Discourse

While I won't bore you with all of the Breadth readings, suffice it to say it was a down day with decreasing volume which tells us we are in a bear market still. Essentially this relationship tells you nothing, but a majority of stocks were down. Whether on rising or declining volume, it's a bit higher, 4:1 in many cases and that is a sign the market is treading closely to oversold, even though we haven't travelled all that far down.

The Trin was at 1.27, which is above neutral and close to being, again... oversold as 1.10 is about the start of oversold and 2 is a slam dunk reversal. So it's not real high, but higher then I'd like to see this early on in a reversal.

I guess Bernanke could not sit before a Senate committee and claim the economy was coming up roses when the Fed Beige book released today seemed to hint the economy was nearly under a patch of roses... a volatile market requires a volatile quote from a volatile man, “I'll put you under a bed of roses, because I'm capable of that-”Mel Gibson.

Interestingly, housing remains sluggish and those stocks reacted well, the beige book noted softness in the housing and construction markets and still those stocks by and large. That may be something to keep an eye on.

Temporary hiring was well received, but as someone in business, before I go hiring temps, I'll give hours back to the employees that have hung in there with me, I'd expect to see the average work week increase before I applauded temp hiring.

The view coming from the Fed seems to be the economy is still on pace but a slower pace. There isn't a hint of urgency which means traders are probably not expecting much out of the Fed in the way of assistance. I personally think the Fed doesn't even want to open that can of whatever is in there or more importantly, as the question that was not asked before the Senate, “what's not in there”. I've said several times the Fed has run out of bullets. Unfortunately, (if you red Trade Guild tonight you will see that our debt is rising compared to our GDP, it's near World War 1 levels which means the government doesn't have a lot of room to maneuver should it be needed and economic hard times breed economic disasters. With the government loaded with deficits and the Fed loaded with red ink, I think they're trying to keep under wraps just how impotent they really are. Unless something big is about to breakdown, I'd say the course is going to be hands off and “lets not say anything that might result in a question we do not want to answer. The Fed is concerned with the economy, when they had a lot of firepower they could afford to support the markets, but now, unless we go into free fall, I think they won't interfere nearly as much as they did.

Two days now we have seen consecutive reports of slipping consumer confidence, which probably means more saving and the banks will continue for now to enjoy the interest paid on reserves, but I think if there's any policy action to come, it'll be on that front by lowering or suspending the reserve interest payments to try to force banks to lend. This all means that once we clear earnings, I think we'll start to see the market marked to sentiment which of courses is souring. As long as the decline doesn't trip the circuit breakers every other day, the Fed is likely to let the market free up a little to be a free market.

The tragedy of the story is a president bent on getting his signature, legacy legislation in place, but what they did was not what the country was saying, “we need” and the cost of what they did was a lot, it leaves the government in a place where they have no choice but to run up the deficits because spending is all they know how to do. What in the world would they do on the hill if they had no checkbook?

The operative words coming in from all the districts are: softening, slower pace, discouraging and considering what Bernanke said before the Senate, it appears to my less then higher-learned mind that they were expecting better then what we have, which begs the question, is this a slowdown in the recovery or like any market indicator that acts the same way, are we leaning toward a reversal? In either scenario the first thing we'll see is a shallower trajectory and it's clear that's what we have.

That's a lot said for someone who is not really interested in the economics, I'm interested in the charts, but the thing that leads the charts is sentiment and as of now it is, as the Kansas City Fed district has shown between this book and the June 9 book, “less optimistic” which doesn't at all sound like something anticipated. Back to those 2 words”Unusually uncertain “ and those two words match up very well with a head and shoulders pattern on the charts. If we were optimistic we wouldn't see such a pattern.

As I showed in one of the last updates, we had a minor negative divergence that led to a wave up, but there was a bigger positive divergence that was underlying in the one minute chart, so my view is that we will see this continued bounce off support at $111 (SPY). Since we have a number of trades triggering or near it, I'm going to leave it at that for tonight. I moved a bunch of stops, you'll see the notes highlighted in yellow where I made changes, but most of it was tightening stops. We have to see what this bounce is before I go issuing new directional trades. So keep an eye out tomorrow as I will add positions intraday if this is just a quick run to resistance and back down. If that happens then we are looking at $110 next and that is the level that should cause some real movement. I think we could run up to $112. tomorrow before hitting a wall, I want to see that before I add trades.

15 min and longer charts have continued to move lower so I think we are just seeing volatility and this is the reason I try not to over trade. A lot of traders can't hold a position longer then a day before they get knocked out of them and that is the meat grinder we are trying to avoid-thus the wide stops. Even if I changed them to tighter ones, it's up to you and whether you have a profit or your trade hasn't really hd a chance to move yet.. So decide for yourself, they re just suggestions.

I'll update in the a.m. but for now don't be surprised to see a move higher. Pay attention to any ranges that develop in the am, like today, a morning range formed and the breakout of the range suggests strongly the direction of the close.

See you in the a.m.