Wednesday, September 1, 2010

Morning Update/ Market Thread 9/1

Good Morning,

First I would like to point out to Think or Swim (TOS), who has done a terrific job in the past, that should they not get their act together in the near future that there are other charting services available. Price freezes are not acceptable, nor is having to rebuild all your charts each and every morning.

After spending more than half an hour just getting my charts back, we can now see that equities have risen to the top of the current downchannel, the dollar is down strongly, bonds are down strongly, and both oil and gold are up.

For those who missed the economic reports and discussion in yesterday’s thread, the data was all BAD, but came in slightly better than expected and that got spun into something that it wasn’t. Consumer Confidence is still in the gutter, the Chicago PMI was down a very large amount, and the Case-Schiller Home data showed slow price growth, but that is based on sales that occurred PRIOR to the government stimulus ending and does not include sales that have fallen off a cliff since. The cheerleading only leads to larger disconnects from reality. That’s right, take two Prozacs and consult with your private marketing expert in the morning, you’ll feel better about it.

The worthless MBA Purchase Applications Index supposedly rose 1.8% in the past week – gee, what happened to those wild 30% weekly swings? This index is not based in anything, it is simply a marketing tool to spoon disinformation to the public, I repeat their nonsense only so that you know what others are being shoveled:
The Mortgage Bankers Association's purchase index rose 1.8 percent in the August 27 week, only a slight increase from a very low level which the report says points to no improvement for new home sales in August nor existing home sales for September. On the refinancing side, the index is up 2.8 percent to a 15-month high as borrowers take advantage of even lower mortgage rates. The rate on the average 30-year loan dropped 12 basis points in the week to 4.55 percent.

The Challenger Job-Cut Report showed that the amount of announced mass layoffs fell from July’s 41,676 to 34,768 in August. This report is echoing that the bulk of the layoffs are now coming from government. That is fitting with what is expected for wave C as the desire to provide stimulus grows weaker.

The ADP Report for Private Payrolls fell from July’s +42,000, to August at -10,000. You would think that a 52,000 drop in private payrolls would be a negative for the market, but no, stocks are higher. I give this report little credence as it is notoriously different than the government’s numbers which will be out this Friday. I look at the ADP report as a set up… it sets the expectations so that the real trade gets reversed out from those who act on this one. The consensus for Friday's number is that it improves from -131,000 to "only" -80,000... we'll see.

ISM Manufacturing and Construction Spending are released at 10 Eastern this morning.

Yesterday did produce a 6th Hindenburg Omen. Once again the number of new lows expanded against higher stock prices. Interestingly, the number of new lows on each touch of the SPX 1040 support area has been lower. This could be interpreted as a positive divergence, and I know that some people see it that way, I do not. I see it as basing for the next move lower. Each run up from the 1040 area has been weaker than the prior and that action has produced a descending triangle with a flat base. Those normally pressure the flat base until it breaks. However, this morning it looks like we are going to open above that triangle, so we’ll have to watch today’s action which may indicate that a higher level wave is occurring especially if we exit the current down channel as seen in the 30 minute SPX chart below:

We are also now clearly making a small rising wedge in the futures. You can see those clearly in the DOW and S&P futures below in what I could recreate in my charts this morning:

I’ll leave you with some words from an old sage who I respect immensely, Richard Russell. My only critique is his thinking on gold as money, otherwise his big picture view is spot on:
Richard Russell:

Bear markets exist for the purpose of exposing and eliminating the greed, the corruption and the fraud that thrived in the preceding primary bull market.

To my mind, the biggest fraud of the last fifty years has been the rise and acceptance of fiat "money." For that reason, I expect fiat money to meet its end before this bear market breathes its last. Judging by the size of the top, this could be the biggest bear market since the '30s. I believe this bear market means to take us back to basics and truth. That alone implies the end of central bank-created money and the rise of gold and probably silver. It may also end that immoral inflation machine, the Federal Reserve. Wall Street and its bankers now run the nation. That too will end.

The history of money in the US is a legend of lies, manipulation, immorality and greed. I think this bear market will end those lies, one way or another.