Sunday 6 December 2009
It is simply amazing that a Russian-born woman had such insight into the
shift of a free capitalist society to what has devolved into a government-run
market. This was back in 1957, when Atlas Shrugged was published, panned
by many critics, but very popular with the public. It remains one of the most
popular books of the 20th Century. One might think Miss Rand wrote a letter
to the editor just the other day:
When you see that trading is done, not by consent, but by compulsion – when
you see that in order to produce, you need to obtain permission from men
who produce nothing – when you see money flowing to those who deal, not in
goods, but in favors – when you see that men get richer by graft and pull than
by work, and your laws don’t protect you against them, but protect them
against you – when you see corruption being rewarded and honesty becoming
a self-sacrifice – you may know that your society is doomed.
Ayn Rand
Atlas Shrugged, page 413
What does this have to do with the current market? We have written
extensively on how the use of price and volume can give a fairly accurate read
of a market’s direction and intent. We have also written on how this market
has been Fed-sponsored, via Permanent Open Market Operations, [POMO],
and this has created a different kind of technical environment, primarily due
to the artificial stimulants of fiat currency being pumped into the markets,
politically motivated, to stem the tide and cover up the utterly irresponsible
decisions by Congress to allow big banks and institutions to turn Wall Street
into a casino.
Washington does not like being held accountable when it is payback time,
so the “Tweed-Ring” mentality is reborn.
The 60 minute chart of the day sessions depicts the yo-yo market of the past
three weeks, in closer detail. The time delineation was inadvertently cut-off at
the bottom, so references will be made to the bars under consideration. The
swing high on the left is blocked out, but one can see that the close, [the 11th
bar from the far left just under 1100], was positive, and it appears that there
should be upside continuation. Instead, the market gaps down and sells off,
but it then quickly turns into a trading range for the balance of the day. The
close, just under 1090, suggests continuation to the downside, since the
upside failed. However, that is not what occurred.
Price gapped up to create another swing high, [just under the “Min” headline
on the chart]. Another trading affair developed with price rallying into the
close. Gapping down and selling off hard was not the first thought that would
come to mind after a three day rally, but a new, lower swing low was created,
and it become yet another intra day trading range with a more positive close.
The next swing high, at 1117, turned out to be another failed probe as price
gained downside momentum, selling off sharply going into the close and
creating an Outside Key Reversal Day, [OKR]. Normally, this is a strong market
signal for a potential reversal that even a nascent technical analyst can
recognize. We even went short the OKR of a clearly weakened bull market.
One can see the outcome as price ran up sharply after the jobs report came
out Friday morning. [Guess who creates those numbers?!] This
announcement is in the midst of dwindling tax revenues for national, state,
and local governments. Almost 25% of every mortgage in this country is
under water, and the foreclosure rate continues at record pace. Jobs lost are
not recovered; people are under heavy credit card debt strain; prices are
going up on most everything, yet a “not as bad as expected” report [which
is STILL a negative],was sufficient enough the shoot a weak market to a
robust level, [at least for an hour]?
It makes no sense, and that is what the market has been reflecting. The
public has not supported this rally. They are still recovering from the 2007
dramatic market fall. Large investing institutions and mutual funds are not
supporting this market, based on the net inflow/outflow of redemptions
and investments. The difference can be traced, almost to the dollar, to the
funds earmarked by the Fed to be poured into the stock markets over the
last several months, [the POMO effect].
Demand has been relatively anemic, but supply selling is virtually absent.
For clarity, there is selling going on in the markets all the time. Supply selling
is a specific type of selling. It is when sellers are strong enough to overcome
buyers, in an uptrend, and break support levels and turn the trend, at least for
a correction of some sort. There has been no “normal” correction, from a
percentage stand point, since July, and hardly one from March going into July.
The weekly chart shows how the market has been struggling throughout
November with a cluster of closings that show selling at the high of each bar.
The similar closes tells us that demand is weak, unable to make upside
progress. Yet, this past week managed to make a new weekly high close for
the move, on little demand. It is difficult to make rational assessments in
an irrational environment. It may well be that the market is saying, “Despite
stumbling along to new highs, no one is stopping the effort, [which is true, no
supply, AT ALL], and if no one will stop us, higher we go!”
No one has deeper pockets than the Fed, with its fiat paper being printed as
fast as trees can be cut down. Ayn Rand had a better handle on the market
over 50 years ago, in that one little quote, that makes more sense than the
total summation of all writings by Keynesian economists over the same span
of time, including Keynes himself.
The daily chart is the arbiter of disparity between the 60 minute and the
weekly chart. It is almost like the Three Stooges routine of “Who’s On First?!”
An OKR day on Thursday is followed by another OKR day on Friday. Count
them. Fifteen bars, 15 days of market activity at a high area that shows no
strength, but continues to crawl higher. Friday’s close was higher than
Thursday’s, ostensibly erasing the negative impact of Thursday’s OKR day,
but the close is under mid-range of the bar. This tells us that sellers were
more in control than were buyers. [Sellers, but not supply selling]. Note the
volume spike, the highest level of volume in over a month, and sellers appear
to have won the battle but have nothing to show for it.
Of the 15 days, 6 closes were higher, and two others were very close. Market
activity is showing no vote of confidence in this market. At this juncture, with
failed highs and no important selling, one can only wait for some clearer signs
from which to make a decision. [We are printing this before the market opens
on Sunday.]
Patience is required, for now.
