Thursday, September 23, 2010

Morning Update/ Market Thread 9/23

Good Morning,

Equity futures are sharply lower this morning. Bonds are higher, the dollar is higher, the Yen is stronger, oil is down, and gold is slightly higher. While all the signs have been there, what I don’t like are all the gaps in the charts, today’s opening will be another.

The futures declined sharply overnight as sovereign debt issues continue to plague Europe. Ireland’s spreads have blown out to record highs. Germany lowered the amount of debt it’s willing to hold and told the IMF yesterday that it would not be participating in extending emergency debt beyond the year 2013. Hey, at least someone can at least pretend to be an adult. The IMF is nothing but a mobster gang who need to be disbanded at a minimum. The central debt pushers are far worse than drug pushers, they kill more people and do more economic damage by far.

I have to mention yesterday’s House Price Index report due to the fact that it showed a negative month to month price drop of .5%, and year over year price drop of 3.3%. Both figures are a sharp acceleration in price downwards. But what really gets me upset is the revision to the prior month which changed a -.3% print into a negative 1.2% month over month print – that’s a 400% revision! Again, all the data is always reported better than it actually is, and then it gets revised downwards. Revisions of this size are criminal as they cause huge distortions and are leading to a loss of confidence in our data and in our entire economic system.

Speaking of confidence, yesterday’s breakdown of the dollar was major. If that dollar weakness trend continues, Americans are in for BIG Trouble – note the capital T! The H&S pattern in play targets 71 on the dollar index, more than a 10% drop in purchasing power. Will your wage increase by an equal amount? Of course not, wages are falling. As a falling dollar produces higher costs for food, medical care, and most items that you NEED, it will rob Americans of their ability to pay for other items. It will most certainly NOT lead to economic prosperity. And if that 71 target is reached, there is an even larger pennant in play, as pointed out by Scott in our daily thread yesterday, that would target in the range of 29 to 50 on the dollar index. This is a very ominous pattern on the monthly chart, I hope our "leadership" is paying attention, however I know that people like Ben Bernanke are unprepared as their theories have not been sound, they have failed to account for exponential debt growth, debt saturation, and the loss of monetary confidence that follows their theories which have ALWAYS failed throughout history:

THAT would be a true disaster, no one would be unaffected, I hope to heck that does not happen, but I think we should all be prepared in case our leadership is dumb enough to make it happen – it may already be too late to change the outcome, but don’t expect those types of move to happen overnight, they will take a long time to play out. I know it’s possible to change the trend short term, all they have to do is stop propping up stocks and bring in some adults who start throwing the criminals in jail, running the HFT machines and dark pools into the history books, and in general simply stop the criminal behavior. That is step one. We must restore confidence and stop destroying it with phony reports and phony money.

As if sovereign debt problems weren’t enough, and as I suspected, our weekly Jobless Claims rose over the past week as we got beyond the Labor Day affected weeks. The report for last week came in at 465,000 initial claims, that’s up from the prior week’s 450k report and the consensus that was also calling for 450k. Of course the prior week’s number was revised higher once again, this time to 453k. Here’s Econospin:
Labor Day caused a bump in the jobless claims series. Initial claims in the September 18 week, which doesn't include Labor Day, rose 12,000 to a higher-than-expected 465,000. The prior week, which includes Labor Day, was revised 3,000 higher to 453,000. Adjustments factor in a low level of filings for the shortened week and a high level in the following week as government offices catch up on the work. But the back-up this year exceeded the adjustments, making for the surprise gain and raising questions on how much initial claims are actually improving. The four-week average of 463,250 is down in the week and is down more than 10,000 from a month ago to point to month-to-month strength for the September employment report.

Continuing claims are down 48,000 in data for the September 11 week. Here the four-week average, at 4.520 million, is little changed from the month-ago comparison. The unemployment rate for insured workers did slip one tenth to 3.5 percent which however follows a tick higher in prior weeks.

Though Labor Day clouds the data, a 465,000 initial level compares favorably with summer levels. Stock futures edged lower in initial reaction to the report.

First of all, this week’s report is the first WITHOUT the Labor Day fun and games. Again, everything gets revised higher, not lower – thus you can count on this number being higher next week as well. If they are setting up expectations for a better monthly Employment Report, they are setting themselves up for disappointment. The September report, out October 8th, is very likely to disappoint due to the seasonal lack of Birth/ Death model additions. If they remain consistent, I am looking for a negative print that will surprise those not paying attention.

Existing Home Sales and Leading Indicators are released at 10 Eastern this morning…

Stocks are now below the key 1130 level. All the signs were there, now the question is how far does it go? Well, there are gaps all the way back down, so I believe that the odds favor the entire up move to come off. If we’re talking Elliott Wave, it is highly likely that wave 2 is now over and this could very well be the beginning of wave 3. If it is, we are going to see lower lows in the not too distant future – that is my thinking, it is the highest probability case. We hit far too many bullish extremes on this latest wave up. There were gaps left all over the place as the markets have turned into nothing but machine driven hype. We are all going to pay a very expensive price for such foolishness, our collective mentality seems to be lower than a narcissistic 12 year olds’… never put off to tomorrow what you can borrow or steal today.

Note that yesterday's action finally broke the NDX's ridiculous uptrend:

The Transports were relatively weak yesterday. The XLF has again failed to clear the 200dma, as you can see in the daily chart below - note the increasing volume on the decline. BANK is far weaker:

I want to point out that even though yesterday’s decline was relatively shallow, it combined with this morning’s action, does confirm the top looking candlesticks from Tuesday. Despite the fact that prices were still near their highs, we have sell signals all over the place, divergences all over the place, and the McClelland Oscillator fell all the way down to only positive 12 - it will likely turn negative today. A negative McClelland Oscillator combined with a valid Hindenburg cluster is a huge sign.