Thursday, July 1, 2010

Morning Update/ Market Thread 7/1

Good Morning,

Equity markets are roughly flat this morning, but the dollar is down severely in the background, falling all the way back to prior support at the 85 mark. Should the dollar break below 85, it is probably going to correct to the bottom of its uptrend channel. The Euro is rallying… why, I’m not so sure, but Spain did “successfully” complete their bond auction that everyone was worried about as they had just been downgraded by Moody’s and the debt rollover was large. While they did sell the bonds they planned, the bid-to-cover was low and the rate was higher than past auctions. Also, Merkel’s choice for Presidents, Christian Wulff, was voted in, this is seen as her maintaining power for now. She has become the European driving force for austerity, this was forced upon her after being kicked in the teeth for tossing a trillion of stimulus into the kitty.

Bonds in the U.S. are flat this morning after the TNX and TLT produced what may be ending hammers yesterday. These hammers coincide with a hammer that was made by the VIX, charts below:




These may be meaningless, but they may also indicate that a pause in the equity downtrend is about to occur. That makes today’s action important. If the count is correct, we are now in 3 of 3 of 3 down… unless wave 1 of 3 wasn’t really over. I still have a difficult time counting 5 waves there and it could be that we’re going to have a more meaningful wave 2 correction from here? Note the question mark… this is not McHugh’s count, he’s convinced wave 1 and 2 are complete – we’ll see, sometimes it’s not so clear until you see the action. If the selling resumes today, then he’s right. Regardless, wave 3 is underway and the waves are moving swiftly.

I want to make something clear about this wave 3… I view this as most likely wave 3 of wave 1 down. If you go back and look at the top in late ’07, the waves so far look very much like that. If we are rhyming, then the very serious crash type of collapse won’t happen until wave 3 of 3 on the higher scale. So again, this wave 3 of 3 of 3 is most likely of wave 1 right now, the beginning of the collapse. Once this wave 3 completes, we will go through a small scale wave 4, then 5, and then we should have a significant wave 2 bounce. By the time all that completes, we may very well find ourselves in the fall, a typical time for more ferocious selling – that would be the larger scale wave 3. I throw this out there only as a possibility for what I am thinking and seeing in the markets right now.

Yesterday’s late day dive crossed some key technical levels. First of all, the Head & Shoulders pattern neckline was decisively broken and the pattern is now confirmed. It is well formed and a classic pattern. Even if we rise back above the neckline, this pattern now has very high odds of playing out and achieving the target. The target is 860ish – once that target is achieved, the market will have lost roughly 30% from its April peak – about 15% lower than here. That will qualify as both a bear market and a market crash.

Another classic DOW Theory sell signal arrived as we closed below the June 7th closing low in both the Industrials and the Transports. This is a very powerful confirmation, one that cannot be ignored – it means that the trend is down and is likely to stay that way, the odds remain that the next bounce will fail to make a new high.

Another VERY BEARISH signal is occurring right now. This is a bearish cross of the Weekly 13 and 34 exponential moving average. This is a long term signal that many professionals watch. It is the “autopilot” signal, the one that if you use it mechanically, you will simply buy the market on a bull cross, and sell it on a bear cross – and forget about everything else, it will make you money in the long run, no doubt about it. It has very few false crossovers and you can see that this one is steep:

And then we have the 50 and 200 day moving average cross (death cross) also about to happen. I believe it’s likely to cross tomorrow or Monday at the latest. This is yet another long term reliable signal – it can produce short term throwovers, but that is rare and again this signal is steep with the 50dma falling rapidly:

There are many, many sick individual stocks and many broken patterns. They are signaling further declines are likely and I believe they are coming – the evidence is overwhelming.

Weekly Jobless claims rose from last week’s 457,000 back up to a very stubborn 472,000. The consensus called for a drop to 450k – obviously that once again did not happen. Listening to Obama talk about how he saved the economy yesterday was sickening. Empty suit is an understatement – a math challenged puppet of the oligarchs is the unfortunate reality. Here’s Econoday:
High levels of initial jobless claims remain the biggest disappointment on the U.S. economic calendar. Claims rose 13,000 in the June 26 week to 472,000, lifting the four-week average by 3,250 to 466,500 for the highest level since March. Compared with May, June levels are slightly higher and point to trouble for tomorrow's big employment report. Census workers may be a factor as some may qualify for unemployment benefits, but the Labor Department is not citing this.

Continuing claims have been edging lower in what is probably a good sign though it may reflect to a degree discouraged workers leaving the workforce. Continuing claims for the June 19 week did rise 43,000 but the four-week average of 4.568 million is about 100,000 lower than mid-May. The unemployment rate for insured workers is unchanged at 3.6 percent.

Money is moving to safety following the results as the dollar is gaining and stocks are losing.

The “Monster” Employment Index actually rose from 134 to 141, supposedly reflecting stronger online employment demand. This index has not correlated well with unemployment statistics.

The Challenger Jobs report, which tracks mass layoff announcements, rose slightly from 38,810 to 39,358. These numbers are small compared to the mass layoffs during the ’08 decline, it would seem to me that the low hanging “fruit” is gone and finding massive employees to trim further will be impossible. The more likely outcome as wave C deepens is that companies will fail to hang on altogether.

Construction Spending, Pending Home Sales, and the Manufacturing ISM are released at 10 Eastern this morning.

There was a small movement in the McClelland Oscillator yesterday, which means that a large move is likely either today or tomorrow.

And just to prove what a JOKER (destructive idiot) Alan Greenspan is, here’s your quote of the day:
July 1 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. economic recovery is undergoing a “typical pause” that will be shaped by the performance of stock markets.

“While ordinarily we’re seeing the stock market driven by economic events, I think it’s more the reverse,” Greenspan said in an interview today on CNBC. “What we do know is stock prices are a leading indicator.”

Too bad he never considered debt saturation a leading indicator, but that would be far too much to expect for this Joker, one of the world’s most prolific DEBT PUSHERS.

Steve Miller – The Joker: