Saturday, February 28, 2009

End of Day/Week/Month 2/27

So many good song choices for this weekend’s situation that I just couldn’t decide which theme I liked best, so I’m just going to overwhelm you with tunes and let you decide. Just remember that once you click on a song, if you subsequently click on a chart, the tunes will end – bummer, I know. Perhaps it’s best to just read the technicals and come back for the tunes – like the markets, they are interesting to watch! You see, the markets are at a major crossroads, they are rollin’ & could soon be Tumblin’, and if you are a bull, they have got you under major pressure!

John Mayer and Eric Clapton – Crossroads:


The truth is that Citi has failed. GE is failing. The auto makers are already gone. People have seen the largest institutions collapse and yet their bank accounts still function and heck, even the store fronts are still there. Last night we drove by a WaMu retail space still in operation. Thus the people are not fully aware of what’s happened or likely to happen as this crisis progresses. Fear is low. Citi is a much larger institution than the ones that have failed to date, yet we don’t call it a failure, we call it, what, partial nationalization? Bank of America is next. Then what, Wells Fargo? What happens when we get to JPMorgan, the world’s largest holder of derivatives? No, there absolutely is legitimate reason to be fearful; fear levels by investors still do not match the underlying math and ramifications for the future.

The crossroads that we face as this situation has developed are getting more severe, the choices more difficult. So far, our actions are the exact opposite of those required for a good long term resolution. At each crossroad, the market has voted. It is talking in loud and clear terms. It is saying, “CUT THE CRAP!” Yet evidently no one is listening, no one in power hears. Or do they? And do they have a plan that will be implemented at the height of fear? Is that thinking like a conspiracy theorist, or is that just the fact of how events regarding money systems always unfold? Like the events that led up to the Bretton Woods Agreement in 1944 or to Nixon ending the gold standard in 1971. Each step has resulted in more leverage, lower banking reserves and greater prosperity for the banks. How about the people? Are they really better off? Or does it take two incomes, two full time working people who don’t have time for their children to afford the average home? Oh yeah, that average home is bigger and better, uses more energy and now requires more upkeep… but is the overall life better? Are Americans more creative or less? Are we more free, or less? Are these merely questions to ponder, or points that we’re willing to take action to change?

Many technicians are pointing to positive divergences in the Advance/ Decline line and the fact that we are near to completing wave 5 down as a reason that a large rally is coming soon. Some believe that wave 5 down will be followed by wave B up/sideways while others believe that we are still in wave B up/sideways from Last November and about to make wave C up.

Everyone is looking up, yet they are forgetting that no two bear markets are the same and wave 5’s can extend a great ways or that wave B doesn’t have to retrace a full 50% as they believe.

The markets are going to express the underlying fundamentals over time regardless… the math of debt is in charge, not the Federal Reserve. That’s why I think it’s important at this juncture in the markets to NOT get focused on any particular notion about a bounce or a crash. The fact is that we have been and are crashing, look at the monthly charts below! Crash or bounce from these oversold conditions? Either could happen and since it’s a ferocious bear market they can happen quickly and suddenly in either direction, usually doing the exact opposite of what is most expected. We must continue to use channels and other technical indicators to determine short term direction. The long term direction is still clearly down.

I believe it’s most likely that we’re in wave 5 down, but like I have said, wave 5’s can be any length. They can extend or they can truncate. And the truth is that sometimes the waves are not clear – that’s why we have various Elliott Wave experts at different places. Which one is correct? They will probably be arguing over it for decades. What’s working for me right now is to consider us in wave 3 down of wave 5 down. What’s disturbing is that this wave is beginning to look an awful more like the prior wave 3 down in October/November than the earlier wave 1. If that’s the case, the markets are now rolling and pretty soon they will be tumbling.

Cream – Rollin’ & Tumblin’


Let’s get to the markets:

Friday’s action resulted in the DOW losing 119 points (1.7%), the S&P gave up 2.4%, the NDX lost .9%, and the RUT lost 1% even. The XLF coughed up 6.5% as Citi gagged on a 39% loss from news that the government was now a 36% owner.

Internally, declining issues outnumbered advancing on the NYSE by 2 to 1, and by volume the declining side led with 77% of the volume, while the number of new lows expanded.

Let’s start by looking at the Advance Decline. A lot of technicians are pointing out that there’s a positive divergence here and that bottoms that last a while usually have these. A positive divergence shows that not all the issues are declining and that the market is being held down by only a small group. So, let’s examine the facts. In 2006 there was a HUGE negative divergence that lasted longer than a year and is way larger than any positive divergence now by quite a margin. Some technicians say they see this divergence in all the indices.

Let’s look first at the NYSE. Yes, there is a positive divergence here. You can see that the solid black line of the index has just equaled its last low, but the A/D line has not. That is a positive divergence, but it’s not huge:



Next is the NDX. Here you can see the index in black and the A/D line in red and black. Note that the A/D line is making new lows while the index isn’t even close. That’s a NEGATIVE divergence, not positive:



How’s the put/call ratio doing? Well, it zoomed on Friday up to a neutral .98, but bottoms usually come from higher:



Now, let’s look at the charts. I’ll tell you right up front that all the stochastic indicators are oversold, thus we either bounce or continue to crash. Also, there were several outside hammers that were produced on Friday. They can indicate reversal, but they must be confirmed by price action rising on Monday. Also, we are in wave 5 of 3 by my count. It could end at any time or it could extend.

Here’s a 10 minute SPX chart. The blue line was the November pin low which is obviously gone on a daily, weekly, and monthly close. That’s very bearish long term, but bounces can occur after penetrating key levels like this. Again, oversold on all timeframes with the stochastics – crash or bounce. Note that on my black channel there’s quite a bit of room for decline here:



The SPX daily candle shows the break and is just bearish:



The DOW daily is also bearish on rising volume. It is also near the top of its nano down channel, the same as the SPX:



Here’s our first hammer, the NDX. That’s an inverted clear air hammer and is normally a reversal indicator. This is very clean looking, but when I go over to the QQQQ to verify, it is there, but not so clean. Again, confirmation is required. I have seen these be bearish, thus its bounce or continue to crash. Any bounce here, by the way, does not necessary mean “rip your face off rally to the moon.” It could be short term if it happens or it could be a couple week up/sideways wave 4 of 5 prior to 5 of 5 down:



Here’s our second inverted hammer, IYR (commercial real estate ETF). Again, needs to be confirmed:



Black outside hammer on SRS, the 2X inverse of IYR. That sure looks like a reversal hammer – again need confirmation:



Next is a thin topped hammer on the XLF. Clear air too. Any rally on Monday would confirm:



The last hammer to show is the MONTHLY NDX. Here is an inverted monthly clear air hammer… it too will need confirmation and may just be bearish:



These hammers are interesting, I’m not sure how much faith to put in them. If the SPX showed it at all I would put a lot more weight on them. Again, because we’re so oversold and because we just broke a key level it could go either way, crash or bounce. If you look at this one year daily of the SPX, we are in the same place on this wave 3 as we were right at the beginning of October in wave 3 of 3 down. Then we were in a wave three, produced a large one day candle… then erased that candle over the next three days and proceeded to plunge from there in oversold conditions that are very similar to now. This is why I say its crash or bounce from here:



Now let’s look at some long term charts. Here is the DOW showing the monthly close below the 2002 lows and below the green 20 year LOGARITHMIC uptrend line:



Here’s the same chart NON-LOGARITHMIC. Note that after the 20 year trendline, the only two uptrend lines left are just above 3,500 and then all the way down near 2,000. Look at the potential support areas… There are some minor stopover points, but the next possible decent support is in the 4,000 area:



Here, on a 20 year chart of the SPX (non-logarithmic) it shows that we have broken support on the ’02 lows, but we came to rest almost exactly on an uptrend line that originates in the early ‘80s. It is possible that this offers some support, but that line is not in the same place on the other indices, so it doesn’t carry much weight, not to mention that it comes from so long ago. Again, look at potential support areas here and you’ll see there’s some possible in here, the 650 area, then the 450 area which corresponds to the 4,000 area on the DOW:



So, take a look at that last chart and tell me that the markets are not crashing. They are. Will we bounce a little in here? Possible, but I’d give the odds of an oversold crash about equal weight, maybe more if I compare what’s happening now to wave 3 down. Then again, I don’t ignore hammers. Thus, I don’t think it’s wise to bet your life savings one way or the other. If you’re going to play in this market, you’ve got to put a little money on the line, but you’ve got to manage your risk very carefully.

Overall, I don’t think there’s any doubt that the markets have got the bulls under pressure:

ZZ Top - Got Me Under Pressure:

Michael Hudson Interview...

So, here's a question... why does someone who is telling the truth have to be interviewed on the "Renegade Economist," and not by some "mainstream" media source? Once you answer that honestly, then you will understand the root of the problem. Many of you do, I know... but those who do not, please think it through.

Not so sure everything was as good as he states in antiquity, money systems did not last that long then either and went through periods of adjustments, so he is oversimplifying. Not sure I would condone blanket debt cleansing either. Interview is food for thought.

Six Minutes with the Renegade Economist - Michael Hudson:

Bill Moyer's Journal - Robert Johnson Interview...

Excellent interview. Appreciate your discussion/ thoughts after viewing. Nate's sounding less radical all the time. My take is his answers are only partial solutions - stimulus and bank fixing doesn't address all the debt already created and held by the people - 17 minutes total, well worth it!

Robert Johnson on PBS' Bill Moyers Journal PT1:


Robert Johnson on PBS' Bill Moyers Journal PT2:

Friday, February 27, 2009

Newsweek interview with Jim Rogers...

Newsweek interview with Jim Rogers. I’ll let him speak for himself… I agree with a lot of what he says, but will note he’s made some major errors in the past couple years, like being long China during the collapse as well as being long commodities. He’s been right about the banks and has a good fundamental understanding in that regard:
Jim Rogers Doesn't Mince Words About the Crisis

Maria Bartiromo talks to global investor Jim Rogers

By Maria Bartiromo

In 1970 a young Wall Streeter named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. The ensuing decades have seen Rogers build an iconoclastic career as an author, adventurer, and creator of the Rogers International Commodities Index. And throughout, Rogers—now based in Singapore—has remained an outspoken global investor. Today is no different. He has harsh words for former Fed Chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and thinks tough love is the answer for America.


MARIA BARTIROMO

What do you think of the government's response to the economic crisis?

JIM ROGERS

Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

You have said Bear Stearns and Lehman (LEHMQ) would still be around if Greenspan hadn't bailed out Long-Term Capital Management in 1998. Can you explain?

Well, if Long-Term Capital Management had been allowed to fail, Lehman and the rest of them would've lost a huge amount of money, their capital would've been impaired, and it would've put a terrible crimp on Wall Street. It would've slowed them down for years. Instead of losing capital, losing assets, and losing incompetent people, they hired more incompetent people.

Should AIG (AIG) have been allowed to fail, too?

First of all, banks and investment banks and insurance companies have been failing for hundreds of years. Yes, we would've had a terrible two years. But you're dragging out the pain. We had 10 years of the worst credit excesses in world history. You don't wipe out something like that in six months or a year by saying: "Oh, now let's wake up and start over again."

What about Citigroup (C)? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn't make the mistakes! I'm sure they'll give them the money, but I'm telling you, it's a mistake. It's a horrible mistake.

I totally understand what you're saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch (MERR)?

Stan O'Neal?

Right, Stan O'Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae (FNM), Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac (FRE) alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this?

Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We're going to have social unrest in much of the world. America won't be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn't have, it has led to higher inflation and higher prices. In my view, that's certainly going to happen again this time. Oil prices are down at the moment, but that's temporary. And you're going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what's happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades.

Mervyn King – Don’t Blame Him…

Bank of England Governor (central banker), Mervyn King, claims that he was “powerless, so keep that in mind,” and don’t blame him for bank failures!

Ha, ha… that’s hilarious. Of course England has NO, as in ZERO, bank reserve requirement. No, he had no control over that, don’t blame him for the banks leveraging up to infinitive heights.

Not taking responsibility while asking for taxpayer bailouts is a central banker recurring theme. Yes, they are at the heart of the matter and are to blame. It was his predecessors that met and signed onto the Bretton Woods agreement, and it has been them that profited beyond imagination while permeating the world with debt. It was central bankers who abandoned the concept of usury and it was them who manipulated and called for changes to the bankruptcy laws for the people, effectively preventing them from losing unsecured debt in the bankruptcy process. Yet, now that they are bankrupt, they don’t even want to go to court, they want the very same people who they charge 30% on their credit cards to come in and bail them out.

Mr. King looks scared to me, like he’s facing a crowd armed with stones. Don’t blame him; he’s just in charge of the entire regulatory system under which the banks in England operate:




By request, a great song choice for Mr. King. Like Point says, "Yep, just like no one was to blame in 1929, either."

Howard Jones - No One Is To Blame:


See, I do requests when appropriate! LOL

Fourth Quarter GDP Revised to -6.2%...

This is the worst report in 26 years, and much worse than the “experts” were expecting. Much of the decline was due to exports. What’s been giving us that clue? How about the Transports? The Baltic Dry and DOW Transport index have been shouting COLLAPSE. Now we’re seeing it. That’s what I have meant by saying the Transports are a leading indicator.

GDP slides 6.2% on export slowdown

A revised reading on fourth-quarter gross domestic product was its worst in 26 years.

NEW YORK (CNNMoney.com) -- The nation's economic slide during the last three months of 2008 was even sharper than previously estimated, with the broadest gauge of economic activity suffering its worst decline in 26 years.

Gross domestic product, which measures the output of goods and services produced in the United States, fell at an annual rate of 6.2% in the fourth quarter, adjusted for inflation, according to a preliminary report from the Bureau of Economic Analysis.

The decline was worse than the 3.8% drop that the BEA reported in last month's "advance" reading on fourth-quarter GDP. It was also the largest drop in GDP since the first quarter of 1982, when the economy suffered a 6.4% decline.

Economists had been expecting a 5.4% contraction, according to a survey conducted by Briefing.com.

In the third quarter, real GDP decreased 0.5%.
According to Econoday:

The initial estimate for fourth quarter GDP showed the recession is worsening with a sizeable 3.8 percent decline, following a 0.5 percent contraction the prior quarter. The economic decline was spread throughout the economy. The all important consumer spending component dropped 3.5 percent annualized. We also saw sharp declines in residential investment and business investment in equipment & software. Nonresidential structures investment dipped slightly and even exports declined. We likely will see a downward revision to the fourth quarter. But pay specific attention to final sales-which indicate how strong demand is. Markets did not pay much attention to it, but final sales fell an annualized 5.1 percent in the fourth quarter. How this figure winds up will play a key role in how first quarter growth ends up.



Don't worry, Mr. Obama, Mr. Bernanke, & Mr. Geithner... sure, spending more money we don't have will make it all better. Keep on believing, my wayward sons...

Kansas - Carry On Wayward Son:

Morning Update/ Market Thread 2/27

Good Morning,

Disastrous GDP report at -6.2%. Also the news that Citi will be forced to raise private capital in matching funds is weighing on the financials.

One of the points with the Citi deal is that all the preferred stock must be converted into common. All I can say is what’s the point? So much wasted effort and resources, we would be SO much better off letting the system go and starting over. That’s going to happen, mark my words. All the people who are trying to save the current system are simply going to lose. Hey, people didn’t believe me when I said WaMu wouldn’t exist nearly two years before it happened… it happened.

How do I know? I know because the math doesn’t work. The math doesn’t work for our nation as a whole, either. Thus major change is coming.

So, we’re going to open below the November lows on the S&P… too much bullishness as indicated by the put/call ratio. All those people were once again on the wrong side of the trade. Meanwhile, the Doc and I have just been drawing channels and counting.

If you look at the chart Doc posted last night, you’ll see that the bottom of the channel is all the way down about the 715 area today. Will we get there? Don’t know about today, but yes. The bulls HOPE that the market doesn’t close below the November low. Doesn’t matter. We already have a new closing low and now we have a lower pin low.

Be cautious, though, as sometimes the markets will rally after a breach of an important support level. We’re also expecting a larger wave 4 at some point soon, so getting a little protective is probably a good thing. If you’re betting on an all out collapse, you are taking a very big risk. Doesn’t mean it can’t happen, it can. What I do is take profits here, but I’ll keep something short just in case and if I see further technical breakdown, then I’ll jump in and use my entry point as a stop.



Honestly, there is not a lot of support down here, but a retest of the break is almost guaranteed.

The oscillators are oversold, too. So, the market’s definitely under pressure… the Doc and I are taking profits, but holding some short.

Have a good day, and best to your trades…

Billy Joel – Pressure:

Thursday, February 26, 2009

DoctorMad Update - Bears back in control, but for how much longer?

The General is seeing the battle over wave 3 down of 5 down coming to an end once this subwave is over. He knows that wave 5 can be tricky so he delineates the battlefield on his maps for you. I don’t know about you, but I think it’s a lot easier to navigate with a map. Thanks, Doc!

The bears took the short-term initiative back from the bulls with a sell off into the close that broke the wave 4 momentum. By all indications this is now wave 5 and wave 5’s can truncate at any point which means you have to be on your toes and be ready to issue a full retreat if the bulls start to mount an offensive and bring the heavy ammo (volume). The next retrace impulse is likely to be the start of a larger degree retrace wave 4 and I'd expect the bulls to make a strong run at re-testing the 800 trench on that move.



Bonds continue to drift lower even in the face of lower stock prices. It's imperative that the bond bears take out 125 or the bulls may have a double bottom to work with and we might get a flight into bonds for a few days. As long as the primary channel holds I'm going to continue to look to short bonds playing the spikes. The bears might have turned almost 30 years of bullish momentum in bonds back on Dec 30th of last year and shorting the long bond will be a good trade to have on this year...at least until the primary channel breaks.



- DoctorMad


I soon as I saw that phrase, “bears back in control,” I got Thin Lizzy going in my head. Just substitute the word BEAR for Boys and sing along!

Thin Lizzy - The Boys Are Back In Town:

End of Day 2/26

Right from the beginning of the day the bad economic news rolled out, one thing after the other – none of it good. How can it be otherwise with the math the way it is? Government intervention is not only too little too late, it’s at the root of the problem. It would also seen that the love affair with Obama is coming to an end as people begin to see that his budget is huge compared to his income and that he has already established a reputation of over promise and under deliver.

As a result, the DOW finished the day down 88 points (225 points off its high), the S&P gave back 1.6%, the NDX caved for 2.9%, and the RUT stayed weak all day finishing 2.1% down. Financials were relatively strong, but that fantasy will not end well, sorry. I laughed each time they reiterated on CNBS how the BKX was up 35 to 40% from the lows and has climbed the most ever in such a short time. I just wish they would teach these guys simple math…

Internals were only 8 to 7 negative on the NYSE but 8 to 5 on the Nasdaq. Volume was about the same relationship but there were ZERO new highs today on both.

I was thinking that just too many people were bullish earlier and then I saw that the put/call ratio fell to .68… that cinched it for me and I added short. Below is a one year put/call chart followed by a 3 year. You can see that readings this low are quite rare. We were just down at this reading a few days ago, and here we are again. Before that it had been more than a year. What happens is that everyone is convinced things are going higher so their money is already to work and there’s just nothing left to push it still higher… then down she goes! Once again proving that the majority of participants MUST be wrong when the reading get to the extremes – it’s simply a function of math:

1 year Put/Call:


3 year Put/Call:


If you’re following the daily market thread, you would have seen that I posted those charts just before this last decline really got going. It’s a team sport, whenever you see extreme readings, let us know!

On the bullish end of the sentiment spectrum the VIX fell low enough earlier in the day to trigger a bearish target on the P&F charts. I’m discounting that target unless I see us break that level again as it barely broke support and came right back up. If it breaks that level again then I believe it.

On the 10 day, 10 minute SPX chart you can see that we broke the blue wave 4 triangle. I think I see a clear EW count, so follow along – I generally don’t number the waves on my charts… The low 3 days ago was the end of wave 3 of 3 of 5 down. We then climbed up inside the triangle for wave ‘a’, went down for wave ‘b’, and then up to the top of ‘c’ yesterday just prior to the close and that’s where we began wave 1 of 5 of 3 of 5 down. Follow? If so, then this morning’s rally was wave 2 and we are currently in wave 3 of 5 of 3 of 5! I think this morning was, in fact, wave 2 as if you look on the NDX or RUT, this morning’s high was not nearly as high as yesterday’s – follow? That should leave us with whatever is left of 3, then 4 and 5 of 3 of 5… then a wave 4 up/sideways that should last about two weeks to equal the length of wave 2 time wise. That should be followed by wave 5 of 5. Wave 5 of 3 can be any length, but wave 1 of 3 was 65 points and wave 3 was 100 points. If wave 5 equals wave 1, then the target would be about 715, and if it equals 100 points it should reach about 680. It can truncate, so be wary of wave 5’s. While we’re here, let’s note that the short term stochastics are already starting to get oversold on the short time frames. Of course 741 is the key level to break here:



Zooming out to the one month daily, we find a pretty bearish candle. No, that is not an inverted hammer it is more of a solid body on the SPY. It’s funny, but the stochastic did trigger a buy today with my stochastic settings. They are still oversold, so they can cross again and stay oversold. Note that there is now plenty of room for further descent with the lower Bollinger. I note that the 768 pivot held again, and the next lower long term pivot is at 734 then 717:



Same thing happening on the DOW. Today was a lower volume day, but internally the volume was light near the highs and heavier on the declines:



Again, I do not believe that’s a true inverted hammer on the DOW as the DIA is not anything like it.



When we look at where all the money was hiding out, the NDX, we find that the higher they are the harder they fall. That is a nasty engulfing candle that closed on the exact low of the day and is only a fraction above the pin low from the 23rd. Look at how hard the bottom Bollinger is curled down to get out of the way:



The Transports are just a disaster and have been leading the market lower. Keep in mind that they are a leading indicator. They broke down to new lows nearly a month ago and have been dropping ever since:



Did we see a high for the XLF? Possible, but there is a small gap that doesn’t fill completely until about $8.80, so that black candle may or may not be a top. I’ll assume it is if the rest of the market is going to complete wave 5 like I think it will:



For those brave enough to play with gold, here’s a one month of GLD. The blue line is the major support it broke above earlier and here is the retest with an outside hammer right on support. If you were going to get long, today was the day as long as you use a stop just beneath that blue line. I did NOT go for it, but if it makes it back to the green 50dma later on, I will:



Overall I think the markets were telling Mr. Obama what they think of his budget and over promise/ under deliver style. Talk is cheap, it’s actions that matter and substantive change is MIA. I’ve been saying to everyone that will listen that’s it’s too little, too late, now the market is saying the same thing. Not my usual style of song, but the lyrics are very appropriate, just picture the love affair with Obama so far… you’ll get the idea:

JoJo - Too Little Too Late:


ALTERNATIVE ENDING:

Overall I think this “rally,” market/casino, heck, entire money system were destined to fail from the beginning. Same goes for Obama and his entire over promise/ under deliver administration! From the beginning I thought there was just too much bullishness - when I saw that put/call ratio below .70 I saw epic fail… from the beginning:

Emerson, Lake & Palmer – From the Beginning:


Hate to waste a good song title, but couldn’t resist.

Cast your ballot “funny” if you really like JoJo music

Or, click “cool” if you’ve liked E.L.P. from the beginning – LOL

Click “interesting” if you really have no idea what that EW count I described means!

Obama Proposes New Budget – It’s all about ASS.U.M.ptions…

Obama is claiming that he is cutting taxes… but as the article below shows, he is shifting taxes to the wealthy. That is, after all, all the government can do! They cannot produce or add to the nation’s productivity. All a government does is SUBTRACT from productivity and rearrange the chairs.

Setting aside $750 billion ($250 billion MORE) for the banks? That's a nice assumption - if you're a banker.

His new budget is making some assumptions that I just don’t believe match reality. He is claiming an economic growth rate above 3% for next year? HUH, really? Exponential growth is what is behind us. What lies ahead is not growth. I think Obama will find that his assumptions will not even be close. Falling revenues and increased expenses will only add to the math that simply doesn’t work.

He sounds great talking about acknowledging budget realities, and yet, he is NOT adhering to them. Yes, moving wars into the budget is more real, but what about obligations to Medicare, Social Security, the FDIC, on and on? How about bringing military and defense budgets out into the open?

The White House said this morning to expect $9 trillion in deficits in the next decade. I say that’s not even close. How are we going to finance all that debt?

His budget for this year forecasts a $1.75 trillion deficit - this year! Last year our nation’s TOTAL INCOME was only $2.7 trillion. If our deficit (non-GAAP) is $1.75 trillion, that only leaves $.95 trillion to meet all the current needs of government. That deficit is 65% of income!! How is that going to work? Here’s a hint, IT’S NOT GOING TO WORK.

Revenues are falling and will continue to fall for the government. America is about to learn a huge lesson in too much debt, too much military, and too much government. All will come down and it will be painful – get ready.
Obama unveils first budget plan

Spending and tax outline proposes dramatic health care overhaul - vows to slash deficit, projected at $1.75 trillion in '09.

By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- President Obama on Thursday pulled back the curtain on his first detailed vision of the federal budget for the next 10 years.

His outline includes an ambitious plan to reform health care, half of which would be paid for by increasing the tax bite on high-income Americans.

Obama has said repeatedly that his first fiscal plan would have a two-pronged mission: to reduce the $1 trillion-plus deficit and make big investments in the future.

The administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. That's a record in dollar terms and is the highest as a share of GDP since World War II.

Obama's promise: reduce the deficit he inherited to $533 billion by 2013.

"We will each and every one of us have to compromise on certain things we care about, but which we simply cannot afford right now. That's a sacrifice we're going to have to make," Obama said.

"What I won't do is sacrifice investments that will make America stronger, more competitive and more prosperous in the 21st century," he said.

Obama's outline also reveals how much more money he and his economic team are setting aside to stabilize the financial system. Their estimate: $250 billion. That would be on top of the $700 billion already authorized by Congress under the Troubled Asset Relief Program.

The document the White House delivered to Congress on Thursday is only a broad-stroke preview of the president's formal 2010 fiscal budget request, which is expected out in April. Lawmakers will spend the next several months debating and amending final legislation.

The Obama outline touches on the full scope of the federal government's spending and revenue collection efforts. Some of the highlights include:

Create a $634 billion health care reserve fund: The purpose of the fund would be "dedicated [to] financing reforms to our health care system," according to the budget outline. Among the fund's goals would be to aim for universality of coverage and reduce the growth in insurance premiums.

It would be paid for in two ways. The first, expected to raise $318 billion over 10 years, would limit how much of a deduction high-income taxpayers may take. Instead of reducing their tax liability by their top income tax rate, they wouldn't be allowed to reduce their bill by any more than 28%. So for every $100 in deductions, they would reduce their tax liability by $28.

The second way Obama proposes to pay for the fund is to achieve health care savings by, among other things, reducing payments to private insurance companies offering Medicare and reducing prescription drug prices. The administration estimates these efforts could save $316 billion over 10 years.

The budget outline also notes the $634 billion fund is "not sufficient to fully fund comprehensive reform" but is a first step in the process.

Let tax cuts expire for families making more than $250,000: The president's budget would allow the 2001 and 2003 tax cuts to expire for high income tax filers to help reduce the deficit. The White House estimates doing so could raise $640 billion over 10 years, although Obama's desire to extend those same cuts for lower and middle income families is estimated to increase the deficit by more than $900 billion during the same period.

Make permanent a number of tax breaks from stimulus: The president's budget seeks to make permanent the Making Work Pay credit worth up to $400 per worker ($800 per working family). It also seeks to make permanent the expansion of the child tax credit and the newly enlarged college credit now called the American

Opportunity Tax Credit.
Commits more money for renewable energy efforts: Obama's budget will call on Congress to create a cap-and-trade program in which companies would have to pay for permission to emit greenhouse gases. Revenue from the program is intended to pay for a $150 billion renewable energy fund among other things.
Budgeting is always about assumptions. Government are the very worst at forecasting… as more details come out, pay attention to assumptions, follow the flow of money – it is shifting from one group to another (mainly from everyone else to the banks, but also from the wealthy to the poor).


Obama Seeks $1 Trillion Tax Increase on High Earners, Companies

By Ryan J. Donmoyer

Feb. 26 (Bloomberg) -- President Barack Obama proposed almost $1 trillion in higher taxes on the 2.6 million highest- earning Americans, Wall Street financiers, U.S.-based multinational corporations, and oil companies, to pay for permanent breaks for lower earners.

The president’s 2010 budget proposal, released today, would reinstate the top two Clinton-era tax rates of 36 percent and 39.6 percent in 2011, up from the 33 percent and 35 percent that the wealthiest Americans currently pay. It would also raise taxes on capital gains and dividends to 20 percent for top earners, up from the 15 percent established by former President George W. Bush in 2003.

The tax increases, which Obama vowed to implement as a presidential candidate, would be the first on high-income earners since 1993 and would reverse a course set by Bush of lowering the tax burden on the nation’s wealthiest people.

“It’s a clear repudiation of Bush’s policy,” said Peter Morici, an economist at the University of Maryland in College Park. “It’s more Obama Robin Hood.”

Obama’s budget does keep in place Bush’s tax cuts that benefit lower- and middle-income earners and it preserves a sliver of policy that benefits the more affluent: A preferential tax rate on corporate dividends. Before Bush, dividends were taxed as ordinary income, or at rates as high as 39.6 percent in the 1990s.
“It is a hugely positive step to keep that part of the ‘03 changes,” said Pamela Olson, who was the top tax official in Bush’s Treasury Department in 2003 when the tax rate on dividends was reduced. “It’s good economic policy, good corporate governance policy, and good tax policy.”

Additional Burden
Higher-income earners, primarily families with more than $250,000 of income, would face an additional tax burden under a proposal to reinstate limitations on their itemized deductions, which would subject more of their income to tax. In all, top- earning households would pay $636.7 billion in additional taxes over the next decade, Obama’s budget estimates.

The higher taxes on individuals will largely be used to pay for expanded health coverage for lower-income Americans and to make permanent Obama’s tax breaks such as a payroll tax credit worth up to $1,000 that was adopted on a temporary basis in the $787 billion fiscal stimulus measure earlier this month.

Executives at private-equity firms, venture-capital firms, some hedge funds and other partnerships that receive a 20 percent “carried interest” in the firm’s profits would see their tax burdens nearly triple under Obama’s budget.

Tax Like Wages
Most of their carried interest currently is taxed at the 15 percent rate for long-term capital gains. Obama is asking Congress to tax the profit share as ordinary income, arguing that it’s a form of wages; under his plan, most executives would pay 39.6 percent.
That proposal will likely reignite a debate that was waged by Congress in 2007 when the House of Representatives approved the change and the Senate never considered it.

Obama proposed $353.5 billion in higher taxes on corporations over the next decade, the bulk of which would come from “reforming” rules that allow U.S.-based multinational corporations such as General Electric Co. to defer U.S. tax on profits they earn overseas. GE has about $75 billion offshore on which it has never paid U.S., according to its regulatory filings.

Obama’s budget estimates such reforms and beefing up Internal Revenue Service enforcement of international tax rules would generate $210 billion in additional revenue over the next decade.

‘Last-In, First Out’
He also proposed ending a tax accounting technique called “last-in, first out” or LIFO, that primarily benefits oil and gas companies but is widely used across industries.
Republican senators in April 2006 floated such a tax increase but backed off after Exxon Mobil Corp. Chairman and Chief Executive Officer Rex Tillerson called the proposal a “backdoor windfall-profits tax.”

In addition to oil companies, the repeal of LIFO would hit retailers, automakers and makers of non-automotive heavy equipment, textile makers, consumer products, drug companies, alcohol and tobacco manufacturers and wholesalers, according to tax experts.
The accounting method has been commonly used since the 1930s and is viewed as the most accurate measure of income for financial statement purposes, according to the congressional Joint Committee on Taxation, a nonpartisan panel.

Oh, I know this song is corny as hell, but let's face it... our government is being run by central bankers who have convinced Obama that giving them an additional $750 billion this year is appropriate. It's not, its thievery. Sorry to insult the gypsies by grouping them with the thieves, but it was Cher who wrote the song, not me:

Cher - Gypsies, Tramps & Thieves:

New Home Sales Lowest Ever – Months of Inventory Rockets…

This is the lowest print ever recorded. Record keeping began in 1963. What’s shocking to me, even more so than on existing home sales, is the inventory numbers. Even though permits are falling and new starts are plunging, inventories are BUILDING in terms of months supply available – it came in at 13.3 months!
New-Home Sales in U.S. Plunge to Record-Low 309,000

By Courtney Schlisserman

Feb. 26 (Bloomberg) -- Sales of new homes in the U.S. plunged in January to a record low as soaring unemployment and mounting foreclosures drove buyers away.

Purchases dropped 10 percent to an annual pace of 309,000, the lowest level since data began in 1963, the Commerce Department said today in Washington. The median price decreased 13.5 percent, the most in almost four decades.

Even as they slash prices, builders are likely to keep losing customers as foreclosures drive down the value of existing homes further, making them comparatively more affordable. The Obama administration is making a priority of keeping more Americans in their homes to stem the collapse in property values at the root of the credit crisis.

“There is a risk that you continue to see foreclosures and you continue to have new inventory added to the market that prolongs the adjustment process,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report.
Housing and Urban Development Secretary Shaun Donovan said today 6 million families in the U.S. may face foreclosure if policy makers don’t act faster to stem the housing decline.

Stocks Rise
Stocks rose, recouping yesterday’s losses, after President Barack Obama’s budget proposed as much as $750 billion in new aid for the financial industry. The Standard & Poor’s 500 Index rose 1 percent to 772.32 as of 10:15 a.m. in New York.

Economists had forecast new-home sales would fall to a 324,000 pace last month from a previously reported 331,000, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from 291,000 to 350,000.

Orders for long-lasting goods fell in January for a record sixth consecutive month, and the number of Americans claiming jobless benefits last week jumped to the highest level since 1982, other reports today showed.

Bookings for durable goods dropped 5.2 percent, more than twice as much as projected, figures from the Commerce Department showed. The number of initial claims for unemployment insurance jumped to 667,000, and a record 5.1 million out-of-work people were receiving benefits, the Labor Department said.

Median Price
The median price of a new home decreased to $201,100, the lowest level since December 2003. Sales of new homes were down 48 percent from January 2008.

Weekly Jobless Claims 26 Year High – First time ever above 5 million continuing claims…

Durable goods also dropped TWICE that expected. People getting ahead of this data looking for a trend change are just early in my opinion – way early.
U.S. Initial Jobless Claims Rose to 667,000 Last Week

By Shobhana Chandra and Timothy R. Homan

Feb. 26 (Bloomberg) -- First-time claims for U.S. unemployment benefits unexpectedly rose last week and total benefit rolls soared to a record high, a sign companies may keep shedding jobs as the recession worsens.

First-time unemployment applications increased by 36,000 to 667,000, the highest since 1982, in the week that ended on Feb. 21 from a revised 631,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls rose in the previous week by 114,000 to 5.112 million.

Job losses are crippling the consumer spending that makes up about 70 percent of the economy, threatening to prolong what may be the worst recession in the postwar era. President Barack Obama is counting on his $787 billion stimulus to help stop the slide by creating 3.5 million jobs, and on a separate plan to keep Americans struggling with mortgage costs from losing their homes.

“The labor market weakness has not found a bottom,” said Rudy Narvas, a senior economist at 4Cast Inc. in New York. “The payrolls report for February could be really bad.”

February payroll figures, due from Labor next week, may show job cuts exceeded half a million for a fourth consecutive month, according to a Bloomberg survey. The unemployment rate probably climbed to 7.9 percent, the highest level since 1984.

Already, the 3.6 million jobs lost since the U.S. recession began in December 2007 mark the biggest employment slump of any economic contraction in the postwar period.

Durable Goods
Another report today showed orders for U.S. durable goods fell for a record sixth consecutive month in January. The 5.2 percent drop was more than twice as large as projected and followed a 4.6 percent drop the prior month, the Commerce Department said in Washington. Comparable data began in 1992. Excluding transportation equipment, orders fell 2.5 percent.

First-time jobless claims were estimated to have fallen to 625,000 from the 627,000 initially reported for the prior week, according to the median projection of 40 economists in a Bloomberg News survey. Estimates ranged from 600,000 to 700,000.

The four-week moving average of initial claims, a less volatile measure, rose to 639,000 from 620,000, today’s report showed.

The number of people staying on benefit rolls rose more than expected. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, increased to 3.8 percent, the highest since 1983, from 3.7 percent in the week ended Feb. 14. Six states and territories reported an increase in new claims for that same period, while 47 reported a decrease.

Morning Update/ Market Thread 2/26

Good Morning,

Futures are up this morning, bonds are down.

AIG is reportedly working on a plan that would break the company up and to sell assets, but evidently that plan is running into problems this morning. Still, the stock rose a lot in percentage terms last night. At this point I would have to assume that any attempt to do break the company up would be yet another company playing the shell game to hide good assets in one company and to push the crap off to be abandoned later. The shell game is completely illegal and yet our government has not stepped in to stop the nonsense at all, and in fact have been promoting and sponsoring it. This type of activity is reprehensible; it deprives creditors and employees from getting to the good assets for any type of recourse. This is why we have bankruptcy laws so that supposedly an adult can get in and distribute what’s left. Frankly, this should make Americans furious as we have pumped billions into AIG. Is there anyone looking after our interests? If so, they better get on it.

Let’s run down the rest of the headlines, I’ll post an employment update later:

• Jobless claims jump to 26 year high, continuing claims rise to another record, first time ever above 5 million. 667,000 filed last week, economists were predicting a drop to 625,000.

• GM lost 9.6 billion unbelievable dollars in the 4th quarter… did I mention unbelievable?

• Obama’s budget sees $1.75 trillion deficit for this year. Not that I like the GDP number, but it’s 12.3%. Here’s a better comparison… Total tax receipts last year totaled $2.7 trillion… that puts the $1.75 trillion at 65% of income!! And that’s non-GAAP accounting, not including future liabilities! Oh, there’s $750 billion in there to help the banks… who wrote that budget? A banker? YES! Who do you think is giving Obama all this wonderful economic advice? WAKE UP AMERICA!

• Oh, Citi is close to announcing a deal w/.gov… again. I can’t wait. It’s not nationalizing. Oh yeah, we’ll MAKE money on that deal.

• Durable goods orders dropped 5.2%, twice as much as expected. This was the sixth consecutive month of declines.

New home sales data comes out soon.

Right now I show us on the edge of the triangle, just beneath yesterday’s high, and just outside of the down channel. I will respect a break of the triangle as it would be the second time if it occurs.

There was a small change in the McClelland Oscillator yesterday which means a large movement in price should come today or tomorrow, direction not indicated by that reading.

The stochastic oscillators are near overbought on the 30 and 60 minute timeframes providing room to move higher, but there’s much more room lower.

Although I have the DOW and S&P peaking out of the top of the triangle now, the RUT, NDX, and Transports are still well inside. Bonds are down again…



Have a good day,

Nate

Wednesday, February 25, 2009

DoctorMad Update – Hard to scare a General!

He may be tough, but he knows how to look after his troops and certainly doesn’t want casualties on the battlefield. This General knows where the trenchlines are and doesn’t hesitate to call a retreat once an important line is crossed. That’s trading smart and by the rules of the casino… errr, I mean war.

Did the bulls scare you? Well they scared me, just a little though, and by the close not much at all. The bulls broke the wave 3 channel on the SPX convincingly at the beginning of the closing hour. However, they got slammed back just about inside the channel by the time the bell rang as Obama gave yet more rhetoric and no meat right into the close. On the ES futures we are clearly back inside the channel as we head into the overnight and by all indications this still looks to be wave 4 of 3.

Despite all of the heavy volume whipsaw action today we remain basically in the same position as last night with the bears still (barely) in control of the wave 3 channel. The key lines on the medium and longer term remain for the bulls to defend SPX 741 and for the bears to hold the 800 trench that gave them so much trouble on the way back down to the lows. Any more up action and I issue a retreat and fall back to the 800 line before redeploying short troops.



The easy trade of the day was to remain short bonds. We traded down strongly all day no matter what was going on in equities and closed just a point above new lows for this down move. We now have a little more breathing room from the top of the channel which remains my stop out.



-DoctorMad

Ron Paul Questions Bernanke - Must View...

I found both pieces of Ron Paul's testimony. His first two minutes NAILED IT. He is the ONLY one speaking the TRUTH. Watch the reaction at the end... sad and disgusting. No one wants to hear it and all the other Senators are showing their allegiance to the bankers. He is 100% correct!

Ron Paul Questioning Ben Bernanke - 2 minutes:


Notice the fake "slight" and big interruption during Paul's question. Just a few minutes later, CNBS cut out of this segment on air, but you don't see that here. At the end, he gets cut off again. Our media and people like Barney Frank will get theirs in the end. Ron Paul is correct, yet they treat him like he's a moonbat. He's the only sane one in the room all the others are moonbats! The truth always resonates and they can't stand it... very sad:

Later in the day - 5 minutes:

End of Day 2/25

Boy, did today leave you dazed and confused? You’re not alone as I can tell by all the dojis that were produced today. I would have been happier ending the day with a positive close and a nice hammer, but instead we got the big indecision doji candle – a mixed picture to be sure.

On the day the DOW closed down 80 points, the S&P closed down 1.1%, the NDX finished down .9%, and the RUT gave up 2.7%. FSLR was notable, losing 22% on the day. Oil finished higher and gold was down sharply again.

Internals showed declining issues over advancers by a 3 to 2 margin and the volume was just about 2 to 1 negative. Diverging against prices, however, was the number of new lows which rose today over yesterday. The put/call ratio bottomed at .79 and finished slightly higher at .85.

Let’s start on the charts by looking at a 20 day, 30 minute SPX chart. I was thinking wave 4 was done with yesterday’s move, but now it looks like wave 4 produced a triangle (in blue) that overthrew this afternoon and broke back inside. That pattern is almost complete if that’s what’s happening. I think so; all the indices have it except for the RUT which is just bearish. Overthrows have been so common in this market that I just plan on them. Note that we closed beneath the 768 pivot again… typical wave 4 actions. It also looks like an abc off the bottom on the 23rd and if you drill down into a 5 minute chart today’s ‘c’ has a clean 5 wave pattern to it. The 10 minute stochastic came down off overbought, but the 30 and 60 are in overbought or just coming down from that range:



Now let’s look at the daily SPX, one month. Big fat spinner, still inside the down channel. Earlier the daily stochastic looked like it was going to issue a buy, but it backed off. Honestly, I can see that if the doji is a continuation, then higher might be in the cards, but that triangle was entered from above, looks like a wave 4, and should break lower:



The DOW daily is basically the same picture. While the volume is slightly lower here, it is slightly higher on both the DIA and SPY. Almost a buy on the stochs with my indicators, but not quite:



The NDX is next, a classic doji, almost right in the middle. Again, still in the down channel:



Next is the RUT. No spinner because it never made it back up into the range, a bearish divergence from the rest of the market. Remember that the RUT has been leading the market both ways. The 400 level is key support that’s held for four days now:



Here are the transports… That’s no doji either; it’s pretty bearish and spent most of the day beneath yesterday’s low. The only thing bullish about that is that it did manage to close above that support. But tell you what, that just doesn’t look like the key reversal that some were hoping yesterday’s candle would be:



Here’s an updated chart of TLT (20 year bonds). The parabolic collapse did get arrested, but the movement has been sideways while the equity markets have crumbled. Today was a big down day and took it right to the bottom of that large flag. The twin red parallel lines mark an area on the chart where there’s an open gap still waiting to be filled. We break that flag going down and interest rates will be moving higher:



Last chart is six months of the dollar with the SPX behind it. The dollar made a pretty good move up today keeping the uptrend into the prior highs in tact. Breaking out to new highs would be very bearish for stocks, while breaking down would be bullish. Keep an eye on the dollar since we’re in this critical area:



Overall we remain in the down channels and look to have produced a triangle for wave 4 of 3 down. Yes, that count could be wrong, but I don’t think so. We should get resolution soon and a break above that triangle a second time would be something I respect. Doc has a great wave 4 saying that I like, “placing money on it should feel painful!” Ouch.

Guess that crystal ball is a little foggy, I was looking for a hammer and got a doji – Hey, it can’t be me, the market’s still dazed and confused!

Led Zeppelin - Dazed and Confused: