What are the possible S&P targets into this lift? The following is a chart posted in the b-line traders room by Rin outlining Fibonacci and measured move target levels on the ES emini futures contract:

The S&P eminis (ES futures contract) fulfilled the wolfewave pattern target into yesterday’s close.  Most of the indicies are rallying right up to the daily 20 ema (exponential moving average).  This is a level which Linda Raschke refers to as a ‘grail trade’, a level which is used by traders to determine trend direction.  It offers the best levels to initiate a short sale in a downtrend or a  pullback buy in an uptrend.

Daily S&P cash index chart, showing the 20 ema as a violet line.

Weekly elliott wave count

The last time an elliott wave count was used was to time the October 28, 2008 bounce based on a 1929 playbook.  Due to a violation of those lows, the count has been altered, and once again the markets are faced with a sharp rebound (very typical of a wave 4 sequence).  With a PTI (profit taking index) of 54, we need to anticipate a retest of the lows at a future date.  The current bounce will most likely last until December 1-2 after which we can anticipate a retest sequence to unfold.

Bradley Turn Dates

The Bradley siderograph was developed in the 1940′s by Donald Bradley to forecast stock markets.  It tracks planetary influences and provides a timing indicator for market inflection dates.  Although there are far superiour ways of gleaming information from planetary aspects, the timing model has held true for most of the past year – keep an inflection low around December 14-15 on the radar as the reprocussion of a not-so-jolly Black Friday could produce a solid low that lasts more than a few days.

  

It seems the Bush administration is back to its roots of enforcing a ‘strong dollar’ policy. In reality, it means that everything is getting more expensive – gas, food, and goods. Gold, unleaded oil and natural gas have spiked 12-15% higher in two days. Just as Goldman Sachs predicted, crude oil hit the $50 mark exactly, a perfect rising channel breakdown target.

Perhaps this is a manifestation of the US monetary printing presses running on overdrive. There is no notion of where the dollars will come from that will pay for the money being shoveled into banks, former investment houses, and insurers. In reality, the hope is that foreigners will continue to buy treasuries and fund the American insatiable appetite for indebtedness. On November 12, 2008 Forbes calculated the bailout around $5 Trillion, indicating that treasury secretary Paulson’s paltry $700 Billion number was just a drop in the bucket. Another 12 days later with the rescue of ‘too big to fail’ Citibank and that sum has mushroomed even higher, with a second Bloomberg update pegging the figure around $7.7 Trillion on November 24. Let’s put this number into perspective:

Well, at least the markets are experiencing their own inflationary lift. It is perhaps time to stop jawboning about ‘deflationary pressures’ and consider this move nothing less of an inflationary re-adjustment.

Market update as of 2:30pm EST – the opening range reversal is approaching target levels. This should lead to a solid bounce, since the overlapping wave structure suggest that a wolfewave pattern is now in place on an intraday basis. The Dow Jones Industrials have spiked over +1,200 points off of 7,400 low water mark in a mere three days of trading.

If there was ever a time to lift the markets, ahead of the Thanksgiving ‘Black Friday’ shopping escapade would be ideal.  The dollar relief valve is used to give the appearance of a market rally – all things being equal, a -2% drop in the worth of the greenback is nicely balanced against a +2% rise in the indicies.  The dollar has broken a rising trendline following a 4x knock breakdown. Keep a close eye on the S&P 500 as is approaches the breakdown pivot at 840-845 for any signs of resistance on intraday basis.  Does past support morph in overhead resistance?

“In the 1920s, a firm called First National City Bank started repackaging bad loans from Latin America and selling these to investors as safe securities. These investments collapsed in grand fashion after the 1929 stock market crash and eventually led to a new wave of securities regulation. National City Bank became Citibank, which in turn became a major unit of Citigroup.

Heavily involved in the government’s negotiations with Citigroup is Timothy F. Geithner, who is scheduled to be named President-elect Barack Obama’s Treasury secretary today. Geithner is president of the New York Fed, which is Citi’s primary regulator.”  – U.S. Offers Citibank Expansive Safety Net, Washington Post 11/24/2008

Trading into resistance.  The S&P is rebounding right into the bottom of the descending triangle pattern shown on the November 15 market update.  The Dow Jones Industrial average is finding resistance right around 8,400 which represents the 200 month moving average.  On an intraday basis, a 3*push higher series with overlapping wave structure gives warning that the bear market rally may stall here.

Another wolfewave pattern presents itself into the final trading hour.  Commodities have rallied across the board, and the market recognizes much of the gains are balanced against a weak dollar, now down over -2.6% intraday.

As Americans, we are made to believe that we are stewards of the world.  The US is billed as a balance against the ‘axis of evil’ and supposed to counteract the communistic forces of the former Soviet Republic.  The dollar is intended to be the reserve currency of choice and continues to see inflows as investors flee from emerging markets.  Yet beneath the surface, this is just a veil of egotistical rantings – instead, we must take a pause in this thinking and consider the possibility that the United States superpower status is in decline.

Just as the New World came into power following the concentration of colonial power in Spain and England during the 18th century, so the baton is being passed onto new economic power houses.  Even US Intelligence reports indicate that the balance is shifting eastward towards the emerging economies of China and India.  The report, “Global Trends 2025: A Transformed World,” was drafted by the National Intelligence Council to better inform U.S. policymakers about international trends and political ramifications facing president-elect Barack Obama.  The Euro zone should also take note, since the European Union has been characterized as a future “hobbled giant” crippled by internal bickering and infighting between member states with competing domestic interests.  The economies will be threatened by the expense of paying for retiring baby-boomers; today it is in the form of bickering about healthcare and attempts to save pension plans weighing down century-old industries (automakers).

What are some of the reprocussions facing the world?  Most certainly it will be driven by resource constraints in the basic necessities – water and food.  Interesting enough, the Global Trends project has been under way for a year, but was completed before the global financial crisis occurred.  The full text of the report is available on the CIA Web site ( http://www.dni.gov/nic/PDF_2025/2025_Global_Trends_Final_Report.pdf ).

 

China

Which economy will be the first to recover from the current financial crisis?  Just like gold experienced a trendline breakout in 2001 which signalled the start of a bull run in commodities, the Chinese stock market is the first chart to show the signs of a bottoming process.  In the last month, it has traded back to a solid support level around 1,700 and has retraced most of the ’3 waves + a dome’ monthly topping pattern.  Keep a close eye on this chart in future months, since it will most likely lead all other emerging markets as well as any US recovery.

 

Sub-prime deconstructed

There are very few people that speak truths on Wall Street.  Most money managers, investment bankers, and CNBC talking heads are just shills on the corner pawning their wares concealing hidden agendas.  Every once in a while a crusader sticks their neck out and dares to take action – these market mavericks are far and few between, but in his chilling essay, Michael Lewis exposes some of the brave traders that actually stayed one step ahead of the curve as the markets imploded during the financial crisis.  Liar’s Poker was an expose of the Wall Street excess, but paled in comparison to the lies, deceit, and propaganda which dominated the housing crisis.

“That Wall Street has gone down because of this is justice,” Steve Eisman says. “They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience.”

 

Refried Beans

“Wall Street stages late rally on Geithner news” reads the Reuters headline news as a CNBC report around 3pm on Friday is credited with sparking a recovery.  Announcing a cabinet appointment sure seems like a viable excuse to rally over 6% from 11-year lows on the S&P 500.  Then again, options expiration probably have nothing to do with this stomp and romp, eh?

In a stinging essay entitled “Who are the Architects of Economic Collapse?“, we are asked to examine just who Geithner and Summers actually represent.  In the course of examining their roles in previous administrations, we are reminded that the 1999 Financial Services Modernization Act (FSMA) was conducive to the the repeal of the Glass-Steagall Act of 1933. A pillar of President Roosevelt’s “New Deal”, the Glass-Steagall Act was put in place in response to the climate of corruption, financial manipulation and “insider trading” which resulted in thousands of bank failures precipitated by the 1929 market collapse.  Who were the leading architects of this debacle?  Lawrence Summers, Paul Volker, and Timothy Geithner – all candidates for the treasury secretary position.

As the public is witness to an ever-alarming veil of secrecy surrounding the allocation of $700 billion in TARP bailout funds to banks, former Goldman Sachs CEO (and Bush’s current treasury secretary) Henry Paulson appears shifty-eyed and reticent to release any details of why, who, and how much money is being shovelled from public funds into private equity firms.  Timothy Geithner is CEO of the Federal Reserve Bank of New York, which is the most powerful private financial institution in America.  Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group.  Both men were instrumental in the 1997 Asian crisis involving he currency manipulation against Thailand, Indonesia, and South Korea.

Once again the United States is putting the architects of financial deregulation into positions of financial power under the new administration.  Meet the new boss, same as the old boss.  We won’t be fooled again?

Yesterday’s action in the markets was nothing less than underwhelming. The S&P 500 is now in a descending triangle pattern, with a 4th knock on the lower trend line coming early this morning. A break below 850 will create a solid overhead resistance once this continuation pattern is broken to the downside. The Dow Jones Industrial average broke below its 200 month moving average, calling into question the entire Bull Run since the early 1980′s.

The media is starting to price in a significant economic downturn as 53,000 jobs are cut at Citibank, another Chinese scandal shows their continued insistence that success is founded up deceit and lies (the Olympics already convinced the world of this fact), and Mark Cuban is found guilty of insider trading. Lame duck Bush continues to flounder as the G20 economic summit accomplishes nothing, modern-day pirates run amock in the waters off Somalia, and Goldman Sacks urges clients to bet against California bonds it helped sell. This is the first dosage of reality TV, and it certainly isn’t a matter of just another cheesy ‘Survivor’ re-run. How appropriate it is that in January 2008 MTV morphed the opulent and disgusting ‘My Super Sweet 16′ into a dosage of true reality, sending the prissy teens into ‘Exiled!’ countries where they are forced to shed their veils of materialism.

“What is black, white, and red all over?”  - stupid American riddle

The answer to the riddle posed most often elicits the automatic response “A newspaper” from Americans, but that is just a twist on the English language that doesn’t translate at all to French, German, or any Asian language.  Many times, reality can be deceiving - in fact, sometimes it is a downright lie.  Such is the nature of perception, and the media often can twist the truth so far that we mistake it for the ‘real deal’.

 

MaxPain

Next week the markets will once again face options expiration.  October’s expiry resulted in an unsustainable lift in the markets that served the main purpose of killing some rather fat put premiums.  Given the technical juncture with the Dow Jones Industrials resting exactly on the 200 month moving average, we must expect some type of artificial lift to present itself.  Will this be billed as another relief rally by the CNBC squawcking heads, or just another side trip on the path to purgatory? 

In any case, the name of the game for this week is MaxPain.  The boys over in Chicago will do their best to flush out any remaining value in the fat puts once again.  Individual stocks can be traded to a given ‘peg value’, but the real action in markets can be speculated when examining such exchange traded funds (ETFs) as DIA, SPY, and QQQQ.  Just be aware of a series of smoke and mirrors as gyrations early in the week will most likely be head fakes, followed by violent swings towards established options peg levels.

 

Bucking Bronco

Where is the most likely source of a relief valve?  The dollar index.  A gap down on Friday on retest of the measured move target of 88 gave an ever-so-slight warning signal.  Foreign exchange traders should keep 92.53 on the radar; this level was 2005 high experienced as the Bush administration continued to depreciate the greenback in order to give an appearance that the markets were soaring to ever-higher levels.   A -28% drop in the dollar over the next three years was nicely balanced against a lift of +25% in the S&P 500.  In the end, it all evens out very nicely as the markets barely were able to tread water when measured against the underlying currency (and prevent the overall buoyant bull party mood from being spoiled). 

Expect the same gyrations in foreign exchange markets to balance against any expiry lift.

 

Goosing the Banks

Why is Bearnake desperately trying to put a floor beneath the banks?  As an avid student of the depression era, he is most likely attempting to avoid that which he so much fears, and effectively short-circuit the sector rotation model which normally prevails during ‘normal’ business cycles.  Money managers who have seen this before continue to play a defensive game, constrasted against Bernake’s offensive (pun intended) actions.  He is trying to lift the sector which normally signals an economic recovery sequence, with very little success.

This chart shows how markets attempt to anticipate the future, and often proceed any meaningful economic recovery by about 6-12 months.  An excellent read can be found at stockcharts.com based on Sam Stovall’s S&P’s Guide to Sector Rotation.

As far as the overall market direction, I believe that traders would be best served to look no further than the Nikkei which topped in 1989, was followed by a booming housing bubble as interest rates slowly dropped, yet had to fight against a deflationary period for the next decade under the burdon of bad debt which was hidden in Japanese bank balance sheets. Heck, in America we learn from others’ mistakes, right? Maybe, but it certainly won’t happen at the lightening speed expected from our short attention spans and certainly the US doesn’t have the luxury of a 17% savings rate experienced at the stock market peak. Quite to the contrary, Americans are buried under a mountain of debt, negative savings rate, and are just now adjusting their future expectations. Time to send out a real S.O.S. signal.

  “

“Those who danced were thought to be quite insane by those who could not hear the music”   -  Angela Monet

In the latest saga of the Batman series, the world is constantly challenged by moral dilemmas in the form of riddles posed by the Joker.  The entire film leads us along a winding path of dichotomies, and even Batman playing the protagonist must second-guess his actions as he is forced to make hard decisions that depend upon humans making the “right decisions”. 

While we all marvel at the special effects and confronted by haunting exposure of the fragility of the human spirit, what stands out is the inspired performance from the late Heath Ledger playing the riddle master.  Imagine the dilemma that the Academy must face this year when making a decision whom to award the designation of best actor.  In 1976 Peter Finch received such a posthumous award for his work in the film Network, but upon further inspection we find that many other influential personalities and watershed film producers have been unable to bask in the glory a nomination nor the honor of this prestigious award.  This list includes such personalities as Walt Disney, James Dean, Spencer Tracy, and George Gershwin.  Seminal films run the gamut from Bambi and Beauty and the Beast to Gone with the Wind and Ben-Hur.  A common theme among these personalities and films is the exposure of our human misconceptions. 

 In September 2008 the world sat breathlessly as the Large Hadron Collider (LHC) experiment fired up and attempted to peer into the very essence of the “Big Bang Theory” and expose a new family of particles predicted by supersymmetry.  Brilliant minds assured us that there was only a finite possibility of creating side effects such as black holes, and this experiment was the basis for scientific discovery. Despite the public outcry and belief that a bunch of mad scientists were busily stirring a witches’ caldron (humans playing the role of God), the only reason the experiments didn’t complete was due to mechanical failure between two super conducting ring nodes.  Is it any wonder that the LHC was even featured in Dan Brown’s novel Angels and Demons, which involved the antimatter being used as a weapon against the Vatican?  What was clearly the realm of mysticism has now crossed the line and is considered science.  As the renowned writer Arthur C. Clarke notes, “Any sufficiently advanced technology is indistinguishable from magic.”

Once again you ask yourself, What does this have to do with the markets?  Everything - especially if you believe in Technical Analysis.  This is actually how I came to use the nickname voodoo. Combine this with basic element of mysticism with economic theory and you are confronted with supply-side Reaganomics (‘voodoo economics’); ‘voodoo programming‘ implies getting things working but not fully understanding why.  Better yet, ‘voodoo science’ as coined by skeptic Robert Park has become ingrained in the popular culture and encompasses the notion of pathological science, wherein genuine scientist deceive themselves, or make claims which depend upon a leap in faith and / or supernatural explanations.

    

 

Bulls live above the 200 moving average, Bears live below the 200 moving average

The Dow Jones Industrial charts provide a historical perspective of trendlines tested in the 2002-2003 lows.  The rightmost chart illustrates where we are today in 2008 (red dot = you are here).   Most talking heads are saying that we are successfully testing the Bush ‘jobless recovery’ lows that required continuous economic stimulus packages and tax cuts for the rich in order to stimulate ‘voodoo economic’ supply-side financial recovery.  I beg to differ.  What happens if we break below that last support level?  There is plenty of air below with little support other than perhaps the 1987 spike lows, followed by the 1982 start of this huge bull market run.  Elliott wave theory suggests that we will fall to the previous major wave 4 lows if a grand super cycle is completing – again, somewhere around the 1980′s lows in the worst case scenario.

A simpler measure of where we are today is to examine the 200 moving average.  The chart below shows the monthly chart with the yellow line delineating the crucial line in the sand.  Since we are definitively resting on the crucial line in the sand, the only conclusion in is that we are to trade this market from a bearish perspective – slow drifts lower, puncuated by short ‘one day wonders’ spikes higher (for example Thursday’s +550 pt gain).  Again, the name of the game for the time being is one of capital preservation, not fear of missing some nebulous rally that has yet to materialize.

 

A copper trough beneath every bear market, a copper roof over every bull market

The best coincident signal of market strength is the industrial metal copper.  It is a measure of economic activity, since this metal is used as the bloodline of electrical conductivity.  I remember vividly as Phelps Dodge, Peru Copper, and BHP Billiton were cutting production in an attempt to halt the decline in prices in 2003.  Prices bottomed around $0.62 and formed a perfect cup and handle pattern (a trough) as the production cut and an upturn in economic activity signaled a bottom to the last recession.  In the ensuing bull run on the metal, cars, houses, and boat were being stripped clean of all their scrap copper as it became economically feasible to pawn the metal on the black market.

At the current juncture, a perfect double top pattern has established itself over the bull market.  Once again, we must conclude that commodities have also entered a bear market as prices come back to earth.  Only when another trough re-establishes itself will we be able to conclude that the bear market has run its course.

 

The Story of Stuff

I’ve mentioned my rather simplistic view of economics in a previous post.  Yes, a very limited view to say the least.  If there is one and only one link I can suggest you follow, it is this excellent piece of journalistic brilliance.  It also offers simple ways that we can enrich our lives and tip the balance of supply and demand.   The story of stuff.

    

Big change is coming and it time to remember our fallen soldiers all around the world.

  

“The biggest potential political problem here has nothing to do with Detroit and everything to do with Wall Street — specifically Cerberus, a private-equity firm based in New York. Mr. Bush’s former Treasury secretary, John Snow, is chairman; ex-vice president Dan Quayle has been a prominent spokesman; and the firm’s chief executive, Stephen Feinberg, gives generously to Republican causes.”

The Case Against Giving GM and Chrysler a Hand, Wall Street Journal, November 5, 2008

“But Paulson, like the long line of Goldman public servants who came before him—Rubin, Corzine, John Whitehead, Stephen Friedman—doesn’t need this job. He isn’t some retired or pushed-out exec. He took the job… The stock market greeted his appointment with one of the worst days on record.”

Goldman Sachs Is Just the Treasury Secretary We Need – New York Magazine, James “CNBC Mad Monkey” Cramer

“Whether it’s a credit crunch to fix or an Olympics to plan, the list of Goldman Sachs alumni is sure to have a candidate”

How Goldman Sachs took over the world, The Independent, July 22 2008

Is this perhaps an executive “Get out of Jail free” card? I was NOT enamored of Clinton’s last minute pardons as he skeedaddled out of the White House. I wonder myself just how much the rent will be if you land on ‘Broadway’? Of course, everybody deserved a pardon now and then .. for a price. A very wise observer of financial markets noticed that large natural disastors – tornadoes, earthquakes, landslides, hurricanes – (and associated suffering of the poor) are often nature’s way of balancing out manipulation in the markets. Is it any wonder that September 2008 saw the greatest number of land-fall hurricanes ever recorded in the United States? Today we marvel at this beauty Paloma now let loose in the Carribean, especially that it was born over that finance-haven of the Caymen Islands. Pablo Picasso would be proud that mother Nature has spawned a ‘Guernica‘ in the modern world.