Wall Street is opening on schedule to wrap-up the 2010 trading year and it will do so with a decent return for the year. The S&P 500 closed out 2009 at 1,115.10 so unless the whole market steps in front of a bus before the close, the broader market will close up around 12.8% for the year.
Not bad. Just not as good as gold or silver, although depending on entry points and tax rates, your results may differ, this is not a recommendation to buy or sell securities, and yada, yada, yada. Operators are standing bye, this is a free call.
I used to think of the Dow as the ‘fluff number’ but this year the Dow looks to head into 2011 after posting a gain of about 10.95% – well below the broader market. Unless, like I say, the Dow were to get pushed in front of a bus.
Looking ahead, things are going to be very interesting over the coming few weeks. Robin Landry sent our a note to his colleagues in the investment community on Thursday and he sees it, too:
The market is due for a correction starting sometime in January and it is my opinion that it will answer the most important question the market faces for the next couple years.
Will Deflation be the outcome due to the continuing problems with real estate and the debt problems worldwide or will the Federal Reserve be able to continue to print money as they have since the low in August thus resulting in Inflation?
It has been this buying of bonds, in my opinion, that has been the primary reason the stock market has been able to continue to rally despite the dismal economic conditions.
The election of a new Congress that says they are intent on reducing spending, if true, will mean the pressure will be on for all government entities to start cutting expenses and result in a reduction of services. This will not be without pain and my concern is will Congress be able to do what needs to be done to get us back on the road to financial stability.
If the correction breaks the July low around 9600 in the Dow, then the market is likely to retest the March ’09 low around 6500.
With the continuing problems in real estate, the mortgage mess, and the developing crises in State and Local governments facing revenue shortfalls, I believe the Deflation argument is the most likely outcome.
Recently the Congressional Budget Office issued a brief telling State and Local governments the options available to them due to the economic conditions and budgetary challenges they are facing. They outline the options available to them which include Default and Filing Bankruptcy. You can read it for yourself at this link. http://www.cbo.gov/doc.cfm?index=12005
This brief leads me to believe the Federal Government is saying to the State and Local governments “We don’t have the money to bail you out.” The recent comments by a leading analyst regarding her view that at least 100 municipalities will have to file bankruptcy in the coming months is just the tip of the iceberg.
As the state and local governments come to the conclusion that the only way to get back to a stable financial footing is to declare bankruptcy, I expect we will begin to see demonstrations in the streets and hope they are peaceful but when people feel desperate they don’t always use reason and can become violent.
When pensions and benefits are cut, families will have to make major cuts in their own spending. This screams Deflation to me.
The last few weeks we have seen interest rates rise even though the Federal Reserve has been buying Bonds in order to keep rates low and stimulate the economy. It has not been working. The market continues to rise on low holiday volume.
Today (Thursday) we reached my lower target of 11,612, which is where wave 5 is .618 of wave 1 in this rally off the July 2010 low.
If the market continues to rally in the new year the next target is the 12,100 area where wave 5 equals wave 1. While I don’t expect the higher target of 12,100 to be reached, it is possible.
With bullish sentiment now at levels where major tops have happened in the past, I expect, at least, a small correction starting early in the new year.
Once the correction begins, we should see rallies in government bonds as people start to exit equities and run to the safety of bonds. Then it is just a matter of watching the support levels to determine if higher prices are coming or if P3 has started.
The chart below shows the levels that I am watching to determine the degree of the correction and thus the longer term direction of the market.
The first level to watch is the 10,900 level, which is the 4th wave bottom as shown on the chart.
If this level is broken the next level to watch is the wave I top at the 10,730 area.
If this level is broken then the next very important level is the July 2010 low at the 9600 area.
If this level is broken then the probability that P3 down has begun rises dramatically.
I would like to end the last update of 2010 with Best Wishes for a Happy and Prosperous New Year! firstname.lastname@example.org
If you are a Peoplenomics subscriber, this is exactly the P3b turning to P3c that we talked about in last Sunday’s report, so you can follow along.
As Robin noted, in a conversation we had yesterday, the last time sentiment levels were this extreme was 1987. I’ve got a big red circle around January 7th & 11th due to the predictive linguistics of www.halfpasthuman.com as well as my own simplistic ‘when does it cross the trend line” analysis which in turn leads to a mass recognition point.
GlobalRev and 2011
There’s a good article out in this week’s online report from Foreign Policy in which they list 16 wars to watch in 2011.
So here’s our first ponder of the morning: How many wars – in how many places and killing how many people – does it take to be considered a World War?
The homeland hype about terrorism sure seems to have the same ‘feel’ of a nation on a war footing, and thus the question: Are we in some kind of next-to-invisible “world war” and the media’s just not packaging it that way in the 2-minute stand-up packages from the various hot spots?
No, the tour guides are not skiing to work in Rome yet- while we await the arrival of skiing the seven hills as an important temporal marker. But, just as weird is the snowfall in Phoenix on Thursday.
Not a lot – mostly mixed flakes in Scottsdale, but up in the hills just north of town it’s awful today. I called my commodity broker (JB Slear) to ask him why he didn’t mention the snow in his daily write-up of markets (here).
He tells me in Prescott this morning they’ve got an honest foot of snow and the temperature drop yesterday was like the worst of Chicago, nasty wind and all. Near phoenix? ViseGrips, please. Feeling the need for a pinch coming along.
Lows at night this coming week in Rome oughta be around freezing by late in the week.
Who – & On What?
Someone sent me a note that I should check out the Salon article “Ashton Kutcher schools us on the coming apocalypse” and said I should read it.
I sent ‘em a note back that it would be a ways down the list however, since I’m really quite busy trying to transform myself into the human pork rind until I put new batteries in the digital scale and that’s not on my list till well after New Years.
Interesting story floating along over at recombinoics about the rash of deaths from H1N1 that are popping up in the UK.
The one thing that caught my eye was their mention that…
“The latest report also describes an increase in Tamiflu resistance, which will also increase the number of severe cases and deaths, which will create additional concerns. “
You damn sure bet’cha that raises concerns, alright: Like how is it that H1N1 develops a Tamiflu resistance without a little death-lab help?
This is hot: I won’t give away the details, but you have to read the story at The Smoking Gun about the “Flier blames Tabasco spill for lewd act” on an airplane this week. So much for flying security,…
Passings: The “We Can Do It!” Gal
Geraldine Hoff Doyle has passed on, according to the LA Times obit section.
A lot of people think the “We Can Do It!” poster which was based on Doyle working at a Michigan factory during WW II was where “Rosie the Riveter” came from. But that’s not the case. A couple of paragraphs from Wikipedia to set things straight:
“Rosie the Riveter is a cultural icon of the United States, representing the American women who worked in factories during World War II, many of whom worked in the manufacturing plants that produced munitions and war supplies. These women sometimes took entirely new jobs replacing the male workers who were in the military. The character is considered a feminist icon in the US.
The image most iconically associated with Rosie is J. Howard Miller’s famous poster for Westinghouse, titled We Can Do It!, which was modeled on the middle Michigan factory worker Geraldine Doyle in 1942, but this image was not actually intended to be Rosie the Riveter. Rosie the Riveter is a fictional character.
Harks back to a time when we really could do it. Here lately, I begin to wonder.
Last, but certainly the Maraschino cherry on this morning’s report is the report in the UK’s Mail Online that “New Year’s resolutions ‘barely last longer than a week.”
As I sit around looking at stories that didn’t make it into today’s report, like he various war stories and what have you – I find it remarkable the amount New Years resolution and politic promises have in common.
They all seem to expire nearly as soon as made. A fact that should be ‘transparent’ to those waiting for troops to come home from the sandbox or from guard duty in Cuba.
The fine thing about a year like the one winding up today is: Just about anything we do in 2011 is bound to be an improvement. Or so we sincerely hope.
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