Pre-Market outlook for May 18th and more! UPDATE

European markets are up in oversees markets going inot the open this morning. The Nikkei however lost over 200 points in overnight trading. Dow, Nasdaq and S&P Futures are pointing to an up market at the open helped along by several pieces of news. One piece of news is about India. The election win, of the party of the Prime Minister Singh's Congress Party, has resulted in the biggest gain in India's stock market. It gained 17% and the Rupee gained 3.6% while the Bond market declined sharply, as many Indians see more continued growth and prosperity under the ruling party, going forward. Trading was halted in their stock market because of the sharp surge in the Sensitive Index or Sensex. According to these news reports, markets are euphoric.

The other news is about 3 Month LIBOR rates. It is at the lowest level in a long time. According to news reports, "LIBOR has dropped more than two basis points for the past four days. The last time it fell so much was in the four days through Jan. 13.

Some measures show financial institutions are still wary of lending after banks racked up more than $1.4 trillion of writedowns and losses since the start of 2007."

Also reported in the same article was this little nugget of related news: "The drop in Libor has less to do with rising confidence among financial institutions than it does with surging customer deposits, Jim Vogel, an analyst at FTN Financial said last week. Deposits at U.S. banks jumped by almost $400 billion in the past six months, contributing to reduced demand for loans in the interbank market".

So it looks like the American Consumer has finally decided to save rather than spend. It is my view that this is a once in a generation shift in the mindset of Americans and this trend will not change for a very long time, just as it had affected the generation who lived through the Great Depression and Crash of 1929 and the 1930's. So don't be looking to Consumers to just go out and spend anytime soon. It is also worth noting that the Consumer is responsible for 70% of the growth in the economy. If there were ever something to worry about, this news tidbit is it.

The market may rise at the open today, because of the India news, but believe me this will be short lived. Today after the Bell, Lowe's reports earnings and tomorrow Home Depot. As Jim Cramer, of CNBC's Mad Money, has pointed out on his show last week, they are both over weighted in their footprints in Florida and California and will give a read on the two States economies. Heck, I can tell you things are bad in California and the State especially manifests these troubles as unless the Ballot measures approved by State Legislatures is approved by Voters in a Special Election tomorrow, the State will have to lay off thousands of teachers, sell prime property assets to private investors, and release tens of thousands of prisoners from jails, as it can't afford to keep them jailed.

Bad times are almost a given here in California as it has exemplified the Sub Prime problem in State government by always borrowing to help someone without thinking of how to pay for it. The latest read on the Special Election Ballot measures is that they will be defeated and the State will face draconian measures under Governor Arnold Schwarzenegger.

UPDATE: 8:15am PST

Market opened higher as expected. Lowe's announced earnings and they beat analysts expectations but Revenues were down over 6%. And while the stock is up $1.17/share to $19.62, there are concerns that they have not reduced their inventory fast enough to keep up with falling demand. So the question is will this be just a 1 or 2 day rally for the stock.

Where's the stock market going next? Try wearing this story for size, down! (UPDATE)

I have not posted anything on the market since Saturday's post. In that piece I said the following, "The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely." At that time the Dow was at 8,574 and the Nasdaq was at 1739. Today the market closed with the Dow at 8,285 and the Nasdaq closed at 1664. While the Dow dropped 185 points today, the volume was less than yesterdays. Same was true for the Nasdaq Composite Index volume. I would have liked to see a bit higher volume but it just means the drive lower will be slow and not fast.

TZA gained $3.67/share today to close at $30.84 for a 13.5% gain for the day. FAZ gained $0.75/share to close at $6.17 for a 13.9% gain. That was a nice recovery for both Triple Shorts. The Put to Call ratio closed today at 0.89, not anywhere near the extreme highs we had for the past year. There's plenty of room for it to go higher. I hope you now believe what I have maintained for a while through difficult times for Short positions. I know your question so here's the answer. The market should go lower, in my opinion. If you want to know the slope of the downtrend just look at the slope of the 200 day Moving average line for the Dow and the S&P 500. The Indexes should stay below the line. On the Dow, the line now crosses the axis a little below 9,000. On the S&P 500, the line crosses the axis at 950 and on the Nasdaq, it crosses the axis at 1735. It will be the Nasdaq Index to watch. Since we closed today at 1664 we are just below it and have stayed below it the past 5 days. Before that, we were above it for 3 days. So the pullback is being led by the Nasdaq. Watch that index during the day to get a sense if we are going to go above it and stay there. I just don't think that is going to happen any time soon.

Another piece of info I learned today was that when the top 19 largest U.S. banks were Stress Tests, the oversees branches of these banks were not included in the test. Considering Europe is in worse shape than the US, it seems that the Stress Test results most likely would have been worse. This would have meant much more money would need to be raised by each of the banks failing the tests. When I say that Europe is in worse shape consider this Spain currently has 17% Unemployment. And consider this, many of the banks requiring to raise Capital are doing it all at the same time. This will dry up money for new investments and cause additional pressure on the banking Index and on stocks in general. This all points to the market going down.

Let me answer another question you might have. Is it too late to get in on the Shorts like TZA and FAZ? Simply put, no!

UPDATE: 6:00AM PST

Looking for more clues as to market direction this morning and Gold is now at $925/ounce. It is still going up. I think Gold will continue to go up as the market pulls back. Unemployment claims for the week rose to 637,000, an increase of 32,000 from the previous week. This shows that we have not leveled off in unemployment as many had hoped. Continuing claims, also reported this morning, are at the highest level since 1950, 6.56 Million unemployed. One other number worth noting is the 3 Month LIBOR rate which is currently at 0.854, this is the lowest I have seen this number in many years. It is the rate Banks lend to each other.

Also, Asian markets sold off last night and European markets are mostly down this morning. While our Futures point to a neutral open, I believe we will go lower for the day. Art Cashin of UBS Warburg when asked this morning about market direction he said we need to hold the S&P500 at 870 or above. If we break through that level it's then 862 and if we break through that level we go to 820. Art also said it needed to be watched carefully as we go lower, because of the difficulty in predicting how low it is going to go.