Monday’s Trading – 2/1/10

On the morning of January 11th, I wrote:

“The SPX’s 200-month moving average is at 1156, which is also the top of the Box of Beer. That confluence should provide some sort of resistance.”

As it turned out, it was lethal resistance, and now another important moving average is coming up. The SPX made a brief bounce at its 20-week MA before falling through. Now it as approaching its 100-week MA, which is at 1060.38.

The charts are a horror scene without the slightest sign of even a fledgling bottoming pattern. If the market can’t hold inside the November 9th gap, where it is now, a trip down to the 100-week MA seems likely. If the bulls can’t circle the wagons there, then the next rung in hell is the November 6th gap at 1046.50.

If the market can’t stabilize on prospects for a positive jobs report on Friday, that would be a rather bearish omen.

Cloud Schmoud

Oracle CEO Larry Ellison mocks “cloud computing” and rightly so:

In my control panel for trivisonno.com, there is a link for cloud computing. When I clicked on it, it took me to a set-up screen for virtual machines. OK, I suppose you can call a virtual machine a cloud if you want, but virtual machines are nothing new. I saw my first VM over 20 years ago. It ran Windows on the Macintosh – very, very slowly.

Friday’s Trading – 1/29/10

On Thursday, the SPX closed at 1084.53, which is only 0.27 points off of the threshold of the Box of Beer (1084.80). How’s that for accuracy? The Fibonacci analysis that I did four months ago determined that to be a key level, and so it has been.

If the SPX can’t hold in the Box of Beer, it will fall back into the Box of Bulls where the first substantial support level is 1068.11. And, as befits an important Fibonacci level, there is a large unfilled gap right there. That gap opened on the morning of November 9th, and the market never even came close to filling it. This is the gap that George has been showing on his weekly charts.

For SPY, the gap is between 107.16 and 107.87, and it’s a fat, juicy target for this sell-off. If the market does indeed dive down there, it should find some sort of support. How long it lasts is another question.

Also, I think there is a decent chance that next Friday’s jobs report might show that the economy created a few jobs in January. Let’s see what Bloomberg’s survey of economists shows on Sunday.

Thursday’s Trading – 1/28/10

The USO closed below its 200-day moving average for the first time since July 30th. Sagging oil doesn’t say much for the strength of the recovery.

The iPad had better not be another Newton or AppleTV. If it doesn’t sell well, Steve Jobs will rue the day he called it a “magical device”. In fact, people will call it the “tragical device”, to coin a phrase. You heard it here first. Google “tragical device” and see for yourself.

Of course, the way netbooks sell, it looks like the iPad will be a winner. So nobody will use my phrase – at least not on the iPad. Maybe on that Google phone…or the Kindle.

Wednesday’s Trading – 1/27/10

Fall Guy
Somebody’s got to be the fall guy for Massachusetts, right? For a while there, it looked like it was going to be Bernanke, but he seems to have acquired enough votes to get re-confirmed. So now it’s Timmy Geithner’s turn on the chopping block for the AIG Bailout scandal.

And that means that we now have four mega-events for the day:

10:00am AIG Hearings/Geithner Execution
1:00pm Apple Product Announcement
2:15pm FOMC Announcement
9:00pm State of the Union Speech

At least one of these should provide some fireworks for the market.

Tuesday’s Trading – 1/26/10

Loose-Cannon Mode
Obama’s announcement of a spending freeze last night shows why the market has sold-off: The Massachusetts Massacre has thrown the Democrats into “loose cannon mode” where they flail around wildly trying to figure out what the voters want.

I would be shocked if our government ever actually reduced its spending. Clearly they (both Republicans and Democrats) are going to spend, and spend, and spend – right off the cliff of national bankruptcy.

So, I don’t think the budget “freeze” itself will have much of an impact on the economy, and is probably just a trial balloon for some last-minute edits to tomorrow’s State of the Union speech.

But the market does not appear to have much confidence in our new “Random Style” of government.

Monday’s Trading – 1/25/10

Flipper Flattened
I tried to warn those poor dolphins back here:

“…the Vix is telling us that everybody has rushed to one side of the boat to look at the cute dolphins, and the boat is about to flip over crushing said dolphins under thousands of pounds of fat, blubbery tourist flesh.”

…but the glutenous bullish tourists were so obese that the poor fish never stood a chance. It was a hell of a splash though, was it not?

Monster Withholding Chart

I have never posted this particular chart before, and now seems like a good time to discuss it (click to enlarge):

This is the detailed version of the smoothed chart that can be seen here. Each dot represents the annual growth rate of federal withholding taxes as of that day.

The first thing to notice is that at the bottom of the last recession in 2002 (marked “2H02”), it took a solid six months for the data to stabilize before it began to move upward. After the economy ceases to recess, businesses still don’t hire until they are forced to do so by increased demand. And the time spent in such a purgatory can be substantial.

In 2003, the growth rate flattens out (marked “Tax Cut”) because there was a payroll tax cut passed into law. Economically, it wasn’t really needed because the economy was already expanding via an historic housing boom.

The growth rate at the peak of the cycle in 2006 crested around 8%, which was 2% below the peak of the dot-com bubble which exceeded 10% six years prior. That was a lower high. And in 2009, the growth rate plunged well below the trough of 2002. That’s a lower low.

So this chart, with its pattern of lower highs, and lower lows, paints a picture of long-term decline. I’m worried that our decline will continue until the USA reverts to a pre-NAFTA trade policy and brings the factories home.

In The Nineties, we had a massive internet-building boom, and an industrial base. In The Zips, we had a massive house-building boom, phony though it may have been. What massive project do we have now that will provide millions of new jobs? Does anybody see anything?

(Note: subscribers to The Daily Jobs Update can see the real-time version of this chart at the bottom of this page.)

The Zips and The Teens

Since nobody could decide on what the first decade of this century should be called, I will make the decision: The Zips.

And to preempt another embarrassing lack of decisiveness on the part of this nation, I will also name the second decade: The Teens.

Now it’s official. Deal with it.

(Note: there will be no comments allowed on this post. Exactly which part of “official” don’t you get?)

Kaboom! Goes the Populist Time Bomb!

Joe Sixpack is not happy about having his job sent to China. And he is not happy about our brand new Jobless Economy. He yearns for the good old days of a mere Jobless Recovery. But being faced with infinite unemployment, Great-Depression style, mounds of federal debt and the consequent higher taxes and/or inflation in the future, he has retaliated by putting an end to the Kennedy Dynasty in Massachusetts.

President Obama got the message. And now he is trying to get out in front of the populist tide democrat-style, which means persecuting big business.

So, as traders, it is time for us to think about how this tectonic shift in American politics will play out. A couple of things come to mind:

The IWM was only down 1.96% today while SPY was down 2.20%. Perhaps small-caps will outperform since the dems will get more bang for their populist buck by harassing higher-profile large-cap companies. Example: George’s BBT had a good day today while GS got hammered.

I think it’s safe to say that if the Fed were to raise rates before the mid-term elections in November that a White House goon squad would open a can of Vince Foster on Bernanke, and his body would be found in a Maiden Lane dumpster.

If you have populist predictions, please post them in the comments.

Thursday’s Trading – 1/21/10

Anybody who complains about flaming tap water is just a sissy. And those are the naysayers who are fighting the hydraulic fracturing process that has flooded the market with an infinite supply of natural gas. The Wall Street Journal has a story on the environmental backlash. (If you don’t have a subscription, you can read this older story from CNNMoney.) I suppose if the opposition is effective enough, this could finally break natty out of its infinite bear market.

In a related story, a Goldman Sachs analyst, fresh from vacationing in Hades, put out a research note saying that Satan is contemplating a switch from oil to gas to power the fires of Hell.

You heard it here first.

Breadth Megaphone Pattern

An unusual megaphone pattern (broadening top) has formed on the breadth charts. Here is a 15-minute chart of NYSE breadth over the past two weeks (click chart to enlarge):

The NASDAQ has the same pattern.

George has been mentioning SPY’s megaphone pattern, however a breadth megaphone is much more rare and doesn’t automatically occur along with a price megaphone.

What does it mean? It means that trader emotions are swinging very wildly, between fear and greed as usual, and signifies an unstable condition.

Wednesday’s Trading – 1/20/10

Tuesday’s Results
As the talking heads on CNBC were raving about IBM’s earnings report after the bell, the futures were yawning, and IBM sold-off. That is not the reaction that you want to see if you are a bull.

SPY and DIA were able to close their down-gaps from Friday morning. IWM and QQQQ did not have gaps, but they closed above their Thursday closes. So that was strong. However, the XLF, XME, and IYT were not able to close their Friday gaps. The XME and XLF are the two top sectors since the March low, and the transports (IYT) are considered to be a bellwether by many large investors. So, overhead gaps on those three ETF’s are significant to the entire market.

Kudlow Gets Giddy
Larry Kudlow will be beside himself over the Republican win in Massachusetts today. But it was no secret that the Democrats were going to get the boot this year. Joe Sixpack is (surprise!) not happy about having his job sent to China. And he will see to it that every Republican elected this year will be a one-term-er if he is still unemployed in 2012.

Kudlow, Idiot – IBM, Evil

Last week on his CNBC TV show, Larry Kudlow shouted at his guests: “Corporate America has huge profits, why aren’t they creating jobs!?”

I can’t even believe how idiotic Kudlow is. Here is a man who believes in wide-open free trade, the crushing of unions, epic-scale outsourcing of jobs to foreign lands, the massive importation of workers, and the de-industrialization of America, and he can’t figure out why Corporate America isn’t creating jobs?

Note to Kudlow: exactly what part of IBM’s “No Americans” hiring policy don’t you understand?

Kudlow is the most vociferous advocate of our new Favela-style economy, and he is baffled by the sorry state of the US jobs market? WTF?

Look at this: during the economic disaster of 2009, Mexicans were having a grand time doing frivolous things like trying to set Guinness Book records. They set the record for the largest mariachi band in Guadalajara in September 2009. Meanwhile, people in Detroit were literally trampling each other to collect handouts from the government.

When you adopt a free-trade policy (NAFTA) with a low-wage country like Mexico, you are encouraging companies to move factories down there. And so they have. This is not rocket science.

Note to Kudlow: I know your brain, such as it is, is all befuddled now, but try to follow along anyway.

Corporate America is creating plenty of jobs – in China, in Mexico, in Argentina, in India. And even when they are forced to create jobs here, they use Kudlow’s immigration policies to avoid hiring Americans.

Look at this: because they have to keep their data centers close to home, IBM is being forced to create jobs in the USA. But if you are an unemployed American, don’t get your hopes up – so says Bob Cringely:

IBM is also building several new “global delivery centers.” One of these is in Dubuque, Iowa. Why Dubuque? It is my understanding that IBM hopes to reduce its labor costs and one way to do this is by choosing remote locations like Dubuque with few locals who could qualify to be IBM techs or engineers. Experienced IBMers being downsized in places like New York won’t move to Dubuque, so they can be replaced with cheaper (and younger) labor. Dubuque’s lack of native talent means IBM can staff the centers with mostly foreign H1-B personnel, again so they can pay them less and have no long-term benefits exposure.

Thomas Jefferson said: “Merchants have no country“, and we are seeing that concept playing out right now. If you adopt trade- and immigration policies that allow companies to eradicate their American workforces, they will do so.

Wide-open free trade is certainly the most efficient way to develop the global economy. However, it does not guarantee that the growth will be spread out evenly over the planet. In the first decade of free trade, the invisible hand has re-located the USA’s industrial base and millions of jobs to low-wage nations. Nations that aren’t even political allies of the USA.

The BRICs (Brazil, Mexico, India, China) and Mexico have never been US allies. In case you don’t know, our best allies are the UK, Canada, Australia, and Israel. IBM is moving a lot of jobs to Argentina too, but during the 1982 UK-versus-Argentina Falkland Islands war, the USA gave logistical support to the UK. (And we will probably do so again if Argentina tries capture the Falklands once more.)

Will the Chinese use the industrial capacity that we have transferred to them to build an army big enough to recapture Taiwan? Will the Mexicans use all of the auto plants that we have sent to them to build tanks to recapture the vast territory that we captured in 1848? Will NAFTA eventually make Aztlán a reality? The precedent for such events has already been established in BRIC-nation Russia’s recapture of territory from US ally, Georgia.

Free-trade has been a crushing blow to the US economy. Perhaps the invisible hand will direct some business our way soon, but as we see from the policies of our own corporations, things don’t look promising. Corporate America would create jobs in the USA again given appropriate trade- and immigration policies. I say, change the policies. Sacrificing our prosperity for the good of the global economy may sound noble, but in reality such a policy is actually treasonous.

If the cities of Guadalajara and Detroit had to field armies and meet in battle, who would win?

Friday’s Trading – 1/15/10

The futures popped and flopped after Intel’s earnings-report beat after the bell on Thursday. That’s not the sort of reaction that you want to see if you are a bull. It’s usually not a good sign if the market fails to go up on good news.

This morning on CNBC, Steve Liesman “reported” that the Census would not be substantially contributing to jobs until April. But you read it here first six days ago.

Thursday’s Trading – 1/14/10

DIA and IWM have closed their Tuesday down-gaps. However, while SPY, QQQQ, and XLF were able to rally up-and-over their gaps, they weren’t able to close the deal. They sold-off before the bell and closed under their gaps. So, we still have a mixed picture as to whether or not Tuesday’s jolt was only a one-day affair. NASDAQ-100 breadth Wednesday was +84, which is a very strong reading, and the Q’s still couldn’t close their gap, so that looks bearish to me. But the oversold RSI(2) on the QQQQ daily chart that I mentioned yesterday worked like a charm, did it not? The fate of he Q’s may be in the hands of Intel, which reports after the bell.

Port-au-Prince has been flattened. “Cries from victims entombed beneath concrete debris pierced the air of seemingly every street…” reports the Wall Street Journal. Can you imagine that? The WSJ has a harrowing slide-show here.

Wednesday’s Trading – 1/13/10

For the bears: None of the top ETF’s that I follow (SPY, QQQQ, IWM, XLF, DIA, IYT, XME, SMH, EEM) were able to close their down-gaps Tuesday. It’s been a while since we’ve seen a synchronized sell-off like that, and it is a bearish indicator because it demonstrates a lack of sector-rotation.

For the bulls: The RSI(2) on the QQQQ daily chart is at an oversold level that has been producing bounces recently.

Redonkulous: My bank just moved to a new building, which is plastered with signs that read “Bank Solid”. They also have video screens now where they show stupid news about celebrities, stock quotes of the Dow-30, more “Bank Solid” messages, and dumb advice. The screen told me: “Eat Your Vegetables. Eat Solid. Bank Solid.” I’m not making this up. The ironic part is that I did not require any assistance from the government to survive the recession. I did not require any TARP funds like my bank. If I were them, I wouldn’t be lecturing people on how to “be solid.”

IWM Fractal End-of-Trend Signal

In addition to the extreme Vix level discussed in the prior post, an additional headwind for the market here is that the IWM is in end-of-trend territory on the Fractal Dimension Index. Take a look at this daily chart (click to enlarge):

Notice that the FDI is down to a level now (black arrow) where the July rally ended (blue arrows). So, the small caps are likely to consolidate or pullback in the near future. Other sectors with similar, low FDI readings are: XME, XBI, XLE, and JNK.