Friday, August 20, 2010

Morning Update/ Market Thread 8/20

Good Morning,

Equities are down, the dollar is up, Euro is down, bonds are higher, and both oil and gold are down.

Things are getting interesting… The SPX has fallen below the 1070 level overnight – if we trade below that level during the day today then we will have broken the low of wave 1 down as well as breaking the neckline of a small Head & Shoulder’s pattern. Below is a 60 minute chart showing this pattern, the neckline is the double blue lines, and can be drawn a couple of ways – with the neckline low like I have it, or with it higher. Where it is drawn on the left side is irrelevant as the right side does not change and that is what gives us our target. The pattern is worth about 60 points, so a break of 1070 will validate the pattern and target roughly 1010:

Here's the same pattern with the neckline drawn differently - take your pick:

This 1010 target is very important because it means that the much larger H&S pattern’s neckline at 1040 will also likely break, and that will mean we are on our way to 860ish – a very long way down from here. Below is a one year daily chart showing this pattern. The 1040 neckline has actually already been broken by the last excursion down to 1010 – I do not think it holds this time around. This smaller/ larger H&S setup occurring at the same time as we are receiving Hindenburg Omens is exactly the same set up and experience that was occurring during 2008 prior to the plunge that occurred later in the year:

Speaking of Hindenburg Omens, did we get one yesterday or not? By the strictest letter of the law, no. But using some common sense, yes. This is what I said last night, and that is exactly what McHugh said as well… here are the details:

We use Wall Street Journal data for consistency when looking at market statistics. Their data does not match other data. Why all the data watchers don’t agree, I don’t know – sometimes they are so different, it’s no wonder people are confused. This is INTENTIONAL, they want you to be confused. They keep statistics and data to themselves so that they can sell it to you or to trade upon knowledge that only they have. And I’m going to SLAM the WSJ for being a big part of the problem! They are too intertwined in the marketing of Wall Street – they are NOT a neutral party. Just take a look at the articles on their “MarketWatch,” here you will find marketing that passes as journalism.

Typically, the 52 week highs and lows do shake out after the close as they recalculate which issues actually made new annual highs and lows – that adjustment is most of the time higher. But yesterday we were sitting on 75 new lows, and the late adjustment pulled it down to 69! Hmmm… yes, I am a cynic, and this makes me question, but I’ll leave it at that. In the end, the WSJ reports 69 new 52 week lows on the NYSE, 137 new highs. Yahoo, on the other hand, reported 92 new lows, but 249 new highs. Using Yahoo’s numbers would not have produced the Omen because the highs are more than twice the lows – but that’s not the case with the WSJ data. And just look at how different that data is… and here’s where we apply some common sense and look at the spirit of what a Hindenburg Omen is and what it’s telling us. Simply put, it’s telling us that internally the market is severely divided, it is not uniform. Rising stocks require uniformity – what this is saying is that some issues are under severe distress, those are leading the market, the others are following, and follow they will.

Here’s the math… 69 is equal to 2.18% of the issues traded on the NYSE. Rounded, it’s 2.2%, which is the Hindenburg minimum and all other conditions were, in fact, met. However, if you calculate 2.2% of 3,163 issues traded, that equals 69.58 issues – round that and it equals 70. Thus we are technically short by half an issue using that math. McHugh is calling it a confirmed Hindenburg with an asterisk, and I would concur.

We had a near Hindenburg last week, and since the April High we now have 13 90%+ panic selling days and 11 90%+ panic buying days, yesterday being 91.4% down volume. Again, this shows severe distress and nonconformity.

With a confirmed Hindenburg* now on the clock, the odds of further market declines is very high. The odds of a decline that meets the definition of a crash (as the 860 H&S target would), is 30% within the next 4 months. The odds of a large H&S pattern reaching its target is much greater than 30%, so combine what the market is saying and you get the idea.

Below is a terrific example of a large and classic H&S pattern in a stock issue showing the underlying stress and reality – Wells Fargo. This pattern will be verified with a close under the neckline, and the target is nearly $10 lower:

Note that the VIX is back above the big moving averages, and that the upper Bollinger is now turning up and out of the way:

There is no economic data released today, but it is Options Expiration, and keep in mind that we have another Monday morning ramp probability coming, so be on the lookout for HFT front running! Yes, it’s ridiculous, a sick and twisted market to go along with sick and twisted oligarchs who puppeteer sick and twisted “leadership.” But not to worry, they have Roger Clemens and will make an example of him! Can you say “distraction?” I thought you could.

Remember, the real ball game is found in the debt markets. Keeping your eye on the ball means watching the DEBT, who produces it, who controls it, and who profits from it.

Yesterday, the supposed “Leading Indicators” came in as expected at positive .1%. I’m here to tell you that the LEI is not leading. It is an archaic compilation that TRAILS by about 6 to 8 months. If you want leading, you are forced to pay attention to things like credit levels, sales tax data, shipping quantities and prices (Baltic Dry crashing). But if you want a modern leading indicator, the closest is the ECRI which continues to show that the economy is contracting at the greatest rate since WWII, now nearly 5%:

And the Philly Fed Manufacturing Index was a disaster to go along with the 500K jobless claims. It tumbled to -7.7 when a gain to +7 was expected. Again, this is showing contraction as most indicators are. And just look at the number of economic data points that have come in much lower than “expectations.” Make no mistake, the emperor wears no cloths. The myth of not fighting the Fed is exactly that. In the long run, they are the problem.

Yet no one in the “mainstream” will acknowledge that, of course. And now that it’s perfectly clear that people like me have been fundamentally right all along, the politicians are left to fall back on old tried and true techniques… distractions and playing the blame game. That’s what happens when you are a puppet who sold out to the debt pushers. You, and everyone else, are forced to live inside of a debt backed money box in which there are no good solutions. Only solutions that feed people’s productive efforts up the chain to the very few at the very top. Nothing will change until we change WHO is in control of our money – and that does not just mean electing new puppets.

Aug. 20 (Bloomberg) -- President Barack Obama and fellow Democrats have run out of time and tools to generate growth as a historic government intervention to rescue the economy runs up against the limits of the November election calendar.

So the contest with Republicans for control of the U.S. Congress has reverted to arguments that have traditionally defined the parties: the role of spending and taxes.

Democrats are reminding voters that their economic problems started under President George W. Bush, while Republicans are taking aim at the Obama administration’s handling of record deficits and high unemployment. The Bush administration’s tax cuts, due to expire Dec. 31, will be among the points of contention.

Acknowledging that they have run out of time and tools? That’s interesting.

I thought this Bloomberg snippet was also very telling on the real state of the economy, I don’t know how they let these past their Bull filters (oh, that’s right, they’re already short):
Aug. 19 (Bloomberg) -- For signs of the flagging health of U.S. consumer spending, look no further than Taiwan.

At Taipei-based Acer Inc., the world’s second-largest maker of computers, sales plunged 38 percent in July from a year earlier. Micro-Star International Co., a maker of boards that connect computer components, recorded a 15 percent drop.

Sales at Asian computer makers, which account for more than 80 percent of computer and parts imports into the U.S. each year, indicate American shoppers aren’t likely to boost the spending that accounts for 70 percent of the world’s largest economy. Already, consumption is growing at the slowest pace of any recovery since 1945.

Weren’t we just hearing how good sales of computers and high tech gear was? Hmmm, what happened to that? Remember, earnings season is all about MARKETING, not about business. It’s a game of setting expectations and then creating a reaction. We, quite unfortunately, have become a society who is terrific at generating propaganda and financial fluff, while really producing little that’s real and meaningful.

Meanwhile, Greece continues to fester while the people suffer – 70% unemployment in some regions now. The rest of Europe is a basket case, and none of this is going to get better until we structurally change. A productive society cannot be based upon marketing, fluff, and debt. We need to get real, and the place to start is by focusing on the root of the problem, the pushers of debt.

Steppenwolf – The Pusher: