Friday, July 9, 2010

Morning Update/ Market Thread 7/9

Good Morning,

Equity futures are roughly flat this morning, the dollar is higher, gold is higher, and bonds are flat.

The only economic report today is wholesale trade which is released at 10 Eastern.

Yesterday chain store sales came in weak and Consumer Credit came in much lower than expectations for May with a very large revision lower for April. Here’s Econoday:
Consumer credit contracted a sharp $9.1 billion in May with April revised to show an even more severe $14.9 billion contraction. The April revision is very surprising given the initial reading of a $1.0 billion gain!

Revolving credit contracted $7.4 billion in May and contracted $8.3 billion in April. Non-revolving credit shows a $1.8 billion contraction in May on top of a $6.5 billion contraction in April. Neither category is likely to show much improvement in June given indications from today's soft store sales report and last week's soft unit vehicle sales.

Consumer credit had been leveling earlier this year but now appears to be on a double dip. This report could set stocks in reverse during the last hour of trading.

Everyone keeps talking about that “double dip,” but where is it? Take a look at that chart, there was no rebound in Consumer Credit. Nice revision by the way.

Interestingly in Canada their latest jobs report showed that 93,000 jobs were created last month, five times more than was expected. This is bringing about speculation that Canada may have to raise rates. That would set up an interesting dynamic that would likely strengthen the Canadian dollar. It’s also an enigma as Canada is sitting on a housing bubble that appears to just now be beginning to burst (Vancouver’s home sales just plummeted 30%), but their federal government is in a much better position debt wise than most of the other western countries. If they can refrain from bailing out the banks and mortgages, they will fare far better.

Yesterday’s move higher seems to confirm Wednesday’s 90% romp, that continues to give the Bulls confidence. But the wave count seems to suggest that yesterday’s sideways move during the day was a wave 4 movement with the late day rally being all or part of wave 5. If that’s the case, then it’s likely that wave 3 of 3 will begin early next week and we should see this wave 2 movement wrap up soon as we have now retraced roughly 50% of the prior wave. It is possible that we retrace up to the 61.8% mark, and it’s also possible that this wave is just wave a of and a,b,c for wave 2. We won’t know for sure until we break below the bottom wedge boundary you can see on this 20 minute chart of the SPX below:

Also note that the gaps have not filled entirely yet, so there may be a little bit more to go on the upside before the next pullback begins. Gaps are like a vacuum, and nature works diligently to fill voids – think of them like low pressure areas, and like all things in nature that flow, prices also seek the path of least resistance flowing from high pressure to low.

As I looked around the charts last night I noticed that there were many hammers around. The one on the XLF is very prominent and prices this morning are having difficulty getting over it. If prices fail to close over that hammer today, it may be a valid reversal indicator. Below is a 3 month daily chart of the XLF:

Thank you to everyone who kept the daily thread going yesterday, I appreciate it!

Thursday, July 8, 2010

Morning Update/ Market Thread 7/8

Good Morning,

Equity futures are higher this morning, ramping on a better than expected weekly jobless report. Bonds had already broken down from the flag they were forming which is supportive of higher equity prices, although equities are overextended in the very short term due to yesterday’s rise. Oil is up and gold is down. The dollar is down slightly, now resting on the bottom of its up channel.

The weekly jobless claims came in better than expected at 454,000 which is a decrease of 18,000 from last week’s 472k report. The consensus was looking for a drop to 465k. Here’s Econospin:
Finally, jobless claims show solid improvement. Initial claims fell 21,000 in the July 3 week to 454,000 for the lowest level since early May. (prior week revised 3,000 higher to 475,000). The four-week average fell 1,250 to 466,000, the best weekly improvement since early May though the level is still slightly higher than a month ago.

Declines are also seen for continuing claims, down 224,000 in the June 26 week to 4.413 million for the lowest level since November. Declines here reflect a mix of new hiring but also the expiration of benefits as the unemployed move out of the insured pool. The unemployment rate for insured workers fell 2 tenths to 3.4 percent.

Stocks are rising and money is moving out of Treasuries following these results which offer early encouragement for the July employment report. Yet conclusions are difficult to draw given possible calendar and seasonal effects tied to the July 4 holiday and annual shutdowns in manufacturing, shutdowns centered in the auto sector. Note that GM has pushed back its annual retooling layoffs, a factor that could be holding down claims. Five states had to be estimated in today's report including California, but the Labor Department didn't cite any issues which may give the green light to the stock market.

Hmmm… “Five states had to be estimated… including California?” That’s nice and convenient, no surprise that the lack of data magically produced a better report… or was it? Let’s look at the unadjusted numbers from the Labor Department:
The advance number of actual initial claims under state programs, unadjusted, totaled 463,560 in the week ending July 3, an increase of 22,560 from the previous week. There were 581,145 initial claims in the comparable week in 2009.

That’s interesting how a real number increase of 22,560 turns into a seasonally adjusted decrease. The week ending July 3 was a full week. It will be interesting to see how they manipulate, err, I mean seasonally adjust the claims for next week’s report that will include the holiday. Regardless, any number above 400k is simply horrid, a disaster and it’s amazing that these numbers have been as elevated for as long as they have.

By the way, the drop in continuing claims is due to the failure of Congress to pass another benefit extension, but we'll ignore those lost souls and cheer the "data!"

Yesterday’s 275 point romp was yet another 90%+ move with 95.2% of the NYSE volume on the upside. That was number 17 since late April, the score is now 10 to 7, down. That is one out of every 3 trading days with a 90%+ move – unprecedented to say the least. Sick and broken with no adult leadership is what I’d call it. An HFT computer would call it Paradise, and you know what the Eagles say about calling some place Paradise, right?

The Baltic Dry Index fell more than 5% yesterday, the 30th day in a row of falling shipping prices. Weak demand from China for steel is taking a large portion of the blame, but regardless, the index has now fallen 53% in just the past month! Remember, it had fallen 93% before bouncing. Many analysts are ignoring this indicator, heck, the IMF just raised their global growth estimates, lol.

That’s right, collapsing shipping rates but here’s what the IMF (central bankers) had to say about global growth for this year:
(Bloomberg) …the IMF said the world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent. The Washington-based fund said central banks in emerging-market nations have tightened monetary policy “appropriately” and must remain responsive to potential threats to growth.

“The IMF report shows there is strong demand in the economy, it’s a big positive for the equity markets,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi, India.

Sweet! The Emerging Markets Index jumped 1.2% on that release! It’s so nice to be able to ignore reality and have markets jump at your moronic pronouncements, HFTs for everyone! (Exclusions and exemptions do apply please contact your nearest central banker for details. Be sure to ignore the recent EEM "Death Cross," and remember, this HFT offer is for a limited time only, quantities are limited. Offer is not applicable to you, for you there will be austerity only).

There is a large gap in the charts up at SPX 1074, it’s looking more likely that we’ll fill that. SPX 1071 is the 50% retrace of the last wave down. The 61.8% is at 1085, that is also a possibility for this wave 2 bounce. Below is a daily chart of the SPY:

The gap on the NDX is just below the 200 day moving average. Again, I would expect it to be filled:

Filling those gaps is not likely to happen in a straight line, there needs to be some sort of middle movement pull back. If we get above 1085, then there is a possibility something other than wave 2 of 3 is occurring, but it would take a rise above 1131 to actually change my view of the count. Remember, wave 2s are meant to fool… people are still thinking in wave 2 that it’s possible to make new highs and to live happily ever after. Of course the millions who have now exhausted their unemployment benefits know better, but the central bankers with their HFTs and billions are still clueless. Manipulating the markets is their last Resort…

The Eagles – The Last Resort:

Wednesday, July 7, 2010

Long Term Moving Average Crosses…

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.

Damon Vrabel - Sovereign Debt: The Death of Nations vs. the Wealth of Nations

Damon with more truth telling...
Sovereign Debt: The Death of Nations vs. the Wealth of Nations

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 Still Interviews Karl Denninger, Part I…

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:

Part I of II (15 minutes)

Morning Update/ Market Thread 7/7

Good Morning,

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:
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:

Tuesday, July 6, 2010

Wave Patterns and Formations of History Rhyme…

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

Morning Update/ Market Thread 7/6

Good Morning,

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…

Beattles – Strawberry Fields:

Monday, July 5, 2010

Denninger on Market Manipulation…

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.