Ironic

It's a strange thing to have gone through 2011 warning that this market is a house of cards, while everyone else was talking about buying the dip, and then being (thus far) on the wrong side of the market when it busts loose. We do have our short positions from the last month and they are doing well, but 3C has been indicating accumulation that what would produce a major rally. 


The market has hyped a lot of concern over the BLS number due out tomorrow morning at 8:30, more so then I've ever seen and my guess is that the market has been aggressively discounting a bad print( (t least on the surface). Tops are always volatile and toward the end, they get to be the most volatile (that doesn't mean straight down, it can mean huge swings in both directions). I've rarely seen a 30/60 min divergence fail, understand the divergence shows underlying market activity that contradicts price, in other words, we can see what they are doing, but not know why and timing can be difficult, usually a break of an important support or resistance level s our best timing as I've explained before. Well we have a major break and we still have VERY strong divergences. At this point, I can envision only 3 scenarios. If the BLS data is not as bad as feared or discounted, we could see a major rally, in my opinion, the last; remember, volatility is greatest at the end of the trend and if this is the case, then record margin levels would produce a snap back rally that would be neck breaking. Still, we have a house of cards and at the right moment, it would be time to back up the truck on the shorts. The second scenario which I've only seen once before is the market, which controls the market cycles in the short term (meaning weeks to a month)  lost control (this happened during the Lehman crisis), but in those cases the divergences fade pretty fast as they realign their positions. The futures for the Dow were up 66 points last night before the Bank of Japan intervened in the currency markets to drive the Yen lower, which drives the dollar higher, which puts sell side pressure on the market. However, they've been talking about the BOJ intervention for quite some time now and as the market slid further today, there was not a corresponding move up in the dollar, I think that had more to do with the BLS. Also recall 3C has been showing strong accumulation of the dollar so either the BOJ intervention was known about or there may perhaps be a decline we haven't seen yet as I do not think the accumulation phase in the dollar is done yet. The 3rd scenario is something that was mentioned yesterday...


""Former top Fed official Donald Kohn tells WSJ's Jon Hilsenrath he expects the Fed to give "very serious consideration" to a new round of bond purchases if it determines after the Aug. 9 FOMC meeting that the recovery is really losing steam and if inflation is coming down"


Well inflation is down, at least the commodity inflation that was effecting manufacturing. The commodity indices are down 16%, excluding gold and silver, raw materials are down even more.


This meeting is on Tuesday and recall the Fed called in the major banks last Friday under the guise of the debt ceiling. Maybe that's not what was being discussed?  It's been widely speculated that Bernanke would need to see an ugly market before he could justify operation twist or some other form of QE3. While the downside has been nasty, the potential upside from Bernanke making some sort of announcement on Tuesday would make the downside pale in comparison. We saw a similar plunge in terms of % move after the end of QE1 during the May-June period of 2010 when the market lost about 12%. I'll say this with no caveats, the market since March 2009 has been a Federal Reserve engineered rally. The economic data has gone down hill as the rally went higher. Stocks didn't stand a chance on their own and the economy hasn't improved to justify the price levels we are at even now. 


Those are the 3 remaining scenarios that I see and scenario 1 and 3 would prove to you definitively what I've been saying and showing people for years, the market is rigged, controlled by the Fed, the White House and Wall Street, emphasis added to controlled. There is no more price discovery, just a "Boys Club" scheme. Most of you are here because you've seen how well 3C works, I'll tell you that 3C would not work without Wall Street having inside information. Just recently 3C called the June short covering rally, that too was about 2-3 weeks of accumulation. The top was called, even on a false breakout which was identified, earnings have been called, one quarter we had 19 of 21 earnings picks work out; a 95% success percentage. This is all based on inside information and Wall Street working behind the scenes, that's what 3C shows us.


So we should find out shortly whether one of the three scenarios come to pass.


If it is the much dreaded scenario two, then it's plan B time. As I have been saying, when the second shoe drops, we will see a decline worse then the 2008 decline and probably enter the first ever secular bear market in equities. So there's plenty of opportunity.


To give you an idea...

 If we look at the 2008 decline and this one will be worse, you can see we have a long way to go on the downside, but no market falls straight down.


Here's the crash of 1929

The first leg declined about 46% followed by a nearly 6 month rally adding 46%. The total move was about -88%, but there were 6 bear market rallies, each one an opportunity to make money; there's a bus every hour, you're not going to miss anything.


So next up-the BLS.