James´ Insight

Today´s Outlook

• Bullish %: 52.2, still climbing
• Current reading is 616. Bullish momentum over 600
• We have a bullish signal

Today the weekly will close above 1080 and that is a buy signal. In all fairness if 1080 breaks today (we have a low odds price at 1076) then all bets are off but it is not my preferred outlook.

Weekly Outlook

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

It is all about 1075 this week!

Analysis

It has been a long road.

From the implosion of housing, GM, FORD, banks, regulation, China and its totally unfair labor resource, commodities, interest rates, Congress, Bernanke, Fannie, Freddie, jobs, foreclosures and let’s not forget our friends in Europe and Canada and Mexico.

I think yesterday pretty much wraps up the legislation nightmare, which means we all now know that the surprises should be limited to actually paying the bill. Its price tag is now a nice little number of 16 trillion; thank you for your business, please come again. I hope the irony is clear here.

The next hurdle is tax legislation and if they are smart, that one is pretty much a no brainer; perfect for Congress so I’ll not worry about that one just yet.

Ok, the banks have been closing their proprietary trading desks and moving traders to customer desks. They are limited to 3 or 4% of capital and the banks trades must be kept separate from customer trades. As this was a MAJOR profit center for the banks they have a few options

a) Misinterpret the law and take their chances , send everything to court and let the cards fall
b) Modify the law as time progresses
c) Trade the living day lights out of customer accounts and actually make them money and or
d) Move offshore.

I do not believe they will let go of trading that easily when it represents such a large % of profits. The banks will find a way.

Anyone ever ask whose money they were trading and who was getting the trades that worked?
Anyone ever ask who is doing all the selling? My answer is the treasury is selling a ton of stock they acquired and I believe that is about to end and release that fear too.

Oh, and Goldman will settle with the SEC to boot, another fear gone. Goldman will trade.

So is it finally rally time? I think so. The weekly will close above 1080 and that is a buy signal. In all fairness if 1080 breaks today (we have a low odds price at 1076) then all bets are off but it is not my preferred outlook.

Earnings are good to great and Google reported well too. So AA, GOOG and INTEL are all good.

Remember ONE very important statistic; 60% of all disposable income spending comes from the top 20% of Americans. The other 80% of Americans don’t even come close. In fact, the bottom 40% can’t meet a $1,000 bill.

So who controls the share price of the SP500? It sure isn’t the health of the majority. Here some interesting statistics:

- 61% live paycheck to paycheck.
- 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans
- 43% have NOTHING saved for retirement
- For the first time in US history, banks own a greater share of residential housing net worth in the US than all individual Americans put together.
- In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
- As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets. The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
- It now takes an average of 35.2 weeks to find a job.
- 43 million Americans now receive food stamps
- US labor must compete with China garment workers that earn 86 cents an hour. A Honda factory worker in China earns $230 a month and they just got a raise!
- The number of millionaires in the United States rose to 7,8 million in 2009 a whopping 16% increase
- 21% of children in the United States live below the poverty line
- The top 10% of Americans now earn 50% of all income

Why has this happened? Because Americans don’t make anything anymore, next year China will manufacture more goods than the United States. In the long run, this is not sustainable.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 51, still climbing
• Current reading is 567. Bullish momentum over 600
• We have a bullish signal

Today I’d like to see price reach down and tag 1075 and end the day with a price above the days bullish RTM. That would really set this up for the run.

Today will see Goog report after the close (important). It will see a vote in the Senate on Fin Reform (important). It will begin to see banks report (important but should not be a surprise). Also employment reports (important). In other words, this is an important day!

Weekly Outlook

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

It is all about 1075 this week!

Analysis

The goal is to gain a level of confidence that allows the mindset from thousands of managers to move forward. I think we are there from the data I review. Now show us a HL on the chart! Price MUST stay above 1075. If 1075 fails all bets are off! And unfortunately that is what is slowing everyone down because it is the 9th std deviation that has ushered in ALL the major declines and until that price holds, everyone is on the edge.

Think about this for a moment: 51% of the SP500 is above the 50 dsma and continues to rise. That would normally indicate that any retracement to 1075 would be a pullback, not reversal. This is why price must now, key word NOW, continue to move higher without delay. Lose the momentum, lose the market.

That WILL cause Bernanke to revert to the printing press. I assure you that Bernanke will not risk losing the Federal Reserve. You saw what 750 billion did. He has access, without having to ask permission, to 5 trillion the moment financial regulation is passed today.

In addition, I mentioned that yesterday would be a doji. Doji days, if traded, are 180 degrees opposite trend continuation days. You trade them from the edge to the Reversion to the James Way Calc blue mean.

There are only three types of days:

a) TREND (1 out of 10)
b) Normal range (8 out of 10) and
c) Outside range and doji ( 1 out of 10 ).

Actual % is a bit different but that is the idea. Low volume and Dow +/- 10 will signal a doji every single time.

Looking at the chart of this year, it shows a reversal pattern; V123. What is missing is a HL and a 2nd HL.
How anyone is getting a Head and Shoulder pattern out of that is beyond me. We just spent 3 months exhausting the sellers who went screaming into the night only to arrive within 23 points of the open for the year.

- Was it worth losing thousands of accounts from thousands of traders all trying to guess the world is ending? No.
- Is there a reason that 80% of the street is buy side? Yes
- Do you think the fond traders want a bonus, like me, this year? Yes
- Will they make one if they don’t see profits? Not likely.

There is now a TON of cash out there…I mean a ton of cash. The high end will pay higher taxes next year no matter what Congress does. If profits are to be made they want as much as they can get THIS year.

Everywhere I read they say the same thing: down, sky falling, end of times, volume, Obama this that and whatever, etc.

There is only one thing that works on Wall Street. Do you have a buyer; yes or no?

The other way to ask that question is: Has the last seller sold? Well, according to the volume I’m writing down every day the sellers sure look tired to me. What’s more, the Nasdaq is springing to life. That happens when things are about to look UP.

I could be wrong but until I’m proven wrong, this years pattern, volume, earnings (good), cash on hand, increasing GDP, buyers in the NASDAQ etc tell me I should be right.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 35.2, still climbing
• Current reading is 648. Bullish momentum over 600
• We have a bullish signal

Momentum reached but the market is stretched and at the initial limit of 1097.

Weekly Outlook

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

It is all about 1075 this week!

Analysis

A pullback, not a reversal is due anytime. So far it’s a stop running rally. Show me volume through a swing just overhead and I’ll believe we have the real deal. IF it wants to fly now, then now is the time for the volume to hit.

Yesterday was the first day we’ve seen really good numbers for breath and volume. We need follow through. Otherwise this will turn to distribution into the fall. VOLDQ took the lead, THAT is a good thing. As I’ve been saying I believe money flows matter. All we need is a retest of 1075. That test does not have to happen here and now, price can continue higher and then retest a bit later.

Today I see a doji allowing price to calm down a bit. Intel’s report was good. In fact, as I’ve said, cash on hand is good. Fear in China, the EU and Canada has driven cash to the US. That is a good start but it’s not production, it’s not wealth (which is not the same as money).

We have two big gaps under us and at some point soon it will matter. For those of you that remember I said 1133 and 1145 would trigger the new wave up. That was the ‘point of divergence’ earlier this year, before the market prepared for the EU mess. We now have seen three waves down totaling 424 points while the market is only 16 points off the open for the year. How is that for a managed market?

A 33% crash and price is only 16 points off the open for the year. I remain steadfast in what I’ve said: “if price exceeds 1133-1145 we will see everyone cover and form another leg up”. At that point I would hope to see 1350.

The market is designed to go up. 70% of the days are up. So far this year it is about 50/50. We have some catch up to do into end of year. Given the amount of cash on the side it could be spectacular.

Now if we can put politics on the side long enough to allow business to actually work.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 35.2, still climbing
• Current reading is 589. Bullish momentum over 600
• We have a bullish signal

We still need a good day with follow through.

Weekly Outlook

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

It is all about 1075 this week!

Analysis

After an EXTREMELY disappointing first half the boys have had every opportunity to sell this off and have not done so. After all these years of doing this I’ve never known them to not engineer a run for a bonus. How much longer can they ignore extremely low P/E ratios while looking at every bump in the road?

It seems very odd to me that Foreigners are buying our equities; PIMCO believes equities are good, and yet we Americans are trapped by the news. Even more odd are the pension funds, they CANNOT survive on anything less than 7% and the ONLY place you are going to get that return is equities, bonds are done and PIMCO knows it.

Does this mean that things can’t get better? I STILL see things getting better, things that matter to a recovery, so as I send this out I also want to list a few items worth mentioning:

- World wide business is beginning to expand
- Wages in the US are beginning to go up on an hourly basis, they always precede a recovery
- Although corporations have high debt they also have high cash balances
- Capex won’t need investment until the surplus capacity is used, that will take some time, so cash normally earmarked for expansion can easily go to mergers or stock buyback, debt repayment
- The US caused the crisis, not the EU…and we are near the end point of that crisis
- Commercial real estate is a mess, but unlike residential the banks will rewrite a lot of it because they can’t afford to lose money in that size, prime parcels have buyers

Are we at a point where we can begin to trust any stability that arises? I believe we are.

Are there more challenges ahead? Of course there are. I could fill a page with them. Not the least of which are the debt loads of some 45 states, never mind pointing the figure at the EU!

Step back and ask yourself if the SP500 will be affected all that much by state indebtedness? Will companies like Caterpillar be affected by IL not paying its bills? Not much. Please understand that the SP500 is largely a group of international companies with superior weighting in the 30 top issues.

While everyone is concentrating on the problems of the US I’m looking at international money flows, internal growth in China, a recovering IT sector in India etc. If you want to listen to the news be aware that it is often lagging.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 34.2, climbing now
• Current reading is 589. Bullish momentum over 600
• We have a bullish signal

Remember that earnings season starts on Monday with AA Monday after the close. Normally that first day of earning is muted.

We still need a good day with follow through.

Weekly Outlook

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

It is all about 1075 this week!

Analysis

People have a tendency to grab hold of a small sample of data and immediately jump to a conclusion based on their personal baggage (history). Instead of standing back and asking if it makes sense, instead of asking why the event occurred, instead of truly asking how it fits into current events and history, people just tend to jump all over the event.

An event happened a few years ago that changed trading forever. That event was the marriage between the EU markets and the US. Recently I’ve mentioned that the break at 1075, at the 9th std dev, would be retested. Sure enough price touched 1075 to the tick Friday.

The market now sits at the most critical test since the year 2000. Any failure here will issue in a long decline in the US markets. Be aware that the decline would be deflationary and that Bernanke has sworn to fight it.

If history prevails he will lose the fight, but why would Bernanke lose the fight?

Here is a summary of the current situation and this is what we are up against:

a) America has lost its productive capacity that distributes wealth to owners and workers. Wealth is not ever redistributed via taxation; it is simply consumed by people other than the people who earned it.
b) Americans are using borrowing and savings to support themselves
c) The market just failed at 1075 and is now retesting a FAILURE point
d) The EU and US are linked by the central banking system; changing the dynamics of true information. Our market could stay up even though the data strongly suggest otherwise through the linkage, it could also go down if the EU went down and our data said up. It is vitally important to understand this linkage, the wealth of this nation is still declining due to production losses and although it can be reversed the losses continue
e) Bernanke is not willing to do anything to stem the production losses
f) Bernanke is simply printing money, liquidity, hoping the economy will turn around on its own.

Only the future will tell the outcome, but it’s not an easy fight.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 29.4, climbing now
• Current reading is 466. We start to be in the bullish zone now
• We have a bullish signal

We need a good bid and follow through!

Weekly Outlook

The financial reform act will get passed this week. The act will severely cut back abuse by banks via credit cards and it will segregate financial firms trading from client trading.

It remains to be seen if I am right about firms giving themselves the profitable trades vs giving the clients the not so good trades, but there is evidence that says I’m right. Either way profits are going to get hit hard.

Analysis

We have a buy signal all we need to look for is a good bid and follow through.

The last time we had a buy signal, the EU refunding killed the 600 bid dead in its tracks. The world waited for Credit Crisis 2 that didn’t materialize but it absolutely ran prices straight down.
The Euro has recovered some ground. The US market has put in a divergent bottom and the rest is up to follow through.

A retrace to 1039 and preferably to 1044 is still a real possibility and frankly a preferred price action. If 1044 doesn’t hold on a retest then we are truly in trouble. Somehow with the data that is on the books it still looks like fear rather than outright selling. Price looks and has the technical attributes of a bottom.

I don’t know about you but two months at the same price is just a bit too much testing. We begin the clock today for 3 months, July, August and September for an upward bid. The August template has been pushed back to late September/early October.

The good news is Bernanke is tired of it too. Yesterday he took steps to force bank lending by limiting the risk free trade banks have in buying treasuries and borrowing at the window. That’s a wakeup call to the banks. He also announced he will take steps to limit any deflation. Think print money, add foreign funds flow and you have a ton of money ready to hit this market and some of it will finally hit small biz and consumers.

I’ve been mentioning for some time that money flows are what matters. First the stock market collapses and then the property market. Next will be capex in a big way.

Pay attention to 1075 and we will see how it goes.

I could list the items yet to be resolved around the world but the best answer right now is money flows and velocity.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 9, extreme oversold and now divergent
• Current reading is 187. Neutral now
• By closing below 1075 we have reentered a bear market

Looking for 1039 to HOLD, if it breaks price could retrace the entire move

Weekly Outlook

The financial reform act will get passed this week. The act will severely cut back abuse by banks via credit cards and it will segregate financial firms trading from client trading.

It remains to be seen if I am right about firms giving themselves the profitable trades vs giving the clients the not so good trades, but there is evidence that says I’m right. Either way profits are going to get hit hard.

Analysis

In the year 2000, which showed a 9th std dev break, price retested the break point and showed distribution. This lead us into a LONG corrective process lasting until the low in 2003.

Early 2008 shows the bounce off the 9th std dev break, but the break didn’t occur until September 2008, we are still in that decline.

Will price exceed 1075 and beat history after the all the bottoms we’ve seen or go into a long slow decline? History says long slow decline, we will know soon enough.

There is a big difference though as to how the market looked in 2000 and how it looks today:

What makes this break different at 1075 is that the cycle chart is showing a bottom formation with a divergence, not a top. The market is extremely oversold and may just have enough stored power (cash) to propel this up and fool everyone.

Obviously we saw the “technical bounce” but are we prepared for a decline if 1075 fails a second time? We still didn’t get the volume we saw on the decline.

Again, the market is NOT designed to fail. Give this one a bit of room. The only reason we broke the 9th is outright FEAR of the EU going through a second credit crisis. Towards the end of year I expect a LARGE RALLY due to tax legislation that pushes Obama’s plan through.

Until we do have said plan, the market is playing brinksmanship. As near a clarification as I can find the final draft of the financial reform ACT says banks are LIMITED to 4% of capital for proprietary trading. I’m not sure of that one yet but I suspect the banks had a hand in it none the less. This ACT amounts to a band aid nothing more.

As for labor, we had 200,000 twice, 18,000, and 83,000 for jobs added. We need 200,000 a month. We should be looking at working people, their level of fear, credit and willingness to spend if you want to front run all the pros. Those numbers are not bad, not great but not bad.

But it all comes down to the fact that we need to exceed 1075, otherwise all the other stuff doesn’t matter.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 9, extreme oversold!
• Current reading is -77. Still sell but near neutral, extreme divergence forming, bottom is as extreme as March was
• By closing below 1075 we have reentered a bear market

Weekly Outlook

The financial reform act will get passed this week. The act will severely cut back abuse by banks via credit cards and it will segregate financial firms trading from client trading.

It remains to be seen if I am right about firms giving themselves the profitable trades vs giving the clients the not so good trades, but there is evidence that says I’m right. Either way profits are going to get hit hard.

Analysis

Because of the historic oversold condition I would expect a technical bounce to retest the failure at 1075 or slightly above but it remains a ‘sell the rally’ environment.

The most damaging piece of information is the failure of price to break up above 1035 yesterday when the issu was 9 plus. This renders yesterdays price action nothing more than a pullback to the trend line break and I cannot think of anything more damaging to the bull side than that because it says the decline is alive and well.

The ducks are lined up for a plunge and the possible drop is 300 points down. The market is screaming over sold but can’t catch a bid, to me that is not bullish, it’s a warning.

I have studied the liquidity analysis by Abel-Noser and it indicates that the US stock market has now become a concentrated pool in which just the top 99 stocks account for 50.09% of total domestic trading volume. In June, the top 20 stocks accounted for 28.94% of all domestic volume, an increase of 2.2% over May’s 26.7% and a record.

The HFT algos are increasingly trading less and less stocks in their attempt to corner just the most liquid stocks. Indicatively, the top 978 names represented 90.01% of total domestic volume, while the remaining 17,597 accounted for just 10% of all dollars traded. Of this, the bottom 12,112 stocks represented less than 0.05% of daily domestic volume.

Congress should understand that invoking the Volcker rule is already hurting liquidity and at every bottom you see lots of declining issues and very few new highs. By definition a bottom is made up of large numbers of new lows. That is what we see now. However a bottom by definition is put in when you have a large volume reversal day to the upside. We have not seen that yet. I thought we had one yesterday morning…it was sold into.

I was a bit puzzled when the overseas markets were UP and then our markets simply faded away. After all isn’t the EU in trouble? I would suggest that the unintended consequence of Volcker is the killing of liquidity, at least initially, that seems to be what is happening.

In addition most of you know that I watch rail traffic intensely. From March 2009 to April 2010 (monthly) rail traffic was going up. Last month was the first month rail started to slip and it continues to slip this month. The chart now clearly shows three thrusts to a high and those three thrusts are showing a lower high than in 2008. When I see rail traffic slip and make a LL then I have to be ready for a much larger decline.

I’m afraid the signs are starting to add up.

Good luck with your trading!

James´ Insight

Today´s Outlook

• Bullish %: 7, extreme oversold!
• Current reading is -83. Still sell but near neutral, extreme divergence forming, bottom is as extreme as March was
• By closing below 1075 we have reentered a bear market

Weekly Outlook

The financial reform act will get passed this week. The act will severely cut back abuse by banks via credit cards and it will segregate financial firms trading from client trading.

It remains to be seen if I am right about firms giving themselves the profitable trades vs giving the clients the not so good trades, but there is evidence that says I’m right. Either way profits are going to get hit hard.

Analysis

With the bank holiday yesterday it is a little hard to really say anything at the moment.

The chart is borderline and some pending issues like EU Debt and Financial regulation hang over the market. Unfortunately labor isn’t helping any and it is very possible that we enter a sawtooth pattern in a downward direction.

I have been waiting on the RST to form but it just may not happen as planned but let’s see how today develops and take it from there.

Good luck with your trading!

James´ Insight

Today´s Outlook

Bank holiday, new updates and analysis on Tuesday