Monday, April 13 After Market Close

Today, a few graphs I'd like to share with you.

The first graph to the right is the projected size of our deficits in coming years as compared to the prior 8 years. Pretty unbelievable. This is unstainable and insures higher taxes, a future depression, and a devaluation of the US dollar (or inflation).









The stock market can be thought of as a gambling casino with the market makers (think Goldman Sachs) as the house taking their positions to ensure maximum profits from the visitors (you and I). Traditionally, the market makers look to these stocks make the market; i.e., the SPY (S&P), the DIA (Dow), and the the Q's (NASDAQ). If the put/call ratio for these stocks turn excessively bullish or bearish, then a market turn-around is due. The second graph to the right shows the put/call ratio for these stocks courtesy of Shaeffer Investments.

Notice the put/call ratio for DIA is 1.19; and 1.50 for SPY, and 1.53 for the Q's, which are all bearish. Until these stocks go bullish (requiring values below 1.0), then we can look to further gains in the stock market. And with options expiration this Friday, the market makers will be look to squeeze the shorts for profits.

Thus, the market looks to go higher for the rest of this week with only the traditional April 15th tax day sell-off, bad earnings news, or unemployment announcements later this week having the potential to bring the market down. Another thing to keep in mind is the Tea Party protests are scheduled for this Wednesday with the current Administration looking to keep attendance down to a minimum - - think Plunge Protection Team involvement to the upside through Wednesday.


The next graph shows the SPX (S&P) with a CPC overlay (which measures put/call sentiment), and the VIX, or volatility index. This graph was brought to my attention from Cobra's Market View. I have given his graph further study and have arrived at somewhat similar conclusions. First, I'd like to point out that its a very rare occurrence for the VIX to go down while CPC and the S&P go up. In the past 1.5 years, this has only happened twice, maybe three times (more on this later). Second, I went to the 2001 through 2003 stock market crash and this setup did not happen even one time. So it is indeed a rare situation.

The graph labels the three prior incidents as A, B and C; with D being our current market situation. In A and C, the stock market declined after these setups occurred. In B, the stock market continued to rise. Notice in the A and C outcomes, the CPC and VIX turned up to end these situations with the maket diving afterwards. In the B setup, both the VIX and the CPC continued to head down with the market continuing to rally.

After false or near false turn-arounds marked in the past couple weeks from the indicators, what I take from this is that a significant turn-up in both the VIX or CPC should finally mark a market turn-around to the bearish side, or a significant correction. But if the CPC continues to fall to below 7.5, then the market will continue to rally. Another interesting point to bring out is setup B happened last April in 2008 during a long market rally, which is our also our current month.


As I have said before, a rally is unsustainable without the financial market moving higher. The next graph shows the banking index, which shows a breakout has taken place. This is bullish.

I was looking for a pullback early this week, in which case I was going to go long, but we haven't gotten one of significance yet. If you are currently long, then ride the wave through the pullback to the end of the week, unless we get some really bad news. When new data comes out for the DIA, SPY, and Q's next week along with the put/call ratios, we'll look to find our direction.

The indicators say the market should pull back tomorrow; then we should have the tax day sell-off unless he PPT gets involved. If VIX, CPC and CPCE spike upwards on Tuesday and Wednesday, I may have to re-examine any long entry on Thursday. Also, if the CPCE rises above 0.76 in the next couple days, then we might have a market top and an actual turn-around or major correction.