Markets being Juiced?...........

Before the market chart appears, I've added another diatribe on what caused the Presidential election outcome to mystify the thinking person and why things are going to be profoundly different from now on. One issue that appears to be the tap root of our malaise is our educational system.

Education in the U.S.

In looking at the unemployment picture going forward, things beginning to look rather dismal for both the short and long term outlook. The economy is struggling for many reasons but one of the key elements is the structural nature of the change in the job market. Today everything is done by or touched by high tech products that do the much of the work in the production process. The requirements for high skilled workers is booming while the old school pure assembly processes are going away. Our economy is moving through another structural change on how work is done.

Today our schools are not turning out enough graduates in the math and sciences to keep up with corporate needs. We are having to move work to areas around the globe that have an abundance of skilled workers. Just to drive the point home about the jobs going begging, below you will find comments that should scare the heck out of you.

Excerpts from a report in 2008 by an educational advocacy group founded by retired general and former Bush administration Secretary of State, Colin Powell.

"Detroit, by many calculations the poorest US city, graduates less than 25 percent (24.9 percent) of its public high school students. Indianapolis Public Schools graduate 30.5 percent of their students, and the figures for the Cleveland Municipal City School District and the Baltimore City Public School System are 34.1 percent and 34.6 percent respectively."

"The city-suburb split is also immense in such metropolitan centers as New York (47.4 percent vs. 82.9 percent), Cleveland (42.2 percent vs. 78.1 percent), Philadelphia (49.2 percent vs. 82.4 percent), Chicago (55.7 percent vs. 84.1 percent), Los Angeles (57.1 percent vs. 77.9 percent), and Atlanta (46.1 percent vs. 61.8 percent)." 

 The former Secretary of State said of the study, “When more than 1 million students a year drop out of high school, it’s more than a problem, it’s a catastrophe.”

Here are a couple of succinct comments from Michael Rothschild, found in his book "Bionomics"which was released in the 1990's:

"....Recently, more than 80 percent of the applicants taking a simple test for entry-level jobs at New York Telephone flunked. While the newspapers are filled with listings for high skill jobs that go begging for qualified applicants, the flood of dropouts and functional illiterates disgorged by the public-school system swells a pool of 30 million illiterate adults already trapped in menial jobs." (remember that 47% number Romney was touting)

"Clearly, something is profoundly wrong with an organization that consumes ever more resources to produce an ever more pitiful product. Indeed the record of the public school system shows a negative "learning curve"- ever higher costs for deteriorating performance."

"Like other parasites, a bureaucracy lacks the capacity to anything but grow and reproduce itself."

And from an article found on Theburningplatform blog:

"If you live in a wealthy area of the country, you may look around and things may look really good to you. But in many other areas of the country things are worse than they have ever been in the post-World War II era. For the first time ever, more than a million public school students in the United States are homeless. That number has risen by 57 percent since the 2006-2007 school year.

 Can you imagine that? We have over a million kids that are attending our public schools that do not have a home to go back to at night.

Our economy desperately needs more jobs, but we just continue to lose more of them. On Thursday, it was announced that American Express is eliminating 5,400 more jobs. More announcements like this come out just about every day now. 65 percent of all Americans expect 2013 to be a year of “economic difficulty”, and there aren't a whole lot of reasons to be optimistic about things at this point."

http://theeconomiccollapseblog.com/archives/the-federal-government-hands-out-money-to-128-million-americans-every-month

It took 60 plus years for the nation to get to this point of near collapse. Short term fixes are not going to make a dent in the problem. The school system is turning out ever greater members for the legions of 47%'ers than any other demographic voting block. Once again we're screwed. Please take a moment to click on the links and read the original articles which yield many more details of our problems.

The Markets 

The following excerpts were taken from articles, same subject, on Zerohedge.com:

"And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history."

"Will this comparable attempt to send stocks even higher and fool retail to be the dumb money bag-holder once again succeed? Or will this time not be different? Of course, back in 2007 we actually had a market: now it is merely a place where the Fed parks $85 billion in freshly printed money each and every month.  So maybe this time will be different after all."

http://www.zerohedge.com/news/2013-01-10/what-record-220-billion-deposit-injection-kick-start-2013-market-looks.

The basic concept at work here "in the broken market" is that the Government (The Fed) and the big Banks are working together. The Fed prints the money then gives it to the Banks interest free to invest in the market and make profits and the little guys (that's all of us) get screwed once again.

If the market (see SPX chart below) fails to break out above the red resistance zone then maybe its going to be different this time. If it makes a move higher the Ponzi game will continue for awhile longer. This is not the time to be jumping into the market and chasing the move higher, but rather one of extreme caution.

This is the chart of the SPX with Friday's closing price. The index is lacking the momentum at the moment to make the move higher. So far on Monday we have seen mostly a sideways move. The RSI is still above the 50% level which bodes positive for the market unless the index  falls through the 20 day moving average at 1450.

Longer Term, We're Screwed.................

In my last post we touched on the importance of the recent election and what the results are starting to tell us about how America has changed.  The one over-riding issue that I came away with was this question:

What the hell is going to happen when the entitled one's (free phones, free food stamps, free everything) start to elect themselves to Congress. Right now they are dependent on the enablers that currently occupy the seats of Government who trade free stuff for votes. 

This is a provocative article by a Jewish Rabbi, Steven Pruzansky, from Teaneck, N.J. It is a thoughtful explanation of how our nation is changing. The article appeared in The Israel National News.

"Obama’s America is one in which free stuff is given away: the adults among the 47,000,000 on food stamps clearly recognized for whom they should vote, and so they did, by the tens of millions; those who – courtesy of Obama – receive two full years of unemployment benefits (which, of course, both disincentivizes looking for work and also motivates people to work off the books while collecting their windfall) surely know for whom to vote. The lure of free stuff is irresistible."

"That engenders the second reason why Romney lost: the inescapable conclusion that the electorate is ignorant and uninformed. Indeed, it does not pay to be an informed voter, because most other voters – the clear majority – are unintelligent and easily swayed by emotion and raw populism. That is the indelicate way of saying that too many people vote with their hearts and not their heads. That is why Obama did not have to produce a second term agenda, or even defend his first-term record. He needed only to portray Mitt Romney as a rapacious capitalist who throws elderly women over a cliff, when he is not just snatching away their cancer medication, while starving the poor and cutting taxes for the rich."

My italics in the paragraph above highlight what I think is the most important thing this election has shown us. The scales in America have now tipped to the side of the ill informed and ignorant and elections that follow will be decided not on the issues but the freebies and keeping the status quo. This is why it is necessary to pay attention to what is happening in Greece and Europe. Here is where you will find the prelude to what eventually is coming to the United States. Think problems like losing your hard earned savings and pensions won't change the way you need to invest? Start paying attention to the mobs in the streets of Europe.

The current Government has voiced their opinions of what needs to change in America. The idea of taking from those that have and giving to those who feel the system entitles them to get whatever they need for free, is the new mantra. One of the next topics we'll touch on is the train wreck that is the US Education system which is at the root of most of our current problems.

Now for the charts.  The stock market, it would seem, is oblivious to any bad news and only the good news that is filtered through the main stream media seems to reach WallStreet.

The market has still not shown its hand  as to where its going. We've seen a couple of days of up and down movement on low volume. The red zone on the SPX chart is the overhead resistance level and today the index poked its head into the zone. We've had 3 previous attempts to move higher so the next few days should tell us if its higher or much lower.

The TRIN is in neutral at present with no clear signal for now.

Stay light on your feet for now.

The Decline and Fall continues .............................

Prior to the Presidential Election, I was of the convinced that the American people would have a rather easy choice to make. Logically - being fed up with unemployment flat-lined at or near 8% and the debt level rising  to astronomical levels ......... they would choose the guy who could fix the problems. What the hell happens ....... they chose a golfer who wants to spend like it's 1929. (That's not a mistake on my choice of years). 

But if you think nothing really important just happened you are dead wrong and you better start paying attention to what its going to mean to you and your money.  This assumes you have some money left after the coming tax onslaught.  More on the election phenomena in future posts.

Before we move to the market comments and the charts below, please read the the quotes that follow and try to put them into today's context. They are becoming more relevant each day.

"A great civilization is not conquered from without, until it has destroyed itself from within. The essential causes of Rome's decline lay in her people, her morals, her class struggle, her failing trade, her bureaucratic despotism, her stifling taxes, her consuming wars." ~ Will Durant, The Story Of Civilization III, Epilogue, 1944

 “They’re not going to tell you that a collapse is coming. You’re going to have to see it for yourself. The government’s never going to tell you that it’s going to happen. These guys are never going to tell you the truth, because they can’t tell you the truth. Their job is to promote confidence, not to tell you the truth.”    Kyle Bass 

I've exhausted my feelings about this market being broken but certainly the last several months should have given even the most ardent fans of Ben Bernanke a little twitch to itch. The market has been driven by only one thing ....... "The great fiscal cliff debate". Even if the market attempted a sell-off to correct its over bought conditions, the mere whisper of a possible rumor about an agreement in Washington, drove the market idiots to unleash the "Bots" to "buy only" no matter what the cost.

“Diminishing returns of ever-increasing complexity addressed with ever-more layers of complexity, larded with systematic lying based on mystifying, opaque jargon, sanctioned statistical misreporting, felonious cronyism, and scuttling of the rule of law. In short, the markets have been taken over in effect by a criminal racketeering syndicate. In doing this, so much resilience has been removed from these market structures that they are riddled with rot, like a mansion infested with carpenter ants.” – Jim Kunstler

OK, so now where are we? The sound of music was all the markets could hear after the quasi agreements over the Holiday week and the markets raced higher. Right now the SPX is once again nearing the resistance level between 1460-1470 where it was rebuffed in its last 3 attempts at moving higher. If the market can punch through the resistance zone, we could see a move to the 1558 area by late January or early February. If the resistance holds, we should be on our way to the 1270 area and lower. See the chart below:

A chart that is flashing a potential buy set up is GOLD. Gold seems to have a natural affinity for the 61.8% retracement level on its corrections. Note that we touched that area and so far the price level has held. Indicators suggest we may have exhausted the current corrective move lower and may try to attempt a rally going forward. In your portfolio you should have an allocation to the precious metals as a hedge against your other holdings.




Here's one of those tried and true indicators, the TRIN or Arms index, and it flashes pretty consistent signals at turning points. It called the move higher and is now approaching overbought territory and a possible correction. We should get a feel for the markets direction early next week. Because the markets have come way too far too fast, we may see a small correction before the final push to a higher high. The move higher should be over by early February and then the bear market should resume unless uncle Ben gets a new printing press for Christmas. (TRIN is an inverse indicator - so high value is a bottom, low is a top) 

Stay alert and you may want to lighten up on your stock positions.

The Consumer........................

The economic data from both the US and worldwide is really terrible. No reason for the markets to be rallying. However, the MSM is doing the devils work for him by seeing signs of recovery everywhere. The following thoughts are an effort to reinforce the fact that for the first time we are in a "things are different this time" because the consumer is finally waking up and beginning to realize what a huge problem we face and the fact that we have exactly the wrong people in Washington to fix it.

The importance of the consumer in our economy cannot be understated. The consumer's actions account for 70% of our Gross Domestic Product. 

The chart below (from chartistfriendfrompittsburgh) shows a fading GDP, much of which is due to a consumer that is just plain tapped out. On our last post we showed a chart that reflected the decline in net wage income that has been going on for some 20 years. The consumer's net worth is also in the tank as a result of the home and banking crashes we entered in 2005 and we are likely headed for another recession in 2013 which in reality is just a continuation of the recession that never ended. Now if you live in "bizzaro world" you believe we are on the road to recovery and we just need to spend a few trillion more to insure our success.

The real issue we need to address is the monumental amount of debt we have amassed in the pursuit of output to feed the consumption machines (the consumer). Here's a couple of quotes from Kyle Bass in an article on the Economic-Undertow.com blog. The Debt problem we face now is so monumental that no amount of Taxation nor spending cuts, in the short term, will be able to fix the problem.

(1) "...... the bottom line is … the total credit-market debt to GDP globally is 350%, it’s $200 trillion dollars worth of debt … against global GDP of roughly $62 trillion …"

(2) "Debts cannot be serviced — much less retired — with the economies at death’s door: future GDP growth is theoretical."

The article this information was taken from is titled "Japan=Detroit". The link is below and its worth reading and watching the video of what Detroit looks like today. All the spending brought us to the edge of the abyss.

 http://www.economic-undertow.com/2012/11/22/japan-detroit/

From "The Burning Platform" blog comes this rather scathing view of what most consumers have become. It really pays to look in the mirror sometimes to see what's looking back at you. I tend to agree we really need to begin looking at what's important rather than how much crap can we accumulate.

The Soulless Consumer

 “In the developed countries there is poverty of intimacy, a poverty of spirit, of loneliness, of lack of love. There is no greater sickness in the world today than that one.”

Americans are trained from the time they are babies their duty and right is to consume. Even a person living in a cave knows what generates 70% of our economy: consumer consumption. As an American there is no greater good and no better vocation than consuming as much as you can. It’s the mantra spewed forth from T.V.s, the internet, radio, billboards; there is no escaping advertising designed to make you feel compelled to consume. Americans have learned their lesson well, they consume more per capita than any other country in the world. But what does consumption get you really? Mother Teresa hit the nail on the head: Poverty of intimacy, spirit; loneliness, lack of love. There is no greater sickness. This from a modern-day saint who treated leprosy and saw more suffering and sorrow than most people can imagine. Yet, there is no greater sickness than in developed countries. A scathing conclusion.

 The modern day consumer. Walking the isles at Wal-Mart (the largest company in the world), wandering around the malls, filling grocery carts with crappy food that will make them fat. Consume until you can consume no more. Consume until you can barely walk anymore. Watch T.V. commercials for hours on end to get motivated to do it all again. On Saturday morning, get out of the way on the highways and byways, rabid consumers will run you over trying to get to stores to spend their hard-earned dollars on stuff they don’t need and can barely afford.

 Mother Teresa “In My Own Words”

Yet look into their eyes, as they try to get ahead of you in the check-out line. Their eyes are empty, their souls are gone, they don’t look happy like in the commercials, they look strung-out, vacuous. There is little joy in consumption.

http://www.theburningplatform.com/?p=44211

Now here's a look at the Market:

Found a great site that covers cycles and is very well done. It's called Swing Trade Cycles and it can be found at the address shown below the chart. Last post we showed an Elliott five wave down in process with the end of the fifth wave near the 1320 mark. Here the cycles also show the move lower and the initial target is the 1348 range. The target timing for the completion of this move lower is mid-December. We should then get a rally into January to placate all the folks that count on a Christmas rally.

www.swingcycles.blogspot.com

Complacency giving way to fear? Caveat Emptor

The recent Presidential election proved to me that without a shadow of a doubt the world is changing and not for the better. Although we talk about the Markets in this blog we cannot help but be aware of the geopolitical issues and their profound effects on where the indexes go in the future. The current assault on freedom in the Middle East and the expanding European financial collapse all point to economic and social issues of a global magnitude.

Most people will say or argue that you can't predict the future, things just happen. Well, this excerpt from Strauss and Howe's book called the "Fourth Turning" which they published in 1997, begs to differ with that view. Read the comments and then get a copy of the book from your local library. You will understand what is happening and about to happen to our World in much greater detail.

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.”

 – Strauss & Howe – The Fourth Turning

Here is a link to another article by Joseph Russo who takes to task all the hub-bub about the fiscal cliff rhetoric coming out of Washington and the financial press. Well worth the read.

http://www.safehaven.com/author/246/joseph-russo

Then as we move from the global geopolitical ills, we need to find a way to invest in a broken market here at home. We are unlikely to be successful in our investing endeavors until we get rid of the outside influences (think the Fed) that destroy the normal rhythms (fear and greed)  the market exhibits when left to its own methods of balancing.

The following two paragraphs suggest a few interesting answers to the market problems and why you should tread very carefully in these markets.

Quotes from Zerohedge.com article:

The stock market is demonstrably an "attractive nuisance" and should be closed immediately. It should never be reopened unless these conditions can be met: 1) All shares must be owned for at least four hours 2) All trading must be executed by humans on a transparent exchange where all trading activity (and open orders) is visible to all participants 3) Intervention in the market by the Federal Reserve or any Central State agency or agents is against the law.

If you insist on putting money at risk in the stock market, be aware that you are playing a rigged roulette wheel and thus you are the mark. You might win, or the entire game might collapse in a rotten heap of lies and corruption. Just remember that the market is ruled by parasites who need to keep their hosts (investors) alive so they can continue to feed off them (i.e. biotrophic parasites). If the hosts all leave the market, the parasites will have only themselves to feed on, and they will quickly expire. 

Enough about broken markets and geopolitical problems. Whatever the peccadilloes of the market, it is what it is and we just need to find a way to deal with it.

As we began October the indexes were in the throws of their first major set back in some time.  November arrived and the weakest player is the Nasdaq Composite (Apple in particular) which has triggered a intermediate term sell signal by moving down through its 50 and 200 day moving average and the lower trend channel in blue. Friday's close touched blue wave 3 down and we should get a small rally into wave 4 early next week. (Click on chart to get larger image)

The markets are finally beginning to lose some of the "Hopium" that Ben's QE interventions seemed to instill in them. Now everyone knows its an endless printing press that Ben has unleashed and they are beginning to see the folly (read hyperinflation) that could be its result. So far the market has not been spooked enough to move the VIX (Volatility index) above the 20 level - so complacency remains in place. However, with no net under  the market, it could turn ugly very fast if the correction gathers any sort of momentum. By the time you see the Tsunami coming it will be too late.

Chart from Zerohedge.com

Here's what happened after each injection of QE. Now that Ben is through making announcements, you can expect a major move lower.

Chart from Zerohedge.com

Note green arrows on the chart to the left. They   cover the number of points for each rally since the 2000 top.  The interesting thing is that each rally covered 808 points and then topped. Hmm mm.

www.thelongviewtoinvesting.blogspot.com

Very Important .........................
What's next? If we follow suit you can expect the S&P 500 to head for the 565 area as shown on our long term chart at left. Both in time and price the last three tops form a close symmetry.

Follow the Gold wedge lower to the trend channel. The indicators are rolling over and signalling a major move is more than possible.Use the chart to get prepared for the potential of a horrific move lower. You can hope it doesn't happen, but you should be prepared if it does.

Some additional thoughts to ponder. The moronic media keeps asking why we have such an anemic recovery. The follow charts can help explain why things are not improving. They are by no means the only items, just a few that make it hard to move forward unless they are corrected.

Here's reason number 1. The average household has seen its net worth destroyed over the last 6 years.

We keep expecting the markets to break out of this slump any time now but when you look deeper at the damage that's been done to the average American household you can see that things won't get better for some time to come. One of the items is Household Net Worth. The chart below from the Federal Reserve shows how much the average family has lost. Except for peaks for the Dot-com bubble of the nineties and the Housing bubble of the 2000's, the trend has been down since late seventies. 

Net worth also has a strong correlation to the Dow Jones Industrial average as can be seen on the chart to the left. Notice the rounded top (Blue line) rolling over and heading down.

The number 2 problem. The drop in manufacturing jobs which takes us back to the same levels we were at in 1945 and the take home pay and you can see that the average consumer is going to be retrenching for sometime to come.

And problem 3.  Salaries. Notice the long term trend in average hourly earnings. It's no wonder that the average consumer is going to be retrenching for sometime to come, years in fact.

Tops take time......................

While the market is trying to put in a top it might be well worth your effort to read the following article from Mark Grant. Left to its own means the market will correct like it always does. If the Fed pours more liquidity on the fire in the form of QE3 then we will get several more months of euphoria and push the correction out a little further. If reality sets in we are likely in for a solid  move lower. So continue to pay attention to the external inputs because the market internals are getting ugly.

Via Mark E. Grant, author of Out of the Box, as noted on ZeroHedge.com

Surveying the Landscape

 Look around. Take a good long and hard look because the data is becoming unsettling and it is pouring in from all over the world. In China, where a hard landing was thought to have been avoided; one moment please, not so fast. China’s industrial output is now the weakest since 2009 and the latest figures represent the seventh consecutive quarter of deceleration. Most troubling is that China’s sales to Europe declined -16.2% last month which is a huge drop off and shows clearly the recession that is taking place and worsening on the Continent. Estimates for Chinese third quarter growth are being reduced on an almost daily basis and loan demand has taken a drubbing. The world’s growth engine is sputtering and there will be consequences. In the other driver of Asian growth Japan is markedly weakening. GDP expanded at 2.3% in the last quarter which was down almost 50% from the first quarter of this year. A Bloomberg survey places growth at just 1.00% for this quarter and there may be a negative number by the fourth quarter.

In Europe the situation is dramatically worsening with virtually every country in a recession with the notable exception of Germany though I predict they will join the club by the fourth quarter of this year or by the first quarter of next year. Italy just reported out their GDP at -2.5% for the second quarter and their prospects are not good with the third quarter likely to be down more than three percent in my estimation. Borrowing costs are also beginning to weigh on Italy as they have a two trillion dollar sovereign debt where their ten year is +441 to Germany and not likely to get better anytime soon. Even if you are a believer in some new ECB/ESM scheme the German courts will not opine on the ESM until September 12 and then there are still a number of countries that have not approved the plan so that any actualization of some scheme is unlikely to come before late in the third quarter or in the fourth quarter. It is an interesting side note that when Monti took office that the Italian/German ten year spread was just +78 bps so I think it can be said with accuracy that his tenure, as demonstrated by the numbers and not the hyperbole, has not been the rose garden so often praised by Germany and France. In another interesting side note Goldman reported that it had cut its holding of Italian sovereign debt by 92% and if one considers their CDS exposure they have actually gone to a position of almost one billion negative from a plus $2.4 billion position in March.

 While the Prime Minister of Spain dances around and shouts at Don Quixote’s windmills I think that it is quite likely now that Spain will be forced to officially ask for aid and that it will be soon. Then I think that Italy will follow suit which will rest the funding squarely on the shoulders of Germany and France and with economies totaling just $6.33 trillion or 56% of the United States, there will be real consequences and real pain as the allocations grow for these two countries and as Greece and Portugal line up again at the till. Short term solutions and liquidity do not overcome the fundamentals in the end and paying off debt with an ever increasing mountain of more debt is a concept that historically has often proved to be a failure. I fear that Germany and France face more downgrades and the reality of Germany’s 160% debt to GDP ratio, my calculation, will begin to drive capital out of Germany as the actual numbers are appreciated and considered. 

 Sometime in October, if not sooner, rhetoric is going to be put aside and either another $50 billion is going to be handed to Greece or the charade will stop. The country cannot pay their debts under any scenario imagined and it is just a question if the game will go on a bit longer or not. Of one thing I am sure; it cannot go on indefinitely and when it finally does stop it will not be the “manageable” event that some European politicians contend. It is going to be one sloppy mess that will affect the ECB which will require re-capitalization, it will hit many banks in Germany and France and losses will have to be taken by the EU’s Stabilization funds if not the IMF. Everyone is campaigning for everyone else to take the losses of course and eventually someone will take them and the debts have been allowed to grow big enough so that the hits will not be insignificant. The tension is increasing in both Greece and Europe and the accusations have not been pretty and will get worse so that I think some tipping point will be found before year end. There is now too much strain for the great “Muddle” to continue much longer and as the economy in Greece continues its free-fall and as the unemployment numbers spike into the Uganda latitudes; something is bound to crack. Remember that everything is fine up until the day it is not and then it is really, really un-fine! 

For those that think that the Fed will save the day, if not the planet, I suggest to you that you may be in for an unpleasant surprise. There is only so much they can do now and each Fed action is being met by a less and less reaction in the markets and of a shorter duration. The proposed ECB/ESM scheme will also not be that panacea thought by many in my opinion regardless of the hype broadcast out of Europe. The nations that need funding are clearly squared up with the nations that could fund and I remind each of you that those with the gold make the rules. Beggars may shout and scream and appeal to whomever and whatever might get them the money but it is not their decision to make in the end. For those that think America lives in some kind of off-the-world existence and will not be affected by all of this then I invite you back to the planet Earth. With equity volumes declining to five year lows and a range that is bound more by hopes and prayers than actual considerations of earnings or of our GDP I find it highly probable that we will break to the downside while Treasuries continue their march higher in price again as the fiscal dangers become more pronounced and appreciated.

Some visual reflections on the economy ...........

If the economy was really starting to make its move higher, we would assume the Transportation Index would be leading or at least in sync with the rest of the market. Looking at the chart to the right will tell you at a glance something is very wrong with this rally. We are moving higher based only on the expectation that the Fed can save us.

Here's another simple but effective indicator. If industry and the economy was ramping up we would start to see more waste/scrap as an off shoot of the increased production rates. You again can see little evidence we are on the verge of a move higher, instead we look like a recession is much more likely. Note also how the GDP follows the Waste index rather closely. Expectations for the 4th quarter GDP are now for a negative number to be posted.

With Europe close to implosion and the engine of the World trade, China, is posting very soft economic numbers leading one to believe they are not going to be able to keep the US economy afloat via our exports. The chart at the right gives you a graphic view of where the New Orders and Exports are headed. Not something that suggests this rally is for real.

Chart from Zerohedge.com

Here's another sign that the next move by the Fed may not have the lasting effects the first and second infusions of liquidity had. The short interest ratio tends to tell you if there is enough fuel in the tank to move the markets significantly higher once the trigger event is evident to the market. The people who are short the market have sold shares of a stock (betting prices will go lower) and if the market starts to rally they normally have to buy shares to offset their positions thus creating additional fuel for the rally. Currently few shares are short as everyone is in a state of "hopium" induced euphoria.

Here are a couple of informative viewings that help explain where the markets are. The first is from Business Insider. com and its a video that explains High Frequency Trading and its effects on the trading.

http://www.youtube.com/watch?v=2o9AU8MAoq4&feature=player_embedded

The second is a chart of world problems ranked by urgency in the need to fix.

Fitch Global Risks - 2nd Qtr.

Remain Vigilant ...............

The Momo's are at it again............................

It's getting to be rather ridiculous when the broken market can be juiced like it was with Friday's poor jobs number. The numbers are complete fabrications when you get into the details but don't let that hold you back from jumping in with both feet. We all know its the Wall Street guys trying to bump their month end balance sheets while the retail investors (most of us) sit there blocked out of the move since it essentially is complete by the time the market opens.

The High Frequency Traders or Bots win another one.

This market is moving on every feel good comment generated by anybody in Europe or CNBC. Rumors run rampant and moves can turn on a dime and destroy your positions in a heart beat. In the meantime, logic says that the rally will end with a sudden burst of reality. The charts are telling us that we are running out of time and need to be very careful going forward.

Here are three charts to try and make the point. The first is the Dow daily that shows you that while price is rising the OBV indicator is now lagging behind. This indicator was designed around the belief that price follows volume. Note the upper blue trend line on price is pointing higher, while the one on the OBV is pointing lower.

The second chart is that of the Vanguard Total World ETF. The most important thing to take away from this chart is the fact that it peaked in 2011 and is making lower highs, at least so far. The lower window on the chart contains the SP500 index which may have peaked earlier this year. Momentum indicators suggest we are weakening and the world markets may have the just called the next move lower.

 The final chart is the VIX (volatility index) that shows you we are at an extreme level of complacency and markets normally jolt you back to reality by correcting. The red indicator in the lower window of the chart is a leading indicator and it is moving lower. Something to keep an eye on.

Just be careful.