Wednesday, September 22, 2010

Morning Update/ Market Thread 9/22

Good Morning,

Equity futures are lower this morning (it’s allowed, it’s Wednesday). Bonds are aggressively higher, the Yen is considerably stronger, oil has turned higher, and gold is setting new all-time records just under $1,300 an ounce (priced in gold, the stock market has gone nowhere over the past couple of months).

The dollar has broken below the 80 support level which is also the neckline of the Head & Shoulders pattern I showed yesterday. With the neckline broken, this pattern is now confirmed and the target is 71ish, very near the all-time low in the dollar:

Also note that the other H&S pattern I showed recently, oil, has failed to break the neckline.

Yesterday’s FOMC announcement (private banks telling the people of this nation what they’re going to do to rob our purchasing power) did not include QE2 as many were expecting, instead it contained lip service about how they will take action if the economy continues to erode. This is wave C at its finest, no more backbone to act, they have a monkey on their back called DEBT, while at the same time they have a confidence issue with our money – note the record highs in gold. The big bugaboo to get in their ball of wax was the Japanese who were forced to try to stop the Yen carry unwind by trying to devalue the Yen. The Yen can only get less valuable against other currencies, that means the dollar must rise in value for that to happen. But we can’t have the dollar rise in value or debt becomes a bigger burden, so we are all in a race to devalue our currencies. In fact, you could call it an economic competition or even a war. This has the potential to get very nasty, very quickly. A large percentage of the move lower in the Yen following their intervention is already gone.

Somebody’s going to lose this competition, and I have a feeling it’s everyone in the middle-class in all the debt saturated countries. Should this go to extremes, which is highly likely, we could see the cost of needs like food skyrocket while wages fail to move. Not good, and our own immoral system is the ship that brought us here. We need a new ship, and changing sleepy Larry Summers out for another Keynesian isn’t going to do it – not that I’m unhappy to see that national disgrace leave. Bring in that other fine piece of work, Paul Krugman, and you best own a bunch of gold, as that Nobel Laureate is as clueless as the day is long.

The still worthless MBA purchase index fell 3.3% in the past week, with the refinancing index falling another .9% following last week’s 10.8% dive. Here’s Econospin:
The index for mortgage purchase applications fell 3.3 percent following a 0.4 percent slip in the prior week. The index had been on a climb in earlier weeks. The refinance index fell 0.9 for a third straight dip. Refinancing made up 81 percent of total applications. The composite index, which combines the refinance and purchase indexes, fell 1.4 percent. The average rate for 30-year mortgages fell three tenths to 4.44 percent. Existing home sales for August will be posted tomorrow at 10:00 ET.

“The index had been on a climb in earlier weeks???” No, it did a dead-cat bounce off all-time historic lows – it’s all in how you spin it, lol. Mentioning a short uptrend without mentioning your position in the big picture is nothing but spin. The FHFA House Price Index will be released this morning at 10 Eastern.

The market potentially put in a top with yesterday’s action, of course we’ll need confirmation with prices breaking below the 1130 level that is currently support. Yesterday’s action produced a “spinning top” candle stick that is often seen at tops. Below you can see the DOW’s spinner is very similar to the spinner that marked the April top:

There are now many strong divergences and yesterday produced stochastic sell signals in most of the major indices despite the fact that there is really no down price movement. Indicators are extremely overbought, the daily and weekly stochastic most certainly are. We now have 100% of DOW stocks above their 30 day moving average. Investor sentiment dropped to only 24% bearish, that is a record low, even lower than the 25% bear reading that occurred at the ’07 top. Monday produced more than 300 new 52 week highs, another extreme number reserved for tops. And no, I haven’t forgotten about the VIX sell signal which is still in play, nor have I forgotten the Hindenburg Omen cluster. I’m also watching the McClelland Oscillator which is coming down from very elevated readings, it won’t take much down motion to turn it negative once again. The rise above 1130 has no fuel behind it, no volume… that’s because it was contrived. The NDX is parabolic and it has left gaps every step of the way. Those gaps WILL get filled, and all parabolas eventually collapse.

All the signs are there. The brave will be getting short in increments, while the wise will wait for a break of the parabolic trendline. Only dumb money and the government with her proxies are still long, that would include mutual fund managers who also are at a record level invested in stocks – dumb. Of course mutual funds have always been losers, the same as all equities over long run – remember, the only reason anyone can say that stocks go up in the long haul is due to substitution bias, otherwise the indices would be at or near zero, all of them.

Speaking of stocks having a life cycle, take a look at the action of Adobe (ADBE) on the release of its earnings last night. Oh my, that’s a 21% collapse in the blink of an eye:

Adobe's report was not that bad, so this type of a reaction is telling us something about what's priced into the upcoming earning season.

Will they continue to attempt to intervene and drive the markets still higher? Oh yes, our own government has proven themselves to be quite nuts. It will not endure, however, as the pumpers are caught between a rock and a hard place. They are still saturated with their own debts, they cannot tolerate rising rates nor a rising dollar. Equity price is always the last to get the memo, but get it they will. Adios Sleepy Larry, here’s hoping that some day you and Hank Paulson will be bunk buddies!