Intra day short

Short ES at the 882 S&P cash level, stop loss is set at today's high. taking profit every 5pts on the ES

Intra day outlook

Below is a intra-day snapshot of SSO (ultraS&P).
I'm looking for S&P to trade lower today. It got rejected off of that inside uptrend channel.
Stochastic is overbought and now curving down.
Projection: looking for price to move toward the lower trading channel

what a spin!

I tell you, the Fed, the government, the media and even market buyers are all in alignment to produce positive spin from almost any news, be it bad or good.

Today a much worse than expected preliminary GDP release for Q1 2009 got heavy coverage before the markets opened, countering the dismal number. And they continued hammering all day.

Here’s the bad news – Q1 GDP was pretty much equal to Q4 GDP (-6.1% compared to Q4 GDP of -6.3%). For all intents and purposes things are just as bad right now as they were when the hardest period of the bear market jumped all over the markets in October and November, last year. After all, this new GDP number is only two tenths of a percent better than the absolutely horrible Q4 GDP.

To really make it sink home, the facts are that these two quarters of back to back violent declines represent the worst contraction in over 50 years!

While the -6.1% decline was much worse than the expected -4.7% contraction, the spin was that it was actually better than last quarter, which came in at -6.3%. Can you believe this? And that was the positive spin today – two record declines back to back have never been seen in recent history and with this one slightly less painful than last quarter, we must surely be at a bottom.

Let’s all celebrate the end of this beast! And so the buying took off early and continued all day long.

I apologize in advance for being a cynic, but could it be possible that with today being the 100-day celebration of the new Obama administration that marching orders were out to hold off selling and to do enough buying to make sure a bummer day in the stock market doesn’t spoil tonight’s big celebration?

From what I hear, there will be a party tonight and our president will be speaking in prime time TV about all the impressive 100-day achievements that have occurred – and I am sure the applause-o-meter has been well oiled.

It was all about “hope” today, but let’s be realistic about today’s horrible number and not be taken in by this spin. This makes for three consecutive quarters of contraction, a feat that hasn’t occurred in 34 years.

And just because the flow of blood out of the sick patient is slowing by two tenths of a percent it doesn’t follow in my mind that there is still enough blood in the patient to make a full recovery.

Here are some more facts (from Briefing.com):

The business data in GDP were terrible. Investment in software and equipment fell at a 33.8% annual rate. Nonresidential construction spending (offices) fell at an amazing 44.2% annual rate. Both of these categories will continue lower. Businesses remain in retrenchment mode even if the rate of decline might slow.

Residential construction spending continued to plunge, and was down at a 38.0% annual rate.

These numbers are breathtaking, folks. Here is what it looks like on a chart:

Anyone with a lick of sense knows that while the coming quarters may not be as whopping as the last two quarters, we are going to see continued contraction. Sure, the blood flow will slow down. After all, the patient only has so many pints to lose. The blood flow has to be “STOPPED”, not just slowed down.

I guess those in charge feel that since we have the ability to continuously infuse the patient with new blood, that it is ok if the patient stays on his back indefinitely – to heck with quality of life.

I will now diverge from being such a negative @#$# and admit that such a dramatic collapse in two consecutive quarters may indeed represent a capitulation point. But this bear market is unlike any this country has seen and the recovery is not going to be as smooth as those in charge would like you to believe.

Enough of this positive spin.

I want to talk to you about market divergence. There are a number of indicators that regularly follow the trend of prices. One that I have followed for a number of years is the McClellan Oscillator, which feeds into a related one known as the McClellan Summation Index.

When prices in the stock market move in a direction contrary to a reliable indicator, like the McClellan Oscillator you have what is known as a market divergence. When market divergence shows up it is usually a precursor to a change in trend.

The McClellan Oscillator is a breadth measurement. It measures the number of advances versus the number of declines and then charts the difference between a 19-day moving average of this difference and a 39-day moving average of this difference. Don’t worry about trying to mathematically grasp the concept.

The bottom line is that when the McClellan Oscillator is at relative high values it means that many stocks are participating in an advance. When it is at relatively low values it means that many stocks are participating in a decline.

I like to take a moving average of the McClellan Oscillator line and create a chart. Normally, the direction of stocks prices in the broader market coincides with the direction of the moving averages of the McClellan Oscillator.

Not so right now – and that is why I want you to understand “divergence”. Check out the chart below:

During the last six months prices (the grey candlesticks on the chart) have moved in the same direction as the McClellan Oscillator (the brown line and the red and green moving averages). I have illustrated this by showing stock prices with a zig-zag black line and direction of the McClellan Oscillator with a zig-zag blue line.

In late March of this year, a “divergence” began to appear and is reaching an extreme. I have illustrated this by showing prices with a red-dashed line moving in a completely different direction than the reliable McClellan Oscillator, illustrated with a blue-dashed line. I included a MACD and a Stochastic of the McClellan Oscillator to emphasize the divergence that has appeared.

This is a warning that sooner or later either prices will correct, in line with the direction of the McClellan Oscillator, or the McClellan Oscillator will join in the direction of prices.

For the McClellan Oscillator to join in the direction of prices, it will require that most stocks return to an advancing condition, and that is not the case right now. The fact that the McClellan Oscillator is in a declining pattern is clear evidence that fewer and fewer stocks are doing the heavy lifting. Most stocks have peaked.

This is one of the largest divergences I have seen with this indicator, and it suggests to me that intervention is being earnestly applied, perhaps too strongly.

Because of indicators like this I remain, humbly, defensive – in spite of all the happy buyers that celebrated today.

Enjoy tonight’s party.

FOMC today at 2:15

Market Commentary:

One might say that good news today prevented the sellers from taking control – if only the markets could have closed an hour or so early.

The good news?

The Conference Board's Consumer Confidence report for April experienced a notable pickup from March, rising to 39.2 from 26.9. That was the highest reading since last November.

Talking heads said that the more than twelve point jump was much better than expected and could be a hint that consumers may shortly be on their way to the shopping malls as the economy continues to show signs of improvement. I think the new phrase is “green shoots”.

(Why don’t we have an experiment and count how many times a day we hear the phrase “better” or “greater” than expected?)

While a twelve point jump might seem like a good reason to celebrate, and the market recovered nicely from early selling as prices climbed most of the day, the hidden truth of this number needs to be shared.

This time last year the consumer confidence number was 62.8, nearly 24 points higher than today. And to give you a feel for where this number has been in the past, take a look at the chart below and note the high for this index was well over 180 several years ago and as high as 140 in 2007.

While the Consumer Confidence Index gets a lot of play in the press, the simple fact is that it does not correlate well with consumer spending and has little predictive value. Consumer spending correlates better with consumer income. With the jobless rates still very high the average income is down and remains low. More and more workers are working fewer and fewer hours, with new jobs scarce to non-existent. The shopping spigot is barely leaking.

During the recent rally I had several people write and ask me what to make of the frequent spike in prices near the end of the day. I took a couple of updates to discuss the program trading that occurs in many of the larger investment firms, with Goldman Sachs being the largest.

Well, it appears the reverse is now happening.

An article from Bloomberg revealed that “Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.”

To help you see this more clearly check out the 5-day “minute” chart of the S&P 500:

As you can see from the above chart the “program trading symptom” is now in reverse. Four of the last five days have seen buying momentum for most of the trading day, as prices advance more than they decline throughout the larger part of the day.

But in late day trading, four out of the last five days, selling has reduced those advances considerably. This is typical of an intermediate topping pattern. As prices advance the early buyers are usually the big boys who start the upward momentum. When it looks like the buying starts to take on a life of its own then the early buyers wait on the sideline and simply “juice” the markets right at the end of the day to enhance the buying fever.

Sooner or later, though the buying slows down and the big boys stop juicing the market. In fact, they use the hard won momentum to reap profits by selling into each small rally. If they don’t want to destroy the goose that gives them their golden eggs, then they gradually sell rather than unload all at once.

This can often be seen in late day declines, as programmed selling kicks in. When the public finally figures this out, the big boys often unload heavily until there are too few buyers to pick up the new “bargain” prices – and then the whole process often repeats again, giving rise to the intermediate and long term cycles I have repeatedly referred to.

This is why you need to be careful right now. There are a lot of potential profit takers just waiting for a good excuse to sell. Don’t get caught buying their used up golden egg – it will turn into a rotten one for you.

We have time to enjoy a bullish trend, if one is in development. The clue for me is where the lower low settles on this current correction in prices.

Just for fun, here is another “better” economic release that got some play today:

U.S. house prices were down 18.6 percent in February from a year earlier. That was an improvement from the 19 percent decline recorded for the 12 months to January.

On a monthly basis, a composite index of 20 metropolitan areas fell 2.2 percent, more than expected but less than the 2.8 percent fall in January, raising hopes among some that the housing market might be approaching a bottom.

Rueters, April 28, 2009 (reporting on the Standard & Poor's/Case-Shiller Home Price Index).

Long ES

Market starting its 7 week decline

Market Commentary:

Simply put, equities are being pressured since last Monday’s big sell off. This is characteristic of an intermediate top. And there are many signs pointing to the development of a correction.

I don’t think the bulls/interventionists are done, though. This is the time of the month when it is better to be long than out of the market – that famous “window dressing” period.

But after six weeks of gains, the rally appears to be exhausted.

The media would have you think that a flu bug is responsible for bearish pressure in the stock market, but that is a lot of bull (pun intended). There is hardly a stock you can find that isn’t stretched to the upside and due for a pull back.

This week is shaping up as week 2 of an intermediate decline, though a final buying push might set one more high before a strong pull back develops.

Let me show you a different technical chart that clearly illustrates buying exhaustion:

This indicator is called the McLellan Oscillator. The grey candlestick pattern in the background is the S&P 500 prices over the last 14 months.

Notice that in the March-May time frame last year that this indicator was in the positive area for around seven weeks. And then it began a jagged descent into negative territory settling at -75 by July. During that same time the S&P 500 went from a high of 1440 in May to a low of 1200 in July (a 17% drop).

This indicator quickly returned to positive territory in late July where it hovered between 20 to 60 for another seven week period. During this period the S&P 500 rallied almost 100 points to just under 1300.

And once again, this indicator began another jagged descent to a significant low around -120. And that low point was reached in October, where the S&P also declined to a new low at 839. The 13,000 to 839 drop was a huge -35% decline.

And like before, this indicator did not stay down but advanced over a 3-week period to the 100 level. The S&P 500 recovered some, from 839 to a high of 944. And then the indicator did a quick reversal as did prices and settled at -100 while the S&P 500 set new Bear Market lows at 666, known for quite a while as the “November Lows”.

Notice how rapidly this indicator accelerated to the 25 to 80 point area, where it again hovered for close to seven weeks, as the S&P 500 rose from the November lows to an intermediate high of 878 in January of this year.

After remaining in positive territory for seven weeks or so this indicator once again began a jagged course of declines, landing just below the -125 level. The S&P 500 reached new lows a couple of weeks later – in March of this year, now known as the “March Lows”.

During this last rally this indicator has risen once again to the 100 level in mid March and has hovered in the 25 to 80 levels for just over seven weeks. During this same period the S&P has gone from a low of 666 to a high of 876 just over a week ago (a 32% rally).

I am sure you have picked up on the “seven-week” interval I have repeatedly referred to. By all rights, this chart is telling me that it will begin another jagged course downward, in synch with declining prices on the S&P 500.

The declining periods have ranged from 6-8 weeks over this 14-month time frame and the advances have been centered very closely into a tight “seven-week” interval.

I cannot say that this means for sure that equities will decline for the next 6-8 weeks, but the odds seem to be much better for prices to fall during these coming weeks than for prices to rise.

This is just another technical indication of an intermediate top and a likely correction that has begun to play out right now.

I could explain a lot of daily market movement via investor concerns over the Bank Stress Testing or the Automaker’s Recovery Plans, or the nationalization of both Banks and Automakers by our government and the shafting of bond holders, or the presence of a new flu virus. But these are all smoke screens for what simply looks to me like an intermediate top.

I still remain highly focused on where the next intermediate low settles and suggest a defensive posture while we wait it out and try to develop a clearer picture.

Short ES

Short ES at 863 with stop at today's high

Market Commentary:

Market Commentary:

Oh, they certainly deserve a round of applause (and I just did it in front of my computer screen) as the markets ended the day nicely. But it was not to be. On a weekly basis the advance has ended.

Honestly folks, we have just seen a more than 30% rally. Do the bulls think it is not enough? Where will the buyers be happy? Does anyone in charge of making a market have enough confidence in real investors and real economic data to allow normal market corrections?

Stock market corrections are a normal part of the equity environment – always have been and always will be (… or should be).

But this pending correction is having a tough time of it.

A subscriber recently emailed me and made an interesting point that if the government, the Fed, and their interventionist counterparts, like Goldman Sachs, want the market to go a certain way, then why should we try to explain anything away using fundamental or technical tools and just go with the flow these interventionists want to see happen?

To a certain degree, he has a valid point. For a few decades now, it is clear that the Fed and even some stock market intervention has been applied to try and keep the economic picture on a stable and even keel.

And it has worked fairly well at times – as long as the intervention was within reasonable proximity to the reality of the economic condition.

It is not that way right now. The government, the Fed, politicians, the large market makers and the sucked in major media want the public to think that the corner has been turned on this recession. Public opinion is very important for the many political and economic agendas that are now on the table.

The easiest way to change public sentiment is with an impressive advance in the stock market. In terms of actual dollars, it is the cheapest choice, too. This action in the stock market convinces many in the public (usually not savy investors) that if the people with the most money to lose are now buying up the markets, then the economy must not be far behind this advance.

As I have tried to point out, real serious investors are still sitting on the sidelines with most of their money. The money being spent right now is mostly from short-term growth speculators and those who have an agenda based on a quick advance in stock prices.

Recent public sentiment shows that this trick is working (sorry, but to me it is a trick). While public sentiment is not rising much, recent polls indicate that the majority now think that the country is finally headed in the right direction.

Please note that nearly every earnings report and economic report continue to show losses from almost every conceivable previous time frame comparison. But since the “worst” of the losses was booked in Q4 of 2008, the emphasis has switched to cheer leading anything that is “better than expected”.

Here are a few from today:

The Commerce Department said March durable goods orders fell by 0.8%, the seventh decline in the past eight months but much better than economists had forecasted.

The government also said new home sales tumbled by 0.6% in March to a higher-than-expected annual rate of 356,000 units.

Ford provided Wall Street with a rare dose of positive auto news as the car maker said it swung to a better-than-expected operating loss of 75 cents per share.

It is almost laughable. You can draw any economic data you want on a chart and see the slope remain in a firm downward pattern, yet hear the media cheerleading on anything that anyone says is “better than expected”.

Don’t be fooled by this charade.

I laughed at the following comment at the end of a recent MarketWatch article:

“ A 100 megaton nuke warhead burst over a city of one million inhabitants.

There were 3 survivors.

The survival rate was "better-than-expected."

The Dow rallied to 15,000!”

There is probably more truth to that than most care to admit.
Here’s the latest chart on the market (S&P 500):

You can clearly see the latest rally illustrated with a narrowing upward triangle pattern, referred to as a Bearish Triangle, because the normal resolution of this type of pricing pattern is to break below the support line and correct to a lower price before continuing a possible advance.

And that is precisely what has happened this week. On Monday of this week the market took a hard tumble, breaking below the lower support trend line. And then all the rest of the week the market has been making what is called a “back test” of the broken support line.

Since broken support lines often become new resistance lines the back test of this line often ends in a second failing advance. As you can see the prices on the S&P 500 valiantly tried for a 7th consecutive week of advances, but under overhead pressure of the broken trend line failed, even though it was close.

As they say, close only counts in horseshoes.

This chart shows daily prices and you can see another interesting event that occurred this week, for the first time in seven weeks. The high for this week was lower than the high from last week. And the low for this week was lower than the low from last week.

Yep – we just saw a lower high and a lower low on a weekly basis, in spite of how impressive the back test has been all week.

We are now entering the “window dressing” period for the month, the last week of the month into the first week of the new month. This is a time when institutional buying often dominates as allocation from payroll plans is applied into the various IRA and pension programs. It is also a time when funds are required to re-allocate to the various equity positions in their portfolios.

The bottom line is that the market is often up during this 2-week period.

But with the strong advance that has already occurred in April, these managers may hold on for a month or two before spending their new money. They have a little latitude, but not much.

On the other hand, as I intimated yesterday, it is possible that a final thrust upward could be made, setting the final top for this intermediate advance. It is hard to predict the next two weeks, especially with the Bank Stress Test on tap, but it seems clear to me that a topping pattern is underway.

Regarding the Bank Stress Testing, we were informed today that the results to be announced on May 4th (unless they postpone them for a third time) will result in no major bank being left in the lurch. Regardless of the test results, the government has indicated that no bank will be allowed to fail.

The Federal Reserve says the government is prepared to rescue any of the banks that underwent "stress tests" and were deemed vulnerable if the recession worsened sharply.

The Fed says the 19 companies that hold one-half of the loans in the U.S. banking system won't be allowed to fail -- even if they fared poorly on the stress tests.

…

Regulators have asked the banks not to disclose what they learn in meetings today at the various Federal Reserve banks, according to a regulatory official who requested anonymity because he was not authorized to discuss the process.

One reason is that the results could still change. Banks have a few days to process the data and potentially file appeals. Regulators also have not decided how much information will be disclosed May 4 -- by officials or the banks.

…

Regulators are striving to release enough information about the stress tests to inspire confidence. But they don't want to give analysts so much detail that they can run their own tests on the banks before the official release of results.

Associated Press, April 24, 2009

So how much confidence did that inspire in you?

I continue to look for where the next lower low settles at – allowing us a clearer idea of what is coming this summer.

intra-day Short then Long

Market Commentary:

Market Commentary:

Stocks whipped up and down today on very mixed earnings reports as traders try to posture themselves ahead of next week’s GDP report, unemployment and FOMC meeting.

I think the market is expecting some improvement in the GDP report, unemployment to worsen and that the Fed will recognize the weakness in the economy but forecast improvements.

How traders posture themselves ahead of May is also a big factor here. So next week is likely to be a very volatile week, with the potential of another stab at the highs of April and perhaps new monthly highs over April in early May---then watch out.

The question as to whether the bear market has turned into a new bull market is on everyone’s mind these days.

Every day I am constantly weighing this issue, from a fundamental, technical and cyclical perspective. Given the fact that we are experiencing the worst recession of my lifetime, I want to make sure we get this right, especially in this kind of volatility.

A retest of the lows of last March, even if we set up a higher low could prove extremely costly to you, so we need to evaluate the risk reward ratios very carefully as we head into the month of May.

From a fundamental perspective, the general consensus is that the worst of the recession has already past us, but a recovery is not expected to begin until the spring of 2010.

For argument sake, let’s assume this is a correct estimate of how things will unfold. How far can the stock market go up at its present pace when the recovery is a year away and if Roubini is right, no more growth in 2010 than about 0.5% on the GDP?

Humans think in linear terms. They see the stock market up impressively in March and slightly higher in April and think that this is going to continue.

Shouldn’t we be thinking of the stock market, though, in cyclical terms, with the stock market advancing ahead of expectations, then checking itself relative to reality, retracing back to the mean averages?

Intermediate-term cycles suggest we are getting close to a top. Buying is becoming belabored. We are not seeing bullish volume.

What I do see is an overbought intermediate-term cycle that is converging towards a seasonal cycle high as we approach May. Our proprietary indicator, the Fidelity Select Family Stochastic Oscillator is showing a six month cycle high, with %K at 93 and %D at 91.

In the following chart we measure the market from how many stocks are trading above their 50-day moving averages as an oscillator on the NYSE.

Notice, we appear to be making an intermediate-term high, with the number of stocks above their 50-day moving averages starting to show to signs of topping.

Notice, the MACD at the top of this chart is beginning to roll over as investors grow leery of the sustainability of the market.

If this does roll over, the weekly ranges for the indexes will turn down and the next intermediate-term correction will take off.

Keep an eye on the weekly gold charts, which appear to be setting up for an intermediate-term advance, now in strongly oversold territory. Gold is a default investment as investors sell equities and buy gold, so this is a telling indicator right now for the next few weeks.

There are some indicators that have turned positive and need to be recognized.

Let’s examine market breadth. Over the last three weeks, we have seen the McClellan Summation Index move above zero for both the NYSE and the OTC. That’s constructive and hints that market internals are better than we’ve seen at any time since this bear market began.

The new high/new low indicator against a 10-day moving average in the month of April is just now starting to see new highs slowly starting to out pace new lows, but just barely though.

This is encouraging but if meaningful buying fails to follow through to sustain this advance in May, momentum will cave in on itself and market breadth will quickly reverse again.

Speaking of momentum, the 14-day RSI levels are just barely above 50% on the daily charts. That is constructive, but if we are at the top of the intermediate-term cycle it won’t take much selling to drive the RSI below 50%.

Everyone has their own definition of what a bull market is. What I subscribe to is whether the price of the market indexes can display enough strength to trend above a 200-day moving average.

Can the 50-day moving average trend above a 200-day moving average? Can prices of the indexes trend above their monthly middle Bollinger Band lines?

I have a real problem with the stock market on this basis. This bear market has been so severe, with price so discounted to the important averages that the technical repairs required are huge.

Yesterday, I showed a comparison of the 1980-1982 bear market and argued we could see a similar pattern of market behavior going forward, but that there was one huge difference in this bear market pattern from the 1980-1982 bear market.

This is the difference of prices relative to the 200-day moving averages.

In 1982, the S&P 500 by late April, early May had tested its 200-day moving average and even then the market retested its March lows and ultimately broke the lows before bottoming in August of 1982—then the bull market started.

There is no comparison to that now. We are so far discounted from the 200-day moving averages it is truly frightening. Why is this important? Because it means you aren’t going to attract meaningful buying at this depth of discounting. And that means we are apt to see momentum fail again until this spread narrows---and that is just going to take time.

This is why I question the V-shaped bottom idea being promoted now. I don’t see it here given this heavy discount.

Another example is that the direction of the 50-day moving average is trending flat right now. Trending flat is much better than descending but it will take time for the 200-day moving average to catch up with it if it stays flat. That also suggests we are apt to back and fill until the spread narrows.

As I have repeatedly said, we need to see how the stock market looks at the next intermediate-term bottom, not at this intermediate high.

The most bullish technical pattern when the intermediate-term cycle turns negative is to see price continue to move up at a slower pace or a sideways pattern develop on the weekly ranges. This would be a very bullish consolidation pattern because prices would hold well above the March lows, with the bears unable to break prices down during a seasonally negative cyclical period.

The next best scenario would be a partial retest of the March lows but setting up a higher low. This would produce an “inverted head and shoulder” pattern, with the head in March, but a higher shoulder. This would create a successful test of the lows and would usher in an even more powerful rally to follow in the second half.

The worst scenario is if investors start to panic again as the seasonal cycle rolls down this summer. In an ugly scenario, the S&P 500 could fall down to the 500-600 range, which is where the downtrend line connects with the November and March lows.

I am hoping for the best scenario to develop but we have to plan for the worse scenario, given the worse recession seen in 60 years. Anything can happen.

I recommend playing it safe, until we see what comes out of this next intermediate down cycle and how the market reacts to it.

4/23 intra-day update

We are stopped out of the short ES trade




We have a intra-day sell short at 840 with a stop loss at 848.

Where our nation is headed

"It's like bringing in Bugsy Segal to win the war on crime" - Gerald Celente when talking about the appointments in the new administration of American's "Pretender" President. He's not a natural born citizen. I don't care what anyone says. There are no documents saying he is. http://www.youtube.com/watch?v=QEnaAZrYqQI

"An intellectual revolution. That's what we're looking for." - Gerald Celente

I strongly agree with Celente. An intellectual revolution without too much Jay Leno and other late night comedy shows. There is always a distraction in the news. For example, talking about the bonuses at the various banks, while not mentioning that $15 billion of the AIG bailout actually went to Goldman Sachs, and many other billions to other companies AIG was doing business with. Parents getting involved in the schools and talking what the bailout is really about, which is bailout of the banks who finance the political campaigns of politicians.

Here are the videos with Gerald Celente, a trend forecaster, who predicted the demise of the Soviet Union, crash of 1987, etc.

I just have to send this type of stuff out because I do not want to be like the government or other market writers and send out information on distraction, gimmicks, and other sorts of baloney. I want to send out real information, about what's happening today. And how this relates to protecting wealth, protecting freedom (essential to wealth creation) and making money.

I want my readers to be informed!

Celente Interview Part 1
http://www.youtube.com/watch?v=Uj322s19kpc&feature=channel_page
Celente Interview Part 2
http://www.youtube.com/watch?v=TS5dW-DR6qQ&feature=channel_page
Celente Interview Part 3
http://www.youtube.com/watch?v=JIUoCEM5ToE&feature=channel_page
Celente Interview Part 4
http://www.youtube.com/watch?v=y6M8_ZgXx54&feature=channel_page

Another Leg down in the market ahead?

Market Commentary:

On Monday, the stock market gapped sharply down as programmed traders began unloading their long positions ahead of the month of May.

After their initial sell programs hit the market, the public saw this as an opportunity to buy again on Tuesday and early today--- but in the final hour of trading, guess who showed up!

Programmed traders again unloaded more of their long positions selling into the buying in that last hour that knocked the market down again.

These guys typically make their move before the opening and in the last hour of the trading day. Watching whether they are net buyers or sellers, reveals to us how their working the herd.

They can’t unload all at once. They have to feed their long positions into the market in chunks and into advances.

You have to start thinking as if you were the Goldman Sachs trading desk and what you would do with your positions ahead of an approaching seasonally weak period of the year, in the biggest recession that any active trader has experienced.

Goldman isn’t the only programmed trader out there. There are many. But Goldman is by far the biggest programmed trader and represents a huge chunk of the daily volume in a market like this.

The fact that programmed traders are selling into the rallies now suggest nervousness by smart money. Momentum is starting to slow. The fact that volume has been rising on down days and falling on up days should warn you of the approaching intermediate-term set up.

Keep a close eye on the weekly ranges because if we start to make lower lows and lower highs, you know the market is losing it.

1980-1982 BEAR MARKET

I want you to see a comparative chart of the 1980-1982 bear market because the current bear market is tracking very similarly in some ways and I think we could see a similar pattern unfold in the coming months.

Notice an intermediate-term bottom was established in October of 1981 rallying into December of 1981. We then saw a rather dramatic sell off in January and February, with the stock market making the next intermediate new low in March. The stock market then advanced to the end of April, where it set up the next intermediate-term top. Sound familiar?

Notice, in this chart the bear market rally of March-April of 1982 was rather impressive but it failed to take out the January highs---similar to what has happened this year, at least so far.

Compare this with what has happened so far this year. It is almost exactly the same pattern.

However, notice what happened to the stock market in May of 1982. An intermediate-term top developed and what followed was a vicious retest of the March lows … which were broken.

That bear market didn’t make a final low until August of 1982. We may have a similar path before us now. Given the intensity of economic weakness, the current one is even likely to stretch out longer than previous bear markets.

The 1980-1982 Bear Market took 20.4 months to complete. What followed was a 60 month bull market.

We are now in the 16 month of our current bear market and a retest of the lows over the next two or three months would put this bear market in a comparative pace with the 1980-1982 bear market.

But let me remind you this bear market is a far more powerful bear market than the 1980-1982 bear market.

A retest of the lows of March or perhaps even new lows is a very real risk as this recession is very likely to last through 2009 or even longer.

The next several weeks will reveal to us whether an economic trough has been reached and whether the March lows will hold.

I say remain defensive.

The real outlook for the Global Economy

Market Commentary:

The stock market rallied today following comments from Treasury Secretary Timothy Geithner, who told Congress that most banks have adequate capital.

“ Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,” Geithner said in testimony to a congressional oversight panel on the government’s financial-rescue program.

The comments were designed to provide reassurance that banks won't surprise investors next month by getting poor marks in the government's "stress tests."

So there we have it. The government wants to paint the picture we are about to see an economic recovery in the second half of the year and that their plan to rescue the banks is about to work---don’t stress over our stress test!

So what is my advice?

From my analysis, from both a fundamental and the technical, we remain in a primary bear market trend, whose intermediate-term bear market rally is now showing signs of wear ahead of the month of May.

I think the market is getting ready to consolidate its recent gains and to sort out the truth – which only time can reveal. This means we still must keep our focus on protecting capital rather than being river boat gamblers where the deck is stacked against us in extreme volatility.

Quite honestly I trust economist Nouriel Roubini’s opinion and his take on the future of the economy far more than Treasury Secretary Timothy Geithner.

Roubini writes:

“ Mild signs that the rate of economic contraction is slowing in the United States, China and other parts of the world have led many economists to forecast that positive growth will return to the US in the second half of the year, and that a similar recovery will occur in other advanced economies.

The emerging consensus among economists is that growth next year will be close to the trend rate of 2.5 per cent.

Investors are talking of 'green shoots' of recovery and of positive 'second derivatives of economic activity' (continuing economic contraction is the first, negative, derivative, but the slower rate suggests that the bottom is near).

As a result, stock markets have started to rally in the US and around the world. Markets seem to believe that there is light at the end of the tunnel for the economy and for the battered profits of corporations and financial firms.

This consensus optimism is, I believe, not supported by the facts. Indeed, I expect that while the rate of US contraction will slow from -6 per cent in the last two quarters, US growth will still be negative (around -1.5 to -2 per cent) in the second half of the year (compared to the bullish consensus of +2 per cent).

Moreover, growth next year will be so weak (0.5 to 1 per cent, as opposed to the consensus of 2 per cent or more) and unemployment so high (above 10 per cent) that it will still feel like a recession.

In the euro zone and Japan, the outlook for 2009 and 2010 is even worse, with growth close to zero even next year. China will have a more rapid recovery later this year, but growth will reach only 5 per cent this year and 7 per cent in 2010, well below the average of 10 per cent over the last decade.

Given this weak outlook for the major economies, losses by banks and other financial institutions will continue to grow. My latest estimates are $3.6 trillion in losses for loans and securities issued by US institutions, and $1 trillion for the rest of the world.

It is said that the International Monetary Fund, which earlier this year revised upward its estimate of bank losses, from $1 trillion to $2.2 trillion, will announce a new estimate of $3.1 trillion for US assets and $0.9 trillion for foreign assets, figures very close to my own.

By this standard, many US and foreign banks are effectively insolvent and will have to be taken over by governments. The credit crunch will last much longer if we keep zombie banks alive despite their massive and continuing losses.

Given this outlook for the real economy and financial institutions, the latest rally in US and global stock markets has to be interpreted as a bear-market rally. Economists usually joke that the stock market has predicted 12 out of the last nine recessions, as markets often fall sharply without an ensuing recession.

But, in the last two years, the stock market has predicted six out of the last zero economic recoveries -- that is, six bear market rallies that eventually fizzled and led to new lows.

The stock market's latest 'dead cat bounce' may last a while longer, but three factors will, in due course, lead it to turn south again. First, macroeconomic indicators will be worse than expected, with growth failing to recover as fast as the consensus expects.

Second, the profits and earnings of corporations and financial institutions will not rebound as fast as the consensus predicts, as weak economic growth, deflationary pressures and surging defaults on corporate bonds will limit firms' pricing power and keep profit margins low.

Third, financial shocks will be worse than expected.

At some point, investors will realize that bank losses are massive, and that some banks are insolvent. Deleveraging by highly leveraged firms -- such as hedge funds -- will lead them to sell illiquid assets in illiquid markets. And some emerging market economies -- despite massive IMF support -- will experience a severe financial crisis with contagious effects on other economies.

So, while this latest bear-market rally may continue for a bit longer, renewed downward pressure on stocks and other risky assets is inevitable.

To be sure, much more aggressive policy action (massive and unconventional monetary easing, larger fiscal-stimulus packages, bailouts of financial firms, individual mortgage-debt relief, and increased financial support for troubled emerging markets) in many countries in the last few months has reduced the risk of a near depression. That outcome seemed highly likely six months ago, when global financial markets nearly collapsed.

Still, this global recession will continue for a longer period than the consensus suggests. There may be light at the end of the tunnel -- no depression and financial meltdown. But economic recovery everywhere will be weaker and will take longer than expected. The same is true for a sustained recovery of financial markets.”

Roubini has been spot on with this economy. I don’t see why he is suddenly wrong. He is certainly more objective than government spin.

As I see the stock market’s behavior in technical terms, an intermediate-term top appears to be forming.

This next intermediate down leg will reveal to us critical information. What we want to observe is whether the stock market will consolidate the March/April gains in a sideways pattern, i.e., a completed intermediate-term correction but still holding above the bottom of the Bollinger Band line and above the March lows, or if the bear market reasserts itself in the May/June period breaking the market down below the March lows to set new lows this summer.

Remain defensive.

Just when the suckers are buying

Market Commentary:

Quite amazing isn’t it? Just when the public was buying the idea of a recovery and sentiment is now showing more bulls than bears, slam goes down the trap door with huge volume showing up on the sell side.

Notice that the market gapped down sharply on the opening, giving no notice, as programmed selling hit the market hard before the market opened and that ladies and gentlemen is how it is done, get the suckers to buy and catch them before they have a chance to react.

What changed from Friday to Monday that wasn’t already known on Friday?

The market is now shifting its focus past earnings and now toward the bank stress test and the program traders wanted to be ahead of any rumors that might be starting to fly.

Economist Nouriel Roubini writes: “The spin machine about the banks’ stress test is already in full motion; some banking regulators or other US government officials have already leaked to the New York Times the spin that all 19 banks who are subject to the stress test will pass it, i.e. none of them will fail it.

But if you look at the actual data today macro data for Q1 on the three variables used in the stress tests – growth rate, unemployment rate, and home price depreciation – are already worse than those in U.S. government baseline scenario for 2009 AND even worse than those for the more adverse stressed scenario for 2009. Thus, the stress test results are meaningless as actual data are already running worse than the worst case scenario.”

The Turner Radio Network argued they have obtained the stress test results. Here’s their spin:

“1) Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent.

2) Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans.

3) If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.

4) Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.

5) Five large U.S. banks have credit exposure related to their derivatives trading exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.

6) Bank of America’s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank’s was 278 percent; JPMorgan Chase’s, 382 percent; and HSBC America’s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

7) Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC’s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter.”

What is the truth? We’ll probably never know the real truth but the markets will sort this out.

For example, Bank of America reported today that it made $4.2 billion in profits, so why did Bank of America stock fall over 28 percent from its highs on Friday?

One day! That’s all it takes to lose nearly a third of its value! So much for stop loss limits on this stock as the stock gapped sharply lower before the opening, closing today at $8.02 a share.

Let’s examine this stress test a bit closer.

RGE Monitor noted the government appears to be aiming for banks to have a “Tier 1” (common stock, preferred stock and hybrid debt-equity instruments) capital ratio of 6% and a total common equity ratio of 3%.

The Wall Street Journal wrote that as part of the stress tests, the Federal Reserve is expected to dwell on the “tangible common equity” (TCE) measurement as a gauge of bank health.

By “Tier 1” measurements, most big banks, including Citigroup, appear healthy. Citigroup’s Tier 1 ratio is 11.8%, well above the level needed to be classified as well capitalized.

By contrast, most banks “tangible common equity” ratios indicate severe weakness. Citigroup’s TCE ratio stood at about 1.5% of assets at December 31st, well below the 3% level that investors regard as safe.

“ If Citigroup and Bank of America are forced to dole out common stock to get to the 3 percent level, the government could end up owning 59 percent of Citigroup and 19 percent of Bank of America. That is a whole lot more than the maximum 40 percent ownership stake of Citi that has been talked about in Washington.” RGE Monitor.

Let’s look at today’s market action in terms of the technicals as they have been warning us that we could be getting close to an intermediate-term high.

As we noted over the last week or two, volume has been falling, until today! Price was narrowing within an ever tightening wedge pattern, which was broken to the downside today.

Intermediate-term cycles were overbought.

It appears that the next intermediate-term correction is about to begin soon or may have begun today. It wouldn’t surprise me to see the bulls try and muster upside support at the 50-day ema, but once the intermediate-term cycle rolls over, investors will start selling the rallies.

Last week the stock market was bumping against its back test resistance. But the left translation pattern remains intact and given the force of the selling today suggests investors are growing nervous of pushing their luck ahead of May.

It wasn’t just the stock market that fell. Crude oil prices fell $4.45 a share to close at $45.86 on a surge in the US dollar.

The markets do not trust the government to be straight with them. We saw this in the currency markets, where a flight toward the dollar reveals that foreign investors would rather own the dollar than some foreign currencies---so the dollar rallied today.

This undercut crude oil. Oil supplies are surging given the severity of this recession. Traders awaited the Energy Information Administration's weekly inventory report on Wednesday.

Last week's data showed crude oil inventories increased by 5.6 million barrels for the week ended April 10. Experts were looking for a build of 2.5 million barrels. Total motor gasoline inventories decreased by 900,000 barrels last week.

Also, notice that gold rallied today, up $19.6 an ounce. If the stock market rolls over here, gold is likely to advance as a default investment. This is where it gets very tricky, because the truth is very uncertain.

If we are just in the eye of the financial storm, the March lows will be tested again soon and gold is likely to be testing $1,000 again.

Keep your focus on protecting capital as the market sorts out the truth. This market is still controlled by the bears and that is the truth as long as it continues to set lower lows and lower highs from one intermediate-term cycle to the next!