S&P 500 Closes Near May 2008 Highs

Closing Market Commentary For 09-06-2012

Several of the major indices began a decline around noon even though the major averages were still contemplating melting up. MCD started a decisive move down around 11:45 loosing a half point but recovered by the close. Volume remained very low as the afternoon progressed and not giving today’s sessions skyrocketing rise any creditable credence. We had a similar rise on June 29, 2012 and that ended 2 days later falling back to where it had begun. So I don’t have much hope on this going too much further than the 1440/1450 range, if that far. Plus, I don’t see it melting back up like it did back then. Additionally, a top may be right around the corner as the 500 closed near its 2008 highs.

By 1:30 most of the averages had started a rounding out of the tops and a slow melting downward with volumes tapering off even further than they had been. Towards the close the averages crept up a hair to close near the high marks on 8-21-2012. This sessions entire rise is the algo’s computers doing; building a house of cards that is already too high for stability.

Who is going to be the first to start selling, that is the big question? I saw this morning where several large blocks were sold and that may be the beginning. So many investors have held out for this day in the sun and the temptation to sell has to be profound. The funds and big investors alike know all too well what will certainly materialize in market direction once those flood gates are open.

Will it be best to ride out the markets fluctuations and maintain the under performing dogs. Or do they chance dillydallying in the Dark Pools hoping not to get caught dumping undesirable stocks and building cash reserves. The suspense is building and I can hardly wait to see this house of cards unfold which is almost a given.

I know the base has a adequate foundation to sustain a rigorous market decline and probably will not fall completely apart. It is the upper floors of this house that manipulative governments, politicians and DaBoyz have constructed that worries me.

It reminds me of constructing a wooden frame home in a hurricane prone area. When the big ‘blow’ comes, this house of cards isn’t going to survive the rigors of a market hurricane as each succeeding upper layer is blown away taking the next level below it away too.

Leavitt remarked this morning, “Traders who have been waiting for the “all clear” sign are in the process of getting it.” Well, I am not all that convinced the markets will rise to the occasion when looking at the big picture of World finances and issues facing them.

Yes, I agree that the German High Court will most likely give a thumbs up “to the besieged eurozone to avoid a painful breakup could actually be decided next week by a handful of judges in Karlsruhe, Germany”, Foxnews reported. In the same Foxnews report it acknowledged that:

“. . . the German Constitutional Court is slated to rule on September 12 [Wednesday] on the legality of the European Stability Mechanism, the $631 billion bailout fund at the heart of the rescue unveiled on Thursday.

While it’s seen as unlikely, a ruling to strike down or impose tough conditions on the fund would effectively cripple the largest crisis-management tool currently in Europe’s arsenal.

“There is a small risk of a big disaster. If they say [it’s unconstitutional], that could blow up the euro,” said Jack Goldstone, senior fellow at George Mason University.”

“Everything hangs on the ESM,” said Jan Randolph, director of sovereign risk at IHS Global Insight.

Fearing the ESM is encroaching on Germany’s sovereignty and doesn’t include enough oversight or accountability, the court could rule the fund unconstitutional.

Positive news from Germany would certainly move the markets upwards, but not beyond the SP500’s 1440/1450 resistance barrier. Negative news, which is VERY possible, would send this fragile market’s house of cards tumbling.

The RRR** was very narrow at the opening bell despite the large move up in the averages. It did improve, but that was after the fact unfortunately unless you are good at guessing. Any trades today were probably late in execution and probably ended up on the unprofitable side. Swing trading is still at your own risk and being the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly.

Having made the obligatory cautionary comments, there is a good chance the markets will retract a bit tomorrow or over the weekend at least, especially if the financial reporting Friday morning is ‘not-so-good’. SPY has penetrated the upper Bollinger band today and typically moves sideways and down from its highs when that happens.

I am just not sure if the RRR** will be profitable enough to take a chance iIf you are even able to jump on the moving train in time. The ‘insiders’ have a distinct time advantage over the cash crowd and the 3X ETF’s have only moved a point.

The DOW at 4:00 is at 13292 up 2.44 or 1.87%.

The 500 is at 1432 up 28.68 or 2.04%.

The $RUT is at 837.95 up 16.72 or 2.04%.

SPY is at 143.75 up 2.86 or 2.03%.

The trend is up and the current bias is up.

WTI oil is at 94.77 trading between 94.70 and 97.50 and the bias is negative.

Brent crude is at 112.82 trading between 112.77 and 115.10 and the bias is negative.

Gold is at 1701.83, trading between 1696.45 and 1714.00 with a negative bias.

Dr. Copper is at 3.51 down from 3.54 earlier.

The US dollar fell from 81.67 yesterday to 81.02 earlier and is currently trading at 81.10.

The SP500 at the close.

The DOW at the close.

The SPY at the close.

Interesting comments on MCD as this is one of my indicators that signals future trends. It has today signaled a market decline. There are other indicators that must also agree and those results have been disseminated to our premium subscribers.

@dailymarkets:

McDonalds Economics

McDonalds [MCD] is dependent on China for Growth. Where China goes so will McDonalds. Let’s review the MacDs eye candy chart to see how investors view the China growth forecast.

If McDonalds sinks further to $80, then investors are pricing in China as a hard landing. The Dow Jones Industrial will follow. [visit site to read more]

MCD at the close.

More reasons this whole European political maneuvering is pure BS and consists mainly of ‘Hopium’ which we all know by now that when it wears off the markets decline. I hear the drum roll beginning now, wait for it . . .

@zerohedge:

The Bundesbank Replies To The ECB

Did the German Bundesbank roll over and die as Die Welt suggest, by yielding to the will of the ECB and Goldman?

Or is it merely setting the stage for the inevitable German referendum? Many claim the Italian head of the ECB won today in his ever escalating confrontation with the last remaining German on the ECB governing council, although in reality he is merely doing what he has already done twice before.

The outcome will be the same: abject failure to contain the crisis which will not be resolved until and if Europe succeeds in creating a united, Federal state, with one bond issuance authority.

That will never happen: after all, 17 European states will never hand over their sovereignty to a third party, especially one which is backstopped by German cash.

But it can pretend. In the meantime, Buba will not quietly go, instead it has already stated what it thinks, and what it thinks is that what the ECB is doing (once again) is “tantamount to financing governments by printing banknotes” and that monetary policy is now subjugated to fiscal policy.

Full text of the Buba’s response [Here].

** RRR = Risk Reward Ratio

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Written by Gary