Remember never forget the power of greed and fear, and the propensity for investors wanting to own stocks (taking long-side) and fund managers chasing performance as we saw today especially if they think the bull-train is pulling away they will want to hop on board.  Please, remember when in doubt as to market conditions/direction CASH is always king (or queen depending on your gender J ) please trade cautiously and be quick to protect your profits. I’m guessing that this the days ahead we will become embroiled in a major bull-bear battle as we head into the end of the second quarter. 

The focus this  week will be earnings with the heaviest schedule of blue chips for the Q2 earnings cycle. Twelve Dow stocks report along with 122 S&P-500 firms . There are 73 firms reporting that are seen as key directional indicators . Some of those would be IBM, MSFT, MMM, EBAY, AMZN, AAPL, UTX, CAT, etc. The respective earnings are expected to be good but the guidance and top line revenue numbers from those that reported last week are not exciting. This led to considerable disappointment for traders. We saw this past week that Google was a major disappointment. Google missed estimates of $6.52 per share with earnings of $6.45. It wasn't that the miss was that bad but Google has been having trouble convincing analysts that it can keep up the pace of growth. And now get this they want to rival Goldman-Shit-Bird as Google has started a stock trading division. I guess with $29 billion in cash and marketable securities they need to do something besides park it in a brokerage account and money market fund and let other reap the rewards. Unfortunately with stock trading comes risk...unless you do God's work like Goldman!

Consumer confidence….the 66.5 headline number was the lowest level for sentiment since last August and it is only 10 points above the 28 year low set in November 2008 **this is not good now is it, unless you subscribe to the premise, it's so bad can it get worse school** The present conditions component dropped 10.1 points to 75.5 and the expectations component fell 9.1 points to 60.6. With both components taking a major nose dive this was not related to some short-term news event or situation although there is some correlation of sentiment to the stock market. The market took a major fall in the last two weeks of June but it began to rebound the day after the July 4th holiday, however the market suffered a much bigger drop from late April to early June and the sentiment numbers continued to climb.

EXPECTATIONS

In a nutshell I expect a continuation of Friday's selling on Monday/Tuesday (could get the usually Monday Gap-Run attempt but I believe it will be sold into) maybe even into Wednesday then we could see a wild bullish short squeeze into the end of the trading week (on better than expected earnings), please understand the trading environment could be very choppy and wild with a slightly bullish tone in the key earnings players….we are setting the stage for a very nasty bear-market down leg into the middle of August…then I believe we could rally into the Labor day weekend, but that is a lone ways ahead….after this week is over I expect the indexes to weaken and weaken significantly as we head into the summer doldrums. The earnings from the primary players will be over and we will know how they stacked up and the rest of the reports will likely play out.

My turn wave forecast is getting significantly stronger, and it pointing toward a HUGE inflection period ahead, the window is tightening as we get nearer to the potential turn....and according to my wave analysis we have multiple waves converging and a major Inflection & Fibonacci collision possibility hitting the overall markets on/between 7/23 and 7/28...my system and analysis is telling me that this could be a significant correction period lasting 14-21 trading days...with the potential for a slight retracement and or pop after the initial down-cycle then another wave will likely play out!  

The daily VIX/VXO has signaled a near-term sell-signal and they are close to confirming a intermediate sell-signals; and I am monitoring them very closely, as despite the short-squeeze I believe we are very close to the crossroads of this recent rally and it's up to the bulls to press full steam ahead of risk losing their tonality to the bears!

Strap-yourselves in tight the next few days to a week or so is sure to be a another wild rollercoaster ride!!  As a technician the charts are flashing more and more negative-divergences and many overbought and distribution sell-signals….during the past few weeks as we have seen some significant periods Gaps-runs-distribution and tape painting. I believe that traders and the prop-desks will now start to sell into each and every-rally attempt (as they did with INTC, JPM, BAC this past week) as each passing trading day brings another piece of economic data with conflicting view of the economy, and this seems to be adding to the overall apprehension and skittishness….at this point we have renewed optimism and giddy-euphoria. We have two opposing forces at work, those who desire to step into the markets and buy the dips and those who will in my opinion start to sell the rips…and then we have those who are looking to sit out this period of uncertainty, as the market swings will start in my opinion to pick up in intensity….then we have those significantly stricken with greed or the fear of missing out on the buy-side of this so called bull-market.

I was also amazed today that the markets and the various talking-butt-head financial media networks failed to respond to and report this past week that the heads of Obama's national debt commission painted a very gloomy picture as the United States struggles to get its spending under control. Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Association that everything needs to be considered **including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage, as examples as the nation's total federal debt next year is expected to exceed $14 trillion, and to put that in perspective that is about $47,000 for every U.S. resident.

"This debt is like a cancer," Bowles said in a sober presentation nonetheless lightened by humorous asides between him and Simpson. "It is truly going to destroy the country from within." Simpson said the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid and Social Security programs. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries," Simpson said. China alone currently holds almost a trillion in U.S. IOUs. Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt. "Just think about that: All that money, going somewhere else, to create jobs and opportunity somewhere else," he said.

We saw this past week that the Job Openings Labor Turnover Survey (JOLTS) showed that the number of people hired in May was larger than the number of people who left jobs for any reason. This is a lagging report but tends to me more accurate than the other employment reports. The survey showed that 4.5 million workers were hired while 4.09 million left their jobs. Unfortunately there was a significant impact from the census worker hiring in May. Private sector hiring was only 3.8 million. The survey was viewed as positive but it was a lagging report and was not as stellar as led on to be by the talking butt-head's on CNBC by investors.

Job openings dropped in May from the previous month and layoffs edged up, which is again fresh evidence that employers are very reluctant to add workers. The decline in job openings comes after a sharp rise the previous 2-months, driven by temporary government hiring for the 2010 census and more openings in the private sector. As a result, the number of available jobs has rebounded since the depths of the recession but remains significantly below pre-recession levels.

The JOLTS survey, illustrates how competitive the job market is. There were about 4.7 unemployed people, on average, for each job opening in May. That's down from the peak of 6.3 last November, but is much higher than the 1.8 unemployed per opening when the recession began in December 2007.

May's job openings are 37 percent above the low point of 2.3 million openings in July 2009. But the figure is still far below pre-recession levels of about 4.5 million. And the improvement in some industries is slowing.

·        Manufacturing, for example, saw openings rise by only 1,000 in May to 196,000. That compares to average gains of 14,000 in the previous three months.

·        Retailers cut their job openings in April and May, after increasing them in the previous three months. Many retailers boosted hiring earlier this year after a successful winter holiday shopping season, but have cut back as consumer spending remains weak.

Layoffs increased by about 100,000 to 1.9 million in May, the labor department stated, but remains still at pre-recession levels; as layoffs rose to a peak of 2.6 million in January 2009. One reason hiring is weak in my opinion is that small businesses, which create about 60-65% of new jobs, are having significant trouble getting the desperate credit they need to expand their business which would led to the hiring of more workers. Financial-terrorist #1 (my take) Fed-head Bernanke on Monday urged banks to lend more to small companies. Such lending "is crucial to our economic recovery," he said.   

We saw recently that bank loans to small companies dropped to $670 billion in the first quarter of this year from $710 billion in the second quarter of 2008, and they are expected to drop another 15-25%. The recent government's job openings figure measures the total positions available on the last day of the month. It's a sign of how much hiring might take place in the following month or two as the positions are filled. The JOLTs echoed other recent data that shows hiring by private employers has significantly weakened in May and June.

Businesses added a net total of only 83,000 jobs in June and 33,000 in May, after average net gains of 200,000 in March and April, hardly bullish; as the economy needs to generate at least 150,000 new jobs per month just to keep up with the rising population, and more than twice that level to rapidly reduce the unemployment rate, currently at 9.5%.

Small Businesses Grew More Pessimistic About Economy….in June in the face of weak sales and political uncertainty, the National Federal of Independent Businesses said this week; the NFIB's monthly survey of members showed the small business optimism index dropped by 3.2 points in June, dipping to 89, after posting several months of gains; 75% of the decline this month resulted from a deterioration in the outlook for business conditions and real sales gains, the NFIB survey concluded.

The report stated that the performance of the economy is mediocre at best, given the extent of the decline over the past two years, as pent-up demand should be there, but it is not triggering a rapid pickup in economic activity at all. The report showed that very few small businesses plan to create new jobs, according to respondents. The survey showed that only 10% of firms plan new hiring, that is down 4 points from May, the NFIB survey stated. Worse yet the survey showed that about 8% of firms plan to reduce their workforce; and since small businesses account for a major share of jobs in the U.S. economy, this hardly bullish data at all.

The number of business owners planning to make capital expenditures over the next few months also dropped to 19%, 3 points above the 35-year record low.  Also the survey showed more firms are looking at declining sales than are expecting higher sales. Most of the firms surveyed are cutting prices to attract customers and unfortunately are liquidating inventories, the survey showed.  Also the number of firms planning to add to inventories fell in June, the survey said. And this indicates that the inventory stimulus in this cycle is likely fading, the data concluded.

U.S. home-buying applications sink to 13-year low

Demand for loans to purchase U.S. homes sunk to a 13-year low this past week, and refinancing demand also slid despite near record-low mortgage rates, according to the Mortgage Bankers Association in their report released on Wednesday.

Requests for loans to buy homes dropped 3.1% in the week ended 7/9/2010 after adjusting for the holiday, to the lowest level since December 1996, the MBA stated. Refinancing applications dropped 2.9%, and the mortgage market index that reflects total loan demand also fell 2.9%.

Average 30-year mortgage rates edged up 0.01 percentage point to 4.69%, but were near the record low of 4.61% set in March 2009, based on MBA records that date back to 1990.  Rock-bottom borrowing costs are helping borrowers with pristine credit to buy (most other have been locked out) and those who still have equity in their homes are able to refinance….But high unemployment and foreclosures remain some very significant major hurdles, and worries that home prices could continue to slid are also keeping many buyers on the sidelines.

The April 30 expiration of homebuyer tax credits has also impacted some purchasing activity. Buyers had raced to get in under the gun for the tax incentives this spring, and demand for loans to buy homes has fallen in 9 out of the 10 weeks since the credit expired.

Talk has surfaced of a double-dip in U.S. housing, though most talking butt heads being pranced about on the various bubblevision networks doubt a second leg down will develop. So if I am right the double dip going to be a reality it’s a coming and could be nearly as severe as the first or worse. So it's sort of a self-fulfilling prophecy, for home consumers as if they also believe a double-dip might development they may as well stay on the sidelines as opposed to coming in to buy. With as much turmoil as there is around loans that need to be modified, short sales, foreclosures, as the signs are indicating to buyers and investors that there will be better prices come tomorrow, so why buy today. There's been an awful lot of demand shifted forward by the first-time homebuyers credit," Albright said. "Once we get into the fall, maybe even sooner, some of that will begin to smooth out."  

An under-reported and ignored contagion…this past week we saw that our federal deficit has topped $1 trillion with three months still to go in the current budget year, showing the continued impact of a deep recession on the government's finances…and there is little light at the end of the tunnel, and what light there is, is attached to a train-running nearly off the tracks. In its monthly budget report, the Treasury Department stated on Tuesday that through the first 9-months of this budget year that the deficit total comers in over $1 trillion, down by 7.6% from the $1.09 trillion in red ink run up during the same period a year ago; but its gaining steam. The June deficit totaled $68.4 billion, the second highest June deficit on record, but down from the all-time high record of $94.3 billion in June 2009, a month when the government was spending heavily to stabilize the financial system and jump-start economic growth (where did th as the government collects tax payments from corporations and individuals who make quarterly payments; and only in 7-years in the past 66 years have we seen deficits posted in the month of June.

Two-thirds of the deficit increases reflect higher government spending to stabilize the financial system with the $700 billion bailout program and the $787 billion stimulus program that Congress passed in February 2009. The increased spending also reflected added demands for such programs as emergency unemployment benefits and food stamps.  The tide of red ink with no end in sight has sparked a political backlash with most if not all political surveys showing a rising tide of disgust among voters with the ballooning deficits.

·        Through the first 9-months of the current budget year, we have seen that government revenues have totaled $1.6 trillion, up 0.5 percent from the same period a year ago.

·        Government spending totaled $2.6 trillion, down 2.8% from the same 9-months a year ago. That decline primarily reflects lower spending on the financial bailout effort as many banks have repaid the billions of dollars they received to bolster their capital reserves at the peak of the financial crisis.

Obama has appointed a national debt commission to report after the November midterm elections (what a joke) on ways that the federal deficits can be brought under control. The heads of the panel told the National Governors Association this past Sunday that everything needs to be considered including curtailing popular tax breaks, such as the home mortgage deduction, increasing the retirement age et. as "The debt is like a cancer," Democrat Erskine Bowles told the governors. "It is going to destroy the country from within."

This past week we saw that the U.S. trade deficit widened unexpectedly in May, led by a big jump in imports from China (our great trading partner and non-currency manipulator *not*) that helped overpower the so called best month for U.S. exports since September 2008, the pro forma government report showed. The trade gap widened 4.8% to $42.3 billion, the largest since November 2008, defying a consensus Wall Street forecast for it to narrow in May to $39.0 billion. U.S. imports rose 2.9% to the highest since October 2008, led by a 12.1% increase in shipments from China and stronger U.S demand for consumer goods, autos and capital goods. The big jump in imports from China is consistent with that country's own trade data, which showed exports rising sharply in May and June from year-ago, levels. U.S. exports had their best showing since September 2008, when world trade was in the early stages of a deep plunge as a result of the global financial crisis. The 2.4% rise in U.S. exports in May reflected big gains for industrial supplies and materials and capital goods and smaller rises for autos and consumer goods. A drop in the average price for imported oil to $76.93 per barrel helped keep the monthly trade gap from widening further.

This trade data for May presents more unfortunate news for the U.S. economy, and it will likely result in a number herd of economists to cut growth estimates for the second quarter the latest trimming of GDP forecasts leaves unresolved whether the U.S. economy is suffering from a temporary set-back after a decent move out of recession, or whether the recent lull represents something much more ominous. 

I'm very concerned that the macroeconomic issues, as reflected by the interbank market in Europe, the very low yields on U.S. Treasuries and recent data on pro forma economic growth if we can call it that, non-existent-job-growth…and very high unemployment, and a deteriorating housing market,” will adversely impact bank earnings and future lending to the extent that their earnings power will be considerably less, and as such the banks would not/cannot generate as much capital, so there will be far less capital available to absorb these future losses….this will mean dilution as they will be forced to come back to the markets again.

Back at the peak of the financial crisis that was dominated by the cheesy, lecherous greedy SOB bankers, a FASB late in the night stealthy ploy designed by the bankers and sold to the accounting standards board through congressional pressure was passed back in 2007 known as Statement 159 (formally known as the "Fair Value Option for Financial Assets and Financial Liabilities" which somewhat secretly allowed banks to book profits when the value of their bonds and other instruments dropped below par. This ridiculous rule extended the daily marking of banks' trading assets to their liabilities, under the notion that if the debt were bought back at a discount it would yield a profit **(what a farce). 

The rule is a very nice way of manipulating and increasing the various banks income statements which has of course made them significantly better than they really are. The large to big to fail banks generally have used the rule to their advantage during the depth of the crisis they were responsible for creating. These banks could benefit again, at a time when earnings which are greatly lacking are sorely needed to be manifested out of thin air.  

Bank of America for example, could record a $1.0-$1.3 billion second-quarter gain from this rule, according to my research (fuzzy math accounting at its best), this would account for about 60-65% of anticipated firm's pretax income. At Goldman Sachs such an application of this nutty application of the rule could account for $375 - $450 million in profits in the second quarter, while JPMorgan might be able to gain $315-375 million due to the rule, unfortunately when then, debt prices reverse in quarters ahead this could create a dismal earnings surprise a nasty double edged sword.

Investor fears of a Greek and other PIG's defaults, have aided in stalled a so called economic recovery and tougher industry regulations have rattled markets, snapping banks’ trading streaks and rekindling doubts about their creditworthiness. Prices for Bank of America’s credit derivatives; used by traders to bet on the likelihood of the firm’s default, rose by 34% during the second quarter, while Morgan Stanley’s doubled and Goldman Sachs surged 86%.  In practice, this fuzzy-math accounting is an accounting “abomination” because fluctuations in the value of the debt don’t change the amount the banks owe I'm amazed that this is even allowed as regular folks would love to use the same tactic.  

So please my friends….do not be faked out by the headline numbers as savvy market participants like myself will adjust as just because these lecherous banks credit spreads have widened out this quarter doesn’t mean that their ultimate interest and principal payments will changed one bits it’s a very huge smoke and mirrors sham!  As I will and other will back out these bull-crap-numbers!  

In the first quarter, amazingly the four biggest U.S. lenders (BAC, JPM, "C' and WFC) produced combined profits of $13.5 billion, the most since the second quarter of 2007, mostly through accounting gimmickry. That figure probably dropped by 28-34% in the second quarter. The banks are scheduled to announce results over the next two weeks, led by JPMorgan on Thursday.   Including JPM, these four banks probably had debt-valuation adjustments, or DVAs, amounting to an average of 20-24% of pretax income

The risk of recession is rising, as again we saw this past week that the trend for the weekly ECRI numbers continues to be down it's not 85-100% confirmed as yet if the risk is the real deal or an a passing threat; though what is clear is that the rate of growth in the economy is slowing significantly as the stimulus spending slows… according to ECRI's weekly leading index, which fell again adding to last weeks 5.7% drop....The index dropped another 9.8% this past week; and despite what you hear on the various bubblevision hype networks this is a significant downturn and is to this old trader a very pronounced economic negative; and right now what's missing to seal the double dip deal in terms of making a precise and definitive call with 100% accuracy of a double dip recession is a further trend-drop; but I'm going out on a limb as I will not wait another 4-6 months to forecast what I believe we are already in! The clues are everywhere and they are more than obvious to even a casual economic watcher.

The fact that economic growth is slowing and accelerating to the downside isn't all that surprising to me or my readers; as I have been discussing this trend on these pages for some time, and that a potential double dip recession is probably inevitable. We've had a "V" recovery, built on smoke and mirrors; and an historic amount of governmental stimulus here and abroad; and unless the spigots are turned on high-volume forever the rebound cannot last, at least not at the brisk pace experienced over the past year. To sum it up, this is a jobs issue and they are still disappearing at an alarming rate despite the hype of job creation and the ECRI leading indicators unfortunately continue to point to labor market weakness and a downturn in the overall growth rate will likely threaten the so called pro forma rebound in jobs. This is a potential nasty contagion as if growth continues to slow more significantly an outright recession "double-dip" would only compound the contagion.

I wrote this past week warning my subscribers that the markets are extremely over extended….over bought, as after seven days of selling the markets have reversed that losing streak with 7- days of gains totaling:  

• The Nasdog               bottomed at 2,061+/- on 07-01 and has risen to 2,249+/- a gain of 8.9%

• The Dow                   bottomed at 9,614+/- on 07-02 and has risen to 10,366+/- a gain of 7.8%

• The SPX-500            bottomed at 1,011+/- on 07-01 and has risen to 1,095+/- a gain of 8.3%

• The Russell-2000     bottomed at 587.7+/- on 07-06 and has risen to 640.15+/- a gain of 9.2%

The markets were very over extended and I stated on Wednesday that I believe the gains could thru the manipulative actions of the prop-desk traders, performance chasing fund managers continue for a few more hours, as there are still a host of shorts getting squeezes (I have been a tad myself), but that the bank earnings would be a smoke and mirror display...and that was what happened, we had great SHORT's into the banking stocks pops (BAC, JPM) and the indexes rolled over very hard on Friday 

We will be starting to enter the heart of the summer time trading window (called the summer doldrums) after the earnings euphoria wears off and this period lies just ahead. Eventually the manipulated hype and excitement associated with pro forma earnings will fade and the "what have you done for me lately" feeling will come back to haunt the markets as they are a forward looking/pricing mechanism; I have been trading/investing now for over 25 years and in plenty of years there were strong Q2 earnings (especially in the semi/chips, due to double bookings) only to see the market set lower lows in Q3; it's a simply a market cycle and unfortunately for the giddy bulls (especially the talking buttheads) we still need real fundamentals, real demand for goods and services, and the implementation or credit for small-mid size businesses to turn positive, without the return for real demand the real economy will be unable to confirm that a double dip will be adverted (I believe there will be a double dip). It is one thing for the indexes to rally for seven days and another for the economic reports to improve. Right now all the economic reports are still trending lower and the data points are hardly showing signs of improvement, and this is a huge divergence and disconnect for between main-street and wall-street is growing again and should not be ignored.  

I know the market anticipates events by six months but the current rally is technical not fundamental. The market was oversold going into the end of quarter and the earnings cycle. Shorts have been forced to cover on a daily basis. This will eventually end but probably not this week. There is still too much good news to be reported but investors are fickle. Eventually they will glaze over on the earnings news. Enjoy the rally while it lasts.

As I stated the various indexes and many stocks were on Wednesday/Thursday sitting at the precipice…or they could be at the beginning of a multi-weeks bullish reversal; we have some conditions that are ripe for a potential water-shed plunge like Wiley Coyote off a cliff….now please do not infer from these comments that this scenario means there will be a crash starting over the next few day/weeks, so please I caution you not to go out and place short-orders-trades with reckless abandon. What the charts are telling me and the action of the tape is that there is a growing risk of one occurring and the probability is higher than normal, as from my experience and extensive research we have more than a couple conditions in existence that have developed prior to stock market crashes in the past that exist currently…the internals since the April top have been and still are deteriorating; and crashes are born out or divergent moves off of significantly deteriorating technicals (meaning that crashes usually happen after lackluster volume parabolic moves). Sentiment has been significantly damaged, and its not easily repaired! **There is a 45-60% probability (unless we see some intervention of a looming market crash, and the probability is increasing each day...I like to observe a phenomenon called my 90% panic volume indicator...basically it shows true supply/demand, fear (90% down days) and euphoria (90% up days)...and since the turn in and around April 16th there have been (13) 90% down-days and (8) 90% up-days, so we have been seeing some massive panic in the markets; and I have not seen since I started seriously trading (1999) this type of action! This type of action is showing not only massive price swings and divergences, but extreme volatility, and the better than 1.7:1 ratio of selling panic days (on 250% heavier volume) to buying panic days on moderate to anemic volume are forecasting a crash type near-term capitulation scenario....so please be very careful!   This is why I believe this heaving selling as we have seen in panic selling days vs. the light anemic volume seen in panic selling days is setting up for more than a healthy correction as is hyped daily on the bubblevision networks...the trend is our friend right now and when we see the formation of higher-highs and higher-lows on anemic volume and distribution (meaning selling all day long, in a very tight trading range after a manipulated gap-up)  on significantly light volume than the interspaced selling-days we must be very cautious as we still have strong established down-trend ! (I will expound on my directional bias, this weekend when I have more time!)  

Many of my near-term and intermediate indicators were/are now flashing danger-bearish-signals, as an imminent reversal could be close at hand as the various indicators I follow are now overbought, and as I stated yesterday we experienced a VIX-sell-signal, and as the daily full Stochastic was quickly approaching overbought levels as well…(as such I issued another warning, this time to the Bulls on Wednesday) as I stated that we could be nearing (could even be sitting at) a precipice…as these indexes and the various equity components are treading on thin air like Wiley Coyote, before he realizes the power of gravity, and then after the roar runner beeps and brings to his attention his quandary and he falls off the cliff. This could be at the beginning of a multi-day/week selling event as such they could fall off a cliff into the end of the heart of earnings season after options "X" shenanigans disappear next week; we have some conditions that are growing and are ripe for a potential water-shed plunge….the MACD reading on the 240/180/60 minute charts are flashing danger signals and the various indexes could be forming Head & Shoulder patterns on these intermediate charts as well, these are bearish signals and should not be ignored…and if we see a roll over here it would also confirm the daily Head & Shoulder chart patterns as well.

Now please do not infer from these comments that this scenario means there will be a crash starting today or tomorrow or over the next few day/weeks, so please I caution you not to go out and place short-orders-trades with reckless abandon; but conditions are ripe for such an event. So a top may be in place or could develop in the next several hours (18-32 trading hours as I have a major/major market inflection multitude of Tsunami waves converging on between the 20th to the 25th next week).

What happened to the death-cross chatter, has it disappeared, from the bubblevision networks…..why I wonder....as the technicals still exist…. a death cross does not occur often, in fact, in the past 3+/- years we've only seen this happen three times. The most recent occurred just last week and is something that every investor and trader should pay very close attention to, and not get sucked into the hype on the various bubblevision networks. Old time, savvy and smart money investors and traders watch this simple indicator very closely so you should too. 

Volatility is the major play of the past few weeks…..As almost every trading day for the past 5 weeks, the SPX-500 has made at least a 1.0% intraday move. It's very apparent that we're in a situation now where the VIX (the so called fear indicator) has been battered about with some massive swings.....the VIX closed at 26.25 after posting a double bottom  [6/21/2010 low = at 22.87........7/13/2010 low = at 23.12 (when I issued a VIX sell-signal)  With a rising VIX, and some serious technical damage the SPX-500, Dow and the Nasdog all trading below their 200dsma; and respective 21ema and the near-term horizon littered with red-flags (sell-signals) a lot of technicians and fund managers and hedge fund managers, will actually act on the loose of these critical levels especially if all 3-indexes drop below the 200dsma! 

As a technician we are always watching for what we call a broad bullish pattern called the "golden cross" this occurs when the rising 50sma of the underlying (asset, stock etc.) moves up above the rising 200sma. Conversely when the opposite happens on the downside, I like to call it the "kiss of death cross" the $64,000 is whether this technical pattern have any meaning as it applies to an indicator or statistic-indicator, like, the VIX (as the VIX is an optional indicator hence bets are being laid out daily on this sentiment indicator)!  Please remember that if you believe there is a correlation and it's indeed bullish for the VIX, then it's bearish for the market due to the inverse relationship. Like the golden-VIX-cross during the Bear-Sterns debacle (we have to ask whether the PIGS/Greece is the new Bear-Sterns); we saw a dismal pattern, as the last time we saw a golden cross on the VIX it took place on 9/17/2008, after which the market imploded 18.66% over the next month, and 21.79% over the next 3-months **(so please watch this indicator very closely as this could be a preemptive signal for continued potential weakness on the SPX-500).

I have repeatedly focused on two distinct and very important moving averages (at least for me), that I have through my many years of trading have consistently keyed on as indicators, from which I have derived my bias of the regarding the market's overall health, and I have written several times during the past several weeks after the so called flash crash plunge and the subsequent declines in the days and weeks thereafter. 

One that has served me well has been the SPX-500 160 monthly simple moving average; this is of course a very long-term indicator as it has shown to be very significant as it indicated support at the 2002-2003 lows and once it was broken back in October 2008 the subsequent purge/plunge off a cliff ensued. During the past month or so I have referenced and cautioned my subscribers that a drop below the 160Msma at 1,169+/- would be very bearish, and once this level was breeched to the downside we saw a huge pick up in subsequent selling!  Now that it has been breached to the downside I believe that until regained we are in a bear-market, and all subsequent relief rallies are opportunities to be sold into!  

The SPX-500 monthly 200sma unlike the 160-month, is an extremely slow moving average that is essentially a huge technical analysis tool I use as I always buy this level of support till broken, as once broken on significant volume we historically are in store for another 15-20% or greater drop!  Currently the monthly 200sma = 1048.65 and we have bounced several times at this level after regaining this level!   

We also have the SPX daily 200sma which is very widely followed indicator as the vast majority of herd based investors/traders from street market technicians to amateur traders/investors alike and even by many fundamental analyst type folks without real meaning; hence I almost never initiate or close trades based on this moving average (as its way to crowded an indicator to speak, and it way to often creates fake signals), as such from years of trading and in depth research it has moderate to little psychological significance for the index to successfully navigate back above this level because of the vast widespread agreement that it is an indication of its health; it as I have said before is to often a head fake indicator! The SPX-500's 200sma comes in as of Friday's close came in at 1,107.95 the likely target for the bulls on any additional bullishness! 

That said, I am now a very old and seasoned/savvy trader (at least I think I am) as such I have a better indicator when coupled with others provides me some considerable insight into the so called health of the markets….simply put it’s the Russell 2000 Index as it to me is the play-ground of fund-managers, hedge funds, and high-beta seekers and it holds even greater importance than that of the SPX-500 in many ways; because this index holds the true sentiment/conviction of most fund-managers across a broad spectrum of players! If you look at the charts below of the Russell-2000 you will find that the majority of the strength of the rally off the March 2009 bottom was concentrated in the small/mid cap arena, as the index moved higher fund managers were forced to chase performance; and the subsequent breakdown in this leadership area of the market has provided negative contagions.   

I also like to follow several little known ETF's of significant interest (iShares Lehman 20 Year Treasury Bond called the TLT….[the bearish side of this play is the TBT], these ETF's are an indicator  and measure of our government's (USA) bond performance. If you reflect on the charts (daily) of the TLT you will see that early in May (5-06-2010) we saw a huge spike on the TLT to 100 and later on 5-25-2010 at the first lows we saw that the TLT again nearly toughed the 100-mark, and on both occasions we saw very strong rejections at that level (these levels are where I suggested buying the inverse ETF called the TBT) as bonds and stocks have been moving for the most part in an inverse relationship, as currently bonds are being sought as proverbial safe haven assets to which investors flock to when there are huge periods of uncertainty and FEAR (fear is often defined as False Evidence Appearing Real). It's also important to recognize that at these extreme levels the TLT trading volume exploded and when we reflect on volume during the past 8-years it was the most significant volume easily exceeding volume even during the 2008-2009 TLT price spike during that melt-down…that was related to the financial debacle/crisis and the subsequent stock market plunge off the proverbial cliff. This recent mega TLT volume spike to me strongly suggests an increasing level of fear among investors which is in my opinion quite disproportionate to the relatively extent of the stock market pullback, which for the most part suggest to me that a near-term market bottom (on the recent retest of the lows) may well have been put into place this past week!