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 Oct. 26th, 2011

The stock market Futures point to a positive open, as the world waits in anticipation of meeting in Europe over the debt crisis. Germany's Lower House of Parliament voted that they would support an increase to the European Stability Fund and supported Merkel to help to bail out Greece, as they will be contributing a significant share of the overall bailout from their funds. That created the bump in the Futures this morning.

Back here in the US, the data this morning on Durable Goods orders for September was not good, coming in at -0.8%, but the spin by the media focused not on this number, but rather Durable Goods-ex Transportation, which came in at 1.7%. Isn't spin wonderful.

Market comments for Oct. 25th, 2011

The big news this morning really came within the US, as the Consumer Confidence number was released for October. It came in at a 39.6 reading compared to September's reading of a 45.4 reading. This is the lowest reading in a while as the chart below indicates and if it continues this low for the next few months, Christmas season for Retailers is going to be very poor.


Nothing yet settled in Europe on the Greece debt issue and bailout attempts. There is a meeting tomorrow of the group and Germany will be voting at the same time as to whether they support it or not.

Where's the S&P 500 headed?

I thought I would reward those frequent visitors with a second post this weekend. Today's chart is of the S&P 500 and I have drawn some lines on this 1 year chart, as to where I believe the S&P has resistance and will be difficult to overcome. First the chart and then the commentary.

I have drawn 2 red lines and 1 blue line. As you can see with the red line labeled 1, that we have broken above this level this past week. The next challenge for the Bulls is to cross over the red line 2 which crosses the axis at 1240. If it crosses above 1240, then the obvious next resistance level is at 1265. The S&P 500 closed Friday at 1238. I can't guarantee that we won't go up to test the 1265 level, so you might want to entertain the possibility, depending on the news coming out of Europe, we could surge up this week and test it. If the news is mixed from Europe, we may stay between that narrow wedge between both red lines, between 1220 and 1240. But there will be a breakout soon in one direction or the other.

I do not see a rosy outlook in the markets unless the government would rather continue to prop them up. The day of reckoning will eventually come, both here and in Europe and when it does, it will infect the rest of the world. Much of the media's attention has been on China lately as well. This economic crisis and debt crisis, which has caused a slowdown in Europe and the US, is already affecting China. I am watching India, as I see India as the canary in the coal mine. Here are some headlines from India as of this morning to emphasize my point about India:

- States must reduce fiscal deficit since debt position has become difficult in many states: Montek
- PM wonders if 9% growth feasible. The government now expects growth of close to 8 percent this fiscal year.
- India can achieve 8-8.5 pc growth despite global crisis: PM Manmohan Singh says India can 'swim against the wind blowing from abroad'.
- Food inflation back in double digits. Inflation rises sharply to 10.6 pct for week ended Oct 8 from 9.32 pct.
- Mineral output down 5.99% in Aug. India's production of minerals was valued at Rs 13,378 crore, the government said today.
- Consumer Price Index jumps 1.2% in Sep. Expensive food, clothing and fuel pushed up the CPI by 1.25 per cent in September.

So keep your eyes and ears tuned into what is happening in India. Here's the latest piece of news about the Stock market:

Mumbai: Taking positive cues from the US markets, Indian bourses may open with gains but the mood is likely to stay cautious as the RBI meets on Tuesday to take stock of inflation and European leaders moot a solution to the eurozone debt crisis, say analysts.
The BSE benchmark Sensex last week shed 1.73 per cent on high inflation and mixed global cues with downward bias.

"Stock market will trade taking cues from day-to-day basis as this week is going to be an eventful one.

If you too would like to follow the news in India click here to India's Financial Express.

Stock market trend and prediction going into September and beyond

It's the weekend and we have time to think, rather than do. So this morning I am going to put up a number of stock market charts and analysis to try and make sense of where we are and where we are headed. It has been a tumultuous few weeks and many are glad we have them behind us now. The past 2 days advance to yesterday's August Options expiration got many nervous. They thought we were on our way back up this week only to finish down, back at or near the recent lows, depending on which Index and Country's stock market Indexes you were looking at.

With that background, here are some 3 month charts of selected European Indexes, which should help you conclude that the recent drop in US stock markets isn't just about the US. But first 3 charts are of the US Indexes; the Dow, S&P and the Nasdaq. Then I have followed them with commentary and with charts of German DAX, France's CAC and finally Japan's Nikkei. All are 3 month charts and the thing to focus on is where are the indexes now, the similar patterns and whether the recent drop is slanting down or up or flat. If there is a predominance of slanting down below the other recent low points, we are going down more. Now the charts!

The Dow chart shows we are nearly flat across the low points. You will see in the S&P chart below, the same is true.


You can see the there is a biased slant down on the Nasdaq as this chart above does point a further down move.

The DAX also shows a slanted move down below earlier lows.

The CAC is flat at the lows, like the Dow and S&P.

And lastly, the Nikkei slants down significantly.

So what does this all mean? Well, I ask myself the question, Which world indexes are extremely important right now and which have been long term indicators of either prosperity or leading the way down. Those indexes have been the Nasdaq here in the US, Japan's Nikkei and Germany's DAX index. To me they all say we are headed down lower. You will have to make up your mind which tea leaf you will follow. Good luck on that.

One other important thing I look at. I look at the longer term chart. Here's the Dow going back about 30 years. You can see from the chart below, we are forming a head and Shoulder pattern over this period and it looks as though it has completed the formation of the right shoulder and it is a slanted down pattern.

This signifies we may ultimately be headed down to retest the lows of 6,400 eventually and may not hold at that level. Given world events which seem to be changing daily in a negative direction, I would not be surprised to see this scenario to play out. Anther thing to remember is this, markets tend to rise much more slowly than the speed of which they go down. This chart shows that clearly.

Looking at roughly the same period for the Dow/Gold ratio you will see the high point is at year 2000. All of these points were taken at 1/31 of each year, except the last point and that is Friday's data. So the trend for the ratio is continued down. The implications for this are that either Gold will continue to rise to get the ratio back to the 1-2 level again or the Dow will drop significantly while Gold either stays high at current levels or goes down some at the same time. For the Dow/Gold ratio to be at 2, then either the Dow must stay at 11,000 and Gold goes to $5,500/ounce. Or Gold to stay at $1800/ounce then the Dow must drop to 3,600. Neither scenario will really happen but adjustments to both are a more realistic possibility. Assume for a minute the Dow does go and retest the 6,400 level, and Gold pulls back to last years level of $1200, that would yield a Dow Gold ratio of 5.3, which is very close to where we are today!!

This last chart below is my short term read of the top limit of any dead cat bounce of the Dow. You will notice the last false bounce above the red line and decline to follow the earlier trend down. This was a bear trap. I stepped in it and had purchased some TNA Call Options thinking we were on our way up again as we did before. I was wrong, but luckily didn't buy many. Watch for more of these false moves, as I believe we are in for a steady, but jerky decline. That red trend line shows that we could still reach back up to the 11,000 level, but as the slope of that red line indicates it will be short lived.

So with European debt rising quickly and many countries unable to pay their debt, we are facing country defaults, not just company defaults. Think of Lehman Bros. when you think of market reaction and multiply that by 10 to see the implication of a country default. I wish and hope it is not so, but one must be prepared for the worse and survive it. Good luck to you. Where do you think we are headed? Comment below if you like. I screen comments only for improper language, so there may be a delay before you see your comment posted here. Thanks!

My Big Fat Greek Vote at midnight tonight. UPDATE

That's right, tonight a drama plays out in Greece, where Greek Prime Minister George Papandreou faces a vote of confidence vote by Parliament. That is the first of the hurdles he must pass. If he succeeds with the vote of confidence, then he must gain approval for tough austerity measures so that Greece will be bailed out by other European countries. It is going to be full of drama for sure. What else to expect from the passionate Greeks?! :)

While markets are up this morning, don't bet long here as there are a series of moves that must take place to kick the world debt crisis can down the road. But for now, we get the market bounce. I would advise paying attention not only to this drama playing out, but also the drama here at home with the debt ceiling negotiations taking place between the Democrats and the Republicans and lead by VP Biden. Oh, and watch for another pronouncement by the Fed on passing the Debt Ceiling limit as soon as possible and not to continue to play brinkmanship with it.

In the mean time, yesterday's market did end the 13day streak of the Put to Call ratio exceeding 1.00, as it closed with a 0.89 reading. Continue to watch the market for lower highs and lower lows with a zig zag pattern in effect.

UPDATE: 4:00pm PST
Greek Prime Minister George Papandreou won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid for the country.
A total of 155 lawmakers supported the motion in the 300- seat parliament in Athens early this morning, with 143 voting against,

Headlines and comments for July 13th

Ok, want to get a sense of what's going on and where the market is headed? Let's just look at the headlines from today's Bloomberg.com web site. I'll write the headline in quotes and then make a comment after each. Here they are:

-"European Stocks, U.S. Index Futures Rally on Alcoa Earnings; Euro weakens" Hmmm, why is the Euro weakening, I thought things were improving in Europe, as the Greek debt crisis had abated. Well it turns out they are now worrying about Portugal's debt, as Moody downgraded it.

-Greece Bill Sale Below EU Bailout Rate Eases Concern over Borrowing Costs" Hmmm, but what about Portugal's debt crisis looming?

-"Europe's Banks Poised to Win Reprieve in Basel on How Capital is Defined" Hmmm, I don't get a chance to redefine what my capital is. What kind of game is this? And why do they have to redefine what capital is? Haven't they had a definition all these years already? What's the old definition and what's going to be the new one? Isn't money, money? Oh, and here is the real news from the article, "A push to water down stringent standards proposed last year by the Basel Committee on Banking Supervision, and to allow more time to implement them, is led by France and Germany, according to bankers, regulators and lobbyists involved in the talks. Representatives from the U.S. and the U.K., who have sought to rein in risk-taking, are willing to compromise on how capital is defined to reach an agreement at a committee meeting that begins tomorrow, the people said." Feel better now? I don't! The games Governments are playing now threatens our very economic survival.

-"German Investor Confidence Drops as Debt Crisis Threatens to Hobble Growth" Hmmm, I thought we solved the Debt problem with 1 Trillion Euros. Are you telling us you are still worried? Now you've got me worried! It turns out that German investor confidence declined for a third month in July as Europe’s debt crisis threatens to cripple economic growth and banks undergo stress tests to prove their durability. Imagine that, they lend 1 Trillion to solve the debt crisis but then worry whether they have 1 Trillion to lend. By the way, this is the 3rd month of declining German Investor confidence has dropped. It went down to a 15 month low of 21.2 and they had expected a drop to only 25.3 from the 28.7 level in June. Hmmm, this is the only real truth out there it seems today. The German's seem to know it's a shell game. Their confidence level, or lack of it, says it all for me!

-"U.K. Inflation Slows Less Than Forecast; Rate is Above Government Target" Hasn't anybody been paying attention there? What good is a target if you never have acted on anything away from target before? Oh now you are concerned. Well the World is really experiencing Deflation if they pay attention.

That's enough to get you going on the headlines this morning from Bloomberg.com. Hope you enjoyed the recap and comments. You get the point, it's all a game of manipulation with a smattering of honesty mixed in for good measure. Read headlines for what they are really saying. There is another way to interpret each, using a more skeptical eye.

After reading all the headlines, I looked at the charts again and I do not believe we will go over 10,300 and stay above that level. And we are close as yesterday we closed at 10,1216.

Stock market Outlook: As it is above, so it is below!

I have posted 2 interesting charts of the Dow. One covers the past 6 month period and the other the past 30 years. The patterns are very similar. They both form Head and Shoulder patterns which I like to call "W" patterns for short. Focusing on the 6 month chart first, you can see I have drawn a red line connecting the bottoms of the "W". You will notice that this red line slants down. This indicates that the market will most likely head lower. Well it has in the case of the 6 month chart as the market closed down below their support levels the past 2 days, shaking up some long in the market and exciting those short in the market. But one thing I have learned is not to bet that this trend will continue. There is too little data at this point to know if the market will continue down or simply reverse just looking at the pattern so far. However, if you use this data in conjunction with a broader view much can be revealed.

Let's now take a look at the 30 year chart above. It too has formed a "W" pattern, although the right side of the "W" pattern is still forming. You will notice that the granularity is not as distinct when you look at this time period. Moves of 100 to 200 points get blurred and it is difficult to predict immediate short term moves. However, longer term moves become apparent. In this case the red line drawn shows a slanting downward pattern suggesting a much lower low is what we are in store for. In fact the second bottom leg of the "W" pattern was at 6,400, if you remember. You can see the implication is that we will go below this level when we go down. This is why I have been shouting and trying to get people's attention to this. These patterns are very predictable and to ignore them and their meaning is to do so at your peril.

Many have the view that charts don't mean anything and can't really predict future direction. That is not true as I have shown countless times here. Just read my previous posts for the past 3 months when I look and analyze daily chart patterns or when I predict drops in coming weeks and months. This is not because I am psychic or something. It is because market action is based upon actions and reactions of human beings. Human beings are for the most part predictable as their social moods tell us the probability of certain things happening again.

Have you ever heard the phrase, "history is about to repeat itself"? Or the phrase, "will they ever learn?" This is being played out today in the actions in the Eurozone in dealing with the sovereign debt issues and their stock markets as well as here in the U.S., where Fed Chariman Bernanke and Treasury Secretary Geithner are pleading with the Europeans not to take the austerity path, as the recovery is still fragile. Bernanke and Geithner worry about Deflation while Europeans are worrying about Inflation.

The history of the Great Depression was studied by Bernanke and he is trying to avoid making the same mistakes which were made back then; belt tightening. That is what happened to continue the length of the Great Depression and is the main reason why he and Geithner have advised for more Stimulus. And because we are human beings and play politics, the Party out of office, the Republicans, are driving like the Europeans for austerity, belt tightening and cutting the debt at a time when the experts believe this will throw us not only back into a double-dip recession but another Great Depression. You see humans are predictable as the need for winning is strong in us as is the desire Not to lose. Both positions are equally challenging positions in the face of a crisis and bring out the worst in us all.

So my friends as we enter this long weekend to celebrate our Independence as a Country, we will never be independent of our emotions in crisis as we are human and often do repeat history unfortunately. However, knowing this should get you to at least give this viewpoint some consideration, as your financial well being hangs in the balance. Good luck with your choice. I tell you these things to try to wake you up, in case you are sleeping at the switch. I have nothing to gain or lose in your choice. I trust the charts. Happy July 4th and your Independence!

Market outlook: Higher volatility days ahead.

Scary day today for the markets. If you pay attention today, your blood pressure will surly rise as will the VIX. The Nikkei dropped almost 300 points in overnight trading for a 3% loss as did the Topix and currently European markets are also down anywhere between 2% to almost 3%. World jitters are said to blame and certainly we have enough of them. For example, concerns over the North Koreans starting up the war again with the South Koreans and drawing in China and the US. Then there's the catastrophic Oil spill in the Gulf which has been going on for a month and most likely will continue for another 2-3 months before the well is sealed. Then add to the mix the concerns in the Euro zone about the recent debt problems of Greece and now of Spain, not to mention our own debt problems, and you have a vessel holding a lot of world issues in it.

However, everyone seems to discount the fact that the charts of the markets, which are produced by trades of our collective human minds and the software, which has been used to create formulas which can execute those trades in micro seconds, have been telling us this market drop was coming over a year ago. But we wanted to believe that we were missing out on the rally if we weren't in this rising market. Well watch how you react when the market now reverses. It's the old greed and fear paradigm at play. This creates volatility in markets. So watch the VIX index rise today.

Dow Futures point today for the Dow to drop as low as the 9700-9800 range and the other Indexes point to a similar move. If you are new to this Blog, you might want to read back issues of this Blog ofr the past 6 months or so, sampling the various warnings I had posted. I will summarize the message here as follows: We are headed eventually here to testing the previous market low of 6,440 and it will not hold ultimately. Prepare your portfolio for this and your psyche. It will not happen all at once but rather will play out over the next year or so. But it will play out!

If you haven't noticed lately, 3 Month Libor rates have doubled over the past few months. The rates, which are what banks charge each other for lending to each other, has gone from a low of 0.21% to now 0.54%. All in preparation of a tightening of lending even more than previously. Hmmm, you think they knew tis trouble was coming? Hmmm, Oil has gone down significantly as well. Today it is down over $2.29/barrel to $67.84. One would have thought with as large an Oil spill that the prices would have gone up. This is deflationary.

I thought we might get a relief rally back to 10,500 to 10,600 but we may not as well. I might be forced to part with the TZA OPtions I bought yesterday but it was not a large bet, so that's OK too. I still have 1/2 of my October Call Options as well as owning many TZA shares outright as well as FAZ, both of which are ETF Ultra Shorts. TZA is up to $8.20 in pre-market for a move of 7.5% after hitting a high of $8.38/share earlier.

Watch 1044 on the S&P 500 as that is where support is. If we can hold that, we can then get a rally in the next few days. If we can't we are heading lower and breaking that support level. And it's a long way down from there before another support level will stop the drop. On the Dow, that level is at 9850 and on the Russell 2000, that level is at 580.

France and Germany in a spat over Greek debt crisis

First the headlines and news and then my comments. From BLOOMBERG/COM. Sarkozy Opposes IMF Loan to Greece, Widens Rift With Germany. By Helene Fouquet

"March 19 (Bloomberg) -- President Nicolas Sarkozy opposes Germany’s call for an International Monetary Fund loan to Greece, a French government official said, pitting the euro area’s biggest members against one another over a rescue plan.

The official, who declined to be named under government ground rules, said Sarkozy favored a European solution to help Greece and said the monetary union must act to restore investor confidence and shrink Greek borrowing costs.

“I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” Sarkozy said in Paris March 7 after a meeting with Greek Prime Minister George Papandreou. “There can be no doubt in this regard.”

My Comment:

Seems to me France is correct here. The Euro agreements stated that there were certain obligations to be met when a State with the Euro zone had any financial problems. By having the IMF bail out Greece, rather than EU members, the ground rules will have been violated and that has tremendous implications for the Euro. This conflict of positions between France and Germany over how to solve the Greek crisis, is very important as it pits the 2 largest EU members against eachother. It is no secret that France and Germany have always had a difficult relationship at best since WWII and even before that. This makes this a very serious problem and will give a clue as to where the power of the EU resides. Sparks can fly here quickly and the situation can get out of control without much difficulty. Stay tuned!