Bloomberg Quote of the Day: “We don’t know a millionth of one percent about anything.” – Thomas A. Edison
….Lower High Lower Low is what LHLL stands for. A quick skim of the market summary for Tuesday will show that recurring in every single index! Astute readers will recall on Tuesday TB commenting that we missed ‘key reversals’ (higher HIGH, lower low and close below the prior day’s low) by about a point at the top on the major indices. But what is worse is that the ranges have extended dramatically at the low end, frequently into the next 100 or even 1,000 level. Take a look at the Dow Industrials for instance:
7/1 Closed 8504. Range 8580-8447. Broke 40, 50, and 200 day ahead of 3 day weekend
7/2 Closed 8281. Range 8503-8280
7/6 Closed 8324. Range 8328-8206
7/7 Closed 8280. Range 8326-8154
7/8 Closed 8178. Range 8219-8087
Four straight lower closes, four straight ‘two handle days and all after busting thru the 40, 50, and 200 day moving averages. The three now stand at 8487, 8456, and 8397 respectively presenting formidable resistance. Note that the 200 day has been decilining by more than 10 points a day while both the 40 day and 50 day were rising until July 1st on the 40 day before rolling over, while the 50 day continues to rise but will rollover soon due to the gradual decline since the 8799 high close on June 12 although the high of 8877 was achieved on June 11. This is a market in decline. Now let’s look at the S&P 500:
7/1 Closed 923. Range 932-920
7/2 Closed 896. Range 921-896
7/6 Closed 898. Range 898.72-886
7/7 Closed 881. Range 898.60-879 Broke below the 200 day moving average!
7/8 Closed 879. Range 886-869
Exactly the same it just took longer to break the 200 day, but the 40 day moving average began to decline on July 2, and the 50 day is still rising but about to roll over. Now let TB bore you with one more index, the Barron’s 400, their top 400 stocks based on performance but the composition is not released for proprietary reasons…Dow Jones wants an ETF created so they can collect the fees.
7/1 Closed 211.81 (peak). Range 214-210
7/2 Closed 204. Range 211.80-204…broke below the 40 and 50 day m/a’s
7/6 Closed 202. Range 204-199
7/7 Closed 198. Range 202-198
7/8 Closed 197. Range 199-194 Close is just 7 points above the 200 day
So you have three different sized indexes and we could add the Rusell 2000 Small Cap to the mix with similar results (the Russell broke below the 40 and 50 day on July 2nd after peaking on July 1st). The two Nasdaq indices remain well above the 200 day but gapped down on the open on July 2nd (they peaked back on June 11), and the next day broke both the 40 and 50 day moving averages…now remember those are the two strongest indices!
We have to go back to late May to early June when we first had a rare ‘silver cross’ where the 40 day broke above the 200 day, and an even more difficult ‘golden cross’ a few days later when the 50 day followed suit. These by definition are extremely bullish patterns…but not this time! First after the crosses the indices began to flatten until they are not only totally flat now but beginning to roll over. This is not supposed to happen! It is therefore indicative of a ‘faux’ rally! This is not the dawning of a new bull market!
But to confound things even more is the fact that bonds have remained extremely volatile (even the outperforming junk bond sector has broken down while investment grade corporates are holding on and munis are now volatile thanks mainly to California but other states problems are beginning to enter the equation. Want more? The Dollar can’t seem to get a grip and despite a nice rebound from treacherous territory it is now mired between the 40 and 50 day m/a’s and overnight it is trading just below the 50 day! This has caused gold to break down and like all the others broke below its 40 and 50 day at about the same time. But as it approaches the 200 day ($882) it should again attract buyers.
Once again commodities are a scandal and for the same reason as a year ago. TB does not believe in conspiracy theories but has written about the Plunge Protection Team (PPT) which was a quid pro quo with the government. This group of securities dealers (led by Goldman Sachs…perhaps we should change the America from ‘U.S’. to ‘G.S.’ In a little known act until recently the SEC exempted the big 5 dealers, three of which are gone – two merged into banks, one allowed to drown and the other two given bank status!
TB wrote about the runup in oil prices from 1997 to the explosion in the first half of 2008 and how that move on a lame theory of too much global demand…the only increase was China building huge storage vaults and stocking them ahead of the Olympics! That runup to nearly $5 in gasoline prices in the U.S. brought on fears of runaway inflation…false…and was fueled even further by …you guessed it…Goldman Sachs…with theories of ‘peak oil’ – another sham…when TB was in the sixth grade a publication called the Weekly Reader distributed to elementary schools said we would run out of oil in 50 years…the forerunner to peak oil! This fueled the GOP’s famous ‘drill, drill, drill’ which was absolutely insane as a response but they cuoldn’t bring themselves to recognize global warming or gas guzzlers until Al Gore rammed it down their throats…and then only reluctantly.
But here is a kicker….the reason for the runup was that consultants to pension funds…and who do they listen to but Goldman Sachs convinced the funds to invest in commodities index funds…these funds are modeled on the Goldman Sachs Commodity Index which is heavily weighted towards oil (while the CRB Index is more to grains). Then using an obscure provision that exempted them from position limits (based on the reports out then that were sketchy at best…TB read that only banks had this exemption so he thought JPMorgan and Citi…but no it was actually dealers as we are now finding out. So it was a rigged game and if you doubt that, even Goldman alum, and former hedge fund manager, Jim Cramer called the oil futures market a ‘farce’ …actually something like a farce inside a farce inside a sham or words to that effect. Not only are we paying for this but the entire population of the world…and folks you can blame this squarely on the Bush Administrations ‘anti-regulation of any kind’ stance…with an able assist from Robert Rubin! The CFTC was held hostage and a former exec of it is blowing the whistle and it lands squarely at Goldman’s feet. It is hard to imagine the government allowing this to happen but Goldman is so entrenched in the government that nobody objects, in fact they ask for their opinion!
Cramer got TB going on this but then a friend sent a lengthy conspiracy theory piece by Matt Tabibbi who writes for Rolling Stone…you can google and get it but it blames Goldman for every financial catastrophe since its inception…well supported in theory but whether all is as bad as he suggests (warning he uses expletives after all it is Rolling Stone), TB leaves up to you…but where there is smoke…so even if a quarter of it is true, it is shocking. If you can’t find the article and want to read it TB will forward it to you. Ya gotta hand it to Matt though…he went where TB would not tread after having gone up against former employer Merrill Lynch during the Orange County bankruptcy in 1994. It is hard to defend yourself when Wall Street has been represented by virtually every major law firm in the country…world?…and therefore will not represent you against them! Also, when Lehman failed Paulson told us there was nothing he could do…no doubt he had consulted with Goldman who was more than happy to see their biggest competitor fail…oh well…you decide!
By the way…Pimco has pulled out of the PPIP, toxic asset disposal plan…they who jumped in first. Why pull out? Because they feel it will not work! Yep, another Goldman plan…oh and so is ‘Cap and Trade’ which will likely pass and be a blight on the U.S. economy while Goldie makes even more money trading the credits. What is Goldman’s secret? Get rich…get caught…then settle for a pittance…is this a great country or what?
One last thing…remember when the TARP money was being passed out? Well, CIT got $3 billion and applied for status as a bank…remember Goldman and Morgan Stanley were granted it overnight…arguably they are more of a bank than these two dealers will ever be and they make loans to companies that are not being made by the banks now. The U.S. is holding up on giving them bank status and has been for months…meanwhile they are trying to regulate GE as a bank and they are resisting…now consider that GE is more of a finance company than an industrial but CIT is strictly a financial company and should be accorded the status…but their CEO unfortunately came from Merrill…now if he had been from Goldman…
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TB reflected a lot at Ernie Voigt’s funeral yesterday…which was attended by several hundred…yes Clint was there. Something that struck a nerve however was how loved he was and respected. Now recall back to Farah Fawcett and Michael Jackson dying the same day. Farah’s tribute came and went. The front page of the paper was black and all about Michael…also included in smaller type was Farah. Since then his story has been all over the news. Then there was that tribute Tuesday that bordered on obscene in its praise of him…not just as a great entertainer which undoubtedly he was but Al Sharpton giving him credit for Obama becoming president and Magic Johnson saying how much he had done for people of color…this for a guy who was no more black than O.J. Simpson and tried to make himself white. TB wouldn’t be writing this if it wasn’t that so many friends and even a commentator (KCBS’ Dave Ross), objected to it…wonder how the vast citizenry of Los Angeles feels having to pick up the tab for crowd control, etc. This at a time when so many people are hurting and for a proven pedophile…the Catholic church has nothing on him.
If TB offended you with this he is truly sorry, but it is worth it if it made you THINK!
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © July 9, 2009.
