Well the two big European events of the week have come and gone with a fizzle rather then the expected thunder clap. The bond issuance came in better then anticipated for both Portugal yesterday, although it was somewhat mixed between the long and short end with the short end coming in higher.
Spain met their target. This is largely attributed to the ECB taking a few pages out of the Fed's playbook and spending the last 3 days buying up bonds to give a measure of stability to Europe and fears about contagion. The Chinese and Japanese did their part as well. However, the Fear rotation index may have started to tick back toward Europe as French President Sarkozy (I love pronouncing his name in Hungarian as it is a Hungarian name believe it or not; with a slight French accent-"Shardkozee") issued a statement saying Ireland CANNOT keep it's low 15% corporate tax rate, the same rate that drove the huge growth in Ireland through foreign investment during the last 10 years, giving Ireland the moniker, "The Celtic Tiger". So when or if those corporate tax rates rise and drive investment out of Ireland, who do you think will be the fallback? Yes, and with a few pints of Guinness and another prod from Europe, meddling in their sovereign affairs, it could get ugly.
Internationally we are seeing food riots and I love the governments accounting of inflation (minus food and gas-the two things we use everyday), things may be getting worse.
From the Wall Street Journal.
As it has been predicted right here at WOWS, foreclosures are slowing their pace dramatically. The robo-signing, bad assignments of title and a plethora of other issues have sent the banks back to the board room to try to figure out how to handle this as Massachusetts's Supreme Court dealt the bankers and perhaps buyers of foreclosed properties, a stunning blow that may set precedent throughout many other states as all 50 states' AG's have investigated fraudclosure. This can't be good for real estate, it will lead to an eventual spike in home inventories as they begin to comeback to market and as perspective buyers steer away from the hassles they may encounter down the road by buying a short sale or bank REO.
I didn't even read this story, just the headline but someone email me and tell me if I'm wrong, People with real estate in the city or around are dumping it because of falling values and choosing to rent instead until the real estate market levels out? Just a wild guess. As for the banks, the legal departments are seeing $$$$$$$$$$$$$ -you can add one every day- as class action and independent lawsuits from homeowners, both new buyers and foreclosed homeowners file suit, not to mention pension funds which we covered already who have sent the banks an ultimatum and other financial institutions including the Fed looking for the banks to buy back these poorly executed investment packages. Where else could suits come from? I imagine anywhere of a hundred different places so their reserves better cover more then just their foreclosure putback costs.
As for today's disappointing initial claims, remember I said that the last report that showed an improvement in the jobs market was stamped on the front page with a warning that they were using a new calculation for a seasonal adjustment and it was more then likely going to be revised to the uglier side just as last week's initial claims were revised higher. On a non-seasonally adjusted basis, initial claims showed a 1 week jump that is the highest jump in non seasonally adjusted claims in a year. Why is it they are never revised lower? It's a disturbing trend that's been a year in the making. Today's Initial Claims shows that all the constant revisions and we WILL see a revision on the last report "Things are getting better trend" is just a BLS fantasy, at best it's incompetence at worst it's outright lies. Don't forget that the Chicago PMI and Philly Fed were also both revised lower. The revisions lower included: the Employment Index, December New Orders Index, December Current Inventories, Current Number of Employees and the Current Average Work-Week. I'm not sure there's any information out there that can be trusted. I'll be looking to alternative, non-government sources (just not ADP) for lines of information rather then lies of information.
Finally, as I've talked about Primary Dealers pumping the market with liquidity in certain heavily weighted index equities, it s becoming clear there's a quid-pro-quo at work between the Treasury, the PD's and the Fed. The Treasury issues debt, the Primary Dealers buy it and then the Fed buys it from the Primary Dealers at ridiculously high mark-ups. It's so brazen that the Primary Dealers don't even hold the Treasury issuance for more then 2 weeks before dumping it to the Fed-alah-monetized debt by the Fed. however, the disturbing thing is the obscene profits the PD's are making on commissions and spreads on two week old bonds. Today the PD's made nearly $50 million dollars in today's Permanent Market Operations courtesy of the Fed. When will someone in Congress finally demand answers and accountability? I'd hope that Ron Paul will be in action shortly, or at least the congressional investigative wing. This is getting totally out of control and the market is showing it, the equity fund outflows show that even basic investors don't want to have anything to do with the ponzi
As for the market, last night I suggested we were looking at a one-day oversold (actually 2 day) condition via the Price/Volume relationship. There are also some charts turning a little bit disturbing, I showed you last night as well. Here's this morning's take on the averages:
DIA 15 minute 3C (15 minute does a good job in calling swing moves in the market). Yesterday's highs were met with a negative divergence that has gone into a negative leading divergence.
The Wedge in the Q's is not confirmed by the 15 minute chart and therefore highly likely to be a real pattern. Wedges have been working, but there is a lot of volatility in and after there breaks.
A 15 min SPY negative divergence on yesterday's breakout of the 7 day trading range. I showed the hanging man last night on the SPY daily which is the first step of two in a reversal. The second s below.
Here we see that daily chart and the hanging man. This morning's gap above the close sets up a possible confirmation of a hanging man reversal if prices are to close below yesterday's open at the white line. If by some wild chance the Primary Dealers don't push the market higher with their new $50 million dollar fund (just counting today, not all the past POMOs) and we see a close below the red line, we have a verifiable false breakout yesterday. I'd suspect that would send the SPY to the lower end of the trading range pretty quickly.
As I've been writing, we saw the market recover a bit, here's the 1 minute SPY chart.
A negative divergence at the top of the intraday bounce starting a mere 4 minutes before the decline began.
