That is not a typo. Since the banks will probably plunge through the March low soon, we have to ask: What is the next support area? And that would be the fabled October 2002 bottom that ended the historic bear market back in “ought 2″, as we old-timers say.

Make sure that you are sitting down, and take a look at this weekly chart of the BKX banking index:

Jim Cramer said again today that he thinks the market can rally without the financials. Cramer has been playing a crazy lunatic on TV for a little too long…or maybe he is just doing his part to keep the system from collapsing…

Let me be the first to predict that not only will the banks be the first sector to test the October 2002 low, but that they will also take it out. Why? Where there was a solid real-estate market in 2002, there is now a smoking crater. Banks and home-builders, at least, should go lower, right?

If you are a Sovereign Wealth Fool Fund, don’t despair, there will be plenty more financial shares for you to buy. Many, many more. If you think you can pump out oil or toasters faster than Wall Street can pump out stock, you are sadly mistaken… How do you say “dilution” in Chinese, Arabic, Russian, and Portugese?

Note: You guessed it, I am short the financials via SKF.

For a long time now, a surging PPI has not lead to a jump in the CPI because corporations have been eating the difference. Corporate profits have been falling as America’s lean-and-mean corporations held out on raising prices to their customers.

Some companies, like Starbucks, were forced to raise prices, but overall, it has been a remarkable phenomena until it ended with a bang today. You probably heard that Dow Chemical announced a 20% price increase, and while Dow Chemical is only one company, this is a sign that we have reached the breaking point.

So, this is how it should play out:

1. Energy costs continue upward
2. Higher prices deliver the knock-out blow to the consumer
3. Corporate profits disappear
4. Stock market crashes
5. Recession deepens
6. USA, with help from the Euros, drag down global economy
7. Oil demand collapses
8. Price of oil collapses
9. World ends

Yes, that’s right – the world ends in January 2010. You heard it here first.

The S&P 500 rallied a whole 5 points today as the durable-goods report showed that the tax-rebate checks are being spent. Americans can’t afford houses, or cars, so we are blowing our rebates on smaller-ticket items like vacuum cleaners. Will this really end the recession? No, but it will boost GDP just enough so that incumbent politicians can run this fall with campaign slogans reading: “Recession, what recession?”

Lots of people were saying that today’s action was evidence that the market could defy surging oil, and sagging banks. Don’t count on it. Retailers were up big today, and the XRT has clawed its way back above the trendline from the March low, but this sector’s rally can’t last. One of the reasons why is that the credit crunch just got crunchier as regional banks cut off “home equity line of credit” lending to increasingly house-poor borrowers. See the story here.

More evidence that the rebate checks are being spent can be found in the tax-withholding data. If you look at the spreadsheet on this page, you will see that year-over-year growth was negative through April, but is now strongly positive. When the data is in, we will probably find that a lot of retailers extend working hours of employees to handle the increased business. Did they hire new workers? If they did, it can’t be very many, because as we know, continuing unemployment claims are still rising.

If the tax-rebate rally can continue, its legacy will be to set up a fantastic shorting opportunity. It’s only a matter of time before a big, ugly jobs report hits, and that’s probably when we will get the big whoosh down. I can’t say when that will be, but I hope to be all-in and double short on that day.

For the 87th time over the past three years, Jim Cramer has called a bottom (subscription required) in home-building stocks:

“I am banking on a bottom in the HGX.”

Cramer cited the Census Bureau’s estimate of home sales once again. The last time he did that, he got crushed.

While the spring selling season can only be described as a total disaster, there are some signs that home sales are rising. The Wall Street Journal ran a story today titled “Home Sales Rise in Hard-Hit Areas“. Here is a quote:

“For the first four months of this year, home sales in Detroit, excluding suburbs, totaled 3,360, up 48% from a year earlier, according to the Michigan Association of Realtors. The average price dropped 56% to just $20,514. That average is so low because many of the sales involve decrepit homes in neighborhoods with few jobs.”

So banks are finally unloading foreclosed crack houses. Let the good times roll!

I wish Cramer luck, but he really ought to know an over-sold bounce when he sees one. The last two daily bars on the XHB chart look like the beginnings of a bearish “flag” pattern.

You call that a rally? The stock market’s recent crash coincided exactly with the “super spike” in oil, but today’s oil crash only produced a feeble bounce for stocks. The market was also over-sold by many measures going into today’s session, so even with no drop in oil, stocks should have been able to put together a rally.

I think it’s safe to conclude that a lot of bulls used today’s oil gift as an opportunity to exit long positions. Good for them.

The last two daily bars on the SPY chart are a good start to a bearish “pennant” formation. If it holds up tomorrow, I will be adding to my short positions at the top of the pennant.