Morning Update: Market Thread 6-8-2009

Futures are down this morning with the /ES sitting on the 932 area which is an important area of support.

Bonds reversed their continued losses from last night and are now up. The action there doesn’t look natural to me, but I’m a skeptic. The dollar is up, gold and other commodities are largely down.

On the SPX, 935 is an important pivot and we are now beneath that. The next lower pivot is at 912 and the next higher at 961, although there is important resistance at 953.

There are now negative divergences in place across almost all the timeframes I can see. The RSI is now showing divergence on the WEEKLY time frame which has happened at every major top since this bear market began.

Then the big deal to me is what is happening in bonds and the resultant impact on interest rates. Do you think the economy is ready for higher rates? How about the housing market? How about all the billions of dollars of option arms that are about to reset? Will it help auto sales? Will it help consumers pay down their credit cards so they can go out and reload? No, those who think interest rates “normalizing” here with all this debt are in for a very nasty surprise.

This week, starting today, there are approximately $127 billion dollars worth of government bond auctions. That’s an unbelievably huge amount for one week, and last week was over $100 billion as well. These auctions are necessary to support the government’s bailouts and guarantees, and yet it is completely impossible to sustain. That is why interest rates are rising – they are NOT “normalizing.”

I’ve covered the long end of the curve pretty well lately, but Friday’s moves in the short end were just frightening. The 2 year, for example made a move that looked like a dislocation, not just lower prices and higher interest.

Note that it is down some more this morning, following through on Friday’s mammoth move. A large portion of that move occurred on the release of the jobs data. The entire curve shifted upwards, but particularly the short end. Look at how SHY fell all the way below the 200dma and the bottom Bollinger… that is not a move that is under control.

I would characterize the 26+% five month fall in TLT and the long end of the curve as a CRASH at the end of an exponential/parabolic blow off top (these normally do not come back and they return to the base of their parabolic rise which TLT already has). And I would characterize what is now happening on the short end of the curve as a dislocation, DESPITE the fact that the FED has been buying the short end – NO, BECAUSE of the fact the Fed has been buying the short end! Someone doesn’t understand the dynamics, and I don’t think it’s little old me…

Okay, let’s talk a little bit more about the criminals which is to say the big banks. The “stress test” was and is a complete and total con game one that is so easy to see through, it’s hard to even call it a sick joke. It’s just outright manipulation and continued thievery is all it is. Why even the very most RISK FILLED enterprise on the entire planet, JPM, got to claim they passed with flying colors! LOL, that enabled them to go out (with little Timmy’s command voice behind them) and raise new capital! Ha, ha, once again taking money that has no idea what it’s doing. How can it… the banks manipulated the FASB VIA CONGRESS to allow mark-to-fantasy accounting, thus further obscuring reality.

But back to the “stress test…” The “test” was, of course no test at all and was designed and fully manipulated by those being tested. Heck they even had meetings to decide how to release the “results” and who “passed” and how much capital would be sufficient! Can you imagine getting to take a test in school that you create and then being able to declare you passed regardless of the results?

Anyway, the “recovery” plan spelled out by the Administration was based upon certain economic milestones which were their “worst case.” Which, of course, were not even near as bad as reality, much less worse case… Here’s a chart from innocentbystanders.net that shows these “recovery” plans versus the actual reported unemployment rate:

Dumb money is now long the market in near record proportions. Ahhh, just the way they like it. Now that they have the sheeple’s money back in the game, I believe it’s now time to cycle back from “were all saved and the financials are great,” to “the world is ending if you don’t give us more bailouts!” Let the selling begin… I fully expect that game to last until the bond market just refuses to finance their bullshit anymore. Heaven knows the politicians and incompetents at the Fed and Treasury certainly never would!

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