But we are heading back down again, so now the question is where are we going and what kind of move is this. I still believe this is a correction, but my opinion is slowly shifting and I will list the evidence I see that is making me think otherwise.
First, below is our S&P Chart. My complaint with this chart from a bearish perspective is that there isn't really a good way to make this a channel. You can, but you have cut some corners to do it and assume that we have a couple false breaks already. It looks better as a bullish falling wedge. So that is glaring at me right now and the main thing that is keeping me on the path that this is a correction and we still have a move to potentially new 52 week highs coming.
Chart;
As far as Elliot Wave is concerned, this move could either be an ABC (correction) or a 5 wave move down. A 5 wave down would probably take out 1320 and close there. That could potentially change our long term count and everything becomes more bearish instantly. If it's an ABC, we've got 2 moves down left and we'll probably take out 1320 (cash market.. my targets are always cash not futures) but only intra-day and possibly on a questionable break lower close, such as 1318. A close below.. but not convincing.. a head fake.
The bears have a chance here. But before I get into the things that are glaring at me from the bearish side, I want to show you another chart.
IYR.. everyones favorite insane index. Ooohh.. commercial real estate, how I love you.. let me count the ways. .. This shit is so overvalued it's insane. Major REIT's are basically at 2007 real estate bubble highs. CNBS even had a real estate mogul on last Friday talking about NYC office building and multi-family properties back to bubble prices. It's all yield reach. Remember my last discussion of Retirees, Pension funds, Trust funds, etc., having a hard time getting their 6-8% they need? REIT's pay a dividend which at the moment exceeds most CD rates. On top of that, you have foreign money flowing out of the middle east (the middle east elite don't want their money in the banks there during the turmoil in the region) and you have the paper money is trash crowd that want hard assets. Result, a new commercial real estate bubble. Yippee...
Gee.. i wonder if that has anything to do with the financials getting smashed lately? Financials had another ugly day on Friday. Don't forget, the banks have been drawing down loan loss reserves to pump up their earnings and have spent large amounts of cash trying to pay back the FED loans. Those reserves are supposed to be for LOAN LOSSES NOT PROFITS. What happens if we have a re-collapse in commercial real estate in conjunction with our double dipping housing market?? Prepare yourself for another round of bail out nation.
Here's the IYR chart... we've got a 7 month long bearish rising wedge with 2 false breakouts. How much you want to bet the next breakout is actually a breakdown?
On to my list, these things are causing me to get more and more bearish;
1) Volume on the sell side is ALWAYS higher and much higher, although this has been the case for a long time. But it's just not normal is a bull market.
2) The financials are falling apart lately. They are pointing to another round of 2008 problems dead ahead.
3) Russel 2000 is not leading anymore. It's rolling over and looking almost as ugly as the financials.
4) The previous leaders are not leading. Retail is breaking down, small caps are breaking down, technology is breaking down, the SOX is ugly, .. the area's that do look o.k. are defensive areas like consumer staples.
5) The moves have flip flopped. The moves up had been bleeding higher and higher over a period of time and the downmoves were hard and fast but over very quickly. We have switched to downmoves being slower and bleeding while the counter rallies are furious and over quickly. That is indicating a major change in trend.
6) real estate is obviously double dipping in a lot of the country. this means a majority of the buyers that bought in mid-2009 to end of 2010 are now probably underwater including transaction costs unless they put more than 10% down. Considering that something like 90% of those purchases were FHA, most of them were probably 3.5% down or less.
7) Commercial real estate, emerging markets and residential real estate in Canada, China and Australia look like bubbles. Again.
But as always.. we'll watch the market. It will tell us if bad things are coming down the pike.
If we do re-collapse,.. Bernanke's tool chest is very empty and the political will to throw another 4 trillion dollars at the problem is probably not there.
I expect to hear more and more and more threats of Armageddon coming from Geithner, Bernanke, Dimon, and everyone else in the I love bankers club.
GL tomorrow.
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