No confirmation ................ yet!

Man-oh-man, just a little BS and the markets ramp up like the European crisis was fixed, the US debt bubble is no longer and all the Bankers on Wall Street are finally serving time in jail. The key to last week is that the markets were looking for anything to move higher. The news is dismal and getting worse but we need a little levity to get people feeling better before the bottom falls out. The charts below from the chartist friend from Pittsburgh's site does a great job of showing you the lack of confirmation for the breakout on the Dow Jones Industrials. So what's next. Well it looks like everyone will move sideways into Bernanke's comments mid week. After that we should see if the market is drinking the cool-aid or moving swiftly to the sidelines.

Here's my chart (SPX) for identifying turning points. We are now approaching a turn window (red box). Can't tell if we are going much lower or this is just a small correction before the move to infinity. It pays to be careful here but the crooks who run the world banks may be able to push this wreck higher before the crash begins.

Market rises on possible new batch of crack (QE3)

Damn, right on time. As soon as the markets tried to swoon, the Fed policy leakers start sending little love messages to the market that all is well and the Father Bernanke won't let anything bad happen. Note comments sent out at 3:55 pm on Tuesday just in time to allow the market a melt up to close the day.

"The WSJ's John Hilsenrath leaketh the good stuff (QE3 hints) that the world's been waiting for right at the close -- coincidentally just as several important support lines and moving averages were beginning to be violated like James Holmes in a Colorado prison...
Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring."

Apple missed its numbers big time and the news on he economic front is dismal at best. Here's an interesting ending paragraph to the Hoisington Quarterly report that speaks volumes as to what they see going forward in this broken market:

"Based upon the historical record of effects of excessive and low quality indebtedness, along with the academic research, the 30-year Treasury bond, with a recent yield of less than 3%, still holds value for patient long-term investors. Even when this bond drops to a 2% yield, it may still have value in relation to other assets. If high indebtedness is indeed the main determinant of future economic growth and further government “stimulus” is counterproductive, then a prolonged state of debt induced coma may so limit returns on other riskier assets that a 30-year Treasury bond with a 2% yield would be a highly desirable asset to hold."

Van R. Hoisington
Lacy H. Hunt, Ph.D.

Certainly not an endorsement of the Equity markets going forward. The next bit of advice is characteristic of what I have been preaching in this blog since the start ......... things are really, really rotten around the globe and the guys running the Governments  haven't a clue on how to fix our problems. Their only hope was to avoid being in office when the dam broke ........ too late for that.

"To top it all off (and trust that I could keep listing things but you get the point by now) yesterday we received an infamous confirmed “Hindenburg Omen”. So what does it all mean and what will happen next?

If we think back to the “Flash Crash” of May 2010 and the early August plunge of 2011 there were a few things in common with both events:

Market participants were generally positioned fairly bullish with a general sense of complacency – the $VIX was relatively muted and rose rapidly as panic set in
Both corrections occurred rapidly amid a “buy the dip” mentality which dealt out a great deal of punishment to the vast majority of market participants
There were powerful catalysts which emerged suddenly and took the market by surprise (Greece in 2010, Italy yields skyrocketing, emerging US recession fears, and US downgrade in 2011)"

 Comments by Robert Sinn at the Stock Sage and posted at the The Daily Crux


We are getting really close to a major top here and the move lower could be very swift. The one indicator we need to watch closely is the VIX index (Volatility). So far it has not shown the fear necessary to move the markets lower in a significant way. The chart below shows a 6 period moving average of the index and it moved up smartly yesterday above the 20 threshold but fell back once the QE3 rumor was circulated. Once we see a move above 20 and the market holds that level into the close it will be time to get very conservative with your investments. (Remember the VIX moves in the opposite direction of the market price)

JP Morgan loses $5.8B and the Market loves it...

You don't have to be a conspiracy theorist to invest in this market but it sure would  help. Let's list some of the recent market events that have been reported :

• News from China confirms a major slowdown and possible hard landing.
• Brazil is running into the same headwinds as the rest of the world.
• The problems in Europe continue and there is no answer in sight.
• The Central Bankers of  the world have been fixing the Libor rates for years and everyone knew but the small investors.
• JP Morgan lies about everything and the markets think its a good thing.
• Brokerages (PFG-MF Global) steal your money to bankroll their riskiest deals and no one goes to jail. This is a much bigger issue than the markets reaction to it. (see www.PeterLBrandt.com)
• The economic numbers in the U.S. keep coming up red as we edge closer to a "fiscal cliff" 
• California has 3 cities that declared bankruptcy...likely only the tip of the iceberg.
• Bernanke admits he is out of bullets and wants Congress to start doing their job. God help us.
• The US is on the edge of the cliff with 4 major problems that need to be resolved, end of Bush tax cuts, automatic Pentagon budget cuts, Obamacare and social program revisions. Good luck Chuck.

And the good economic news from last week:

• Jobless claims surge...
• Foreclosure crisis hits older blacks, Hispanics hardest...
• Factory activity contracts...
• Home sales drop 5.4%, fewest since October...
• Grocery bills on rise as corn prices near record highs...

What's the reaction from the market...... ambivalence or maybe just pure ignorance. Given how the market reacts to stress, as we have seen for the last few years, you have to come to the conclusion that this market is broken. The funny thing is that the small (retail) investors have figured this out and the big boys are just trying anyway they can to make money off of it before it all comes crashing down.

What needs to change to bring back confidence in the markets. The market action on any day is a reflection (or it should be) of fear and greed. A free market allows for the buying and selling of issues without interference from political influences.  The VIX index reflects this ratio and tells us how the market is reacting to the news (internal and exogenous) of  the day. As soon as the market begins to falter out comes the "Greenspan/Bernanke Put" comments or the QE3 whispers and the market miraculously corrects and streaks higher for no good reason. (Witness Friday the 13th)


A few fixes to start the process of cleaning house:

1. In the future let's stop the Fed from interfering with the market in terms of flooding it with liquidity every time there is a hiccup. We're too late for this time so we'll have to suffer the consequences.
2. Start reporting actual economic data rather than politically polished BS. It's impossible to make good decisions based on bad data.
3. Get rid of the algorithm's (bots) that are running the trading currently. Even when the markets are heading lower when they should you can see the computers go off as soon as a mythical resistance level is hit and no amount of logic can explain it other than the computers thought that was a good idea. We are losing control people!
4. Start putting the Bankers, who abuse the system, in jail instead of allowing them to get away with murder. A few good hangings on Wall Street would also help set the right tone.
5. Put everyone who was on a Banking or Finance committee in Congress for the last 10 years in prison just for spite.

This credit cycle bubble we have been riding is coming to a end and there is no way to avoid the destruction it will have on our economies. We can kick it down the road a little longer but its now months instead of years until the payment comes due. Here's a few well chosen comments

 Andrew Jackson: (Quotation)

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

 Game Theory and Crowded Trades - Doug Noland - Safehaven.com

"But the downside of the Credit cycle radically alters rules of the game. Over time, reality sinks in that the previous prosperity was in fact an unsustainable boom-time phenomenon. The downside of the Credit cycle ensures faltering asset prices, deflating household net worth and financial sector deficiencies, along with the revelation of problematic economic imbalances and maladjustment. It's not long into the bust before many see themselves as losers - and to have lost unjustly at the hands of an unfair system. The growing ranks of losers become an increasingly powerful political force".

 James Howard Kunstler: It's Too Late for Solutions

"We are discovering more and more is that the world is comprehensively broke in every sphere, and in every dimension and in every way. The governments in every level are all broke, the households are going broke, the banks are insolvent, the money really is not there. And the pretense that the money is there has been kept going simply with accounting fraud. And accounting fraud really accounts for most of the so-called "innovation" that we chatter incessantly about – this is at the heart of (Jame's new book) Too Much Magic and the wishful thinking about technology. We are so intoxicated with this idea that we can create new and wonderful things. And we have absolutely no sense that the new and wonderful things that we created in the money system are destroying the money system".

Here's the updated monthly chart of the SP500 (SPX) and we are still trending - sideways to down. The markets are running out of momentum and will soon have to correct in a major way before a new bullish leg up can begin. We can still get a move higher for a few more weeks or as long as the markets remain oblivious to reality. Note: the leading indicator in red (first window below the price) has already flashed a sell signal. We still need confirmation from the other indicators. In the mean time stay safe 

Oops......I think it's starting to matter!

As I've alluded to in the past "Hope is not a strategy".  The market has been bobbing and weaving for months fueled purely on "Hopium". Last week the reality, of the economic malaise we are in, was brought home by the dismal employment situation which the BLS can no longer hide in make believe numbers. The Government has been putting lipstick on a "pig" and people are coming to the realization that they are being lied to.
Next week may see an early bounce due to the following:

• There is a full moon on Monday at 7:00 am and after which the markets tend to rise 70% of the time.
• China is hinting at adding liquidity to its markets.
• Japan may have already started the liquidity pumps flowing.
• The FED will be speaking all week long and there are plenty of opportunities to mention QE3 is coming.
• There are signs of an oversold condition which would require a bounce to alleviate.

Like any time frame in investing, the markets go up and down. Let's take a look at the longer term to try and anticipate where we are going.

Even though we had a miserable day on Friday, the VIX (lower window on the chart) really didn't jump as high as it would normally be expected to with such bad news. This likely means we might just see a bounce come Monday unless the news out of Europe is very bad. The VIX is above the 25 level but is far from the 40-70 level seen at past bottoms. So even if we get a bounce, the near term direction appears to be down.

Here's my previously presented 2012 forecast chart. All three (3) attempts to foresee the future of the markets have us moving towards a mid summer low of some sort. Right now we are looking at 1160-1150.

Updating the forecast through Friday the 1st, you can see that we are moving right along the plan and heading lower.

I've added the 1292 "line in the sand" for the SP500. Notice we broke through that level and it will now act as resistance going forward.

When this chart is posted most people want to pretend that the U.S. markets could never spend the next 10 years drifting lower like Japan. That is the true definition of "Hopium". Look at the past 10 and then the potential for the next 10. Scary!


You need to prepare yourself for the potential of this scenario coming to fruition.





The chart below should be familiar to you if you have spent any time at the site. It's the monthly SP500 and the green arrow on the chart tells you exactly where to expect the markets to make the next major bottom.
Sadly the number is near 600 on the SP and 5000 on the Dow Industrials. The indicators are just beginning to roll over so we lack final confirmation but I wouldn't wait until we get all the I's dotted and T's crossed before you safeguard your portfolio. CASH is good!

Odds favor a continuation of the sell off.....

This coming week will see the end of May. As we approach the summer months the market looks like it is ready to roll over and do some major damage to your investment accounts. The start of the week will be interesting as the "Momo's" are reacting (pre-markets) to the supposed good news from Greece and the bulls may get an early lift on Tuesday. Later in the week, reality should set in once again and the bears may gain control.

Here's a chart of the SP500 (weekly) and  as you can see it is signalling a top, either intermediate or longer term, is forming, The indicators in the lower windows are arranged from top to bottom for their signals. The early signal in red has already triggered a sell signal as has the intermediate indicator in the middle window. The last signal was given this week on the longer term indicator. We may get a bounce here and there but the down side seems to be the direction going into summer. The 1150-1125 area is the first area of interest. A break below 1292 is key.

Keep your eyes on the VIX. It is starting to move up but has a long way to go before a major bottom forms. (Remember the VIX is inverted to price action and a peak is a bottom) The chart to the right is a monthly snap shot of the current action. People are not taking the European problems very seriously and it will really catch them off guard when the bottom falls out.




Here's an updated monthly chart showing the SP500 and we have a mixed bag on the indicators. We have some that are showing a divergence is taking place with price and some of the longer term indicators are just starting to top. Given where we are on the daily and weekly signals we are looking for confirmation on the monthly very soon.

There is an old saying that goes like this "It doesn't matter until it matters" and then it's usually to late to do anything about it. People tend to get complacent about global issues because it doesn't seem to be affecting them until it blows up. Now is the time to get prepared with your plan of what to do when things begin to change. 

For the coming week watch.......SP500-1292 level.

The FED induced rally appears to be coming to and end and the correction that has been over due for months is now upon us. One of the problems with kicking the can down the road is that one day the small problem that started it all has grown to a beast that's almost impossible to corral. The chart below is an overview of our forecast shown in the past posts. So far its right on track. The market has now moved into an oversold condition that may spawn a rally. The norm would be for a short move up to work off some of the oversold condition and then a resumption of the downward spiral. The wall-street bankers know that if they don't get in here with buying support and push the FED to muster one more QE attempt, this market could get away from them in a hurry. That the FED and the Wall Street zombies can actually muster a coordinated effort is purely speculative at this time.

The chart below will give you an idea of where the key resistance levels are for the short term and why they are important. The first and major level to watch is the 1292 area. The market ended the session just above 1292 after touching late in the day. 1292 also happens to be the 38% Fibonacci retracement level and combined with all the trend lines and longer time frame resistance levels  (12 month moving average is also 1292) that run through that area make it a critical level to hold come Monday.

Here's another very important indicator flashing a major warning signal. The VIX index (monthly) is starting to rise and it has broken through the first key level at 20. Remember the VIX runs inverse to the market. When its rising the market tends to fall. When its falling the market usually is rising. The red arrow on the right side of the chart shows market direction which is red for falling. This move in the index means we are likely in a major move lower as the complete mood of the market is changing to a bearish bias. Note the red indicator in the lower window of the chart. It has made a lower top while the SPX500 index in blue made a higher high. This divergence is setting up a top for the market.

Here's a chart from the "Stockcharts" newsletter. It shows the performance for the key ETF sectors in the SP500 index for the first two weeks of May.  No place to hide at the moment. Cash? Stay safe.

Current status of the Fed sponsored rally.

So where are we? The Global markets are beginning to wake up to the fact that there is no easy way out of the mess we are in. The Dutch Government resigned a week ago and Spain and Italy are becoming the next "Greece's".  France scrubbed Sarkozy and the Middle East is boiling over. Greece could blow up over the weekend and yet the Wall Street news has been centered on what a great earnings season we had. (Even though guidance going forward is weak)

The week of May 7th  saw another attempt  by the market to try and break out of its trading range of 1360 to 1420. Friday a valiant attempt was made early and then fizzled in the late afternoon. The three (3) line break chart to the left shows we are still headed towards 1340 and we may see a break of that area early next week. It remains the  line in the sand for the SP500. If the 1340 is breached to the downside in a meaningful way, we have a ways to go before we see the next support level at 1250 or so. Watch for news from Greece Sunday.

Just to try and paint a picture of where we are likely headed, please look at the chart at the right. A picture might help get your mind around the idea that the markets tend to move in long cycles and the verbiage the Talking Heads on TV use to explain  the markets nuances is nothing but hyperbole and a general  waste of breath . Here's the Kondratieff wave that covers a 55-60 year cycle. The markets are designed to forget the past so that they continue to repeat the failures of their predecessors. Note the timing for the next bottom is approximately  2013.

Below is an update of our forecast model for the first half of 2012. The SPX500 remains on track for the moment and if we are correct, it is beginning a third wave down which could be very swift. Keep a copy handy and check it at least weekly. The index ended the week at 1353.

One of the problems this market presents us is where do you put your money if you want to stay the course. The following charts will give you an idea of the problem of trying to find a safe haven.





Here's a chart for Copper and it continues to want to find lower lows. Copper is known as "Dr. Copper" as it is a key metal used everywhere thus a good forecaster of the future. When its rising the markets are healthy. The opposite is also true.

Now look at Gold. It's riding on a very long term trend line that if broken could send gold much lower. Gold will be an excellent place to place a bet or two but likely it will take some more time to unwind before it starts to move higher.

How about hiding in Technology. The QQQ's (NDX-100) is the proxy for the tech stocks but although it is holding up a little better than the senior indexes it to is beginning to lose momentum. Look for the 60 area for a bounce if the weakness continues.







One last chart to take a look at. The VIX index (volatility) measures fear or complacency on the part of investors. If the VIX is rising it reflects growing fear and if it is falling it says the investors are getting complacent. When the index reaches an extreme we should look for a change in direction. Right now the index is finally starting to rise, which is a bearish signal, and it will need to break out above the 20 level to confirm the move lower is under way. It closed Friday at 19.89. A move lower is just a head fake if the index doesn't rise.

It's boring but CASH is still king in this environment.