Friday, September 10, 2010

Morning Update/ Market Thread 9/10

Good Morning,

Stocks are slightly higher this morning, continuing to rise within a bearish rising wedge pattern. The dollar is slightly higher, bonds are lower, oil is higher, but gold is breaking down and appears to be entering another correction as the latest uptrend appears to be broken.

The Wholesale Trade report finishes a very light week for economic data at 10 Eastern this morning.

Yesterday’s up/ down action produced a small movement on the McClelland Oscillator, meaning that we can expect a large price movement sometime over the next couple of trading days.

Below is a 10 minute chart of the SPX, I have outlined the rising wedge in red. Internally it would appear to need one more rise in price to complete the pattern. That rise can end anywhere, it can run to the top, go only half way, overthrow the top, or even just collapse from here. The initial target on the break of a rising wedge is the base of the wedge – in this case only 1090. We would look for other patterns from there. Note the bearish RSI divergence with lower RSI readings against rising prices. That divergence is across all time frames through the 60 minute charts:

Bonds are having great difficulty despite heavy buying from the Fed. Below is a chart of the long bond futures in which you can see that we are challenging the uptrend line from April. Should that line break, you are likely to see an exodus from bonds with rising rates:

Would the Fed appreciate that? No, they would not, they are spending TRILLIONS to artificially buy interest rates down. How could they keep rates down? Well, they can increase the amount of bonds they buy, but that has consequences for the dollar. How can they avoid crushing the dollar and keep rates low? By letting capital flee from equities, that’s how.

The Feds’ very worst nightmare is capital flight, where money is fleeing bonds and stocks together. Are we there yet? I think we are IF they wish to continue to defend 10,000 on the DOW. Should they give up on that, then I think they can avoid capital flight for awhile as mechanical deleveraging will keep the dollar temporarily lofted and money flowing into bonds. Any way you slice it, it’s not an enviable position, and it’s one that the central debt pushers have put is in.

Volume has been falling and is flat out pathetic on the rise. Again, very few players still in the market, the ones who are own HFT machines or they have dumb money managed by people who are paid to run mutual funds that milk a portion of your earnings each month and donate them to the owners of said HFTs. It's called distribution, and it's happening big time. Whatever you do mom & pop, don't look at the options skew, that would be the professionals making it expensive for others to profit on events they know are coming.

McHugh has pointed out a couple of new Head & Shoulder patterns within the dollar chart. Those patterns are not perfect and are not yet complete, but I do see them. If they fully form and confirm, they would target first 80 and then 72 on the dollar. Would a falling dollar save stocks? NO. In fact, a falling dollar may drive certain commodities higher, the latest being the price of lumber and coffee. Is demand rising for lumber that justifies higher prices? Of course not. It’s simply Fed created hot money chasing the latest bubble. These mini commodity bubbles are terrible for the economy! Each increase in price acts as a tax drawing money from the consumer. What activity is making the consumer, who is ridiculously 70% of the economy, more wealthy? Are their wages rising? Are their retirement plans increasing in value? Is their debt burden falling? Is the value of their homes rising? Indeed, there is no help for the largest segment of the economy, and that is just the latest failure. By the way, should help magically arrive, it would take months for it to take effect, way too late to stop what’s going to occur from happening.

Remember the magician’s trick of getting your eye to follow one hand while they perform their “magic” with the other? This seems to be the only thing in which our government and their puppet masters are proficient.

Are you following the events surrounding the potential burning of the Koran? This seems to have all the media attention, the attention of the FBI, the CIA, our President, the Pentagon, and our top military officials. Does that have a calming effect or does it draw attention to it? Palm, simulation, steal, ditch, misdirect… magic! Looks simple, doesn’t it? Will more “events” follow? Can we see what the other hand is up to?

Penn and Teller explain spreading the wealth around, enjoy your pie…