“Goodbye Global Economy” is the name I am giving to a growing meme. It goes like this: the USA has exported its manufacturing jobs to China, and its service jobs to India, and the increase in world trade has not, in turn, produced enough new jobs in the USA to make up the difference.

I don’t know if this meme is true or not, but it may become a political force soon.

On the surface, it is enticing, and rings true. While exporting all of these jobs a few years ago, we suffered the great “Jobless Recovery” of 2003-2007. Our economy has had trouble creating new jobs for quite a while now.

So, what was our solution? 1% interest rates to blow up a giant housing bubble. That’s right; the bubble that destroyed our economy was not an accident or a simple policy mistake. It was an experiment in creating jobs by means other than actual domestic economic growth.

The Ponzi Scheme is America’s official national economic policy.

As far as I can tell, this crisis has not changed the Ponzi Policy, and we are attempting a second round, this time with 0% interest rates.

Good luck with that.

The stock market shrugged off the last jobs report. Maybe it will shrug off the next one a week from today. But what about the next? And the next? And the next?

Many congressmen used protectionist rhetoric to get elected in November, and it likely will not end there. The GGE meme is growing; spreading from one unemployed worker to the next. President Obama has promised to tinker with NAFTA, and some protectionist policies will probably be implemented as a reward to Democratic interest groups like the UAW.

The re-alignment of the global economy could be the big story of 2009. Will Obama still be worshiped as a god in Europe after he slaps on trade restrictions?

The TRIN-dicator
Believe it or not, my TRIN-dicator is still flashing an overbought condition. While the TRINQ over on the NASDAQ was solidly in selling-pressure country, the TRIN stayed under 1.0 for almost the entire day Monday. And that is very odd because breadth was very bad. I’m not sure what to make of it. Perhaps a lot of stocks were being sold on light-volume, and a small number of other stocks were being bought on very heavy volume.

If you have ideas, please post. It would be interesting to know which stocks were being bought on heavy volume, if that was in fact happening.

On CNBC Monday morning, Jim Cramer raved about the low TRIN, saying it was a fantastic buy signal. I must say that I am appalled by his ignorance. Every trader who uses the TRIN knows that single-day readings mean nothing and that you have to use a moving average. In fact, the guy who invented the TRIN writes for Cramer’s website! How can Cramer have traded for decades and not know how to read the TRIN?

The Never-Ending Market
This watching the futures and overseas markets all night is really wearing me out. So, I don’t have a good in-depth analysis for Tuesday, but I agree with David, we are hitting a lot of extreme readings and a selling climax may be near.

As I logoff at 1:00am EST, the futures are making a bounce, though you need a microscope to see it.

The Next Bear-Market Rally
The March-to-May bear-market rally was very long, impressive, and sucked a lot of people in. The July-to-August bear-market rally – not so much. Though some sectors were moonshots. If we do get a selling climax soon, I’m thinking that the next bear-market rally might be even less impressive than the last one…

XLF Options
Can somebody update us on that gigantic slug of XLF options that we were discussing a couple of weeks ago? Maybe it will help us see where the big options-trading hedge funds will attempt to pin the market this week. Not that a global financial meltdown is the ideal time to attempt to bend the market to your will…

Watch the comments for updates throughout the day.

Here is the chart that I posted in Kiss July Goodbye on September 11th:

Here is what it looks like now:

Notice how SPY tagged my upper purple line on Friday, and then the lower one on Monday. Uncanny, no?

Keep an eye out for these “broadening” patterns. I haven’t noticed one on an intra-day chart yet, but they must be there. They signal wild stuff coming soon.

As Yerk correctly pointed out, Thursday’s candle (the long green one, third from the right on the lower chart) was indeed a bullish engulfing candle. And that was the hint that SPY would tag the upper purple line the next day. However, that bullish indicator then produced a bearish hanging man pattern. It’s not quite so apparent on the SPY chart that it was a hanging man, but if you looked at some other charts like the Dow and S&P futures, it was more clear.

So, that bullish engulfing candle fulfilled its destiny by setting up an overbought condition, and the plunge to the lower purple line.

The moral of the story is that once you have identified a short-term chart pattern, you have to immediately begin wondering what it will morph into next because it never stops morphing.

It’s very odd that the market follows simple geometric patterns so closely, but it has been doing so for hundreds of years. You would think that with all the artificial intelligence systems in there trading with us, that the patterns would be more weird. But so far the AI systems think a lot like we humans do.

You might think that I am being stingy by giving this government-sponsored rally only one day. But in fact, I am being generous. After all, is it really a rally when the QQQQ finishes down 0.37%?

Traders seem to be unanimous in their view that the rally was disappointing, especially when compared to previous Sunday-Surprise rallies, and I agree. So, I will not discuss the rally’s defects except for one aspect.

Everybody was expecting there to be panic buying at the open, but that didn’t happen. I think that the gap-up was so huge that many traders who were prepared to barf up short positions just sat there staring in awe at the huge gap – frozen like a deer in the headlights. And since the selling started only 4 minutes after the open, they just sat back with relief and watched the amazing plunge.

But of course, there is an army of traders which focuses on gaps. So as the market plunged toward the opening gap (SPY at $125.10), the gap-traders went long to play a gap-bounce. In the comments yesterday, I wrote that I thought the gap-bounce would be weak. And it was, but it frightened the frozen shorts who were suddenly in a panic that they missed a good exit point to buy-to-cover and minimize the haircut.

So, when that first gap-bounce rolled over, the frozen shorts rushed in to buy, and that triggered a sharp short-squeeze rally into the close.

Now maybe I am just rationalizing the action since I am short. However, we have some proof that the above theory may be true: the futures dropped a few points after hours, and then Asian markets opened badly. So, it looks like the afternoon rally was a retracement, and since it was sharp, it was probably mostly panicky short-covering. And as Charlie pointed out in the comments yesterday, it topped out at exactly the 61.8% Fibonacci level of the retracement of the drop from the peak on September 2 to the low on September 5.

Everybody was expecting a massive rally today and this week, but so far, the market looks like it intends to do the opposite. If so, September could be a replay of June. So, I think I will deploy some more of my cash short at the open, just in case.

The market is still clinging to a bear-market rally (not counting tech!) as the economy continues to contract. So, I think taking short positions here is very low risk assuming a holding period of a few weeks or so.

I am short via S&P futures, SPY puts, SDS, and QQQQ puts, and I think I will buy some QID in the morning.

After the big plunge on Monday and Tuesday, a lot of buying power was required to drive stocks back up. That effort has left the market in a dangerous overbought state.

If you don’t have time to study the chart below, make sure to bookmark this page and come back to it before Monday since it probably signals the end of this bear-market rally.

The chart shows the TRIN and SPY. I have put a simple 3-day moving average onto the TRIN. When the average falls to 0.80, you have a sell signal. On Friday, the 3-day moving average of the TRIN closed at 0.79, indicating a very overbought condition.

When was the last time that this indicator has hit this level? May 15th, June 25th, and July 8th. Those days are marked on the chart with blue vertical lines. After the latter two dates, the market flopped right over. On May 15th, the animal spirits of the bear-market rally kept stocks inching upward for two more days before the rally ended.

Top Section:
TRIN in light blue.
3-Day moving average of the TRIN in red.
The purple line is the 0.80 level of the moving average.

Lower Section:
SPY over the last three months.

Light blue dotted vertical lines are sell signals.

If the market is able to inch higher on Monday as it did at the end of the March-May rally, I will go all-in and leveraged-short with all of my remaining capital. Coming into the week, I was 98% in cash. On Thursday and Friday, I loaded up on SDS, SKF, and SPY puts. Those positions are all underwater now, but I don’t think I will be taking pain for much longer.

Yes, it is psychologically almost impossible to short in the face of a strong market. But I did it at the end of the March-May rally, and I am doing it again right now.

Note: It is pretty easy to make a chart like the one above. I doubt that there are any charting programs that don’t have the TRIN. So, all that you need to do is slap a moving average onto a TRIN chart and check it daily. I used a 3-day period for my moving average because SPY has been wobbling in short spurts lately, but you can adjust the period.