Living Inside a Broken Clock: Friday, April 9, 2010

by gmak

Does this make sense? From Barry Rithoz’s web-site,

here is a chart

representing the aggregate Balance sheet of households in the USA. It doesn’t look half bad. The distortion comes from the concentration of wealth and asset ownership in the USA. It is in the hands of 20% of the population as follows, courtesy of Mish and Professor William Donhoff of Santa Clara. If one adjusts the balance sheet graphic to reflect that lower 80% – I think a picture of extreme leverage and illiquidity would emerge. 250 mm people in debt who will be told that taxes are going up to pay off the .gov debt used to keep the 20% in wealth. I don’t think even American Idol can stop the emotional carnage.

• The Bottom 80% have 7% of financial wealth.
• The Bottom 80% have 8.9% of stock ownership
• Only 31.6% of the population has more than $10,000 in stocks.
• 70% of white families’ wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.

Over in China, according to a Bloomberg interview with Chanos: “The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.”

China is supposed to be driving the world,  isn’t it?  The American consumer is supposed to be the engine, aren’t they?  Tick. Tock. Tick. Tock. IT all looks like this to me:

Inside a Broken Clock

Civilization is saved because California’s Tax revenue beat forecasts by $356 million. This is the 4th month in a row that forecasts in the budget have been beat. It’s going to be tough for the Governator to keep a lid on prolific spending and union promises by the legislature. But, it is raising the old “green shoots” chant.

SPX Daily Chart

The last two daily SPX bars were a ’53’ (Wed) and a ’35’ (Thur).  A 35 is usually followed by a day where CLOSE < OPEN. But, when it is preceeded bya ’53’ bar (there have only been 6 since 1982), then the next day is CLOSE > OPEN more often than not. I’m going to go with the single bar, and suggest that the double bar is too few for a sample and time will rectify the discrepancy. Sound fair?

The probabilities were right about yesterday. SPX did indeed finish with the CLOSE > OPEN – even if the so-called open was 1181 (yeah, for a nanosecond). That’s a few days running. If this continues, we may have a bit of an edge with these probabilities. I remain unconvinced for now.

Looking at the daily chart: Yesterday “officially” opened above the “Since Oct 21” trend line, put a pin down to the LOD and then headed on up. The HOD was less than the last 2 days suggesting waning enthusiasm. Howevr, the close is still above the trend line. Could this be the new bottom edge? As I indicated, the TD Pressure did move back above the signal line. The low risk SELL is still active because the stop-loss has not been reached.

If you can see the dashes just after the purple number 13, they are defining a go / no go level for a runaway market’s next leg. The magic number is SPX = 1200ish. A decisive break of that line would mean more of the same ad nauseum. By decisive break, I mean closing a above the line, with the next bar opening higher than the close, and closing higher than its open. Meanwhile, the same applies for the trend line, and we have not had a decisive break above the “Since oct 21” trend. line. Today, SPX would need to open higher than 1186.44, and close higher than where it opens for this move above the trend line to continue, IMO.

27 days for SPX daily above the 55-day SMA. If we’re supposed to get below by day 40, we can still spend a few wandering in the wilderness perched on this trend line before heading down. If it doesn’t happen by then, then it’s seven years of bad luck, or some such thing.

EUR Daily Chart

is it my imagination, or has EUR put in what amounts to a double bottom? I guess when everyone is already short, it’s pretty hard to force the action down at the margin without a catastrophe. If Trichet’s news conference, and the Greek Farce didn’t put EUR into hell, then I don’t know what will. There have to be a lot of nervous shorts out there.  TD Pressure seems to agree for now.

UPDATE on RESEARCH

I’ve written before that there is no correlation between the Thursday before the OPEX week (which was yesterday) and any day of OPEX week. I crunched the numbers, this time based on the weekly returns before and after OPEX week. Here are the results. Ignoring the correlation between OPEX week and the days in it, one can see that there is almost no relationship. Anther myth-take put to rest. I wish some of these would turn out to be valid. It would be nice to see some pattern emerge somewhere, wouldn’t it. Oh well. I’ll keep plugging away.