Posted 2007-06-06 16:11
by Karl Denninger
by Karl Denninger
What a day.
Here we go again.....
Here's our friend!
Note yesterday the SPX pinged the wedge bottom, but today there was no pinging - it blew straight through and kept going. In fact, it pinged support, which I've got outlined here.
On a technical basis we've got some MAJOR warning signs that popped up today. NYSE and Nasdaq New Highs and Lows both came in at roughly the same level, but not quite high enough. But this is a major change from yesterday, and it is very troubling, as this is a very solid indicator of a MAJOR market top! Tomorrow we may breach the technical levels indicating REAL trouble - both new highs and lows approaching 100 and modestly balanced.
Interest rates ticked down a touch, but not enough to matter. Here's our bond chart:
4.970%, which is for all intents and purposes flat with yesterday. Note that we took a run at the 5.0 level but didn't pop through - today. Nonetheless the trend is intact - and upward.
Of equal significance is that all three indices either posted an "EXIT LONG" or (in the cast of the Composite) were very, very close to posting one on my composite technical indicators.
Exiting longs here would likely not hurt you, although watching the open tomorrow to make sure there's not a snapback in the AM wouldn't hurt.
The last time the SPX hit my exit long indicators was on April 12th, and that was only maintained for a day or two; it was part of the choppiness after the February blowup. While it has gotten close a couple of times, it didn't get all the way there. The other bad indicator in here is that the Stochastics in late February are eerily similar to that which we saw today, and the RSI was coming off the same general level as well.
The $64,000 question here is whether this is "the break" that I've been looking for. The answer is "not convincingly yet", although the VIX popped up into territory last seen in the first week of April. Note that in February there was no warning in the VIX before everything blew up - but whether this means "this isn't it" or whether it simply indicates that people are smelling it coming where they didn't before is an open question.
What drove the sell-off today? Increasing realization that real interest rates are going up and there will be no rate cuts to rescue the homebuilding and financial industry. In addition, rising real interest rates drain the liquidity pool that has been powering forward the markets in the last year, and with the leverage being employed in these LBO and buyback deals, small moves matter.
Further, layoffs were up 0.6%, refinancing (mortgages) were down 6.3% from the previous month and, possibly the most important number, unit labor costs came in +1.8%, which is a huge number. Productivity fell, which is inflationary. In addition, in a data release that was almost completely ignored by the media during the day, the NAR now is forecasting a 2% drop in new home prices - .vs. their "previous forecast" of a rise of 3%. Oh, their forecast for sales was ratcheted down too both in price and volume.
Gee, housing's bottomed right? I wouldn't take THAT bet!
Tomorrow we have initial jobless claims and consumer credit. The latter is a really big deal, but we won't get it until 3:00 EDT, almost at the close of the market. This could lead to a really wild close if it comes in hot - and I wouldn't be shocked if it does. Initial jobless claims are likely to set the tone for the morning.
Be very nimble tomorrow - I have heard rumblings in various electronic media that technicians may be onto this in a big way, and if we get a strong break downward tomorrow you may get no effective warning before things snowball as program trading may be engaged to bail en-masse. I rate the probability of this as relatively low, but the risk cannot be ignored.
To put all this in "Canary" terms - The Cat has his mouth open and the bird is inside, but the jaws haven't snapped shut yet. One thing I have gotten increasingly concerned about since the apparently de-coupling of China's market from ours is that we may not get the warning that we otherwise could receive - this is looking increasingly likely now.
Pure prognostication: I expect more selling tomorrow. How serious it is will depend not on the point count but on the internals. I believe there is a very real chance that we are seeing the rollover of the indices that I have been looking for, but so far it is unconfirmed.
Here we go again.....
Here's our friend!
Note yesterday the SPX pinged the wedge bottom, but today there was no pinging - it blew straight through and kept going. In fact, it pinged support, which I've got outlined here.
On a technical basis we've got some MAJOR warning signs that popped up today. NYSE and Nasdaq New Highs and Lows both came in at roughly the same level, but not quite high enough. But this is a major change from yesterday, and it is very troubling, as this is a very solid indicator of a MAJOR market top! Tomorrow we may breach the technical levels indicating REAL trouble - both new highs and lows approaching 100 and modestly balanced.
Interest rates ticked down a touch, but not enough to matter. Here's our bond chart:
4.970%, which is for all intents and purposes flat with yesterday. Note that we took a run at the 5.0 level but didn't pop through - today. Nonetheless the trend is intact - and upward.
Of equal significance is that all three indices either posted an "EXIT LONG" or (in the cast of the Composite) were very, very close to posting one on my composite technical indicators.
Exiting longs here would likely not hurt you, although watching the open tomorrow to make sure there's not a snapback in the AM wouldn't hurt.
The last time the SPX hit my exit long indicators was on April 12th, and that was only maintained for a day or two; it was part of the choppiness after the February blowup. While it has gotten close a couple of times, it didn't get all the way there. The other bad indicator in here is that the Stochastics in late February are eerily similar to that which we saw today, and the RSI was coming off the same general level as well.
The $64,000 question here is whether this is "the break" that I've been looking for. The answer is "not convincingly yet", although the VIX popped up into territory last seen in the first week of April. Note that in February there was no warning in the VIX before everything blew up - but whether this means "this isn't it" or whether it simply indicates that people are smelling it coming where they didn't before is an open question.
What drove the sell-off today? Increasing realization that real interest rates are going up and there will be no rate cuts to rescue the homebuilding and financial industry. In addition, rising real interest rates drain the liquidity pool that has been powering forward the markets in the last year, and with the leverage being employed in these LBO and buyback deals, small moves matter.
Further, layoffs were up 0.6%, refinancing (mortgages) were down 6.3% from the previous month and, possibly the most important number, unit labor costs came in +1.8%, which is a huge number. Productivity fell, which is inflationary. In addition, in a data release that was almost completely ignored by the media during the day, the NAR now is forecasting a 2% drop in new home prices - .vs. their "previous forecast" of a rise of 3%. Oh, their forecast for sales was ratcheted down too both in price and volume.
Gee, housing's bottomed right? I wouldn't take THAT bet!
Tomorrow we have initial jobless claims and consumer credit. The latter is a really big deal, but we won't get it until 3:00 EDT, almost at the close of the market. This could lead to a really wild close if it comes in hot - and I wouldn't be shocked if it does. Initial jobless claims are likely to set the tone for the morning.
Be very nimble tomorrow - I have heard rumblings in various electronic media that technicians may be onto this in a big way, and if we get a strong break downward tomorrow you may get no effective warning before things snowball as program trading may be engaged to bail en-masse. I rate the probability of this as relatively low, but the risk cannot be ignored.
To put all this in "Canary" terms - The Cat has his mouth open and the bird is inside, but the jaws haven't snapped shut yet. One thing I have gotten increasingly concerned about since the apparently de-coupling of China's market from ours is that we may not get the warning that we otherwise could receive - this is looking increasingly likely now.
Pure prognostication: I expect more selling tomorrow. How serious it is will depend not on the point count but on the internals. I believe there is a very real chance that we are seeing the rollover of the indices that I have been looking for, but so far it is unconfirmed.
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