Wednesday, June 23, 2010

Morning Update/ Market Thread 6/23

Good Morning,

Equity futures were slightly higher this morning, but fell sharply into the bell as we move into today’s FOMC announcement (2:15 Eastern, 11:15 Pacific). Expect head shaking drivel from the announcement, a headfake by the HFTs following the announcement, followed 20 to 30 minutes later by a real directional move, most likely lower. Not that there’s any type of predictable pattern, like the Monday morning ramp – naaaawww.

The dollar is down slightly to flat, the Euro is slightly higher, oil and gold are both lower. Overhead resistance is now SPX 1100, then 1111. Support is 1,090, then 1,070, and below that the 1040/1050 neckline area awaits. Below is a 3 month daily chart of the SPX:

Yesterday’s rout was yet another 90%+ down move (92.4%), the score now sits at 9 down, 6 up, 15 total since mid-April. Unprecedented lopsided volatility, again proof that the only real players left are the ones operating HFTs. Note in the chart above that it won’t be long before the 50dma crosses under the 200dma, a “death cross.” That is an ominous indicator that happens very infrequently. There are false crossovers, but if the 50 gets more than 1% below the 200, the odds of a false cross are almost nothing. Below is a 2 year view showing the last death cross that occurred in late 2007:

I recently did a quick study of just the 200 day moving average and found that another very good indicator is when the average changes directions by 1% that it makes an excellent long term sell or buy signal. You can see that it is now rising very slightly but is likely to be pointing down soon with any further downward movement. Of course a shorter term signal is a falling 50dma, and it is falling steeply at this time, that really pressures prices and presents stiff overhead resistance as was just proven.

The (worthless) MBA Purchase Applications composite index fell 5.9% in the prior week. Purchase applications fell 1.2% and refinance applications fell 7.3%. Here’s Econoday:
Mortgage activity contracted in the June 18 week led by a 7.3 percent decline in refinancing applications. The dip retraces only a small degree of a two-month surge triggered by the dramatic drop underway in mortgage rates. Thirty-year mortgages fell 7 basis points in the week to 4.75 percent for the lowest rate since May last year.

On the home-buying side, purchase applications, which in the prior week rose for the first time in six weeks, resumed their steep post-stimulus decline with a 1.2 percent dip. The housing sector appears to be in trouble following April's end of second-round stimulus. Today's new home sales report at 10:00 ET will offer a key look at post-stimulus demand.

As they said, new home sales coming at 10 Eastern this morning.

Did you see that the White House’s Budget Director resigned? That was followed yesterday by the House Republican Leader, John Boehner, who announced that there would be no work on the Congressional budget this year? He’s accusing politicians of not facing up to the trillions in shortfalls prior to the November elections and that they want to hold off on dealing with the reality of their mess until afterwards… this should not give you or the markets a warm fuzzy feeling, in fact it is a giant red flag, a confidence destroyer.

Then, the General McChrystal’s comments were a direct embarrassment to the administration and he has now tendered his resignation. Do McChrystal’s comments build confidence? I’d say not.

Then we have George Soros come out and say that Germany may cause the collapse of the Euro! Ahhh, poor guy. Can’t stand the heat of a little austerity. Bond spreads widened considerably on his comments.

Another ominous development in the charts yesterday occurred when the TNX (ten year Treasury fund) broke a bearish pennant. The staff of the pennant goes from 4% to 3.1%, a .9% move which is huge. The break lower from the flag break then targets 2.3%, again a huge move that would have to correspond to a large move lower in equities:

There are corresponding breaks in the long bond and TLT is still maintaining its uptrend line as well as breaking higher as seen in this daily chart below:

Below is a daily chart showing the Emerging Markets death cross again. Monday’s action attempted to gap higher, but collapsed and that led to yesterday’s move dumping below both the 50 and 200. Again, this is a warning about global emerging markets and the U.S. does not operate in isolation:

The markets are signaling the psychology of wave C down in my opinion. Much of the world is being forced into austerity, the U.S. will eventually have no choice should we fail to look beyond the edges of the central banker’s debt backed money box. Inside of that box resides the left/right paradigm, both sides are funded by the same people. Inside that box the math of social security, of Medicare, and of our very money do not work. Solutions inside that box are debt on top of debt, or austerity. In other words no solutions at all. People need to pull their minds outside of that box. Don’t listen to the fools!

Doobie Brothers – What a Fool Believes: