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.