China to Crash US Bond Market?
I just read this article by Vitaliy Katsenelson, and it looks like things are so bad in China that they have begun to dip into their foreign currency reserves. Does it make any sense for China to continue to buy US paper while their people are starving and rioting?

MasterGrinch
I wasn’t expecting any economic reports on Christmas, but MasterCard released this dismal retail sales report for holiday spending.

“What’s Happening Today Has Not Happened Before”
Here is the last paragraph of this version of the December Dismal Optimist:

“My own view is that for the near term further deleveraging and deflation will prevail globally. Yes the markets look ahead and they are currently rallying from an oversold condition. But the markets may not fully appreciate how bad things can get. What’s happening today has not happened before, at least not on this scale. On anything but a trading basis, I think it’s too early to buy stocks or real estate or art despite the apparent values that now exist.”

Right now, there’s way too much faith in government bailouts, stimulus plans, and monetary policies. If our public serpents are so smart, why did they get us into this mess in the first place? Which brings us to a real-life example of how a government stimulus program fell comically short of its goal:

Barack the Blunder?
Once “Barack the Builder” is sworn in and “creates” 3 million jobs, the world will be saved, right? Maybe not according to this article. Here is an excerpt:

“In 1986, the Government Accountability Office [GAO] studied the Emergency Jobs Creation Act of 1983, which budgeted $9 billion (about $20 billion in current spending, adjusted for inflation) on 77 federal programs to bring down unemployment in the 1981-82 recession—the unemployment rate hit 10.7% during that economic downturn. The GAO found that the legislation ended up creating just 34,000 jobs, mainly because it was too late.”

The news of the Obama stimulus plans may stimulate the stock market temporarily, but the actual economy? Don’t hold your breath.

Dividend Holiday for Banks?
Will Santa be shot down by talk of a “dividend holiday” for banks? I don’t know where this meme got started, but it popped up on Tuesday. I can see Obama ordering TARP-recipient banks to stop paying dividends. That’s some good red meat for his constituents, but obviously can’t be good for the XLF.

Cramer Turns Bearish
Cramer turned bearish on his “Mad Money” TV show Tuesday night – after the market had been falling for a week. Nice timing Cramer. By contrast, here’s me sounding the alarm, and shorting the market, an eyelash away from the exact top on the 16th.

SPY Plunge Target
If the statistically-reliable Santa Claus Rally doesn’t happen this year, and the Contrary Cramer signal fails, and the big funds have run out of money to run-up their stocks for month-end window dressing, then we need to have a downside target for the market.

Aside from various support levels, SPY left behind a large gap on the morning of November 24th. The top of that gap is at $81.17, which seems like a long ways away in our newly un-volatile market, but you should have it on your charts anyway.

Of course, many stocks have the exact same gap. In fact, Apple made the trip on Monday and bounced off of the top of its gap. So, watching how Apple handles the gap may give us clues as to how the rest of the market will.

If the double-top on SPY’s hourly chart completes, it will take SPY down to fill the gap. So, that’s a pretty good place to expect a substantial bounce before the market continues lower.

The market was very excited on the morning of November 24th. It was ecstatic over the Citigroup bailout. Now it is having second thoughts: “Should I have really been so excited? Did the bailout really solve the economy? Maybe I should make a trip back down to do some more thorough price discovery….”

I don’t think that gap will be filled until early January, but you can tell the market is thinking about it right now.

Turnaround Tuesday
The technical setup is a bit odd today. For example, the put/call ratio is leaning very bullish, but SPY’s 60-minute stochastic is oversold and turning up. Will this be one of those rare times where the masses of call-buyers get in just in time for a rally?

There are still six trading days left in the month, so it may still be early, but being short at the end of October and November was not the best strategy. I expect that the SEC will once again look the other way as the big funds illegally gun their stocks higher. With the market down four days in a row, there may be enough short interest built up to fuel another month-end “miracle”. I will likely be staying in cash and looking for another “New Month Massacre” setup.