Stock market: Where are we going?

I thought it would be worthwhile to look at this past week and see where we ended up. In my last Blog post, I cited the fact that the 200 day Moving averages appeared to be a significant resistance level for all major indexes. This week proved that point again as we ended the week with only the Dow above the 200 day MA. The S&P 500, the Nasdaq and the Russell 2000 all are still below their 200 day Moving averages. Until we can climb above these indexes we are stuck from going higher.

The Put to call ratio closed the week at 0.93, not exactly a buy signal. The sovereign debt issues in Greece and in Italy took center stage in the early part of the week. Then the resignation of Greece's Prime Minister and the signal that Berlusconi of Italy may resign next. ALL THESE MOVES CLOUD THE FACT THAT THE DEBT ISSUES AND AUSTERITY MEASURES NEEDED TO RESOLVE THEM HAVE YET TO BE IMPLEMENTED. Stay tuned as the volatility will continue for the next 6 months. Even if austerity measures are passed by the governments, the people will be heard on these matters in ways that will frighten many. The people have only begun to make their objections known to the world and their leaders. In true democracies, leaders can be voted out or feel enough pressure to resign. This crisis is just in its infancy.

Don't forget that there are now only 11 days left before our Super Committee must agree to cuts in spending or automatic cuts in the military will be implemented. My guess is they won't do what's necessary and the US will be downgraded again by the S&P and Moody's rating agencies.

Here are the charts promised earlier:

Market comments for Nov. 9th, 2011

Sorry I haven't posted recently, I was away back east to see my Mom and when I returned I had caught a very bad cold. But I'm back now and let's get at it.

I have watched the rise of the Dow recently as well as the other indexes over the 200 day Moving averages. But todays drop of between 200 and 300 points this morning, shows the strength of the 200 day MA line as a resistance level. The market actions have not made sense given the news in Europe and the fact that our own government may get downgraded as well for a second time. Greece has not really solved its problem but they did replace their leader. Italy may replace its leader as well, but replacing the leader doesn't solve this crisis in either countries and more than it would here. The problems are similar and the pain will have an impact and it is human to avoid pain. So my guess is that these problems will unfold stubbornly over time. The only solution I can see is a breakup of the EU in some fashion. Either the countries of the south like Greece and Italy will not be part of the EU anymore and possibly Portugal, or the entire EU will eventually dissolve.

Below are the charts for the Dow, S&P 500, the Nasdaq and the Russell 2000 with their 200 day Moving Average lines. Unless the market can stay above these levels we are headed lower. Needless to say, it may be true again that the last rally we had was a bear trap. More on that over the weekend.

Germany in the news: Market drops over 5% (UPDATES)

Big news in Europe starts off this post this Labor Day. German Chancellor Angela Merkel’s party lost weekend elections in her home state, stoking concern opposition is growing to bailouts for debt-saddled European nations. This in turn has caused the German DAX Index to tumble over 5% with only a few hours to go in trading. I will update this post after their market closes. But I do have a chart of the DAX Index for the past few years and you will clearly see that they have broken below the current lows and the implication is that our stock market will follow suit tomorrow. This would accelerate the drop and almost assure a drop below 11,000 again. Here's the chart of the DAX Index:

You can see that todays last data point is lower than the previous recent lows, implying a drop below the red line. Looking back over the years you can see this is an important level not to go below. Their lows correspond to our low of the timeframe when the Dow went to 6,400.

Again I repeat, this week is very important not just here in the US, but also in Germany as on Wednesday there is a vote as to whether they will support the bailout of the debtor nations in Europe like Greece and Italy and Spain. Then add to that news, we have the President's Jobs speech on Thursday and the markets will have a reaction to these events. Stay tuned!

UPDATE: 8:45am PST
From Reuters: "Italian economic growth is likely to fall short of the government's official forecast of 1.1 percent in 2011 and 1.3 percent in 2012, probably coming in under 1 percent, a senior government source said on Monday. "It will be very difficult for Italy to reach 1.1 percent growth this year and next," the official, who spoke on condition of anonymity, told Reuters."

Italy's stock benchmark FTSE MIB Index was down 4 percent, with UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropping 5.8 and 6.2 percent, respectively. Markets are getting very rattled in Europe.

Another Update will be given when the German market and European markets close.

UPDATE: 11:05am PST
Germany's DAX Index closed at 5,246 today, down 5.3% at the close. Following Germany's lead were other European Indexes such as France's CAC Index, down 4.7%, Britain's FTSE Index down 3.6% and Italy's FTSE MIB Index which was down 4.8%. This should send ripples in Asian markets tonight and our US markets tomorrow.

Italy, CIA renditions and U.S. arrogance

U.S. State Dept. legal advisor in Brussels, John Bellinger, today criticized European attitudes to the U.S.-led war on terror, stating that some statements could undermine U.S.-Europe cooperation. This was in response to proceedings in Italy regarding CIA renditions on Italy's soil of a Muslim cleric back in Feb. 2003.

Is it any surprise that now even Italy, one of our few coalition partners in the war in Iraq, has misgivings about U.S. rendition program? I think not. The Italian people were against their government's support of George Bush's war of choice in Iraq. And since there is little stomach for turning the government upside down in Italy, their judicial system is demonstrating its power over its executive branch by moving these charges forward. Don't be surprised when Italy does officially request to extradite CIA officials responsible for the renditions. And don't be surprised when this Administration fails to do so. I applaud the Italian courts for taking this matter up in spite of the embarrassment of its senior government officials.

Democracy works when various branches of a government exercise their function of checks and balances. Maybe we could learn something from the Italians on this matter. Unfortunately, our Judicial Branch may be complicit in supporting this Administration's flagrant violation of International law. The ultimate question for our branches of government is as follows: If our elected leaders deliberately violate laws and treaties and someone brought charges up at the World Court requesting they be on trial for their crimes, would we as a people and a government support this by turning them over to the Court for trial? It is a valid question, as we find the idea congruent with our belief when other countries leaders are believed to have violated laws and committed crimes against humanity. One could make the argument what is good for the Goose is good for the Gander. But I do not think we have matured as a people to accept world authority over any leader of this country. We think we are above the very laws and treaties we expect others to uphold. And if they don't we are willing to let the World Court decide the appropriate justice as we did in the case of Slobodan Milosevic. Now do you understand why the world says we are an arrogant people? Well, in my humble opinion, at least this current crop of leaders are.