Market outlook: Correction ahead amid turbulence during Greek debt crisis

I had a close friend ask me my opinion of the markets last night. I gave it to him but thought I would use the opportunity and show a chart on my Blog. In the 5 year chart above of the Nikkei 225 versus the Dow, you will notice that the Dow appears ahead of itself compared to the Nikkei. The Dow has been behind the Dow for the past 3 out of 5 years but recently has gotten ahead of itself and risen too rapidly.

The Euro has hit an 11 month low on concern that the Greek debt crisis may not get resolved in time, as Germany shows concerns about the issue. Germany is showing reluctance to subsidizing emergency loans for Greece and this may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for Greece.

The Dow did hit 11,000 yesterday and looks as though it has petered out. The Volume for the past week is lower than it has been recently. When Volume is low and price increases, that is a bearish sign. However, I have been saying that since the Dow climbed back to 10,600 and here we are at near 11,000. As long as the government plays will the addition of more money into the economy through a variety of measures by the Fed and the Treasury, predictions are going to be impossible with any merit. As I have said many times before, the game is rigged and it is rigged more now than at any time in my lifetime.I continue to be cautious. Painfully, I still own my short positions even while I retain stocks and have benefited the ride up of the market with my long positions. This week I bought more shares of ZSL (a Silver ETF Ultra Short) at $3.78, as Silver climbed over $18/ounce again. ZSL correspondingly hit a new 52 week low of $3.65. As you can see from the 10 year Silver chart, we are at a high price for Silver comparing 10 years of data and I do believe this is a good reason for me to own ZSL, as we are bound to correct again back to $12-$13/ounce in my opinion. Time will tell. Stay tuned.

Do you believe in Santa? Don't, or you will wake up feeling awful in early January!

Well respected Harvard economist Martin Feldstein was on CNBC this morning and made a few surprising comments about the economic mess we are in as a Nation. First, he said, we will be lucky if we were at the bottom of this mess by the end of 2009 but he believes it will go well into 2010 and possibly 2011. He expects double digit unemployment and for it to also continue for a very long time. He said Credit markets are too dysfunctional and that the dramatic cut in interest rates, by the Fed, will have little, if any, effect in solving our problems. The side effect of the rate cuts are a reduction in the value of the U.S. dollar with respect to other currencies like the Euro and the Yen. And we have set the stage in years ahead to have to deal with Inflation for sure.

These comments were sobering and were made before the release of the Unemployment numbers. The Weekly jobless claims were 554,000 and continuing claims were 4.38 Million jobs lost. The Euro is now at $1.46 to the U.S. Dollar. Futures still look a bit up, as many want a Santa Claus rally. But even with a Santa Claus rally, the day of reckoning will come inn the first few weeks in January. There is no other thing to expect given the state of affairs. So if you want a make believe feeling everything is getting better, believe the rally enjoy your day or week, spend your money for Christmas, but don't come back here looking for a handout or sympathy in early January.

Art Cashin said he is concerned that when the Fed lowered interst rates it will have an effect on Money Market Funds, where millions of Americans moved their money in hopes of dividends He is afraid that since rates are now so low, that hundreds of billions of dollars may get pulled out of Money Market Funds causing another crisis, because they won't be paying any dividends.

A dose of reality will save you if you're irrational right now.The only reasonable play is being short the market into January using ETF's which are very liquid and easy to trade. We are nearer the top of the range between 7,300 and 9,500 on the Dow right now and may get closer to the upper band before Christmas, but watch for the lump of coal on Christmas morning.

We have been a "consumption" based society all my life and we really need to change that to a society which "saves" some of its income for rainy days. We can't live paycheck to paycheck and have no safety net and we shouldn't be teaching our children too either.