Saturday October 1, 2011
Gerry Willis cut up her Bank of America Debt Card on air on Fox TV Thursday afternoon.
TMP Observation - Surely she knows better, what Gerry should have cut up is the Durbin Amendment limiting various fees bank can charge. Apparently Senator Durbin thought the banks could just do without that money. Bank of American had already announced plans to lay off up to 30,000 employees.
That's some jobs plan Dick......
The DJIA dropped 2.16% Friday ending the quarter down 12%, the worst decline since the first quarter of 2009....Shares of Morgan Stanley sank 10% Friday.
Weekend WSJ
Summary
The banks' balance sheets never really got any better, they just played the markets to the upside since March, 209 and now the we are right back to Fall, 2008.
The brokers aren't in any better shape, even GS is under Warren Buffet's call option strike price.
The bear market is well underway. The Rising Dollar has tanked commodity prices world wide as well as stock, gold, silver, oil prices here.
The Dollar appears to have run into some resistance, This could give stocks one last shot at recovering from Friday's drubbing. Can Europe cobble together something meaningful to give the Euro a boost and top the Dollar for now? The PAR SAR suggests that could happen.
Certainly the news is negative enough to indicate some kind of short term bottom here.
So, let's start with banks and brokers.
Regular readers recall that we pegged the internal top of the US markets to have been February this years. This performance chart which ranks the bank XLF and Broker XBC index against JP Morgan JPM and Citi C.
Let's hop in the Time Machine for a look back at Fall, 2008, here we go again.
At top RSI cratered in April At bottom the MACD has a long way to go the bottom! In the main panel I actually drew the neckline of that reverse head and shoulder pattern a bit lower than it should be. But the obvious or it should be obvious point is hat breaking this area will set the chart up for a dizzying fall back to the March 2009 lows.
The old Vietnam Era domino theory is that a Greek default would make existing bonds still held by banks worthless. That would lead to other potential sovereign defaults. Globalization being what it is, the banks are in the same boat with massive counter party risk. Recall there is massive off Exchange and off Balance Sheet derivative as well as real loan exposure to defaults. And on top of that we have a regulatory Frank Dodd monster at the worst possible time, nice going Washington.
The incidence of New Lows on the NYSE is rising!
If one examines the pattern above the blue arrows, there was a rise prior to the last two spikes. Worse the moving averages are rising with the falling stock market, so the number of new lows is advancing over time.
However Friday was the end of a quarter for the funds which dumped the stocks they did now want to show as holding on their quarter end statements. This would include banks and luxury goods makers. What, one wonders, did they buy? Recall that funds experienced the most withdrawals since early 2009 over this summer.
Fear is on the Rise measured by the VIX index
At top bond prices registered by TLT a fund of long government bonds is rising but below the previous high. VIX is below the previous high but we have not recorded over 900 new lows as we did August 8 and Sept 20. At bottom the MACD is on the rise.
Taken together this all suggests markets are headed for that fifth wave low expected by many for October.
As always the Weekly Summation Index tracked the summer breakdown.
MACD has yet to bottom, and remember it is tracking the Summation index here. The actual NYSE Price index at top is higher than its low point of last summer but the NYSI is lower. I am not taking much solace in the fact that the NYSI is higher than it was in August. Bottom line is that we simply do not have a low in yet.
Casinos
Readers will recall my comment that MGM had doubled down. MGM is betting that its casino operation in Macau would ride to the rescue of City Centre and other gaffes in Vegas. Regular readers will also recall our socionomic observation that casinos are a good indicator of social mood. The willingness to get on an airplane to fly to an expensive gambling destination where the odds are known to be against you is about as good as it gets. LIkewise a turn down in casino stocks is a negative sentiment on the economy.
Here the triple top is also a bit of a large head and shoulders pattern. A drop from 17 to 9 where it is now projects an $8 move back to a buck if the green support line falls.
when stocks peaked late in Fall 207, MGM traded for $95!!!!! As I have said it now floats on a sea of junk debt.
Energy Prices ConfirmWeakness in Stocks
UUP at top represents the strength of the US Dollar. It has rallied against the weakening Euro.That has toppled commodity prices as well as the perceived weakness in China. China of course has been the demand engine for commodity prices from copper to concrete. Our parabolic indicator PAR SAR is flashing a sell signal for oil. It is shown by the blue dots. Our labeling suggests that crude has now entered a fifth wave to the downside. Wave one dropped $20. An equal drop for the fifth wave projects $72.50. We suspect however that it would be a rout, with producers flooding the market in a desperate attempt to generate funds in Arab countries. So the low 60s is probably more realistic.
We are about to make a case for a Dollar high. Note that despite all the bad news, oil is at a third higher low, even with a higher dollar. This adds to the case that we may be near a short term dollar high.
Well we could go no and on about weak silver, gold, copper, Greek bonds, etc but it all gets down to the Dollar.
US Dollar Daily Chart
In scouring all the charts, this is an interesting bet for Monday morning. The Dollar would need a daily close over 78.83 to generate another buy signal; it closed at 78.55, a mere .28 ticks shy of that level. The high for Friday was 78.81. Could it be that the Dollar has hit a short term high? At top the Canadian Loonie is quite oversold. Trying to guess one day ahead is near impossible but note that the Dollar failed right here in February at, yes 79! At bottom MACD is certainly high and bending over a bit.
US Dollar Weekly Chart
We went back another three months for better perspective.
As the Dollar dropped below 79 earlier this year, it never looked back after breaking the 200 week MA. Now after moving up from 72 to 79, it encounters the resistance of the 200 week MA again, right at 79. It would seem logical to fall back and re group after the big run up. Note the last five weeks have been near straight up!
Hourly Dollar Chart
If our thesis about a Dollar top is correct the hourly chart should show waning momentum. It appears to do just that. MACD peaked Sept 12, RSI did the same, volume has subsided, and 22.3 for UUP appears to be resistance. If MACD makes a lower top Monday and turns down, our analysis will have been accurate.
I will suggest that we have enough resistance on the US Dollar to give stocks one more move up short term. That coupled with the 'throw it all out the window attitude' of Friday at the end of the quarter seems to argue for one more short term low here. It would be about right for all the shorts to get caught here in one more fling to the upside. They would have to cover, rallying the market back up and then once they cover to the long side, bang, that's it and the bears take over again. All that of course is sheer speculation on my part.
Overall however the longer term picture argues for lower stock prices later in October.
dennislelam@gmail.com
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Look out below!!!!
The DOW at 8700 is beginning to look like a reality.
Posted by: Valentin Tristan Jr. | October 03, 2011 at 12:09 PM