Tuesday, August 24, 2010

Morning Update/ Market Thread 8/24

Good Morning,

Equity futures continue their downward track this morning with the DOW rapidly approaching the 10,000 mark yet again. The dollar is higher, Euro lower, bonds higher, oil has fallen beneath $72 a barrel (down 14% in less than two weeks), and gold is falling steeply. Below is a 30 minute chart of the DOW and S&P futures showing yet another Head & Shoulder pattern. This one is a result of the right shoulder of the larger one that targets 1010ish, the right shoulder being a smaller H&S that is now targeting 1025ish:

So, we now have three H&S formations in play… the large one targeting 860ish, the medium one targeting 1010ish, and now this smaller one targeting 1025ish. All of these patterns are confirmed with broken necklines making arrival at their target destinations pretty high odds. In the 30 minute chart below, you can see all three necklines, Red (small), Blue (medium), and Purple (large).

There is actually one that is MUCH larger, but you don’t really want to know the target on that one… oh alright, here’s a hint with a 20 year chart of the DOW:

Speaking of high odds, combine those patterns with the confirmed Hindenburg and the volatile up/down days and you have a very sick market. Yesterday, however, did not produce another Hindenburg due to the fact that new highs, at 164, was more than double the new 52 week lows at 72. With declines today, it may be likely that we receive another.

The Dollar/ Yen cross has fallen to new 15 year lows on a strengthening Yen. Do not confuse that Yen strength for economic strength, it’s mostly due to the carry trade unwind and the deleveraging effects of deflation. Japan’s Nikkei Index is now once again in official bear market territory for this year. Below is a daily chart showing the breakout low:

Decades of fighting deflation with no results. Many don’t get it – but it’s all about the debt. Structural change is coming to Japan, it will likely happen there before it happens here, but make no mistake, structural change is coming here too.

Existing Home Sales will be reported at 10 Eastern this morning.

Money continues to flow out of retirement plans, not news to anyone who follows demographics, or has read my book, as this phenomena was easy to predict based upon demographic trends. We now see mutual fund and retirement outflows that those who are not aware of demographics cannot explain. They will continue to impact the markets for years into the future, the next demographic wave does not begin to strongly enter their peak earning and spending years until approximately the year 2022. This is one of the reasons why we keep seeing headlines like the following:
401(k) withdrawals hit 10 year high, says Fidelity

NEW YORK (CNNMoney.com) -- Withdrawals from 401(k) retirement saving plans saw their biggest spike in over ten years, Fidelity Investments said on Friday, in the latest sign of a dismal economy.

Fidelity reported that 62,000 Fidelity participants made hardship withdrawals from their 401(k) workplace plans during the second quarter. That's up from 45,000 participants during the prior quarter, a 37% increase. That means that 2.2% of Fidelity customers took a hardship withdrawal in the second quarter, compared to 2% in the same period last year.

So far it appears that the count is progressing as advertised yesterday, with subwave 2 of 3 of 3 (of 1?) finishing yesterday morning on the usual Monday morning HFT ramp. That wave 2 was weak and it was over quickly – typical of wave 3s. This morning’s decline appears to be wave 3 of 3 and so it should be powerful and at least as long as wave 1, most likely substantially longer (it, too, will have subwaves). I will not be at all surprised if some piece of news or economic data appears that takes the blame for what is going to happen regardless.

Nothing is “fixed” until debt saturation goes away – it’s that simple. The hard part is that those who profit from debt, we call them “debt pushers” but you can also call them “debt dealers” (aka central bankers), will never take the blame, nor the fall, for their own disaster. That is not until we make them – positive change will not occur until we do. In the meantime, the markets are shouting for HELP…