Closing comments

If one was a bear today, one probably came away disappointed. It was a tantalizing morning, but that was about the extent of it. Buying came in (yet again) and rescued the market from the precipice. Enough internals stayed negative to keep me short, but that rescue was certainly something to be reckoned with. The trendline drawn has been tested several times. If it goes it should go violently. If we take out yesterday's highs, I would have to expect higher prices. Another peg to hang a bear hat on is the VIX. Same thing here... if we take out yesterdays lows... bears need to head back to the den.

It should be noted that this discourse is all trading/short term yackity-yack. Investing here is preposterous. This market is being ruled by a belief of peak margins and peak earnings... and that is plain silly.

Picture of the Day

This is real data folks. This is not doctored up, hedonically adjusted, yada yada yada... this is simply sales and income tax revenues (the grand majority). Read the Journal article if you can...

Lets not forget

Sometimes, its very easy to get tied up with forecasts, and scenarios, and looking for catalysts, and inter-market analysis. Sometimes it just comes down to the fact that a market is overvalued and trading at long term resistance.

Closing comments

Another fairly low volume day. Breadth was mixed. Early morning spike was sold after some disappointing confidence numbers came out. Here is one chart that provides a trade idea with a fairly tight stop. Notice the buying pressure never equaled or surpassed selling pressure as measured by MACD or DMI. Food for thought.

Picture of the Day

Ruh-Roh!! There is enough shadow inventory out there to choke a horse. Barron's Alan Abelson profiled a piece by Amherst (last week) on it. Its worth the read if you haven't done so already.

Closing comments

Volume was so light today (with the Jewish holiday of Yom Kippur) that I tend towards discounting the strong breadth. Also, with quarter end only a few days away, the proverbial 'markup' may have started a little early. Admittedly, it would be a great time to do it. More will be revealed tomorrow. I maintain my short bias... and also give the odds of marginal new highs into early October a decent chance. I have enough powder dry to short those new highs if they come. I have been waiting for the Silver Gold ratio to close below old highs which we have done. Given the other markets that have failed to make highs with the SPX (see post below), the 1987 correlation, the overbought nature of this market, one has to at least entertain the possibility for high. Personally... I think we are topping for the year (and maybe all the way out through 2010).

All one trade

Markets have been so correlated for months now... but some divergences are appearing. I do not think they should be ignored.

Are we here?

Dr. Hussman

(emphasis mine)

Historically and across countries, according to the IMF, 86% of systemic banking crises have ultimately required government restructuring plans that included closing, nationalizing and merging banks. Yet the policy response of the U.S. has been akin to putting a band-aid on an untreated infection. Worse, not only has the underlying infection been overlooked, but thanks to the easing of FASB mark-to-market rules early this year, we have at least temporarily stopped reporting on the status of that infection.

After the bubble burst in Japan in 1990, Japanese banks were not compelled to properly disclose their losses either. The predictable result is that the problems resurfaced later, but worse, because they had not been addressed.

This sort of “regulatory forbearance” – setting aside requirements for large loan loss reserves and timely loss disclosure - was helpful during the Latin American debt crisis of the 1980's, but largely because it allowed time for negotiations with countries to restructure debt, first by rescheduling payments, and then ultimately through debt-equity swaps, exit bonds, and other major debt restructuring under the Brady Plan.

Forbearance only works, however, if you're buying time to do something to restructure debt. Instead, we've celebrated bailouts and the easing of reporting requirements as if they are a substitute for restructuring. In my view, this is a mistake that will haunt us.

see the whole post here: http://www.hussmanfunds.com/wmc/wmc090928.htm

Its getting worse....

The WSJ left this out this morning in their article on C1. Reuters included it:

The Shared National Credit Program which was set up in 1977 to review large syndicated loans now reviews and classifies all institutional loans of at least $20 million that are shared by three or more supervised institutions.

According to the report, criticized assets rated 'special mention', 'substandard', 'doubtful' and 'loss', touched $642 billion, representing 22.3 percent of the SNC portfolio, compared with 13.4 percent a year ago.

Classified assets rated 'substandard', 'doubtful', and 'loss,' rose to $447 billion from $163 billion in 2008.

The volume of SNCs rated 'doubtful' and 'loss' in 2009 rose almost 14-fold to $110 billion, while non-accrual loans touched $172 billion, up from $22 billion in 2008.

Its getting worse and its getting worse fast...

Closing comments

Well, we can safely say that the short term trend has turned down. Breadth was pretty bad today and various internals turned down. The McClellan osc crossed zero yesterday (see previous post).

How long is it going to last? Every turn down since March has been bought, and bought aggressively. Many Elliot Wavers I read are giving the recent turn a good possibility of being the turn starting P3 down. Fundamentally, this market is ridiculously overvalued imo, and radically overbought technically... so I like being short... but being short has not paid for months (even on very short term time frames). Still, I have a small short position on in various markets (its all one trade, remember).

We will just see what develops. I am keeping the 1987 analog in my mind though... and that says this swoon will be bought.... and bought all the way to test the highs. So I plan on staying nimble. SPX 1040 is a huge level and is being watched by many market participants. Also, watch the dollar. It is the dictator.

Economic surprises going the other way

Macro Man posted this chart earlier today. This is important. This is the time for 'green shoots' to take root. If we start surprising the markets with data the other way...

Mc Clellan crossing zero near a high

Measures of 'risk'

1987 update

Remember this post? http://alwaysanothertrade.blogspot.com/2009/09/just-for-fun1987-then-and-now.html

Well, we are on day 13. Here is the current SP chart.

NQ weekly chart

We are trading right around the low closing prices of 3/08. This should be pretty strong resistance.

A Must Read

http://market-ticker.denninger.net/archives/1453-Find-The-Difference-Why-Ponzi-Finance-Fails.html

Great post with good charts showing the crux of the matter.

Gold Breakout?

Although Gold is creating headlines in the U.S. trading over $1,000, it has not bettered key levels in other currencies. Since the small spec position is so large in the COT report, I would be careful here. Further caution is warranted given a TD Sequential sell signal on the weeklies (there is one on the dailies too). If we start moving higher in other currencies as well as the $U.S. then the triangle breakout could accelerate past old highs, but I would wait for confirmation in the other currencies.

Silver and Gold

A close in this ratio below .01684, or better yet, .01645 would be a sign that 'the risk trade' (and thus stocks) has topped for a while.

What are banks hiding?

http://bankimplode.com/blog/2009/09/17/wells-fargo-s-commercial-portfolio-is-a-ticking-time-bomb-exclusive/


Well written piece. Banks are still black holes.

The Govt. in the mortgage market

Good article from The WSJ today. (C12 Heard on the Street)

the money quotes:

Right now, housing remains on government life support. Treasury-backed entities are guaranteeing about 85% of new mortgages, while the Fed buys 80% of the securities into which these taxpayer-backed mortgages are packaged.

The optimistic take is that this support, though large, will shrink when market forces regain confidence. But there is a darker possible outcome: The emergency assistance is entrenching a system in which the taxpayer takes the default risk on most mortgages, while a small number of large banks get a larger share of the fee revenue from originating and servicing mortgages

and...

Despite the bust, conforming mortgages that qualify for government backing remain mispriced. That can be seen in the fact that banks have no desire to keep the most common mortgage on their books. Wells's chief executive, John Stumpf, recently said: "We're not putting on 30-year [fixed-rate] mortgages at these rates."

So why should the taxpayer take them?

Option mortgages to explode, officials warn | Reuters

Option mortgages to explode, officials warn | Reuters

Hussman has been warning of this for months now. The 'mortgage problem' will be with us through all of next year.

Just for fun...1987, then and now

MAN: 57.54 +0.52 (+0.91%) : MANPOWER INC - Yahoo! Finance

MAN: 57.54 +0.52 (+0.91%) : MANPOWER INC - Yahoo! Finance

Too funny. Look at the PE on this one.

Dow Theory Non-confirmation

This has been posted elsewhere... but in case you missed it, it may be worth something. I am sure you know the rails dragged the Transports down yesterday, but also notice where the Transports have not bettered their Nov. 08 high, where the Industrials have. The 3466 level interests me in the Composite.

China’s Pig Farmers Amass Copper, Nickel, Sucden Says (Update1) - Bloomberg.com

China’s Pig Farmers Amass Copper, Nickel, Sucden Says (Update1) - Bloomberg.com

This should end well...

China

Just in case you were wondering what sort of overcapacity problem may be over there..

http://www.youtube.com/watch?v=ektMQGbW3wk

http://globaleconomicanalysis.blogspot.com/2009/09/outsourcing-unemployment-to-china.html

Daily Comment

Well, the market just kept going today... and it went pretty strong. Breadth measures were decent and took out recent highs. So muchfor divergences. Sometimes trends end on this sort of push... sort of a final 'all in', but I certainly can no longer claim divergences in key metrics. I think its all stupid and a bunch of 'career risk' managers buying the markets here... but they can do that for a while... certainly into quarter end. I can't imagine buying the market here, or even holding it. These valuation levels are just ridiculous. But this is what is going on... it must certainly be respected, but not feared. This is one hell of a shorting opportunity. SPX is almost on its 20 month average. Sentiment is euphoric that the recession is behind us and we will be back to peak earnings and peak margins. Does anyone realize how silly that is? Let me ask the bulls: what have we done to fix the problems that brought us 2007 and 2008? That is rhetorical of course; the answer is NOTHING. (which is really sad)

Here is one question: what are Tbill yields doing tanking like this?

SPX for today

Yesterday showed a pretty big volume day (relative only to recent rally) yet SPX was only able to advance less than .5%. Still declining participation in advance/decline ratio and up volume to down volume ratio.

On another note... the Russell 2000 futures are up 80% from their March lows. Wow. Now... which one would I want to be short?

U.S. Credit-Card Defaults Resume Ascent as Unemployment Worsens - Bloomberg.com

U.S. Credit-Card Defaults Resume Ascent as Unemployment Worsens - Bloomberg.com

Retail Sales

Take out the cash for clunkers B.S. and you have yet another annual series that is bouncing along the bottom.

US credit shrinks at Great Depression rate prompting fears of double-dip recession - Telegraph

US credit shrinks at Great Depression rate prompting fears of double-dip recession - Telegraph

This certainly fits into Prechter's scenario.

Just so you know where we are..

...and where we could be. I am not going to post all these charts but I will just tick them off. Remember, everything is insanely correlated right now and there is really only one trade. You are either on, off, or worse... short.

TD Signals:
Gold :Weekly and Daily TD Sequential Sell countdowns complete

Silver: Weekly TD Sequential Sell signal complete

Dollar Index: TD Buy Set Up perfected on Weekly chart; TD Buy Sequential countdown complete on daily chart, TD Combo on 12 bar.

Aussie Dollar: TD Combo Short on Weekly, Bar 8 of TD Sequential Sell countdown; TD Combo and Sequential Sell Signals complete on daily chart

Copper: TD Combo Short countdown complete on weekly AND daily charts

Swiss Franc: Weekly chart shows a perfected TD Sell Set up completed. Bar 9 was last week.

The vast majority of these charts are diverging from price with their Chaiken Osc... not to mention all the other cautionary signs I have posted recently. This whole trade may just keep going on and on and on... but a lot sure has a lot lined up against it right now.

TD Sell Signals

NDX Weekly is on a TD Combo Sell Signal as well (but very close to being stopped out). NDX weekly and R2K weekly charts also completed bar 9 of their respective TD Seel Set Ups last week as well.

SPX for the week

Lower volume on last week's strong price performance. Notice on the price by volume bars that there isn't much resistance after this. We get to 1200 really fast. The E. Wavers are pointing out that we are on the '4th of 3rd' previous wave resestance as well. (Horizontal line highlights both) I will post some DeMark Sequential signals later... there are a lot of them.

Mirror, Mirror on the Wall...

...Who is the most overbought of them all? The markets right now are so correlated its "all one trade." If the U.S. Dollar is down, most everything else is up... and vice versa. So just for fun (and possible profit) lets find the asset class, or market, that is the most stretched. If one looks at Copper vs. the S&P and the CRB it looks pretty overbought! The Aussie Dollar is in much the same position against the CRB, SP 500, and the Euro. The Aussie is even high in its range against its brother commodity currency the Loonie. So now we have some areas to concentrate on when/if this Dollar trade reverses.

A little perspective

Thank you Calculated Risk...

Market Comments

I realize this market keeps pressing up, and taking bears out back and whipping them good, but everyone should be aware of the long term context of this rally... and it is full FULL of divergences (and mounting TD Sequential sell signals on many time frames and many asset classes). Also, go look at the Bullish percent charts on SP sectors(I won't post these but you can find them for free on StockCharts.com), many are diverging from price highs. This whole rally has lacked volume and has had divergences the whole way up... so what is different now? Not much... there are just more of them and they are longer term in nature because of the levels. Personally, I think we are setting up for the high of the year... and maybe the high for 2010 too... but what do I know, I am just a stupid hard headed bear.