Monday, August 23, 2010

Morning Update/ Market Thread 8/23

Good Morning,

Equity futures are up slightly this morning, the dollar and bonds are down slightly, while oil and gold are both close to break even.

With 83 new 52 week highs and 95 new lows, we did receive another solid Hindenburg Omen on Friday as all other conditions were met as well. With an undisputed Hindenburg on the clock, the odds of a stock market plunge meeting the definition of a crash, -15% or greater, goes up to about 30%. No crash since 1985 has occurred without one, and the odds of a significant decline, something less than a crash, are significantly higher.

Combine the two Head & Shoulder patterns that are targeting 860 on the SPX along with the large number of 90%+ swings in both directions, and I think the market is telling us that we’re on the verge of moving towards that 860 target – achieving that target will meet the definition of a crash. Once a Hindenburg is on the clock, receiving more of them simply moves the window that it’s valid out further in time, currently this one is valid until almost Christmas. Four months is a pretty large window… as always, do not expect a straight line, but do expect the decline to unfold in waves.

It would appear that we may have begun wave 3 of 3 down last Thursday, and possibly finished the first subwave down. That means that we may be experiencing a small degree wave 2 that began Friday and that could continue for some time today – but keep in mind that wave 3s travel quickly, so wave 2 may not be as strong as other wave 2s.

There is definitely more recognition that the economy is weakening. Rosenberg is now forecasting negative quarter 3 GDP growth, this is the timeframe which I am also expecting that trumped up report to also roll (I don’t think we’ve had REAL growth for more than a decade). Friday the second cut at Q2 GDP is released, the prior was +2.4% and now the consensus is for a revision to 1.3%.

There is no economic data to report today, we get home sales data this week, Durable Goods on Wednesday, GDP and Consumer Sentiment on Friday.

I think it’s significant that the Iranians began to fuel their nuclear reactor without an Israeli strike as some people expected. I don’t know all the games being played, but I am still paying attention to that situation and think it still has potential to have significant developments at any time.

The bizarre headline of the weekend was Sweden filing rape charges against WikiLeaks Founder Julian Assange. This sounded very much like a subversive attempt to discredit and to silence him, and sure enough charges were dropped within a day. The American Administration and military, of course, hate what he’s doing and thus it’s not difficult to imagine that our own morons are playing games with yet another vocal critic’s life. It’s tough having transparency forced upon you when you’re a bad actor. The seeds of discontent are growing as are the games being played to keep the “weeds” out of their very fertile power and control garden.

For now the Monday morning ramp looks pretty weak but with the possibility of being in wave 2, I think we could run a little to shake out weak hands. Below is a 30 minute chart showing the smaller H&S pattern that targets approximately SPX 1010. The neckline of that pattern is broken and it is confirmed, however prices can bounce back above the neckline:

The 1010 target, when achieved, will reconfirm the larger H&S pattern made over the past year:

On the Weekly charts, last week’s candle deepened the 13/34 weekly exponential moving average bearish cross. That cross was whipsawed two weeks ago, once again showing that its best when using the long term crosses to allow a 1% cross before actually acting on a signal like that.

As Assange found out, the controller’s tentacles run long and deep... they consider the world their little garden.