World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Recently I’ve been writing about the “Death Crosses” that have just occurred in the primary indices. I watch 3 long term "mechanical" type moving average crosses for buy/sell signals (there are many medium and short term crosses too, like I use the 8/34 on the 5 minute chart if day trading):
-The Death Cross is the 50 and 200 DAY simple moving average cross, it is currently on a SELL signal.
-The 20 and 50 WEEK simple moving average cross (must give it 1% separation to avoid the possibility of whipsaw). It is still on a BUY signal, but converging rapidly.
-The 13 and 34 WEEK exponential moving average cross, it is on a SELL signal.
A death cross occurs when the 50 day simple moving average crosses under the 200 day simple moving average. You can see in this chart that the DOW Industrials just produced the death cross today:
In the next chart you can see that the SPX crossed last week and the 50dma is moving rapidly underneath the 200dma:
The Emerging Markets produced the death cross a couple of weeks ago, this foretold that the odds were that our markets would follow. The separation in the averages is now growing and the 50dma is still acting as resistance for now:
Many of the major financials produced death crosses months ago, JPMorgan, for example crossed early in June, and GS crossed way back in February.
As you look at these charts, note how much differential is occurring on the charts now, the 50dma is pointing down quite steeply. Also note that the 200dma is now down sloping on the SPX, that is another good longer term indicator.
The 50/200 cross is a medium to long term indicator, they do not happen very often and they do not predict short term swings, but rather tell you which direction is primary. The current crosses are telling us that the markets are not healthy – death crosses such as these do not occur in healthy bull markets.
The opposite of a death cross is a “Holly Cross.” Both crosses can produce throwovers or whipsaws and thus if you are using them to play the markets mechanically should let the averages separate by 1% prior to entering. Another method might be to enter on the first significant bounce/pullback following the cross.
The 20/50 WEEK simple moving average cross is still on a buy signal. Had you bought that signal long last year, you would have bought just over 1,000 on the SPX. It is narrowing now, but if the market continues down then you could actually wind up taking a loss on that trade when the sell signal finally does occur as it is not very high in fidelity. Below is a 10 year chart showing how seldom it produces signals. There was a throwunder in 2004, that is why you wait for 1% separation, especially if the averages do not have a large slope differential:
The 13/34 EXPONENTIAL moving average cross is a good indicator that is in-between the fidelity of the previous indicators. Below is a 10 year chart showing its performance over the past decade – it has no false crosses in that timeframe, making it excellent for handling today’s volatility – it would not have made you a ton of money on the trumped up rally last year, but it wouldn’t have lost you money at any time and is way ahead over the long term:
The 13/34 just produced a sell signal cross. This is my personal favorite long term moving average indicator. According to it you should not currently be long stocks.
The gap between the truth vs. the lies that pass for truth in the media has never been so wide. But living a lie is very destructive, so it's important to cross this gap. Today I want to clear up one of the most important lies reinforced by the media--the idea that we have sovereign countries.
No doubt most of you have heard of the sovereign debt crisis that so many countries are facing. We hear endless economists, reporters, and billionaire hedge fund raiders talk about it. But the phrase they use is fictitious. It is a fabrication of the Ivy League, Wall Street, and erudite periodicals like the Financial Times of London. Sovereign debt is an impossibility. It cannot exist.
It seems ridiculous to point this out, but sovereign debt implies sovereignty. Right? Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions? How could they be so easily attacked by the likes of George Soros, JP Morgan Chase, and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders?
A true sovereign is in debt to nobody and is not traded in the public markets. For example, how would George Soros attack, say, the British royal family? It's not possible. They are sovereign. Their stock isn't traded on the NYSE. He can't orchestrate a naked short sell strategy to destroy their credit and force them to restructure their assets. But he can do that to most of the other 6.7 billion people of the world by designing attack strategies against the companies they work for and the governments they depend on.
The fact is that most countries are not sovereign (the few that are are being attacked by CIA/MI6/Mossad or the military). Instead they are administrative districts or customers of the global banking establishment whose power has grown steadily over time based on the math of the bond market, currently ruled by the US dollar, and the expansionary nature of fractional lending. Their cult of economists from places like Harvard, Chicago, and the London School have steadily eroded national sovereignty by forcing debt-based, floating currencies on countries. So let's start being honest and stop describing their debt instruments as sovereign.
We long ago lost the free market envisioned by Adam Smith in the "Wealth of Nations." Such a world would require sovereign currencies, i.e. currencies that are well-regulated rather than floating, and an asset rather than an interest-bearing debt. Only then could there be a "wealth of nations." But now we have nothing but the "debt of nations." The exponential math of debt by definition meant that countries would only lose their wealth over time and become increasingly indebted to the global central banking network.
So thanks to debt-based, free-floating currencies, the "wealth of nations" transitioned to the "debt of nations" which is now transitioning to the "death of nations." The new world economic order with one currency, one banking system, one government, and one integrated corporate empire is on the horizon. Perhaps that's a good thing, but if it were, why would the establishment concoct oxymorons like "sovereign debt" instead of telling the truth? That's my only goal here--I think people can be trusted with the truth. Lies harm not only the population hearing them, but also the powerful people telling them.
Those powers have the best salesmen in the world, so why don't they just sell the population on the truth? Apparently they don't think you'd like it. Well now you have it. And it's coming unless countries follow Iceland's lead and recover their sovereignty. The choice is ours.
Love it! The "Wealth of Nations" becomes the "Debt of Nations" which leads to the "Death of Nations." Adam Smith would be so proud! (NOT)
Bill visited Karl prior to his Europe and Iceland trip and recorded the following interview. Karl has a terrific understanding of the mechanics of the markets and offers his insights on what has occurred. He then addresses the folly of never ending growth, touches on some of the benefits of creating a system like Freedom’s Vision, and describes what sound banking looks like to him:
Equity futures are roughly flat prior to the open. The dollar is up slightly after falling yesterday, oil is up, gold is flat, and bonds are down slightly after rising sharply yesterday. The move in bonds yesterday was not supportive of the small bounce in stocks. In fact, yesterday saw new closing lows on the Transports and on the RUT.
The action over the past few sessions has been interesting in that the major indices have been making incrementally new higher lows since July 1, yet in the futures market they have been making new incremental lows. To call it a “bounce” seems like an overstatement, I would call it more of a consolidation move, yet it is possible that it has been a wave 2 movement and that wave 1 of 3 bottomed on July 1.
Yesterday was a classic rush to test the 1040ish neckline from below. Remember, the H&S is now verified, the target is 860. We can fiddle around the neckline, but eventually odds favor getting to the target. McHugh believes that yesterday’s action made clear that 2 of 3 is in progress. In the 60 minute SPX chart below you can see the bounce up to retest the 1040 neckline – indeed, when looking at the wave structure it would appear to be a very weak wave 2 retrace so far. There may need to be one more wave higher that either does or does not exceed yesterday’s high and makes it above the neckline:
The still worthless MBA Purchase Applications index fell another 2.0% in the past week. Here’s Econoday:
Highlights Mortgage applications for home purchases fell 2.0 percent in the July 2 week. June vs. May, purchase applications fell 15 percent. May vs. April, applications fell 30 percent. This is further evidence, and strong evidence, that housing demand has fallen into a post-stimulus dead zone.
Extremely low rates may not be encouraging buyers much but they are encouraging those already owning homes to refinance their mortgages. The refinancing index jumped 9.2 percent in the week and is at its highest level since May last year, which was another period of very low rates. Thirty-year mortgages averaged 4.68 percent in the week.
What’s there to say? Housing has fallen off a cliff, landed on the rocks, and is still sliding face first down into the chasm below.
Yesterday’s Puget Sound Business Journal ran a small blurb stating that Western Washington pending home sale last month plummeted 28% from the June prior:
The number of pending home sales in Western Washington plummeted more than 28 percent last month from June 2009, according to the latest residential home sales statistics.
There were only 5,547 pending home sales (single family homes and condominiums) in the 21-county Western Washington area surveyed by the Northwest Multiple Listing Service (NWMLS), compared with 7,733 in June 2009.
NWMLS officials said that potential home buyers are “stuck.”
“In general consumers seem to be stuck in uncertainty surrounding the world’s economic concerns, our lack of jobs and the roller coaster of the stock market. They seem to be hunkering down despite the lowest interest rates in years,” said NWMLS director Frank Wilson, managing broker at John L. Scott Inc. Poulsbo, in a statement.
Buyers are stuck alright. This is one of the first times I’ve seen a real estate official admit that. If you own an upper-end home especially, odds are that you cannot sell it for what you owe on it in reality. Many are sitting in their homes trapped by the reality that they couldn’t move if they wanted to. The expense of rising taxes, heating, utilities, yard maintenance, and upkeep on their McMansions is draining their savings at the same time that the criminals on Wall Street are stealing their retirements in the market. “Stuck,” indeed.
New home sales in the overall western part of the U.S. are even worse, they fell a whopping 53% in one month from April to May as the tax incentives died.
Tomorrow we get weekly Jobless Claims data as the light data week continues to allow respite in the markets… for now.
The DOW Industrials are going to complete its “Death Cross” today as the 50dma will move below the 200dma:
The bond market’s move yesterday continues to say that all is not well as money continues to run for cover. The rapidity of the move down in the dollar is concerning to me also. Fast and unstable moves in the currency markets are a warning sign. These markets are huge, and fast movements catch the big players off guard and can cause rapid movements in capital. Those types of conditions are often present in the background when markets hit no bid type of situations. The dollar did find a bid yesterday after its period of near free fall, but roller coaster rides like that are a sign that not all is well.
Five Man Electrical Band - Sign, Sign, Everywhere a Sign:
You can ignore the rhythm and the rhyme if you like, but it’s there. It’s true that no two events in history play out the same way, but waves in the market are just like any other wave in nature, they do tend to look alike and come in cycles.
Many have pointed out the similarities between the Great Depression and today. Kondratieff, a wave cycle expert imprisoned in Russia for his beliefs, detailed an approximately 80 year economic cycle using the seasons of the year. Guess what, it’s been 80 years since the Great Depression. Modern books have detailed the psychology of the seasons and most who understand this cycle understand that we have entered what is known as “K-winter.”
People like Martin Armstrong, a wave cycle expert imprisoned in America for his beliefs, are oddly discounting the similarities stating that there will not be another Great Depression. Armstrong, for example, argues that the dollar rose during the Great Depression due to its backing with gold and that what you really saw was gold rising in value. I completely disagree with that analysis as every modern panic has also resulted in a surge in the dollar, this is the result of DEBT being denominated in dollars and is a mechanical process of assets that must first be converted into dollars before they can be converted into some other asset:
The other tell to the gold money lie is that the 1920s produced a “roaring” credit bubble despite being on the gold standard at the time. It is this credit bubble that is at the heart of the Great Depression, and it is the current and still remaining credit bubble that is at the heart of the current, mostly still unacknowledged, Depression.
Many who don’t understand the debt dynamic (per capita debt levels far exceed the roaring twenties today) are expecting a trip straight to hyperinflation, but regardless of the path, everyone sees the volatility and turmoil. But to me, the similarities between today and then are striking.
I won’t list all the commonalities here as most of my readers have heard them, but I do want to mention one that is bizarrely similar that you may not have considered yet – that of an ecological disaster occurring at the same exact spot in the cycle!
As the credit bubble forced “growth” in the economy, our expansion created RISK to the environment that went unrecognized. During the 1920s America was dramatically expanding agriculture, tearing out forests and plowing up the land. Our aggressiveness and lack of understanding of soil dynamics at the time led to what is known as the “Dust Bowl.” It took only a natural cycle draught to trigger the Dust Bowl once conditions were in place.
The Dust Bowl was a HUGE environmental disaster that was without a doubt contributory to the wave C down that began in the year 1930. And today we are beginning our modern day wave C and what do we have happening in the Gulf?
Coincidence? Could it be that history is rhyming in this regard because of our credit bubble actions? Absolutely. The credit bubbles cause rapid economic expansion and to fuel those expansions we pushed the boundaries of our knowledge to keep it going.
Fortunately, we learned our lesson from the dust bowl and agriculture radically changed their practices to prevent mass soil erosion. Will we learn our lesson in regards to oil? I sure hope so.
But in the mean time, the economy is profoundly affected as is the psyche of people during wave C. “Austerity” is the new buzzword, the world, still confined to the central banker debt money box is forced into the same patterns as then. When looking through the massaging of the numbers the economic statistics are very similar. We don’t see block long lines at the soup kitchen, but we do see 13% of our population on food stamps!
And boy, do the markets ever rhyme…
In 1929 there was a market crash – the DOW plunged 50% (wave A) and then bounced 52% (wave B).
In 2007 there was a market crash – the DOW plunged 54% (wave A) and then bounced 73% (wave B).
Of course the government’s wave A reaction was “STIMULUS.” The greatest stimulus in the history of the world BY FAR! Again, this is nothing new and is exactly the response during the Great Depression, only taken to a commensurate extreme with the extreme size of the credit bubble that brought us here. Like today, then there were even periods of GDP “growth.” The main difference today is that the trillions have bought us a longer time frame, that’s all, but it’s also brought us a guarantee of a much harsher future. ALL the misallocations eventually are corrected. We have only just begun correcting ours. In fact, I would contend that this wave is on a much higher order than the wave that produced the Great Depression – this is a monetary changing wave at a minimum, and is very likely to be a nation changing wave.
In regard to the markets, there is another pattern developing that cannot be ignored. In both 1929 and in 2007, the stock markets formed a classic Head & Shoulders top. In fact, in 2007 and early 2008, the DOW formed two classic H&S patterns, a smaller one and a larger one:
In 1929 there was a H&S top that formed and led to the plunge of 1929:
In 1930 we bounced in wave B, and then formed another H&S pattern:
In 2009 we bounced in wave B, and then formed another H&S pattern:
In 1929 the break of the neckline was retested. Today the neckline of the current H&S pattern is being retested. Oh, and for you Elliott Wave watchers, note the similarity in wave structure of both wave B's... many view today's wave B as a simple 5 wave movement, but there are more complex ways to count it as McHugh does. The 1930 wave is very similar and appears on the surface to contain 5 movements - hmmm.
Wave C during the Great Depression lasted a little over 2 years. It seems that our current waves are playing out larger, more volatile, and are taking more time.
While the market bottomed in 1932, the economy itself did not bottom until WWII which began in 1939, almost exactly one decade following the crash of 1929. This pattern is repeated throughout history, time and again, going all the way back to the Roman Empire.
When all was said and done, the market lost 90% of its value, top to bottom, upon reaching the bottom of wave C:
Today, should the DOW lose 90% of its value, top to bottom, wave c would bottom at 1,423.
Wave C itself took off 86% of the value of the DOW Industrials then. Were it to do that today, the DOW Industrials would bottom at 1,575.
Do you believe those who say it can’t and is not going to happen this time? Would you be willing to bet the entire future of your life on it?
Do I personally believe that is going to happen? Let’s put it this way… I don’t rule it out!
And at the same time that I don’t rule it out, I acknowledge that global debt levels are FAR, FAR in excess of what brought us the Great Depression. For that reason I believe that we are going to see unimagined change in the near future – it is my hope that change prevents further rhyming in the markets, but it is my fear that we will see all the events rhyme. The rhyming is uncanny to this point, so doing the same things and expecting different results is the definition of insanity. No, attempting to “print” to inflation is not new, it has been tried and tried throughout history. Try too hard and the result will only be further loss of confidence. Sorry to all the technocrats who think that this time it’s different, but being on the “gold standard” has meant exactly nothing over history too.
If you want to break the pattern, we must develop methods to first clear the debt from the economy without crashing it (Freedom’s Vision), and then we must develop methods for keeping the quantity of money (and credit) under control for the very long term (Freedom’s Vision).
Oh, and if your mind can’t comprehend the similar chart patterns above, or if you dismiss them for whatever “it’s different this time” reason du jour, then I invite you to go back and examine the thinking of “the greatest investment minds” of that timeframe and see how it worked out for them!
Rhymes, rhythms, and harmonies… all are created by waves that reside within the framework of nature.
Hello darkness, my old friend I've come to talk with you again Because a vision softly creeping Left its seeds while I was sleeping And the vision that was planted in my brain Still remains Within the sound of silence
In restless dreams I walked alone Narrow streets of cobblestone 'Neath the halo of a street lamp I turn my collar to the cold and damp When my eyes were stabbed by the flash of a neon light That split the night And touched the sound of silence
And in the naked light I saw Ten thousand people maybe more People talking without speaking People hearing without listening People writing songs that voices never shared No one dared Disturb the sound of silence
"Fools," said I, "you do not know Silence like a cancer grows Hear my words that I might teach you Take my arms that I might reach you" But my words like silent raindrops fell And echoed in the wells of silence
And the people bowed and prayed To the neon god they made And the sign flashed out its warning In the words that it was forming And the sign said "The words of the prophets are written on the subway walls And tenement halls And whispered in the sound of silence
Equity futures are up quite strongly after being down strongly over the weekend, yesterday evening they began to ramp and have climbed straight up, over 220 DOW points off the /YM bottom, or are up about 100 points above Friday’s close. It may not be Monday, but it is the first day of the week, definitely a counter to the Monday morning 90% ramp statistic! Below is a 60 minute chart of the DOW futures on the left, and a 5 minute chart showing this low volume trading activity on the S&P futures on the right (double horizontal line is approximately Friday’s close):
Bonds are actually up slightly which does not support this move higher in equities. They may be basing before moving higher and need to be watched closely to see how much fuel is there for the move in equities. Oil has managed to bounce, gold is slightly above Friday’s close.
The dollar is down strongly with the euro moving back up rapidly. Both charts created small flag patterns and have broken those flags continuing in the direction expected by that pattern, down for the dollar and up for the euro. The target on this move is outside of their respective channels, about 81.7 for the dollar and roughly 1.29 for the euro. Below is a daily chart with dollar on the left and euro on the right:
The non-manufacturing ISM is released at 10 Eastern this morning and then there is very light economic reporting the rest of the week, primarily just the recurring weekly reports.
There was another small movement in the McClelland Oscillator Friday, thus we should expect the first directional move today or tomorrow to be large, the 100 point higher open on the DOW seems to satisfy this.
Note that the down channel was broken on this move, the /ES reached a low point of 1,002 before bouncing. Overhead resistance is now 1040 on the SPX, the neckline of the H&S pattern. Should we rise above that level, bears do need to be cautious as there is a gap in the charts about 1074 that could be filled by a strong bounce. It is completely normal for prices to retest the neckline from below, and it appears that’s what we’re doing. It can fail on the retest to get above 1040, or it can rise above the neckline, either way the Head & Shoulder’s target of 860 is still valid and will remain valid unless we rise above the level of the head which is a very long way up there and is highly unlikely to happen at this point.
Of course Trichet was talking up austerity once again, and JPMorgan came out and said that they expect global economies to shrink their budget deficits by 1.6% in the next year, the largest budget tightening in the past 40 years according to them. I think the psychology of wave C will produce much larger movements than that, but the statistics will undoubtedly be massaged to make it appear better than it is.
Speaking of massaged numbers, how about a record 1.21 million people being counted as “discouraged workers.” Despite the population growing nearly 3 million people per year, the work force is shrinking at the fastest pace in history! LOL, this is nothing but game playing with who is counted and who is not in the unemployment figures. Get this, the labor force according to the BLS, has shrunk by 974,000 people in just the past two months. Again, nothing but fun and games – certainly not reality when it comes to tallying the unemployed.
I’ve been wanting to post the following chart of the Consumer Metric Institute’s Daily Growth Index. Their leading index was designed to account for changes in today’s economy versus yesteryear’s industrial production economy that is tracked by the more traditional LEI that the Fed and other economists use. The fidelity of their indicator have been far superior at forecasting the future and it is nearing a point that says the odds of an officially recognized recession is now very high:
Of course those who don’t pay attention are going to miss it entirely. They are looking at things like the yield spread which, according to them, is currently signaling only a very small 12% chance that we reenter recession. Of course they fail to realize that the bond market is highly, as in extremely, manipulated with FED money on the short end and international fear dynamics on the long end. Here’s an excerpt from a recent Bloomberg article:
July 6 (Bloomberg) -- U.S. government bond yields are signaling almost no chance of the economy slipping into another recession even as stocks and commodities tumble, according to research from the Federal Reserve Bank of Cleveland.
The 2.34 percentage point gap between yields on two-year and 10-year Treasuries is more than double the 20-year average and about the same as in 2003, just before gross domestic product rose 3.6 percent. The so-called yield curve suggests growth won’t slow to less than 1 percent and about a 12 percent chance of a recession in the next year, Joseph G. Haubrich, head of the banking and financial institutions group at the Cleveland Fed, and Kent Cherny, a researcher, wrote in a July 1 report.
Market rates conflict with growing concerns that the U.S. economy will contract for the second time in three years. Bond returns exceeded stocks by the widest margin in nine years during the first half as investors retreated from higher- yielding assets. The Labor Department reported the first drop in employment this year on July 2. At the same time, Wall Street expects bond yields to rise as the U.S. expansion continues.
“We could get a sharper move to higher yields once growth dynamics take hold,” James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, said in a July 2 interview on Bloomberg Television. “We still expect 3.5 percent growth this year.”
Looking at indicators like this will lead you into the fantasy land of false accounting, money printing, false statistics, and flat out market manipulations – all of which are very fragile and likely to snap with even the mildest of triggers. Confidence is still waning as the debt is still there, that is the key to our futures.
The non-manufacturing ISM was just released, it came in at 53.8, down from 55.4, and well below the consensus of 55.0. Yet another data point that the growth of the economy is slowing rapidly, I believe nearly all of the data over the past two weeks has missed on the down side, “professionals” failing to see the deceleration. Stocks rise further on the release, LOL. Hey, everything’s easy with blinders, misunderstanding all you see…
In the following video, Karl Denninger points out large contract bids on the /ES that appear only momentarily and are pulled very quickly prior to execution. This pulls the price towards the large number of bids (or asks) and is indeed a blatant example of market manipulation.
This is obviously done by computer and cannot possibly be executed by retail investors or those without direct access to the exchanges via a high frequency trading platform. Karl calls on the SEC, but they are obviously MIA. The only question is my mind is why? To me, the real game that’s being played is not on the market, but on the American public because I believe these games are known and possibly even sanctioned by our government – I wouldn’t even venture a guess at motivation be it greed or some other form of twisted and deluded “save America” reasoning.
The bottom line is that you need to be aware that the “markets” you are investing in are not really free markets at all. Thus I would not recommend that you regard them as functioning at this time and you should take action to protect yourself.
Headline employment data for June – Rate fell to 9.5%, with the headline number on consensus of minus 125,000. Private Payrolls missed the 105k consensus at 83k. Birth/Death adjustment fell from 215k to 147k.
Futures ramped initially, immediately fell back to flat, then proceeded to climb into the green. The dollar continues to fall sharply, euro higher. Bonds are lower and yesterday they put in a candle that looks rather toppy. Oil is flat, gold is up slightly – both convincingly broke support yesterday.
Regarding the employment numbers, keep in mind that the rate is calculated from the household survey and thus it can be disconnected from the headline calculation. When we dive into the report, we find that the reason the rate fell is because there was a sharp drop in the labor force! The Participation rate fell .3%, and the employment-population ratio fell as well. Here’s Econoday:
Highlights The jobs picture in June was quite mixed as temporary Census workers were laid off and private hiring was positive but moderate. Also, the unemployment rate continued to dip even as the workweek slipped. Overall payroll jobs in June fell back 125,000 after spiking a revised 433,000 in May and after a 313,000 jump in April. The June decrease was matched the market forecast for a 125,000 decline.
Looking beyond the temporary effects of Census hiring and firing, private nonfarm employment increased 83,000, following a 33,000 rise in May. The latest figure fell short of analysts' projection for a 105,000 advance in private payrolls.
The private sector gain was led by a 91,000 boost in private service-providing jobs. This included professional & business services, up 46,000, and leisure & hospitality, up 37,000. The goods-producing sector lost a net 8,000 payrolls with construction down 22,000. Manufacturing posted a 9,000 gain while mining & logging advanced 5,000. Manufacturing has risen three months in a row.
The big weakness, of course, was a 208,000 drop in government jobs after a 400,000 jump in May. The decline included the loss of 225,000 temporary employees working on Census 2010. Employment in both state and local governments was little changed over the month.
On a year-ago basis, overall payroll jobs improved to down 0.1 percent in June from down 0.4 percent the prior month.
There other signs of a slowing in the labor market. Growth in average hourly earnings eased to a 0.1 percent decline, following a 0.2 percent boost in May. The average workweek for all workers edged down to 34.1 hours compared to 34.2 hours in May. The market forecast was for 34.2 hours.
The good news at face value in the June report was that the unemployment rate to 9.5 percent in June from 9.7 percent in May. However, the decrease was due to a sharp drop in the labor force.
Overall, the June jobs reports points to a softening in the labor market. Private employment continues to grow, but at a more moderate pace. On the news, markets were uncertain of how to react as equity futures moved back and forth.
“Marginally attached” and “discouraged” workers rose a combined 829,000 from a year earlier – that is one way the size of the labor force falls while the population rises. Below is a chart of the Employment Population Ratio, the plunge resumes despite population that continues to rise:
The net 240k loss of government workers did not materialize, it came in with a net loss of 208,000.
Below is a full copy of the BLS Employment Situation Report:
Looking at the Alternative Measures table, we find that not seasonally adjusted U-6 jumped from 16.1 to 16.7%. Seasonally adjusted fell from 16.6 to 16.5%. Note the one year ago rate figures for both U-3 and U-6 - there has been basically no change in the unemployment rate in the past year, I guess we have Obama to thank for that, LOL, and we won't mention the fact that we are bankrupt as a nation:
These are the numbers that more closely resemble the way the statistics were reported in the past but are not a perfect comparison by any means. For a more consistent report over time, we cannot rely on government data, so we turn to John Williams at Shadowstats.com:
Below is the completely whack “Birth/ Death Model” adjustments. They fell, as I predicted, from 215k to 147k. This number is very likely to be negative for July, it typically is for that month:
Overall this report was fairly close to consensus, but shows that the labor force is still shrinking. This is because there are fewer jobs and it’s been forevvveeerrr, and thus the number of people just giving up is very high, and also there are people who are flat out running off the rolls as their benefits have run out. For them, depression is absolutely the correct term. Is this like other “recessions?” Heck no, and here’s proof – the Mean Duration of Unemployment has never been higher:
Factory Orders were reported sharply lower this morning, falling from a positive 1.2% to a negative 1.4%! Consensus was expecting a fall to -.5%, but this is another big miss and yet another sign that the economy is falling sharply without the trillions in stimulus.
Yesterday, the Motor Vehicle Sales report continues to look very weak. Total sales came in at 11.1 million, down from 11.6 million. Pre-depression numbers were in the 16 million + range, here’s Econoday:
Vehicle sales were weak in June in an early indication that retail sales may prove disappointing for a second month in a row. Unit sales of domestic-made cars and light trucks came in at an 8.4 million annual rate vs. May's 8.9. Adding in imports and the comparison shows an 11.1 million rate vs. 11.6 in May for a 4.5 percent decline.
Looking at the markets, there are signs that we may have reached a temporary bottom, but the primary count we were using is slightly off if a bottom materializes today. The working count says that we should just be starting wave 3 of 3 of 3 (of 1). The alternative is that I was correct the other day when the wave count didn’t look fully formed and that we just bottomed on wave 1 of 3 of 3 yesterday and are now beginning wave 2 for a couple of days. Either way, a steep plunge should follow relatively soon.
Below is a ten day chart of the SPX. You can see that prices are challenging the channel top that’s been holding prices:
Updating the look at the Chinese Shanghai Index versus the SPX, you can see that our recent declines have not closed the gap with China's markets continuing to lead to the downside. I keep reading analysts who continue to shout that they are going to lead us up, but that's simply not happening:
The CBOE Put/Call ratio rose to 1.25 yesterday, that is nearing levels where one would expect a bounce to occur.
Also a bullish divergence yesterday was the VIX that fell by about 5%. Besides those two indications, however, I did not see anything that looks amazingly bullish, divergent, or contrarian otherwise. So, the people who do not count the waves might be looking for a bounce, the surprise therefore would be that the bounce does not materialize for them – and that may lead to a little panic on their part, we’ll see.
Don’t forget that we are sitting on a three day weekend… holding positions over it will be risky, if you are a bull, don’t look up, it’s a long way to the top!
AC/DC – It’s a Long Way to the Top if you want to Rock-n-Roll:
Just released were the Pending Home Sales for May, the Manufacturing ISM for June, and Construction Spending for May. All were bad.
Pending Home Sales collapsed 30% in one month, the index falling from 110.9 all the way down to 77.6! Here’s Econoday:
Highlights After the plunge in new home sales in May following the expiration of the sale deadline for special homebuyer tax credit, it was no surprise that pending existing home also plummeted. But the size was. Pending home sales dropped 30.0 percent in May, following a 6.0 percent jump in April. Pending sales decreased to a year-on-year fall of 15.9 percent in May, compared to up 22.4 percent in April. By region, pending sales fell 31.6 percent in the Northeast; 32.1 percent in the Midwest; 33.3 percent in the South; and 20.9 percent in the West.
Obviously the plunge was due to the end of the home buyer tax credit – a fine piece of artificial home price manipulation by our government that once again simply pulled demand forward, leaving the cliff that we are falling from now. No, the new legislation to extend the tax credit won’t produce another spike because it only offers the credit to those who already completed their purchase by the end of April. This legislation is heading to Obama’s desk for signature now, here’s CNN:
NEW YORK (CNNMoney.com) -- First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.
President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.
The bill doesn't help anyone currently shopping for a home. Buyers must have signed a contract by April 30 to qualify for the tax break. At issue is when the deal must be finalized.
Qualified existing homeowners also have until Sept. 30 to close on new homes and receive a tax credit of up to $6,500.
Congress has been trying to pass the extension for the last month, but it got caught up in Washington politics. Only when it was separated from a larger jobs bill did deficit-wary lawmakers sign off on it. The extension will only raise the deficit by $9 million.
An estimated 200,000 people have missed out on the tax credit because they wouldn't have been able to close by the end of business Wednesday. Many are trying to take advantage of short sales, which are complicated deals to complete.
Don’t look for another bounce, and stimulus like this will not be so easy to do again. Proof that they are a waste of money can be seen in the free fall that follows. Look for big changes as the Keynesian monkey pumpers are being discredited by reality. Debt saturation is MECHANICAL, that is what leads to the psychological and the markets then follow.
Construction Spending for May fell from April’s positive 2.7% gain to a negative .2% loss. This was actually a smaller fall than consensus that was looking for -.5%. Construction fell off the cliff already and has simply not recovered. It’s not going to recover, either, until the problem of debt saturation is resolved.
The Manufacturing ISM plunged from 59.7 in April to 56.2 in June. The consensus called for 59. This is yet more confirmation that the economy is slowing very rapidly. Here’s Econoday:
Highlights The acceleration in manufacturing cooled but only slightly in June, according to the Institute For Supply Management's composite index which slowed to 56.2 from May's very strong 59.7. The slowdown was led by a more than 7 point decline in new orders to a 58.5 reading that nevertheless indicates a strong month-to-month gain, only a smaller gain than in May. Orders continue to move into backlogs but also at a slower rate. Production slowed but remains very strong at 61.4 while hiring also slowed but also remains strong at 57.8. Delays for deliveries eased with the index down nearly 4 points to 57.3, also consistent with slowing activity.
Manufacturers may be having trouble building inventories as the index is little changed at 45.8. But improvement in the customer inventory index suggests that inventories are not as bare as they were in May. A big 20.5 point drop in prices paid indicates easing month-to-month pressure for inputs, the result of flat energy prices.
A month-to-month base effect is at work in this sample, that is comparisons become more difficult as levels across components rise. Similar readings can be expected in the months ahead as the manufacturing recovery matures.
Again, manufacturing has been decimated and cannot recover to be anything significant as long as the economy is saturated with debt. This is the central banker’s folly. The markets are plummeting and they are going to attempt to use this crisis (of their doing) to further entrench their debt based power throughout the globe. We CANNOT let that happen. We must use this crisis for the people to remove them from power!!! We must produce sovereign money and we must do it in a way that reduces existing debts and derivatives while keeping the overall quantity of money under control. To do this, I don’t see any other way besides accomplishing political reform at the same time. That means separating special interests from government! Financial Reform is not even close to being enough to solve the problem or to keep them from happening again.
Interestingly, the dollar is still plunging today and has broken support at 85 - remember, a loss of confidence occurs swiftly as in a phase transition. Is that occuring now on data like this? Stimulus obviously = FAIL as I've been saying all along that it would.
Oil (left) and gold (right) are correcting hard as well. Gold just convincingly broke its uptrend line - interesting that it is falling as the dollar also falls...
Meanwhile, the bond market races higher as money flees to perceived “safety.” The SPX plunges deeper into wave 3:
This is negating the hammers I showed this morning on the daily charts and it definitely appears that wave 3 of 3 of 3 (of 1) is well under way. As I look at the length of the prior waves, wave 3 must be at least as long as wave 1 and that means that we are quickly headed down to 1,000 on the S&P at a MINIMUM. The death cross and 860 await, it may not be long.
Equity markets are roughly flat this morning, but the dollar is down severely in the background, falling all the way back to prior support at the 85 mark. Should the dollar break below 85, it is probably going to correct to the bottom of its uptrend channel. The Euro is rallying… why, I’m not so sure, but Spain did “successfully” complete their bond auction that everyone was worried about as they had just been downgraded by Moody’s and the debt rollover was large. While they did sell the bonds they planned, the bid-to-cover was low and the rate was higher than past auctions. Also, Merkel’s choice for Presidents, Christian Wulff, was voted in, this is seen as her maintaining power for now. She has become the European driving force for austerity, this was forced upon her after being kicked in the teeth for tossing a trillion of stimulus into the kitty.
Bonds in the U.S. are flat this morning after the TNX and TLT produced what may be ending hammers yesterday. These hammers coincide with a hammer that was made by the VIX, charts below:
TNX
TLT
VIX
These may be meaningless, but they may also indicate that a pause in the equity downtrend is about to occur. That makes today’s action important. If the count is correct, we are now in 3 of 3 of 3 down… unless wave 1 of 3 wasn’t really over. I still have a difficult time counting 5 waves there and it could be that we’re going to have a more meaningful wave 2 correction from here? Note the question mark… this is not McHugh’s count, he’s convinced wave 1 and 2 are complete – we’ll see, sometimes it’s not so clear until you see the action. If the selling resumes today, then he’s right. Regardless, wave 3 is underway and the waves are moving swiftly.
I want to make something clear about this wave 3… I view this as most likely wave 3 of wave 1 down. If you go back and look at the top in late ’07, the waves so far look very much like that. If we are rhyming, then the very serious crash type of collapse won’t happen until wave 3 of 3 on the higher scale. So again, this wave 3 of 3 of 3 is most likely of wave 1 right now, the beginning of the collapse. Once this wave 3 completes, we will go through a small scale wave 4, then 5, and then we should have a significant wave 2 bounce. By the time all that completes, we may very well find ourselves in the fall, a typical time for more ferocious selling – that would be the larger scale wave 3. I throw this out there only as a possibility for what I am thinking and seeing in the markets right now.
Yesterday’s late day dive crossed some key technical levels. First of all, the Head & Shoulders pattern neckline was decisively broken and the pattern is now confirmed. It is well formed and a classic pattern. Even if we rise back above the neckline, this pattern now has very high odds of playing out and achieving the target. The target is 860ish – once that target is achieved, the market will have lost roughly 30% from its April peak – about 15% lower than here. That will qualify as both a bear market and a market crash.
Another classic DOW Theory sell signal arrived as we closed below the June 7th closing low in both the Industrials and the Transports. This is a very powerful confirmation, one that cannot be ignored – it means that the trend is down and is likely to stay that way, the odds remain that the next bounce will fail to make a new high.
Another VERY BEARISH signal is occurring right now. This is a bearish cross of the Weekly 13 and 34 exponential moving average. This is a long term signal that many professionals watch. It is the “autopilot” signal, the one that if you use it mechanically, you will simply buy the market on a bull cross, and sell it on a bear cross – and forget about everything else, it will make you money in the long run, no doubt about it. It has very few false crossovers and you can see that this one is steep:
And then we have the 50 and 200 day moving average cross (death cross) also about to happen. I believe it’s likely to cross tomorrow or Monday at the latest. This is yet another long term reliable signal – it can produce short term throwovers, but that is rare and again this signal is steep with the 50dma falling rapidly:
There are many, many sick individual stocks and many broken patterns. They are signaling further declines are likely and I believe they are coming – the evidence is overwhelming.
Weekly Jobless claims rose from last week’s 457,000 back up to a very stubborn 472,000. The consensus called for a drop to 450k – obviously that once again did not happen. Listening to Obama talk about how he saved the economy yesterday was sickening. Empty suit is an understatement – a math challenged puppet of the oligarchs is the unfortunate reality. Here’s Econoday:
Highlights High levels of initial jobless claims remain the biggest disappointment on the U.S. economic calendar. Claims rose 13,000 in the June 26 week to 472,000, lifting the four-week average by 3,250 to 466,500 for the highest level since March. Compared with May, June levels are slightly higher and point to trouble for tomorrow's big employment report. Census workers may be a factor as some may qualify for unemployment benefits, but the Labor Department is not citing this.
Continuing claims have been edging lower in what is probably a good sign though it may reflect to a degree discouraged workers leaving the workforce. Continuing claims for the June 19 week did rise 43,000 but the four-week average of 4.568 million is about 100,000 lower than mid-May. The unemployment rate for insured workers is unchanged at 3.6 percent.
Money is moving to safety following the results as the dollar is gaining and stocks are losing.
The “Monster” Employment Index actually rose from 134 to 141, supposedly reflecting stronger online employment demand. This index has not correlated well with unemployment statistics.
The Challenger Jobs report, which tracks mass layoff announcements, rose slightly from 38,810 to 39,358. These numbers are small compared to the mass layoffs during the ’08 decline, it would seem to me that the low hanging “fruit” is gone and finding massive employees to trim further will be impossible. The more likely outcome as wave C deepens is that companies will fail to hang on altogether.
Construction Spending, Pending Home Sales, and the Manufacturing ISM are released at 10 Eastern this morning.
There was a small movement in the McClelland Oscillator yesterday, which means that a large move is likely either today or tomorrow.
And just to prove what a JOKER (destructive idiot) Alan Greenspan is, here’s your quote of the day:
July 1 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. economic recovery is undergoing a “typical pause” that will be shaped by the performance of stock markets.
“While ordinarily we’re seeing the stock market driven by economic events, I think it’s more the reverse,” Greenspan said in an interview today on CNBC. “What we do know is stock prices are a leading indicator.”
Too bad he never considered debt saturation a leading indicator, but that would be far too much to expect for this Joker, one of the world’s most prolific DEBT PUSHERS.
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