Morning Update/ Market Thread 1/11/11

Good Morning,

My that’s a lot of ones in today’s date! Equity futures are going to open higher than yesterday’s high with bonds lower, the dollar slightly lower, oil and gold higher.

There was a small movement in the McClellan Oscillator again yesterday which means a large directional move is likely to occur today or tomorrow.

There is little in the way of economic data today, however the NFIB (National Federation of Independent Businesses) released its small business survey this morning for January and the results are very interesting with the primary index dropping from 93.2 to 92.6 – even Econoday admits these readings are still recessionary (data based upon NFIB small business survey):
The small business optimism index fell six tenths to 92.6 reflecting continued uncertainty over the economy's future. The reading, for the 36th straight month, is consistent with recession. Weak sales remain the top problem for small businesses which are still not hiring. In a positive, small businesses do see better sales in the coming months.

Do they? In fact, small businesses number one problem area of this report is sales! The biggest hit to the index comes from fewer businesses who expect the economy to improve, and the second largest hit comes from… wait for it… earnings trends! And which direction are small business earnings trending at this juncture? Down.

Take a look at the following NFIB report on page 7, there you will find earnings information. Actual sales are lower and they are reporting price pressure which is affecting their bottom line. This is the same thing we’re seeing across the board – margin compression. The margin compression we're seeing is a direct result of money printing. Remember, sales can go up in dollar terms, but when printing money input costs will rise more quickly than sales measured in dollars. Here’s the entire report – you will find a bounce off the March ’09 lows, but you will clearly see that business conditions are not anywhere near back to prior levels, nor is small business optimism:

Small Business Survey NFIB

Portugal has a debt problem (duh, just like the rest of Europe). Rates blow out, they can no longer finance their debts conventionally. China steps in and says they’ll buy Portugal’s debts (with their freshly printed Yuan)… as if debt is what Portugal needs (note that printing money and buying debt gives China an element of control over Portugal and even the entire Euro region). Now Japan, a thoroughly and completely bankrupt nation, has announced that they too are going to step up to bailout Portugal by buying up their debt! How does a bankrupt nation do such a thing? Simply by printing more Yen, that’s how. It’s okay for them, because in this nutty juncture in history, the Yen, as bankrupt as it is, has been gaining value despite the Japanese own attempts to destroy its value!

As if any of this will last… it won’t. The entire Euro region is bankrupt, the United States is bankrupt, Japan is bankrupt. We can all trade debt around all we want, but in the end there is simply not enough income to service it. Pretend will only get you so far and there is no doubt that currencies the world over are weakening very quickly now. Yes, you need to be prepared for the system to break down, it’s inevitable that there will be major changes to global money structure. History shows that those changes will be turbulent.

The market is looking very weak, especially internally where more and more divergences are appearing. Yesterday the NDX made a new high, yet the number of stocks above their 30 day average fell. These weakening internals are all a sign of an approaching top.

As I look at the Elliott Wave structure it appears to me that we may have just finished a small degree 4th wave (d), and means that wave 5 (e) higher is next. If this count is correct, this should be the last push of the larger wave 5, and thus the coming top could be a major degree high. While there are other possibilities, I would not bet against this count – heck, I wouldn’t bet in this trumped up market with YOUR money, much less my own because the odds are worse than gambling at the local casino – in the current market the mob runs the entire show, skimming and stealing every step of the way. The “Fed,” by the way are not cops by any stretch of the imagination, they are the mobsters.