Here's a Chart That Will Scare You

This is from the Blog Blah3. I've had an email line going with the author over the last year or so. We've traded a great deal of economic information.



Consider the following commentary also written by the blogs author:

The simple fact of the matter is that real estate assets as a percentage of GDP have got a long way to come down before they're even remotely in line with historical norms (it recently touched 153% of GDP, signalling an even larger bubble than the stock market had been). The deflationary environment in the housing market, I fear, is going to be around for quite some time. There is simply no painless way to undo what has been done. The Fed can help, but nature must take its course.

That will get you thinking, won't it?

Will the Homebuilder's Rebound Continue?

One of the first blogs I read when I got back from vacation was Afraid to Trade. He had a post up about Pulte home's rebound, which got me thinking about the homebuilder's sector. So, let's look at the chart to see what it says.



The yearly chart looks terrible. Prices are in a clear general downtrend. Most importantly, the 200 day SMA is in a downtrend, which is very bearish.



However, notice the following on the three month chart.

-- Prices are above all the short-term SMAs

-- The 10 day SMA has moved through the 20 and 50 SMA

-- The 20 day SMA has moved through the 50 day SMA

-- The shorter SMAs are above the longer SMAs

-- All three SMAs are moving higher.

-- Volume has been impressively strong.

All of the above points indicate a technical turnaround may be in play.

Now, the question is will this last?



First, note on the two year chart that the XHB has fallen pretty hard for the last two years. At some point, prices hit a "there is no way prices can go lower" point. Simply put -- securities can't get cheaper. Perhaps the homebuilders are at this point right now.

However, the rally is largely in response to the Fed cutting interest rates. The real question now becomes, "will lower interest rates save the housing market, or is there more pain ahead?"

Right now lenders are tightening their lending standards across the board. That does not bode well for housing. In addition, consider that job growth is weakening, which will lower consumer confidence which will decrease consumer's desire for expensive items like homes. Also consider the large glut of existing homes on the market and the declining value of homes according to the Case Schiller index and you have a recipe for a very strong bear argument. I will add that I am personally surprised we haven't seen a major bankruptcy in the homebuilder sector yet.

However, there is also the very good counter-argument that prices are simply as low as they will go, barring a bankruptcy in the sector. That is always a possibility.

Housing Nowhere Near a Bottom

From the WSJ:

Toll Brothers Inc. Wednesday said that its fiscal first-quarter home-building revenue fell 22% from year-earlier levels to $842.7 million and it doesn't see any end in sight to housing-market woes.

The company said it is still finalizing its first-quarter impairment analysis, but expects pretax write-downs of between $150 million and $300 million.

"The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel," said Robert Toll, the firm's chairman and CEO.

Where's the NAR guy to tell us the market will turn around in 6 months?

A Closer Look At the Financial Sector

Yesterday turned out to be "talk about financials" day, so it seems appropriate to look at a chart of the financial sector to see what the chart says.



Above is a five year weekly chart. Notice:

-- The index formed a double top in early 2007.

-- The index broke a 1 1/2 year upward sloping trend in mid-2007

-- The index has broken through support levels established in 2004.



Above is a chart of Fibonacci levels on the 5 year chart. Notice the prices are currently at levels where traders would expect a reversal -- at at least for "something" to happen.



Above is a 5-year chart with Fibonacci fan levels, again indicating prices are currently at reversal points -- or at least at levels where "something" would happen.



We've already established the financial sector is in the middle of a really strong sell-off. Above is a 1-year chart that shows the index is clearly in the middle of a down, up, down bear market pattern, and that the index is making lower lows and lower highs. This is not a good looking chart.



Above is a chart of the SMAs. These are interesting. Notice the following:

-- Prices are still below the 200 day SMA by a wide margin.

Let's look at a shorter time chart:



Notice:

-- the 10 day SMA has crossed over the 20 day SMA and is still moving higher

-- the 20 day SMA is pointing higher

-- the 50 day SMA is leveling off

-- Prices are between the SMAs

-- Notice the 10 day SMA crossed over the 20 day SMA in late November. But that was not accompanied by a leveling off of the 50 day SMA.

This chart indicates the financial sector may be bottoming in the short term. It is still too early to make a firm prediction one way or the other. But the SMAs indicate we are are least thinking about having a rally in the financials right now.

I should add that fundamentally, I am still very bearish on this sector. The news has not been good from at least 6 months, and I don't expect it to change anytime soon. In addition, I think we have a ton of writedowns still in the works. Bottom line -- the fundamentals are terrible. A rebound would be a technical, "these things look cheap" move, not one driven by a fundamental "business is getting better" sentiment.

More Signs of Credit Market Problems

From the WSJ:

The loans of First Data Corp., which was taken private in September by Kohlberg Kravis Roberts & Co. for about $28 billion, were sold into the market this past fall at a 4% discount to their par value; they now trade in the market at a steep 11.5% discount to par value, according to Reuters LPC.

Loans of Freescale Semiconductor Inc., taken private by a consortium of private-equity firms in December 2006 for about $28 billion, are trading at a 15.5% discount to their original value; Tribune Co., which was taken private in April by investor Sam Zell for $8.2 billion, issued loans now trading a 26% discount.

.....

Double-digit declines in the market value of these loans are very unusual, and a big problem for many banks, which sit on a pipeline of $152 billion in loans that they have promised to make but have yet to sell to investors.

With the prices of existing loans tumbling, investors have little incentive to buy new loans unless they are sold at steep discounts, something banks are reluctant to do.

Yesterday I wrote about the latest Federal Reserve loan survey, which shows the market for credit is tightening to levels not seen since the last recession (and in some cases the situation is worse than the last recession). Now we have more evidence that the credit markets are in serious trouble.

It's news like this that make the "earnings outside of financials are great" argument so incredibly dangerous. Think about the broad implications of this situation. Last spring one of the big events moving the markets was leveraged buyouts. The inability of banks to move loans off their books at a decent price makes buyouts incredibly difficult if not outright impossible. That prevents an important bullish situation -- namely M&A -- from developing. It also makes financing in general more difficult.

This is A Great T-Shirt

This is from Mish's site. To all the perma bulls out there...

Monoline Insurer Timeline

The following time line is from the WSJ's Marketbeat blog. I've been a bit behind the curve on this issue, so this time line was great way to catch-up.

* Oct. 24-25, 2007: Ambac reports a big loss in its most recent quarter, followed a day later by the announcement of losses at MBIA.

* Nov. 1: Standard & Poor’s says it is unlikely to downgrade credit ratings on the highly-rated insurers, as a result of the big markdowns they took on their credit derivatives portfolios during the third quarter. (Note: statements from the ratings agencies in this time period prove to be variable.)

* Nov. 6: In response to a report from Morgan Stanley questioning the company’s financials and whether it will end up realizing more losses from the debts insured, Ambac says it is “confident in the quality of our internal credit ratings process,” and that “we have been very transparent to the market and our investors by disclosing significant detail on our direct mortgage and CDO exposure in our various public disclosures.”

* Nov. 7: Ambac holds a conference call to reassure investors. Robert Genader, Ambac’s chief executive officer, says on a conference call that his company is misunderstood despite its balance sheet not being hurt by the subprime-market turmoil. Mr. Genader said he hoped to “restore faith in the credit-underwriting skills…that this company has displayed for more than 35 years.”

Dec. 6: Moody’s Investors Service said that it considers MBIA “somewhat likely” to fall short of its capital requirements. Investors seize on this, since Moody’s held a different view about one month earlier.

* Dec. 11: Private-equity firm Warburg Pincus agrees to commit as much as $1 billion to MBIA to help boost the financial guarantor’s capital level, and help head off a downgrade of its triple-A credit rating.

* Dec. 13 - Ambac is named Monoline of the year by International Securitisation Report.

* Dec. 14: Moody’s affirms the rating of MBIA at AAA, but changes the outlook to “negative.” It also affirms the AAA-rating of Ambac.

* Dec. 17: Bill Ackman of New York hedge fund Pershing Square Capital Management LLC, a long-time critic of the insurers, says Moody’s actions should be described as “creeping incrementalism.” The ratings firm doesn’t want “to be the causal factor for these companies blowing up,” he says. “They’re giving them yet another warning.”

* Dec. 19: Standard & Poor’s has another warning — cutting the ratings of rival bond insurer ACA Financial Guaranty (which only had a single-A rating to begin with) to junk status. It also puts a negative outlook on Ambac.

* Dec. 20: MBIA shares slump after the guarantor, on its Web site, discloses $8.1 billion in exposure to complex and risky securities backed by home loans.

* Dec. 21: Ambac is put on a rating watch by Fitch Ratings, a competitor to Moody’s and Standard & Poor’s.

* Jan. 9: MBIA says it plans to raise $1 billion by issuing a kind of debt known as surplus notes.

* Jan. 15: MBIA says it plans on cutting its stock dividend by 62%, which would result in $80 million in cash savings a year, and that it reinsured some of its portfolio, which would reduce its capital requirement by as much as $150 million.

* Jan. 16: Seeking to reassure investors, Michael Callen, CEO of Ambac, says the firm has “great confidence in our plan to enhance Ambac’s capital position by over $1 billion within an accelerated time frame.” In a change of heart, however, Moody’s Investor Service says it is placing Ambac on watch for possible downgrade.

* Jan. 17: “In view of the uncertainty generated by Moody’s surprising announcement,” Ambac starts to rethink its capital spending plan. Moody’s, meanwhile, puts MBIA’s credit rating under review.

* Jan. 18: MBIA says it is “surprised” by Moody’s move, saying that its capital strengthening regimen “meets or exceeds the requirements previously outlined” by credit-rating agencies, in past months. “We have developed and are implementing a comprehensive capital strengthening plan in good faith reliance on Moody’s stated requirements,” says Gary Dunton, MBIA CEO.

* Jan. 19: Two months of warnings have gone by without action, so Fitch steps in front of the brigade, lowering ratings on Ambac to double-A, after Ambac had scrapped its earlier plan to raise $1 billion in the stock market.

* Jan 22: Mr. Callen, Ambac CEO, says that “we view the current perceptions of Ambac’s business by both the market and ratings agencies as underestimating Ambac’s strengths and future potential.”

* Jan 24: Fitch strikes again, lowering the rating of SCA, another guarantor, to single-A.

* Jan. 31: MBIA reports a fourth-quarter loss of $2.3 billion, but the company sounds a positive note on its conference call. Mr. Dunton says the market “overreacted to the real and obvious problems that we’ve had.” Later in the day, S&P counters this, warning MBIA of a possible downgrade due to capital concerns and projected losses. “The magnitude of projected losses underscores our view that time is of the essence in the completion of capital-raising efforts,” S&P says.

* Feb. 1: Moody’s says it plans on finishing its review by mid-February; says “some bond insurers” are likely to be downgraded.

Today's Markets

SPY: -2.87%
QQQQ: -2.85%
IWM: -2.56%

This week isn't turning out to be a good one for the market. For the second day in a row the market experienced a big sell-off.

To place this in perspective, here is a 7-day chart in 5 minute increments.



Last week the SPYs had a huge rally, largely spurred on by the Fed's rate cuts. From bottom to top, the SPUs gained about 5.28%. However, the SPYs have dropped hard, losing 4.13% from their top on Friday.



Today, the markets gapped lower and then continued downward from there. The good news is the selling was pretty controlled -- meaning there aren't any huge downward moving bars. However, there was some volume pops at the end of trading, indicating traders didn't want to hold shares overnight. That's never a good sign.



The QQQQs have given up all of their gains made last week. So much for that rally.

Over the last two days, notice the severity of the downward sloping angle -- that's some heavy selling.



Here's a closer look at the last two days. Near the close today, the sellers were out in force, indicating there was some pretty strong concern.



The good news with the IWMs is they haven't sold off as hard as you would think, given this index has more risk. But the reason for that may be it has sold off far harder over the last 6 months or so.



Yesterday I commented that the IWM sell-off wasn't as bad as the other indexes. However, today's action made up for that in spades. Note the sharpness of the sell-off and the heavy selling at the end.

Over the last two days I've taken an in-depth look at all three of the above indexes. In all three analysis I noted the market was in the middle of a bear market rally. Below are the daily charts with the Fibonacci numbers that shows the markets have reached their respective Fibonacci levels and are now headed back down.

A Completely Bogus Way to Look At Earnings

From IBD:

With 58% of the S&P 500 reporting results as of Monday morning, fourth-quarter earnings are on track to dive 20.7% from a year earlier, according to Thomson Financial. It would be the worst showing since the fourth quarter of 2001.

But that's mainly due to massive write-downs and other losses by banks. When all results are in, the sector will likely show a net loss.

"It's awful when you aggregate everything. But strip out financials, it's phenomenal," said David Dropsey, senior research analyst at Thomson Financial.

S&P 500 earnings excluding financials look set for an 11% gain.

This is nothing more than pure bull market spin and it is complete and total garbage, plain and simple. "One of the most important sectors in the economy is really sick right now. But if we don't look at that sector then everything is just hunky dory." I hope to God one of the idiots who is talking like this gets extremely sick, but the Doctor says to them, "outside of that cyst on your brain that may kill you within six months and cause you unbearable pain in the meantime, you're really quite healthy."

For those of you people who are peddling this crap, let's review econ 101.



Above is a poorly drawn chart of the US economy. Does anybody notice where the financial industry sits? At the middle of the economy. They are sometimes called "financial intermediaries" because they intermediate between lenders and borrowers. The financial sector takes individual investors money, aggregates it and then makes bigger loans to large companies.

But that sector -- the sector that provides financing for the whole damn economy -- is going through it's worst period since the S&L debacle right now. Read the post below on the tightening of lending standards. Why do you think that is happening right now? Because business is booming and earnings are increasing? Or because there are serious problems?

If instead of the financial sector we were talking about the water buffalo castration business I wouldn't have this issue. That is obviously a very small section of the market and pretty meaningless.

But when one of the largest sectors of the economy and the stock market is having major problems -- and that sector just happens to provide the lubricant for the whole economy -- then the fact that that sector's earnings are in the toilet is more than a statistical inconvenience.

Pick the Smart Money Manager

From the WSJ:

Financial stocks have languished for months amid revelations of bad mortgage bets and concern about recession. Money managers increasingly disagree about whether the sector remains too risky for investors to wade into, or has become ripe with cheap names poised for a rebound.

"The financials really aren't a big area for us. A lot of the stocks we're looking at are still in pretty defensive sectors," like healthcare and consumer staples, said Bob Millen, chairman of Jensen Investment Management in Portland, Ore. He says the firm lately has stayed away from downtrodden financial names like Dow component Citigroup despite the fact that they fit certain data-based criteria that Jensen uses to do its initial screening of potential names to buy.

"We just feel like we can't understand the business well enough," in part because of complicated mortgage investments Citigroup holds, said Mr. Millen.

Randy Bateman, chief investment officer at Huntington Asset Advisors in Columbus, Ohio, is more bullish on the sector, which he believes investors have discounted too deeply.

"Everyone got punished in the initial wave of concern about what's on these companies' balance sheets," said Mr. Bateman. "But as the details emerge, if some of these guys haven't had write-downs yet, you start to think it's not going to happen."

225 mortgage lenders have imploded.

$100 billion has been written off on balance sheets

At some point the financials will be ripe for bottom fishing. But it isn't now.

Credit Market Tightening

From the WSJ:

Banks are tightening lending standards for businesses and consumers -- even beyond real-estate loans -- and companies' demand for credit has weakened, a new Federal Reserve survey of senior bank-loan officers shows.

The January survey offers the hardest evidence yet that the credit crunch is spreading. Although banks also reported some tightening of lending requirements on credit cards and other consumer loans, commercial and industrial loans have been the most severely affected.

One-third of the U.S. banks and about two-thirds of the foreign banks responding told the Fed they had tightened lending standards on commercial and industrial loans during the three months ended Jan. 31. About half the banks said they have widened the spread between their cost of funds and what they are charging borrowers.

"Bankers are becoming more cautious," said Keith Leggett, economist at the American Bankers Association in Washington, "but also borrowers are getting more cautious."

About a third of the banks participating in the survey reported weaker demand for commercial and industrial loans, while about one in 10 reported strong demand. Among those that saw a reduced appetite for loans, "a decrease in customers' needs to finance inventories and investment in plant and equipment" was cited frequently. Additionally, 70% of the respondents cited a drop in businesses' needs for merger-and-acquisition financing as a reason for lower demand.

Remember that banks stand in the middle of the US economy; they take funds from consumers and lend them to borrowers. Or, they provide financing via the financial markets. But either way, the smooth working of the financial sector is imperative to a growing economy. But right now lenders are getting stingier and borrowers are decreasing (Here is a link to the entire Fed report).

Let's look at some of the charts and graphs from the reports to see exactly what is happening. On a technical note -- instead of using Photoshop, these graphs are simply stuck into the blog so you have to click them to get a bigger image.



Above is a chart of how many financial institutions are tightening their standards for consumer loans. While credit card loan standards started to tighten in mid-2007, other forms of consumer loans started to tighten at the beginning of 2007. In other words, it appears that banks probably had an idea their standards were too loose a while ago. However, also notice the number of lenders who are tightening non-credit card loans are higher than in the last recession.



Above is a chart of the number of respondents who are willing to make consumer installment loans. Note the number has decreased to a level below that of the last recession. It is also near the lowest level of the last 15 years -- not a good sign.



Above is a chart of the number of institutions who are tightening standards for commercial loans. Notice this number has spiked very high and is currently at its highest level of the last 15 years. It is currently higher than in the last recession as well.



Above is a chart for the number of respondents who tightened standards for residential mortgages. Notice this number is the highest it has been for the last 13 years.

The bottom line from these charts is really clear: lenders are tightening their standards for a variety of loans. For an economy like the US that is heavily dependent on credit, this is a very ominous development.

I also have to wonder how long it will be before the financial players start to lower standards again. Considering we're still in the middle a a ton of financial writedowns I think it's going to be awhile. And that means the pain could last far longer than we would like.

A Closer Look At the Russell 2000/IWMs

And now for the last big average I'll look at in my post-vacation market wrap-up -- the Russell 2000 or the IWMs.

I use the Russell 2000 as a proxy for risk in the market. The Russell 2000 is made up of "growth" companies -- companies who typically don't pay a dividend and therefore rely on strong earnings growth to increase their share prices. As such, these companies are far more reliant on a strong underlying economy. When traders start to worry about the economic fundamentals, these shares will probably get dumped first.



The above chart is what really caught my attention when I started to think we were moving into a bear market. Notice the index broke a clear three and a half year uptrend at the end of last year. Remember -- the longer the trend, the more important its break.



Here's a closer look at the trend break. Also notice the index tried to rally through the previous support level twice last year only to fall back.



Just like the SPYs and the QQQQs, notice the IWMs have a clear down, up, down, up pattern, additionally making lower lows and lower highs -- a classic bear market formation.



Assuming the market is in the above mentioned pattern, here are the Fibonacci levels for a possible rebound.



The moving average picture isn't pretty. Notice the following:

-- Prices are about 9% below the 200 day SMA

-- The 20, 50 and most importantly, the 200 SMA are all moving lower.

-- While the 10 day SMA has rebounded and is about to cross the 20 day SMA. This could signal a trend reveral.

-- the 20 day SMA appears to be ready to reverse as well.

So we have the following.

-- A clear long-term trend break

-- A bearish down, up down pattern with lower lows and lower highs.

-- A downward sloping 200 day SMA

-- But, a possible trend reversal with the 10 day SMA about to cross the 20 day SMA and the 20 possibly reversing as well.

However, before we start to get excited about a possible reversal, let's look at the underlying economic fundamentals.

-- employment growth is weak

-- the housing market is still a wreck

-- The Fed is panic slashing interest rates

-- The financial sector has written down at least $100 billion in loans.

In other words, the economic backdrop, well, sucks right now. That does not bode well for an area of the market that really relies on economic growth.

Today's Markets

SPY -1.17%
QQQQ -1.40%
IWM -.91%



A general downward drift existed today. The good news in this chart is there wasn't any panic selling. Instead, the markets moved downward a slow pace and downward moves were accompanied by upward movement. However, the market had a clear downward trend for most of the day. Also note the heavy selling on high volume at the end.



Looking at the 6-day chart, today's action looks more like a general sell-off after a strong rally rather than a day when the bears took complete control of the markets.



The QQQQs also had a downward bias, but this one was more pronounced. Instead of a session of solid give and take between bulls and bears, this session looks more like the bears were in more complete control. Also notice the heavy selling at the end of the session on high volume.



However, placing today's action in last week's perspective, we again have a standard sell-off after a solid rally.



The IWMs have the best profile for the day. While there was heavy selling at the opening, the index made a comeback and then had a pattern similar to the SPYs.



And placing today's sell-off in last week's perspective, we have a very mild sell-off after a strong rally.

A Closer Look at the QQQQs

As a way of getting back on track about what's happening in the markets after my vacation, let's take a closer look at the QQQQs



Above is the 5-year chart of the QQQQs in weekly increments. Notice the index has broken two key trend lines -- the upper trend line of the 4 year channel that started at the beginning of 2004 and the trend line that started in mid-2006.



Above is a 1 year daily chart that shows the severity of the trend break.



The above chart shows that in addition to breaking two upward sloping trend lines, the index is clearly in a lower lows and lower highs formation right now. The arrows show the minor up and down trends.



On the six month chart, notice the following:

-- The index is below the 200 day SMA.

-- The 10, 20 and 50 day SMA are all moving lower.

-- The 10, 20 and 50 day SMA have crossed below the 200 day SMA.

-- The shorter SMAs are below the longer SMAs

-- While prices have moved above the 10 day SMA, they have so far met resistance at the 20 day SMA.



Before I left for vacation, I wrote that I was expecting a bear market rally. The Fibonacci levels indicate possible levels where prices might rebound.

So, the short version of all this is the QQQQs are still in a bear market. Prices are below the 200 day SMAs, prices have sold off pretty heavily since their top last year, and shorter SMAs are below the longer SMAs.

It's the (Lack of) Job Growth, Stupid

Here is a graph from the WSJ:



I've blocked off 2007 and added a darker line to the 100,000 level for job creation. Notice the following.

-- There were only 5 times in 2007 that monthly payroll growth exceeded 100,000.

-- One of those times was a "just barely" number

-- Four of those times occurred in the first half of the year.

-- For five months, job growth came in at 50,000 - 100,000.

-- Two times after a big number, the following month's number was really low (as in barely positive). Two other times, the number came in between 50,000 - 100,000.

In short, the last year's employment numbers have been terrible.

Food Cost Increases Leading To Increased Price Controls

From the WSJ:

Last month, China said it would require producers of pork, eggs and other farm goods to seek government permission before raising prices. When producers do seek permission, it is denied, market participants say. Thailand is taking similar steps on instant noodles and cooking oil, while Russia is trying to cap prices on certain types of bread, eggs and milk.

Elsewhere, Mexico is trying to control the price of tortillas, and Venezuela is capping prices on staples including milk and sugar. Malaysia is setting up a National Price Council to monitor food costs and is planning stockpiles of major foods, as well as a 24-hour hot line for consumers to vent about spiraling food costs.

These measures reflect the mounting pressure on developing economies as food costs rise sharply. Food-price inflation is running at an 11% annual rate in major developing countries, up from about 4.5% in 2006, according to Bank of America Corp. The price rises partly reflect increased demand from emerging markets and higher oil prices, which drive up the cost of growing and transporting food.

In Singapore, inflation accelerated to a 25-year high in December, partly because of food. In Mexico, Malaysia, Pakistan and Indonesia, food-price increases or shortages have triggered protests. Late last year, three Chinese shoppers were trampled to death in a supermarket scuffle over cooking oil. In poor Caribbean nations like Haiti, the situation is especially dire.

There is good and bad news to increased prosperity. The good news is everybody is making more money, which increases the standard of living. The bad news is increased standard's of living increases overall demand for food. Making that situation more difficult is the US' use of ethanol, which has really complicated the corn market -- and not for the better.

I have reprinted the following chart many times over the last year or so, and will continue to do so.



This is a chart of agricultural prices as represented by the Goldman Sachs commodity index. It shows a 133% increase over the last 3 years. In addition, the chart is a clear bull market chart with higher highs and higher lows.

A look at the various components of this chart shows the exact same pattern:



Wheat had a huge price spike last year, nearly doubling in price. While the 950 area is offering strong resistance right now, a move through that area would indicate a continuation of the market's bull run.



Soy has been in a bull run since late 2006, with a clear pattern of higher highs and higher lows.



Corn is showing an strong rally as well, with prices doubling in the period of about a year and a half.

At some point, these price increases have to bleed into prices at the retail level. While governments are attempting to thwart the pain at the retail level, price controls will eventually push producers out of the market as their profits go away -- or encourage them to produce inefficiently, which is the last thing they need right now. The only way to deal with this problem is to increase supply in a big way.

I'm Baaaaaaaaaccccckkkkk -- Or, Last Week In Review

Well -- I'm back. Bonddad and the future Mr$. Bonddad went on a cruise last week and had a ball. We swam with dolphins, went sea kayaking in the Cayman Islands and saw the ruins at Tulum. I didn't read any financial news for a week -- and that was great. I finally broke down and read my email on Saturday. I had 625 messages and 4 were important. That's about the same ratio as I get in my mailbox.

So -- where are the markets after a week?

Let's start with the long term view and work our way towards the short-term view.



This is the chart that led me to state we're now in a bear market. The SPYs have broken through two key long-term support levels. Remember -- the longer the support or trend, the more important the break of the trend. While the markets rallied last week I will show below that this is a bear market rally.



This is a one year chart of the SPYs. Notice the clear break-through of the long-term trend lines. Also note:

-- Prices bounced off the upper trend line four times before falling through. That means the trend line was very important to the market and provided key technical support for the last year.

-- The index is 6% below the 200 day moving average.

-- The 10, 20 and 50 day SMAs are all headed lower.

-- Prices are above the 10 and 20 day SMAs which is a short term positive.



Above is a six month chart of the SPYs. Notice the index is clearly in a down, up, down up pattern. Also notice the market is making lower lows and lower highs, another sign of a bear market.



Now we're into last weeks action. I have been arguing that the market would rebound from its recent lows, largely based on the the Fed's actions. Over the last two weeks, we've seen the Fed lower rates by 125 basis points. That's a huge slashing of rates, and it has led the bulls to argue the Fed's actions would prevent a recession. This is the primary reason we saw the markets rally last week. However, notice we're still within the Fibonacci retracement ranges, indicating we're still well within the possibility of a retracement rally.

In addition, ask yourself a basic question: what makes the stock market go up? Earnings! When to earnings increase? When the economy is growing! Is the economy growing now? Not on your life!

I'll be looking at the other averages as the day progresses.