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U.S. stock index futures were pointing to a lower opening on Wednesday.
There was some technical damage done to the market on Tuesday. This
market could unravel.
News For Thought
New York: State governmetn on verge of shutdown. According
to The New York Times: "Gov. David A. Paterson said he would include
work furloughs in an emergency spending bill that is needed to prevent
a government shutdown."
North Korea: Troop increases at border with South. According
to Stratfor.com: "North Korea recently deployed about 50,000 special
forces along its border with South Korea, according to a high-level
source, Yonhap reported May 5. Pyongyang recently completed the frontline
deployment of seven light infantry divisions, which is something it
had pushed for in the past two to three years, the source said, adding
that each division consists of about 7,000 troops."
Greece: Bailout is "flop" says Journal editorial. According to
The Wall Street Journal editorial: "According to the latest official projections,
Greek public debt, currently 108% of gross domestic product, will top 149%
of GDP in 2013, the year that the bailout loans, in theory, come due. Assuming
an average interest rate of 6% on that debt, Greece would be left paying 9%
of its GDP to bondholders, 80% of whom are located abroad. Put another way,
25% of Greek tax revenue would go toward interest payments to foreign bondholders.
Meanwhile, Greece's government spending equals more than 50% of GDP and labor
productivity is well below the EU average, neither of which bode well for growth
going forward.
The EU and IMF insistence that no haircuts and no restructuring
are in the cards isn't credible, as yesterday's market turmoil testifies.
There is now a real possibility that national parliaments in Germany,
Slovakia and other EU states won't approve some of the promised funds.
The contentiousness of funding Greece's bailout makes any further bailouts,
whether for Portugal or for Greece in a second round, look remote.
Far from silencing market speculation about Greece's fate, the bailout
has turned up the volume." |
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As the situation in Greece takes a break of sorts, at
least within the financial markets, traders are turning their attention
to the next big number, Friday's emmployment report. And while the number
may be positive, it's no guarantee that the market will rally in response.
If that's the way it works out on Friday, things may be worse than anyone
had expected.
Chart Courtesy of StockCharts.com
It's always a tough task to handicap the employment report. But this time
around, it's bound to have some positive numbers. After all, many indicators
suggest that some people are going back to work and that the U.S. economy
has started on an albeit timid upward path of late.
Last month showed 162,000 jobs were created. And estimates for this month range
from 110 to 500,000 new jobs having been created, with 200,000 being the average
number of expected jobs being thrown around. And while the numbers released on
Friday may be positive, in some light, the markets are a lot less bullish looking
than they have been for some time.
Chart Courtesy of StockCharts.com
The traditional leadership sectors, the financials (BKX) and technology (MSH)
are both in short term down trends. And small stocks (RUT), which had been leading
the market higher for the last few months have also taken a hit lately. This
suggests that the sellers are now more firmly in control of the market, and that
any positive response to the employment report may be limited.
Chart Courtesy of StockCharts.com
And our most trusty indicator of late, the NYSE advance decline line (NYAD) seems
to have made a triple top and may have broken down, as illustrated by the break
below recent support on 5-3, as the markets took a big tumble.
Chart Courtesy of StockCharts.com
And while the Wall Street media machine continues to spout the recovery mantra
on CNBC and elsewhere, we are seeing some negative developments, both in the
market, as we highlight above, as well as in the streets.
This week, we've spent a fair amount of time reporting on the less than rosy
picture we've noted at casual dining restaurants, where waiters are having dinner
as they wait for customers to show up. We've noted the large numbers of "For
Sale" signs in well to do neighborhoods, and the empty lots and empty new houses
in subdivisions in previously booming areas of the Dallas Forth Worth Metroplex.
And we've also noted that government and private industry figures suggest that
consumers spent much more than they had in the last few months, a fact that has
likely contributed to the "evidence" that supports a "recovery." Perhaps, the
most worrisome development is the record number of "REO" homes, those that have
been foreclosed and have not been sold, but are now sitting on bank and investor
balance sheets.
To us, it seems that the market, barring some kind of a miraculous recovery,
is now starting to add up the same factors that we've noted here, which is why
stocks are starting to roll over.
Conclusion
The case for a top in the stock market is building. The question is whether this
is a 5-10% correction, if that much, or whether something else, such as a full
fledged bear market lies ahead.
There are plenty of potential reasons for a bear market, but markets are irrational
and essentially are predictably unpredictable.
What we've learned with this cycle is that Goldman Sachs, Morgan Stanley, Bank
of American, JP Morgan, Deutschebank, UBS, and the rest of the "banks" have had
weird derivatives and opaque trades on their books for years. Hedge funds, often
take the other side of this trade. And what we now know, is that those trades,
and their repercussions are the real market movers, instead of the daily grind
of economic data and market response.
What we're saying is that whatever is inside the black boxes and dark pools of
the big money center banks and their hedge fund counterparts will likely influence
what goes on in the rest of the markets.
Now, consider this. No one, sometimes not even the CEOs of these big institutions,
what some of the trading desks are doing. They didn't know what was going on
in subprime, so why should we think it's any different now.
So, if there is no way to know how many of those "derivatives" and credit default
swaps are still on the books of the big banks, or on what the bets are on, then
the potential for another wave of "unexplainable" selling is possible under the
right set of circumstances. We don't even know if there are still unresolved
bets from the subprime mortgage meltdown left on anyone's books. We don't even
know if the Federal Reserve took on any of those bets when it bought "toxic" assets
from those banks during the TARP bailout.
What we're saying is that no one really knows what's happening inside the really
big money circles at this point in time. And now, there is no way to know how
much government money may or may not be involved in these esoteric bets. Things
were going along swimmingly, and now they're not. We don't know why other than
noting what is obvious, such as the empty houses and the empty restaurants. And
that worries us. We think the charts are sending a cautionary message and that
investors should pay attention.
Dr. Duarte is currently short the financial sector via the SEF ETF. This is an
example of a hedge. Visit all our different sections as Dr. Duarte's positions
are highlighted.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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