In Advance of the Expected European Carnage

Irish Credit Default Swaps just hit a 10% yield for the first time in HISTORY! Contagion is back in the Fear Cycle. That FXE trade may still be a decent entry.

EGPT Follow Up

EGPT was a short trade idea from March 2 so far EGPT hasn't opened, but indications are for a 5+% drop.

FX Markets

The worst hasn't even come to pass yet (the Greek vote), but if you took yesterday's trade idea, short the Euro, Long UUP, it looks like you're in the money already.

Thus far FXE is down over .50% on the open and UUP is up .46% on the open. When theGreek vote comes (I believe around 10 a.m. EDT) we should see some more action to the downside, but expect some volatility.

EOD market Update

There has been some damage in 3C done today to the major averages, the SPY is the worst, but I still don't see what I'd call a clear reversal signal, although we may be heading in that direction.

USO has done a good job of holding onto today's gains, it'll be interesting to see if the Israel situation effects the market negatively should events continue to escalate.

GLD looks like today is it and should see downside pressure. SLV has deteriorated today, but it still doesn't look as bad as GLD so I'm not sure that it's quite done. I think 3C did a good job in seeing the difference between the two metals yesterday as GLD is slightly down right now and SLV is up about 1/2%.

Take a look at the trades provided today, as we near a clean market reversal, there will be many opportunities so I'd try to keep some cash on the sidelines.

I'll update further as situations develop.

Stealth Inflation

This has been another theme we've been talking about as all of the seemingly cheery manufacturing reports have consistently shown producer prices rising rapidly, when the companies can't absorb the costs or trim anymore of the fat, they take a hit to EPS and /or raise consumer prices (see NKE this week which did exactly that) in a consumer market that is in shambles, the result more or less could be an extreme form of stagflation.

MIT has released this chart showing that the US is on track for inflation over 8% for 201l, about 4x the Fed's target rate. So what can be done, as Fisher said in the last article I published an hour or so ago, they can do several things without adjusting interest rates higher, one was to sell treasuries. This is a flat out fallacy. When QE2 ends, there's a big problem. Up until now, the Fed has been absorbing the Treasury notes, which makes it easier to issue a few more as countries like China and Japan could absorb the small excess. When QE2 ends, so does that situation. Worse yet, Japan is unlikely to be buying treasuries anytime soon and to make matters even worse, the Japanese government and insurance companies are likely to flood the market with treasuries. This is almost like the perfect storm coming together and one more reason the market outlook is historically bleak.

So what will the economy and market look like when the Fed is forced to raise rates to sell treasuries and absorb the excessive liquidity that has been driving commodities parabolic?

GLD/SLV continue to deteriorate.

 I'm still of the opinion that today is the start of the GLD reversal and SLV is following about a day behind. Here on a 3C 15 min chart GLD continues to move down.

The 10 min chart of SLV, which needs to deteriorate to bleed into the 15 min chart where we typically see reversals, has been falling apart today as well.

A Couple of I told you so moments

Please don't take that literally, I'm not that kind of an egomaniac. However, I did just post this week that the Fed will do something to "scare the hell out of Congress", I believe that was my response I published to a questio from a member yesterday regarding the Supreme Court ruling. And here's the start of that process, from CNBC-

US Approaching Insolvency-wrning by the Fed's Fisher.

In another several dozen posts, I've been warning that regime change is only the start of a very long and painful, unpredictable process. Since Egypt never really achieved regime change as the military is the regime in that country, protests have flared up again. Reports are out that Egypt's Interior Ministry Building is on fire. There's very little chance that the military will allow free, democratic elections, which would effectively change the regime so the future of Egypt is not looking so bright and in the end, protesters (as they are realizing now) will most likely clash with the once esteemed military; that seems to be the emerging model in true regime change whether it be Bahrain, Syria, Yemen or Libya. There's no reason to believe it won't happen in Egypt.

This isn't meant to be breaking news, this is meant to illustrate how dramatically the power structure of MENA countries are likely to change and how dramatic the results will be for the global economy which only strengthens my theory of a very rapid increase in research/funding of alternative energy. If we consider Japan (the world's 3rd largest economy) alone, imagine what the effects will be if the oil imports they rely 100% on are disrupted because of these changes in the MENA region. There's already geographic choke points, now there's political instability and violence breaking out not only between citizens and their governments, but a much more dangerous kind of violence: Ethnic/cultural/tribal violence that killed nearly 1 million Rwandans in 100 days; religious violence between various religions (Sunnis, Shiites, Jews and Christians to a lesser extent).

As I made mention of a few days ago, Israel did enormous damage to it's perceived invincibility when it last engaged Hamas in Lebanon and that will certainly figure into the calculations in the current conflict.

One thing is for sure, none of this is good news for the market. I suspect as I have said many times and for many reasons, we will see the first long term secular bear market in equities and probably beginning this year.

FX Update

Earlier I showed you charts of UUP looking rather strong and the Euro Trust, FXE looking rather weak.

This may very well be the catalyst behind the action in both...

News Story on Portugal's Austerity Vote Tomorrow

Market Update

 As I wrote yesterday around 2:45, we were seeing late afternoon strength (3C) build into the market and since the market didn't do much with it in the afternoon, I said,

 "So that brings us to afternoon trade and a trend I've been watching unfold wondering if it was going to spark an intraday move-it hasn't thus far, so I'm assuming that it's being coiled up under pressure for another move up tomorrow and why not? It's not at all out of character with the market's behavior, in fact it's  so increasingly common, you can just about assume and trad off the notion that it will happen. I'm talking about these volatility moves up and down that tend to be right before a reversal."


Thus far, that analysis has been correct so we are still in wait and watch mode as the title of the post I quoted above was, "Bounces are Scary" and the first sentence was "And they are meant to be".


So here's the current situation in the major averages.

 DIA 1 min showing some weakness, but there's not enough in the mid term timeframes right now to assume a reversal here. In that post yesterday, I included several possible upside targets before we see a reversal.

 The DIA 15 min today is still in confirmation of the move up today.

 Again the 1 min chart of the IWM is showing intraday weakness, which may be the start of something, but...

 The 15 min, while there's a small negative divergence, doesn't look that bad yet.

 Again the 1 min of the Q's this a.m. is showing weakness

 However the 15 min is pretty much in line with price, confirming the trend.

 The SPY 1 min is showing some recent weakness this afternoon

And it has the worst looking 10 min chart thus far, but that needs to worsen and carry over to the 15 minute chart before we can assume with any degree of certainty that a reversal of the correction is at hand. I believe in the post referenced at the top of this one, I had a potential upside target in the SPY of around $131/$132, there were some target area I also provided based of gap resistance that were more moderate, but until we see that deterioration, we must assume that the correction will continue. One thing to remember is that a correction can also be lateral, it doesn't have to be gains to the upside. Today's action in the SPY to me falls into the "lateral" category.

LEI Trade Idea (long)

 LEI Triangle -this triangle suggests a pretty big move to the upside, approximately $6.00 or so. Because it's a cheaper stock, the obvious triangle may pass under the radar of the black box pattern systems that manipulate these obvious price patterns.

 The 15 min chart has been showing a very positive divergence which is rare to see inside of consolidations like this.

Today's intraday action seems to have set several zones of accumulation, thus a break out may be coming very soon. I'd probably set a stop of $3.20 or so of I bought now, if I bought on a breakout, then closer to $3.45