Really important day

Three things: 1) We have actually broken the trend line going back to the March low as Trader Vic would draw it. Will we go back up to retest that line or even old highs? 2) There is another shorter trend line we are sitting on right now that has contains recent price action. If this breaks then I suspect all hell is about to break loose. 3) TICK is the most OS it has been since the March lows.

Nasty brew heh? Just in time for Halloween. Trick or treat?

Dollar Index

Trend line break on the weekly chart. Will it hold? The intra-day chart shows its testing (and failing so far) at its TDST resistance line. As you know... this is the key to most asset classes and markets right now.

Closing comments

Well I feel like my 9 week old puppy. I have been trained! Today was ugly... and ugly on an obscure front. Bears like me have been trained to take their shorts off on breaks because they don't last long. If the market gets OS... well, buy'em in. Bulls have obviously been doing the same thing (vice- versa of course). Well today that did not work.

Did it break down for good? I don't know. Fundamentally, I don't think there is anything underpinning this thing beside pretend/play time (lets pretend the that stabilization is organic and not driven by government intervention); and fraud (lets not look at where banks have marked their 'assets.' Technically, there is A LOT of money that doesn't pay attention to fundamentals or valuation analysis. We have not hit levels that turns that ship around yet. But this is a crack in their bow.

If I get a bounce into month end, I will sell the piss out of it. Lord, I hope I do... I feel like a rube today. This is what happens when 'they' train you. Markets are always there to humble you.

Uh-Oh

We could rally hard from here... just a FYI.

Closing Comments (Short Term stuff)

Breadth was really bad today on both the NYSE (3-1 down volume) and the Naz (over 5.5 - 1 down volume). Banks in general continued to act poorly. We may be set up for a short term rally however, looking at short term charts. We have completed 5 TD waves down and have some TD Set Up support on a short term chart and on the daily chart... its also coming into end of month... and there is the usual mark up to consider. The Dollar also has registered a TD Sell Setup, which suggest a small pull back at least.

Cheap? ...not so much

This table was in the most recent Barron's. It makes three points I have tried to get at for a while now. One, by being price to sales we can get around the whole argument surrounding price to earnings ratios (trailing vs fwd., operating vs. reported and GAAP). Price to Sales also highlights a major argument of mine in that the bulls are expecting a return to peak margins and earnings that were sustained (really created) in the bubble years. That is the only way they can say these PE's are cheap... and that just ain't gonna happen! Price to Sales shows what a silly argument that is.

This table also makes another point I feel is important in a hidden way. The March lows were most likely NOT the ultimate Bear market lows. Most major bear market lows do not sport these multiples 6 months in. Just like most major Bear market lows end in single digit multiples... and we did not get those in March either.

The table also (and obviously) shows how much risk is in the market at these levels.

Closing Comments

The big story today was the US Dollar. Strength in it turned around a stronger Oil market which then closed on its lows and down for the day, Copper same pattern, and Gold... although Gold was never really that much higher today. Stocks started to bleed off too, and had very bad breadth numbers on the close. Declining volume swamped advancing volume. A case could be made technically that the Dollar has bottomed. Sentiment wise, this is certainly the time to put a decent bottom in that holds for several months at least.

Enough markets turned around today that make me comfortable on the short side for several days into weeks sort of time frame. We may rally into the end of the month a little bit, but the short side is going to be more profitable... for a little while at least.

Earnings

Below is an AP article on Volvo (emphasis mine). You hear the same story from DOW, UPS, and the U.S. part of it from UNP. North America and Europe still blow. Asia appears to have stabilized and may be bottoming. The real rub is these companies are going up against fairly easy yoy comps at this point. We SHOULD be seeing statistical stabilization in their numbers.

The only problem with the Asia part is it is being driven by absolutely massive government stimulus in China. They have a huge bubble in real estate and productive capacity over there, and the authorities know it. So that fairy tale is not going to keep going. I think a good post would be a collection of China links to videos and stories. I will pull that together. Anyway, the only stabilization anywhere is because of government intervention. That is not something to be excited about.

STOCKHOLM (AP) -- Swedish truck maker AB Volvo on Friday reported a third-quarter net loss of 2.9 billion kronor ($423 million), due to a steep drop in sales in Europe and the U.S., but said demand was stabilizing, particularly in Asia.

It was the fourth consecutive quarterly loss for the company and compares with a previous profit of almost 2 billion in the same three months a year ago.

Revenue in the period plunged more than 30 percent to 48.5 billion kronor from 69.8 billion kronor in the third quarter in 2008.

The biggest drops were recorded in its truck and construction equipment units. Revenue for the truck division, Volvo's largest business area, fell 34 percent in the quarter, mainly because of weaker demand on the European market.

Volvo kept its 2009 heavy-duty truck forecast for that market unchanged, saying it expects it to "be at least halved" from last year.

For North America, where sales also fell steeply, it said it expects the market for heavy-duty trucks to drop between 30 and 40 percent this year from 2008 levels.

Volvo CEO Leif Johansson said that although markets seem to have stabilized, his company "is not relying on our profitability being boosted by a substantial recovery in sales of new products," saying it is still "far below" the long-term trend for sales of new trucks and machines. The company will therefore continue to keep sharp control of costs, he said.

Nonetheless, he said there are signs, particularly in Asia, indicating that fall in demand "has bottomed out" and that the group is on its way toward a gradual recovery.

Sydbank analyst Morten Imsgard said that overall, the report was somewhat stronger that expected. The positives, he said, had little to do with the numbers reported, but rather on the statements made on the future, with indications that the downward demand trend could be turning around. "It's a bit better than what we've heard them say before," he said.

Gold

Gold was interesting today. The Dollar made new lows and acted really poorly across the board. This fired up Crude and Copper which had started the day lower.... and Gold just sat there. Elliot Wave suggest we are in a 4th wave triangle, which implies one more sharp move higher to a 5th wave high, and the conclusion of the up move. Maybe so; I have always found that to be one of the more reliable Elliot patterns. However, gold's 'go nowhere' attitude today reeked of a market that has all its buyers in (at least for the short term).

Last Hour

The last 30 minutes was a good old fashioned sell off... and as far as I can tell it came from nowhere. Have we run out of buyers? I will believe it when I see it. Look at the last hours volume on the SPY... its not a normal event. Lets see if there is any follow through tomorrow.

Real time data

By DAVID KOENIG, AP Airlines Writer David Koenig, Ap Airlines Writer – 42 mins ago

DALLAS – Continental Airlines Inc. lost money in the third quarter as business travelers stayed home, causing a nosedive in airline revenue.

But not everything was bleak for Continental. Traffic picked up in September, even if it took cheap fares to get them on board.

...

Revenue plunged 20.2 percent, to $3.32 billion.

Continental blamed the revenue downturn on business travelers, who were flying less and buying cheaper coach tickets due to the recession.

Overall traffic declined less than 1 percent compared with the same period last year, and planes were more full than last year. But many of those passengers only responded to cheap fares, and they weren't buying high-priced tickets in first or business class.

The weak sales cut across all of Continental's markets, with trans-Atlantic business particularly sluggish.

Continental caught a break from falling jet fuel prices. The average price of a gallon of fuel fell 48.4 percent from a year ago, and with fewer flights, the airline burned 5.1 percent less fuel.

Continental said the percentage of seats booked over the next six weeks is flat to up 1 percentage point compared with last year for most of its routes, and up 4 to 5 points on trans-Atlantic routes. In other words, things aren't getting worse, but there's not much evidence of an impending rebound in travel either.

...emphasis above is mine.

Rails too

This is against what should be fairly easy YOY comparisons.

http://railfax.transmatch.com/

Heartland CEO

"Excess capacity in our industry continues to exist resulting in downward pressure on freight rates and reduced demand for freight services from shippers. The Company still has not seen any strong indicators of improvements in the demand for freight services that would increase our levels of business in the near future."

You can get hyped on government data... but this is truly where the rubber meets the road...

Have you heard....?

...its dangerous out there! Seriously. Ha, ha. Just some more divergences. I have more on a intra-day level but whats the point? I also read this morning that mutual fund cash is close to record lows. What is all that talk about the wall of cash just waiting to be deployed?

Must Read

Hussman is always good.... but this week has a very interesting data point to be aware of. I recommend this heartily.

http://www.hussmanfunds.com/wmc/wmc091019.htm

Leaders Lagging

Spreads out

Spreads are diverging and heading out. "Danger Will Robinson!" Seriously, this is a big tip I have been waiting for.

http://www.zerohedge.com/article/daily-credit-summary-october-15-upside-down

INTC and the SOX

Really bearish looking chart on INTC. Closed on the lows.... black bar on a gap up. Also, a great leader, the SOX, is showing a big time bearish divergence.

SPX Today

Sorry for the lack of posts. I have had some duties with a sick child. Anyway, the volume these last several days has continued to be horrendous. Yesterday it picked up a tiny bit (still nothing to write home about or even really notice) and it did so with breadth to the downside. My TICK indicator and the AD Cum line rolled too as did the McClellan Osc. One may think that is a pretty good shift and should start to play for some downside. I am not so sure. Futures are up pretty good this a.m. which would make a nice open sale for a gap fill and maybe total failure.... but this is option ex week, and look at the 15 min chart. Whenever the ADX drops below 15 I start drawing lines. One can often get a decent move out of these consolidations. I think there is a good possibility this thing just powers higher in a squeeze as the short stock gets covered into Friday. A KISS strategy would be just to play the lines I have drawn on the 15 minute chart. Be long above and short below.

On another note, the money flow numbers continue to deteriorate. I am looking for downside soon, and maybe it does come today. This market is way stretched... but it would be a perfect bear ream to go higher... and maybe sharply higher.

Gold

Just sayin'....

Next Week

The stock market closed up every day last week. It did so on really really bad volume. But whats new? The majority of this rally has been on bad volume (and a ton of insider sales). It will go until it goes no more. Many people feel as if last week's action portends more upside. I am no longer going to say it doesn't.... but last week's internals were not ball busting bullish. I have simply gone to that place within myself where I MAKE myself be patient. This move is not going to end until it ends. I have screwed up picking spots with divergences where I thought it would be over. This thing marches on. Fundamentally, I think there is nothing here. Valuation wise I KNOW there is nothing here. (http://globaleconomicanalysis.blogspot.com/2009/10/overly-optimistic-consensus-plays.html) Technically... it has kept moving past divergence after divergence after low volume rally after insider sales, etc. However, one of my favorite leading indicators, the copper_gold ratio, continues to suggest downside.

Keep your powder dry. Get out if you are an investor; there will be better prices.

On another note... I looked at the US $ this weekend technically. I think we could see another small sell off in the Dollar here. (A high above yesterdays high in the DX and a new low below yesterday low in the Euro would negate this view.) But we are getting very close to a bottom I would suspect. A few solid closes would clinch it. With correlations the way they are that would mean quite a lot. Keep a keen eye on the dollar.

Rails still suck

WASHINGTON, D.C., Oct. 8, 2009 — The Association of American Railroads today reported that for the week ended Oct. 3, 2009, rail traffic continues to reflect the down economy – originating 277,734 carloads, down 17.2 percent compared with the same week in 2008. All of the 19 carload freight commodity groups were down from the same week last year, with declines ranging from 2.7 percent for chemicals to 53.2 percent for metallic ores.

Intermodal traffic of 206,293 trailers or containers on U.S. railroads was down 15.7 percent from the same week last year. Container volume fell 10 percent and trailer volume dropped 37 percent.

Regionally, carloads were down 16.4 percent in the West and 18.3 percent in the East. For the first 39 weeks of 2009, U.S. railroads reported cumulative volume of 10,381,905 carloads, down 18.1 percent from 2008; 7,347,299 trailers or containers, down 16.8 percent, and total volume of an estimated 1.11 trillion ton-miles, down 17.3 percent. Total volume on U.S. railroads for the week ending October 3 was estimated at 29.7 billion ton-miles, off 16.6 percent from the same week last year.

Canadian railroads reported volume of 73,377 cars for the week, down 7.3 percent from last year, and 43,724 trailers or containers, down 15.6 percent. For the first 39 weeks of 2009, Canadian railroads reported cumulative volume of 2,377,796 carloads, down 22.2 percent from last year, and 1,588,814 trailers or containers, down 16.2 percent.

Mexican railroads reported originated volume of 12,597 cars, down 0.9 percent from the same week last year, and 7,593 trailers or containers, down 3.4 percent. Cumulative volume on Mexican railroads for the first 39 weeks of 2009 was reported as 444,633 carloads, down 13.6 percent from last year; and 203,526 trailers or containers, down 18.2 percent.

Combined North American rail volume for the first 39 weeks of 2009 on 13 reporting U.S., Canadian and Mexican railroads totaled 13,204,334 carloads, down 18.8 percent from last year, and 9,139,639 trailers and containers, down 16.7 percent from last year.

(This is now 'easy' yoy comparisons, too!)

Trade Deficit

This has the dollar firmer. The dollar moves ALL markets these days...

The U.S. international trade deficit shrank in August on both lower oil and consumer goods imports, reflecting a still sluggish economy. Exports, however, did edge rise, largely on industrial supplies, services, and auto shipments to Canada. The overall U.S. trade gap unexpectedly narrowed to $30.7 billion from a revised $31.9 billion shortfall in July. The August deficit was much smaller than the market forecast for a $33.0 billion differential. In the latest month, exports improved by 0.2 percent while imports declined 0.6 percent. The shrinking of the trade deficit was due to a narrower petroleum shortfall which came in at $16.5 billion compared to $17.8 billion the previous month. The nonpetroleum gap expanded to $24.3 billion from $23.6 billion in July.

The improvement in the trade deficit was due to both a rise in exports and a dip in imports. While exports were up 0.2 percent, there were divergent trends in components. Goods exports actually declined 1.6 percent but would have been up were it not for a sharp decline in civilian aircraft exports. Nonetheless, exports of industrial supplies and autos were up significantly. Also, services exports were up on the "other transportation" component which includes items such as business, professional, and technical services, insurance services, and financial services.

Imports fell on lower imports of crude oil and consumer goods. The narrowing in the petroleum deficit was due to fewer barrels brought in as the price of imported oil rose to $64.75 per barrel from $62.48 in July.
Year-on-year, overall exports rose to minus 20.7 percent from minus 22.2 percent in July while imports improved to down 28.6 percent from minus 30.3 percent the prior month.

Overall, the August trade data show modest improvement in real terms and will add slightly to third quarter growth.

Today

I think we go down today. We will see what happens around 1050 and or 1025 to see if there is more upside to this relentless upmove.

Going into the close

This has been an interesting day.... lets see how we close. There are some TICK and UpVol divergences now.

Closing Comments

Today was another low volume day. Breadth was super strong early in the day, but came off somewhat by the close. There was a decent swoon from the highs early afternoon, and some indices came back from that, while others didn't (Transports for one). VIX came back to its 50 day average. We have corrected some of the oversold readings from the end of last week, so we will see what progresses from here. I sensed a lot of Bear despondency yesterday and today. Many Elliot Wavers think that the last two days have negated a down move and we are off to new highs. Given this market, I would not be surprised if they are right. I think being long here is very very dangerous so I am not so much concerned with getting long for new highs. I am curious as to how the market acts in here though. So far, I reserve judgement. I will say that the most recent correction did much more technical damage than any other correction since the March lows, so if new highs do come I believe they will be rife with divergences and non-confirmations.

Precious metals had a great day today as their is widespread belief the dollar is dead. I will only note that (again) that Gold is not as strong in other currencies. I will also point out that we are not making new lows in the dollar, nor are other commodities like crude oil, or copper at new (nor even cyclical) highs. I am not going to defend the unconscionable actions of the Fed (aided and abetted by Congress), but China makes us look like choir boys if we want to discuss monetization or money printing. The UK and Australian private sectors were even more levered than ours at peak. Spain is an absolute disaster, as is Ireland, and Italy. Who says the Euro can even survive as a currency block? I am just not convinced that the Dollar is the worst fiat POS on the block. Its pretty bad.... but there are worse!

Correlations continue to be horrendous. Its all one trade. I cannot wait for that to change. Until it does, just be cognizant of it and your position sizes.

Before the open

Well... 'the' trade is back on. Lets see what the bulls can do with this VIX signal. Dollar is down, commodities and stocks are up.

The precious metals have had a stellar 48 trading hours! (if one is long of course)

Closing Comments

This is going to be one boring post (but there is some decent meat in previous posts so page down). Breadth was excellent today... but on no volume. We will know more tomorrow.

Great Expectations

http://www.hussmanfunds.com/rsi/forwardearningsmargins.htm

Not a chance in ......

British Pound Sterling

I really like the short side of Sterling. Right now we have completed a TD Buy Countdown on the dailies, which could provide a short bump to the currency. Looking at the monthly 1.63 looks like a good place to short and 1.6268 on the dailies provides a sell spot too. So the 1.6260 to 1.6300 area should provide decent resistance.

Gold

Gold has yet to really move into an aggressive breakout posture vs other currencies. However, it is trading over its 50 day average on most currencies after Fridays strong performance. One can also see it is an an area of strong support vs the stock market. I may try a long position here and see how it works out. If gold starts to gain vs. other currencies one can get more aggressive. Nonetheless... Friday was strong.

VIX

The VIX has popped more on this sell off as well, getting over its 50 day Boll Band. However, it is at a point that has proven to be resistance in the past. We are also over sold on the McClellan Osc. and as a % vs. the 5 day average. Thus, I would not be surprised to see some sort of pop here. The real question will be: what happens if the VIX trades back within its Boll Band, as this is a well known bull signal. The quality and extent of the next rally will give us good information on this market. Also, many E Wavers think we are in the 3rd of a third (within the big 1st wave) down... so will we just keep going? If we do, it certainly would verify their count.

The Damage Done (cont)

Notice the previous swing lows have been taken out on these sectors.