Sunday night

The Aussie Dollar has opened up strong. As a short, that does not give me a warm and fuzzy feeling.

Market Outlook

Friday had some horrible breadth reading, but over all volume was still holiday light. Many international markets seemed to take it worse on a percentage decline basis than we did. It sure did seem like someone came in right at the open and started buying futures to support the market. I have pointed out the declining breadth and divergences that have shown themselves over the last couple weeks. A leader stock like Goldman has lagged badly, as have the SOX, and the emerging markets at the most recent high. Many foreign markets did not confirm that high and have lagged our DJIA.

The Dubai news is just that... news. I am not surprised by it, and as I wrote earlier, I seriously doubt that this will be the last entity that is unable to roll its debt before this credit cycle comes to its contractionary conclusion. It may be the grain of sand that starts a little avalanche however. We will just have to wait and see. Its interesting to note that TBills traded negative a few days before this news item hit the wires. Think anyone knew there was a credit event on the horizon?

Right now, I think many managers may be more than happy to lock up this year and fore go the possibility of a Santa Claus rally. I also think that the houses that make up what is left of the Street may need to get their leverage down again. All this adds up to rallies that are sold. There is a big gap above that some may gun for and this being a Sunday night the pattern has been to buy futures in the evening and set up for a big Monday morning. Those big days up are often sold for the rest of the week recently, though (thus my theory on the Street trying to get their balance sheets down). So we may see this play out tomorrow. I am comfortable holding a short through it if need be. If we see that gap filled handily and more than a couple of leaders acting well, I can cover for a small loss. But, generally I look for lower prices at least for a couple of weeks and possibly decent downside. I would think VIX would get closer to 30 and the McLellan Osc to get closer to -70. But those are just guesses. We will just have to see what develops.

Dollar

A TD Sequential Buy generated on the daily chart.

Markets are off Thanksgiving

The news is Dubai. Whatever it is; I seriously doubt Dubai will be the last entity that will be unable to roll its debt before this debt cycle is over.

SPX and R2K are below levels that I have been watching so I am switching to the short side.

The Dollar is a little bit higher, but is having a nice move against the Aussie $. That has been the leader imo.

Happy Thanksgiving to all! This is my favorite holiday. Very little commercialism, no gifts, just family, friends, football, food, and wine! Good times. I hope everyone has a great day today.

Some charts

Wednesday

I still have my small stock long (although it got real close yesterday) and just took off my heating oil short, as it appears we may try to push 'the trade' higher through the thin holiday week. The bulls want their 50% retrace on the SPX, and the bears don't seem to have the moxy to stop them. I am still interested in pursuing a decent correction, but will probably have to wait until next week. Gold relentlessly pushes higher, as the Dollar relentlessly pushes lower. Unless we are in the blow-off move right now (which I doubt) then I would expect a sharp pull back soon.

Distribution

I have posted a silver chart as a commodity example, but look at crude oil too. I actually took a short position in heating oil on the close. Look at the link below for examples of stock distribution. That was a really strong morning that got sold into in a big way across the board. (Of course across the board... its all one trade!) Anyway... I have been thinking.... you know how TBill rates went negative and are still very close to zero? One excuse I have heard for that move is that banks need a really clean balance sheet for the end of the year so they are buying bills. Well, what if what is left of the street needs to get down too? How would you do it? Maybe you could start a bid in the Sunday night thin market and create some good excitement Monday morning... and then spend the rest of the week hitting bids to unload a bloated balance sheet. Maybe.

http://stockcharts.com/scripts/php/candleglance.php?EWA,EWO,EWK,EWC,EWQ,EWG,EWH,EWI,EWJ,EWM,EWW,EWN,EWS,EWP,EWD,EWL,EWU

Put Call Ratio

Lower than the 2007 peak.... don't tell me things aren't a little frothy!

Monday Afternoon

This could be interesting. Russell 2K is now back below 600 and SPX is looking at 1100. Many markets have come well of their highs. I am watching with an itchy trigger finger.

Monday Morning

Every Sunday night into Monday morning they ramp this thing. Its like clockwork. Well, the markets have taken out the gaps I was looking at overhead and appear to at least want to go to 1120 on the SPX. That is the 50% retrace from the whole move down. I got chopped and will play from the long side and see what happens around 1120 (not too far away actually).

Its the same old thing... dollar down, everything else up.

Thanksgiving

Week outlook

Breadth has really deteriorated over the last couple months. There are many ways to see this. I have included two. The A/D line also did not confirm this most recent high and has turned down. Can it turn up here? Sure. The Russell 2000 and the Midcaps are both trying to hold their 20 day average, and there is a nice gap up around 600 in the R2K... right where its 50 day is too. I will be watching 600 in the Russell and 1096-1100 in the SPX.

Although the bias really doesn't hold over the last decade, there is a belief that one wants to be long for the holidays, so that could feed into some buying. It could also disappoint if it doesn't happen. I think there could be a strong desire to lock in some good numbers for the year, after a horrible 2008.

As of now, I am short but I will probably play with a close SAR both ways. I could get chopped a little but for now its the best strategy I can come up with. Fundamentally I remain bearish and think this market is over valued. That thought pattern hasn't paid a dime in the last 7 months though.

Dollar breaking out?

This is short term... but it is how these things start. We will see. Art Cashin is reporting that TBill yields dropped below zero yesterday. I missed that. They are at 1 bp. this morning. That is interesting.

That clears things up

Breadth is very negative. I am short and shorting, and will do so unless this market does what it has done for months now and just turn around and make new highs. Ha! Seriously, if we start taking out yesterdays close on the SPX, I will re-evaluate.

Banks "hiding the salami"

By RODERICK M. HILLS, HARVEY L. PITT
AND DAVID S. RUDER

Independent accounting standards have helped make American capital markets the best in the world. In making financial decisions, investors rely heavily upon the integrity of corporate financial reports prepared in accordance with accounting standards established by the independent Financial Accounting Standards Board (FASB). That board is supervised by the Securities and Exchange Commission (SEC).

Now, the Obama administration is on the verge of transferring accounting standards responsibility from the SEC to a systemic risk regulator. Such a radical move would have extremely negative consequences for our capital markets.

Although there may be good reasons for establishing different regulatory capital standards for financial services firms, those reasons cannot justify dispensing with the FASB's accounting standards. Acting in accord with powers given to it by the Sarbanes-Oxley Act, the SEC has formally recognized the FASB as the definitive standard-setting body, capable of "improving the accuracy and effectiveness of financial reporting and the protection of investors."

The SEC treats accounting standards adopted by the board as authoritative. If the SEC has concerns about, or disagrees with, accounting standards promulgated by the FASB, it can refuse to give them deference.

Today, the American Bankers Association, on behalf of many commercial banks, is seeking to prevent disclosure of the fair value of the financial instruments they own. It is attempting to persuade Congress that the safety and soundness of the banking system will be protected if a systemic risk regulator can prescribe accounting disclosures for financial companies.

The government shouldn't follow their advice. This change might well interfere with efforts by financial firms to raise capital. Investors will assume that the accounting standards they employ are designed to mask risks.

As former chairmen of the Securities and Exchange Commission, we are well aware of the long-held desire of commercial interests to avoid fully disclosing their finances. In the 1990s, business interests opposed publicly disclosing their post-employment pension and health obligations. Similarly, in 2000, efforts were made to prevent the FASB from eliminating distortions that inflated the balance sheet values of newly merged companies, because its elimination might make balance sheets look less favorable to potential investors.

In 1994, the FASB considered requiring companies to reflect the current value of their outstanding stock options. After intense lobbying from certain business interests and pressure from Congress, the FASB decided not to require use of the fair value method. In 2004, when the FASB finally mandated it for valuing stock options, certain U.S. business opponents continued to lobby Congress to overturn that decision.

During times of financial distress, there is always pressure to change accounting standards in order to inflate the value of assets. Under certain circumstances, there may be a legitimate need to recognize that stresses on large financial institutions may threaten the stability of the U.S. financial system. Banking regulators can ease such stresses by reducing regulatory capital requirements. But it would be a mistake to adopt legislation that would allow financial-services firms to hide their true financial positions from investors.

If changes in accounting standards are used to bury significant risks for one purpose, it will not be long before other purposes are asserted to permit further deviations. This is a dangerous path that will only hurt investors and our capital markets.
—Messrs. Hills, Pitt and Ruder are former chairmen of the Securities and Exchange Commission.

Morning Comment

Looks like we are going to open very close to the 1100 are on the SPX. I think this could be an important day. Noting the non-confirming breadth and the over whelming belief, even by bears, that we will go at least a little higher, the action after we establish an opening range could be telling. If we head lower from 1100 it could catch more than a few people on the wrong side. The small caps already look pretty bad, and the breadth on the Naz isn't even close to being kinda-sorta good... it is just plain bad. I will probably beef up my exposure one way or the other after the first hour or so.

Also, the Dollar is trying to peak at an important chart point as I have it. We will see if it can get above it, and stay.

Game on!

Advance Decline Line _ NAZ

Advance Decline Line

not confirming highs here...

Today

I have a tiny (and I do mean teeny) long position on just because the market is going up and we could spike over 1120 this week. I have a pretty close SAR in because I still feel like we are close to a turn in here. I saw an interesting chart last night from Chris Carolan, who now works for EWI so they may have it up too, where there market is making highs just after a new moon and lows around a full moon. That says a top today or tomorrow. I can't put the chart up because its copyrighted, but you can find the dates easily enough and put them on your own chart. Loony market!

A Dollar Observation

The Dollar Index made a new low yesterday for this move... but many other currencies did not make new highs.

Doug Kass writes... "Really?!"

http://www.thestreet.com/story/10627106/1/kass-what-recovery.html

Retail Sales

The October jump in overall sales was led by a 7.4 percent rebound in auto sales after a 14.3 percent plunge in September. Excluding motor vehicles, retail sales improved 0.2 percent, following a 0.4 percent rise in September. The latest number was lower than the consensus forecast for a 0.4 percent gain in October. Excluding motor vehicles and gasoline, retail sales increased 0.3 percent, matching September's gain. Gasoline surprisingly was flat in October, following a 0.9 percent increase the month before.

Outside autos and gasoline, sales were mixed. On the positive side, the biggest gainers were food services & drinking places, up 1.2 percent; nonstore retailers; and miscellaneous store retailers, up 0.9 percent. Two of the biggest losers were those still suffering from the slump in housing. Building materials & garden equipment dropped 2.4 percent while furniture & home furnishings slipped 0.8 percent. Sporting goods, hobby, book, & music store sales fell 1.2 percent.

Overall retail sales on a year-ago basis in October improved sharply to down 1.7 percent, from down 6.3 percent in September. Excluding motor vehicles, the year-on-year rate increased to minus 2.6 percent in October from down 5.3 percent the prior month. The significant improvement in October was due both to a drop in the baseline in October 2008 and the rise in October 2009.

Based on the core of total less autos and gasoline, sales are sluggish although the components were mixed. Today's report shows the consumer still cautious about spending and should weigh on equities-especially with a significantly below expectations showing by the simultaneously release of Empire State manufacturing.

....from Barrons

A nervous short caves

I covered most of my short Friday at the close. The market was simply not selling off... at all. I have covered the rest in tonight's electronic session. There are still a lot of warnings signs, but the fact is the market is not going down and we are now in option expiration week. Not the best time to be short anyway. The dollar is starting lower too.

I will keep watching for price to start confirming my fundamental outlook. As of now, I am fairly market neutral.

FHA Travesty

This is repulsive. How can this be happening? This is not a secret to those who should be overseeing this government agency. Oh, and by the way... the FHA does about 80% of the mortgage market now.

Morning comments

As you can see the broad market has lost relative strength to the SP500 recently and had a meaningful turndown. The problem with yesterday, although breadth was very bad, there just was not a lot of volume.

Close

Breadth was just abysmal today. I am short with some more to add on small rallies. Be back with more later.

Going into the close

Getting into the usual pump time. This should be telling today.

Afternoon post

I am starting a small short again. Will see more as we go into the afternoon. Dollar stronger today, and crude oil getting smacked.

Breadth

We all know this market only goes up... but breadth has clearly deteriorated on these recent highs.

Morning Comment

There was a reversal after yesterdays first hour run up, but no real follow through. I am still looking to try again however, and if we go through yesterdays lows or trade under 1090 on the SPX for a decent amount of time, I will.

Also, we are having some interesting action in the Euro this morning trading through 2 days of lows. Remember the TD Seq. sell issued a few days ago. The Dollar drives it all these days so it is worth watching.

Why I still look to short

Some divergences...

One Caveat

This could be a fake out and not a break out. If we fail on the open and the SPX and the Naz 100 start trading below old highs, I will probably try again. "Thank you sir... may I have another?"

Out

New highs in SP and Naz... I'm out on a stop. I hate doing it but one has too. Small caps are lagging really badly... but one never knows where a market will go.... and this one has shown simply amazing resilence this year. Live to fight another day.

The Dollar

The Dollar Index that most people are familiar with is HEAVILY weighted against the Euro. So, I pass on that the currency pair generated a TD Sequential Sell signal yesterday.

DeMark on 30 min

We got a TD Combo short on the close yesterday on the 30 min cash chart of the SP500. The 15 min gave a TD Sequential Sell as well. Problem is they are in 3rd waves on the TD Wave count. Also, notice the TD REI has gone to its silent position of 0, as it is picking up the strong trending action.

Leaders Lagging

OK...I got a rally (I must admit yesterday was stronger than I anticipated). Some leaders I like to watch are really lagging this last rally so we will see what happens. As usual, most markets are moving tick for tick with the U.S. Dollar, so if it keeps making new lows I will probably get burned.