Posted 2007-05-10 16:02
by Karl Denninger
by Karl Denninger
And which way did we move today?
Doesn't this give you the big picture?
Note that horizontal line. That's first support and confirmation. Second support is at the 50/100 DMA at roughly 1444, and of course you know where the third is.
Nowhere to hide today.
This chart, however, is a bit closer to "oh oh" territory - its the Nasdaq Composite
Notice how close to the breakline the Composite is. We almost posted a confirmed break there today.
If tomorrow is even half as bad down as today was, both will violate to the downside and confirm. The DOW doesn't violate the channel until right near 13,000, which is a ways off - but if the broader markets get hit and confirm, the DOW is very likely to follow.
Note that all three indices posted SELLs on Stochastics today. The SPX and Composite confirmed on both the MACD and RSI, although the confirmation is weak and cannot yet be trusted. The DOW has not yet confirmed on the MACD.
What triggered this? Several things.
First, retail sales. 85% of companies reported weaker than expected numbers, with several of them down year-over-year by significant amounts, including stalwarts (and solid indicators of "Joe Sixpack") WalMart and Target. WalMart posted its worst same-store numbers in years.
Adding to it was the trade deficit numbers, as I posted this morning. This number was particularly troubling because it hits the GDP, forcing a revision downward in a big way. It now appears that 1st quarter GDP was under 1%, likely around 0.75%. This is dangerously close to recession territory.
Third, we had a hawkish statement from the ECB and the Bank of England raised interest rates. This prompted a mild sell-off in the US Treasuries, raising the 10 year rate to 4.65%. The 0.43% decrease in the price of the bond was quite significant, and perhaps the harbringer of things to come - rising interest rates make foreign debt more attractive to investors outside the US than our Treasuries, and will tend to drive money there instead of here.
Next up was news from the credit markets. In what may be the start of a return to sanity in the corporate debt market, it appears that investors are now demanding protective covenants for junk debt more commensurate with their risk. This is very unwelcome news to the LBO guys, and may be a ratcheting up of the sphincter factor in liquidity flow..... we shall see if it holds.
In what may be far more ominous news, Congress appears to be gearing up for a currency war with China and Japan, perhaps trying to push them to "unpeg" their currencies. There are severeal bills either pending or about to be introduced that may bear on this. While Bush can reasonably be expected to veto them stand-alone, the Democrats may try to attach them to "must-pass" legislation, forcing Bush's hand. Some of the proposed "remedies" include punitive tariffs on Chinese and Japanese goods. This sort of thing, by the way, is not a thunderstorm on the horizon - its a Cat 5 hurricane! Paulson has been all over the TV the last couple of days talking about this sort of thing, but what's not being said too loudly - yet - is that Congress may well step in and take action of their own.
In specific-company news, Imergent (IIG) noticed up a filing by the North Carolina AG's office against it, asking for an injunction (!) This came as a surprise and the shares responded in a way you'd expect a rational market to - they sold off big, with the slide steepening in the last hour or so.
Countrywide (CFC) continued its slide back down after the insane LBO rumors (which I've covered here before.) It has continued to slide in the aftermarket, with the last trade as I write this posted at $39.94.
The Canary is in major trouble. The Cat hasn't been fed in a good long time and he's got a few more feathers in his teeth today. By tomorrow, he may have eaten the bird...... I am getting concerned here that we may not get fair warning from The Canary - in particular, if he gets eaten tomorow, there is no guarantee that a major break will not come Monday, especially if the general markets all confirm to the downside tomorrow during the day!
This evening will be most interesting with the Asian market reaction to our selloff. Considering that China's stock market has been in an absolutely parabolic rise since February, they have a potential stability issue here, and should we trigger a nasty reaction over there......... Oi.
Short form - there is not yet confirmation of a market breakdown; we stopped short, even with all the heavy selling. One more day like today and we will confirm on all three indices.
Extreme Caution would be wise at this point as The Canary may get eaten tomorrow and two of the three primary indices may confirm bearish breaks from their channel.
Tomorrow we get PPI numbers at 8:30, along with retail sales and inventories. If these numbers come in "ok", I doubt it will mean much. If, however, they come in hot, it is very likely to provide a violent reaction and not in a fashion investors on the long side will appreciate. The "same-store sales" numbers are already pretty much out there, so a bad number there is "priced in." This leaves inventories and the PPI numbers as the big "on-deck" indicators.
To be updated as more becomes available.
Doesn't this give you the big picture?
Note that horizontal line. That's first support and confirmation. Second support is at the 50/100 DMA at roughly 1444, and of course you know where the third is.
Nowhere to hide today.
This chart, however, is a bit closer to "oh oh" territory - its the Nasdaq Composite
Notice how close to the breakline the Composite is. We almost posted a confirmed break there today.
If tomorrow is even half as bad down as today was, both will violate to the downside and confirm. The DOW doesn't violate the channel until right near 13,000, which is a ways off - but if the broader markets get hit and confirm, the DOW is very likely to follow.
Note that all three indices posted SELLs on Stochastics today. The SPX and Composite confirmed on both the MACD and RSI, although the confirmation is weak and cannot yet be trusted. The DOW has not yet confirmed on the MACD.
What triggered this? Several things.
First, retail sales. 85% of companies reported weaker than expected numbers, with several of them down year-over-year by significant amounts, including stalwarts (and solid indicators of "Joe Sixpack") WalMart and Target. WalMart posted its worst same-store numbers in years.
Adding to it was the trade deficit numbers, as I posted this morning. This number was particularly troubling because it hits the GDP, forcing a revision downward in a big way. It now appears that 1st quarter GDP was under 1%, likely around 0.75%. This is dangerously close to recession territory.
Third, we had a hawkish statement from the ECB and the Bank of England raised interest rates. This prompted a mild sell-off in the US Treasuries, raising the 10 year rate to 4.65%. The 0.43% decrease in the price of the bond was quite significant, and perhaps the harbringer of things to come - rising interest rates make foreign debt more attractive to investors outside the US than our Treasuries, and will tend to drive money there instead of here.
Next up was news from the credit markets. In what may be the start of a return to sanity in the corporate debt market, it appears that investors are now demanding protective covenants for junk debt more commensurate with their risk. This is very unwelcome news to the LBO guys, and may be a ratcheting up of the sphincter factor in liquidity flow..... we shall see if it holds.
In what may be far more ominous news, Congress appears to be gearing up for a currency war with China and Japan, perhaps trying to push them to "unpeg" their currencies. There are severeal bills either pending or about to be introduced that may bear on this. While Bush can reasonably be expected to veto them stand-alone, the Democrats may try to attach them to "must-pass" legislation, forcing Bush's hand. Some of the proposed "remedies" include punitive tariffs on Chinese and Japanese goods. This sort of thing, by the way, is not a thunderstorm on the horizon - its a Cat 5 hurricane! Paulson has been all over the TV the last couple of days talking about this sort of thing, but what's not being said too loudly - yet - is that Congress may well step in and take action of their own.
In specific-company news, Imergent (IIG) noticed up a filing by the North Carolina AG's office against it, asking for an injunction (!) This came as a surprise and the shares responded in a way you'd expect a rational market to - they sold off big, with the slide steepening in the last hour or so.
Countrywide (CFC) continued its slide back down after the insane LBO rumors (which I've covered here before.) It has continued to slide in the aftermarket, with the last trade as I write this posted at $39.94.
The Canary is in major trouble. The Cat hasn't been fed in a good long time and he's got a few more feathers in his teeth today. By tomorrow, he may have eaten the bird...... I am getting concerned here that we may not get fair warning from The Canary - in particular, if he gets eaten tomorow, there is no guarantee that a major break will not come Monday, especially if the general markets all confirm to the downside tomorrow during the day!
This evening will be most interesting with the Asian market reaction to our selloff. Considering that China's stock market has been in an absolutely parabolic rise since February, they have a potential stability issue here, and should we trigger a nasty reaction over there......... Oi.
Short form - there is not yet confirmation of a market breakdown; we stopped short, even with all the heavy selling. One more day like today and we will confirm on all three indices.
Extreme Caution would be wise at this point as The Canary may get eaten tomorrow and two of the three primary indices may confirm bearish breaks from their channel.
Tomorrow we get PPI numbers at 8:30, along with retail sales and inventories. If these numbers come in "ok", I doubt it will mean much. If, however, they come in hot, it is very likely to provide a violent reaction and not in a fashion investors on the long side will appreciate. The "same-store sales" numbers are already pretty much out there, so a bad number there is "priced in." This leaves inventories and the PPI numbers as the big "on-deck" indicators.
To be updated as more becomes available.
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