Thursday Market - 9/08

SP500 action so far (11:00-ish) today has been in the 1190-1205 band.   Overnight, European markets peaked in the late morning (their time,) slumped in the early afternoon, and are now slightly positive.  Asian markets were mixed.

In the interest of presenting opposing views, here is a (day old) link to a video of Kevin Cook, a trader who thinks 1140 offers robust resistance in the SP500.  The headline uses the word "bullish" but the actual interview is a bit more guarded, though Cook tends to be a bit circumspect about his guarding.  He also cites the anticipated content of B. Hoover Obama's jobs speech as pulling markets up.  We'll see about that.  Cook's 1140 barrier is a good test case, since I think a convincing poke through 1140-1150 confirms the next leg down.  There is a cluster of daily lows from 8/19 -8/22 in the 1121-1123 range, so I'll say a "convincing poke" includes a break of 1120.

FWIW, yesterday's move up had strong internals: 2658 shares up vs 316 down on the NYSE.  OTOH, SP500 volume was the lowest since 8/18, which closed at (gasp) 1140!

Update: The SP500 wound up off about a precent - close to yesterdays opening, giving us two days of SIDEWAYS.  (Yes - again.)  This might not be a boring as it seems, though.   Today's high of 1104, was reached a little after 11:00 a.m.  After that, it was a slide down in a rather neat channel, which could be signalling the end of a 2+ day advance.

Here's a bigger picture look at the wave pattern, from the 5/02 high.

By this analysis, subwaves 1 and 2  (at some low level) are complete and wave three should be in progress, with today's drop from the 1204 high being the beginning, at some even lower level of trend.  The 1205 and 1140 resistance/support lines are indicated.  Note how the trading range is contained in the box made by the channel boundaries - another type of resistance.

My expectation is for the lower purple line and the 1140 line to be pierced on the way to new intermediate lows.

Wednesday Market Action

Not a lot to add.  The SP500 jumped up at the opening, then meandered higher the rest of the day in a move that does not look impulsive.  Momentum peaked a little after 10:00 a.m. and slipped lower as the index slithered higher.

This was a rare day where the index opened at its low and finished at its high - 1198.62.  This is a bit above the .618 retracement level of 1196.  Should the advance continue into tomorrow, the next Fibonacci resistance is at .786 (SQRT of .618) or 1210-11 in the index.   Back on 8/17, a resistance band in the range of 1190 to 1205 was noted.   Any further advance beyond those levels will likely invalidate the current count, and call for a revaluation.  This would likely mean the wave IV is still unfolding, and wave V has not yet begun.

Meanwhile, through all of this the Tigers keep winning.  Things are getting very strange, indeed.

 Update:  I just checked the Asian markets markets, which are about 12 hours off of U.S. Eastern Time.  The Nikkei, Hand Seng, and Straits Times indexes all opened higher, relative to yesterday's close, and have been dropping since.  As of 11:15, my time, the Nikkei is still in positive territory, the other two are negative.  Will the American markets follow suit tomorrow?  I'm not sure who leads here.  It might be interesting to find out.  Also, European markets will open and close before our opening, as well.  They may also provide a hint of what is to come.
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Tuesday Market Action

Well, the barbarians in the rest of the world didn't celebrate Early-September-Have-A-Picnic Day, so Asian and European Markets were able to continue taking deep plunges yesterday.

Once again, this is priceless:  "A wave of negative sentiment was unleashed Friday, when a government report said the U.S. economy failed to add any new jobs in August. That caused European and Asian stock markets to sink sharply Monday."   I guess nobody noticed until now that over the past decade, 50,000 American factories have closed their doors, and that over a single 13 month period now lost in the mists of time, over 5.2 million jobs evaporated.  Then again - there was a market collapse in that time frame as well.  Hmmmm.  One might wonder, then, why the market recovered in the meantime, while the jobs never did.

Of course, American job loses have been Asian job gains, so you can clearly see why a lousy U.S. job report would kick the legs out from under Asian markets.

Be that as it may, U.S. stocks are joining their international counterparts in the sewer.  As of shortly after 11:00 a.m., the DJI is down 262 points (2.33%) and the SP500 is down 29 points (2.49%.)

This will likely deserve a chart after closing.

Update:

 

Staying with my wave labels from Friday - though other interpretations are possible - it looks as if wave I ended this morning, and corrective wave II is in progress.  Wave I ended just before 11:00 this morning at 1240.13, the low for the day.  From the 8/31 high of 1230.71, it covered just over 90 points.  Today's action ended at 1165.24, not far from the minimum likely retracement level for wave II.  Possible retracements and ending values for wave II are listed below.



From the wave two top, wave III will have to cover at least 90 points, since it can never be the smallest wave in an impulse. 

On Friday, I mentioned the lower boundary of the up-sloping purple channel from Thursday's post, noting that a convincing break will confirm that wave 5 down is really happening.  Today's low just barely poked through that line by 2 points before rebounding.  I believe the wave form has confirmed the current direction, anyway, but it will be nice to get the confirmation.

Wave II might be close to complete, if it only reaches the minimum retracement.  If it extends higher, then it might last a day or two.   Wave 3, when it comes, should be quite dramatic. 

Update II:  Here is some longer perspective.  H/T to CR.
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Labor Day

Kenneth Davis gives us some history.  Read it and weep.

To most Americans, the first Monday in September means a three-day weekend and the last hurrah of summer, a final outing at the shore before school begins, a family picnic.

But Labor Day was born in a time when work was no picnic. As America was moving from farms to factories in the Industrial Age, there was a long, violent, often-deadly struggle for fundamental workers' rights, a struggle that in many ways was America's "other civil war."

It was a war fought when 12-hour days and six-day weeks were routine. Wages were low; there were no sick days, pensions or holidays. There was certainly no unemployment insurance. Any attempts at organizing were met by the combined wrath of business and government. The business of America was business.


That conflict, a period in which thousands of workers died in America's unsafe and unsanitary factories and mines, and hundreds more died in riots and pitched battles over workers' rights, is the little-noted history behind this holiday.

.     .     .


During the economic depression known as the Panic of 1893, workers for the Pullman Car Co., one of the country's largest manufacturers, walked off their jobs when Pullman tried to cut wages, fire workers and evict them from their company-owned homes. They were joined by hundreds of thousands of workers in a nationwide walkout. Facing a strike that would shut down America's railroads, Cleveland dispatched 12,000 federal troops on the premise that the strike interfered with the U.S. Mail. In the ensuing violence, at least 13 strikers were killed.

This was not the first time troops had been used against American workers. Federal soldiers, state militias and private armies, often from the Pinkerton Detective Agency, had used deadly force to break many 19th-century strikes. Some of these strikes had become pitched battles, like the Homestead strike of 1892 in Pennsylvania. There, men on both sides armed with rifles and cannons died fighting over keeping a union at a steel mill, a union that owner Andrew Carnegie and manager Henry Frick were determined to break.

.     .     .


With that in mind, it is worth recalling President Abraham Lincoln's words during the dark early days of the real Civil War. "Capital is only the fruit of labor, and could never have existed if labor had not first existed," he told Congress in December 1861. "Labor is the superior of capital and deserves much the higher consideration,"

Today, the first Republican president's words would count as heresy in the GOP. But they are a sharp reminder that working men and women built this country and fought its wars. And their labors are worth more than a Monday holiday or the mean-spirited contempt they now face. They deserve, as Lincoln said, "the higher consideration."

The opinions expressed in this commentary are solely those of Kenneth Davis.

Actually, no they're not. I am in total agreement!


H/T to Ed.


Update:  I linked to this post on my Facebook page, and included this text:

The people who fought and died to make this country what it was a few short years ago, but is no more, did not all die in foreign wars. Many died right here fighting for the rights we are now letting slip away. Those who did were not bankers and industrialists. They were laborers, and we have forgotten them.

Calculated Risk points out just how thorough this forgetting has been.  No Labor-related news stories at the NY Times, LA Times, WSJ (well - what would you expect?) WaPo, CNBC  .  .  .

The future of labor is unemployment.  The unemployed have little hope, and what they have is fading
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"Misery. Bleak expectations. And almost no labor stories ... on Labor Day."
                                           - CR
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Births to Unwed Mothers

Making rather a different point, Krugman points to a map of births to unwed mothers, from the child trends data bank.  The trend information is startling.

The proportion of births to unmarried women has increased dramatically in recent decades, rising from 5.3 percent in 1960 to 32.2 percent in 1995. After some stability in the mid-1990s, the rate has risen each year since 1997, reaching 41.0 percent in 2009 (preliminary estimate). (Figure 1)

Holy yikes!

Here's the map.  

The thing that strikes me is that in the ultra-socially-conservative, Jeebus loving southland you find every one of the States leading out-of-wedlock births:  South Carolina, Florida, Mississippi, Louisiana, New Mexico and Arizona.  Interestingly, one of the three states with the lowest out-of-wedlock percentages is Utah.  I attribute this to a dearth of unmarried women.

But, Utah also leads the U.S in the use of paid-subscription on-line porn.  Maybe they have an excess of unmarried men.  Or maybe it's just that Utah is a very conservative State.  You see, those are the ones that use porn the most.  Next in line is Mississippi.  Following next (grouped, not in order) are Louisiana, Arkansas, Oklahoma, North Dakota (understandably) and Florida.    The next group includes Texas, New Mexico, Nevada, Virginia, West Virginia (10th on the list,) Missouri, New York, Maine, South Dakota, Minnesota and Wisconsin.

Eight of the top ten porn using States went for McShame in the last presidential election.  States that ban gay marriage use more porn.  States where people claim to have "old fashioned views about marriage and family," and that "AIDS might be God's punishment for immoral sexual behavior," use LOTS more porn.

Of course, no State is perfect.  In fact, each one is the worst at something.  Check here to see how yours stacks up.
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Scoops

PRESIMETRICS by Mike Kimel and Michael Kanel has been out for over a year now.  One of the points they make is that there is a great disparity between mean and median income since the 80's.  Figure 5-1 in Presimetrics graphs Real Median Income per capita and Real GDP per capita, in 2008 dollars from 1947 through 2007.  I've mentioned this before on this blog, and graphed the data in a different way.  Now, we can see an updated graph of the 1975 through 2009 data, courtesy of Princeton economist Uwe Reinhardt.   The article it comes from is concerned in part with a recent paper by Anthony Atkinson, Thomas Piketty and Emmanuel Saez (which I have yet to read.)

A point of the paper is that, while average family income grew faster in the U.S. than in France (32.2 vs 27.1% ) over the period 1975 to 2006, if one considers only the bottom 99% of the population, that cohort in France buried their U.S. counterparts (26.4 vs 17.9%.)

Not only is what the two Mikes told us right on the mark, as verified by independent sources, everyone outside of  the top 1% in the U.S. would have been far, far better off as a white-wine-swizzling, brie, frog and snail chomping Frenchie.

How about them pommes!
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Mantle decorations

Tux posted a picture of one of his owners, posing in a high throne (or equivalent.)  We can also see a stuffed penguin and the brickwork of the fireplace. Not to be outdone, I took this crummy shot with my cell phone. Not that I have any lordly quadrupeds to feature. I do have a textured ceiling, brickwork fireplace, quite a nice painting of a brood of wood ducks, and a mantle adorned with a line of photos of my favorite young people.   (Only 7 of 11 shown.)

Cats? We don't need no stinking cats. We have GRANDCHILDREN!
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What the Hell?!? Friday - Mermaid Edition

A mermaid desires solar energy.  OK - the sun heats the water, water is the energy source for aquatic life forms --  I get that.

But what the hell problem would a mermaid have with oil?  I mean, tuna is packed in oil  -- Oh - wait  . . .





Hmmm -- I guess it's not just mermaids . . .

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Friday's Market Action

Today opened with a big gap down.    From yesterday's SP500 close of 1204.42 to an intermediate bottom of 1176.55 is about 28 points.  Wave 5 down has now begun, and the majority of the drop was a third wave within a third wave of subwave 1 down.  This will be confirmed when the index pierces through the lower bound of the up-slanting purple channel indicated yesterday.   This is currently at 1140, and passes through 1150 next Friday

Blaming exogenous reasons, this morning's Zach's email cites the Sept 1 Jobless claims report, and the ISM Manufacturing number that slipped to 50.6.  This is priceless: "At first, traders were delighted that ISM was above the anemic 48.5 estimate. But as reality settled in that the actual number is still headed in the wrong direction is why stocks finally succumbed to profit taking."  So the same number can be good news or bad news, or even both - depending on a post hoc look at daily market action.  That sums up the whole market action as news reaction story in a nutshell.  I'd say that about wraps it up for efficient markets, too.  Of course, that silly-ass idea should have died in the crash of 1987, but a good zombie can keep going for decades.   Mmmmm -- brains!

A worse-than-expected August jobs report is also part of the mix, if you believe that sort of stuff.  It's not clear to me why anyone with their eyes open would be subject to 30 SP500 points worth of surprise, based on these totally unsurprising news items.  But - people get paid to make this stuff up.

Now, I'll grant you that a net job creation number of zero is pretty disheartening.  But would the anticipated 60,000 have been much of a cause for joy?  And the downgrade of the previous two months numbers - now at 20,000 for June and 85,000 for July doesn't help.  It takes 150,000 new jobs per month, just to keep up with population growth.  So - every passing month puts us in a hole that is just a little bit deeper.  From the photo atop this news report, we can see that unemployment does not discriminate on age, race, or gender.   Of course, unemployment is much, much worse than the cooked reported numbers indicate.  But that's another story.

My wave 5 SP5000 stimate of 1000 to 1050 is now only 125 to 175 points away.  The recent corrective rally covered 130 points, so that does not seem out of reach. 

The other thing that the Zach's note points out is that September is historically the worst month for stocks - and this despite very famous crashes happening in October.  OTOH, last September saw a 10% gain.  As I mentioned yesterday, seasonal effects are only tendencies.  But the next couple of months will be very tough, indeed.

Update:  Mish provides graphs and numbers.  What he will never say, but I will, is that Rethugs recalcitrance has done a splendid job of making Obama fail, keeping the economy in the toilet, and offering the unemployed as collateral damage.

More after the close.

Update 2:  Well, we're back at about the 1170 level in the SP500, a support-resistance level of (short term) long standing and questionable effectiveness.  Here is a chart with my amateur Elliott wave analysis at no extra charge.  Everything you get here is free - and worth it!.

I mentioned earlier that the big drop today was a third wave of a third wave.  The chart illustrates the wave forms that made me think so.  This particular low level wave 1 down might now be complete, though other interpretations are possible.  They suggest, if anything, even more bearish interpretations.

Alas, we live in interesting times.
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Thursday Market Action

A ho-hum,  slightly downward day, with the major indexes slumping a bit over a percent, NASDAQ -1.30%, SP500 -1.19%, DJI -1.03.  The action was similar in the three indexes, a slow slide down from an early morning high.  The size of the slump was in proportion to the relative  non-blue-chipiness of each index.

That might be somewhat interesting, and this might, as well - depending how things develop. Yesterday and today, the SP500 hit an angle where two competing trend channels cross, just a couple of points above the 50% retracement level of the wave 3 drop. This daily bar chart shows what it looks like.

A valid trend channel should connect the extremes of waves 1 and 3 and those of two and 4 with parallel lines.  Similarly, the movement of the counter-current wave 4 should be contained in it's own parallel channel.  Wave 4 should now be over, with wave 5 ready to start.  Time tendencies are positive coming into weekends and holidays, so that could buoy the markets up through tomorrow.

September is traditionally a tough month for stocks.  Of course, this is just a tendency, and no sure thing. But it looks as if everything is lining up for the next leg down to start any time now.
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Great Balls of Fire Expectations

I guess the idea actually goes back to Keynes, himself, if not earlier.  Economists from Krugman (who provides a supporting narrative) to Karl Smith (who indicates relevant expectations can be/are captured in price data*) cite expectations management as some sort of a way to manage and control the economy.  Just today two economists referred to it.

David Beckworth said:

If the Fed were to announce a nominal GDP level target it would provide a big expectation shock that would reverse much of this buildup.  {of a large stock of money assets - JzB}

Beckworth has been pushing NGDP targeting for as long as I've been reading him.  He goes on to explicitly credit  "a much needed shock to nominal spending and inflation expectations.  As a result, there was robust recovery from 1933 to 1936."  He also explicitly states that  "by raising inflation expectations, it would increase the cost of holding money assets for the non-bank public."

I can't say for sure that Beckworth is a New Deal denialist, but I don't recall ever seeing him refer, even in passing, to fiscal policy as part of a solution to the current malaise.

 James Hamilton said:

As far as monetary policy is concerned, the most fundamental ingredient is what the public expects to happen in the future-- managing those expectations is the basic tool that the Fed could rely on in this situation.

In all of these cases, expectations (animal spirits to Keynes then and Elliott Wavers now) determine reality.  IMNSHO, this is dog-wagging on a monumental scale.  So much so, it strikes me as being scarcely at all removed from magical thinking.

I don't deny that expectations can, or might, play some roll.  But to matter for more than some transient period, and in more than some trivial way, reality has to follow suit.  One can expect inflation - as, indeed, many do today, despite there being absolutely no good reason for them to do so - and not get it.  (I expect Valverde to blow the save every time he takes the mound, and I've been wrong on all 40 of his chances this year.)  So - what good is an NGDP target if the Fed doesn't have the tools and the cojones to make it a reality? Beckworth, Sumner  and others have proposed an NGDP futures market.**  Smith demurs, thinking an inflation target is more practical than an NGDP target.

Targets can be missed - the Fed's utter indifference to the employment half of it's dual mandate, while it fails miserably to generate core inflation in the other half, illustrates a lack of both capability and will.  Expectations can be dashed on the shoals of forlorn hope, perverse fate or simple ineptness. 

The expectations-to-reality flow chart is based on ifs and assumptions.  It's a fragile chain that can be broken at any link.  More fundamentally, expectations are ideas.  But it's actions, not ideas, that cause change and generate results in the real world.  (A case in point being the administration of President B. Hoover Hopey-Changey.)

Maybe I'm being overly skeptical, but saying, "I do believe in inflation, I do believe in inflation," is the stuff of Neverland.

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* The strong form, at least, is about 90% of the way to the Rational Expectations hypothesis - which is 90% bull shit.
** This simply strikes me as being bat-shit crazy.
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Wednesday Market Action

The EWI guys figured the 50% retracement of wave 3 at the area surrounding 1228, where I figured 1223.  Either way, the SP500 index spent about 25 minutes this morning above 1228, and even spent 3 minutes marginally above 1230.  From then until now - about 1:45 - it's been at 1223 give or take 3 points.  So far, this has been a very uneventful - shall I say sideways - day.  Unless something interesting happens in the next couple of hours, I'm not going to bother with a chart. 

Update:  Nothing interesting happened.
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