Is The Third Down Day The Charm Or Is There More To Come

March 29th, 2012
in Gary's blogging, midday post

Midday report. The markets tumbled today marking it the third down day. More importantly the Russell 2000 went below an important support at 829 to a low of 822.28. If this support becomes the resistance, which it is now at ~828, the likelihood of the DOW and other large caps moving up becomes uncertain in the big picture. The DOW fell to 'tickle' its support (~13020) and retreated somewhat to where it is now.

The SP500 fell, but has stayed in a neutral zone (1394) and some 4 points away from its first minor support of 1388. The support that is equal of the DOW is still 20 points away at 1375.

Currently the DOW is at 13075 and the 500 is at 1395. The markets have stabilized a bit at their respected supports and probably won't attack them today.

Gold also fell but has stabilized at the 1650 area moving slightly up to 1653. GLD is at 160.59, SLV is at 31.06, SSO is at 57.27, SPY is at 139.41, oil is at 103.25 and Brent is at 122.07.

I am not sure I would call this market a bubble, but it is certainly inflated beyond where it should be and ANY correction would certainly help the situation. I am hoping for an orderly retreat, but others more knowledgeable than myself are warning of a catastrophe decline in the making.

@marketwatch: Welcome to the new stock market bubble

Remember when I used to dispute all those analysts who said we were already in a "tech bubble" last year by writing about how we'd know we were finally hitting bubble phase when social networking and app-related IPOs started hitting the markets and doubling on their first... To be clear, I don’t think it’s time to panic because bubbles can and usually do grow far beyond what you ever think is possible. Full Story

@SA March KC Fed Manufacturing: M/M composite index 9 vs. expected 13. Index is down from 13 in February but up from 7 in January. Future composite index falls to 18 from 20. Manufacturing growth eased, production and order backlog indexes fell. Shipment and new order indexes rose, employment index slightly up.

Price indexes mixed. Also, Crude oil slides further, a world equity sell off adding to chatter about a multilateral strategic reserve release. WTI crude -2% to $103.33/barrel, the lowest price in 6 weeks

Eurozone troubling data is starting to flow again. First from Zerohedge with a remark about the algo machines. These HFT's have 'helped' keep the market afloat for the past several months and until we can get serious about the poor government data being feed to us, we will probably continue to see the same unreliable market movements.

Q4 GDP Comes As Expected, Claims Miss Big Two Weeks In A Row

Following last Thursday's weekly claims release we said "Initial Claims Beat Expectations, To Miss Next Week Following Revision" and sure enough, last week's 348K beat of 350K expectations has been revised wildly higher, to 364K, meaning the initial beat was not only a miss, it was wide by a mile relative to the 350K preliminary expectation. But robots [HFT] do not care - all they care is the current print, which however this time also missed, printing at 359K on expectations of a 350K number.

This is the first 4 week increase in the 4 week SMA since September as the weather impact of the record warm winter starts to fade away, as explained yesterday. Same gimmicks in the continuing claims number too which like everything out of the BLS is so meaningless for concurrent data, we will probably just wait until the next week revision to get a sense of what is truly happening.

More troubling is that 78K people fell of extended and EUC claims as more and more drop out of the workforce. This means the unemployment rate just dropped courtesy of even more people giving up on finding work. Overall, a wash, meaning March is about to close with about with 17 misses out of 19 key economic indicators.

Adding fuel to the fire are comments from Dr. Ben.

@financial times:_____Fed doubts big US jobless falls will last

“Rapid recent falls in US unemployment may prove to be a one-off unless economic growth picks up, Ben Bernanke, chairman of the US Federal Reserve, warned on Monday.

The downbeat comments, underscoring the Fed’s support for easy monetary policy, may calm investors who had begun to doubt the central bank’s forecast of exceptionally low interest rates until “late 2014”.”

@telegraph: “The Bank of Portugal has cut its growth forecasts for the country, as conditions in the rest of the eurozone fail to give a boost to the weak economy.

The central bank now expects the Portuguese economy to shrink by 3.4pc rather than the 3.1pc it originally estimated. The estimate for 2013 was also cut from growth of 0.3pc to 0pc.

Stock markets in Europe fell sharply after the OECD said the eurozone was holding back a fragile recovery in the G7 economies.

The FTSE 100 is down 1.15pc, while the FTSE 250 - more focused on the UK domestic economy also slid. In Germany the DAX lost 1.77pc and France CAC dropped 1.43pc.


Old news, but a reminder that Greece is still very much in the picture as we now focus on Spain.

@forexcrunch:________ IMF Threatens to Cut Off Greece if €12 Billion of Austerity Isn’t Made in 3 Months

"A new report by the International Monetary Fund on Greece requires 12 billion euros of more austerity."

@bloomberg:_______Stocks Fall for Third Day on Global Economy Concerns

"U.S. and European stocks fell for a third day, while Treasuries, the dollar and yen rose, as Standard & Poor’s said Greece may have to restructure its debt again and concern grew about China’s economy. “

Also, Baum: Four Numbers Equal an American Debt DisasterIn plain English, the Treasury’s reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation’s structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the U.S. in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years -- probably at higher interest rates.

First Among Equals. And that’s a problem. The U.S. is more dependent on short- term funding than many of Europe’s highly indebted countries, including Greece, Spain and Portugal, according to Lawrence Goodman, president of the Center for Financial Stability, a non- partisan New York think tank focusing on financial markets.

The U.S. may have had a lot more debt in relation to the size of its economy following World War II, but the structure was much more favorable, with 41 percent maturing in less than five years, 31 percent in five-to-10 years and 21 percent in 10 years or more, according to CFS data. Today, only 10 percent of the public debt matures outside of a decade."

@theeconomist:____ Equity investing: Too much risk, not enough reward

"Investors are betting that high returns from equities will pay for decent pensions. They are kidding themselves. PEOPLE saving for their pensions and other long-term commitments tend to assume they should put a lot of their money in the stockmarket.

Over the long run, goes the theory, equities will always produce higher returns than safer assets such as government bonds and cash because they are riskier (more volatile, in other words) and because shareholders benefit from economic growth whereas bondholders do not.

That excess return is known as the “equity risk premium”. The high returns from equities in the late 20th century made investors lazy. Such returns may not come back. If employees want a decent retirement income (or if employers are to keep their promises), they must put more money aside.”

Written by Gary

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