Market Commentary:
The stock market reacted negatively to the news that retail sales and producer prices took an unexpected drop in March, testing the notion that the economy is starting to find its footing.
Retail sales plunged 1.1% - far more than expected. Declines in March were widespread, led by electronics and appliance stores, gas stations, and apparel stores.
This clearly calls into question the firming tone of spending data so far this year and suggests that drags from huge job losses and declines in wealth are overwhelming the positives for spending.
Also, in the news, top-line producer prices fell sharply in March, dropping by 1.2%. Core prices among intermediate products fell for the sixth month in a row.
Yesterday, I warned that we are approaching a key turning point as intermediate-term cycles were approaching an important top, given technical resistance and overbought intermediate-term conditions.
However, there are other reasons for near term caution.
The most recent AAII sentiment readings show bullish sentiment is now exceeding bearish sentiment, with bulls at 43%, compared to bearish sentiment at 37%---a huge change from February’s ten year record bearish sentiment. The suckers are buying into the recovery idea.
As we showed yesterday, per NYSE’s own charts, program trading represents a significant portion of the volume traded on the exchange. And Goldman Sachs leads the pack, trading their own account to the tune of more than 5 times their customer accounts.
The point we all have to be wary of is how much the market is subject to manipulation by trading firms like Goldman Sachs given that so much big money is on the sidelines and not easily fooled by the typical hype we have recently been subjected to.
Goldman has an unfair advantage in that they are tied directly into their government sources and are no doubt privy to information the public is not aware of, if not a key instrument in market manipulation by the government to direct prices.
I can assure you Goldman will only support prices for as long as it takes to get the public buying again and when that happens they’ll be looking to take their profits if they haven’t begun to sell into the earnings news now.
Goldman Sachs shareholders weren’t pleased with their shares being diluted. Goldman fell $15.04 today, down more than 11%. I wonder how much of the selling of Goldman today was from Goldman’s own principal account.
I know I am picking on Goldman Sachs and their long history of market manipulation to serve their interests, but I am concerned about the risk of my subscribers getting caught in a suckers rally, based on hype without true improvement in the fundamentals.
We have to pay attention to the credit markets which are painting a diverging story from the stock market.
Credit indicators suggest we're a long way from bottoming in this credit cycle. High quality credit spreads have not narrowed since the commencement of this stock rally.
“ It is unwise and foolish to treat this bear market like any other in the post-WW II period because it is totally unique; the scope and depth of the ongoing destruction of consumer and business credit, bank balance sheet compression and insolvency, consumer retrenchment and soaring unemployment should not be underestimated. The rare nature of this recession precludes a cyclically normal U.S. recovery.
This is a time for investors to largely preserve capital and wait for the market environment to improve as it pertains to government regulation and the future of our banking system. Many questions are still unanswered or unresolved.” Seeking Alpha.com
I couldn’t agree more with this statement.
At the end of the month of April, banks will have to reveal all in the government stress test. We’ll see which banks are really in trouble, though the government stress test bar may be set too low to rely on the results.
We are also about to see General Motors (GM) nationalized and perhaps Chrysler too. No one knows what kind of ripple down affect that will produce given that so many corporations are dependent on the auto industry.
What concerns me is that we have seen almost a mirror image in 2008-2009 of what happened in 1929-1930.
The stock market bottomed in October of 1929 and then rallied into mid-April. It then crashed for the balance of the year in 1930.
I am not forecasting a crash of that magnitude in the stock market because I don’t know the future. I just want us to be prepared for anything – history often rhythmically repeats itself.
I think we’ve have to acknowledge that the government’s stimulus packages may well be too small, too late and too misdirected to turn things around in 2009.
Technically, this market is now very extended on an intermediate-term basis, now in the sixth week of a rally and typical of intermediate term highs. The weekly stochastics are in the 90%+ level. You can be sure Goldman Sachs and all their highly paid traders are well aware of this.
They are also well aware of this chart.
As you can see we are now into a cyclical high, stepping right in rhythm with the typical seasonal highs we often see ahead of May.
As bearish as I have been about the long-term trend, which is still solidly in the bearish camp, given the discount of the 50-day moving averages to its 200-day moving average, what I want to see is what the next intermediate-term bottom brings.
Will the market pull back and still hold above the March lows? Will it break out of the left translation and establish a higher intermediate-term low than its previous intermediate-term low? That is what I am looking for as confirmation of a true bottom.
So far the S&P 500 and the Wilshire 5000 indexes have not taken out their January intermediate-term highs, so we are still within the technical left translation pattern of lower lows and lower highs. If the market fails to take out the January intermediate-term highs, it suggests a retest of the March lows and perhaps lower low in the May/June period.
Even if the market corrects only half of what March brought we are looking at a serious sell off now queued up.
Remain cautious. Check your greed. Manage risk. Take profits if you have them.
You must evaluate your own trading and determine whether you really trade to make money, or for the action and excitement. To overcome this mistake, you must develop patience, do your homework, and research the markets for high probability trades.
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