06.01.2011 Update.. the bears are back...

Well.. yesterday looked like the bulls were ready to stampede and all signals were go. As mentioned yesterday, the bears had 3-4 days to get a violent reversal and erase those technical break outs.

The bears got their violent reversal.

So here we are back in almost the same place we were last Friday.

The S&P had a particularly nasty close, back below both moving averages and in a gaping hole of missing support. The 1 saving grace for the S&P is that it only closed SLIGHTLY below the 100dma and under trend support.

Looking deeper inside.. The XLF also had a very nasty close. I think we have another banking crash on the horizon. I have speculated why in previous posts, which revolves around the banks using much of their pervious loan loss reserves to pump earnings and at the same time the housing market is double dipping. That combination will put us directly back into the same position we were in during 2007-2008. I wonder if the banks have done so on purpose always believing that they will not be allowed to fail, therefore why reserve a bunch of our own money to get eaten by losses. Who would have thought the moral hazard of the bail outs might actually be moral hazards.

The Russel 2000 and IYR are in better shape but are not far from being in the same place as the S&P. Honestly, with the economic news we've had lately, I'm surprised the Russel isn't leading the way down here. IYR will continue to benefit from falling treasury rates. Occupancy rates will be key. I also suspect REIT's are quickly losing pricing power per square foot on typical 5 year lease renewals. 5 years means people who signed 5 year leases in 2006 during the boom and the good times are finally getting the chance soon to bounce out of those or re-negotiate them. REIT's will likely take a hit from that dynamic.

so here we are back to about where we were Friday with some ultra ugly candles.

Charts to warm a bears soul; (all are 7 month daily charts)

S&P



Russel 2000 (IWM)



The Financials (XLF)



Dow Jones Real Estate (IYR)



If we get a follow through day on the downside here between tomorrow and Monday the bears will really have something to hang their hats on.

The 200dma for the S&P is down around 1240. It won't be completely doomed for a lasting bear market without getting and staying under that. But a minimum pullback to that level is definitely on the table here, provided we stay under the 50dma.

GL

CJ