NASDAQ Rolling Over

Yes, you heard me right. Nasdaq composite has began to roll over today. You don't belive me? Look at all the momentum stocks that comprised the recent snap back rally: RIMM, BIDU, GOOG, AAPL, ISRG, CMG, FSLR, MA, ETC... All of these stocks ran up in the early morning and gave back all of their gains and then some by the close today.

Nasdaq also diverged from the Dow Jones Industrials and the S&P 500 Index today. But even in those indices, you will see that there was distribution going on all day. In fact a good 30% of the afternoon was spent in deep red for all three major indices.

Many in the main stream media are calling for a year end Santa rally to happen. Some even proclaim that it has already happened. I would like to be able to answer that with, nope! It aint gonna happen. These types of reversals in a healthy economy might be given some serious consideration, but when you consider the macro economic picture of today's market, you will soon realize (hopefully with some capital intact if you are long) that it was merely a dead cat bounce. It was the rally that needed to be sold.

Ben Bernake spoke yesterday hinting at a generous rate cut on their December 11th meeting. This garnered an enthusiastic futures action and robust pre market activity. Yet, if this news was so positive, then why did we not rally like we did on Monday? What has changed since then? Well... HOPE is fading and traders are once again forced to face reality and it aint good. What good will the FED cut really do in this deflationary environment? Will it solve our credit liquidity issues? Nope. Unless the major financial instiutitons stop playing games and disclose the exact amount of the write downs and come clean with the bad loan exposures, this market will continue to be on a down trend. Spin can only go on for so long you know.

What good will at 25,50,75, or even a 100 basis point cut do for our economy right now? Will it bail out the homeowners with bad adjustable loans? Will it spur on economic growth? Will it somehow magically produce a pancea for what ails our financial market? No. Truth is, I think Mr. Bernake knows this all too well. But he is obligated by the tenets of the Federal Reserve, to do something. A rate cut is a gesture nothing more. Last rate cut lead to a broad market sell off that landed us into a correction.

I believe that will probably happen by December 11th when everyone who was cheering the rate cut possibility will look at each other, shrug their shoulders, and face reality once again. But I don't think it will take until December 11th to do that. Just look at the screaming NASDAQ action today. The reality is that the market probably has began its next leg down, and this one will be sharper than the previous one. So becareful out there. Stay in cash or start building your short positions.

Corrective Bounce at 1410 on SPX

The old pump and dump game continues today. As I posted yesterday, I expected a strong corrective bounce at 1410 support level. Well we got a belated bounce today, which was a day late, but not too surprising. This bounce does not change anything from the technical perspective, though, psychologically it can play some games.

The bounce came as a way to defend the support level generated from August 18th bounce, which marked the short term bottom from that terrible month. This time, that support level proved to be formidable. But I don't think it is insurmountable. You cannot discount the fact that on the daily chart, the SPX sits firmly below the 200 day moving average, and that the 50 day moving average is getting closer to the 200 day moving average, in what will eventually form the "death cross". The volume was just slightly greater than the previous day's volume, which was not impressive.

The real truth will be told when traders return tomorrow to digest the current events. Many would argue that this environment is ripe for the "Santa Rally". However, we are dealing with many harsh economic issues that was not in play in prior "Santa Rallies". Many pundits have called this the temporary bottom, but it is difficult to tell as no one really knows what the stock will do, other than to know that the trend is firmly negative to the down side.

If SPX within the next few days test and hold below the 1410 level, then the test of 1380 level will be in order. Can that happen? Yes, but equally so, the counter view point that the market may have hit temporary bottom must also be heeded. Given the current economic climate, I would bank on the fact that the selling will continue.

You see, today's bounce across the board had that feel of an artificial pump. But a key thing to remember is that despite the impressive run up today, it still failed to erase the damage done on Monday and we still sit firmly in "corrective" environment. As many know, I subscribe to the fact that we ARE IN BEAR MARKET NOW!

Bear markets can be very volatile with huge price swings. As stated before, unless you are nimble it doesn't matter if you are long or short, it is best to stay in cash. Otherwise, buying shares of QID (Ultrashort QQQQ) is recommended, and add to these shares as markets rally.

It is extremely important to realize that today's bounce was corrective and is engineered to be sold into the rallies. We still have severe economic cross currents and I would not jump the gun and start buying right now. When the time is right, I will change my bearish stance and go bullish. But right now is simply not the time. Anything other than an intra day trades is not recommended. Keep tight mental stops and take small losses whenever possible and do not be a pig. The market gods are out in full force and it is even more critical to know the bigger picture of where our market and economy is headed.

So many believe that Citibank (C) caused the rally today. At least that is what the mainstream media would lead you to believe. But when was the last time you saw any entity whether it be a human or an organization, that takes out this type of a "loan" with 11% interest just so that it can save the dividend? Did that even make sense? Are these people nuts? The action today in Citibank (C) was not a positive one. It is akin to someone taking out a payday loan knowing that they can't really pay that back so they get caught in a vicious cycle of debt. That is exactly what Citibank (C) did today. Trust me. If they had other viable options, they would not have taken these "loan shark" of a deal with the Arabs. What is this company thinking? Beneath all the hype, it reveals desperation. It doesn't signal a bottom but rather worsening of our financial system. This is not a positive event. It is further proof that Citibank's situation is more dire than usual and that the management is clueless. At least Freddie Mac (FRE) did the sensible thing and cut dividends by 50%. I just cannot stand the fact that Citibank is still concerned about the stock share price. That is why they did what they did. But I could see this stock going to the teens by next year.

Are we at the bottom? No, we are nowhere near the bottom. But enjoy the bounce, for those who are so inclined, and ride it only for a short time, lest you get whipsawed into a frenzy. The markets these days have a way of bitch slapping you in the face, just as you feel smug.

Tread carefully out there.

Something Ominous This Way Comes

Please look at this chart of SPX. Pay close attention to what this chart is telling you. We are in at least a Bear Market territory now. CNBC was touting this as an "official" correction, but the truth be told, we are in a Bear Market. The 1410 support level on the SPX, which many, including myself, thought would put up quite a fight in breaching that technically important level, did so without nary a fight. It was like knife cutting through warm butter. That in of itself should tell you about the dire situation of our markets today.

On the daily chart, the SPX has formed and broken down from the head and shoulders pattern and it continues to get ugly. I will go out on a limb and say that within the next 3 weeks, we may see the breach of the August 2008 lows of 1380 in short order. Beyond that, it is anyone's guess but I would not rule out a full blown recession to a depression. We are in a deflationary environment, NOW! Forget about all the mumbo jumbo about inflation. If you don't believe me check out the TNX (10 year treasury yield).

No, the FED will not and should not intervene. FED is too late to the party and cannot help us now. We must go through this the old fashioned way and "purge" the system for all its fraud, smoke and mirrors, and greed. I anticipate that we will see at least one major bank fail. Could it be Citibank (C)? Could it be Wamu? Or better yet, and for those who read my blogs, know that I am rooting for the evil empire that is Country Wide (or Country Schnide) (CFC). I fully expect Angelo Mozillo to be in jail within the next two years. Greed at its best.

It is likely that the markets from this point on will get very volatile and only the most nimble and experienced traders should attempt to play in this market. Unless you are prepared to take 100% losses and perhaps more if you use margin, you should not play with fire.

All I can say is that the subprime related issues have not even touched the surface. We still have issues far beyond that in our financial system that will have global consequences. The credit market is contracting and breaking down, as evidenced by the emergency liquidity injection that seems to go on daily. http://www.tickerforum.org/cgi-ticker/akcs-www?post=17141.

It is also rumored that CFC (Country Fried) also borrowed heavily from Atlanta FED today to stave off the inevital but keep its sorry organization in business. Is it to prop up this stock so that Mozillo can continue to sell his 70,000 shares every two days? What happened to their cash reserves?

Things will get worse and possibly this economy may take years to recover. But at this juncture, we are definitely headed in a collision course with financial disaster.

By the way, the retailer's pump did not work today. It is because everyone can see through the hype and understand that when there is a record shoppers but they are buying 3.9% less than they did a year ago, that signals that the consumers are not able to prop up this market.

See you at SPX 1380.