Monday, September 13, 2010

Morning Update/ Market Thread 9/13

Good Morning,

Equity futures have jumped the shark once again with the usual HFT driven and central banker fueled Monday morning ramp job. I love the smell of jet fuel in the morning! The SPX futures are high enough to overthrow the top of the rising wedge I’ve been tracking, and we are still rising within the current uptrend channel:

The dollar is down, Euro is up, oil is higher and gold is lower. Of particular interest to me is the long bond futures which have broken beneath their rising uptrend line. While it could just be an underthrow, it could signal that the “risk trade” is coming back at least temporarily, so it needs to be watched for further signs of money flows:

There is a small gap up at SPX 1120, a gap fill there may need to occur, and the key level of resistance to watch is SPX 1131. A break over 1131 would indicate that the working count (wave 2 of 3) is not correct and that we would then be likely in a larger wave 2, or the bullish alterative is a flat formation for the larger wave B. We’ll cross that bridge if it happens, but I still think we’re going to have a ton of difficulty getting over the hump here. A throwover of the 200dma is not unexpected, in fact it is just the market’s way of drawing in more money and creating more bullishness. Most people aren’t buying it, that’s why the volumes have been pathetically low, the lowest volume of the year occurred last week, that should not be occurring this time of year.

There are no economic reports this morning, data this week is not all that heavy which gives the market makers more latitude to play with the markets for this quarterly options expiration this Friday. Note that last Thursday was an up day, that makes roughly a 70% chance that this options expiration week is a down week. We’ll see Retail Sales, PPI, CPI, Consumer Sentiment, Industrial Production, and the usual twisted weekly Jobless Claims. I expect the Jobless Claims numbers to be fudged once again due to the 4 day week last week. Of course the rest of the data will be skewed too, with pressure from politicians to keep their jobs and pressure from the debt pushers and marketers of the world to create never ending “growth.”

The Basel III Accord brought together 27 country’s central bankers (where’s a UAV when you need one?), Ben Bernanke and Sheila Bair represented our interests, doesn’t that make you feel great? Neither one of them are elected officials, yet they are the ones controlling the greatest power on earth – Congress gave them that power without the permission of the people. The markets love it when the central debt pushers all agree, and this time they agreed that 20 to 1 bank leverage is just fine, thank you very much. In fact, they gave the banks 8 years to get back to a 4.5% common equity cap ratio, a highly leveraged ratio by historic standards, yet obviously “conservative” compared to the infinite leverage being conducted today.

And yet despite this non-serious mandate by Basel, still it is too much for some banks in Europe, Deutsche Bank announcing that it is raising $12.5 billion via equity sales to comply with capital ratios. That announcement hammered its stock last week, but the truth is that there are games being played out of the spotlight - one of those games is called the shell game.

The shell game is played by creating a separate entity (another corporation), then “selling” your stinking pile of debt to that entity, thus cleaning your books of the rot while you eventually bankrupt the new entity. That’s the corporate shell game and it is ILLEGAL, it is nothing but accounting FRAUD. It has always been illegal, but now our own government not only doesn’t prosecute the shell game, they support it. Citi Bank is playing the shell game, and I’m certain that most of the larger banks are as well. Here’s a recent article that discusses BankAtlantic’s shell game (ht Mick):
The Loneliest Analyst

"He (Levan) has also shifted troubled assets from BankAtlantic to its holding company. Because regulators don’t require the holding company to be as financially sound as BankAtlantic, the maneuver appeased regulators while shifting the burden to the holding company.

In 2008, Mr. Levan sold $101.5 million of distressed commercial loans from the bank to the holding company for 93.5 cents on the dollar. Since then, the loans have lost half their value, but the transfer prevented that downturn from more seriously undermining BankAtlantic. "

Got it? That’s called FRAUD, and it is widespread and it is the only reason some institutions are hanging on (Bove is nothing but a tool of the debt pushers by the way). Do our Basel representatives know or care? Of course they do, that’s why they are trying their hardest to cover it up and to give years and years to continue to cover it up. The truth, of course, is that should the accounting fraud be removed, the FDIC would be overrun in an instant and the games would be exposed for what they are. The banks who create and push the rot are let off the hook while the PEOPLE still struggle to service the debts with no escape. And that is why our country, along with most of the developed world, is Enron times a million and will go nowhere, just like Japan who has done the same types of things over the past three decades only to mire in and out of a never ending recession.

Today’s ramp is fulfilling the large move expected from last Thursday’s small movement of the McClelland Oscillator. I will not be surprised, in fact I expect, to see a reversal this week. The VIX sell signal should become effective sometime within two weeks, so I would expect that to start playing out soon. That should also coincide with the Bradley Model turn date, today is the 9th day since this current up wave began, it is definitely long in the tooth, living on borrowed volume. Dang how I don’t like HFT Mondays!