Market comments for Aug. 18th, 2011: We're headed down! (2 UPDATES)

Data released this morning on Initial Jobless Claims shows that we have gone back over 400K again to 408K. Expectations were for 400K. Last week's number of 395K was revised upwards to 399K.

Futures markets are down significantly but the Initial Jobless claims is not the issue causing it to be down over 225 points in the Dow Futures. Also this morning the CPI number for July was released and it is up +0.5%, which was a very inflationary number. Expectations were for only a +0.2%. These numbers when annualized show a very different picture. You see with only a +0.2% CPI, that at an annualized rate would give a2.4% inflation rate, but a +0.5% number, the annualized rate would be 6.0% inflation rate!

The Core CPI rate came in at expectations of +0.2%.

The German's DAX Index is down -227 points right now, or 3.7%, as its markets are open for trading. The UK's FTSE is down -2.5%, France's CAC 40 is down 2.9%. We are going to see a large sell-off in US Markets this morning!

Another factor of why stocks are down significantly worldwide are these comments made yesterday. This from Bloomberg news: "Federal Reserve Chairman Ben S. Bernanke’s pledge last week to keep interest rates near zero until mid-2013 was 'inappropriate policy at an inappropriate time,' Charles Plosser, president of the Fed Bank of Philadelphia, said yesterday in a Bloomberg Radio interview.

The comments from Plosser and Fisher put focus back on how committed the Fed is to the zero-interest rate policy ahead of Bernanke’s comments next week,” said Anders Eklof, a currency strategist at Swedbank in Stockholm. “The Fed has obviously been wrong about the economy, once last summer and then now."
Dallas Fed President Richard Fisher said the central bank shouldn’t enact policy to protect stock investors. Both officials dissented from the Fed’s Aug. 9 statement."

And lastly, here's a question for you: Where would you have made the biggest gains if you invested in Gold or Silver exactly one year ago? It's not what you expect. :) It was Silver! Silver gained over 53.8% while Gold gained 47%. Surprising isn't it!

UPDATE: 7:20am PST

Philadelphia Fed Survey data surprised investors this morning because the news was so terrible. The prior period's data came in at +3.2, while consensus was at +4.0, but the data actually came in at -30, as is shown in the chart below by Haver Analytics.


UPDATE #2: 8:45am PST

Consumer confidence in the U.S. economic outlook slumped in August to the lowest level since the recession, raising the risk that spending will dry up.
The Bloomberg Consumer Comfort Index’s monthly expectations gauge dropped to minus 34, the weakest since March 2009, from minus 22 in July. The weekly measure of current conditions was minus 48.3 for the period ended Aug. 14 compared with minus 49.1, which was the worst reading since mid-May.

The reality of the economy and the irrationality of the Fed and Wall St.

Yes my friends, new data released today defies the logic of the markets. First piece of news was that Michigan Sentiment came in lower than expected for December at 72.7. The prior months reading was 74.5 and the expectation for Dec. was 75.5. So much for that "good news"!

Then the Retail Sales number was reported at 0.6% for Dec. Expectations were for 1.0% for Dec. Nov. came in at 0.8%. So this clearly is in the wrong direction and includes the Christmas shopping data. Remember how they said it was a great season? Hmmmm.

The CPI came in at +0.5% for Dec. Expectations were for +0.3%, so that's in the wrong direction but Core CPI came in at only +0.1%, which excludes Oil for some reason. You don't need gasoline or heating Oil, right? That isn't a "cost" to you, right?

So how's the market reaction to this news? Well the markets were down before the news came out and now they are up! Go figure, it's QE2 at work distorting reality of the economy. Thanks Fed Chairman Bernanke!

Market comments for Oct. 15th, 2010

The big news today for me was Univ. of Michigan's Consumer Confidence number. It came in at 67.9 vs. 68.2 for September. So it is clearly lower. Market Expectations were for it to come in at 68.5. Other data released was CPI, which came in at +0.1% and Core CPI which came in at 0%. That is one of the reasons there will not be an increase in Social Security checks in 2011, there is no inflation according to these numbers which have been steady near zero, for most of the year.

Retail Sales improved +0.6% for September, was due to large purchase items they say. Expectations were for them to be 0.2%. Well it wasn't me that bought a large ticket item, just a small cute poodle. :)

Not much to crow about today for the Bulls as the market has dropped somewhat. The Dow is down about 25 points at the time of this post.

And as a Public Service announcement, today all late filers must file taxes which are due for State and Federal taxes. They must be postmarked with today's date in order to avoid late penalties.

Market comments for Sept. 17th (UPDATE)

Today is Options Expiration for September. The first economic data released this morning was the CPI for August. It came in at +0.3%. Expectations were for an increase of +0.1%, while for July the CPI came in at +0.3%.

Core CPI for August came in at +0.0%, while expectations were for +0.1%.

The third piece of data is that of University of Michigan Sentiment Index for September. Expectations are for 70, while last month a reading of 68.9 had been announced for August. This is the only number released this week, which is not subject to manipulation by neither the Fed nor the government. I will Update this post after the data is released.

UPDATE: 7:00am PST
Michigan Sentiment Index came in at 66.6 vs expectation of 70.0 and last month of a 68.9 reading. This is not good news for those hoping Consumers will be buying anytime soon. As soon as the number was released Volume jumped on the Dow to 161 Million shares and the market went form almost being up 40 points to dropping down 20 points so far! Remember 666 is the mark of the beast according to Christians, so beware! :) Here's a chart of the Index back in time. We have been going straight down in the past few months.

Yesterday’s data showed the Dow eking out a small gain of +22 points to 10,594. This resulted in a White Spinning Top candlestick pattern. For most of the day a Hammer pattern was in affect, but in the last 45 minutes manipulators came in to get the Dow into the positive. What was amazing was that many other indexes had candlestick patterns which were a Hammer and thus a Sell Confirmed signal was issued for these indexes. Those indexes are the following:

Dow Jones Composite Index
S&P Mid Cap
Dow Jones Banks
Dow Jones Air Freight
Dow Jones Broad Market
Dow Jones Cyclical
Dow Jones Durable
Dow Jones Industrials
Dow Jones Transport
Dow Jones Mid Cap
Dow Jones Oil Drillers
Dow Jones Container and Packaging

There were many more I did not choose to list. I think you get the idea. If you want a more complete list, click here.

I have done an analysis on Initial Jobless Claims, for comparative analysis purposes, from December 2004 through November 2007, as well as data from April 15th to yesterday's released data. It surprised me. During the 2nd half of the Bush term, from 2004 to 2007 you will notices that generally the data was in the range of between 290,000 and 350,000 Initial Jobless Claims per week.

The Unemployment rate during that same period was ranged by 4.6% to 5.5%. Here’s the Yearly data.
2004 5.5%
2005 5.1%
2006 4.6%
2007 4.6%
2008 5.8%

As you can see from the chart above, of the Weekly Jobless Claims, from April 15th, 2010 to Sept. 17, 2010, we have been range bound and there has been no appreciable difference in the data over the entire period. The solid straight horizontal dotted red lines show the range of the data from 2004 through 2007. We have a long way to go to get down to those levels. And looking at the chart below, an even more interesting the numbers go from 1967 to 2010. It is clear we are in a high range and are bound to stay that high until the economy improves. Government can't do the majority of the heavy lifting, but the Private sector can and will when Consumers are feeling better about their future.

Market comments for Aug. 13th: That's Friday the 13th bad luck! UPDATE

Here we stand on Friday the 13th all wondering whether the direction of the stock market will have a reversal today based upon the recent few days Candlestick patterns, because that is what the patterns say. We should have a minor reversal today. Economic data will not be the determinant today. It won't be the social mood of traders. It will be whether the Fed wants the market to go down another day ending the week.

Even though we expect CPI data today to come in near zero or a negative reading adding to the deflationary case that has been made by many including me, it will not be the decisive data to determine market trend. That direction will need one more week to be determined. Next Friday is Options Expiration for August and 2 weeks before the start of school. Speaking of the return to school, Retail Sales numbers will shed more light on the Consumer as its data is to be released momentarily. Dow Futures before the data release was at -27 for the Dow. So here is the data:

CPI for July came in at +0.3% The market had expected +0.2%. The prior month's reading was -0.1%
Core CPI for July came in at +0.1%The market had expected +0.1%. The prior month's reading was +0.1%

Retail Sales came in at +0.4%. The market had expected +0.5%. The prior month's reading was -0.5%.
Retail Sales ex Autos came in at +0.2%. The market expected +0.4%. The prior month's reading was -0.1%.

The Dow Futures have now moved more negative with the Dow Futures now at -50, so the initial quick reaction was more negative. TIME WILL TELL WHETHER THIS PLAYS OUT FOR THE ENTIRE DAY TODAY.

Michigan Sentiment comes in in about 1 hour and 25 minutes at 9:55am EST or 6:55am PST and I will update this post top add the data so be sure to check back if you are as interested as I am to post it. The market expects 70.0. The prior month's data was 67.80.

Be sure also to visit over the weekend as I will post some charts and show where we are headed and where resistance is on both the Dow and S&P 500. You see on a micro level it is much harder to determine short term market direction. But at a Macro level it is much clearer. Thanks for visiting the site. I also am going to post soon several non stock market commentaries. One will be on the Proposition 8 Court decision which took place this week reversing the ban on Gay Marriage on Constitutional Grounds. The other article I am working on is about opinions by the Chamber of Commerce on Prop 19 in California, which would legalize Marijuana use in California for adults. I have some definite thoughts on both topics.

As I finish writing this post, the Dow Futures have recovered to only -6. So it might not be that bad a Friday the 13th for the Longs but instead could be for the Shorts. Have a nice weekend.

UPDATE: 6:55am PST

Michigan Consumer Sentiment came in at 69.6%, which was not quite 70.0 but close and better than July.

Market comments for Aug. 12th. Initial Claims disappoint!

Initial Jobless Claims for the week came in at 484,000. This was again in the wrong direction for a recovery. Last week Initial Jobless Claims came in at 479,000 while only 460,000 were expected that week. This week they were expecting only 465,000 Initial Jobless Claims. And 3 weeks ago the Initial Jobless Claims came in at 457,000 so you can see the trend of Increasing Claims.

The Futures market dropped on most Indexes as the Dow is now at -70. This is not encouraging for those Long the market. It doesn't look like a snapback from yesterday's lows is imminent.

Tomorrow the CPI and Core CPI data will be released for July as will Retail Sales numbers and the Michigan Sentiment data. Be sure to come back here and not only see the data but to get my commentary.

Now a look at the chart of the Dow. You will notice that yesterday's drop of 267 points had the Dow go below the 200 day Moving Average. The same is true for the S&P 500 chart. Also notice that the Volume has picked up each day this week and yesterdays went above the average long trend volume. So the day was a significant Distribution day. Expect this downtrend to continue today with the news on the Initial Jobless Claims. The Hammer pattern discussed in the earlier post of Aug. 5th came through as a predictor of yesterdays' drop. It is worth the time to follow those Candlestick patterns.

Market outlook for July 16th (With continuous Updates)

Well the news came out this morning on CPI. First the actual data and then how the media is portraying it. The CPI for the month of June came in at -0.1%. For the month of May it was -0.2%. The Core CPI for June came in at +0.2% while for May it was 0.1%. That's the unvarnished data. Now here are the headlines I noticed across the internet this morning:

From Yahoo.com
Headline: Consumer prices dip for third straight month
Excerpt: "The Consumer Price Index, the government's most closely watch inflation barometer, dipped 0.1 percent in June, the Labor Department reported Friday. Less expensive energy bills were a big factor behind the drop. Prices for some food items, airlines fares, computers, telephone service and personal care products also fell last month."

From Bloomberg.com
Headline: Prices Excluding Food, Fuel in U.S. Exceed Forecast
Excerpt: "The cost of living in the U.S., excluding food and energy prices, climbed in June more than forecast, easing concern that a slowdown in growth will spur deflation. The so-called core rate of the consumer-price index increased 0.2 percent, the most since October and exceeding the 0.1 percent gain projected by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. Prices overall fell 0.1 percent, a third straight decrease and matching the median forecast."

So what's important to focus on her.I think the fact that the CPI is down for the 3rd straight month and in fact down for most of the past 6 months, but no one mentions that. You see yesterday in the NY Times, there was a column about the Fed being split at its latest FOMC meeting in that a number of them raised concern about Deflation for the first time. Quoting from the article, "Inflation has been running well below its unofficial target of 2%, so much that a few officials fear that the US is at risk of the kind of deflationary spiral that has hobbled the Japanese economy for the better part of 2 decades." So even here at the FOMC meeting is the deflation issue is creeping into the forefront of the news.

Now add to that how us real people feel and you get a better view of how things really are. Just out are readings of Consumer Confidence which is important because the Consumer makes up 70% of our economy they say. So here is the info on that: The survey's preliminary July reading on the overall index on consumer sentiment plummeted to 66.5 from 76.0 in June. So we know how things really are going and sooner or later the markets will have to follow suit and replicate the real economy no matter how much the Fed is pumping money into firms like Goldman Sachs and others to get them to manipulate the stock market by buying near the close of the market every day. Just look at 1 minute charts of the Dow or Nasdaq or any Index for the last hour of trading compared to the previous time during the day. You will be convinced if you are objective.

So the market has had a minor reaction to the news with the Dow down as much as about 180 points this morning. Let's see how the day ends. My guess as it always has been of late is that it SHOULD be down based on the evidence, but manipulation of the markets has not yet abated. Time will tell if sanity rules.

UPDATE: 8:00am PST
The Dow has managed to stay below the 50 day Moving Average again today and that is a good reversal from past couple of days. It puts the rise in the market on hold and sets up a declining trend. The 50 day MA is at about 10,250, while the 200 day MA is at 10,380. The other thing I like particularly about the day unfolding is that we are forming a Hammer pattern which stops the uptrend and reverses it. That would keep in tact the trend of lower highs (the first rally a month or so ago was to 10,594 and this one will have peaked at 10,400) and lower lows. This will mean that we will most likely go below the previous recent low of 9,614.

UPDATE; 8:30am PST
Volume is up significantly at 160 Million shares so far compared to yesterday's 210 Million shares traded on the Dow for the whole day!

Leading Economic Indicators for week of July 12th.

Leading Economic Indicators for the week are as follows:

Tuesday, July 13th:
Trade Balance for May. Market expects $39.5 Billion.
Treasury Budget for June. Market expects $70 Billion.

Wednesday, July 14th:
Retail Sales for June. Market expects -0.2%. Last month -1.2%
Export Prices for June.
Import Prices for June ex-oil
Business Inventories for May 0.3%.
Minutes of FOMC meeting released at 2:00pm EST.

Thursday, July 15th
Initial Claims
Continuing Claims
PPI for June. Market expects -0.1%
Industrial Production for June. Market expects -0.2%
Capacity Utilization for June. Market expects 74.1%
Philadelphia Fed for July. Market expects 10

Friday, July 15th
Core CPI, CPI for June. Market expects 0.0% & -0.2%
Michigan Sentiment for July. Market expects 74.0, and prior reading was 76.5%

In overnight trading the Nikkei is up 7 points at this hour. This is not reinforcing of the drive last week so only time will tell what will happen. If you are on vacation, enjoy it and visit here less frequently. Summer comes only once per year unfortunately. :)

CPI went negative again and Jobless Claims rose. Everything is just Peachy isn't it?

Reported by Bloomberg.com this morning, "The cost of living in the U.S. dropped in May for a second month, signaling the world’s largest economy is recovering without causing prices to flare." Now isn't that a cute way to describe deflation, "it didn't cause prices to flare"! Give me a break! What spin.

They also reported on Jobless Claims the following, "The Labor Department also reported today that initial jobless claims rose 12,000 last week to 472,000. Economists surveyed by Bloomberg had forecast a decline to 450,000, according to the median estimate." Hmm, off again these economists by a bunch! Are these the people we are relying on to tell us we are recovering. Wake up, we're not recovering. Ask any tradesman in your community how business is going for them. We had to hire a Dry Wall repair person. He said not much work for any Tradesmen because New Home Construction is non existent. He knows Electricians who have taken to drive a truck to get any work. He quipped, "Maybe we are being affected by the Gulf Oil Spill and can put in a Claim before we are homeless from the lack of work.

Friends, things are not really good in Camelot. But it's easier to think it is than to face the fact it isn't. I don't blame people for wanting hope. Today is Options expiration for June. I think the volatility will not emerge today as many shorts have covered over the past week or so causing this temporary rally. If there is anything to report today, I will add an update to this post. Have a nice June weekend and Happy Father's day to all the Fathers out there.

Where are we going?: Latest on the stock market trend both long term and short term

It's time for one of those posts where I take a very lofty view of the stock market and a minute view at the same time and explain to my readers how I look at the market from day to day when trading. To do this I have put up many charts staring as long as a 30 year chart of the Dow to as small as an Intraday of yesterday's trading. I hope this helps you at least see what I see. Let me start with the broad view using the Dow 30 year chart.

As usual, I will look at each chart observing "W" pattern formation. As I have noted here before, these "W" patterns are often referred to as Head and Shoulder patterns. I suggest you read up on on these patterns somewhere like Investopedia, which has a significant wealth of facts and lessons for any investor. Getting back to those "W" patterns, I will underline in red each "W" pattern I want you to be looking at and we will be looking for which way the slant of the line appears to be heading. If the line heads down, it implies the market will follow by going down below the bottom right leg of the "W". If the slant points upward, the market should go up.


Looking now at the Dow 30 year chart above, you will notice the "W" pattern of the stock price and the fact that it is slanted down. To me this means that although we have made highs of 11,000 recently and 14,000 before that, we are headed lower and should go lower than the previous low, which was at 6,400 on the Dow. That seems to contradict conventional wisdom by the "experts" on CNBC and others who have said any correction will go to Dow 8,000. If that were so, then the previous low would not have gone below 8,000 and there would be no slant of the "W" pattern. So that is one thing I wanted you to see along with me. But there is another interesting point to be made on this chart, but it doesn't involve the stock price, but rather, the Volume in the bottom section of the chart.

As you can plainly see, there has been 3 distinct periods where the Volume made a significant step up. I have drawn Blue lines to define each step. The first step was from 1980 to about 1988, the second step up from 1988 to 1998, and the last step up from 1998 to now. But in this last step, it looks to me that the Volume is increasing steadily over this 12 year period .Just think, the Volume was significantly lower just 10-15 years ago in the buildup to the year 2000 Dot.com bubble bursting. I don't know many investors who have increased their purchases of shares over these past 10 years and yet the Volume is over double the previous period. Part of the explanation could be that the bank shares like Citigroup, symbol C, have dropped in value so much that there are Billions of shares traded now compared to previous times, but that doesn't entirely explain it.

To me the only explanation is that the Government has been using its reserves to keep this market sustainable at these levels through firms like Goldman Sachs and others these past 2 years investing with nearly free money from the government. It's a way fro the government to make money too since the wealthy don't want to be taxed.

Anyway, I think this Volume will eventually drop as people get more scared and leave the market as their gambling table of choice. Any major market drop will scare a generation of investors away, as may have happened in the recent drop to 6,400 on the Dow. Ok, now let's move on to another chart.


This next chart above is off the Dow for the past 10 years. I have underlined several "W" patterns to show you again the predictability of this pattern at determining the market direction immediately after the "W" pattern is formed. Several of these in this chart show this to be true. You will notice the last "W" pattern I drew in red to the right of the chart appears to slant down. This will be clearer in shorter time period Dow charts to come. The other thing to look at on this 10 year chart is the volume spike near the low of 6,400, when Volume increases and price is dropping it is very bearish for the market. Same is true when the market is going up on high volume. However, if price rises on low volume, that too is bearish.


This 3rd chart above, shows the Dow for the last 1 year period. I have underlined a number of "W" patterns here as well. As you can see in this last period, the "W" pattern was flat. This implies the Dow moving sideways, not up and not down. It implies a tight range until the next "W" pattern emerges.


And lastly, the final 1 month chart of the Dow. I have drawn 2 red lines. Let's focus on the last one which points up. We can't tell much form this except that the market should go up from this latest rally the past few days, correct? However, the previous red line under the "W" pattern is slanted down and it has not yet been fulfilled. It may be a fluke. Remember I have said these aren't 100% accurate predictors, but rather about 90%. However, I conclude 2 things from this. First, is that while it might be a fluke, the Dow will not go too high from here. It possibly could go as high as Dow 10,500-10,600 range, as I have mentioned a few weeks ago. However, it may just fizzle out and return to another major drop on any negative trigger. I would be cautious trading here. And Volume is barely hanging in this past week at 200 Million shares where if you look at the 30 year chart it looks like the average for this period should be more than the 200 million shares.

So what do you do when the signals are mixed? I can't tell you what you should do, but I can tell you how I am thinking about it. Because the short term is so murky, I pull back to what I do know. That takes me to look at the 30 year chart. So while I mark time, I keep in mind that the overall trend will be down, so if I am going to buy any stock Puts, I can wait a bit and if the market rises, I should be able to get them cheaper. I most likely won't risk buying any stock Call Options either. And lastly, waiting until there is clarity is just fine as well.

I am sitting on a number of TZA Call Options. My latest purchase was for $1.55 each for a Strike Price of $9.00 for October. I also purchased some Puts on a Dow index stock I will keep nameless.

I hope this isn't boring and has been informative. Good luck out there. Next week the key Leading Economic Indicators I will be watching will be these:

Wednesday PPI, Core PPI, Housing starts, Industrial Production (expect PPI to be negative)

Thursday Jobless Claims, Consumer Price Index, Core CPI (Watch for Deflation in Core CPI numbers)

That's it from here. have a nice weekend. And remember, there is nothing wrong with taking profits and being in cash right now. It is the only safe place to be contrary to the hype out there in my view. To make this point further, click here on a video clip of Maria Bartiromo of CNBC's Closing Bell interviewing Bob Prechter of Elliott Wave International.

Where's the market headed? Some facts to consider.

I was trying to use news items to see the probability of the market going up versus down going forward. So I have listed all the things I could remember that would affect the market negatively and which would positively. Here’s a glance at them:

Positives:

-Stock market rallied this past year and recovered 70% of the losses from the lows.
-The SubPrime mortgage problem has run most of its course.
-The divisiveness of the healthcare reform Bill has abated and the Bill passed.
-Personal Savings has increased this past 1 1/2year
-The Dollar has rebounded from its low after the Euro has dropped significantly.
-The US Auto companies have been restructured to be more competitive and profitable
-The Banking system has been saved from total collapse and Deposits are insured by the government, for up to $500,000 per couple.
-Freddie Mac and Fannie Mae were saved from the brink of collapse
-The Stimulus plan has created some jobs.
-GDP was 3% in the first quarter
-Corporate earnings for the most part beat expectations (but expectations were set low last year. Top line growth has been muted but cost savings have led the way for earnings improvement.

Negatives:

-The debt level of the US is astronomical at a significant % of GDP
-The EU has had near collapse of Country debt for Greece and is threatened by similar issues from Spain, Portugal, Ireland, Italy.
-The Gulf Oil crisis is destroying habitat and livelihoods in the Gulf for years to come
-North Korea has threatened war against the South and us over the Missile torpedo on the South Korean ship
-The National debt will be increasingly difficult to pay as interest rates rise.
-People are afraid and causing GOLD and Silver to rise dramatically as they don’t trust currencies.
-Stock market is poised for a Super Grand cycle correction according to Elliott Wave Theory.
-New Home Construction is still down and Home Prices are continuing to go down.
-The CPI is near zero with all the Stimulus money throw at it and we are in Disinflation now and headed towards Deflation.
-Bank lending has tightened significantly and 3 Month Libor (rate the Banks charge each other for lending) rates have increased.
-Official Unemployment rate remains high at 9.9% while the unofficial rate, which includes those looking for Full time work from part-time workers is at 20%.
-Wars in Iraq and Afghanistan
-Issues with Israel for Obama Administration over building Settlements
-Latest incident of Israel raiding the flotilla of boats bringing supplies to Gaza
-Issues with Iran and Nuclear materials for possible bomb building.
-Terrorism: A host of attempts to terrorize us from Detroit bound passenger lighting his pants on fire to the Times Square attempted car bomb and many others trying to harm the US.
-The Tea Party movement
- Political divisiveness between Democrats and Republicans
-Arizona Immigrant laws newly enacted.
-Financial regulation not yet passed to prevent Too Big to Fail banks.
-Stock market looks poised for another selloff
-Now Fixed Rate Mortgage owners are going into foreclosure and rate appears to be increasing.
-Commercial Property is now feeling the problem with businesses closing and there are now an increasing number of For Lease properties For Sale. The U.S. national office vacancy rate of 17.3% was the highest in 16 years.
-Credit Default Swaps still are an issue and have not been resolved since the crash of 2008.
-Most Fixed Income retirees are getting in more and more of a financial bind and may have significant problems financially surviving in their retirement.

That’s my list. What does it say to you? Do you think that these can be overcome and drive the market higher this year or next? To me the Negatives far outweigh the Positives and my inclination is that bodes poorly for any chance the markets will stay at current levels for any prolonged time. The best hope I can see is that we won't go as low as I have predicted, which is below 4,000 to as low 2,500 on the Dow. Now that is truly scary!

Do you have any items you want to add either on the Positives or negative lists? Please feel free to make a comment with any additions you have.

May 19, 2010 Dow Chart pattern: Continuing Head and Shoulder pattern

I thought I would put up the latest chart of the Dow with my lines drawn to show the Head and Shoulder or "W" pattern formation so you know how far we are in completing the pattern and what is to be expected in the days ahead. The Blue lines on the chart are what has transpired up to today except that to the right of yesterday's data is how the "W" pattern could be completed. Understand the shape and timing of the rest of the pattern is unknown, but the shape of a "W" is clearly visible.

Today is starting out as a down day, as Futures point to a lower open but also, European country markets are all down at this time by more than 2.0%. Asian markets were down as well by 0.5% by the Nikkei to as much as 2.5% in Singapore Straits Times. For a clearer picture of market direction the next few days, watch the volume today to see if it is equal or greater than yesterday's Volume and how the price action goes, up or down. My bet is market will continue to go down this week and then rally up the beginning of next week before a bigger selloff in early June.

The VIX closed at 33 yesterday but I expect a spike between today and Friday of up to 40 again. The Put to Call ratio during the day yesterday stayed between the range of 0.87 and 1.02, which is not at the extremes of recent daily movement. I would expect this ratio to spike at the time of the reversal of the current drop. Without this spike, I wouldn't believe the move up in the market as the Bulls are wishing for, would be real. It would be more likely a pause in the down trend and not a return to the Bull rally of the past year.

New data out this morning for CPI was not good for Gold investors as the Core CPI for April was -0.1%, making this the 4th consecutive month of either zero or a negative number. This indicator clearly shows we are in a deflationary period. There is no real inflation and in my view this means no real recovery. Inflation will come in due time, but until the economy truly recovers, don't look for inflation. This makes the Gold trade look stupid right now as it is very speculative that inflation is about to rear its ugly head. I don't know how long the current Gold hype will continue but as soon as many recognize we are in a deflationary period, we will have a major selloff in Gold.

A philosophical view of the stock market and commentary.

Yesterday's market action was a function of fluctuations in currency movement and the same could happen today, according to Art Cashin of UBS Warburg on CNBC this morning. I don't know if that was the cause but there was a surge of the dollar at the open yesterday and, within an hour of the close, the Dollar dropped. Theses fluctuations are expected to continue as Europeans settle in on what they think about the Euro now in light of the 1 Trillion bailout of EU zone countries.

Having said that, we continue to be in a negative frame of mind in US markets. Today the PPI number for April came in at -0.1%, which is deflationary in itself. That continues to plague our economy as we have had negative CPI or zero CPI with all the money and stimulus the Fed has been actively creating. Even with this major effort, there appears to be deflation worries continuing and so far the Fed has not managed to abate this concern. Inflation watchers, rightfully so, keep looking for inflation to rear its ugly head. It has in effect with the rise in Gold and other precious metals, but not enough to turn the tide in the direction of inflation. There is contention on this topic in most Cable programs based upon commentary by their guests.

You would think this would be the most ideal time to pay down Federal Debt with nearly zero interest rates, but it appears for political reasons we prefer to pay the debt down when interest rates rise and the pain is greater. I just don't understand the shortsightedness of Americans. I do understand the politics of the situation, as we are a democracy where politicians are working to get re-elected immediately after winning an election and pain means sure defeat at the polls. Which is why the pain caused by our lack of backbone in dealing with these issues at a logical time is not great enough to make us move into action. That is why we had a Great Depression and why we are destined to repeat history again, unfortunately. This is why I favor the view the markets will drop significantly and shake us to the core as the excesses of the 80's to the first part of the 21st Century will shape a new generation of true fiscal conservatives. We need a cleansing and we are going to have one. That is why the markets do follow Elliott wave Theory and are based on Fibonacci numbers. It is based upon the very nature of man (and woman).

Market summary for June 17, 2009

The Market closed mixed today and the change was insignificant in all three Indexes. However, the big news to me today was that the Put to Call ratio closed at 1.13 which is the highest it has been in a long time. As a matter of fact, within the first 1/2 hour, the Put to Call ratio hit a high of 1.41. From the chart above you can see where that would have been, if it closed there. But still, 1.13 is getting up there.

I expect this to go higher before the market closes on Friday as Options are expiring each day. Today, VIX, VXN, RVX Options all have expired. Tomorrow morning settled index options cease trading. And on Friday, Expiring equity, P.M. settled index options and treasury/interest rate option classes cease trading. Expiring cash-settled currency options cease trading at 12:00 p.m. EST. The Quarterly Options Expiration doesn't occur until June 30th.

The volume for the Dow today was still significantly lower than the Moving average, but it was equal to yesterday's. The Nasdaq seems to have equal volume to its moving average. The Nasdaq gained 11 points today, the Dow lost 8 points and the S&P500 lost 2 points. The trend is still down for 2 out of 3 Indexes and the Dow has now fallen back below its 200 day Moving average. The S&P 500 is still above its 200 day MA but it is very close to going back below it again. The Nasdaq still has plenty of room above its 200 day MA.

Volatility was somewhat lighter today as the VIX closed at 31.54 today, down slightly from 32.68, which was yesterday's close.

Data announced in pre-market today was the CPI (Cost of Living Index). Many investors have been discussing perceived inflation concerns. But today, the CPI index came in at +0.1%, hardly inflationary. Yet many worry that eventually the heavy spending by the Treasury and the Fed flooding the market by printing as many dollars as the presses can turn out. I am sure eventually we will need to worry about inflation, but every sign I see is that we are still in a deflationary period. Everyone is dropping prices in hopes to gain more volume and sustain profits. But the Consumer is deaf to these announcements and continue to save cash rather than spend. As long as this continues, this economy is not going to recover anytime soon. You may not believe this but the best way of testing this premise is to ask yourself the question, Am I spending as much now as I did a year ago and am I going to be spending more over the next 6 months? Anyone want to respond, click on the word Comments and add your opinion as to how you are answering this question. Please also leave the name of the State you are living in currently.

Also, please don't forget to take the Mini Poll on how long you think the recession will last. Thanks!

Market stats coming week of Feb. 17th

This week has a host of data being released and the news is slanted to be terrible by most accounts. On Tuesday, the National Association of Home Builders will release its monthly sentiment survey, which has fallen to record low levels, with fewer than one in 10 builders confident about the business.

Industrial production is expected to have plunged again in January after falling 7% in the past six months. Economists surveyed were looking for a decline of 1.7%, following a 2% drop in December. The figures will be released Wednesday. Total hours worked in the manufacturing sector is seen falling 2.1% in January, with the number of jobs down in almost every industrial sector.

Continuing jobless claims have been at record high levels -- at nearly 5 million -- while initial claims have settled above 600,000 per week. No one knows what this week's data will show but many are expecting some very bad numbers.

The CPI is expected to rise 0.3%, and the PPI 0.4%, according to economists.

The Federal Reserve has warned it sees a risk of near-term deflation, but there's not much more they can do about that risk since rates are near zero.

With all this bad news pretty much expected, watch how the markets react. It is my opinion that the markets will hold and possibly rally on any news that seems to suggest we are near or at bottom or that maybe it is slowing the acceleration rate of these indicators. I particularly would watch how Apple stock reacts this week, as it is a good tech indicator of market direction. And what I plan to do is to again look for opportunities to buy the ETF, TNA, an Ultra short x 3 of the Small Caps. Watch volume for this week as well as it has been weak of late. Any high volume with a price rise will be most welcome and may cause the Shorts to cover.

UPDATE: Tuesday 5:45am PST

It looks pretty bad this morning in pre-market as markets around the World are negative. We must hold the lows of 7,300 on the Dow and 742 on the S&P 500 or we are in for some real pain. Dow futures down about 250 in pre-market. S&P 500 is down to 793 in pre-market. Today is shaping out to have a big drop at the open. The question will be whether we can recover today or are we headed to retest the very lows made earlier in November. Wall Street does not like with the Administration is doing with respect to the economic mess that Wall Street and the Bankers created in the first place. They don't like the restrictions on compensation put on them by the Congress and the Obama Administration. Fear levels are rising.