Short term warning signs. General comments

Bulls should be spooked by the fact that a blow-out GDP report, showing an economy with a HUGE turnaround and the President crowing on TV about how great things are going, could ONLY erase 1/2 the losses we suffered since last week.

Short term warning signs. S&P 500 weekly, noon Fri index is 1055 down 11

Wednesday's comments:
S&P Emini 500 Futures opened with a 2.50 point gap down this morning. The gap filled with a pierce through that level during the 9:50 a.m. 5 minute candlestick, but that proved to be the high for the day at 1060.25. From there, prices plunged on above average volume. There were a couple of brief retracement periods during the day, but for the most part, price action was steadily lower. Prices closed at the low end of today's trading at 1039.75. Volume was heavy at 2.8 million contracts traded. The day's range was over 20 points deep, the average true range is 18.38 points. This marks the fourth day of lower highs and lower lows on greater than average volume. A down trend line on the daily charts has formed, and it shows a break through the 50 day moving average. Tomorrow may see a bullish bounce after the 4 consecutive down days, but a close above the 1060 level on good volume would be a clue that support has been found. Meanwhile, we trade what we see, and we see a down trend. Today's action erased one more open gap. The October 7th close at 1053.25 filled during the morning, leaving two more unfilled gaps underneath at 972.25, and 902.00. The lowest of the two open gaps currently falls just below the 200 ma, and not far from supported price levels at 875.00 from this summer. It's possible that level might be a reasonable correction expectation.

========
Are we taking out the 1053 Oct 7 close ? Market is now 1055 down 11

Leaving " two more unfilled gaps underneath at 972.25, and 902.00. "

YIKES !!!

Short term warning signs. VIX, see my comments earlier.

Last Friday the VIX popped 7% (smaller oval). Including Friday it’s now up almost 37% (larger oval) in four sessions

VIX - CBOE Vix index – With equity prices sadly wilting by noon on Friday, investors were threatening to completely reverse Thursday’s giddy 2% advance. Traders were despondent after a 0.5% drop in consumer spending last month, which soured the tone following Thursday’s stimulus-stuffed GDP gain. The fear-gauge expanded by 8% to 26.70 as a result and one large options player appears to have placed a trade suggesting that volatility will be omnipresent – at least through year-end.

Short term warning signs. S&P 500 Elliott Wave

Elliott Wave counts to measure the markets we can see a 5 wave down count, followed by the A-B-C corrective pattern. Elliott Wave use, of all the technical tools, lends itself to longer term investment approaches. In fact, using EW on a shorter term can be down right tough. Where do you start your counts? Where do you end them? Was that a 3rd of a 5th? Even when you stick with the longer term, your starting points can be debated. For now it seems that we have completed the first leg two legs (1 through 5 =1 leg, and A-B-C=2 leg) of a 5 wave down pattern.

Short term warning signs. Dow Transports

Dow Jones Transports forged an “outside week” last week, making a new high on the week then closing below the lows of the week. The Transports are an indicator that confirms or overall economic conditions and the Dow Industrial’s price movement.

The circled bar represents just Friday’s price action. Two bars to the left (Wednesday) shows the new highs. In addition, the volumes are now surging on down days, not what should be happening in a secular (longer term) bull market.

Look out below !!!

After staging a nice rally yesterday, the S&P 500 is on the verge of giving up ALL of the gains. Look out below if the lows from Wednesday get taken out.

More on my Swine flu & World economy comment from a few days ago.

Bird flu kills more than 60 percent of its human victims, but doesn't easily pass from person to person. Swine flu can be spread with a sneeze or handshake, but kills only a small fraction of the people it infects.

So what happens if they mix?

This is the scenario that has some scientists worried: The two viruses meet — possibly in Asia, where bird flu is endemic — and combine into a new bug that is both highly contagious and lethal and can spread around the world.

Scientists are unsure how likely this possibility is, but note that the new swine flu strain — a never-before-seen mixture of pig, human and bird viruses — has shown itself to be especially adept at snatching evolutionarily advantageous genetic material from other flu viruses.



How will this change the World Bank's $3 Trillion estimate

More smoke and mirrors ..Clunkers: Taxpayers paid $24,000 per car

NEW YORK (CNNMoney.com) -- A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

Still, auto sales contributed heavily to the economy's expansion in the third quarter, adding 1.7 percentage points to the nation's gross domestic product growth.
The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.

paying the biggest premiums since December for protection against a rise in the dollar

Market Currents, Thursday, October 29, 20093:22

More rippling effects from the apparent end to Fed debt buybacks: Options traders are paying the biggest premiums since December for protection against a rise in the dollar. The price for euro puts is outpacing euro calls and "the market is getting nervous."

Do 18M unemployed people care what our GDP is?

Things that are not good forr consumer confidence are not good for retail sales BUT today we will be looking at a very positive slice of the year in Q3, when we had Cash for Clunkers and we had housing stimulus and the stock market rose 20% while the dollar fell 7% and the Fed gave free money to the banks and IBanks, which drove many of them to record profits. Our corporations are reporting a Q3 that is much improved over Q2 because global stimulus is pumping money in and, thanks to the plunging dollar, they are paying the American workers they have left 15% less than they did last fall. That’s right suckers - you accept pay in dollars and you are not even smart enough to do what Europeans learned to do long ago - ask for currency-adjusted wages!

The farce in this earnings quarter is you have S&P 500 companies who collect 50% of their revenues overseas paying their American laborers in crappy US dollars. PRESTO - instant 15% "efficiency" savings on real labor costs. Companies have cut back on most capital spending so when you see companies telling you how well their cost-cutting program is going, keep in mind that they laid off 10% of their workers and are paying the remaining 90% just 85% of what they were getting last year when measured in any major currency on the planet except the Dollar and the Yuan.

What will happen when/if the dollar gets expensive again? Most companies have already stripped fixed costs to the bone. If they are forced to come up with 15% more net currency to pay their workforce, the only solution is to lay 15% of that workforce off. That’s why the Fed is in a weak-dollar trap. They probably sit at the table each day and try to come up with more dumb things to say to make sure no one accidentally wakes up one morning and decides to buy dollars. We don’t have a strong dollar policy - we have a weak dollar prison!

-Phillip Davis

I think this is right. Good article Mr Davis !