The World is getting wacky. The Fed is making the poor poorer and putting a huge burden on all Americans as it buys up America's debt (no doubt in some small part because auctions from direct bidders weren't going very well); what happens when they decide to raise the interest rates? Congress is considering cutting the housing tax credit as well as a few other "Austerity Measures". London is seeing near riots. More money flowed out of domestic funds this week for the 27th consecutive week ($85 Billion Year to date). Ireland and the rest of the PIIGS are a press conference away from total default. America is being downgraded by China. Contrails are soaring over the Pacific. Despite the oddball, decent economic reports, which are usually revised later to a worse number, we are not showing any improvement in employment, lending or business conditions. Our family owns a cafe and this is near season in Florida and it's almost as if it was the endless summer. Real unemployment is at least at 17% and by some measures as high as 22.5% (the height of unemployment during the Great Recession was 25%). And the market is moving up into a primary up trend? I feel like you should read that over again with Billy Joel's "We Didn't Start The Fire" playing in the background.
I remember being about 25 years old and talking with a friend and we got onto all kinds of subjects: politics, economy, etc and both agreed that in our lifetimes we were going to see events so incredible that we couldn't imagine. 9/11 was certainly one of those events, but what is happening right now to the US and world economies is another-(not to draw comparisons between 9/11 and now). What we are seeing in the world economy and what may be coming, may very well be something that our grand and great grand parents haven't seen.
Last night and the night before I said I personally believed that the POMO schedule released today at 2 p.m. would be heavily front loaded. $105 Billion dollars through December 9th with POMO days running either every other day and even every single day of the week. Here's a link to the schedule.
Today, I received a few emails and talked to a few friends and everyone was pretty much of the exact same frame of mind, something doesn't feel right, today especially. It wasn't a crazy volatile day, the Price Volume Relationship was Price Up/ Volume Down which is the most bearish of the 4 relationships-yesterday it was Price Down/ Volume Up which indicates panic selling. So we have 2 negative days of Price Volume relationships in a row, but that's not it, that's not the strange feeling. I think what was strange was with the POMO schedule announced, the fact that the market did almost nothing in response to such a heavy, front-loaded schedule was strange, I would have expected at least a knee jerk reaction, at least for 15 minutes.
Throw in there the fact that an unexplainable object was fired off California's coast which by accounts I've seen of those who would know (not official Pentagon subterfuge), seem to all agree that it was an ICBM fired from a submarine adds to the strangeness, especially considering the protocol that is in place with such events, which was totally devoid with this one. What kind of message is being sent and to who? I'm not a big believer in coincidences of this nature.
Some strange occurrences have been going on in the commodity markets as well; it's becoming very clear as I have been preaching for years, that the Fed is not independent from politics and their insidious policy tools run from CNBC right to the decision desk of policy makers at the CME as we saw this week with increased margins in Silver, Cotton and Soybeans. I'd expect we'll be seeing more of those and it just reminds me of Janet Yellin (The Fed's Vice Chair or #2) making that Columbus Day speech in which she talked about the “Punch bowl being taken away” and how “people who've made a lot of money in these markets won't be happy”. I don't think the #2 goes out there and speaks off the cuff without Helicopter Ben Bubbles Bernanke's consent. I think it was one of those moments that those who were supposed to understand the message, got it loud and clear and the rest of the 99.9% of people have forgotten about it altogether.
Other oddities occurred today as well. Remember yesterday Silver got whacked pretty hard after the 30% increase in margin requirements from the CME; I said that Gold, as correlated sectors often due, traded down in sympathy with Silver. However today, the GLD and SLV charts that I posted earlier seemed to clearly diverge as GLD lagged behind SLV in percentage gains and 3C.
Interestingly though, SLV toward the end of the day did put in a negative divergence and an ascending wedge into the close...
For that matter, so did GLD...
Into the close, the SPY would not confirm new highs in afternoon trade...
Twice we saw higher highs, neither time did 3C confirm these higher highs.
The DIA would see 3C confirmation either at higher highs...
Confirmation would be above the white box for the yellow 3C indicator. This is a negative divergence or distribution at the highs which keeps the market from making higher highs and establishing a solid uptrend.
The Q's saw a string of confirmation early on, but when it counted, after the release of the POMO
The SPY daily chart made no meaningful moves today as it remains locked in a negative divergence.
Just compare the SPY's daily performance to the recent performance in UUP
Just for confirmation, look at the daily 3C chart of the ETF for the Euro, FXE...
These two charts both suggest a move setting up in the Dollar with the Euro about to give up ground. The second part of that last sentence is understandable given the problems with the flavor of the month-"green", Ireland, but whether it's Ireland, Greece, Portugal, etc, there's good reason to understand weakness in the Euro. There isn't a lot of good reason to understand strength in the dollar, just as it happened the last time I saw a positive divergence set up in the dollar and it rallied, there was no way to understand at that point why that might happen. Why is this important? Because the market's are trading at a very high correlation with the $USD, although it's an inverse correlation meaning the dollar goes up the market goes down. It's hard to understand how either will happen in the face of this POMO schedule, but as I warned a few weeks back, “watch these POMO days carefully for any change in character” given the Yellin speech.
Short term, CSCO, the U.S.'s 6th largest technology company got slaughtered in after hours trading on disappointing guidance. They reduced their Y.O.Y. guidance as well as Q3 guidance. As a result, CSCO was down nearly 13% in after hours, the SPY was down -.65%, the DIA -.60% and the tech heavy NASDAQ/QQQQ was hit the hardest -.69% in after hours trade. It almost makes me wonder if this was leaked and this was a reason the market didn't rally on the POMO news as a gap lower would have left market makers, specialists and HFT firms all at a loss with inventory at higher levels? As I said in one of my last posts when I said the market was acting strangely, “there's a feeling almost like a major press announcement or something should be coming out.”
Look at this 3C chart of CSCO...
Honestly, doe something seem off there? Look at the negative divergences in both regular and extra long 3C (blue), that's heavy distribution. I could see this being the reason the market's didn't do much after the POMO schedule-that much distribution is bound to get around to those who need to know.
As for tomorrow, we'll see how the market responds as a lot can change overnight, especially with currencies.
Today we saw a bounce in the Euro
But as you can see, the Euro in the bigger picture, is really just bouncing off final support which is to be expected.
A break of that trendline at final support and we'll see a nasty downtrend in the Euro and the 3C charts posted above of UUP and FXE will, if not make sense, at least be confirmed.
I think right now I'd be most interested in a sell-off and see whether there's real accumulation in preparation for the onslaught of QE2, or whether there's distribution indicating that the “Something doesn't feel right” thought has some objective basis to it. Remember, this market is by all means overbought. There are certain stocks like NFLX trading at a P.E. of 66+. One event, one press conference, a difference in the dynamics between QE1 and QE2 could cause a very ugly end to this rally.
I'm going to try to get a feel for what the market behave like tomorrow as I do feel the CSCO earnings (as demonstrated above) were probably known in advance to smart money, therefore today's dynamics are kind of useless in judging the response to the release of the QE2 schedule.
Have a great night.
