On February 5th, 2009 I issued a TRIN Alert when the SPX was at 846. It continued to rally up to 876 over the next two days, but then rolled over and began the historic plunge to 666.

And now, drum roll please….

The three-day moving average of the TRIN that I use is more overbought than it was in the previous TRIN Alerts. In fact, this is the most overbought reading in 7.5 years.

In the upper panel of the chart below is the three-day moving average of the TRIN. The lower the number the more overbought the market it is, and vice versa. In the lower panel is the SPX. The purple arrow points to Thursday’s reading of 0.51. If you follow the blue horizontal line to the left, you will see that it is the lowest reading on the chart. (Click chart to enlarge):

The TRIN is a pretty good overbought/oversold indicator. However, “too much buying” isn’t always bearish. If you look at the red arrow, you will see that the second lowest reading on the chart came on March 10, 2009 at the beginning of the historic rally. Everybody was short at that time, and then FASB waved its magic wand to make all the banks solvent again by revoking the market-to-market accounting rule, and everybody had to cover-up. But the next day, the SPX opened at 721, and then closed at 721. Even then, the overbought TRIN held the market back, if only for one day.

So, the odds definitely favor the bears at this juncture.

Of course, there is no sure thing in the stock market. And here are three possibilites that could power the market throught this TRIN reading:

1) We are coming out of a period of very negitive sentiment, which means that there might be a lot more short-squeeze fuel for the market.
2) It is possible that the big dogs have decided to rotate out of bonds and into stocks.
3) Joe Sixpack has contracted stock-fever again and is piling in 1990s style. (Not very likely.)

So which is it? Has the market just completed a short squeeze and is now ready to roll over? Or have we just seen the opening salvo of a massive buying spree?

The R2K is above its August 23rd peak, and it’s bullish when the small-caps lead. However, the NDX is 22 points below its 8/23 peak, and it’s not bullish when techs are lagging. In summary: tricky.

There are lot of economic reports Thursday morning, and Congressional testimony from Ben Bernanke at 9am. Will the SPX take out, and hold above 1081.58?

But it’s all better now! Whirlpool has spurned Mexico in favor of Tennessee for a stove factory! Just look at the miracles that the Wall Street Journal is reporting:

“The move highlights a shift by even export-driven U.S. manufacturers away from low-cost overseas locales in favor of rationalizing domestic operations to boost productivity.”

The article goes on to say that the Tennessee plant will create 130 new jobs! Hooray! Let’s see; they send 1,100 jobs to Mexico, then add 130 in Tennessee, and that comes to…

Wait a second… Maybe this isn’t a miracle after all. Maybe it was just a story planted in the compliant WSJ by Whirlpool’s public-relations department.

Reading down to the very last sentence of the article, we find that:

“Tennessee and local governments committed to providing Whirlpool with about $45 million in tax breaks, abatements and grants to offset the company’s costs of building the plant. “

Dividing $45 million by 130 jobs we find that one must pay the patriotic folks at Whirlpool only $346,154 to create a job in the USA.

Such a deal.

Note to Wall Street Journal: In the first quote above, you proclaim a “shift by even export-driven U.S. manufacturers”. Maybe one day you can actually publish an article that supports your alleged “shift”. Personally, I won’t be holding my breath. As a matter of fact, if you were to drop the “f” out of your so-called “shift”, I think we might get closer to the truth.

Note: I may add more notes (ha, ha) to this later.

The SPX had its final-hurrah today up at 1060 just as my “cloud computing” indicator went purple (click to enlarge):

White bars indicate a neutral condition; yellow means caution, red means the rally is toast, and purple is a brick wall. If all four bars go red/purple, then the bulls are about to get tossed on the barbie.

The cloud indicator gives mean-reversion signals. So, I only use it during the middle of the trading day. The first and last hours of trading exhibit positive feedback more often than not, so trend-following strategies usually work better than mean-reversion strategies. However, the color of the cloud often gives a clue about the next morning. Here is how the octo-cloud looked at Friday’s close:

The market was poised to roll down from a stretched condition, and it was indeed weak first thing this morning.

Here it is at today’s close:

Light blue is a bullish signal; green is a buy signal, and navy blue means the market can’t really drop any more without some consolidation first. Even though the market was in a positive-feedback plunge into the close, notice that it flattened out after the cluster of navy blue bars at 15:20pm. It spent 25 minutes consolidating before beginning the next leg down.

If you went short at the close, chances are good that you are in for a bit of squeezing tomorrow morning. But this is a very short-term scalping indicator, and it only predicts the very near future.

I could tell you how this works, but then I’d have to kill you.

“The FOMC will strongly resist deviations from price stability in the downward direction.”

TLT plunged 2.79% on the day (and TBT soared 5.65%). So, did Bernanke kill the bond bubble? Did the tidal wave of money that rotated out of stocks and into bonds reverse course on Friday?

Normally, the UFC does not put on this kind of circus act. And that’s a good thing. But since boxing is a competitor to MMA for pay-per-view dollars, I think Dana White probably sees this as a great way to embarrass boxing and take market share.

Update: Well, I was right. Toney didn’t land a single punch, and was instantly taken-down, mounted, pummeled, and choked out.

But what if it’s something completely different? What if gold is really forecasting a military confrontation between the USA and China? The Chinese have been buying quite a lot of gold after all, and are challenging the USA in the South China Sea.

At the bottom of this BBC story, you can see a map showing China’s ridiculously aggressive claims of waters all the way down to Malaysia. And there have been reports of Chinese naval vessels exchanging fire with the locals.

Chinese officials have told the USA that the South China Sea is a “core interest”, which means an area they plan on conquering in the future, like Taiwan.

Further reading: Chess on the High Seas: Dangerous Times for U.S.-China Relations.

Note: As far as I can tell, Marc Faber is rooting for the Chinese. Since he lives in Thailand and has an office in Hong Kong, I suppose that he needs to kowtow to the regional power.

“I’m predicting mass panic tomorrow morning.”

That was while the market was open. Cramer was trying to cover his motives by pretending to be mocking weak-kneed bulls. But that was obviously a thin veneer over a blatant attempt at market manipulation. Can this be legal?

CNBC also published a story titled: “SEC on Attack, Vows More Action on Crisis.”

Note to SEC: While you are “on the attack”, isn’t it time for a anther look at this guy? Is it really a good idea to have the top financial network inciting panic?