Thursday, January 21, 2010

Excuse Me Mr. Volker, But How Do I Save My Presidency?

I wrote the following yesterday -
“Here is the message to Washington from the election last night – either you fix it, or we will fire you and find somebody else who will.”

“(Senator) Brown won yesterday to send a message to Washington that they had better start siding with the populace and stop siding with the bankers.”

Clearly Obama Watches the Polls
It took him only ONE DAY to come out with this -

“While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse. My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.”

He laid the hammer down today. He told Wall Street that you can’t risk Taxpayer Money anymore. That’s all Goldman does. That is all Morgan Stanley is doing. And a huge part of the business at JPMorgan and Citi.

The goal is to stop banks from being able to create leverage by using Taxpayer Money to create off-balance sheet entities. The Securitization industry will officially die with this proposal.

It only took Barney Frank about 30 minutes to find his way onto CNBC to tell us that it will take 5 years to implement this plan. Bull. It might only take 5 weeks to get this plan in place. Obama is in panic mode and is trying to find an issue on which he can look tough and Presidential, so that we will all forget about how much of our money he allowed to get looted from the Treasury and about what a disaster his Healthcare Plan turned into.

If I am Barney Frank, I get out of Obama’s way, thank the banks for all of their bribes they have paid me over the years and tell them that it was nice knowing them, but it is time to save myself and move on.

Remember, Geithner has to go onto Capitol Hill next week and he is going to get pounded – POUNDED – from both side. Republicans smell blood and the public hates this guy. Democrats need to look tough and will want to upstage Republicans in looking like a tough anti-government Populist.

If I am Nancy Pelosi, I call a special hearing and bring in anybody associated with The Fed, The NY Fed and AIG and turn it into a witch hunt to hide my own incompetence.

Today Was a Bloodbath

Financials – For obvious reasons
Goldman Sachs (GS) and JPMorgan (JPM) are at the line of death. They got crushed today on massive volume –


Commodities – I am assuming that there will be pressure to diminish Leverage across the board, whether it be pressures from China or from Washington. Leading Commodity names got killed today on huge volume. In my opinion, Exxon Mobil is the single worst chart in the market. If you own it, you had better have a chat with your advisor about why…


China and those who sell into it –
China (FXI) broke the 200-day today! Time to dust off FXP and consider on rallies up into resistance on FXI…
Brazil (EWZ) broke down today. Latin American (ILF) looks exactly the same.


Last I checked, 578 stocks broke their 50-day average today. 490 broke theirs’ yesterday. Remember, the 50-day is where the big boys come in to defend price. Stocks lead markets, so the averages may hold here at the 50-day, but many individual holdings will not if this is a topping process.

It looks like the NYSE ($NYA) has put in a higher high, while the Bullish Percent ($BPNYA) and Summation Index ($NYSI) have put in lower highs. That means that fewer companies have been carrying the market higher. The early warning sign is the percent of stocks above their 50-day, which has fallen from 82 to 62 this year. Dust off the Defensive Playbook.


Timing Issues
Short term, the markets are oversold and at or near levels from which to expect a bounce to be attempted. Will the bounces work? Who knows, but they may be playable and the quality of the bounce will tell us a lot about whether or not we will get our much-anticipated correction.

Here are the support zones on SPX. The SPX Futures Contract hit a low today at 1,108.74, so you can see that price is right in the middle of all this support. SPX (Cash) closed today at 1,116.48 and the 50-day is at 1,114.52. I’d love to see it spike down hard tomorrow morning and then reverse back up on big volume.


The Euro has a time cycle today and key support at 1.399. FXE hit a low today of 140.09


The Dollar hit the 200-day today and closed at its December high. Watch the Dollar chart closely, because it sure looks like the 50-day (Black Line) is going to reverse back above the 200-day (Purple Line). They call that the “Golden Cross” and it is the definition of a Bull Market.

A Dollar Bull should be bad for Commodities, Gold and potentially Stocks and Junk Bonds. A Dollar Bull would force a lot of short covering in the Dollar and a lot of delivering of the “Dollar Carry Trade” – this would be real bad for risky assets! How many people are talking about a Dollar rally right now? Any retest of the December low would set up a really good risk/reward trade in the Dollar. I am watching it very closely!


If the Dollar is putting in a short term top, then you would expect a short term bottom out of risky asset. Look at Gold trying to make a 2-Step pullback into support. Gold hit a low today of 1,088.80 and closed today at 1,094.80 Key support is at 1,092.60 – 1,095.30
I would love to be able to buy GLD near $105.


Crude Oil is fast approaching support at 75 – 75.37. Crude (WTIC) hit a low today of 75.66 and closed at 76.02


So you have a lot of Commodities at key support and the Dollar at key resistance.

US Treasuries are at first resistance and will over an interesting setup if they pull back into 116.20, with a close stop below 114.5

The Bottom Line
It takes a special kind of market to support breakouts by leaders. It requires new money to come into the markets and accumulation by the big boys.

We have seen too many failed breakouts to count. This has been a market rotation from leader to laggard and then back again.


The market is narrowing and lots of key leadership is not acting well. Accumulation ratings in IBD for the Indexes are bearish. Now the short term Percent above their 50-day has rolled over and Bullish Percent appears to have put in a lower top. If it rolls over too, then I am on full defense and may even short some things.

Don’t mess around with this market. If they want to take it down, they can do it quickly and painfully. Be on your toes and watch the quality of the bounce if we get it in the next few days.

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