by a very few. That is a sign that the end of the “market” is near. I have not been so bearish on events before, but this is end of empire type of stuff, history books will be written about it and future generations will ask how we could have been so blind, and why did we not take control of the situation.

It almost makes talking technicals pointless, but I’ll do it anyway. From a technical standpoint, what’s important now is whether or not there is follow through from yesterday’s move. It was a 90%+ up day so if we have another one in the next few days it would be confirmation. On the other hand, we have had 4 recent 90%+ down days in the past two weeks. This is showing extreme volatility, something that often occurs at major tops.

The NDX gapped higher yesterday and this morning’s action puts prices below yesterday’s candle in the gap. Prices need to get back inside that candle or it’s bearish for the NDX. All the major indices, except for the RUT, retraced 61.8% of their declines and were stopped there. The RUT was weaker, retracing only 50%. Usually a bullish pattern has the small caps outperforming, this is a sign of relative weakness.

Yesterday's ramp did bring the VIX down significantly and it is back inside the range of the Bollinger bands. This is a market buy signal, but that does not mean that more selling cannot occur, this signal is usually a few days early:

So now that the Europeans, the IMF, and U.S. taxpayers are tossing another Trillion at Europe (much of it is debt), people’s minds once again run to the inflation over deflation debate. Make no mistake, it is the forces of deflation that is forcing their psychopathic hands. They have always had choices to make. Letting deflation run its course is the path of continuation – debts clear and that allows another cycle to eventually continue. Choosing massive intervention is exactly what causes a LOSS OF CONFIDENCE in the underlying structure of money and economy. Simply look at gold about to reach an all time high just two days following their actions.

Debt works to keep velocity down. Once debt saturated, adding debt upon debt simply kills velocity, that’s what that diminishing productivity chart is all about. This is why there is an inflation/ deflation conundrum. Here’s my take – hands off, deflation will run. Inject more trillions and inflation in the sense of the quantity of money being out of control is not really the issue as much as it is that loss of confidence that is the issue. Confidence erodes slowly, gathers steam, and then one day you will wake up and there will be a phase transition where confidence is completely gone.

What happens when confidence is gone? Do you want to hold money that you have no confidence in? NO. So what do you do? You get rid of it by buying things that you do have confidence in. Once that cascade begins, an ARTIFICIAL VELOCITY ramps where money is treated like a hot potato. That is the end.

That day is coming – whether deflation is allowed to express itself or not. If deflation is not allowed to express itself, the end is coming SOONER. This is why this weekend’s actions were an accelerating event.

The markets are false, they are simulated, I have no confidence, they have died and they are now meaningless except as a marker of what occurs very near the end.

Doors – This is the End: