Tuesday, June 29, 2010

Morning Update/ Market Thread 6/29

Good Morning,

Equity futures are down hard this morning following yesterday’s sideways triangle that appeared to be a part of a very weak wave 2 of 3 of 3 bounce. That means that this morning’s action is very likely the initial part of wave 3 of 3 of 3 down.

The dollar is up, the euro is down, oil is down big, gold is threatening to break up trending support, and bonds are up large again. The move in bonds yesterday was very important - it told us in no uncertain terms that big money was moving into the “safety” of DEBT, LOL, and that equities were therefore levitating on borrowed time (pun intended). Below is a chart of TLT, the 20 year bond fund and you can see that yesterday’s action put prices above the prior high while pushing the upper Bollinger band up and out of the way:

The TNX (10 year Treasuries) fell in yield to new lows as well. My pennant target for the ten year is 2.3%:

With the SPX now well below what was 1070 support, I believe we are now quickly going to go visit the 1040 neckline and I doubt that it holds. My best guess is that it breaks and verifies the large H&S pattern, but then comes back up to test the break from below. Of course it doesn’t have to play like that, so it’ll be interesting to watch as many people will use 1040ish as their line of demarcation. Note on the chart below that the 78.6% retrace is at 1061 – I doubt that level holds for long:

Yesterday the knucklehead Paul Krugman finally got around to using the Depression word – gasp, oh my. But someone I actually respect, Paul Hussman, issued another “recession” warning yesterday. He uses more conventional indicators such as the ECRI “Leading” Index and notes that the odds of falling into negative growth are now very high. Hussman has been correct in the past and he wrote his recession warning here: Recession Warning

China’s economic indicators are slowing rapidly now as well. Yesterday, Japan’s Industrial Production and Household Spending both showed further declines. Their unemployment rate also increased. Greece had more riots with its 5th national strike of the year.

One thing is certain – change is on the way, and the current version of “financial reform” is not it. Whatever comes, we all are going to have to roll with the changes…

REO & Styx – Roll with the Changes: