Vacation

The habit returned and I looked at charts. This will not be a full post. The dollar and bonds diverged from their usual pattern with stocks. The index itself had a nice reversal day in a market filled with "hypodermics" at the reverse trendline with a shortened thrust and a narrow range. 5 or 6 days have the same close + or - 1 point on the es futures, indicating supply is overcoming demand. There have been many selling drives. If the top is not in it is not far off.

Remember, there has been essentially one buyer. Should the market turn on him, he will find few allies among the shorts he used every means to screw.

Markets 8/13/09

I thought for a change we would look at the most comprehensive volume numbers in the NYA. Notice last week the heavy volume with the up-down pumping action in price. This looks far more climactic than either the spx or spy charts we have looked at. Friday we had shortening of the thrust to a new high and fell to a lower low Tuesday. Since we have rallied to test the high and today we had diminished volume and a narrower range, although we closed at the highs. The jury is out but demand is not a t the level it was even 1 week ago.

Today we will begin with the bond index. Obviously it bottomed in the week that the stock market first topped in June and it topped when the stock market bottomed in July. It has not made a new low as the equities have soared to new highs. Instead it has made a higher low and within that consolidation has the making of a new uptrend. After bottoming 7/27, the market moved up with ease of movement in 4 bars with closes near the top. Two of those bars had wide ranges. More important the market surpassed the high of 7/21 making a higher high. On 8/7 it tested the 89.94 low and again rallied with ease. Yesterday we fell on heavy volume but closed well off the lows, showing some support. Today we had no follow through to the downside and closed near the highs, making our third higher low since 7/27. We now have the potential for an uptrend in the much despised bonds.
As described earlier during the first three trading days of August the dollar entered a spring position. That the three closes were almost equal shows the market was supported. We then moved up with ease of movement but failed to make a higher high like we did in the bonds. The large volume and small range on 8/10 shows heavy supply entered the market. 8/11 demand lessened at the top of a move and on the 12th prices fell off on heavy volume, supply was entering. Today the dollar gapped down with a narrow range and sharply lower volume. Supply is not following prices down and has dried up at higher low. We now have the potential for an uptrend in the dollar. Because much of the carry trade is centered in the dollar any rally here will trigger sell-offs in highly leveraged foreign speculations.

This blogger will soon be leaving for at least a week of Yeats and waves in an old castle on an island off of the emerald isle. His return is not yet scheduled. I wanted to remind readers that the very uncertainty that is the center of this blog right now is the very reason why I named it after The Lord of The Rings. One of the points of Tolkien's trilogy is that there are certain powers that men should not have and are not wise enough to control. Among those is the power to create money at the stroke of a key. These charts are so uncertain because they depend on the will of a few men who in their hubris have taken control of multiple markets. Will they now continue to bull stocks at the expense of the dollar and the interest rate markets, further enriching some but endangering others or will they pursue another course?

No man should have so much power.

Markets 8/12/09

Disappearing volume points to a lack of public participation. There is only one buyer as I have said and he is not playing here.

No real buying here.
The real buying is made to order support here. By the way that is real selling after the FOMC meeting, the sellers stuffed the canned buying applause. 1 is a real buying climax and real selling as is the sell-off and potential downtrend into the close.


The only change in what the Fomc said directly concerns our theme here. What happens when the one buyer runs out of funding. "the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October." Before it was by the middle of September. And the dollar limit is not as clear. Remember the fed buys securities from a broker-dealer creating permanent reserves. Those are multiplied 10x in loans to hedge funds etc; which are leveraged 10-50x in derivatives etc: I believe about 280 billion has been spent.

Now we must see what we can see in the charts.

markets 8/11/09

The dollar is moving as expected. It has not reacted much after its spring, yet.
Easily taking out the high last Thursday and making a higher high, bonds now have a potential up trend.
Notice how yesterday and today so many of the rallies were contained within the range of one preceding down bar. This shows no rally power and is very odd before Santa, I mean the FOMC meets. Today we ended in a potential down trend.
Finally the SPX made a slightly lower low today taking out last Thursday's low by a fraction. This is a potential change in trend.

I have one final note. The vast majority of blogs are bullish. Those that are not are looking for a 50 point reaction to 950. I have spent weeks showing how there is really only one buyer. The demand over 1000 is almost non existent. Most of the day that buyer is not even able to participate. In fact the moves in so many markets are so linked and concordant that sometimes I think it is one computer some where in the world that is doing all the buying. If that buyer is now exhausted, being unable to hold spx above a recent low, I believe it is as likely we see an avalanche of selling as a 5% reaction. I believe we could see 837 by 9/23/09!!!

Markets 8/9/09 Stocks

The spx closed off the high on the largest volume in three months. The futures actually closed back in the range of the past few days. Either way it is possible shortening of the thrust on high volume and again suggestive of supply entering the market, but the intra day will tell more.

Please read about the daily charts first. I have drawn in the relevant lines. From 10-11 there is an advance on good volume after which the buying disappears, just like happens so often after a government announcement or important speech. The advance that begins at 11:45 meanders up on light volume until the volume spikes and prices reverse. Prices move back towards the green line. Demand dries up in the attempt to rally from the green line. Supply enters at 2:10,15 and prices slide off easily to 2:30. No lifting power for the next 5 bars and again supply. When the blue line is taken out a lower low is made setting up a potential downtrend. Taking out the red line at 2:20 confirms it. A rally to a lower high followed by a lower low means that we ended the day in a down trend. While we can expect a gap down opening, the FOMC is meeting next week and I would not expect much until that meeting is over.
The qqqq and nasdaq have been the upside leaders. They are now at the point where a reaction might be reasonably expected. After making a low volume small range top at 40.19, the qqqq fell back on heavier volume. More important, in penetrating last Friday's low, we made a lower low and thus have a potential change in trend. On Friday, like most of last week, the q's did not make a new high. While not conclusive and easily reversed these observations are suggestive.
The volume for the Dow 30 fell after the good news and a new high with a wide range. This suggests that demand is waning but does not point to selling yet.

Markets 8/9/09 bubbles

It has been well commented on in the press that much of the Chinese stimulus and forced bank loans went into stock and commodity speculation as no better uses could be found for the money. It is easier to see that there than here for some reason. No doubt much hedge fund money from the West and from our quantitative easing made it to that party as well. Nearly doubling, one can see from the Monthly chart below, prices are at a level around 3500 of massive resistance, where a top can be expected. The inevitable crash will have a huge impact on the carry trade as well as the hope that China will lead us out of the recession that just ended.

Markets 8/9/09 dollar

The dollar is well on its way to a successful spring. Observe the heavy volume and that the price springed up from its spring position. The Euro had a successful upthrust. I have placed this in a separate space because it is potentially so important. The Fed since the beginning of March has been permanently buying bonds, bills etc; from its primary dealers. This addition of reserves enables loans of 10x the amount purchased. This then can be leveraged in markets 10-50:1. In so far as much of ,this money went into the carry trade and into overseas markets, it involved shorting the dollar to buy foreign currencies and assets. Hence a massive short position has been built up. A short covering rally will cause the sale of those assets and declining prices. This is of course the same mechanism which caused all the bubbles which so recently burst. Isn't there something about madness is doing the same thing and expecting a different result.

Markets 8/6/09

The dollar now has a good chance of rallying from its spring position and beginning a new upward trend.
The bonds are very suggestive of a turn. First note all the wide range days beginning June 11 and then July8 and July 21 and July 31. The ease of movement is definitely up. It even takes the weakness in the first three says of August trading to reverse the strength of the last 2 days in July. Finally today the market very symmetrically found strength at the July 20th support level and closed at the top on a narrow range, suggesting supply might be overcoming demand. At the least it is a reversal day. In general money must come out of stocks to support bonds.
Today, after taking out yesterday's high stocks fell to close in the lower half of the range on the highest volume in 2 1/2 months. The previous three closes were in a narrow range and with the high volume and low close today that does not look like absorption but rather supply overcoming demand.
Finally on the intraday please note the bouts of heavy liquidation on down waves. These eventually penetrated the low of the last few days trading range implying a potential downtrend. This would be confirmed by a lower high. The rallies today to 11:15,12:45, and 1:30 all end on low volume or show a failure of volume to increase as demand does not enter. During the rally at the end of the day the buying on the usual ramp job was stuffed by supply. We have all the makings for a top and a defined lower high will confirm it.

OVERVIEW

I must blog quickly because it is too late already. It is time to look at the whole board. The s&p has crossed 1000 and instead of soaring has whimpered. The dollar broke into a spring position and has not done anything and bonds tanked on issuance announcements. Any of these continuing their price move effects the others and creates a crisis, sooner rather than later. Stocks rising brings down the dollar and bond prices, the latter two triggering a crisis. The powers that be must rein in equity prices or deal with chaos. The charts above are not unfriendly to the idea of a reversal. I do not have time but do your homework and look. Pay particular attention to the appearance of heavy selling in the spy over the past few days. Also note how the usual end of day buying could not bring about new highs.

Tonight we will vary a bit from our usual Wyckoff analysis. I invite you to observe what happened to prices when the spy crossed 70, 80, and 90 for the first time in this rally. Notice the large bars, the gaps etc; Well 1000 is the psychologically biggest number of them all. Notice our range and volume. So far no one has rushed in. This puts us at a critical point. There has been no profit taking on this run up. Perhaps the plan was to dump on the mass of public buying that would appear on crossing to 4 digits. That buying had better appear soon or once again the smartest brains on Wall Street might again find themselves holding trillions in unsaleable paper.
To emphasize the above after some supply which ended early in the day, at 10:30 began a low volume rally which ended at a new high at 1:00. No real buying was attracted. The sell-off which ended one hour later was much more intense and selling was attracted. Support came in and the rally that followed to 100.6 had erratic volume that petered out. Volume shows a tendency to increase on the declines until the final ramp job in the last 25 minutes. This was the only real buying all day, just like yesterday. Who are these buyers going to sell to? If no one volunteers to buy at a P/E of 760 they will all rush for the exit at once. Watch today's low prices carefully.

Markets 8/3/09

The only thing bearish on this char is the decreasing volume that accompanied the past three days of rally. Price action in this case trumps volume and we would expect further rally. The only caveat to this would be if last Thursday turned out to be climactic. Large supply entering the market would make that clear.
The point and figure shows that despite the apparent strength above we are battling supply with shortening of the thrust. That being said we ended the day in an uptrend after a small spring.
There is no buying during the middle of the day. Whoever is buying has no one to sell to yet.
In the table below are listed the P/E of the sp500 index. The calculation is by S&P itself. The second column from the right is the P/E calculated from reported earnings on a GAAP basis. That P/E is either 723 or 768. The reported earnings are $7.27. When we consider that banks no longer have to mark to market, if that number were calculated as it was just a few months ago, it would be much lower, maybe even negative and the P/E would be even more outrageous.

The Projection for next quarter is a negative number.

09/30/2009		$15.00	$7.45	$11.68		24.88	-966.62	29.81
06/30/2009 (53%)	919.32	$14.22	$7.27	$11.05		24.29	768.73	26.36
						22.87	723.87	24.83
ACTUALS
03/31/2009	797.87	$10.11	$7.52			18.56	116.31
12/31/2008	903.25	-$0.09	-$23.25			18.24	60.70
09/30/2008	1166.36	$15.96	$9.73			17.99	25.38
06/30/2008	1280.00	$17.02	$12.86			18.36	24.92
03/31/2008	1322.70	$16.62	$15.54			17.23	21.90
12/31/2007	1468.36	$15.22	$7.82			17.79	22.19
09/30/2007	1526.75	$20.87	$15.15			17.09	19.42
06/30/2007	1503.35	$24.06	$21.88			16.44	17.70
03/31/2007	1420.86	$22.39	$21.33			15.90	17.09
12/31/2006	1418.30	$21.99	$20.24			16.17	17.40
09/30/2006	1335.85	$23.03	$21.47			15.55	17.00
06/30/2006	1270.20	$21.95	$20.11			15.54	17.05
03/31/2006	1294.83	$20.75	$19.69			16.35	17.82
12/31/2005	1248.29	$20.19	$17.30			16.33	17.85
09/30/2005	1228.81	$18.84	$17.39			16.56	18.46
06/30/2005	1191.33	$19.42	$18.29			16.49	18.80
03/31/2005	1180.59	$18.00	$16.95			16.91	19.57
12/31/04	1211.92	$17.95	$13.94			17.91	20.70
09/30/2004	1114.58	$16.88	$14.18			17.25	19.29
06/30/2004	1140.84	$16.98	$15.25			18.36	20.32
03/31/2004	1126.21	$15.87	$15.18			19.39	21.66
12/31/03	1111.92	$14.88	$13.16			20.33	22.81
09/30/2003	995.97	$14.41	$12.56			19.25	25.82
06/30/2003	974.50	$12.92	$11.10			19.91	28.21
03/31/2003	848.18	$12.48	$11.92			17.79	27.97
12/31/2002	879.82	$11.94	$3.00			19.11	31.89
09/30/2002	815.28	$11.61	$8.53			18.52	27.14
06/30/2002	989.81	$11.64	$6.87			23.80	37.02
03/31/2002	1147.39	$10.85	$9.19			29.44	46.45
12/31/2001	1148.08	$9.94	$5.45			29.55	46.50
09/30/2001	1040.94	$9.16	$5.23			24.77	36.77

Markets 8/2/09

There is not much to say about Friday's action on the daily. While the market was clearly supported by Monday's high, it also failed to rally and closed in the bottom half of its daily range. This together with the relatively high volume indicates that supply is present.
The uptrend line might be tested again Monday. Intermediate term trend lines have worked very well recently as their violation has usually indicated a change in trend.
The intra day today is the key chart. The upthrust in the last hour clearly defines a lower high.

After the buying in the first forty minutes, the buying is done for the day. The decline to 98.69

creates a lower low and the potential for a downtrend. Given the weakness most of the day, I do not believe this is a spring. Anything that creates a likely lower high here would be very important in the market's action telling us its future direction.