Sunday, May 2, 2009

All market measurements including a rising bearish wedge to bearish negative divergences to overbought indicators point to a corrective decline, but this has not happened. With Goldman Sachs acting as the Treasury's agent coupled with overall low trading volume, our stock market couldn't be more carefully choreographed.

The S&P (SPX) finally closed above 875 of Friday and will likely rise further on Monday. Often times, a market will produce a head fake and break upwards in an opposite direction before correcting lower, but the Plunge Protection Team (PPT) is very active and I would be careful about going short. The SPX will likely come back down to retest 875 on Tuesday or Wednesday, but it must move higher from there if the rally is to continue. If the SPX falls significantly below 875, we might finally have a correction, or a buyable dip. Keep your powder dry until we know which direction the PPT decides to take the market.

We have some bank stress test announcements later this week with greatest formulaic emphaisis on existing loan portfolios rather than toxic debt held. This heavily favors the big banks to the detriment of the regional and small banks. The stress test is a sham, but even with the formulas favoring the big banks, it is my understanding the news is not so hot. I can't help but think they will spin their way out of any truly bad news.

My best estimate for the short and intermediate term, with ongoing help from the PPT, is for the market to continue upward - - within a primary bear market. When the next big shoe drops is anybody's guess, but I think it shouldn't be later than September, and perhaps much sooner. There will be corrective declines along the way, but it will likely take a major event to bring the market down significantly. I anticipate the market will rally this week, then decline next week.

When the next big shoe drops is anybody's guess, but I think it shouldn't be later than September, and perhaps much sooner. When you consider foreign nations have signifiantly slowed purchases of our debt in the past four months, we have record deficits beyond belief, we're monetizing vast amounts of debt, the commercial real estate market is scheduled to fail this fall, there's loads of toxic assets yet on the books that will continue to grow, residential mortgage foreclosures won't attenuate until 2012, unemployment will continue to rise, the real estate sector can't pull us out as in past recessions, and there's no industry that can lead us out of this morass - - our situation can only be summed up by saying the only light at the end of the tunnel is a freight train heading our way. We're in for an economic conflagration at some point in time. So don't believe the talking heads when they talk about "green shoots," they're in fantasy land.

Overall, I expect is a serious devaluation of the US dollar soon. It's the only way for government to get the financial industry out of this mess, but at the expense of the middle class.

There was another small change in the McClellan Oscillator (MO) on Friday, which suggests we will see a large price move on Monday or Tuesday. The MO has proved very reliable for predicting large price moves.

Both 30-min and 15-min stochastics provide indecisive guidance for tomorrow, but my thoughts are the market will likely rally.