Gotcha! Suckers....

Market Commentary:

Stocks were slammed hard today as a surprisingly poor retail sales report confirmed that optimism has been overdone.

And that Ladies and Gentlemen is how it works. Suck them in and slam the trap door. I want you to remember this day because it is a great lesson of how traps are set up and executed.

What a masterful job by program traders, the Fed, Geithner and let’s not forget to thank the media for fanning the flames of greed, rather than caution to get the herd to move into the trap. It is a sure fire formula and works every time. Now you know why they say “let the buyer beware”.

They knew exactly how far to push the market to suck in the momentum buyers. In just three short days the more volatile indexes (Russell, Nasdaq) are now approaching the price point where many of the momentum indicators turned positive. Now what are they going to do?

Just when it looked like risk was becoming lowered, risk actually was becoming greater because investors became more blinded to it.

We are psychologically programmed to take on more risk at just the time when we should be protecting ourselves. As I have said this isn’t about market timing, it’s about managing risk.

It is about preserving your capital in one of the greatest bear markets of all time, with Federal Reserve and Treasury officials who continue to deceive and play the public as suckers. Investors are very vulnerable right now because they don’t know what to believe – the truth is being hidden.

I had to laugh yesterday. The Fed has Alan Greenspan out there spinning that housing is on the road to recovery and on the very same day, the housing report showed that housing prices plunged the most on record in the first quarter.

Today, it was announced that the number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April, affecting 1 in 374 housing units---a record rate!

“ This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. Bank repossessions are likely to spike in coming months as these loans move through the foreclosure process.”

http://www.marketwatch.com/story/us-foreclosures-reach-record-rate-in-april

Ask yourself what is going to happen to the housing inventory supply if bank repossessions spike in the coming months. By the way, home mortgage applications fell in April too!

Where is this housing bottom? It isn’t just the US. Housing worldwide continues to plummet. Remember globalization. US banks own a piece of the action around the world. Asia, Europe, even housing prices in the Middle East are getting whacked.

Where is the economic recovery going to come from if housing prices continues to plummet? This is the issue. It has been the issue for the last few years and until home prices quit falling, it is premature to think we are out of the woods. It is not about home sales it is about home prices!

Today it was announced that retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is cutting deep into consumers who worry about their jobs.

Declines in sales were broad based but led by electronics & appliance stores, down 2.8 percent; gasoline stations, down 2.3 percent; and food & beverage stores, down 1.0 percent.

http://www.bloomberg.com/markets/ecalendar/index.html

Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. It looks like we need a lot more fertilizer for our green shoots. They’re wilting!

I hate to be so bearish, but I have a job to do and that’s to help protect your capital in the most deceptive market of our lifetime. Trying to keep our ships off the rocks is no easy task in the kind of fog bank and manipulations we see these days.

Let’s put this into a technical perspective.

As our intermediate-term indicators forewarned, cyclical pressures are now bearing down into May.

The selling today was severe. What this chart shows us is that there is strong resistance at January’s highs and that the top of the trading channel has been reached. This is also at the top of the Bollinger Band line and also under the 200-day moving averages.

This is where we would expect selling to develop, especially with poor economic reports. The Russell 2000 has fallen 7.6% this week and it is only Wednesday!

There are of course those who see this as a buying opportunity. It is not. I am not saying that the market can’t bounce here. In fact, the S&P 500 closed at support at the daily middle Bollinger Band line – it has not closed below 50 percent on the 14-day RSI value, so the bulls may try and rally the troops here.

We will probably have Ben Bernanke and Timothy Geithner all giving speeches tomorrow that they see a green shoot over here or over there and of course the media will interview a host of bullish mutual fund managers at what a great buying opportunity this is.

However, notice how the 14-day RSI values are lining up.

DOW 30 = 54
NYSE = 54
S&P 500 = 53
OTC Composite = 49
Nasdaq 100 = 47
Russell 2000 = 48

RSI values dropping below 50 are indicating that investors are purging risk and confirm that market leadership is turning bearish. This isn’t a bullish sign.

The probabilities now favor a retest of the bottom of the trading channel between now and July. If this selling morphs into a panic it may not take that long as no one wants to get caught holding the bag. You have to believe that sell stops are carefully placed under each minor support, so further selling triggers more selling in a domino effect.

Yet what makes this treacherous is that there is support on the monthly ranges, so this configuration is likely to create a fierce whipsaw effect as the market attempts to prove whether a long-term bottom has been achieved or not.

10 more reasons why you should not buy now

Market Commentary:

Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair. I would rather avoid any dashing if possible.

Yesterday, I gave you 10 reasons why we are not likely in a bull market. Here are 10 more reasons why you should think very carefully before chasing the herd.

1) According to Stockcharts.com 92.14% of stocks on the NYSE are trading above their 50-day moving average. A reading that high has proven to be the peak in the stock market over the last eight years. In the chart below notice what happens to stock prices when this indicator spikes either high or low on the chart:

2) Fannie Mae lost $4.09 a share and is asking for another $19 billion more from the government. They see losses continuing and 2009 will be worse than 2008. They see home prices declining 7-12% in 2009. Real estate values are still deflating. Home prices in the U.S. dropped the most on record in the first quarter from a year earlier. The overhang of unsold properties on the US market is still near a record 11 months.

3) February Unemployment figures were revised down from -651k to -681k (-30,000) and March was revised from -663k to -699k (-36,000). Here's the problem - to have a healthy economic recovery you need to gain about 300,000 jobs a month.

http://market-ticker.denninger.net/authors/2-Karl-Denninger/P2.html

4) Banks are still maintaining tight guidelines. “In fact, the weekly Fed data are now flagging the most intense declines in bank lending to households and businesses ever recorded.”

http://finance.yahoo.com/tech-ticker/article/244597/Merrill's-Rosenberg-Goodbye-Thank-You-Yes-It's-Just-a-Sucker's-Rally?tickers=xlf,dia,spy,%5Eixic?sec=topStories&pos=9&asset=&ccode=

5) China is fast slipping into deflation. China’s PPI fell 6.6% in April, the fourth monthly decline and the steepest (PPI fell an average of 4.6% in Q109) suggesting further pressure on consumer prices ahead. China's CPI fell 1.5% y/y in April, the third consecutive decline (CPI fell 1.2% y/y in March and 1.6% y/y in Feb).

http://blogs.wsj.com/economics/2009/03/10/economists-react-china-in-deflation/

6) Regression analysis shows that major troughs brought declines in excess of 50% below trend. We are 79 points above the regression line.

http://www.dshort.com/articles/2009/regression-to-trend.html

7) Middle East (Gulf countries) were “informed on the quiet that Federal Reserve Governor Ben Bernanke had been premature in his optimistic forecast of slightly positive growth in the second half of this year” and not to expect an US recovery before 2011.

http://www.debka.com/headline.php?hid=6062

8) Gasoline prices have surged nearly 9% over the past two weeks. $3 gasoline this summer is going to put the hurt back on.

9) The stocks up the most in this rally have the worst fundamentals. The “dash for trash” is stocks most heavily shorted, suggesting most of the buying has been short covering.

10) Market leadership (Technology) is looking toppy and beginning to lose dominance.

Be patient.

Intra day update

we haven't seen a mostly negative tick day during the first 90min of trading. Looking for a choppy trading day. with prices moving to the down side. Stochastics on 15,30 and 60 are indicating a bounce. short on 5 min overbought once stochastic gives a short signal.

10 reasons why you shouldn't buy now

Market Commentary:

As I have said before and I repeat it again, I am looking at the risk side of the equation. I have no intention to only focus on the negatives but it only takes a small dose of overconfidence to wipe you out if this turns out to be another sucker’s rally.

As we come into the second week of May, seasonality factors are now shifting negative. It is absolutely true that a number of trend following tools have turned positive over the last few weeks but you must understand we saw the same thing happen in the bear market rallies of 2001 and 2002, which ultimately turned out to be sucker rallies, followed by lower lows.

We know that bear markets are notorious for sucker rallies. The greater the bear market, the greater the rebound … and the greater the trap.

Look at the stock market like a jumper with bungee cords tied to a person’s ankles whose initial fall is followed by recoil. The greater the fall, the greater the rebound but after this initial recoil occurs, the jumper experiences another free fall. Given the volatility of these wild swings, we don’t want to minimize the risk of what another down wave could mean to you.

There just isn’t enough evidence that says this roller coaster is now going to go off the rails and defy gravity for much longer.

Here are ten reasons from both a technical and fundamental perspective, why I am not ready to embrace the bulls.

1) The majority of the major market indexes are not trending above their 200-day moving averages. Bear market rallies are notorious for rallying to their 200-day moving averages and then topping out.

2) None of the indexes are above their monthly middle Bollinger Band lines. Bear markets trend below the monthly middle Bollinger Band line and bull markets ride above it. This market is still trending in the lower part of the Bollinger Band channel for all the indexes, including the Nasdaq 100!

3) The 50-day moving average is discounted and trading below the 200-day moving average. In sustainable bull markets, the 50-day moving average will trend above the 200-day moving average. In bear markets, the 50-day moving average will trend below the 200-day moving average for the S&P 500 index.

4) The S&P 500 is still trending below its 10-month simple moving average on a closing basis. In a study by the Journal of Wealth Management this tool would have kept you out of all the bear markets since 1900 including the Great Depression and you would have caught all the bull markets. We are still below this threshold.

5) We still have a left translation verses a right translation. A left translation has a pattern of lower lows and lower highs from on intermediate term cycle low to the next. The majority of the indexes have not taken out their January highs and we still don’t know where the next intermediate-term down leg will settle.

6) Cycles point to a peak in May, with a down leg to about July 17th or so. This traditional cycle peaks this week. My proprietary indicator, the Fidelity Select Family Stochastic Oscillator, is at %K 96 and %D 95. Weekly stochastics are cresting. Daily stochastics are now negative.

7) The slope of growth in the money supply is dropping like a rock. M2 has been falling steadily and last week fell from 2.4 to .7 – that less than 1% folks. Volume on this rally has been subpar. In a bull market volume rises on rallies and declines on bad days, but what we are seeing is volume rises on bad days and falls on advancing days.

8) The P/E ratios for the S&P 500 companies are off the charts! The P/E ratio for the Nasdaq 100 is 65.51 times earnings. Check out the links:

http://www.bullandbearwise.com/SPEarningsChart.asp

http://www.bullandbearwise.com/NASDAQ100RealPE.asp

9) Sentiment readings are way too bullish now with the NYSE Bullish Percent Index showing 75% bulls.

10) Corporate insiders are aggressively selling into this rally, not buying on the dips.

We have seen the worst three-quarter economic performance in the last 70 years. I think there is a danger in getting overly optimistic. The higher the market gets ahead of itself, the greater the risk of a big adjustment.

Remain cautious as the probabilities of a retest are very high.

Intra day outlook

As indicated earlier, internal was mixed to lower. and price chopped to the down side.

Internal has been mostly mixed to lower.
Looking for a choppy day today. good for shorting rallies when 5 mins gets overbought

Don't get too excited about the jobs number

Friday’s unemployment report is another case of “better than expected” – the blood is still flowing out of the patient, but at a slower rate. In other words the US economy is still very sick and on the losing side, but there is hope that it can be kept alive until the loss of blood is stopped and new blood can be pumped in.

Really, that is what it is like. Instead of job losses meeting or exceeding expectations of -600,000 they only fell by -539,000 … better than the experts expected (let’s cheer) --- but still very bad news. This marks the sixteenth consecutive month of job declines in the US.

Take a look at the chart:

Even though the stock market may not be showing it, there is a problem. No one is hiring. These monthly job losses are massive, even if they are “better than expected”. And with little to no hiring, the total number of unemployed continues to increase at over a million people every other month!

And while there may be a lot of flexibility in jiggering the unemployment report one way or the other by government jobs and estimated hiring, the fact that the official government statistics now show unemployment rising to 9% is a startling admission. (Most know that real unemployment is as much as 50% more than the government’s numbers – some say as high as 15%).

The sad thing for those without jobs (but fortunate thing for the official unemployment statistics) is that after being on the unemployment rolls for a number of months the unfortunate are dropped from the rolls AND dropped from the unemployment statistics. They are only considered “unemployed” for as long as the unemployment checks continue. Once the unemployment checks stop, then they are no longer unemployed – I guess they then become numbered in the unnumbered homeless category.

Here another big problem: the government’s budgeted forecast for deficit spending was based on an eventual unemployment rate of 8.1%. We are already officially at 9% and the huge drop off from the bankrupt automakers hasn’t even hit the rolls yet. By the year’s end the unemployment rate, even the official one, will easily be in excess of 10%.

Deficit spending will be “worse than expected”, if anyone cares.

The bank stress tests were also predicated on a similar single-digit “worst case” percentage for unemployment. In addition, the tests were also predicated on worst case declines in housing prices around -20%. We have exceeded the worst case even before the “soft” stress test results were announced this week.

This suggests to me that the bank stress test results were likely a “best case” scenario for the banks, not a “worst case.” At least the stress test results are finally water under the bridge.

The positive for the banks is that this recent rally is a welcome price point. It allows the banks an opportunity to raise the additional capital they need with new offerings so they can climb out of the stress test “bad” column – pretty convenient, huh? What happens after the banks have raised the new capital?

Another interesting statistic gleaned this week is that the nation’s savings rate is climbing, more than any time in recent history. What do you make of the fact that unemployment is rising by huge leaps and bounds and yet the savings rate of Americans is growing by similar leaps and bounds?

It’s simple – people are hunkering down and banks aren’t willing to give any of them credit for automobile loans, home purchases, education, etc. Therefore, what little money they have left after making debt payments is being put into the piggy bank – saving for a rainy day. When you’re nervous, you don’t spend.

But you might say, wait a minute – investor sentiment is up, why the disconnect?

Because the recent stock market rally is clear news individuals cannot ignore. They think to themselves that while they are not doing well, somebody must be doing better somewhere because the stock market is going up.

Don’t you get sucked into this thinking “trap”.

I hope for a better tomorrow, just like most of you. But hope and reality are often far apart. The reality is that consumer armament for an economic recovery just does not exist. And the reality is that if the consumer is not prepared and willing to employ his own deficit spending and able to get credit to do so, then excess widgets will continue to sit on the shelves of the stores and the manufacturers are going to have to make less of them.

I like the term that Greenspan used a few years ago, “irrational exuberance”. That is what is going on in the stock market – but it won’t last long. When the reality of projected and actual earnings cannot compete with the climb in the speculated growth of stock prices an adjustment will be made. And that adjustment is likely to be painful.

On the other hand, we could all become traders rather than investors and ignore the economic indicators – I know many of you are anxious to do something. In fact, I may participate to a degree in this type of trading going forward. I just don’t want you to interpret such recommendations as confidence in the US economy – it’s not the same.

Despite being anxious to participate in the stock market again, you must surely realize that the probability of entering the market today and realizing profits in the near future is small.

Be patient. A pull-back is long overdue. There is plenty of time and opportunity ahead.

Intra day update

Short triggered, remember, stop is today's high















taking a short on the S&P if price break below trend line with a stop at today's high














Unlike yesterday. Today's tick has been in positive territory all day despite the morning pullback. would avoid trading the short side today.