Holiday Update – Signs of a Potential Top…

Of course today is a holiday and thus markets are closed. However, events in play are adding to the feeling that a potential top in the market is in or is close at hand. I’ll get to the technical market aspects in a moment, but first let’s consider some “other” events.

Tunisia’s revolution is another feather in the cap of freedom as another tyrant is removed from power, this time in Northern Africa. Ben Ali’s regime was high on the scale of despotism despite a relatively high standard of living compared to surrounding countries. This revolution has other despot countries, such as Egypt, on notice and now on guard. In fact Egypt’s, and many other tyrannical countries’ markets, are under heavy selling pressure today. My hope is that the new government gets the money system right alongside of their political system – they must both work together to produce true freedom. Stay away from the world’s private banks, look towards Iceland as a model.

DEBT is pressuring many other parts of the globe as well. Spain, Portugal, and Belgium just cancelled market based bond auctions in favor of more secretive private bank run auctions as demand was obviously not there. Europe is a basket case, with all countries in debt trouble. Bankrupt countries like Japan stand no chance of providing any real help to Europe, the best they can accomplish is to further destroy their own currencies. The ECB would like for the IMF to create more phony money to bail their whole debt based system out by providing more debt! This is laughable and is so far removed from reality that one must seriously question banker and political sanity.

It matters not, as all debt-based global monetary systems are in a state of free-fall. Food riots? No mention in the press as to the real root cause, namely the debasement of money. Real people go hungry when bankers get greedy, thus you will see more revolution and more violence throughout the world – these are the “other” events that history says are coming.

Yet here in America we are still playing ostrich with our collective heads in the sand. Our media at best can now acknowledge that our national debt is “Ugly:”
National debt: The ugly facts

NEW YORK -- Commentary: Maya MacGuineas is the director of the fiscal policy program at the New America Foundation.

The facts are ugly. The federal debt, which has averaged less than 40% of the total economy, now represents more than 60%. It's likely to hit 100% in a little oYou want more? Here's more.

Pretty much every impartial analyst has declared the situation unsustainable. And many European countries have already been hit by nervous credit markets worried about their debt levels.

Bottom line: If Congress and the president fail to make changes to current policies, the United States will experience some form of a fiscal crisis.

Not a pretty picture. And yet policymakers continue to drag their feet.

When it comes to fiscal policy, the political system is stuck in posturing mode.

Sorry, the abominable $858 billion tax deal President Obama struck with Republicans last month, in which both sides piled on more to the public debt and called it a win-win, does not qualify as my kind of fiscal compromise.

Geithner's debt ceiling warning
It's time for real compromise.

As long as each political party sees an advantage to delaying, we will continue to inch along, closer and closer to that inevitable crisis.

Last week, both Moody's and Standard and Poor's commented on the need for the United States to make changes or jeopardize its triple-A credit rating. A few years back, such warnings would have seemed inconceivable.

The gridlock comes in part from both sides believing they are right.

Republicans view smaller government as promoting more individual freedoms and as better for the economy because it allows for lower taxes. Fair enough.

Democrats see government as serving a more useful purpose -- one that is particularly justified because of the needs of an aging population, years of under investment and growing income inequality. Also legit.
On top of that, both sides blame the other for having made the problem worse for political reasons. Unfortunately, both are right.

No, the real unfortunate is that both parties are wrong, and so is the author of this article. The reality is FAR AND AWAY more UGLY than that!

Our current national debt has entered a parabolic growth phase, and because it went parabolic on banker bailouts, instead of acknowledging the debt, we now “expand the Fed’s balance sheet” by trillions. We use false accounting so bad that our country’s own chief accountants haven’t been willing to sign off on our financials for years. We fail to use GAAP accounting principles and thus ignore our promises and liabilities. We have lowered interest rates on each economic cycle to accommodate more and more DEBT, and now the private banks (the “Fed) has resorted to all out money printing. So much so, that this month there are 19 of 20 market days with POMO operations adding up to an incredible $112 billion in just one month!

Think about how large that parabolic figure is! It is nearly THREE TIMES our nation’s trade deficit! Think about that! There is no way it can end and still maintain the façade of economic or market growth, no way. In fact, the numbers MUST GET LARGER or the apparent growth ends. And that’s just one reason why finding physical gold and silver is getting harder and harder – the latest report showing that the European silver shortage is striking the U.K.

And how are equity markets priced? Ridiculous and fraudulent is all I can say. Fraud is rampant and now condoned, here’s yet another example of accounting fraud: US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages.

With QE2 slated to end by June of this year, look for another banker induced crisis to generate enough angst to get QE3 or TARP 12,000 or whatever they call the next bailout – it will be necessary.

Just look at what has transpired in the Municipal Debt markets over the past couple months and in the past 3 weeks in particular. I talked about it coming years ago, I talked about it as the current CRASH began, and I’m talking about it again because there are so many Muni funds crashing to new 52 week lows, that the NYSE new lows number shot up to 153! This figure is high enough to generate another Hindenburg Oman, however, the McClellan Oscillator is just positive and thus another one was not triggered this week. This split in the market is a warning that should not be ignored, it is yet another expression of the sickness created from debt saturation. Municipalities are in big trouble, especially if their cost of financing sky rockets. Below is a weekly chart of the S&P National Municipal Bond Fund, it has already fallen 9.4% from its peak just a couple of months ago:



The market is now so concentrated in a few hands, and the indices are so weighted by just a few momo stocks, that the slightest hiccup can produce very large and sudden movements. Witness the NDX which is now comprised of 20% AAPL. Steve Jobs just announced he is stepping back out of the company on medical leave and though it is a holiday, shares trading in Germany are off 8%, and look at the effect it just had on the Q’s this morning:



In the short time frame, the SPX is up against the top of its latest channel which is inside of a larger rising wedge, and you can see how price is diverging (still) against a declining RSI (showing waning momentum):



Ultimately something has got to give. Right now it is food and commodity prices. They shoot up to destroy people’s standard of living and the poor countries are negatively impacted first as they have less marginal ability to absorb price shock – thus revolutions and violence – the root cause of which are our own private bankers who cleverly call themselves the “Fed.”

What’s next to give? Can the markets actually fall with $112 billion a month in direct support? What happens when the primary dealers (who happen to own the “Fed) own all of the stock? What happens when they don’t get their way? What happens when municipalities fail, what excuse can be found/generated to bail them out? What happens when the revolution moves from Tunisia, to Egypt, then into Europe, and then onto the U.S.? Will we ever be smart enough to produce and control our own money system by removing the private banks from it?

Technically the markets are HISTORICALLY overextended even with trumped up valuations (valuations are not real, they are fraudulent). Never before in the past 82 years of modern history have stock prices remained above their 10 day moving average for 30 straight days as they have now!

Bullish sentiment is extreme, the CBOE Put/Call ratio is at the lowest point in the past 3 years. Note on the chart below how extreme lows tend to correlate with stock market tops. Also note how this past week’s close of .57 is lower than all the other weekly lows that occurred at lower price levels, thus creating yet another market divergence of which there are more than I can recall ever seeing:



The VIX closed a daily candle on Friday beneath the lower Bollinger Band, thus setting up an entire market sell signal once the VIX returns to within the confines of 2.0 deviation bands:



Money and Markets just posted the following chart comparing the CRB to the Baltic Dry Shipping Index. It shows a giant sized divergence that is, I believe, a direct indication of MONETIZATION. It shows that commodities are zooming in price not due to demand, but simply due to global money printing. Note that this chart was also divergent prior to the late ’07 top:



The markets are now into areas of very heavy volumetric resistance. The DOW Industrials are now at the same place they peaked in the year 2000, 11 years ago. This area is also the area where the plunge in both the DOW and the S&P began in earnest in 2008 (wave 3). Thus we know there is resistance and under even slightly normal circumstances I would expect a pull-back or at least sideways action for quite some time:



The question then becomes, can POMO power through all that resistance? Again, it boils down to choices… still. Is it okay to starve people throughout the rest of the world? How long until the people become the resistance? Note that when the rule of law breaks down to despotism (corporate fascism here in the U.S.), that eventually the natural rule of law kicks in – other events then occur.

Lastly, there was a very small change in the McClellan Oscillator on Friday, meaning that a large directional price move can be expected Tuesday or Wednesday.

Enjoy your $15 hamburger, $20 is only a few more POMO months away! Other events are in motion and on the way. It’s been a long time coming…