War with Iran, low volume and trashed charts.

February 28th, 2012
in Gary's blogging, midday post

12:30      MIDDAY REPORT:  I spent a good deal of time during the premarket hours trying to make head or tails of where we are and where we are going today, tomorrow and the next day. Very perplexing to say the least as there are so many scenarios that could realistically be played out, many of them spelling disaster. A lot of indications, or signals, point to an imminent failure of the markets to continue climbing into the resistance which lies above. But yet they flirt everyday trying to penetrate the resistance zones above just as they as they have done all morning.

The single most prevailing issue in making sense of the markets is the persistent low volume, day after day. It simply means the cash market and money managers are NOT participating in any great numbers. Where are these folks and why haven't they stepped in; what are they waiting for. Participating in great numbers is necessary for the market to have any movements meaningful in reading the tea leaves. It seems the tea leaves have been scattered to the four winds.

The charts and conventional wisdom that traders use to "read" the tea leaves isn't working in this market. The charts are trashed and won't be reset until volume once again enters the picture. Everything and every trade is a guess lately and being the conservative trader I am, you won't see me dipping my toe in the market waters for a while. But at the same time I am ready to short or go long at a moments notice - volume would be the key.

The US as an economy is not in the greatest shape financially speaking, but it isn't near insolvency either.  Alone in the World I can see the US muddling along during the near future and actually, albeit slowly, digging our way out of this debt we are in so deeply. BUT, this thinking also assumes the US stops it head-long dive into the borrowing money bag too. This thought also assumes that the Keynesian bankers stop their debtor experience into the depths of outright insolvency. I do not think they  are going to be able print enough money to get themselves out of this financial mess. Perhaps, that is the problem in itself.

There are many things that can continue to float the present market at its current levels for some time if it were not for the European Union and it woes. Therein lies one problem; our exposure to the banks that have loaned money to Europe money machine and the US Feds that have "helped" too. The exposure itself really isn't all that much when viewed by seemly small numbers compared to the National Debt. It does takes on sinister overtones when added to the financial issues and stress already present in the US.

There are other problems out there that could upset the apple cart like Israel deciding to kick Iran in the butt.  The initial reaction would be a market waterfall of great proportions. Helping to further the calamity would would be that oil would jump to new highs creating some severe hardships to those who can least afford it. If Greece were to default today, that might be of some concern to Mr. Market, but if that were to coincide with some other large problem, like war with Iran, then we would probably see a soft patch in the market, something like quicksand while wearing 500 pound cement boots.

For the past 3 or 4 sessions we have seen both the 500 and the DOW try to climb above highs set back in October 2007 for the DOW and May 2011 for the SP500. The 500 has a way to go in reaching its high of 1550 in October 2007. Most likely scenario is the 500 moving higher to the next level which is 1400, however I can not see the DOW where it is now and waiting for the 500 to catch up. But remember the charts have been trashed and really anything goes.

The trend is your friend until it isn't and I think I see a snarl forming.

Written by Gary

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