All Seems Well

Futures are up well over 20 points on the latest European near-term solution.  I see it rather as an End Of Quarter markup.   Either way, I'll let it ride for a bit, let it settle in so to speak, and then look to be a seller.

1350.67 is the 78.6% retracement.  1363.46 is the swing point.  The S&P looks to open at the 78.6% level and could challenge the swing point, but I doubt it.  I'm seeing the possibility for a small a-b-c inside a larger a-b-c.  The point is both resolve to the down side.

If 1363.46 is exceeded, it could mean that the b-wave of the larger a-b-c (shown here a few times) is finished and that the c-wave is in progress to 1370-1400.

Rarely are things as they seem.  Yesterday's supreme court ruling seems like a victory, but could be rallying cry to throw the bums out.  Today's EU solution seems miraculous but is one more example of clinging to a failed experiment while expecting an impossible outcome.  In fact, the Telegraph noted it was a "commitment to the irreversibility of the euro."

It sure is irreversible.  All that debt will never be repaid.

Selling Higher Prices

The New York Times reported this morning:

Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

It was obvious that this would happen. Now it has. Still I wonder why would anyone lend Jamie Dimon a dime? That's what a deposit in a bank truly is: a loan. It does not sit in a little vault with your name on it. It promptly gets loaned out, or worse, it gets used for speculation.

Yesterday's target zone of 1329.97-1337.82 was reached.  The high was 1334.40.  Futures are down but not out.  The rise from the 6/25 low of 1309.27 is so sloppy that it's unclear to me at this time what price would signal a reversal if broken.  I'll repeat a couple things I mentioned on Twitter:

The S&P has been in a rising trend channel and was having trouble holding it yesterday.  Futures indicate it will open below it this morning.  Volume has been contracting as we've gone higher.

There could be some volatility surrounding the supreme court ruling on health care at 10am EST, and who knows what will come out of the European summit (judging by the quick retraction of the German Finance Minister's comments on debt sharing, things are getting desperate there). 

There is plenty of room for higher prices.  But I will be a seller if they should occur.

Welcome To Wednesday

Looks like a rising wedge in the futures overnight in continuation of yesterday's action.  Price is stalling just beneath a 61.8% retracement level on a smaller time frame, while seeming to target a 38% retracement of the 6/19 high of 1363.46 on a slightly larger time frame.  This target is 1329.97, and may possibly include a test of 1337.82.

There are still two ways to view the move from these highs: the beginnings of a third wave down, or a B-wave with perhaps yet another sloppy low before a strong C-wave impulse toward 1370+.  I'm still going with the latter scenario until the market tells me otherwise.

Same Trade, Different Day

Futures are still lending credence to the scenario laid out above.  Yesterday price reached 1309.27.  The next big level on the S&P cash 1303.69, which would bring it under 1306.62 and effectively shut down the bulls in the longer term while possibly setting up a hefty bounce.  There is no guarantee the 1303 area will be hit.  It's simply the 61.8% retracement level.  But the rally from 1309.27 looks choppy and overlapping enough that 1303 could easily be tested if not exceeded.  Because this is still likely a b-wave, anything can happen.  B-waves are fakes.

I'm seeing wave counts that place the S&P in a third wave down, essentially labeling "a" above as a wave 2 high.  While this could turn out to be the case, yesterday's lack of volume was problematic.  If it is be the case, today and tomorrow would need to be deeply red, 1266.74 should quickly come under pressure, and should fail.  Otherwise I'm looking for areas to position for higher prices using SPY calls in case I'm wrong.

A Big ABC

Futures are lending credence to the scenario laid out above.  The next big level on the S&P cash 1303.69, which would bring it under 1306.62 and effectively shut down the bulls in the longer term while possibly setting up a hefty bounce.  There is no guarantee the 1303 area will be hit.  It's just the 61.8% retracement level.  Because this is likely a b-wave, anything can happen.  B-waves are fakes.

Shots Fired

The name of this post popped into my head the moment I woke up.  And I've been waking up earlier lately by eating more during the daytime and less at night.  It's really helping me wake up clearer and more refreshed.

Shots were fired across the bow of the SPX Titanic yesterday.  Not only did the triangle fail at 1346.45, but both 1335.32 and 1327.28 did too.  I hadn't even mentioned the latter number because it was so far away.  But in doing so the S&P nearly closed off the impulsive bullish option completely.

To completely close it would require still require 1306.62 to fail, but I'm willing to stick my neck out and show the following chart which I posted yesterday on Twitter:

Bear in mind the price levels may be inaccurate, but the a-b-c form is what it seeks to convey. It suggests a deep retracement below 1306.62 (but not required) then a ripper of a rally back above the 1363 highs. Could it rally back to the 1380 mentioned yesterday?  Sure.  It could go to 1400.  But the message would be the same.  3-wave rally after 5-wave decline.  Bear market.

The point is, the market spoke very clearly yesterday. If this pattern is correct it will give bulls a very graceful exit.  The next move would be hundreds of S&P point lower.  Yes.

I stupidly sold out of my SPY 134 puts at even yesterday after being down 50% and then watched them go up by 100%.  Thankfully I kept the VIX 24 calls.  I also bought SPY 134 calls around 1340, so I can't say that while the market spoke clearly I heard it properly.  These things happen.  And hopefully they only happen when using the limited risk of options.

Triangle Higher Perhaps

Unless 1346.45 breaks, it appears a bullish triangle or rising wedge may be in play on the S&P.  This would suit me just fine.  So far VIX calls seem to be packing a much better punch on the declines than the SPY puts I'm dragging around, and I was able to hedge aggressively yesterday with SPY 135 calls.

If 1346.45 breaks, it won't be the end of the world, but it will open up other scenarios and I will have to assess them in real time.  There is a way for it to break by a couple points and still head to new highs.  But it could also mean that when the S&P bounced off the 1363 61.8% Fibonacci zone, that was the end of the road for the bull convoy.

So far overnight futures seem to confirm the triangle/wedge.  And 1380 still looks pretty on the daily chart.  But so does 1266.74 and a bunch of other lows that look like they want some attention.

Getting Lopsided In The Red Zone

Yesterday the market had higher numbers in mind than just the gap at 1353.39. It hit and bounced off the 61.8% retracement level a full 10 points higher. Notice that while it bounced off the 61.8% level, it also closed on top of the trend line.

The S&P can crater quite merrily from here.  Barring a breakdown however, the next area of interest to me is the confluence of the 78.6% retracement and the 1:1 Fibonacci expansion target which both target 1380.

Notice 1380 also coincides with a rising trend line drawn from previous lows.

The S&P can back fill all it wants, but below 1306.62 still means big trouble longer term. For now price action is steadily creating lopsided sentiment as mentioned here and on Twitter yesterday, while volume and other internals subtly diverge. As of yesterday's close, over 87% of the S&P was trading above its 20-day MA. That's in the red zone.

I acted on this condition not with SPY puts this time (still holding some 134s badly underwater, having only hedged them once) but with VIX July 24 calls.

Rosenberg Flips

The S&P seems to be forming a rising wedge.  It projects to the 1350s which coincides with the 1353.39 gap and a 61.8% Fibonacci expansion target from the 6/4 lows.  These patterns can sometimes demonstrate a final spurt to the upside, which in this case would be ideal for meeting the upper trend line of the chart I showed yesterday on Twitter.

The big news for me is that David Rosenberg sounds like he's capitulating. It feels as though I just got finished with a post about him (this one) and he's flipping the switch.  When the last hold outs jump on the trend, it's usually over.  Let's see.

I think the S&P made its final high back in April.  I think we're in the process of correcting it now.  This would mean that we're headed much lower, but only after the market has done its job to the upside, and that is to get as many people bullish again as possible.  We may be close, but I don't think we're there yet.  It usually takes longer than you think to achieve lopsided sentiment levels.

As the S&P seems to be in a rising price channel, it would need to break below 1325 for me to get excited about the bears.

When NGOs Run The World

About The IMF

The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

IMF calls on Spain to raise VAT and cut public-sector wage bill

The International Monetary Fund on Friday advised Spain to raise the value-added tax rates “now” and introduce a further cut in public-sector wages in order to avoid a large overrun in its deficit-reduction targets.

In its Article IV report on the Spanish economy released Friday, the IMF said the outlook for Spain is “very difficult.” “The economy is in the midst of an unprecedented double-dip recession with unemployment already unacceptably high, public debt increasing rapidly, and segments of the financial sector needing recapitalization,” the report said.

The IMF acknowledged the number of major policy actions taken by the government of Prime Minister Mariano Rajoy, but noted that “market confidence remains weak.” It said the country needs to come up with an “ambitious policy response” that should focus on fiscal consolidation and a restructuring of the banking sector, without forgetting the need for structural reforms to boost growth.

The multilateral agency described as “very ambitious” the Rajoy administration’s commitment to reduce the public deficit from 8.9 percent of GDP in 2011 to 5.3 percent this year and predicted it was “likely” to be missed, with revenues expected to come in below budget, while spending cuts are likely to take time to have an impact.

The IMF’s experts, therefore, believe more measures should be taken on the revenue side, advising that no options in this area should be ruled out. It reiterated the need for increasing indirect taxes, including VAT, with the difference that this time around they called for such action to be “taken now.”

The report said a reduction in social security contributions would be “desirable” but should take second place to controlling the deficit. It also called for the across-the-board tax rebate on mortgage payments reintroduced by the Rajoy government in December to be eliminated. It also warned against a repetition of the tax amnesty on undeclared cash introduced by the government, and called for a more “aggressive” privatization drive.

The IMF report comes a week after it estimated the Spanish banking sector needs an additional 37 billion euros in funding to cover potential future losses under an adverse economic scenario. That figure could double if the restructuring needs of distressed banks form part of the picture.

The agency stated the obvious in saying that despite Europe’s backing for a bailout for Spain’s banks, market conditions remain weak. Spain’s risk premium was steady at 543 basis points on Friday, but not far off a euro-era high of 552 basis points.

The IMF said Spain needed to enhance productivity and cut costs to provide a structural stimulus to the economy. “These are inherently complex and difficult reforms but critical if growth is to be inclusive and job-rich,” the report said.

Apples, Oranges, And Watching The Ball

This will be a great week to ignore the noise and watch the ball.  Futures fizzled overnight from the Greek election euphoria to the nagging realization that Spain's bond yields keep rising.  At the G-20 meeting in Mexico, Chinese and Indonesian leaders expressed cynicism and frustration regarding the lack of solutions by European leaders in response to the EZ debt crisis.  So expect hope to clash with reality there too.  And don't forget the FMOC announcement on Wednesday.  More drama there as well.

I continue to see the possibility of 1345+ to line up with the trend line I showed last week as well as the 50-day MA at 1348.  However, the way the daily chart is structured, anything under 1306.62 would be hugely problematic for continued higher prices.

Regarding charting, I must comment on something.  I was following a newly popular chartist and CNBC contributor until I noticed a comment she made about certain ETF structures not supporting certain patterns in the S&P 500 index (she didn't respond to my question, either, haha).  I had wanted to get her explanation as to why she would use ETFs to project price on the very same instrument they're derived from.  Who knows, maybe I would have learned something. 

ETFs are mutual funds that use derivatives and futures and other leverage to mimic price movements of the underlying price.  In plain language, she is mixing apples and oranges.  This can lead to false signals and faulty analysis.

If you want to compare ETFs to other ETFs, that's great, you can get some really excellent info such as comparing SPY relative strength to IYG, HYG, and JNK, a cool trick I learned from Tim Backshall.

But do not get sucked into attempting to glean info about what the S&P might or might not do based on SSO, SDS, BGU, BGZ, UPRO, SPXU, TNA, TZA, or any other product.  The keyword here is product.  They're leveraged creations meant to be used as trading vehicles.  Just like the ES, only more so, these "apples" can be pushed around by large orders as well as traders trying to game price.  This can lead to misleading price patterns vs. "oranges" if you will, by this I mean the S&P 500 index, which doesn't trade and just is.

I see a lot of this lately as the popularity of ETFs increases.  One fellow whom I followed for a few days seems to base his entire trading strategy on letting the price action of a foreign currency ETF over a year ago tell him what the S&P is going to do now.  First, why not use AUDUSD?   Second, not only do these fractal relationships have a nasty tendency to evaporate just when you least expect it (no matter how amazing the correlation is), I find it naive to use a CurrencyShares trust instrument (held at a JPMorgan depository, no less) designed to act like a security to generate price projections on the S&P 500. While the trust holds no derivatives, he is in bed with a fine group of folks who serve as market makers: Citadel, Goldman, JPMorgan, Knight, Merrill, and Morgan Stanley.  These cowboys can do whatever they want to this FXA thingy: it only trades 400,000 shares per day (vs. 150 million for SPY, for example).  I wish this guy good luck.

When index trading (such as the S&P 500, for example), chart the S&P index, while you trade the ES, SSO, SDS, or whatever you want.   But chart apples to oranges at your peril.

Solutions And Destiny

Something is in the middle of its overnight range again as Bloomberg kindly reports:

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession, with a video call for European heads of government scheduled for today.

So very kind and service-oriented of Bloomberg to shepherd this sort of pre-packaged information -- otherwise known as a press release -- to us. It feels a lot like Hank Paulson's pitch to congress that the world was going to end if he didn't get a blank check for $700 billion. His world might have ended, Goldman's world might have ended, but the rest of the world would have simply been relieved of one less group of money changers.

Once again it feels as though another problem-reaction-solution is being floated. The solution has long been planned. The problem is merely the opportunity. The reaction is amplified and broadcasted for maximum effect -- the ultimate effect being the acceptance of the pre-determined "solution."

By all means have plenty of cash on hand. By all means divest yourself of as many assets as you can while their value is still high. But do not think that the world will end because a bright spotlight is revealing the absurdity of central banking. Their world, their practices, their illusion may be coming to an end. But hopefully that will cause citizens around the world to wake up and take back control of their financial destiny.

I still believe the S&P has a date with destiny at higher prices.  Futures, while in the middle of the overnight range, have held above yesterday's close.  As noted on Twitter, there is an internal trend line that projects to 1345+ and also lines up with a re-test of the 50-day moving average currently at 1349.52.

There is plenty of air below the market should it want to back fill.  But the 38% Fib level has held well.  It is up to the S&P to succeed or fail at higher prices.  To me, it looks and feels as though a rising wedge is in play.  I would be mindful of 1310.51, however.  Should it fail, the market could test the 1290s. 

"This Much"

Where do I begin?  For the third day in a row, I've woken up to the S&P futures in the middle of the overnight range.  By 8am EST, they magically end up "in the middle" just as the day gets going in WallyWorld.  It feels as though the market is confused and waiting for "something."

I never find it rewarding to trade in the middle: it's too easy to guess.  I prefer to pick my prices away from the congestion and strike when the odds are more in my favor.

Bloomberg's lead story is that Chancellor Merkel Says Germany Will Lead Crisis Fight.  Ha!

"We'll do this much"

Sorry, but what exactly will they lead?  My bet is that, one by one, these countries choose the ICELANDIC solution.  This weekend in Greece will be interesting.

Bloomberg also reports Truckers as Leading Indicator Show Stable U.S. Economic Growth.  Not to pick on Bloomberg today, but this story feels like PR to me.  I've yet to do a recap about my 2 1/2 month road trip, but one of the best things about it was that it felt like there were fewer trucks.

In fact, coming home I did whatever I could to avoid I-80 in Pennsylvania because it is notorious for being clogged with trucks.  Well, it didn't work out.  But to my surprise, I-80 was like a quiet parkway.

I use truck stops like Travel America, Pilot, Flying J, Love's, Petro, and others all over the country (tip: they're far better than regular gas stations) and truck counts looked down.  It was autos that felt as though they had increased.  I think people will do whatever they can not to fly in the US because of the TSA.  I know I do.

Then it's on to Zero Hedge.  My first stop in the morning is usually "Frontrunning."   I want to see what news is making news.  Today it's pure theater.

• Greek Banks Under Pressure (WSJ)
• France Seeks Eurozone Stability Package (FT)
• Germany Dashes Eurozone Expectations (FT)
• Geithner Says European Leaders Know They Must Do More (Bloomberg)
• In Athens, Party Aims to Delay Austerity (WSJ)
• Rajoy Battles ECB for Loans; Monti Appeals for EU Action (Bloomberg)
• Nokia Slashes 10,000 Jobs, Cuts Outlook (WSJ)
• Swiss National Bank Vows to Defend Currency Floor (WSJ)
• Euro Crisis Deeper With Moody’s Downgrading Spain, Cyprus (Bloomberg)
• Yuan Steady After Central Bank Raises Fixing by Most in a Week (Bloomberg)

This is what I mean by Germany leading what?  It's ridiculous that Merkel and the rest can't admit that the project* has failed.  It's a mess.  And it's the best proof by far that world government, a world currency, and a world central bank would fail even worse.

Trading wise, yesterday was admittedly a little strange.  I'd either want to see it break hard under 1306.62 or head higher (above 1340) immediately.  Maybe neither will occur, but that's okay.  I'm not guessing or betting at these current levels.



* I just love that they call it The European Project.  That's all it is.  One big test to see if it will work.  Anyone can see that it ain't.

The Little Rascals

Found the following blurbs on Bloomberg this morning:

Italian Prime Minister Mario Monti is facing signs that tax increases are beginning to backfire as his new levy on real estate goes into effect.

Italy’s borrowing costs surged at the sale of 6.5 billion euros ($8.2 billion) of Treasury bills after the 100 billion-euro bailout of Spain’s banking system failed to stop contagion from the region’s debt crisis.

Tax something and you get less of it. In this case, less means less revenues to the Italian government, which is why its borrowing cost will continue to increase until it gets assistance, just like Spain, just like the rest of them.

Not a day goes by now that I do not turn on my computers to check the futures and the overnight session and wonder what have the little rascals done now?  Any day I expect to see another globally coordinated central bank intervention even bigger than the last.

Speaking of the overnight session, futures double topped and have come off since 4am EST. There are a couple ways this could impact today's S&P cash.

The targets are a 1:.618 leg at 1306.45.  A 1:1 leg at 1295.41.  And a 1:1.618 leg at 1277.55.   Based on Fibonacci theory, the first two targets suggest a correction.  The third one is an extension and suggests an impulse.  So I'm a buyer of calls down to the 1295 area.  After that I'd be concerned that something else is brewing that would call my expectation of higher prices being retested.

Notice also how price has stalled at the downsloping trend line and the 38% retracement level, but not before exceeding it.  This is another reason why I feel it will retest higher to see if there are more sellers or buyers.

People in chat rooms love to whine about market makers jerking price around and manipulating every dip and rally.  All it is is price discovery.  People in chat rooms should chat less and trade more.

Personality Clues

Futures are once again in the middle of the overnight range.

Yesterday's late day sell off had a hint of panic as I noted on Twitter. So I'm not surprised to see some buoyancy this morning. The S&P is also sitting on a shelf of support made up of a 38% retracement level, a 1:1 Fib target, and Friday's 1307.77 low.

Should this shelf fail, there is the 1300 round number, and below that the 1293 level which is the 62% retracement. Below there is 1285.

I would not be at all surprised by a choppy continuation down, but I still feel that the highs of Monday morning will be retested and possibly exceeded. Only an impulsive decline straight "down the page" would change my thinking. By focusing not just on price but its personality too, many times we can get an extra set of clues. 

The Real News Is Higher Bond Spreads

Here's what the Spanish bailout looked like in the bond markets.  The opposite reaction that one would expect.  Yield spreads went higher.  This is a preview of what will happen someday soon when the latest Fed-induced stimulus will cause the equity markets to tank.

S&P futures exploded on this news last night.  In fact, you could see it in the late day ramp up and in the 15 minute post-market on Friday afternoon.   Now futures are in the middle of this range, the high of which is 1342.  I don't know if we'll test the equivalent of this level on the S&P cash today, but I'll bet we do at some point.

Today rather, the number is likely 1334.93.  There was lower volume on Friday than any day last week, and A/Ds were weaker too.  While I think we see higher prices, there could be a sizable correction on the gains since the 1266.74 lows at any time.

Overnight Swingers

Another swinger session in the overnight futures.   Currently at 1312, it's in the middle of that range now.  Could go either way. 

1312.50 on the cash S&P gave support to yesterday's afternoon swoon. "Bennie And The Jets" got renamed "Bennie And The Crop Dusters"   The rally has not been broken yet, though.  I continue to see a possible target of 1334.93.

I see support in the 1307-1310 area.  Below that, 1298.  Failure to hold there could could give us 1282s.

These wide "swingers" in the overnight sessions suggest to me that the market is plagued with uncertainty.   The good news is that the VIX has come in quite a bit and has taken some premium out of puts and calls.  So whenever the market gets higher or lower than was previously thought possible, I'll be betting against it with the limited risk of options.

I love options.  They're so "money."

Bennie And The Jets

I'm showing this chart because I think the S&P is going to open in an important area.  Not only will it have reclaimed the 38% Fibonacci level from the top, it also appears that it will meet some stiff trend line resistance.  Note how this trend line contained price during the last bounce.  It has me thinking that no matter what Bennie and the Jets start crooning at today's session before congress at 10 am EST, there could be a sell on the news reaction.

"Rate Cut Cheers Wall Street" proclaims Marketwatch.com this morning.  The way I see it, Wall Street is cheering a regime that depends on outside demand from Europe and the US that is slowing markedly.

This the first time China has cut interest rates since 2008 -- when Lehman was imploding and the world was ending.  Now it's a likely a different story: the world is slowing and the stimulus medicine isn't working.  But there is one thing that is always working, always there, silently lurking in the background.  Gravity.

Gravity always wins.

While the S&P could gun for 1334.93 if Ben really cranks up the volume today, we've had a nice rally so far.  There's no reason why it can't test lower.  Below 1295s could give us 1282s.

Avoid The Magic Show

Expectations for relief from the ECB -- a rate cut -- evidently drove the thinly traded overnight futures session to lofty heights, then reality struck when Mario Draghi showed his true central banker colors and delivered the same old thing. 

More talk.  Rates on hold.  More talk.  Futures fell 10 points from their pumped-up highs.

Watch the real market today -- the S&P cash.  That will tell you all you need to know.  By all means trade the ETFs, but charting them will lead to frustration unless you trade price, which is the S&P cash.  ETFs are imperfect structures designed to mimic price.  When price gets to your target, then make your move with whatever ETF strikes your fancy.

If you trade the e-mini, great.  I do, but I scalp with it, against my positions, and I do not use it for charting, just levels.  The S&P cash, which does not trade and can't be pushed around except by pushing around 500 stocks simultaneously, is the only chart I use.

Watch 1298.90.  Watch 1277.64.  Above the former would suggest a more complex upward correction, possibly to 1334, while below the latter would suggest more downside, possibly toward the previously cited 1254-1259 area, or lower.

Price achieved the higher 38% Fib level (1287) yesterday but did so on choppy trade and light volume.  It can go higher.  But it's how it does it that's important. 

There is a lot of hope in the market that furry rabbits will appear from nowhere, given to us by nice old men from central banks.  The nice old men are perverts.  Avoid the magic show, the smoke and mirrors, and their tricks of illusion.

Focus on price.

Falling Wedge Forming In Gold

Gold may be the latest market to be forming a falling wedge, thus signalling for us to take a look.  I started mentioning these as far back as late March, and on April 2nd, in The Function Of Form noted:

The mere fact that they're starting to appear, whether they fail or not, is significant. As Victor Neiderhoffer would say, the "form" is changing. By that he means the market's personality may be starting to change. Heads up.

Gold may be telling us something very soon. It could rise into the 1680s, but if it breaks hard below 1530, a lot of cold water will be tossed on the inflationist argument.  Once again the credit markets will have figured it out first.

Lots Of Political Risk

Lots of political risk in the markets this June.  Whether enough for a continued swoon, we'll see.

The G7 held an emergency conference call today to discuss Europe's worsening sovereign-debt crisis. Futures were frenetic overnight and are now flat as Japanese Finance Minister Azumi announced "they did not discuss Greece leaving the Euro."  If true, this simply means, like typical bureaucrats, they have not looked at all the possible outcomes.

The G7 call precedes the G20 summit in Los Cabos, Mexico, June 18-19, which if I'm not mistaken, sounds very close the the Supreme Court Decision on ObamaCare.

Hopes were high that the G7 talks would signal that the European Central Bank would opt for some form of further monetary stimulus when it meets on Wednesday.  The way the Euro traded last night, I wouldn't count on it.  And keep in mind that after so much failed stimulus on both sides of the Atlantic, there will come a time when the announcement of more stimulus will spook rather than spike the markets.

Markets are also awaiting testimony by U.S. Federal Reserve Chairman Ben Bernanke on Thursday for any hints that Friday's weak U.S. jobs data could prompt a further bout of quantitative easing.   I'm even hearing chatter of GQE -- global quantitative easing coordinated among the world's central banks.  Let's face it, these monetarist clowns need as much practice as they can get if they ever want to ram through George Soros' dream of a world central bank.  If anyone thinks The Alchemy Of Finance was about finance, read it again.

I'll be keeping it simple.  The nearest 38% Fib level is 1283.20 on the S&P cash.  It stalled twice yesterday afternoon without reaching it.  If this level cannot be reclaimed, we can expect a possible wash 'n' rinse down to the 1254-1259 zone that I mentioned yesterday on Twitter.  I'll be looking for longs down there against my remaining SH position.

David Rosenberg Chimes In

I love reading anything by David Rosenberg, Chief Economist & Strategist at Gluskin Sheff in Canada.  He's one of the few that publicly warned about imminent danger back in 2007 while Chief Economist at Merrill Lynch.  He's not seeing much that enthuses him now, either.

Here are a few choice tidbits from his latest commentary:

That global market sentiment rests with more rounds of Chinese policy easing is truly a statement on how fragile things really are.

The Greek equity market, according to Bloomberg, is now trading at levels not seen since 1995 — just as the country was seeking entry into the EMU. Another sign of how markets are repricing the country’s asset markets back to drachma-era levels.

(The S&P 500 was roughly 500 then)

High-yield spreads have widened out nearly 70 basis points in less than a month to 660bps, a level they tested last August when the S&P 500 was hovering near 1,200, not 1,300, so a word for the wise: either corporate bonds are too cheap or equities are mispriced on the other side of that equation. 

(I have price targets and multiple Fib levels in the 1254-1259 area -- credit markets usually have it right)

For the first time on record, we have gone 11 quarters into a recovery but not managed once to post a GDP quarter at 4% at an annual rate or better.

It goes without saying how unusual it is to be experiencing the softest recovery ever recorded (even the 1933-36 bounce was bigger than this) in the face of massive government stimulus from more than three years of 0% policy rates, a Fed balance sheet pregnant with triplets and now going on four years of $1trillion-plus fiscal deficits — unheard of outside of a wartime economy.

Our analysis suggests that if this had been a plain-vanilla recovery (fueled by traditional rate cuts) following a garden-variety recession (the ones we became accustomed to — caused by overheating, inflation pressures, yield curve inversion and excess manufacturing inventories), the growth rate in the economy would be 8% by now.

It seems curious that we could be talking about a deleveraging cycle when the median OECD country is carrying at all levels of society (corporate, household and government) a total debt/GDP ratio of 450%.

This time the culprit is not U.S. banks or mortgages. It has become an even larger problem pertaining to public sector finance.

(Elliott Wave International notes that student loans issued by the U.S. government quadrupled from a little over $100 billion in loans in 2008 to a record high of $460.2 billion as of March 2012.)

The mid-40s readings in the French and German PMIs in May strongly hint at economic contraction at the core of Europe now. The fate of the euro may be debated, but the fate of the region is not up for debate at all. Leading indicators are pointing to ongoing economic duress for several quarters to come.

(No quick fixes, especially if Germany contracts)

There is no “containment” in an increasingly intertwined global economy —only lags. The U.S. economy has nearly a 90% correlation with Europe.

(No containment is the New Reality)

U.S. output gap (potential GDP minus actual GDP) has never been this wide at this stage of the cycle.

The first of the baby boomers — the 78 million ‘pig in a python’ that own most of the wealth and have driven everything in the past six decades from politics to economics — have reached their mid-60s. They are no longer in their capital appreciation/aggressive growth part of the life cycle as they were in the 1980s and 1990s.

After being burnt twice less than a decade apart by two massive bubble-busts, the baby boom investor is voting with his/her feet. They have been net redeemers of equity mutual funds 70% of the time since the market lows of March 2009 — choosing to sell into the rallies and rebalance their portfolios into more conservative strategies than chase the market higher. What the retail investor has discovered are bond funds (of all types) and the importance of the income component within the equity market — which is why hybrid funds have emerged as an attractive vehicle to participate in the equity market in a low-risk fashion and at the same time collect a rent in the form of dividend yield and rising payout ratios. This is all about S.I.R.P. — Safety and Income at a Reasonable Price. The operative theme being one of preservation of capital and preservation of cash flows. 

(And THAT is where all the "volume went")

Share of personal income from Uncle Sam is near an all-time high.  The numbers of disabled workers and food stamps participants are at all-time highs.

("Money for nothing and your checks for free." ~ Mark Knopfler)

The reason why nobody considers this to be a modern-day depression is because nobody can see the soup and bread lines that were so visible during the 1930s. That’s only because these days, you receive your bread and soup from Uncle Sam either electronically or in the mail. 

The Same Old New Ideas And Rumors Of Better Ones

Bloomberg reports that Chancellor Angela Merkel’s spokesman said that Spain knows where to look for aid if it’s needed, giving no ground to Prime Minister Mariano Rajoy’s pleas that Germany consider new ideas to resolve the debt crisis. 

Any idea what these new ideas are? Euro bonds. Otherwise known as more debt. Otherwise known as the very thing that got Europe into trouble.

Yet there seems to be building support for a European banking union. Merkel will discuss proposals on closer banking coordination later today in Brussels with European Commission President Jose Barroso. Merkel and Barroso will make a statement at 7 p.m. local time.

So it seems that Buy the Rumor, Sell the News could be in play here. S&P futures turned around from deep red last night to bright green this morning as if an agreement is forthcoming. Meanwhile the Germans continue to telegraph that any agreement would be "at the end of a long path." Therefore whatever rally that develops will likely be sold into at some point.

Buried deep within the Bloomberg story was this little nugget:

Struggling to shore up confidence in Spain’s banking industry, Rajoy used his weekend speech to urge euro-area nations to “cede more sovereignty” to a central fiscal authority and endorsed the European Commission’s call for a banking union that would entail a single regulator and a deposit-guarantee fund.

This quote, on the heels of Volcker's statement discussed here a few days ago, both of which conveniently coincide with this weekend's Bilderberg conference in Virginia, shows how the globalists are quietly turning crisis into opportunity. And for now, it may look like they'll get what they want. But there is still a single word that may stop them: ICELAND.

The bottom line is that there are no quick answers for Europe, only proposals and agendas that will take a long time to implement.  Hope is a very dangerous thing when dealing with financial markets.  It is quickly diffused -- and replaced -- by fear.

Last Friday I took some profits on my SH position (sold 1/3) at a truck stop near Pittsburgh, PA as tornado sirens were going off.  I was thinking about pressing on, but I had a feeling that I shouldn't.  It's a good thing.  Just 35 miles to the east, there was a tornado very close to I-70 -- the highway I was on.

European credit markets are closed today, so there could be a ramp up.  The first 38% level is 1293.50.  Why not.  Just remember that the futures probed 1262 last night.

Morning Levels

This is my last post of the trip because I'm behind schedule and I'll be driving instead of writing during the pre-market as is usually my custom.

The way I see the S&P at this point, it must either break hard, well below today's 1298.90 low, or it will likely bounce.  How high the bounce goes is important.  If it were to get above Tuesday's 1333.19 high, it could challenge the 1339.10 38% Fib level or even higher.

There is a lot of political risk in the market now that can cause screwy things to happen.  So far the market is telling us that the trend is still down, but sometimes it likes to throw us off its trail and confuse us.  Now is a great time to play the edges -- the price extremes.  The swing points.  That's where the better odds are for the near term.