Some objectivity

I had several conversations over the last days with distinguished financial professionals. What I find intriguing about all of them is the unanimous feeling and need to take a gamble on market potential that depends solely on the action of a central bank, a government or a traditional attempt to take a gamble in a knowingly unstable environment simply because that's what feels like the appropriate action is. A simple approach would be just do nothing or the safe thing - right? But, regardless of that, why not bet on stimulus, emerging markets, china, sovereign debt, corporates or junk bonds...Just look at our Tepper character at Appaloosa Capital Mis-management - that clearly is his approach.

The reality, in my opinion, is very simple.

1. Interest rates are at or near record lows
2. Lending is primarily occurring between banks and the Treasury not small business or in real estate
3. Stocks are pricing in perfection
4. Mutual Funds have spend nearly all their cash
5. Hedgefunds are shutting down or blowing up due to de-leveraging activity
6. Cash flows do not support debts being repaid

Interest rates are at or near record lows.

Lets discuss point number one. Interest rates are at record lows and what does that mean? Well just like the prices of merchandise that has not been sold, and are lying in inventory within a very limited market - prices must come down as a mechanism of incentivizing transaction. The facts are, if some one does not want something prices have become cheaper for that thing in order to encourage them to find a reason to make a decision. In this case, rates have been brought very very low in order to try to sell a product that no viable candidate wants or needs. The people who think they need it are not viable clients since they can not afford it. It is important to understand that low prices equal low demand and urgency to sell by market participants. This translates to central banks and other financial market participants desperately attempting to sell debt money at nearly any price since there is little demand for their product - money made out of debt.

Low interest rates are occurring at precisely the most dangerous time to be handing out loans. At the time that real-estate is nearly as overvalued by my analysis as in 2005 and 2006 we are selling credit at the cheapest price available. If there is ever a recipe for disaster this is it. In nearly every case, quality  of credit and mark-ing has aggressively deteriorated since 2009 and additionally, most collateral/asset prices have not reflected inflation, with the exception of stocks, bonds and a select few commodities.

Lets talk about bonds. People seem to think that because the Fed can QE anything they want, even if its not in their charter, then bonds, especially MUNI's are safe, safe, safe. Well, do you remember auction rate securities - I believe that they were marketed as safe, safe, safe way back when - and the obligations did not add up for them just as they don't add up for MUNI's now. There are not enough tax receipts or accruing investments owned by municipalities to pay the obligations on these bonds. The result will be a light switch. When people finally realize that they have been sold on tax free income and the illusion of safe, safe, safe...at prices that absolutely reflect a panic rush into that illusionary safety at pricing that reflects extremely low risk, the door will no longer be open and there will be no bid. Not even one bid...just like auction rate securities.

Muni's are part of the ponzi scheme to push ever increasing debt into the system at low interest rates...this is not dissimilar to the the derivatives markets or other money inflation tools that the fed has used in the past. The requirement for our system to stay afloat is to create new debt money without creating interest or as little of it as possible. Given the mechanisms in place that is a very hard job.

The statistic and ironically question that many experts pose, is: "There is real buying and demand out there!?". Well, my answer is simple, there isn't demand. It's not real and one of the issues with myopically looking at markets is that, as with any thing you stare at all day, you can see things that are not there. There is no demand, and if QE was soo good at doing anything other than blowing bubbles in the bond and stock markets, how come the Fed has been unable to move any economic metric in any significant way without deliberately falsifying and optimistic promoting contrived and trumped up numbers that only get revised lower.  They just can not demonstrate real improvement on the scale that one would expect from QE when debt destruction is not factored in. QE is not increasing the volume of money. That's why its not having an effect. However, it is having a side effect and that's called - bubbles. Bubbles are the only thing the fed is good at, the sad thing is that the taxpayer will get the bill, tax roles and municipal revenues will decline dramatically when this bubble starts to burst.

Contraction in the volume of money (Total Money plus Credit) results in a shortage of cash. The fed is not creating nearly enough cash to deal with the credit destruction that is occurring via insolvency embedded and masked deep within our system. It will not fly. The bankruptcies are already there and what's more, just like long-term capital, people with assets know they are there and will force them out in the open. The FDIC, FHLN, SIPC and other assorted government complacency schemes will not be able to mask the fake accounting hiding insolvency deep within our financial system. JP Morgan, BAC, Goldman Tax, Morgan Stanley and many other institutions are hiding huge losses using mechanisms that no individual would be allowed to use without going to jail. But all this is simply cronyism and regulated fraud.

Lending is primarily occurring between banks and the Treasury

Now lets take a look at point two. Banks are borrowing at 0% and lending to the treasury at 2 to 3%. I don't really care what the percent number, so I am not interested in being precise...the concept is the essence of what I described above. Additionally to that, a setup like that is representative of a bubble, faulty financial regulations and structure - it does not usually end well.

Additionally, due to these contrived dynamics, the yield curves are making it treaterous and expensive to hedge market exposure in many types of lending activity, therefore, it may appear on the surface that banks are making nothing but money with this strategy but the reality, as usual does not connect directly with our perceptions of it nor the media's generally trivial and optimistic portrayals.

Small business is not getting lending activity nor are individuals. The irony is not for the interests trying their level best to incent people to borrow. But that qualified businesses and individuals see no reason to borrow. What's the upside - more liabilities and risk. People are risk adverse and see an unstable future, so even if they can afford and are qualified to borrow the extent of their activity will likely be to refinance existing obligations not to establish new ones.

Stocks are pricing in perfection, cash reserves, de-leveraging and cashflow

Stocks reflect both optimistic assumptions and market dislocation. Stocks have been heavily shorted via false breakouts and just as they are fairly strongly covered and longed at false upside breakouts like the one that we are potentially having right now. Liquidity is constrained, alpha is hard to generate and people are getting more and more desperate. To this end, mutual funds have very little cash left and additionally the shorts have been separated from most of theirs. These conditions setup a wonderful environment for that Fatfinger guy at Citibank pumped by CNBS to reappear. Who will be a buyer of inflation assets when there is limited real cash to buy and Muni's and other debt instruments are imploding?

Ironically, the de-leveraging process is not obvious. One would normally associate de-leveraging with deflating prices and forced selling. However, the reality is the highly correlated and specifically de-correlated activities in the markets are causing disruptions in arb market activity that has traditionally been active with highly leveraged risk taking due to its lower perceived risks. Therefore, de-leveraging is occurring as prices are actually going up in many markets. Arb is not working, just as most risk avoidance schemes are failing aswell. I suspect there will be a lot of body-bags required in the not too distant future.

On the subject of cashflow, there are 22 million unemployed (though probably higher) and a lot of under employed people in the US, that's a lot of pressure on unions, wages and incentive for business to lower costs with less expensive resources. These cycles tend to be self fulfilling, lowering the costs creates more unemployment which creates less demand which ultimately depletes cash and lowers asset values due to continued contraction in the volume of money. The results effect tax receipts, sales and cash reserves. Additionally, many of the US corporations touted as having huge cash stores have that cash held tax free offshore. if they need that cash to operate they will have to give 30+% to uncle sam...that creates a very different looking balance-sheet - one that most people are not factoring in.

Most of all people are paying a hefty price for risk with a rather low potential for return in almost all markets. This creates a dynamic that Fatfinger would just love to revisit. Sugar plum fairies and Ben Bernake fantasies may offer some restful nights at this point, but sleeplessness lurks right around the corner when fraudulent and regulated insolvency is no longer viably masqueradable as solvency.

A Crash is being setup...

I wanted to make this post tonight because we sit at a precipice in my opinion. I have built a rather large short position and I think the gig is about to be up. Tomorrow will be a very important day and looks probabilistically to me to be the initial thrust lower of a large move - finally.

This may show up as a triple digit loss on the DOW tomorrow but there are, of-course, alternatives and this expectation does not have to play out, or the market could try to break out to the upside of the current setups. However, since I think the probabilities are quite strong for a dramatic directional move, it is appropriate for me to post this and my belief that the move will be down, as indicated - potentially rather dramatically.

I would like to make another set of comments. The markets setup bear flags VIX looks setup in a nice falling wedge which is ready to break out and gold has set every gold bug and even a lot of non-gold bugs on fire. I for one do not really care to focus on the gold debate. But I do think that Mike Shedlock, though right about quite a few things, seems to have gotten just a wee bit over confident. I think his gold view, has merits but I think that despite the fed QE and general debasement there is a rolling shortage of hard unencumbered cash. If cash is expensive then assets including Gold will be cheap. I think gold has over-shot the pattern as indicated on my previous charts and is primed to help fuel the next big move into cash. 1.128 and 1.272 are derivative fib values that I look for as targets and have been fulfilled in the gold market. So, warning warning Will Rogers there may be something of a surprise lurking in them there woods. It will be interesting to see it play out. I am not that focused on Gold and do not trade it extensively, though I do use it and silver as an indicator. If it continues the breakout...that breaking and closing much above 1.272 will certainly invalidate my current perspective.

Well, well, well...the trap is setting

Time to start getting back to business. Market killed a lot of the Elliot-wavers who have been looking for wave 2 up (of the ever illusive and many time called wave 3 down) on every uptick since the mysterious wave 5 that never happened...and many bearish market-guru's as well are in the middle of rewriting their continuously upside target commentary..and the cluster of Hindenburg Omens did what they were supposed to...they got lot of people short and trapped...as I indicated in previous posts. Otherwise the market has not had much going on which is also a reason I have not posted much in recent days.

The data for initial claims, auto sales and housing numbers are more abysmal than ever and the market structure is not setup for a sustained move. So, tomorrow we get more data, the miraculous ever-to-be downwardly revised job numbers. I wonder how far and many times they will revise this one down in the months ahead. If the numbers are market like JP Morgan's books then we should expect some more squeezing of the shorts and brave longs to targeted...1108 to 1110 would be nice and 1119 would be even nicer...Systems will take advantage of this structure in the markets and will likely take shorts on any push into these levels...there is a 1128 area that I would be watching any sustained breakout over that level as it could point to a push to over the highs of the year if that were to occur, which frankly, I think is not very probable. So far, the models have continued to nail it and covered shorts at the lows and are watching this move for entries (some of which they are taking).

In any case, I have been swamped with new releases and needed to spend some time on documentation and some presentations. I apologize for my lack of posting, I have missed writing on the blog but have spent quote a few days working until the 4:00 am to 7:30 am hours. Watching the sunrise is not as much fun as its cracked up to be when you have worked for 27 hours in front of it. I should be getting back to normal.

Pretty much as expected...

The market sold mildly and then closed solidly on very low volume. This resulted in short position additions at the close. Ideally there would be more follow through tomorrow, though I am not anticipating much, which would hopefully get systems shorter. So far the Russell Swing Futures System has not triggered short but will likely do so tomorrow if the market does have some upside. This would certainly be a powerful signal. I would like to state for the record that given the internals I am seeing, there is potential for tremendous weakness in addition to a large volume of reversal or loss of momentum candles in stocks and index ETF's.

Update and Overview

I wanted to point out that most of the systems are looking short - all have sold their long positions and some have already begun short positions on this rally. Unlike previous rallies off of selloffs this one is setting up short so far for the systems...just a word of caution regarding having too much optimism relating to this market.

We have touched logical resistance, returned and so far found resistance at the mean zone and the Trend following analytics have turned to favor short.

Commentary...

Regarding the systems...I have stated over the last few days/weeks, that the systematic outlooks were mixed...meaning some systems have been looking short and some have been looking long. In that kind of situation, I have suggested that commitment to the market in either direction be moderated to manage risks in a way that is constructive. For my trading models, I have reduced size allocations by 50%. This means that we will be able to return to full allocations when the majority of the systems are committed in complimentary biases. In this case many of the RVS systems are looking for downward bias shifts. This is not unanimous yet and tomorrow will be a big tell. If we bounce hard, which is a reasonable outcome to expect, then the mixed bias will continue for a little bit. However, without a sustained move to the upside the long positions that are currently on the table will look for a good bounce for an exit and then the systems will likely turn their attention to the short side.

I will post details as soon as they are available.

On another topic, the Releverage/Deleverage analysis today did an outstanding job of demonstrating commitment to the "risk-off" trade. There were only two times during the day that the market made minor attempts to catch a bid under the risk trade as represented by this tool. I have to admit, I jumped on it when it happened and posted the chart. I did take longs at the support level I indicated earlier...but the market never demonstrated committed bids and premiums being paid for leveraged risk. I will continue to post those charts in the next few days. If anyone is interested in understanding more about them please feel free to comment on this post or contact me directly.

Alternative SP500 Target

An alternative target of the SP500 would be 1095'ish. Assuming we have an ABC up off the lows of a few days ago...wave A measures roughly 35 points, wave B measures about 20 points and with wave C being equal to wave A, that adds another 35 points off the wave B low brings us to roughly 1095. This would be an objective area to scale into shorts with an appropriate stop.

Market Observations - Under the surface - not what it appears to be

Just like Bernake, if you look under the surface you can see that there is something masquerading as an impostor you always knew was lurking. Well, in my charts below you can see, this rally is not what it is cracked up to be. Additionally, we only need the box trades to close on both the ES and TF for the market to be set up for, at the least, a major pullback. Would be nice if the dollar could get into the 74.50 and below or above trendlines, confirming an unsustainable position in the markets.

Another View of the Dollar Carry Trade

The slightly upward sloping channel needs one more little pop to fill. I saw a great chart of this earlier today...but I think the trend lines needed to reflect the channel. Nice moving average resistance above also.

those of you with stockcharts may want to watch this chart live, enclosed is the link to the live chart. live chart

Market Observations - parabola

I have not been posting much for personal reasons but did want to post something about this market situation.

1. Everyone and their brother went short when trendlines were broken
2. Those people feel hoodwinked again
3. The dollar pattern failed
4. Big fractures in the market
5. Extremely low volume

I am going to restate my thesis from quite a while back. We need an emotional bottom for the dollar. With a dive below 74.50 the market can panic people into buying and covering inflation assets and dollar longs can capitulate. I hear people looking for a positive seasonal move and this and that...however, volume is weak, the dollar sucks and conditions are ideal for fumes to be lit...we need this little parabola to complete to the upside...I think it is very difficult to set an exact level to short here since we could see a one day spike that could be dramatic.

Apparently, EWI may be about to retract their P3 thesis. Hochberg has certainly had his challanges calling the rally from the lows. First he waited until we got to the 800's on the SP to call P2 and then he promptly used the whole trip from 800 to 920 looking for wave B down. In July, I believe he called P2 complete also, but handled that rebound much better. Recently, his bearish bias (which I can certainly rationally understand) is so strong that nearly every squiggle on the Dollar chart down from 80ish is a bottom and every pop on the markets is a top. And finally, just when a little potential parabola sets up he's addressing folding the forecast...Hochberg has been (and generally is) too bearish in opinion and thusly interprets his forecasts in that light rather than objectively. His interpretations have impacted many a waver - I am sure. It is important to remain detached from the market and convictions - apparently this is something that Hochberg needs to do better.

Some Numbers

Cost of military providing ONE gallon of fuel for a jeep in Afghanistan:
$292.00 - yes that's right, two hundred and ninety two dollars.

Effective all in tax rate for New Jersey:
62% - and the government is still broke.

All this money floating around being misused by government is not creating opportunities for the US citizens or business unless your name happens to be JP Morgan or Goldman Sachs

Industrial Production then and now...

This is a great chart of the current situation...

Can we afford the wars and bailouts? What is the government and the press telling us? Is the stock-market levitation a miracle or something else?

“I have sworn upon the altar of the Almighty God eternal hostility against every form of tyranny over the mind of man.”

"I believe that banking institutions are more dangerous to our liberties than standing armies."
-Thomas Jefferson

“The business of the journalists is to destroy the truth… We are the tools and vassals of rich men behind the scenes. We are the jumping jacks, they pull the strings and we dance. Our talents, our possibilities and our lives are all the property of other men. We are intellectual prostitutes.”
-John Swinton, speech given while working for the New York Sun, 1880

Dollar Breaks Out - takes out stops in futures contracts

Over night the dollar broke the 76.40 trendline...and took out stops in the low volume overnight session for the DX contract. The prices popped there to 81.00 on 3,000 contracts. If this was a hedge or speculative position...the net effect was an $11,000,000 hit on those contracts from overnight lows. Please look at these trades to see how you can get killed in overnight stop hunting. DX is not a very liquid contract and can not absorb  a 3,000 contract order.

In any case, the market is not down on european banks as is being spread in the press. The market is down on relative value dollar issues. We may be setting up a leading diagonal for a downside break. This was my assumption yesterday and continues to be a preferred view today.

Buffett's, hair-brained purchase of Burlington Northern is an example of the Buffett credit inflation thesis. Please read my Buffett pieces on the featured article list. Credit inflation is dead...buying transports now is absolutely devastating. Buffett does not understand the financial system and thinks his buddies at the Fed and Treasury will provide enough cushion. The reality is they are not in control. This buy of Burlington may provide some lingering strength for the Equity markets...which will, no doubt, be a great bearish opportunity.

I saw Cramer last night, he has officially lost his mind and should be fired immediately. He is championing good news. Good news comes at a top...he should know that already. CNBS is continuing in their quest to reduce their view ship to Zero.

As long as the dollar is strong...sell rallies IMO.

Market Observations - Dollar Poised

The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.

EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.

The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.

Below is an unchanged old chart of the SP500 that I posted over the last few weeks.

Below is a very good chart from Matt Fraily for the UUP.

Below is an unchanged old chart of IWM that I posted on the 21st of September.

Below is a chart of Oil that I have been monitoring over the long-term. 

First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.

The Gold Equities GDX chart below this is from Matt at breakpointtrades.com and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.

Below is another chart from breakpointtrades.com of the SPX.

I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.

above chartcourtesy of matt fraily, breakpointtrades.com

Market Observations - What does the genie say this time?

The dollar genie is below. The gray down trend line that we just broke over is now support. The pattern will not look well with a substantial pullback below this line and I do not anticipate one. That means, we should temper expectations for a pop in the indexes.

There is some additional resistance from the green down trend line at 76.78. A break of this level targets trend reversal confirmation levels at the two red lines. This, in turn, confirms the dollar trend reversal.

So, what this chart looks like is that it is preparing for a large range up candle - and SOON. Sure its overbought...but the markets were overbought for months and still went up - but the dollar has much stronger fundamentals supporting its rally than the stock market did...it also has a much more emotionally and rationally attached contingent looking for a dollar collapse. So, I would temper expectations somewhere between a slight pullback for the dollar and pop for the markets to a mild to negative reception to the GDP numbers triggering a range extension to the current moves in both. The markets do not like to let you into a trade if they don't have to. The dollar chart says to me that Mr. Market is not going to make a lot of room to get short equity indexes and long the dollar.

I have not been posting that much lately as I have had two deaths in the family...hopefully I will be able to get back to normal soon.

Market Observations - One Chart

Only one chart is necessary to guide us for the next few days. The breakout or retrace on the dollar chart below.

I do not see a high likelihood of a test of the lows on this pattern at this time. Additionally, that would also setup an entirely different scenario. But I do think we may have a small argument with the downtrend line immediately above. This resistance level was rejected today. Perhaps we get a retrace back to the 75.60 to 75.80 area. That would afford the market some upward bias consolidation.

However, it may also be possible that we open with a breakout of this downtrend line. In which case I would think that we see very heavy buying of the dollar. 77.40 would be the nearest target in that case. That would set up a range day down potential for the indexes. Personally, as the markets are oversold, I would like to see some bounce or even rally here and thus a pullback in the Dollar...but this market has not been in the habit of doing what we want it or expect it to. So, given the bearishness of the the sentiment for the dollar, there is a lot of pressure to breakout of this resistance area. So, that is the signal I am looking for.

Market Observations - Targets

First, lets talk about the dollar...down trend line at 76.4. Seems obvious that we will complete 5 waves up to test this resistance level. The question is what we get when we reach there. A Breakout? Reversal? Consolidation?

The pattern in the dollar does not leave room for a new low. If the dollar were to break to a new low, it would likely be ushering a different pattern than an ending diagonal...which would likely be a new 5 wave move down, the inflation trade would likely play out. So, it does not seem very likely for a structure like this to be followed be a new low.

Given the intensity of the rise, which was stronger than I was expecting, we are now at nearing formidable resistance with an overly confident set of bears in the market and the divergence in the Euro market, all seem to indicate to me that the amount of bears that will be trapped here could be sizable. If that is the case, a break of the 76.4 area will not give much time to get in. I may not give a retest of consequence and thus the SP500 may find itself in the 1020's lickity split. Incidentally, my target for the SP is 1026 for this initial move down...but we should not count on a big bounce. Just like the rally did not let you in, this bear may be even less understanding.

In any case, it seems like a consolidation is in order for the dollar once it hits 76.40 and that will give us a change to see if the market can muster one last bounce off trend line support. I am not optimistic that the market can stage a rally here given the unexpectedly strong reaction of the dollar here.

thanks to matt fraily, breakpointtrades.com

Market Observations - Unfinished Business

As I repeated over and over...the dollar is the arbiter of the markets. The market is trading off the fumes of the burning dollar. If the dollar weakens, the markets rise or bias to the upside. What I have noticed of late, especially with the more speculative indexes such as the Russell, NDX, Nasdaq and Mid Caps, is that they have become less sensitive to the selling machinations of the dollar with the exception of when it strengthens. This is a sign that the rally for equities is fading and the failure of the dollar is also losing momentum.

Today was all about the dollar and until we see the dollar index capitulate, most probably to the 74.5 to 74.3 area...the market will not break down for anything more than a correction. It is absolutely stunning that a 4 day outside down day key reversal can be reversed by relative value dollar movements so easily.

I will post charts later. Needless to say, I am getting very bullish on the dollar here. I am not currently long the Dollar contracts but will go long once something concrete happens.

Market Observations - Not Pretty - Warning Shots

Apparently, JP Morgan and Goldman Sachs need to sell some of the assets that they acquired using those hundreds of billions of dollars of crony capitalism supplied dollars they obtained through the manipulative tactics of their friends at the Fed and Treasury. Not satisfied that that money was enough, they leveraged up even further - so they could invest even more in risky assets and further the confidence game. Duping american investors and public out of more of they're money is a favorite past time for these guys.

Are assets really risky if you and your friends own most of them? Certainly JPM and Goldman prove the axiom that if you own the market, which these participants alone most likely owned, at the very least. a significant percentage of...you can squeeze prices up and then you can tear them apart when you are good an ready. Mind you I am not here to spout conspiracy theories...these guys are so flagrant do they even count as conspiracies? So, back to the mundane, while Goldman MAY actually survive the upcoming catastrophe, JPM will most likely not. Regardless, remnants of most of the financial firms will certainly exist, but the firms will be shells of their former selves and the economy will likely be significantly damaged by their demise and misdeeds.

Fittingly, financials topped in ironic fashion earlier in October...with an island top. Financials are indeed in need of an island, Rikers Island would be appropriate for the gamesmanship they have demonstrated this year. All the earnings reports from the largest banks inspire distrust and are absent integrity...we will have to see how that flies. In any case, I am happy to report that JPM has more than enough money to lend to the FDIC to bail itself and most of the other banks that will fail out.

Back to the markets, today may not be classified as a confirmed failure for the transports...but a break of 3890 will do so. the SPX closed beneath a recent sell level at 1083.5...it would not be surprising to see some sort of a test slightly above those areas...but I certainly am under the impression that the buy side is extremely dangerous at this point. My diatribe above was important in understanding the motivations of the sellers at this point. The sellers are the largest banks. They MUST sell...given the profits they have made selling will not be ruled by trying to eek out little profits...they already have big ones...they do not have to be choosey about prices. When you are liquidating trillions of dollars of leverages purchases, it takes time and the average prices are more important than any single price. Though there may be attempts to retain prices supports to allow higher priced distribution, there is a dramatic need for these institutions, who misused the benefits of America's money, to get out stage left. The specter of this dynamic means that we have to on guard for waves of downside pressure - probably much more persistent than in last years bear market moves.

Another interesting leading indicator for the markets is the Canadian Dollar which has failed its breakout...something to keep a close eye on.

There is unfinished business - potentailly a remaining pop to the upside for commodities. Gold needs to reach its target of 1080 to 1085, Oil should still make an upside push to the 85 to 87 area, Silver looks primed for a little up move. The dollar looks complete, but also looks like it needs to get that emotional drop below 75 convincingly. As seen today, a dramatic drop in the dollar is no longer fuel for rising equity prices.

So, what I am looking out for are small upside tests for equity markets followed by larger downside swings. There could be some unfinished business with regard to the markets...as per my usual comments - the dollar rules this game. I suggest having extremely disciplined rules for selling resistance and only buying support when its absolutely clear. It is important to recognize, that this type of market has the possibility to not let you in. Everyone is waiting for perfect backtests, retracements and kisses as in the LQD chart above. There is no guarantee that equity market need to give that courtesy. LQD has been breaking down for a month now, unconfirmed by equities. It may be time for some acceleration. Perhaps, some convenient excuses will come out this week - like MSFT earnings on friday.

Personally, I will be extensively using trade automation to trade the upcoming turbulence. Today, in fact, I released a price quantization system with extensive risk controls that absolutely killed it on the CL contract - up $3000 on a single contract today alone.  I think mechanical templates can be a tremendous support for managing emotions during extreme and persistent repricing episodes...especially if you are lucky enough to be able to build some good ones...or get your had on some.

Market Observations - One last bounce?