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HOW DO YOU SAY 'MIXED PICTURE'? IS THIS RALLY THE REAL THING?

We're getting mixed messages from the markets. A clear two-day rally driven by what exactly? By promises from European leadership that they will do anything to save the Euro? Like they haven't been promising this for years? Buying sovereign bonds of Spain and Italy and France and Portugal and Belgium (it will come to that) will help keep interest rates lower -- but the basis of the problem in Europe is too much debt, a currency that only works for half of the EU, and a lack of economic competitiveness in European economies. Bond-buying won't cure those three major problems. Also, half of the EU needs a weaker Euro; a stronger Euro hurts, again, those 'weak sisters' needing a weaker Euro.

Spending more money, taking on more debt, to buy sovereign bonds the market is say are worthless (or at least too risky to buy without higher interest rates) simply means putting EU citizens on the hook for overpriced bonds. This adds to the debt problem; it does not subtract from the debt problem. Too much debt is too much debt.

So, we got a rally. I'm suspecting a lot of Fed buying of index futures as well. Anyone want to bet? Earnings are coming in weaker than expected. MacDonalds, Starbucks, and Apple Computer all reported earnings that fell short of expectations. Joshus Freed writes in his article "Corporate Earnings: A Return to the Bad Old Days":

Based on the 291 companies in the Standard & Poor's 500 that have reported earnings so far - along with estimates for the rest - S&P Capital IQ expects overall profits to decline by half a percent from the same period a year ago. That would be the first time that profits have shrunk since the third quarter of 2009, just after the Great Recession. Analysts are predicting that earnings will shrink 0.3 percent for the third quarter, too.

Revenue for those 291 companies has increased just 2.3 percent, compared with a 10-year average of 7.1 percent, according to S&P Capital IQ.

Worse, companies are getting more pessimistic about the rest of the year.

No mixed message on the economies of the world: the economies are heading down. The Richmond Fed Report showed revenues for both manufacturing and services falling to the lowest level since the 2008 meltdown. This comes after central banks spending sprees of trillions of dollars intending to jump start the global economy.

The UK economy shrank more than the Spanish economy in the last quarter.

There is no rational explanation for this last stock rally -- unless expectations of continued salvation by the Central Banks can be considered rational. I was always told that hope was not a rational response to reality -- although, as Pandora taught us, hope is all that is left after reason exhausts its tricks and has to admit that nothing it has done has alleviated the debt depression we are in.

The ONLY thing that 'fixes' a debt depression is the elimination of debt, through repayment, default, bankruptcy.

Those interested in this issue can look at a recent instablog I wrote on the coming Greatest Depression in Australia, drive by Debt Congestion:

seekingalpha.com/instablog/428250-michae...

Also, another recent instablog I wrote on why we have been only denying reality from 2001-2012 -- treading water -- and why a major decline in stocks is required before a new bull market can begin:

seekingalpha.com/instablog/428250-michae...

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Remember when we were told that China (and the Emerging Markets, Chindia) was going to save the world economy? For an enlightening view of China's growth projection read Dee Woo's recent offering:

seekingalpha.com/article/760141-china-s-...

Three charts from Dee Woo's instablog suggest where China is today, on the edge of the precipice or worse.

What do our own internal indicators suggest? Two of our three indicators turned up with the stock rally of the last two days. Our favored of the three (most-long-term) did not turn up. It is shown below. We recalculated our indicators to show bearish dominance as a negative number, bullish dominance as a positive number.

Date SPX CM ASP T11D Sum M4 21 Sm
7/2/12 1365.51 20.90% 7.62%  
7/3/12 1374.02 23.44% 7.62%  
7/5/12 1367.58 23.24% 17.19%  
7/6/12 1354.68 15.43% 18.75%  
7/9/12 1352.46 12.89% 18.75%  
7/10/12 1341.47 6.84% 16.99% 30.86%
7/11/12 1341.45 5.47% 14.65% 26.56%
7/12/12 1341.76 0.59% 11.52% 16.80%
7/13/12 1356.78 11.33% 8.98% 17.58%
7/16/12 1353.64 5.27% 8.40% 13.28%
7/17/12 1363.67 7.03% 6.05% 10.55%
7/18/12 1372.78 13.87% 4.30% 10.94%
7/19/12 1376.51 14.06% 3.32% 12.50%
7/20/12 1362.66 6.25% 1.17% 7.42%
7/23/12 1350.52 -5.66% -1.37% -2.35%
7/23/12 1350.52 -5.66% -1.37% -2.35%
7/25/12 1337.89 -10.55% -8.59% -16.02%
7/26/12 1360.02 1.37% -8.66% 43.55%
7/27/12 1385.97 11.72% -8.40% 47.46%
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Looking at just the SPX (Pending:GSPC) itself, we had the following 'momentum' readings. Note the 0 (zero) readings under M2F ALT below that began on July 24 with the SPX at 1338.31. Note also the reading of 100 above this on July 19 with the SPX at 1376.51. Clearly the SPX was oversold on July 24.

Markets are a beast that 'breathes'. Rallies are out-breathing; declines are in-breathing.

The current reading at 73.921 suggests another day or two of rally. 'Suggests' being the key word. Momentum indicators are not totally trustworthy, because markets and individual issues can stay overbought or oversold for a long time.

One of our most active short-term trading systems uses the M2F Alt indicator in conjunction with our trend indicators to trade relatively short-term movements in the markets. See below: we are getting another slough of SHORTSELL SIGNALS today using this indicator, as issues have rallied to overbought levels but have not rallied enough to change trends to positive readings.

Momentum M2F ALT Mom Max SPX
Date      
17-Jul 95.698 67.743 1363.67
18-Jul 95.519 72.95 1372.78
19-Jul 100 80.233 1376.51
20-Jul 75.206 69.166 1362.66
23-Jul 36.469 51.253 1362.66
24-Jul 0 31.625 1338.31
25-Jul 0 26.819 1337.89
26-Jul 26.005 35.05 1360.02
27-Jul 73.921 58.241 1385.97
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*M2F ALT: 90+ overbought; 10- oversold.

**Mom Max: 70+ overbought; 30- oversold.

NEW TRADING SIGNALS

Here is a list of our new trading signals for the last two days. Since we have 'mixed feelings' about this rally we'll show charts of two issues we like as BUYS (NTAP and EZCH) and as SHORTSELLS (INTC and RAVN, this latter one a short-term M2F ALT trade, meant to capture a short-term move.).

TRADING SYSTEM T11D Sunmarry 10/Zero  
(Intermediate-Term) Trades for Trades for  
SYMBOL CLOSE Monday Friday  
    30-Jul 27-Jul  
         
         
AKAM 35.86   Exit Short Akamai
CLWR 1.075   Exit Short Clearwire
CTIC 0.52 Enter Short   Cell Therapeutics
EZCH * 37.46 Enter Long   EZChip Semiconductor
GES 30.79   Enter Long Guess? Inc
GSS 1.16   Enter Long Golden Star Resource Gold
NFLX 58.92   Enter Short Netflix
NSM 21.9 Enter Short   Nationstar Mortgage
NTAP * 32.91   Enter Long NetApp Inc
PEIX 0.327 Enter Long   PACIFIC ETHANOL
RAVN * 34.38 Enter Short   Raven Industries
TER 14.97   Enter Long Teradyne INC
WPRT 38.52   Enter Long Westport Innovations
         
* See chart        
         
TRADING SYSTEM M2F ALT    
(Short-Term)      
    Trades for Trades for  
    Monday Friday  
    30-Jul 27-Jul  
         
^BVSP 56,553.12 Enter Short   Sao Paolo Brazilian Index
^FCHI 3,280.19 Enter Short   CAC French Index
^SMSI 668.8 Enter Short   Madrid General Index Daily
ADBE 31.895 Enter Short   Adobe Daily
AMAT 10.895 Exit Long   Applied Materials
AXP 58.53 Exit Long   American Express
BK 21.39 Exit Long   Bank of NY Mellon
BZF 18.7 Enter Short   Brazilian Real long currency
DSX 6.77 Enter Short   Diana Shipping
EEV 28.03 Enter Long   Short MSCI Emerging Markets ETF Daily
EL 54.7 Enter Short   Estee Lauder
ENZN 6.88 Exit Long   Enzon Pharmaceutical
EPP 42.78 Enter Short   Asia (No Japan) ETF
EUFN 15.12 Enter Short   European Financial Index
EWC 26.53 Enter Short   Canada ETF
EWG 20.34 Enter Short   Germany ETF
EWP 22.91 Enter Short   Spain Index
EWQ 19.78 Enter Short   France ETF
EWZ 53.56 Enter Short   Brazil ETF
FLR 50.58 Enter Short   Fluor Corp
FXI 34.12 Enter Short   FTSE/XINHUA China 25 Index ETF
GDXJ 19.65   Enter Short Gold Junior Minors ETF Daily
HAP 34.3 Enter Short   Hard Asset Producers ETF
HON 59.01 Enter Short   Honeywell Daily
ICN 20.37 Enter Short   Indian Rupee ETF
IES.DE 0.988 Enter Short   Intesa San Paolo SA
ILMN 42.3   Exit Short Illumina Corp
INTC * 26.02 Enter Short   Intel Daily
IYJ 68.65 Enter Short   Dow Jones Industrial ETF
JPYRUB=X 0.408   Exit Long Japanese Yen/Russian Ruble
MAKO 13.3 Enter Short   Mako Surgical Corp
MT 15.77 Enter Short   Arcelor-Mittal Steel
MTL 6.1 Enter Short   Mechel Open Joint Stock Company
MYY 27.72 Enter Long   Short Midcap Index Short
NKE 97.03 Enter Short   Nike Daily
PBTH 5.03   Exit Short PROLOR Biotech
PDLI 6.81 Exit Long   Protein Design Labs
PPA 19.09 Enter Short   Aerospace and Defense ETF
RHT 55.81 Enter Short   Red Hat
SGG 84.66   Enter Long Sugar ETF
SINA 48.45   Enter Short SINA CORP
SYK 52.41 Exit Long   Stryker Corp
SZK 17.11 Enter Long   Short Consumer Goods
THD 68.91 Enter Short   Thailand ETF
THLD 7.18 Enter Short   Threshold Pharma
VXX 12.99 Enter Long   VIX ETF
         
* See chart        
         
TRADING SYSTEM ChartMeter    
    Trades for Trades for  
Symbol Close Monday Friday  
    30-Jul 27-Jul  
         
^SMSI 668.8 Exit Short   Madrid General Index Daily
AKAM 35.86   Enter Long Akamai
BBVA 6.51 Exit Short   Banco Bilbao Argent SA
CEW 20.29   Exit Short Emerging Currency ETF
CLWR 1.075 Exit Short   Clearwire
COW 28.91 Exit Short   Livestock ETF
FNMA 0.24   Exit Short Fannie Mae Daily
FST 6.53 Enter Short   FOREST OIL
HAP 34.3   Exit Short Hard Asset Producers ETF
ICN 20.37 Exit Short   Indian Rupee ETF
IDI 1.3   Exit Short Search Media Carry-Trade ETF
IGOI 0.51   Exit Long I Go INC
IMAX 22.76   Exit Long Imax Corp
IRE 5.72   Enter Long Bank of Ireland
KGJI 1.53   Exit Long Kinggold Jewelry
LD 46.58 Exit Short   Lead ETF
QRM 1.35 Exit Short   Quest Rare Metals
SAN 5.93 Exit Short   Banco Santander
SNP 89.31 Exit Short   China Petrol & Chemical Co
URS 34.94 Exit Short   URS Corp
USDTHB=X 31.52   Enter Short USDollar-Thai Baht
YNDX 20.22 Exit Short   Yandex NV
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Michael J. Clark, Hanoi, Vietnam